THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, November 22, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 6:45 p.m. [ET] to study Bill S-233, An Act to develop a national framework for a guaranteed livable basic income; and Supplementary Estimates (B) for the fiscal year ending March 31, 2024.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I wish to welcome all of you, as well as the viewers across the country who are watching us on SenCanada.ca.
[Translation]
My name is Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance. Now, I would like to ask my colleagues to introduce themselves starting on my left, please.
Senator Gignac: Clément Gignac from Quebec.
Senator Loffreda: Senator Tony Loffreda from Montreal, Quebec.
[English]
Senator Woo: Good evening. I’m Yuen Pau Woo from British Columbia.
[Translation]
Senator Cormier: Good evening. René Cormier, senator from New Brunswick.
[English]
Senator Pate: Kim Pate, and I live here in the unceded, unsurrendered territory of the Algonquin Anishinaabeg.
Senator Smith: Larry Smith, Montreal, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Montreal, Quebec.
[English]
The Chair: Honourable senators, today we are resuming our study of Bill S-233, An Act to develop a national framework for a guaranteed livable basic income, which was referred to this committee on April 18, 2023, by the Senate of Canada.
This evening, we have the pleasure of welcoming, by video conference, David Green, Professor, Vancouver School of Economics, University of British Columbia.
On behalf of the senators of the National Finance Committee, thank you for accepting our invitation to appear in front of the committee.
We will start with your opening remarks, and then we will proceed to questions from senators. The floor is yours, Professor Green.
David Green, Professor, Vancouver School of Economics, University of British Columbia, as an individual: Thank you very much. I appreciate the opportunity to speak to this committee. I am a professor in the Vancouver School of Economics at the University of British Columbia, or UBC, but, of more relevance for this, I was the chair of a panel created by the B.C. government to investigate basic income, or BI, as a possible policy tool for the province. The panel consisted of Professor Lindsay Tedds, Professor Rhys Kesselman and myself. We were given two years with a mandate to consider whether B.C. should shift to centring the transfer and support system on a BI or, alternatively, how to otherwise reform the system. We were given considerable resources and access to rich administrative data. Using that, we commissioned over 40 research papers, both on issues with the current transfer system and investigating claims made about a BI. We also had extensive discussions with affected groups and implemented a unique opinion survey. We carried out simulations of over 1,600 variants of BI policies, and had extensive discussions with civil servants in a wide set of B.C. government ministries that would be affected by a BI and the reforms that we set out as alternatives.
Our work is available as a 500-page report, which, along with all of the research papers, is available at bcbasicincomepanel.ca and in a book we published with the Institute for Research on Public Policy, or IRPP. We believe that our work constitutes the most thorough evaluation of a basic income carried out in Canada and possibly anywhere in the world.
We framed our investigation in the context of the question of what policies would move Canada toward being a more just society. In fact, we developed a new policy analysis framework centred on this question, taking the goal as a society that provides the basis of equal self-respect and social respect. I view those goals as ones shared with people who advocate for a BI. I also agree that, in some circumstances, a guaranteed income is part of what is needed and would endorse some of what are called basic incomes, but the basis of self-respect and social respect also includes respectful workplaces, real opportunities, supportive communities and mental health supports. I worry that a general BI as a policy goal misses that and, in particular, misses how income supports interact with creating those other conditions in complicated ways.
I also agree with BI advocates that the current system is problematic in its levels of support, complexity and failure to treat those in need with sufficient respect. In fact, we spent considerable time in our report detailing those problems. A BI has the appearance of a simple, direct response to those problems. What could be simpler than sending people money through the existing tax system? But when we think about how to actually implement it in a way that integrates with our existing systems, it no longer appears so simple.
We did the exercise of documenting all the support programs that all the levels of government supply, and asking if each could be replaced by a BI. The answer in almost every case was “no.” That means creating a BI will create new complex interactions, and even the seemingly simple idea of delivering it through the tax system is not so simple. Eight per cent of Canadians do not file taxes in a year, and, with taxes only assessed annually, people who experience a loss in income won’t be able to register their need for support through the tax system for between 4 and 16 months. To address these problems would require creating a system that finds non-filers and works on a sub-annual frequency. In other words, it would require creating a system that looks much like existing income assistance systems. As we show, the welfare wall would be just as high or higher under the new system than under the current tax and transfer system.
A BI is not a simpler system. It’s another complex system, but maybe it’s a better complex system. The research studies that were part of our report assess claims in a wide variety of areas: A basic income would reduce health care costs and improve health, increase entrepreneurial activity, allow workers to walk away from bad jobs and so on. In each case, we found that a BI might have positive effects, but there was an alternative policy that was better.
By our assessment, a BI is an expensive approach that will provide inferior results in terms of moving us toward a more just economy. To be clear, we believe that we need to spend money to address the problems our society faces. We certainly agree those problems are real. The point is that there are more effective ways to spend money.
This returns us to the broader question of the goal of the policies. If it is just a numerical goal of reducing the number of people below the poverty line, then a BI is a very direct way to do that. But if it is to create a more just society, it is much less clear.
One way to express this is that poverty is about much more than a lack of income. It is about a lack of respect and integration. A cash-centred approach supports monetary autonomy, but ignores the fact that true autonomy is built on a base of community, self-respect, health and housing. I worry that such an individualistic approach like a BI puts the onus of fixing our existing systems — with their embedded structural inequities — on the shoulders of the vulnerable people themselves. It purposely chooses a more individualistic over a more community-oriented society.
A key example is support for youth aging out of foster care — one of the most vulnerable groups in society. Simply giving them a basic income and wishing them well is evidently not a good approach. We advocate a policy that includes a phased-out secure income, but that emphasizes building community and personal supports. It’s not that BI advocates are against those other supports; it’s that a general BI approach acts like you can separate the income and the other elements, and, in doing so, it could end up being an ineffective way of spending our policy dollars for creating a more just society.
Thank you again for this opportunity. I look forward to your questions.
The Chair: Thank you very much, Professor Green. Honourable senators, the round will be five minutes each.
Senator Marshall: Thank you very much for your presentation. It sounds very interesting.
What was the outcome? It sounds like you did a lot of research. When you were speaking, you were saying “such-and-such, but” — what was the outcome? Was it that you did the research for the sake of the research and now we have a body of research, or did you come up with some recommendations? Was there a pilot? Tell us the rest of the story. You told us the first part.
Mr. Green: That’s right; I gave you the teaser. We were commissioned to examine whether a basic income would be a good policy for British Columbia, but also whether there should be a pilot to study it further.
We were given a broader mandate to say, “If not a basic income, then what else?” We set out with quite an open mind, trying to put together a body of evidence that would be useful for other people, even if they didn’t agree with what we concluded, and that’s part of what we think we created.
Senator Marshall: Do you think the government should go ahead and implement a basic income, or do you feel that the work you did didn’t quite convince you?
Mr. Green: It’s the latter. We came to the conclusion that in most of the policy areas that we considered — and we considered a lot of them — a basic income was often a path that would help, but there were better, more direct and more effective ways to spend policy dollars. In the end, we came up with a set of alternatives instead of a basic income.
I should say that, in some of the areas, we recommended what you might call a targeted basic income — for example, for people living with disabilities — but, as an overall policy goal, we didn’t endorse a general basic income, and we also recommended against a basic income pilot.
Senator Marshall: Okay. Did you change anything? You were saying that there is a certain system, and then that complex system would end up being replaced by a different complex system.
Were there any changes at all as a result of your research? Or did you come to the conclusion that it was very complex, and, therefore, you maintained the status quo? I’m asking because I was in charge of the social assistance program in Newfoundland and Labrador at one point, so I can relate to this.
Where did you go with it? Did you actually take a group of people and do a pilot in something?
Mr. Green: That’s a great question. I appreciate knowing your background, so I know that you’re aware of everything I’m talking about.
We didn’t do a pilot. Ours was meant to be input to further deliberations of the kind that I’m sure you’re familiar with. In fact, B.C. is going through a renovation of its income assistance system right now, and our report fed into that. We’ve been talked to several times to talk about how to do that.
As a useful example, as you know, a large portion of the income assistance and social assistance systems in Canadian provinces right now have to do with people living with disabilities. We recommended a big suite of changes that would make access simpler, as well as make a whole part of it more dignified, and would bring the benefits up in a permanent basic income way to the poverty line — because now they’re below it — but it also had a big part that was assisted to work. We heard from people living with disabilities that there was a feeling that this was a system that punished them for trying to work or even volunteer. We were trying to find our way toward a system that was more respectful and more dignified, with better supports, and our feeling was that a basic income alone was really not going to do that.
Senator Marshall: Thank you very much. It’s very interesting.
