THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, May 2, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 10 a.m. [ET] to examine the subject matter of all of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I wish to welcome all the senators, as well as the viewers across Canada who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler. I am a senator from New Brunswick and the chair of the Standing Senate Committee on National Finance. Now I would like to go around the table and have my fellow senators introduce themselves.
Senator Forest: I am Éric Forest, a senator from Quebec, and I represent the Gulf senatorial division.
[English]
Senator Galvez: Senator Rosa Galvez from Quebec.
[Translation]
Senator Gignac: I am Clément Gignac from Quebec.
Senator Shugart: I am Ian Shugart from Ontario.
Senator Loffreda: I am Tony Loffreda from Quebec. Good morning and welcome.
[English]
Senator Duncan: Pat Duncan, senator from the Yukon.
Senator Boehm: Peter Boehm, Ontario.
Senator Pate: Kim Pate. I live here in the unceded and unsurrendered territory of the Algonquin Anishinaabe.
[Translation]
Senator Carignan: Good morning. I am Claude Carignan from Quebec.
Senator Smith: I am Larry Smith from Hudson, Quebec.
Senator Dagenais: I am Jean-Guy Dagenais from Quebec.
[English]
The Chair: Honourable senators, I want to take this opportunity to welcome a new senator who joins the committee this morning. I welcome Senator Shugart as a new senator on the National Finance Committee. He will be replacing Senator Bovey from the Progressive Senate Group.
[Translation]
Senator Shugart, thank you for choosing the Standing Senate Committee on National Finance as the place to make your contribution to Canadians.
Today, we are beginning our examination of the subject matter of all of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
[English]
We have the pleasure of welcoming today Mr. Yves Giroux, Parliamentary Budget Officer. Mr. Giroux is accompanied by Dr. Yan, Director, Budgetary Analysis.
[Translation]
Whenever we ask Mr. Giroux to appear before the committee, he always obliges. Mr. Giroux, we want to extend our deepest congratulations to you and your team, and we thank you for being here whenever we ask. It’s always very enlightening to have you with us, Mr. Giroux. Your input always helps us focus on our four main principles: transparency, accountability, reliability and predictability.
[English]
We will now hear opening remarks from Mr. Giroux, to be followed by questions from senators. You have the floor, Mr. Giroux.
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for the invitation to appear before you today. We are pleased to be here to discuss Bill C-47, Budget Implementation Act, 2023, No. 1, as well as our analysis of Budget 2023, which we published in our report entitled Budget 2023 – Issues for Parliamentarians on April 13, 2023.
With me today I have Dr. Xiaoyi Yan, Director of Budgetary Analysis.
In accordance with the PBO’s legislative mandate to provide impartial, independent analysis to help parliamentarians fulfill their constitutional role, which consists of holding government accountable, our report on Budget 2023 highlights key issues to assist parliamentarians in their budgetary deliberations.
In terms of funding and new budgetary measures, revisions to the private sector economic outlook and fiscal developments in Budget 2023 lower the government’s outlook for the budgetary balance by $26.1 billion over 2022-23 to 2027-28 relative to its Fall Economic Statement in the fall of 2022. This is the first time since Budget 2021 that the government revised down its outlook for the budgetary balance prior to including new measures.
Following this downward revision, the government announced $69.7 billion in new spending that was partially financed by $14 billion in revenue-raising measures and by $12.8 billion in spending-restraint measures. Therefore, on a net basis, new measures further reduce the budgetary balance by $42.9 billion over 2022-23 to 2027-28.
[Translation]
Budget 2023 reaffirmed the government’s commitment to its fiscal anchor of reducing the federal debt as a share of the economy over the medium term. Based on the outlook in Budget 2023, the federal debt-to-GDP ratio is projected to increase temporarily, remaining above its 2022-23 level for two years, before gradually declining over the medium term.
Regarding the government’s spending reviews, Budget 2023 announced the introduction of cross-government program effectiveness reviews and proposed to reduce spending on items such as consulting, other professional services and travel. However, it does not provide an assessment of program effectiveness that was launched in last year’s budget under the government’s comprehensive strategic policy review.
Further, Budget 2023 identifies $798 million — on a net basis — in new “non-announced” measures over 2022-23 to 2027-28. In absolute terms, this represents over $12 billion in either revenue or spending decisions for which there are no specific details.
This lack of transparency presents challenges for parliamentarians and the public in scrutinizing the government’s spending plans, as well as reconciling between previously provisioned amounts and their announcement.
Finally, the alignment and timeliness of financial reporting also continues to present challenges. Budget 2023 was tabled a month after the Government Expenditure Plan and Main Estimates for 2023-24, meaning the latter did not contain any of the $9.8 billion in additional spending for budget measures.
Xiaoyi and I would be pleased to respond to any questions you may have regarding our budget analysis or other work carried out by the office.
Thank you.
The Chair: Thank you, Mr. Giroux.
[English]
Honourable senators, we will have five minutes each for the first round. I would also indicate that Senator Carignan is replacing Senator Marshall this morning.
[Translation]
Senator Carignan: My question pertains to government efficiency and telework, specifically.