Senator Gignac: Welcome to our witness. Thank you for being with us. I have read part of your book. I found it very interesting, Mr. Green. You mentioned basic income in your opening remarks. If I go to your conclusion on page 218, it states that basic income could simplify the system of income and could be easier to access than the existing program. You mentioned that it comes with a cost, and you conclude by saying that a simpler system could mean fewer specialized programs to address particular needs, and, in some aspects, they have some people who stay behind.
Could you give me two or three examples where going with basic income is worse than staying with the current program, for example, or group of people? You seem to refer to a particular situation.
Mr. Green: That’s quite a good question.
One example that comes to mind is one of the areas that we’re all concerned with: people living in poverty. The biggest group with the highest poverty rate is single adults without children because they don’t get the Canada Child Benefit, and they’re not yet able to get the Guaranteed Income Supplement or Old Age Security benefits.
If you take a close look at that group, the top 20% in terms of income are actually people who are working more than 40 weeks a year. They’re working in poverty. In that group, a substantial proportion are women working in service sector-type jobs in cities. A lot of them are racialized and immigrants. For that group, our feeling is that a basic income could potentially, as you said, get them more directly to the poverty line. But that’s not where they’re at. What we need to do for them is a combination of increasing minimum wages and increasing the Canada Workers Benefit — those are policies that already exist, so we don’t need to create other ones in those cases — as well as increase the enforcement of regulation. A lot of what happens with that group are problems with dignity at work and control over their work schedule — it’s all things that, in our mind, a basic income wouldn’t address. Our feeling is that all of those tools are sort of there, but there are ways to use them much better to directly affect and help, hopefully, that group.
Senator Gignac: To change topics, the timing is good to have you here today because of the detailed P.E.I. report from this working group that my colleague mentioned. It seems very attractive. You mentioned that you would have 65% fewer children in poverty and 90% fewer people living alone.
I don’t know if you had any time today to look at that report that was released, but is it fair to say that conclusion could apply to the rest of Canada — from coast to coast — if we were to go with the national program, and that you would see a significant decline in poverty if we have a national basic income? Is it fair to conclude that based on that report and your own experience?
Mr. Green: I have seen the report; it’s authored by a set of people for whom I have great respect. They are high-level researchers. Moving it to the country as a whole is a difficult prospect. Spending directly on moving incomes up is clearly a way that you would reduce monetary poverty, but poverty is more complex than that. That’s part of my point.
In terms of moving it from P.E.I. to the rest of the country, it’s important to notice that in the proposed pilot, 65% of the expenditures that were needed for that basic income would be paid by the rest of Canada, not P.E.I. In other words, you would have a funding model where the money is sort of coming in from the heavens for 65% of it. If you take that and move it to the national level, you couldn’t do that anymore. P.E.I. is small enough that you can do it without affecting anybody’s federal tax rates. If you move it to the federal level, however, you will have to move federal tax rates considerably. When you do that, you will change incentives and the whole tax structure. That means the movement from there to the national level is not clear, at least in my mind.
Senator Gignac: Regarding the Parliamentary Budget Officer, or PBO, report, I am just trying to understand the rule of thumb. It seems that there are savings from red tape and administrative savings. They have so many programs that if they merge or disappear, you can save a lot of money. It seems to be 10% of the overall cost.
Is it a rule of thumb that, yes, you will save on administrative costs, but it’s actually equivalent to 10% of the price tag of a basic income?
Mr. Green: That’s a good question. I don’t know where the 10% comes from. I would dispute that you can get a lot of savings exactly for the reasons that I just said in my opening remarks, which is that 8% of Canadians don’t file taxes. If you want to replace some of the existing systems, like income assistance systems, for example, to say, “We’ll have less red tape because we won’t have those systems,” you’ll have to implement a different system where you go and find those people. It’s not clear to me that there are a lot of savings to be had there.
Senator Smith: Glad to have you with us tonight, sir. I have a follow-up to Senator Gignac’s question.
Critics of the national basic income program argue that jurisdiction issues across Canada could prove to be a major impediment in its implementation. As you’re aware, we have a plethora of social support programs, which you started to talk about, across the provinces and territories. As the Parliamentary Budget Officer has suggested, some of these social programs would have to be curtailed to pay for the new program.
What’s your take on that concern? How would the federal government — which already has a hard time bringing the provinces and territories together — deliver on a national basic income program?
Mr. Green: That’s a great question. It’s a bit outside of my purview. I don’t study federalism. I agree that I think it would be hard. On the other hand, I think if the feds were coming to the table with a bunch of money, as in the P.E.I. example, saying, “We’re going to take over your income assistance and social assistance components,” my guess is that you would find a certain amount of positive response to that. But, as you were saying, the devil is in the details.
As I said, Lindsay Tedds and her team went through literally every program that was available to British Columbians in our case, and we found little scope for taking things out. If that’s true, then the complexity of the project that you’re talking about is bigger than it might appear on the surface.
Senator Smith: You also participated in the opinion piece which you co-authored for The Globe and Mail in May of this year. To move it forward, you highlighted that the delivery and benefits through a tax system where the majority of vulnerable Canadians don’t even file taxes is a complex problem to solve. The government announced a pilot program through the Canada Revenue Agency for automatic tax filing. The goal is to ensure that vulnerable Canadians do not miss out on much-needed benefits.
Is this potentially a step that you feel could make a potential basic income program more successful?
Mr. Green: Yes, I think it could. To be clear, it’s something we probably need for all of our programs. Whether you decide to go for a basic income or not, that seems like a platform we want. Yes, I agree; it would be a step forward in that project.
Senator Pate: Thank you for joining us, and thank you for all your work on this and related issues.
I was struck when I was reading the recent book that was published, which Senator Gignac referred to, where you talked about the different and current approaches to income support being like a house, and we continue to add extra rooms and improvements throughout the years. The analogy that you made was that a guaranteed livable basic income would be tantamount to needlessly knocking down a perfectly good house and building another one in its place.
In the 45 years of experience that have led to me tabling this bill, I’ve learned that it’s people living in poverty and trying to access income supports who say something very different. For them, it’s more like a house where the foundation is cracked, the beams are rotten and the roof is caving in — and they’re not receiving enough to live on and they have to contend with inflexible conditions that they can’t meet. Yet, they’re watching politicians continue to use the same approaches by building new additions onto upper levels — a nice new room, but the rest of the house is collapsing.
I know that you did some of this work during the pandemic. I understand the limitations that you indicated in that you weren’t able to continue all the consultations, particularly with Indigenous people. What kind of research has been done recently around the impacts of income supports with those other kinds of supports? As you probably recognize from this bill, we’re not proposing an income-only model. It is a model that would streamline the income component, and also keep in place the supports components.
Most of the literature shows that the downstream benefits of such programs in terms of health and well-being — and you talked about the overall increase of a more just approach — seem to play out. In fact, it’s behind some of what Newfoundland and Labrador, Yukon and now P.E.I. are suggesting.
I’m curious how you see that playing out, and why you wouldn’t see a blending of those two as being beneficial.
Mr. Green: To be clear, if you had read out the rest of that passage, you would see that we used almost the same words that you used. We didn’t say it was a perfectly good house; we said it was a house where the doors are often hard to access. We didn’t use the foundation analogy, but it sounds perfectly in line with what we think. We believe the house needs to be reformed in a big way. We said that sometimes a basic income is presented as something that streamlines — that knocks out walls and makes things simpler. My whole argument — and the thing that I’m trying to say here — is that a basic income has to be integrated with that house. As soon as you try to do that, it makes the house more complicated rather than simpler.
In our mind, in many cases, trying to knock walls down doesn’t improve things. A basic income is not going to deliver better outcomes. I’m not disputing that it can sometimes deliver good outcomes; I’m saying that, in many cases, there is something that does it better. That’s the point we’re trying to make. It isn’t that the current system is great — there are a whole bunch of arguments that it is not, and our whole suite of reforms that we propose says it’s not. A basic income can’t be separated from the others — to me, this bill says, “We do the basic income, and we also keep in place the other parts.” It’s the integration of those two parts that is the hard part. How one integrates it and makes it effective is the hard part of the question.
It’s not like I think you’re not aware of that; I just don’t see it in the bill.
Senator Pate: The B.C. panel doesn’t seem to address the fact that the income project in Manitoba is the only pilot where benefits and potential cost savings were identified for health and well-being. Certainly, that shores up part of why Newfoundland and Labrador, Yukon and P.E.I. are looking at these models. The PBO has acknowledged that there will likely be downstream or upstream savings.
We see these in income and cash transfer programs in Ontario and Finland, and I’m curious why your findings didn’t find that there would be savings in health care costs, ultimately.
Mr. Green: That’s a good question.
It turns out that there are not a lot of studies out there on exactly how much health savings you get. There are studies on the benefits of cash benefit types of programs for health outcomes. Because a basic income is just one of those classes, you would get the same benefits as you would out of, say, a wage subsidy program — to a large degree.
In terms of the savings on the fiscal side, the main study out there right now is by Professor Forget on the Mincome experiment. I published an article in a peer-reviewed journal that shows that, in fact, there were no such savings from the Mincome experiment. In regard to the claim that there ought to be, it seems plausible that there might be, but our point was that there is not evidence — that we know of — that shows that there actually is health care savings of that kind.
Senator Pate: My understanding is that, in response to that position that you put out, Dr. Forget actually published a subsequent peer-reviewed article that showed that, in fact, there was an 8% decrease in hospitalizations.
Mr. Green: Actually, my study was a critique of exactly that number. I can explain it quickly, I think: In the Mincome experiment, the people of the town of Dauphin were given a basic income. What Professor Forget did, which was quite remarkable, was pull together all this health expenditure data, follow the people of Dauphin over time — as the Mincome experiment came into place and then passed out — and compared it to other towns in Manitoba.
What you find if you pull the data apart, I argue, is that, yes, Dauphin had a lower level of expenditures, but it was actually on a decreasing path of expenditures before Mincome came in, and it continued on that decreasing path after Mincome came in.
In other words, the finding that Dauphin had lower expenditures was the path that Dauphin was on. In my mind, while that’s published in a peer-reviewed journal, that number doesn’t stand up. I certainly wouldn’t recommend a government basing any kind of fiscal projections on that claim of 8% savings.
The Chair: Thank you, Professor Green.
Senator Loffreda: Thank you for being here.
Inflation is currently a main concern for many Canadians. How might the implementation of a guaranteed livable basic income be expected to influence inflation?
I ask the question because of the excess liquidity that might result for our economy. In the past, inflation was much easier to control regarding excess liquidity, scarce resources and higher interest rates. Today, additional issues affect inflation, such as geopolitical issues, energy transition and reindustrialization.
I think it still is a legitimate concern. I’d like to have your thoughts on that question and concern.
Mr. Green: That’s an interesting question.
Straight out of the gate, it wouldn’t be one of the concerns that would make me go away from a basic income. The main impact on increased demand would come because you’re taking tax dollars away from people who tend to spend fewer of their dollars on goods, and giving them to people who are spending every dollar they have on goods. That will push up demand, to some degree, in the economy, but I wouldn’t predict that it will be so strong relative to the other factors that you mentioned — which are truly driving things at the moment — to really make a market change in any of that. It wouldn’t be a major concern of mine.
Senator Loffreda: You don’t feel that it would create sufficient excess liquidity for it to be a major concern?
We are a nation of consumers. The savings rate in Canada before the pandemic was 3%. You’re putting all this excess liquidity back into the system. We’ve seen a bit of that effect with the Canada Emergency Response Benefit, or CERB, after the pandemic when everything was under lockdown and it reopened. It’s a different scenario, obviously.
Are there any studies that you looked into? I did read excerpts from your book. Are there any studies that we have across the world where that is not the case?
Mr. Green: I don’t know of any. Part of the problem is that most of the attempts to study basic income look at the impacts at the individual level, and you’re talking about things that happen at the societal level.
The only thing I would throw in is to caution against treating the CERB like a basic income — as an example of anything that has to do with a basic income. It was an emergency measure. For the reasons you said, you had people who were forced to hold back their consumption for a while. They were then given those benefits, and things started opening up, and it all comes flooding back in. That, in my mind, interacts with the supply chain problems at the same time, and the two forces coming together are a lot of what’s been going on.
Hopefully, we won’t be in those supply chain problems forever. I think the liquidity burst that we saw there is not what would happen with a basic income.
Senator Loffreda: Thank you for that.
I would like your thoughts on what potential effects a guaranteed livable basic income could have on workforce participation and productivity.
Mr. Green: It’s a good question. It’s one of the major concerns, and it’s something that we studied. It has been a focus of many studies on basic income, and the general conclusion is that it won’t change labour force participation very much.
It’s interesting why that’s true in the Canadian context. There are offsetting effects. On the one side, for the people who are on income assistance, this tends to help them get into the labour market to some degree. On the other hand, some people who are already working will potentially cut back their labour supply to get access to the benefits, and the two cancel themselves out. But the net result is very close to zero in almost every study I’ve seen.
Senator Loffreda: I hear you, and those are the main concerns. Why hasn’t any country adopted a guaranteed livable income or a basic income? We would be the first country in the world to adopt it. There have been experiments: Ontario closed off their experiment when the governments changed, mind you — maybe it’s not a good example. Why hasn’t any country in the world adopted a guaranteed livable basic income, given that there are so many positives, and there’s no concern over inflation, and no concern over work productivity or labour participation? I’ve heard many positive outcomes. Have you looked into that?
Mr. Green: We haven’t investigated why no one picked it up. Our argument — which seemed to be in conjunction with what the government was thinking by the time we delivered the report — was that we don’t actually see such great benefits. In almost every area that we could think of, there was some other more direct policy that could accomplish what was needed at a somewhat lower cost. In regard to whatever amount you feel that you have to spend, a basic income was not the most cost-effective way to achieve the goal of a more just society in our context.
That’s our interpretation. Other people would probably have other reasons for why they think it hasn’t happened, but my belief is it hasn’t happened because it isn’t the best system.
Senator Loffreda: That’s perhaps why the other countries didn’t adopt it either. Thank you for those answers.
Senator Woo: Thank you, Dr. Green, for the work you did on the British Columbia Expert Panel on Basic Income study. I read your report. You have summarized it fairly but, of course, quickly.
If I could characterize your summary in the following way, you and your panel have rejected basic income for basically two reasons: The first is the excessive complexity that it would introduce into a system — a complexity that you can’t really get rid of because of all the other supports that you feel are necessary and essential for a just society.
The other reason, which you glossed over quite quickly, was the whole notion of a just society. For this idea of self-respect and social respect and the need for community and so on, you base it on a Rawlsian idea — it’s Elizabeth Anderson’s and John Rawls’s theory of justice. Now, it’s not axiomatic for Rawlsians to be against basic income. There are lots of Rawlsians who are supportive of basic income.
My question is this: If you take the philosophical position that basic income violates some basic laws of reciprocity — this is the term that you use in your report — is there any world in which taking that position would allow you to reach a position where you would support basic income?
What I’m trying to say, Professor Green, is it sounds like the framework you set up — the philosophical approach you took — essentially made it impossible for any type of basic income to be advocated. That may be why, in a very coherent way, your study stopped short of looking at some of the questions that my colleague Senator Pate asked, for example, on downstream benefits, health, criminal justice, education and so on.
Mr. Green: That’s interesting. That’s a very good question. I would separate it into two parts.
First, as you said quite well, our investigation — in some ways — was broken into two parts. One was investigating those downstream benefits. A large part of that was done not by us — the panel. It was done by the set of researchers that we hired — we didn’t hire them; nobody got paid in all of this, but they did get access to good data, and they studied many different questions.
For those downstream benefits, almost none of those studies took any particular philosophical stance, to tell you the truth, and most were done by economists who are more favourable to this more individualistic — more Rawlsian — approach to the question. I don’t think it would be fair to reject the questions about the downstream benefits based on the philosophical stance.
In regard to the philosophical stance, it’s potentially fair that you’re saying that we’ve maybe taken a stance that makes a basic income harder to cross the line, but that is because of our reading of what it is to truly be a just society — one where we worry about social interactions. For example, if I go back to my example earlier about women working full-time essentially in poverty, a basic income as a response to that problem is a response in which we give people a certain amount of income, and we hope they will then walk away from bad jobs and force their employers to do better.
In our mind, an approach that is more, in some sense, communitarian — that says we are in this together, and we’re going to create and enforce regulations — seemed, to us, to be a more effective way of reaching the direct goal of a better job for these people, and also creating a society that we think of as more just, honestly.
Senator Woo: One can disagree on one’s philosophical position, but I think you agree with me that you can be a Rawlsian without rejecting basic income.
Mr. Green: I agree with that.
Senator Woo: We can pursue different versions of a just society and reach different conclusions as a result.
I will have to reread your report more carefully. I’m not sure I agree with you that your panel, in fact, looked hard at the downstream benefits. I recall that, essentially, the panel felt that some of these things were too amorphous and too fuzzy to measure: criminal justice benefits, more education and even health care. I’m not so sure; you did cite some studies. But I got the impression that the panel felt the following: “We’re going to go for a just society that prioritizes reciprocity. We want participation income. We don’t want basic income. Therefore, the long-term benefits are not really relevant to this question.”
If I’m unfair, please tell me, but, as I recall from the report, there was very little looking at what most basic income advocates would put emphasis on, which is the long-term benefits to society beyond, say, poverty alleviation.
Mr. Green: I appreciate the depth of your reading; I really do. I don’t agree that everything you’ve said is a fair interpretation of what we wrote. For example, on education, we had a study that explicitly looked at human capital creation and training, and looked at how a basic income would work into it. We had another study that looked at child education and exactly how a basic income would work into it. We looked at those very explicitly.