As we know, in the past few hours, an agreement was reached on the telework policy. The union president said that the agreement strengthened protections for remote work, created safer workplaces and so forth. The President of the Treasury Board called the agreements fair, competitive and reasonable, saying they bring stability to public servants and Canadians.
Only a few months ago, though, I asked the government for a breakdown of how many public servants were on telework by department, province and municipality on April 1, 2020, April 1, 2021 and April 1, 2022. I was flabbergasted when I read the government’s response. The government does not keep a record of the percentage or number of federal public servants who are teleworking. I have trouble seeing how the government, with a view to efficiency, can reach a deal on telework without knowing how many public servants are on telework or where. Have you looked into that before? What do you make of the situation from an efficiency standpoint?
Mr. Giroux: The issue has come up a few times in recent years. At the beginning of the pandemic, we asked how many public servants had taken special leave under code 699, which is discretionary leave.
At the time, we were surprised to learn that the government didn’t collect that information and probably decided to do so after we questioned the government about it. We didn’t send the government or department a formal request for information regarding telework, but we did ask questions informally to people at the Treasury Board of Canada Secretariat and a number of other departments. We got the same answer you did. We were told that there were no comprehensive data on the number of employees teleworking across the public service. A few ministers said publicly that there wasn’t any research to indicate whether or not public servants on telework were more or less productive than when they worked in the office. There seems to be a serious lack of information on that.
Senator Carignan: My next question has to do with a tax relief measure in Bill C-47, the grocery rebate. Bill C-30 contained an identical rebate. It was referred to as targeted tax relief. The same amount of money is being provided in the same way, but it’s being labelled a “grocery rebate.” I realize it’s just about marketing, but isn’t the government focusing more on how to market the measure than on the decision itself or its impact? Obviously, the money can be used for anything. It could go towards groceries, but it could also be used to pay for a lot of other things, like a beach vacation. Isn’t that right?
Mr. Giroux: Clearly, the payment depends on people’s income and family situation. The measure isn’t tied to specific expenses. It’s a GST credit top-up for low- and middle-income Canadians. It’s not directly linked to grocery expenses. It’s possible that young adults who live at home and don’t pay for groceries could receive the rebate. That’s possible in the case of my household. There is no direct relationship to groceries, and, as you mentioned, it’s about packaging and communication. It’s a support for low- and middle-income people.
Senator Carignan: Isn’t there a risk that the measure could fuel inflation, since the money can be used for anything?
Mr. Giroux: It’s clear that pumping $2.4 billion into the economy produces an inflationary effect, but when you’re talking about a one-time injection of $2.4 billion into an economy valued at over $2 trillion, it doesn’t make a significant difference. It is true, though, that it does increase inflationary pressures, albeit very marginally.
Senator Carignan: That’s especially true since the money could end up targeting certain products, which means the cost of certain, targeted, consumer goods could go up.
Mr. Giroux: It’s possible, depending on where the money is spent.
Senator Forest: Thank you for being here, Mr. Giroux and Ms. Yan. It’s always beneficial to talk with you. My first question has to do with the excise duties on alcohol. When the measure was introduced in 2017, many of us signalled that automatically raising excise tax based on inflation was a first, in our view. The measure targeted microbreweries and microdistilleries, which are part of Canada’s tourism sector. As we speak, Canada’s alcohol taxes are already among the highest in the G7. Did the measure undergo a cost-benefit analysis? The government amended the measure in Bill C-47. Otherwise, the excise inflation adjustment would have increased to 6%. The government changed the rules and capped the increase at 2%.
Has it changed? Currently, especially throughout Canada, many microbreweries and microdistilleries were weakened and are experiencing significant difficulties. It’s clear that as consumers, with the situation we’re in... For example, if you want to buy a bottle of Beefeater gin, it costs $28. If you want to buy a bottle of St. Laurent Gin, it costs $48. So you have to believe that you’re helping your local economy. In this economy, those decisions aren’t easy for every Canadian. Does automatic indexing mean that market conditions aren’t taken into account? Restauranteurs, microbreweries and distilleries face significant challenges. Do profit losses or costs outweigh the benefits, based on the assessment we could have made?
Mr. Giroux: I don’t have a definitive answer for that question. We haven’t looked into the impact of indexing the alcohol excise tax. Putting indexation in the Excise Tax Act simplifies things for the government. The tax increases with inflation. It lets things run and it allows revenues to grow with the size of the economy. However, as you said, there can be unintended consequences when inflation exceeds the projected or expected target of 2%, which was the norm for decades in Canada. It had unintended consequences.
That said, inflation — or raising the alcohol excise tax by 6% instead of 2% — would have made a difference of pennies per bottle, per glass of beer or per glass of wine. So it’s not a significant difference when the drink costs several dollars. Any price increase can have a negative impact on consumption, but unfortunately, our office hasn’t done a study on it.
Senator Forest: Are there other consumer products subject to an automatic increase in the Consumer Price Index (CPI)?
Mr. Giroux: As I recall, Quebec had some surprises with indexing hydro rates. That led the Quebec government to change its mind about indexing residential rates. Other than that, there are probably other types of indexed products, but my memory brings nothing to mind.