I do agree with you that some of the statements are on a broader scale — a basic income would make for a society where everyone can pursue their goals, and it is a happier, fairer society — exactly because we were trying to hold ourselves to empirical standards. We had trouble finding anything that would empirically back that up. The closest we could get was the following questions: When there are higher benefits, do we see more volunteering? Do we see more caregiving? Do we see things that look like pro-social changes in society? We could find no evidence that had happened.
I’m not saying that if everyone has a basic income, it wouldn’t happen. I’m saying that’s the piece of the pie that we are less sure of, and we tried to write that as clearly as we could, but it’s exactly because I don’t know of any evidence out there to support that claim.
[Translation]
Senator Dagenais: Mr. Green, considering that Canada has a federal and provincial governments, to what extent is harmonizing a basic income like this feasible and viable? Given that we’re faced with a complex budget situation and shared responsibilities, does this make sense in a federation like Canada?
[English]
Mr. Green: I do think this is difficult. Particularly from the perspective of Quebec, it would be very difficult. There would have to be an agreement from the provinces that they are willing to hand over some of these responsibilities, effectively, to the feds.
Essentially, the only way to make it work on a national level or, essentially, fiscally would be that you would be thinking about a system where the provinces would, more or less, withdraw from income assistance. Whether you could make that agreement easily is, obviously, up for a lot of questions.
I should say that even there it’s not quite so clear. If you look at the P.E.I. proposal, that proposal said, “Because we can’t find people at the sub-annual level fast enough, we’ll actually keep the income assistance system in place in order to make sure that we pick them up. It will be on a reduced scale, but it will still exist.” It’s another example of why you won’t get big savings from a basic income, but also one that, as you’re saying, would greatly complicate the fiscal federalism questions.
[Translation]
Senator Dagenais: I heard your presentation; there are a lot of references in your studies. Is there a country with as many assistance programs as Canada — you mentioned Quebec — where they’ve studied the possibility of introducing a basic income like this? If so, what kind of experience have the countries you mentioned had? You talked about Quebec, which has a lot of assistance programs.
[English]
Mr. Green: There are basic incomes, but most of them are targeted in some way or another. For example, the Canada Child Benefit is a basic income. There have been, as was mentioned earlier, basic income pilots. Most of those were very targeted. Most of them broke down at one point because of political interference, so we sort of view the evidence from those as weak.
A lot of what we did in order to try to study the impacts of health, for example, was to look at existing cash transfer benefits. There are benefit programs, and they for sure show good outcomes in some areas. Our argument is that it isn’t necessarily the basic income form that is really delivering those benefits. For example, wage subsidy programs also seem to deliver benefits in terms of the health and education of children in households.
[Translation]
Senator Dagenais: Is it necessary and affordable, or do the current services meet the basic needs of people living in poverty?
[English]
Mr. Green: I would answer very much in the same way that I answered Senator Pate — we believe not. Our recommendations for B.C. were, among other things, to increase the support levels and also to invest heavily in various other kinds of supports.
Our argument is not that things are all fine now — not in any sense. Our argument is that the most effective way to move forward is not to create a new program, but to figure out how to fix what we have. We think that’s a much more direct approach to helping people.
[Translation]
Senator Dagenais: Aren’t you afraid that there would be a major social backlash if we adopted a national implementation process that might cut certain programs to lump them in with the basic income?
[English]
Mr. Green: I’m not sure that I worry there will be an attack. I worry that there won’t be ongoing support — that you would try to put it in place and then a subsequent government would, more or less, undo it.
Part of what we were trying to advocate for was a system that we felt could get broad support, and maintain that support across the political cycle. To some degree, I worry that a basic income wouldn’t be able to do that.
[Translation]
Senator Dagenais: Thank you, Mr. Green.
[English]
Senator Galvez: Professor Green, I was recently discussing social justice. We were talking about how the social contract is being broken, and that, today, young people — the young generations — no longer expect the privileges of the older generations.
The B.C. panel examined the view that a guaranteed livable basic income has a role to play in transforming society and the economy in response to disruptions. What kind of disruptions? What is happening right now? It’s the affordability crisis, the pandemic, extreme weather events, the opioid crisis and climate change. The panel concluded that basic income could provide a base level of protection throughout the economy from disruptions, such as the ones I just mentioned. Still, you do not support it.
Given the even more urgent need for what is happening right now — and you just said that nothing is currently going right — do you not agree that we should continue to explore the role of a national guaranteed livable basic income in stabilizing these crises that are happening in society?
Mr. Green: Respectfully, no, I don’t agree. The area that is closest to my expertise is the labour market. The things that we’re concerned with there — in terms of the types of disruptions you’re talking about, for example — include fissured work. For many people — in particular, often women — we saw it happen with COVID, where the women who were working in care homes were not actually employed by the care homes; they were employed by other employers, such as a central employment agency, who then moved them around in a way that was risky to their health and bad for their work arrangements.
Our argument is that with that disruption and precarity going on in the labour market, we need to act — but we need to act directly. Basic income is not a direct act in response to that. A basic income gives those people an income, and hopes that will allow them to walk away from a bad job, but nobody, as far as I can tell, is proposing a basic income that is above the poverty line. That’s not going to be enough to allow those people to walk away from those jobs and discipline those labour markets.
To us, rather than going for this project and adding an extra layer onto the whole system, we think it’s better to address the problems directly. Let’s address it with minimum wage, with the Canada Workers Benefit increase and, in particular, with direct regulation.
Senator Galvez: The parameters and criteria that will be needed to also guide the evaluation that you did should include social well-being and health parameters — not only the ones related to labour. I’m a professor. I talk to students. Sometimes they like the job they are doing as engineers, but sometimes they think that they would be better off being a musician. To be a musician or a singer is very difficult to start.
Mr. Green: I understand; I agree. We’re worried about the labour market side and the income side, but I only used that as an example. Much of the report is exactly about the point that much of what we’re concerned with is exactly the issues you’re talking about: the nature of the job that people have and the nature of their societal relationships. Our whole point is that simply giving people an income will not change that.
In terms of the training and retraining, that literature tends to show that directed training programs that are targeted at the people who are ready to make that jump are usually helpful. Broad programs, including broad income programs, have a tendency not to have a lot of take-up, and when they do have take-up, they tend not to be effective.
The results from the literature about people shifting careers point away from a basic income. One of the studies in the project went into that in great detail.
Senator Galvez: Thank you.
Senator Cormier: Thank you, Professor Green. My questions will be a follow-up to Senator Galvez. It is about the cultural sector.
As we all know, most artists work all year long, but they’re not paid all year long. There’s a lot of invisible work that they do. They do research, they create, they produce and then, if they perform, if they sell their works, they will be paid.
In 2020, artists and arts organizations representing tens of thousands of artists, writers, technicians and performers came together to outline a case for basic income for the arts. Many artists who inspire us with their creations, bring us together and enrich our communities are subject to precarious, short-term contracts without access to benefits, paid sick leave or even Employment Insurance, and many were beneficiaries of the CERB and Ontario’s basic income pilot.
In the case of basic income, artists challenge us to imagine the potential of a guaranteed livable basic income alongside and without eroding federal support for arts and culture programs in supporting the remarkable creative capacity of individuals, but also in inspiring communities.
The B.C. panel’s conclusion that basic income is too individualistic seems at odds with artists’ experience of a guaranteed livable basic income allowing them to contribute creatively, enrich their communities and basically do their work all year long.
Did the panel speak to artists, particularly artists who have participated in a basic income program, before drawing its conclusions?
Mr. Green: The short answer to that is, no, we didn’t talk to artists in particular. I agree with everything you said. I appreciate the arts greatly. I think it’s an integral part of our society. I think it should be supported on a higher level than we do. But creating a general basic income for the whole economy and expecting it to hit every target — thinking that it’s going to reduce poverty, get people to better jobs and improve the arts sector — is asking everything from one policy tool. My belief is, given the goals you stated, with which I agree, we should be thinking about the program that makes them possible. Part of my point is that in doing that, we would go to that community and ask them how to create a self-supporting community that helps each other. I just don’t see it happening by giving everybody money and hoping that a certain set of people become artists. I think there’s a more direct way to do it.
Senator Cormier: I’m going to try to go further because it’s true that part of the work of the cultural sector is invisible work. It’s invisible because they do research and they’re creating in their own studio. During that period, they’re not paid. They’re not contributing to the economy in that sense. But further down the line, they will produce and perform.
Don’t you think that, for example, for that sector — you were speaking about targeted sectors — it could be relevant? Most of the time, they depend on grants and wages when they work, for example, as performing artists. But there’s a gap there that is obviously impossible to fill, and a basic income could help by being the base of a good wage for them to work.
What do you think?