Senator Forest: On the subject of dental care, according to La Presse, Division 29 of Part 4 in Bill C-47 strengthens measures for determining eligibility for the new dental program. Previously, you criticized the program for being lax and rushed. Do the tighter controls in Bill C-47 reassure you? If I understand correctly, the main purpose of the bill is to better monitor those who will be eligible. In actuality, however, there’s no real improvement to the controls that determine if expenditures were allocated and whether or not reimbursements are higher than expenditures.
Mr. Giroux: As to the dental care program and Bill C-47, I find nothing to reassure me when it comes to monitoring. Basically, there are clauses that allow departments to exchange information. The Department of Health and the Canada Revenue Agency will be able to exchange information, for example, in cases where people already have a dental plan. There will be penalties in cases where people refuse to disclose this information, but there are no details on the administration of the program.
Finally, my office asked for details on the administration of the program to find out more than what is mentioned in the budget and is indicated in Bill C-47. The answer we received was that there’s no available information, because the program is protected by Cabinet confidentiality.
There will be no disclosure due to Cabinet confidentiality. Right now, we have no information on any program details or its administration as it is set out in the budget and in Bill C-47. I don’t have any more information.
The Chair: Thank you.
Senator Gignac: Welcome to the witnesses. It is always a pleasure to see you, Mr. Giroux. I am looking forward to hearing your views.
Our economy is running at full pelt. Inflation is the number one problem for Canadians. We have a budget containing $43 billion worth of new measures, as well as a tax rebate on groceries.
Is this the budget we need? Would an austerity budget have been preferable in order to avoid feeding inflation? Would you say that this is an expansionary budget or not?
Mr. Giroux: It is hard for me to answer your question without getting into hot water. It all depends on the government’s policy objectives. You have to tame inflation and manage public finances, but there are also important social factors, such as easing the burden of inflation for certain groups. I will not get into this kind of policy debate.
Allow me to answer your question more directly. We have a government who is going to spend more than $400 billion, and over the course of the next few years, spending will get close to $500 billion. Pre-pandemic, spending usually hovered around the $300 billion mark.
Obviously, the economy has expanded. The Canadian population has also grown, but if we compare the pre-pandemic situation to the current situation, it is clear that the government is pursuing a more interventionist economic policy. It is spending more and is taxing a little more. This is an ”expansionary” budget, if we want to use that term. The fact that the government is spending more than before the pandemic also creates additional inflationary pressure, which makes the work of the Bank of Canada a bit more difficult. The bank itself mentioned this in its Monetary Policy Report which was released a few weeks ago.
Senator Gignac: My second question is about the concept of a fiscal anchor. The Minister of Finance mentioned this last fall. We are always talking about the will of the government to reduce the debt compared to the gross domestic product. However, I see that the debt will increase this year; and yet we are not in a recession, unless I am mistaken.
The chair is well aware that Canada’s public finances are among the most enviable within the G7, especially when you look at the debt ratio. Ours is the lowest.
How confident are you have in terms of reducing the debt to gross domestic product ratio? There is new spending. The economy could slow down over the course of the next two or three years.
The debt ratio, which was about 30% pre-pandemic, is now sitting at 43% to 45%. This year, the ratio is still above 40% and will continue to grow. Looking at the next three to five years, do you think that the debt ratio will fall below 40%? How comfortable are you with this?
Mr. Giroux: Your question is full of nuance. So the answer must be full of nuance.
If we look at the history over the last few years, the government has been very much inclined to mention the debt service ratio, which is the proportion of government taxes and revenues allocated to interest payments. As the debt has grown and interest rates have risen, the government has moved away from this fiscal anchor to place greater emphasis on a declining debt-to-GDP ratio. However, what we’ve seen over the years and as the government announces new spending measures, is that the debt-to-GDP ratio is coming down but not as fast, or it is going up, as you mentioned. It goes up for a year, then it comes down a little and it will take two years before it gets back to the previous level. It will take two years before it returns to the ex-ante level.
That said, as the government is introducing new measures or implementing its policy plan, its program, the debt-to-GDP ratio isn’t falling as sharply as was thought in previous years. Government is still sticking to its fiscal anchor, the falling debt-to-GDP ratio, but it has no interest or appetite for an abrupt decline in that ratio. The government seems comfortable with a falling debt-to-GDP ratio, but the downward slope doesn’t have to be very steep for the government.
[English]
Senator Smith: Good morning, Mr. Giroux.
I’d like to focus a little bit and follow up on Senator Gignac’s first question about the need for fiscal and monetary policies to work in accordance with each other, especially during the inflationary crisis which we’ve been facing.
The Governor of the Bank of Canada was asked about this two weeks ago at our Banking, Commerce and the Economy Committee meeting. While he made it clear it was not his role to dictate or even provide advice on fiscal policy, he did note that if the government overspends, it would increase inflationary pressures and therefore force stronger monetary policies.
Given your analysis of the federal government’s spending programs announced in Budget 2023 and in the 2022 Fall Economic Statement, do you believe the government’s fiscal policies are in line with the monetary policies of the Bank of Canada?