Mr. Green: First, let me say that you’re much more the expert in this than I am. This is not a particular part of the society that I know in detail. I know artists, but I don’t know the details of how to do this better. All I’m saying is that a general basic income doesn’t necessarily seem, to me, to be the response. I don’t see going from this problem, which I agree with, to the conclusion that, therefore, we need a general basic income. Maybe a targeted basic income is the way to think about this. Do we think about creating a community of artists that are given a particular support program that helps create a community that they take part in? That, I believe, makes sense to me, but I’m not sure that I understand why that’s an argument for a general basic income.
Senator Cormier: Thank you.
The Chair: Professor Green, would you be open to giving us a written answer to the following questions posed by the four senators?
Mr. Green: Yes, I’d be happy to do that.
The Chair: Thank you.
Senator Marshall: This is focusing on your comment that instead of a basic assistance program, we should fix what we have.
One of the issues that I’ve always been interested in is that for people who are receiving financial assistance, in order to encourage them with workforce participation, for every dollar that they earn, they reduce a certain amount of their financial assistance. It used to be that if you earn a dollar, you maybe lose 50 cents, until you reach a certain salary.
Is that the best formula to support people and encourage them to move into the workforce? Did you do any work in that area?
Mr. Green: Yes, that was part of what we looked at. Part of the issue is that it’s something you can’t escape. If you want to —
The Chair: Professor Green, I will interrupt. We had agreed that we would have the answer in writing through the clerk. Do we still agree on that?
Mr. Green: I misinterpreted. I beg your pardon.
Senator Smith: I’d like to follow up on Senator Marshall’s question. One thing that struck me in the opening remarks was your idea that the basic income program places the burden on the vulnerable individual to fix their own problems that they face.
Could you expand on that? What needs to be done? Maybe tie that into where you are now in terms of your research and work. What are the next steps so that we can understand where you’d like to take it? Thank you.
Senator Pate: Thank you, Professor Green. I want to come back to something you raised with Senator Woo in terms of long-term costs.
Part of the challenge has been that — certainly I’d be interested in your response to this, in writing as well — we haven’t seen a basic income and we haven’t seen the long-term costs, in part, because, as you pointed out, there is the political nature and the fact that programs have been cut. You’re probably familiar with the Finland example where they have looked at some of the cost savings and downstream benefits of the types of approaches they’ve done and, in fact, have found savings, particularly in terms of medical costs, the criminal legal system and a more just society. Is it tautological in some respects — because of how our election cycles work — that we haven’t had a government that is willing to take it on? That’s the first part of the question.
The second part is the bill doesn’t actually say, “Implement only a basic income.” It talks about national standards. It talks about many of the issues, and replacing social assistance wouldn’t address the single mom that you talked about. In fact, the bill tries to look at a number of those issues. I’d be interested in your response to how a streamlined process might look at all of those issues, including the jurisdictional issues that we’ve raised.
Senator Woo: I’ve really appreciated your commentary today, Dr. Green. I have so many questions, so I won’t burden you. But maybe I can get together with you in Vancouver sometime, and we can have a longer conversation.
Mr. Green: I would appreciate that.
The Chair: Professor Green, as we conclude, do you have any comments before I ask you to follow another exercise, which would be that you would provide us with written responses, through the clerk, by the end of the day on December 23 — do we agree on that?
Mr. Green: Yes, I can do that.
The Chair: Do you have any comments in closing, for yourself, Professor Green?
Mr. Green: I would just say that I appreciate the conversation. I appreciate how much everybody here is engaged in these questions that I think we all care about. I have great respect for basic income as an approach. I just think it’s not the most effective one. But I really appreciate the conversation and being included in it.
The Chair: On behalf of the chair, it’s not December 23, but December 6, 2023.
Senators, we will move immediately to the next panel with the Office of the Parliamentary Budget Officer.
[Translation]
Today, we will begin our study on the expenditures set out in the Supplementary Estimates (B) for the fiscal year ending March 31, 2024, which was referred to this committee on November 21, 2023, by the Senate of Canada. We are very pleased to welcome you today, Mr. Giroux, as always. Thank you for joining us. Whenever we ask you to testify, you are always ready and available for the Standing Senate Committee on National Finance.
[English]
Mr. Giroux is accompanied by Jill Giswold, Senior Analyst; and Kaitlyn Vanderwees, Analyst. Welcome, and thank you very much for being here.
Mr. Giroux, your testimony and remarks always help us — on behalf of all Canadians — to focus on our four main objectives that we share in common, which are the transparency, accountability, reliability and predictability of budgets.
That said, the floor is yours. Your remarks will be followed by questions from senators.
[Translation]
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you, Mr. Chair. Honourable senators and committee members, thank you for inviting me to appear before you today; it’s always a pleasure.
We are delighted to be here to discuss a report on Supplementary Estimates (B) for 2023-24, which was released a little under a week ago on November 16. With me are Jill Giswold and Kaitlyn Vanderwees, two analysts who helped draft the report.
The 2023-24 Supplementary Estimates (B) call for $24.6 billion in additional spending.
Parliament must approve $20.7 billion of those expenditures. Statutory expenditures for which the government has already received parliamentary approval through other bills are expected to increase by $3.9 billion.
Nearly 50% of the proposed voted expenditures in these supplementary estimates involve the Indigenous affairs portfolio; a large portion of that amount is earmarked for negotiations and claims settlement.
With respect to the planned increase in statutory authorities, it can largely be attributed to a $2-billion supplement to the Canada Health Transfer, or CHT, which is earmarked for provinces and territories to help reduce backlogs and respond to immediate pressures, as announced by the government in June 2023.
[English]
Approximately 11%, or $2.8 billion, of the spending in these supplementary estimates is for 74 different measures of the 2023 budget. This brings a total of around $10 billion in proposed spending to date on Budget 2023 initiatives for the current fiscal year. Including these supplementary estimates, the proposed authorities since the beginning of the fiscal year — 2023-24 — reached a total of $480.5 billion. This represents an increase of $37.2 billion, or 8.4%, over the last fiscal year’s estimates.
To support parliamentarians in their review of the implementation of Budget 2023, we have prepared and published tracking tables that list all budget initiatives, planned spending amounts and corresponding legislative funding authority. These tables, which are available on our website, will be updated throughout the year as the government presents its legislative agenda.
That being said, we would be happy to answer any questions you might have about the estimates analysis or other studies produced by the Office of the Parliamentary Budget Officer.
Senator Marshall: Thank you, Mr. Giroux. Thank you, Ms. Giswold and Ms. Vanderwees, for being here today.
I’m using as a guide your report on Supplementary Estimates (B). On page 5, you’re talking about the government and how reluctant they are to bring the money into the budget measures — the estimates and the supplementary estimates. You’re saying that they’re doing it very slowly compared to last year.
I notice now that in the budget, they had forecasted a $40-billion deficit. That amount is staying firm.
I want you to confirm whether you can control the bottom line by slowing down the bringing in of the measures so that you actually hit the bottom line right on the nose. It’s my suspicious nature. I was a legislative auditor. I’m wondering if you could confirm whether my thinking has any merit to it, or if I’m out to lunch.
Mr. Giroux: Thank you, Senator Marshall. You would be a great Deputy Minister of Finance, because I think that’s exactly what can happen if a government wants to hit its deficit target.
One way of doing it is to reduce the pace of the implementation of specific measures — that can reduce a bigger lapse, reducing the deficit that would otherwise have to be registered. That is a trend that we have seen recently, where the percentage of authorities that do lapse at the end of the fiscal year is increasing.
It’s traditionally been around 10%, but it’s increased to close to 24% in 2022-23. That’s for voted budgetary authorities.
Senator Marshall: According to the numbers you provided — and I know that tracking the budget initiatives into the estimates and the supplementary estimates is not a science; the numbers don’t match up exactly — what other reason could there be for why the government is so slow in introducing those new budget measures? The number of employees within the public service has gone up quite significantly, so it can’t be shortage of manpower.
Can you think of any other reason as to why they’re slowly bringing the money in? By the numbers you’ve given, it looks like it’s about $6 billion that is still waiting to be brought in. Could you offer some other suggestions?
Mr. Giroux: I don’t know exactly what’s happening in the current case for Budget 2023 measures, but, generally speaking, a couple of things can happen: It could be that budget measures were developed but not fully developed, so there still needs to be work after the budget, which may slow down implementation. It could be that when the inclusion of measures in the budget was done, there were unforeseen events that subsequently delayed the implementation of budget measures. It could also be the decisions made by the executive that, in order to meet certain targets, there’s an implicit decision to take it easy on the pace of implementation.
Senator Marshall: I will ask a question on professional services. I was looking at your comments on the reduction. I know that the $500 million is not a significant amount of money. It’s split into $350 million for professional services and $150 million for travel.
When I looked at the actual numbers for the reduction of $350 million, I wasn’t really impressed. The government has taken the $20 billion that they had last year up to this point in time, and they gave the departments an extra $1 billion. Then, they said that out of that extra $1 billion, they’re going to ask the departments to save $350 million. So really, the departments have $750 million more than what they had this time last year.
I couldn’t find the numbers for the travel. It’s $150 million for the travel. I was talking to some of your people about how you go about finding that.
First of all, do you have any commentary on the $350-million reduction? Also, is there any way to see if they treated the $150-million reduction the same way — giving the departments more money and telling them to take their $150 million out of that extra money?
Mr. Giroux: That’s an interesting question. If you look at voted authorities in 2016-17, it was about $103 billion. Last year — in 2022-23 — it was $225 billion. It has more than doubled over a span of seven years. The lapse rate has gone from 10% to 24%. It’s money that departments cannot spend. It went from $10 billion to $54 billion. Identifying $350 million or $500 million when departments have lapsed — without being forced — they’ve lapsed $38 billion in 2021-22, and $54 billion. It’s a statement of good intentions, but they are lapses that would have taken place anyway.
Senator Marshall: That’s right; it’s not inflicting any pain on the departments.
Mr. Giroux: I would be hard pressed to find any pain on anyone at that rate. For example, CBC/Radio-Canada suffered a reduction of $127,000 out of a budget of $1.4 billion. It’s not something that is likely to be felt harshly. That is one example that comes to mind.
Senator Marshall: Thank you.
[Translation]
Senator Gignac: Mr. Giroux, welcome, and thank you for joining us on such short notice. We always appreciate it. I must take advantage of your presence here the day after the Fall Economic Statement was presented to ask you my first question on that subject. I will come back to the subject of our meeting, the Supplementary Estimates (B), when I ask my second question.
Were you surprised by the deficit figures yesterday? The economists were all expecting something on the order of $45 billion to $46 billion, which is the magnitude you had predicted; yet here we are with $40 billion. I’ve covered public finance for years, if not decades. Sometimes there are accounting entries or things that are somewhat unusual. Have you noticed anything out of the ordinary, or is it just that we’re working with different economic assumptions?
Mr. Giroux: That’s an interesting point. The deficit for the current year surprised us. In the absence of new measures, we were expecting a deficit of around $46 billion, but the government is forecasting a deficit of $40 billion instead. This is due in part to a slower pace of spending. Spending is happening at a slightly slower pace, but revenue is also coming in a little better than expected. The combination of those two factors means that the deficit for the current year is lower.
On the other hand, what didn’t surprise us was an upward revision of the deficits for subsequent years. We’re talking about approximately $10 billion per year for each subsequent year. We were somewhat expecting that. However, the fact that deficits are rising before major measures are announced, such as a national pharmacare program or Bill C-22 to establish a Canada Disability Benefit, suggest that if those two measures go ahead, either deficits will rise further or taxes will have to be raised.
Senator Gignac: I was thinking about one thing in particular: I’m talking about the $5.2 billion reduction in expenditures attributable to accelerated recovery by the Canada Revenue Agency. That’s $5 billion more than forecast in the spring. Until your next meeting or release, I’d like to know more about the Canada Revenue Agency, which is suddenly going to collect $5 billion more than forecast five months ago.
My next question is about Supplementary Estimates (B). You can see that 40% of the proposed spending in Supplementary Estimates (B) is for the Crown-Indigenous Relations and Northern Affairs portfolio. That’s really quite significant.
However, in all the economic statements that we have looked at, this is the first time I’ve seen what last year’s deficit would have been if we hadn’t made all these investments. I’m not questioning the merits of this portfolio, but I read in the appendix that the deficit for 2022-23 would have been $9 billion rather than $35 billion. That’s quite considerable.
Is it a five-year time frame? Would we have a balanced budget if we did this exercise? Now they’re saying that the liability is about $76 billion for investments in truth and reconciliation. In your future analyses, could you shed some light on the impact of all this? I’m trying to see what’s recurring and what’s not. That would help us understand the underlying deficit.
Mr. Giroux: When we saw the public accounts, we saw an additional provision for contingencies or lawsuits. I think we’re talking about an additional $20 billion, even though several tens of billions of dollars were identified as spending for contingencies and lawsuits in the previous public accounts. That came as a big surprise to us.
We made an inquiry with Crown-Indigenous Relations and Northern Affairs Canada and Indigenous Services Canada. We have received the information and are in the process of analyzing it. This will enable us to determine whether these are mainly new claims or an upward revision of existing claims. It may be a combination of both. We’re in the process of analyzing these issues and will be able to get back to you on the makeup of these claims, these liabilities.
Would this bring us closer to a balanced budget? This suggests that it would, but it depends on what the government would have done if it hadn’t set aside so much money to address Indigenous issues. With a return to balanced budgets, would the government have more willingly brought in programs that have yet to be introduced? We can’t know for sure.
Senator Smith: Thank you for being here.
[English]
In your analysis, you found that, to date, total government spending is $37.2 billion more compared to this point in 2022. You highlighted that the supplementary estimates do not suggest there are any spending restraints by the government. In addition to that, the Fall Economic Statement includes an additional $20 billion in new spending. Canada’s debt servicing is at record levels.
Are you concerned the government is running out of room to manœuvre fiscally? In general, what are your concerns about the lack of fiscal restraint by the federal government given the economic environment we’re in today?
Mr. Giroux: When we released our Fiscal Sustainability Report last summer, we indicated that there was still some fiscal room available at the federal level. However, with the debt servicing costs that are increasing and with the remaining commitments that have not yet been implemented or factored into the fiscal framework, that severely diminishes the fiscal flexibility available for the government to withstand another economic shock.
It’s not a worrying factor yet, but it depends on what the government will do, if anything, with respect to Bill C-22, or the Canada Disability Benefit, as well as national pharmacare, investments or spending on national defence or any other spending areas that the government may wish to target, especially in light of the debt servicing costs that have risen sharply over the last few years.
Senator Smith: Minister Freeland discussed the concept of guardrails, and I guess that started probably about a year ago and is now being revisited.
What type of room does she have for guardrails? What could they possibly be, if you had to make an educated suggestion or a guess?
Mr. Giroux: Well, a good guardrail that is widely used is a declining debt-to-GDP ratio with a specific target at a point in time.
The issue that we have — and we’ve raised it before — is that fiscal guardrails have evolved over time. It used to be debt servicing costs representing a low share of revenues. It has evolved to a declining debt-to-GDP ratio, which is not happening because it’s on the upward, so it’s increasing. Then, in the Fall Economic Statement, the government introduced three new measures — one of which is a deficit of 1% of the GDP or less.
What is a bit concerning when you have a fiscal anchor is changing it over time. Usually, an anchor is meant to be an anchor, so it’s something that guides your decisions over time. It’s not meant to change — otherwise it’s not an anchor.
[Translation]
Senator Dagenais: Good evening, Mr. Giroux. The supplementary estimates call for an additional $10 billion for Indigenous affairs. Are these new measures that were impossible to include in the government’s main estimates? Is this new spending the result of new and unforeseeable events? In other words, is this a political strategy through accounting entries or a lack of foresight or vision?
Mr. Giroux: It’s hard to answer that question. We’re dealing with two separate phenomena here. On the one hand, the government records a deficit amount for one year, which is intended to recognize its liability in the face of claims. For example, specific or global claims affect the deficit for the year in which the government determines that it has a 70% or greater risk of losing in court. There, we see the funds or money the government is asking for to pay the negotiated claims and settlements it has reached.
I don’t believe the numbers are being played with. It’s simply accrual accounting. There’s an impact on the deficit when the government acknowledges that it has a liability that it stands to lose, or a claim that’s been recognized in previous years. Once negotiations are complete, of the $10 billion, $5 billion is earmarked for a specific claim and $1.6 billion is for other claims. So there are a few details, but this settles claims that had been recognized in the deficit for previous years.
The problem is — I discussed this briefly with Ms. Giswold — we can’t pinpoint exactly which year this claim was included in the deficit or debt. Was it this year, last year or five years ago? We don’t have that information yet.
Senator Dagenais: On another note, is the bad news about the cost of debt alarming? To what extent will government debt have an impact on future generations? People are saying that the interest rate may come down, but it’s still high for now and the cost of the debt isn’t the same.
Mr. Giroux: I wouldn’t say it’s alarming if you look at it in a historical context. Debt service costs range from 10% to 11% of federal revenue right now. That’s far from low, but historically it’s much lower than it’s been in the past. When I finished university, costs were between 35% and 40%, which gave genuine cause for concern. However, if we look at right now or the years to come, we may spend more on interest than the federal government will transfer to the provinces and territories for health care. So this is a very, very significant expense item. Is it so big that it will choke public finances? No, but it’s obviously a weight we carry year after year that slows us down.
Senator Dagenais: Are you worried about the state of public finances for taxpayers? Should taxpayers be worried? The government doesn’t have a penny and it spends the money taxpayers are giving it. Should they be concerned?