Mr. Giroux: I think the government’s fiscal policies are making the job of the Bank of Canada to tame inflation slightly more difficult than it would be otherwise — for example, if the government was to exercise more restraint or was to adopt a more neutral fiscal policy. By increasing spending, as I outlined in my opening remarks — and I recognize there are valid policy objectives that the government wants to pursue, and it’s totally within the government’s purview to make these decisions — the consequence is that it makes the job of the Bank of Canada slightly more difficult to tame inflation.
Senator Smith: If I could follow up: In an inflationary crisis like today, the governor pointed out the guidance put out by the International Monetary Fund, which notes that any additional spending be temporary and targeted to support the most vulnerable populations which are disproportionately impacted by inflation. Do you believe the federal government has achieved this balance in Budget 2023? If not, where are the problematic areas that should be looked into further?
Mr. Giroux: The government has introduced several measures that are temporary in nature, such as the GST top-up for groceries, which we mentioned before, but it has also introduced permanent measures such as the dental program. There is a mix of temporary and permanent measures in the government’s spending mix. As I mentioned before, there are policy reasons to pursue these spending initiatives, but the consequence is that, as we discussed a few minutes ago, it can put pressures on inflation.
Senator Smith: Thank you, sir.
[Translation]
Senator Dagenais: It’s always a pleasure to meet with you, Mr. Giroux.
I’d like to come back to the agreement with the 120,000 public service employees. Right now, we know that there is apparently an agreement to award a four-year contract at 12%, I believe. We’re talking about a lump sum of $2,000. What bothers me a little is the telework letter of agreement. I hope the government knows that a letter of agreement is always part of the collective agreement. Usually they are found in Schedule A, B or C. I know this firsthand, because I have negotiated a few contracts.
How can we estimate the cost of this telework letter of agreement? Will this lead to a surprise expense again, so we have to study the budget with a plan A, B or C? Obviously, there will be some costs involved.
I’d like to hear your perspective on this.
Mr. Giroux: That’s an interesting question, because I’m dealing with telework requests myself as an employer. We all have to adapt as employers. Will there be costs? There likely will be if people continue to telecommute. We will need double the equipment. We need equipment for home and equipment for the usual physical workplace, especially if folks are working in a hybrid manner. They work a few days a week at home, and report to the office on the other days.
There could also be savings, for example, if the government continues to do what is it has started, which is to reduce its footprint — and therefore its real estate needs — to reduce the office space it occupies. I believe the most important measure is differences in productivity. Are employees more productive or less productive at home? They don’t get to interact with their colleagues, all the interaction they encounter in a workplace. That would be a really fascinating thing to study. To my knowledge, the Treasury Board of Canada Secretariat hasn’t done it, nor has the government or my office. We don’t have all the details we would need to conduct a study like that, which would include productivity.
Senator Dagenais: I’m going to lead you to a different subject. One thing the government announced was $13 billion in support for a battery plant in Ontario. Can you tell us where this investment fits into the government’s spending? We’re told that this is good for the country’s economy. What impacts can you anticipate in terms of this support for a single private company?
Mr. Giroux: That’s an interesting question. In fact, I received a request from the Leader of the Opposition in the House of Commons to study the impact of this assistance, its impact on public finances, on the economy and on job creation. We will proceed with this study once we have obtained the information from the government. However, the impact I can see is similar requests from other companies that will want to set up plants or production sites or that may threaten to leave Canada if they don’t receive assistance like that. At $13 billion for a plant that plans to employ 3,000 people, that’s a lot of assistance per employee. I understand that there may be strategic implications for providing such support, but this is something we will consider once we have the information and release our report.
Senator Dagenais: Thank you, Mr. Giroux.
[English]
Senator Pate: I join my colleagues in welcoming you and thanking you for all the information that you and your team provide.
You have spoken many times before this committee about the difficulty sometimes of obtaining information from the government. You already mentioned the fact that it has been described as “cabinet confidence,” so you do not have adequate information to assess the dental plan. Yet it seems that there is the discussion here of the imposition of penalties. Without knowing what the plan will be, how could that be developed? I would be interested in your comments there.
I am very happy to see payday loans addressed, but it strikes me that this may not particularly assist many people with the lowest income who cannot obtain credit in any other way because of the seeming shift of predatory companies to high-interest instalment loans from the current payday loans. I am interested in any comments on how we might better address these issues or what we might advise the government to do to better address these issues.
I will have another question if there is time. Thank you.
Mr. Giroux: First, to answer your question on the dental plan, I find it a bit unusual to see provisions for information sharing, including penalties for failing to provide information to the Canada Revenue Agency, CRA, or Health Canada, without having details on the dental program itself beyond what is already available, which is an application-based program. It concerns me a bit that the government has introduced these provisions in an omnibus Budget Implementation Act without providing you and Canadians generally details on the dental care program, including who the service provider will be. The budget mentions that it could be a third-party service provider assisting Health Canada. There is a lot of uncertainty regarding the administration of the program, the details and the eligibility to the dental program. Even when we asked for information, we were told that it is cabinet confidence. It is a bit bizarre to have provisions for information sharing to administer that program but the program itself is still a cabinet confidence. It is unusual, and that is something that I think should have been addressed before tabling the BIA, the Budget Implementation Act.
With respect to payday loans, my answer will be much shorter because it is not something I can provide insight on, unfortunately. It is not something that I have looked at in detail. Maybe Ms. Yan has a more enlightened answer, but she does not seem to know more than I do. Sorry about that. We can get back to you.
Senator Pate: Thank you.
I noticed in Bill C-46 that the GST top-up for the grocery rebate, or the grocery top-up, is also included in Bill C-47. I am curious whether you see this as potentially a double-counting. What would you suggest we request in order to ensure it isn’t a double-counting, seeing as it appears in both acts?
Mr. Giroux: Yes, that is a good point.
Bill C-46 was tabled to, I think, expedite the passage of the GST top-up. Also included in there was the $2 billion Canada Health Transfer, or CHT, top-up for provinces. These provisions are also in Bill C-47, so there is a risk of double-counting, as you mentioned, for the GST top-up, although there is less of a risk there. For the $2 billion CHT top-up for provinces, this gives authority to the Minister of Finance to provide funding to provinces. I think there is a risk there that the minister could be in a position to have the power to provide $4 billion to all provinces or to some provinces, because it states that it gives the power to the minister to give that if she wishes to do so.
A simple fix would be to remove these provisions from Bill C-47, as they are already contained in Bill C-46. An amendment to strike these provisions from Bill C-47 would be a very easy fix to that. I think Department of Finance officials were questioned on that earlier this week or last week at the House of Commons Standing Committee on Finance, and they did not seem to provide a way out or a solution to that, but I think the solution is fairly simple: an amendment to Bill C-47.
[Translation]
Senator Galvez: Thank you very much for being with us, Mr. Giroux and Ms. Yan.
I have two questions: one general and one specific.
[English]
I was recently in Washington and had the opportunity to talk to the World Bank Group, International Monetary Fund or IMF, multilateral banks, Asian Bank and the Interamerican Bank. We talked about the use of GDP. While we all agreed that, in the past, it used to be a very useful indicator and helped us design our fiscal policy, more and more we are aware that it has many flaws, and it is very limited. It excludes non-market transactions. It has failed to account for or represent the degree of income inequality that we are talking about, inflation, failed to account for the costs imposed on human health, the environment, negative externalities — so many reasons, but we keep using it. Are you thinking that eventually your office will use something else in complement to the GDP?
Mr. Giroux: That is a good question.
As economists and accountants, we like to measure items that are easy to quantify, so that is why we, as economists, with all the qualities and drawbacks we have, like GDP, because it is quantifiable. It is measurable. It is easily comparable across countries. But you are right. It is not a very complete or accurate picture of the overall well-being of a population. That is why there are international organizations that have developed well-being indexes that take into account crime rates, inequality and wealth of a country.
To provide a short answer to your question, it’s not something we plan on doing in the short-term, because measuring well-being overall also has flaws. Given the nature of our mandate, we tend to focus on items that are measurable and that have dollar amounts attached to them. However, in some instances we have looked at other performance indicators, notably when it comes to assessing the performance of some departments. It is something we are open to looking at, but it is not something that we plan to embark upon in the short term.
Senator Galvez: Thank you.
My specific question is about the legislation to create a new Crown corporation, the Canada innovation corporation. The Liberal campaign platform includes a commitment to “finalize and apply a climate lens to ensure climate adaptation and mitigation considerations are integrated throughout federal government decision-making.” Do you foresee that there will be consequences due to the fact that this new Crown corporation is not aligned with the platform? Do you foresee that there will be misalignment between some legislation — for example, net-zero emissions by 2050 and the reduction of emissions — and what this new Crown corporation will attain?
Mr. Giroux: That is something that we have not looked at in detail. It is certain that Crown corporations have benefits but also drawbacks. Because they are not departments, they are not always directly under the control of a minister. I am not a specialist when it comes to machinery of government operations, and I have not looked at that one specifically.
One of your colleagues, Senator Shugart, would probably be in a much better position to talk about machinery implications and these issues, but I understand that he is not a witness today.
Senator Shugart: Thank you.
The Chair: Senator Shugart will ask questions, but there is no doubt that that question could be taken under advisement by the PBO.
Senator Boehm: Welcome, Mr. Giroux and Ms. Yan, to the meeting today.
In your recent PBO report Budget 2023: Issues for Parliamentarians, you state:
In Budget 2023, the Government identified $798 million — on a net basis — in new “non-announced” measures over 2022-23 to 2027-28. In absolute terms, this represents over $12 billion in either revenue or spending decisions for which there are no specific details.
Mr. Giroux, you may remember that I asked you about transparency and unaccounted-for spending when you were here on November 22 in relation to the Fall Economic Statement discussion. I specifically asked about the lack of spending detail on $14.2 billion in new measures, which you said at the time was the largest ever, without specific detail, since 2016. You said this wasn’t new and that it has been happening for years under various governments.
You also said that this lack of transparency makes it that much more difficult for parliamentarians and Canadians to properly scrutinize government spending. Parliamentarians — that is what we are — and especially senators, are often pressured to rush through a review of government spending, and especially in the form of estimates, so timeliness of reporting is also a concern.