Mr. Giroux: Worried? I’d say no. Can taxpayers wish the government would make different choices? They certainly can. You can ask 100 people and you’ll get 100 different answers about federal funds allocations, tax cuts and allocations in certain sectors or others. Am I worried about the sustainability of public finances? I’d have to say no. Would I personally make these choices? I won’t answer that question, because it’s not my role, but I recognize that some people have different preferences.
[English]
Senator Pate: Thank you again, Mr. Giroux and Ms. Giswold and Ms. Vanderwees, for joining us.
In your Supplementary Estimates (B) report of last week, you indicate that about 40% of the amount requested — $10 billion in total — is for Crown-Indigenous Relations and Northern Affairs Canada, or CIRNAC, and Indigenous Services Canada, or ISC. About $8 billion of the $10 billion seems to be for the negotiation and resolution of outstanding claims. You noted that the budgeting for contingent liabilities related to Indigenous claims situations — where there’s a 70% or greater likelihood of a liability being incurred that can be reasonably quantified — has risen by 360% since 2016-17.
I have two main questions related to that. Beyond the obvious — the litigation — how do you explain the increase? Do you have a sense of how much all of this ongoing litigation is going to cost?
Also, are there any practices you would suggest when parliamentarians are considering proposed legislative and budgetary policy measures that would allow us to more clearly see potential future costs associated for not adequately meeting obligations to Indigenous peoples?
Mr. Giroux: The last question is a very difficult one to answer.
I worked at the Department of Finance for years. I was in the social policy area, and it’s an issue that I wasn’t able to firmly grasp, because it’s very complex. However, I know that there’s a team of very dedicated lawyers and analysts at CIRNAC who could probably be in a very good position to explain to you the process they use. They might even have better suggestions than I could come up with as to how to improve the process.
As parliamentarians, I think the information that is lacking for you — and for me — is, as I was explaining before, a connection between this: We are settling this specific claim or comprehensive claim, but the liability was recognized in this budgetary exercise or that one. This is information that maybe exists, but I don’t have it.
Senator Pate: Thank you for that.
Are there situations where the government has already set aside amounts? In terms of reconciliation, it strikes me that it’s beyond just anticipating what litigation is likely to happen; it’s about how we can avoid that litigation. Are you aware of any economic measures that are being taken?
When you were asked about the guardrail example, I just recently saw a boat that was anchored, but — because of a particular climate situation — it got thrown up on rocks. It strikes me that such an analogy or metaphor might apply in this case when we’re talking about Indigenous claims and lack of planning.
Mr. Giroux: It’s not an area that I feel very comfortable commenting on because specific claims and comprehensive claims are very complex. They need to be looked at from a historical lens. I’m not a historian, and I don’t feel competent enough to answer that type of question, sadly.
Senator Galvez: Thank you, Mr. Giroux, Ms. Giswold and Ms. Vanderwees.
I have the impression that we have already discussed this same situation, which is the fact that we are increasing these budgets for these liabilities and the cost of core processes and compensation to Indigenous people. We seem not to have a grasp on how to predict.
Senator Smith and Senator Dagenais asked if we were in danger, and we are not in danger, but if we cannot predict anything, how can you be sure that we aren’t?
You said you compared it to the time when you started, which is when they were at that level. Because of what is happening these days with all the crises that we are living in, do you think there could be — I don’t want to say “a bubble,” but we don’t know. Is it possible?
Mr. Giroux: It is possible. If interest rates were to continue to increase, then we’d be in a different situation. If they were to increase by 300 basis points or 3 percentage points, we would be in a very different situation.
When I say that I’m not overly concerned, it’s because I don’t think that’s a very likely scenario. It doesn’t mean it’s an impossible scenario, but not very likely.
With respect to the issue of specific claims and liabilities, it is a bit concerning that they have increased so much. It raises the question as to how firmly in control the government is with respect to these claims, if we keep discovering new claims, which are supposed to be based on historical facts. At a certain point, we should have a pretty good idea as to the extent of the government’s responsibilities toward Indigenous people. Things should have improved, and we should stop incurring these claims by correcting wrongs from the past. We should have a very good handle and a thorough knowledge on that.
I probably wasn’t very clear in my answer, or hadn’t thought it through well enough, but it’s a bit disconcerting to see these liabilities increasing so much when we’ve had so much time to figure them out.
Senator Galvez: I do remember that you strongly recommended that we bring the two ministers to explain the details, and we didn’t do that.
Chair, can we please invite the two ministers to hear more details on this ongoing process? We need to have an idea about how this will —
The Chair: I’ve taken a note of it, and we’ll bring it over to the steering committee.
Senator Galvez: I think it’s important.
The Chair: We will come back to the committee on that.
Senator Galvez: Thank you.
[Translation]
Senator Loffreda: Mr. Giroux, thank you for joining us.
[English]
Budget 2023 announced a 15% or $500-million spending reduction in consulting, professional services and travel for the planned 2023-24 discretionary spending. We’ve already discussed how this would be done: by freezing $350 million in spending related to professional and special services, and $150 million in spending related to travel. Spending on professional and special services continues to increase despite the lapses — at the end of the year, the frozen amounts will lapse. Inclusive of Supplementary Estimates (B) for 2023-24, the total proposed authorities for professional and special services are at a record $21.6 billion.
Why do you think that, despite the $500-million spending freeze in consulting and travel, the planned spending in 2023-24 remains above previous years’ spending levels?
Mr. Giroux: It is very surprising — when the government has clearly stated its intention to reduce the use of professional and special services — to see authorities having increased significantly. The process of granting authorities but freezing parts of them is a bit strange. I think it would have been more efficient to just not provide the authorities in the first place rather than bank on a lapse.
The government providing these authorities, which could be spent, when it wants to reduce spending in that area is unusual. Maybe the President of the Treasury Board has a better explanation.
Senator Loffreda: What are the main subject matters on which the government uses consulting and professional services? Do you have that information?
Mr. Giroux: Not off the top of my head. We had that in previous reports. Ms. Vanderwees, do you know?
Kaitlyn Vanderwees, Analyst, Office of the Parliamentary Budget Officer: There are several areas. Most recently, defence has a large portion of it, as well as health, although I imagine with the end of the pandemic, that would be changing this year. We don’t have that level of detail through the estimates.
Senator Loffreda: What are the main reasons for the heavy reliance on consulting and professional services? Would it not be more efficient to hire personnel to that effect who are specialized in the areas that require most of the special consulting?
Mr. Giroux: It depends. That’s a good question for individual ministers. Reasons often quoted for using external professional and special services are that the expertise does not exist in the federal civil service, or it’s so specialized that it wouldn’t be worth having that expertise in-house. It’s a case-by-case situation.
Senator Loffreda: When we look at the personnel increase over the years, and then we look at the consulting increase, I question what’s going on. We’re increasing personnel drastically. The expenses are increasing substantially, and then you look at the professional services, and it’s there too.
Mr. Giroux: I know that in the IT sector, it’s a problem. Even if the government had the capacity to double its contingent of IT specialists, they don’t exist on the market. That’s why they use professional services, because that’s the way to get these professionals.
As you pointed out — and I have raised this issue several times — we have an increasing public service, but also an increase in the use of professional and special services. One does not necessarily have to go with the other. Normally, if you hire tens of thousands of public servants, you would think that you’d need to use fewer professional services.
Senator Loffreda: Talking about personnel, in your PBO report on the supplementary estimates, it’s highlighted that spending on personnel continued to increase, totalling $67.4 billion. Based on The Fiscal Monitor, personnel spending in the first five months of 2023-24 is up 4.2%. In June, we know that the government approved eight collective agreements covering 138,000 public service employees.
Do you believe that corresponds to inflation and a general increase of labour costs? Is it justified, considering the population growth and related increased demand for government services?
Mr. Giroux: In terms of the 4.2%, we’ve since had another The Fiscal Monitor issued and released. It’s now 4.1%. Roughly speaking, it corresponds to inflation and salary increases as people evolve through the salary scales. That’s for 2023-24.
Looking at the last couple of years, even if you do a per capita comparison on that basis, the number of public servants has increased significantly over the last couple of years. The public service has been growing in absolute terms, but also on a per capita basis or per-thousand Canadians basis.
Senator Loffreda: Do you believe an external review of service delivery methods could be beneficial for maximizing the use of public funds by the government?
Mr. Giroux: I think one of your colleagues — I believe it’s Senator Colin Deacon — is keen on improving digital services. I think that’s a very good avenue to streamline service delivery and make these more efficient. Honestly, I’m surprised the government is not embarking more enthusiastically on that bandwagon to improve service delivery for Canadians, while making service delivery more efficient from a personnel point of view.
[Translation]
Senator Cormier: Great minds think alike. All the questions my colleague Senator Loffreda asked are exactly the same questions I wanted to ask.
Thank you for your responses and thank you for the questions.