Mr. Giroux, realizing that your power is finite, what do you and your office suggest as a solution to these problems? Do you think there is any appetite in government to improve fiscal transparency and timeliness of reporting?
Mr. Giroux: I will first answer the second part of your question as to whether there is any appetite to improve the timeliness and transparency of reporting. I think there is probably not a whole lot of appetite; otherwise we would have seen marked improvement over the last couple of years. After several of you, as parliamentarians, and I myself raising this issue, we would have seen significant positive movement. The appetite is probably not there to the extent that we would collectively like.
In terms the first part of your question as to the amounts that are there, the net almost $800 million — the gross being $12 billion — is very unusual in the sense that there are lots of positives and negatives in there. That suggests that a lot of reallocations are going on — cuts or amounts set aside for initiatives that are no longer necessary, so we count that as a negative. On the other hand, spending is anticipated in some areas. Being on the other side of the fence, we have no idea as to where these cuts and additional expenditures are, so it is quite concerning to see the absence of details.
Senator Boehm: Thank you.
I wanted to ask about the 15% cut or reduction in spending on consulting, other professional services and travel. I certainly believe that reasonable travel is vital to conduct government business and that Zoom is not a substitute for all face-to-face interaction. In your opinion, is the roughly 15% reduction to consulting, other professional services and travel more of a public popularity or PR move, especially given the controversy around the use of consultants, or is there a real cost saving there? You note in your report that the government hasn’t shown in Budget 2023 how its spending and operations have adapted to the post-pandemic world. I would be interested in your thoughts on what impact this 15% reduction will have, if any, and what you think the government needs to do to fully adapt to that post-pandemic world.
Mr. Giroux: Again, that is a very interesting question.
A good portion of the $20 billion or so that the government spends on consulting services is, indeed, very necessary. For example, when we look at some of the spending that is going to First Nations and Inuit communities’ health services, I don’t think that is something that the public service could easily step in and do instead of consultants, so there is a very good business case for that. Similarly on information technology, I do not think the public service has all the capacity it needs to provide all the services that it provides internally in terms of development of new systems.
I think the 15% reduction in spending can reasonably be achieved by using fewer consultants in some areas, notably when it comes to management consulting. I believe the public service has a lot of expertise that can be tapped more efficiently — especially a public service that has increased in size over the last several years. I think the 15% is probably achievable. Is it easily achievable? It depends where the government decides to reduce the recourse to these consultants.
Senator Duncan: Thank you to Mr. Giroux and Ms. Yan for being here today. We appreciate your attendance.
In my limited experience, when finance ministers issue call letters for the budget, there are instructions to departments to find money within the department. Perhaps my colleague Senator Shugart is better able to answer this question. If there are such instructions issued by the Finance Minister when the budget call goes out, are you made aware of them? They wouldn’t be made public in a budget speech, but if there were such instructions, would you be made aware of them?
Mr. Giroux: No.
Senator Duncan: Thank you.
I would like to follow up on travel, because travel is the low-hanging fruit in the budget. Unfortunately, public servants can have a different view of their program effectiveness and delivery of programs when they travel outside of Ottawa. They can get a much better sense. Therefore, reducing travel can have a direct impact on the effectiveness of programs.
I note that in a Hill Times article in February, before the budget was released, there was a discussion of the strategic policy review. David Zussman is quoted as saying:
It’s very difficult to measure the effectiveness of an organization and to tease out what the factors are that determine a well-performing one as opposed to one that’s not performing well.
Would you offer some suggestions for this strategic review in terms of allocation of resources and where the government might save money? Would you have suggestions as to how that review should be conducted?
Mr. Giroux: Strategic reviews or reviews under different names have been undertaken on a number of occasions in Canada and abroad. There is quite a bit of literature that suggests key features of successful strategic reviews or spending reviews. One is to have clear objectives as to what it is that you want to achieve. For example, are you focused on a number, on dollar amounts, number of individuals? There is a series of criteria that I won’t bore you with, but it is well known, and I would be happy to provide you with more detail either now or in writing.
Senator Duncan: Would you provide or have you been asked to provide those to the government? Are there unique Canadian perspectives that should be applied?
Mr. Giroux: I haven’t been asked by anyone in the government to provide advice, views or anything like that on strategic reviews.
I would say there are two things that are unique to the Canadian context that would need to be taken into account: the fact that we are a federation with ten provinces and three territories, and the fact that we also have three main communities: anglophones, francophones and First Nations. It is, I think, unique in the Canadian context.
Senator Duncan: Thank you.
Senator Loffreda: Thank you, Mr. Giroux, for being here this morning.
As sponsor of the Budget Implementation Act, I want to clarify that the government intends to amend Bill C-47 in the House of Commons to remove the provisions on the grocery rebate and the $2 billion transfers to the provinces and territories. As you pointed out, Mr. Giroux, Bill C-46 will likely be adopted more quickly. We’re told that the provisions will be removed during clause-by-clause in the House committee, just to clarify that point. It is an important point.
I think we’ve covered the macroeconomics. I had many questions on the macroeconomics and the situation of the budget, but, as you know, not everything in the budget makes it to the Budget Implementation Act. When I look at the Budget Implementation Act, the costs are pretty nominal once we remove what I just mentioned.
You did mention that pre-COVID was close to $300 billion in government spending. Post-COVID, we’re now at $500 billion. How much of that is due to inflation as opposed to additional programs and spending? If we look at it and say that $500 billion, because of inflation, is the new norm going forward — as I previously said, as a banker, I always look at not where the debt level is but where the debt servicing is and how long the debt level will be where it is and how it will impact our debt servicing in the long term. Your comments on all of that would be welcome.
Mr. Giroux: I do not know off the top of my head what proportion of that $500 billion or $300 billion of government spending is due to inflation, but not only is inflation a factor in considering government expenditures but population growth is also an important factor. Not only is that one thing to take into account, but I would say inflation and population growth are two factors that warrant, very often, increases in government spending.
I do not have the numbers off of the top of my head, but I would say that with inflation running at over 6% in 2022, if I am not mistaken, and having run at 2% for a number of years, probably a significant portion of the increase in government spending is due to inflation, but also population growth with the Canadian population having grown by 1% in the last year alone. That is a very important factor in government spending increasing.
Senator Loffreda: Thank you for that. It is always important to look at both sides.
Mr. Giroux: Totally.
Senator Loffreda: Population growth will generate more revenue, and that is why the debt servicing is so key. That is a key measure. As a former banker, I always liked the debt servicing much more than any other ratio.
We talk about fighting inflation, but I would like to see how many measures in the Budget Implementation Act actually could fight inflation. One that I was looking at — I would like your comments on it — is the provision in the bill that doubles the deduction for tradespeople’s tools. The proposal would increase the maximum deduction for tradespeople’s tools from $500 to $1,000, effective in 2023. I know that you are somewhat familiar with the special tax recognition afforded to tradespeople. I recall you published a report in 2022 on last year’s BIA and the mobility tax deduction for tradespeople and indentured apprentices. Do you think that this is a good measure? Will it have a significant impact on the government’s overall budget?
If we’re supporting tradespeople, we’re indirectly or directly supporting our supply chain. Should we have more of these measures where we are supporting the supply chain? From your experience, do you feel that support will be transferred to the consumer with less inflation or lower prices? Is it a measure that could help reduce inflation, and should we have more of those measures?
Mr. Giroux: Those are very good points.
When I talked about the impact of government spending, I looked at the macro level. The more a government spends, naturally, the more it puts money into the economy and induces inflationary pressures. That being said, anything that increases the supply in the economy has the opposite effect. If you introduce measures in a budget or other measures that increase the supply of labour or products that are in demand, such as skilled trades, for example, if there are measures such as the one that you mentioned that increase the supply of skilled tradespeople, then, in theory and in practice, hopefully, it will reduce inflationary pressures by increasing the supply of these occupations that are in very high demand. So measures like the one you mentioned should contribute, albeit humbly, to reducing inflationary pressures by increasing the supply of persons, employees, that are in high demand.
[Translation]
Senator Shugart: I’d like to thank our witnesses.
[English]
I have two questions about where the budget is going overall.
Do you have a sense of the areas of risk that are most important in terms of the likelihood of the budget achieving its objectives? I am thinking of spending, both on expenditure and the revenue side. I am not talking so much about program objectives and results. We will come back to that another time. For example, with the settlement with the public service unions that we now know about, until yesterday, it was not predictable in terms of quantum, so it is not reflected in the budgetary numbers. It is a sizable outlay. What have you identified as the primary risks that are facing us in terms of the budget achieving its objectives?
Mr. Giroux: You mentioned one risk. That is a risk that has now materialized. There will be impacts for the rest of the public service, because this settlement with PSAC covers about 120,000 employees out of nearly 400,000. There are wage increases that will probably filter through, for example, as a result of the PSAC agreement. Other groups will likely end up making the same demands or getting the same wage settlement with the government. That is one risk.
To go to the macro level, housing still continues to pose a risk for the attainment of the government’s fiscal targets, so housing and the fact that there could be some significant impact not just on housing but as a result of increasing interest rates. That could induce a sharper slowdown in the economy and make it much more difficult for the government to reach its fiscal targets. There could also be further pressures from our allies to increase defence spending, especially if the war in Ukraine continues and the pressure mounts on NATO countries and allies to provide more support to Ukraine. These are a few of the risks that I see, as well as a financial sector crisis in one of Canada’s main trading partners. We’ve seen a few banks in the U.S. having difficulty, but there’s always the possibility that a financial crisis erupts in one of the countries and has a ripple effect. There are some emerging markets that are suffering from high inflation. These are potential risks for Canada and for the government in reaching its fiscal targets.
Senator Shugart: Those are on a very high level, or a very large scale. I would suggest that your office might want to be looking at smaller-scale risks to the government’s expenditure plan as well.
Mr. Giroux: Yes.
Senator Shugart: I think the committee would be interested in that.
I could pick up on a theme that Senator Duncan talked about in terms of the reduction of government spending. It has to do with the sense that your office has the ability to track from government what is really going on. I’m thinking again of the size of the public service, which is one of those major areas of expansion post-COVID, which, of course, connects to the settlement again and feeds on itself. Do you have the line of sight to government departments to know in their spending-reduction objectives where they’re actually targeting the reductions and how likely it is that we would see a reduction in the size of the public service?