[English]
Senator Marshall: My question is on a topic that several senators mentioned: It’s Crown-Indigenous Relations and Northern Affairs Canada and all the money that is requested in Supplementary Estimates (B). One of the challenges that I have is trying to find which financial statements are bearing the burden of the claim.
The $5 billion for the Restoule settlement agreement is a significant sum of money. I cannot find that in last year’s public accounts. I can’t find it anywhere. When the government talks about being transparent, I have to shake my head over it. If you have an expenditure of that magnitude — $5 billion — and you can’t find it, there’s an issue.
Do you have any suggestions as to how we can go about finding that financial information? I know that the budget and the public accounts are not aligned. We’ve talked about that many times. It’s very difficult to track the expenditures because they’re going back and forth between documents.
Do you have any suggestions, or do you know where that $5 billion is recorded in the financial statements of the government?
Mr. Giroux: That’s a very good point, and I don’t know. I don’t know in which year it’s been recorded as a liability.
Generally speaking, the government is reluctant to disclose how much it has set aside for specific, individual claims for fear of tipping its hand and revealing how much it’s prepared to pay. If that amount were to become public, it would easily become the floor in any negotiation with specific claims, or any other claim — it could be with contractors and so on. It’s kept secret to a certain level, even at cabinet.
I’ve seen cabinet documents. When ministers discuss that, cabinet ministers have the memoranda to cabinet, and it’s a series of Xs where the numbers should be. Then, they are handed out something that states “X” means that many billions, and “Y” means that many thousands of individuals, so that the secrecy is maintained. That’s why it’s very difficult to figure out in which year the liability was recorded on the Government of Canada books because even ministers are given these numbers literally at the last minute.
Senator Marshall: Even in the fiscal update document and in the budget, there are large dollar amounts, and you can’t tell what it’s for. The public accounts have a similar problem. Going through the public accounts that were just released, there are dollar amounts in the billions of dollars, and there’s no way to find out what they represent.
Mr. Giroux: Yes, it’s a “trust us.”
Senator Marshall: It’s a transparency issue.
Mr. Giroux: They’re all bundled together, and “Trust us; that’s how much we have in terms of liabilities.”
Senator Marshall: I don’t know the solution, but it’s very frustrating.
Senator Smith: Senator Loffreda was asking about the spending and personal consultants, et cetera. We’ve discussed on numerous occasions the failure of government departments to provide adequate levels of service, but also to achieve their departmental objectives.
Based on your review of the federal departments, are you seeing any improvements in service levels? Is there consistency in terms of better performances? And are they measuring it and getting it out so that we can actually understand it, and not look at it five years after the fact?
Mr. Giroux: Based on the latest Departmental Results Reports that have been tabled at the same time as Supplementary Estimates (B), there has been an improvement. I think it has gone from 52% to 53% of targets that have been achieved.
Senator Smith: How do you qualify those numbers?
Mr. Giroux: It’s based on the number of targets that the government has achieved, by their own indicators.
Senator Smith: As spending remains a problem, do you see that there will be a marked lack of technical competence or expertise within the various departments? Is it going to get better? As Senator Loffreda pointed out, we have these people, numbers are going up and spending is going up, but where’s the service going?
Mr. Giroux: That’s a very good question. We have an economic slowdown. If there’s better availability of labour, and fewer labour shortages, that could help the government to get their hands on individuals who are better suited to the jobs that need to be filled in the government, but that has clearly not been the case over the last several years.
Senator Smith: Is that a leadership problem?
Mr. Giroux: I think so. I think it’s a leadership and a willingness issue. I’m making lots of friends tonight.
Senator Smith: Thank you. I wasn’t looking for you to say that, but the fact is that there have to be enough people in key positions to be able to express the reality of the situation so that it can be improved.
Mr. Giroux: Yes, there has to be a desire to deliver and achieve meaningful targets.
Senator Smith: Thank you, sir.
The Chair: Thank you, Mr. Giroux, for your frankness and professionalism.
[Translation]
Senator Dagenais: You know, Mr. Giroux, you’re generating so much interest that we don’t want to let you go.
I have one last question. The supplementary estimates are one thing, but we can’t leave the 2023 Fall Economic Statement out of our discussions. In your opinion, were there any warning signs a year or two ago that the government didn’t see and that should have prompted better control over spending? Should we see this as a surprise that came out of nowhere for those in power? I wouldn’t dare name Mr. Trudeau and Ms. Freeland, but did they get hit with a surprise that they didn’t see coming in their spending?
Mr. Giroux: When you’re managing a national budget, we’re talking about close to $500 billion; you can’t possibly anticipate everything. You can, however, see the general direction in which things are moving, and it was foreseeable that there would be an economic slowdown once the COVID subsidies came to an end. It was also foreseeable that interest rates would affect the servicing of the debt, because interest rates did start to go up. That wasn’t yesterday or last week, so it could have been predicted to some extent.
Could we have known how high they would go? I don’t think so. Many people can say they did, and in retrospect, many of them were right, but not that many when you look at the historical record. On the other hand, the general direction was predictable. It was also foreseeable that there would be a slowdown. The nature and magnitude of the slowdown and just how high interest rates would go were not easily predictable, but the general direction was.
[English]
Senator Loffreda: I have a general question. I would like your opinion, given the Fall Economic Statement and what we’re looking at.
With interest rates now at a 20-year high, the cost to borrow all that money has spiked from $20.3 billion in 2020-21 to $46.5 billion in this fiscal year. The debt service charges will march even higher in years to come. Carrying the debt is expected to cost the federal treasury $60.7 billion in 2028-29, according to the economic statement — this means that the debt service charges are now amongst the most costly line items in the federal budget.
There are two extremes and two arguments that we hear all the time. We hear the argument saying that, to put it in perspective, we’re spending $28.9 billion on the Canadian Armed Forces. A number means nothing if you don’t compare it to the trends, or compare it to a ratio or to something else. We both know that. The $28.9 billion is about $18 billion less than what the government will send in payments to bankers and bondholders. Then, you look at the other side, and if we compare ourselves to the G7 and G20, the favourable argument is that we’re still amongst the top of the class.
Every argument is partisan; let’s face it. It’s those who want to get to power, and those who are in power and want to keep the power. I’d like your perspective on that. We’ve had a pandemic. We’ve gone through what we have gone through. We now have these numbers in front of us.
A partisan argument would be “Compared to that number, look how much higher it is today.” Interest rates are higher. I don’t think it’s our government’s fault that there has been a global inflation crisis and supply chain issues like the ones we have lived through. I’d like your perspective. Is that sustainable going forward? How do we compare, if you have those numbers up front, to the G7 or G20 nations, and what about the performance — an independent opinion rather than the partisan opinions I usually hear from both sides?
Mr. Giroux: When we compare ourself to the G7 countries on a debt-to-GDP level, we are at the top of the class because, in good part, we have decided to have a fiscal environment that was reasonably prudent for several years. I’m not talking necessarily recently, but since the 1990s, we have made structural changes to governments — provincial, federal and so on. We have that. But we have also decided to refund some of our pension obligations — the Canada Pension Plan and the Quebec Pension Plan. That’s counted against our debt because most other countries don’t have a nest egg of that nature. It is an obligation that they will have to pay — an obligation they have toward future and current retirees — whereas we have a nest egg. Taking that into account, we’re at the top of the class when it comes to the G7 countries.
If we look at the G20 countries, which would include countries such as Australia and New Zealand, then we’re not in such great shape. Some people have said, “If you compare Canada with the rest of the G7 countries, it’s like comparing yourself to the back of the bus or the bottom of the class.” I think that’s exaggerated and unfair. But if we compare ourselves to Australia — a similar-sized country with a similar parliamentary system — then I think we need to improve because they are in a better fiscal situation.
I don’t think it’s either all black or all white. It’s somewhere among the shades of grey.
Senator Loffreda: But is our debt sustainable going forward? Are you concerned?
Mr. Giroux: Yes, I think our debt is sustainable. As I mentioned earlier, if the government were to introduce a disabilities bill — that would be very ambitious and generous — as well as a national pharmacare program, then it would be close to unsustainable without increasing taxes.
Senator Loffreda: Thank you.
[Translation]
The Chair: As usual, you answered the questions well. We want to congratulate you and your team of professionals, because you undoubtedly represent what Canada is all about, which is the quality of service we receive from people who work for governments, both federal and provincial, I must admit.
[English]
You have always been very informative and instructive. That’s real professionalism that you’re showing to all Canadians.
Honourable senators, our next meeting will be Tuesday, November 28, at 9 a.m., to resume our study of Bill C-241 and Supplementary Estimates (B).
[Translation]
Before adjourning the meeting, I’d like to thank the entire support team of this committee, those who are visible around the room as well as those in the background. Thank you for your teamwork, which enables us to do our job as parliamentarians.
(The committee adjourned.)