Mr. Giroux: I’d like to mention that I misunderstood your question when you said “risk,” so I thought you meant big macro risk. At a more Canadian scale, I would say, some of the risks are continued expansion of the public service to deliver on programs and the lack of progress on spending-reduction exercises that the government has mentioned on multiple occasions.
We do have a line of sight on government spending on a monthly basis. We have good contacts with both Finance and the Receiver General when it comes to revenues coming in and expenditures going out. What we don’t have a firm grasp on is the progress or lack thereof on the expenditure-reduction exercises because of a lack of detail, generally speaking, on these exercises. It’s something that we are very interested in, but the lack of information so far I see as probably a significant risk in the government achieving, or not, its fiscal targets.
[Translation]
The Chair: Mr. Giroux has always been flexible in giving us a second round of questions.
[English]
Mr. Giroux, do we agree that I’ll ask senators who want a second round to ask one question each, and you could provide the answer in writing. I think what we’ve heard this morning from you and Ms. Yan is very pertinent. Do we have an agreement that you could send the answers in writing?
Mr. Giroux: If I don’t have to say a word, I’m happy to listen, take notes and respond in writing.
[Translation]
Senator Carignan: Thank you, Mr. Giroux, for agreeing to additional questions.
We talked about open government. Isn’t there also a poor assessment of the impact of the decisions we make or the measures we put in place? Let me give you the example of the ban on immigrants buying properties. We welcome 500,000 immigrants a year. There’s pressure on rental housing when there’s already a shortage. The perverse effect is that people with lower incomes are the ones who are experiencing a substantial increase in their rent.
Let’s talk about the luxury tax. Éric Martel, CEO of Bombardier, gave an interview on RDI Économie. The reporter asked him how much the tax brought in, along with aircraft sales. He said that it didn’t bring in anything because none were sold. People buy from competitors. Because of the tax, the company is losing sales.
This is another great example of trying to make a business gain on a residential property that sells in less than 365 days. People will only have to sell it in 367 days instead of 365 days. If you want to generate a loss of business income, you can have the best of both worlds by playing with the rules.
Don’t you think that the government is doing blitzkrieg marketing rather than targeted analysis of economic measures by properly evaluating their efficiency?
Senator Forest: Thank you for putting in some overtime with us. We’re tracking the debt-to-GDP ratio. Could you give us a sense of how the debt burden on the budget has changed over the last five years, in terms of percentage? We know that the pandemic may have been a factor.
Senator Gignac: Budget 2022 announced a new dental care plan, which is estimated at $6 billion or $7 billion. A year later, in Budget 2023, we still don’t have the details of that plan. However, the cost is estimated at $13 billion, with $4.4 billion recurring per year.
Are you planning to do a study on that? I believe you did a study on the provision of dental care in 2022. Do you intend to look at that? To follow up on Senator Shugart’s question, I think this is a very important element of risk, especially since the professional order of dentists is a provincial jurisdiction, and the federal government has no experience in this area.
[English]
Senator Pate: Thank you for the written answers you have provided. I noticed yesterday we received some from the last time, and that was extremely helpful. Thank you.
My question is back to the GST/HST rebate, the one that’s now being characterized as — the rebranding as a grocery rebate. I’m curious as to what steps you think could be taken to also deal with the corporate profiteering that really is at the heart of many of these issues in the opinion of many of us.
Senator Galvez: On the same issue of risk, can you provide us with the cost of living crisis as a risk, and climate-related financial risks, including more costly extreme weather events, the failure to adapt or mitigate for climate change? I would appreciate it. Thank you.
Senator Loffreda: Mr. Giroux, you did mention housing affordability as a major economic risk. As you know, Part 1(c) of the bill extends the residential property flipping rule to assignment sales, commonly known as the “anti-flipping tax.” The intention of the rule is to help ensure that profits from flipping residential real estate are taxed as business income. With Bill C-47, the government is extending the rule to profits arising from the sale of a right to purchase residential property. As I understand it, this measure will have a very minimal impact on the government’s bottom line. I know you also published on the anti-flipping tax in the past. Do you still stand by your previous analysis and comments? Do you have any views on this new measure? Do you welcome it? Do you think overall the anti-flipping rule meets its objective in addressing housing affordability which, as you mentioned, is still in crisis?
The Chair: Thank you, Senator Loffreda. There’s no doubt there’s more than one question in your comments.
Before we close, Mr. Giroux, do you have any closing remarks?
Mr. Giroux: It’s a pleasure to testify at this committee, as always. I will do my best to provide answers to your questions, but there are some questions for which the answer might not be very clear or might be difficult to provide.
The Chair: Thank you.
Mr. Giroux, if possible, we would like to remind you and witnesses to please submit written responses to the clerk by the end of day on Tuesday, May 16, 2023.
Before we adjourn, I would like to inform the senators that our next meeting will be tomorrow, Wednesday, May 3, at 6:45 p.m., to continue our study on the Main Estimates. We will welcome Minister Fortier, the President of the Treasury Board of Canada.
(The committee adjourned.)