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Proceedings of the Standing Senate Committee on
National Finance

Issue 43 - Evidence - June 12, 2013


OTTAWA, Wednesday, June 12, 2013

The Senate Standing Committee on National Finance met this day, at 6:45 p.m., to examine Bill S-217, an Act to Amend the Financial Administration Act (borrowing of money).

Senator Joseph A. Day (Chair) in the chair.

[Translation]

The Chair: Honourable senators, this evening we will begin our study of Bill S-217, an Act to Amend the Financial Administration Act (borrowing of money).

[English]

In the first half hour this evening, we welcome the sponsor of the bill, Senator Moore. In an unusual place for a senator, he is here to sit at the end of the table and describe the bill to us. Senator Moore, we thank you for your initiative. You have the floor to tell us about Bill S-217.

Hon. Wilfred P. Moore, sponsor of the bill: Honourable senators, good evening. I want to thank the Senate Committee on National Finance for creating time this evening for the consideration of Bill S-217. It is important to us as Parliamentarians to consider the issue at hand. I will discuss briefly the concerns I have with the changes made in Budget 2007 to the Financial Administration Act; and I would like to discuss briefly the manner in which these changes were made. Bill S-217 seeks to restore the status quo prior to 2007.

In 2007, the Government of Canada introduced Bill C-52, an omnibus bill that sought to amend 25 acts of Parliament, including the Financial Administration Act. For my part — and this is a mea culpa, the opposition at the time, myself included, was concerned chiefly with the proposed changes to equalization of the Atlantic accords. These were the issues that dominated our time as they affected the Atlantic region and my province of Nova Scotia. We missed an amendment to the Financial Administration Act that stated, "The Governor in Council may authorize the Minister to borrow money on behalf of Her Majesty in right of Canada.''

As my then colleague Senator Lowell Murray said, until that moment, borrowing by the government had to be expressly authorized by an act of Parliament.

There was no advertisement of this change. No mention at all was made to the people of Canada that they were about to be cut out of the loop when it came to the government borrowing money.

Senator Murray also said this change was "slipped in and slipped by us'' and that that was exactly the tactic the authors intended — slip it in there when attention is diverted by other important matters.

We learn now that there was a reason for doing this, as the Department of Finance said:

This important addition provides greater transparency and accountability than ever before to facilitate more efficient, responsive and prudent financial management.

I ask you all, what greater transparency and accountability exists than our Parliament? Since when does cutting Parliament out of the discussion contribute to greater transparency and accountability? It does no such thing. In fact, it reverses the role entirely. It leaves the executive and the bureaucrats with free reign, where before the people of Canada were in the know.

What is not transparent and what is not accountable is the borrowing of nearly $1.5 trillion since these changes took place without legislation being placed before Parliament and the people of Canada beforehand. We now know that what "efficient, responsive and prudent financial management'' means. It means that Parliament is seen as an impediment to the business of borrowing by the government and that this is now done on a need-to-know basis; and Canadians do not need to know.

Briefly, colleagues, I have heard the argument from the government justifying such a move. Now I know that parliamentary oversight does not prevent the stated goals of the government when the amendments were made in 2007. The desired goal of finding saving and interest rates for Crown corporations and parliamentary oversight are not mutually exclusive items. I do not believe that the framework for borrowing authority in many other countries has a bearing here. We have made it so far without worrying about how New Zealand and others might handle their borrowing.

Bill S-217 can be amended to require the debt management report to be tabled within 15 days of the Public Accounts of Canada if the government would like even greater transparency if speed is the goal. However, that report is post- borrowing.

The government says that the changes help deal with emergencies. Is there no better time for Parliament to be recalled? It is clear to me that an emergency would seem to be an appropriate use of Parliament's time. After all, is it not our job to guide our country whether in a time of stability or of emergency? Further, speakers of the House of Commons and the Senate can recall both houses under standing orders "if it is deemed that public interest requires it.''

Honourable senators, this nation made it through two world wars, numerous other conflicts and moments of crisis without needing to change this section of the Financial Administration Act — without the need to cut Parliament from its role. I find this attempt at justification for the removal of parliamentary oversight to be disturbing at best.

In our Canadian democracy, which is based upon the concept of responsible government, it is utterly astonishing that a government would claim that "greater transparency and accountability'' have resulted from the removal of the convention that the Crown must seek parliamentary approval for borrowing any amount of money from any source at any rate of interest. That simply is not true.

By the middle of the 19th century, responsible government came to the British colonies in our part of the world. When Canada was formed, responsible government was part of the bargain. That concept is the lifeblood of our democracy. Once established, it meant that the Crown's ministers could no longer rule by fiat as they once did. They were subordinate to the elected representatives of the people. They hold office and do certain things only with the Commons' consent.

For 140 years, from 1867 to 2007, governments and ministers of the Crown understood and observed the important conventions attendant to the borrowing and spending of large sums of money. This is the very essence, the sole point, of what went on at Runnymede in 1215 when the concept of responsible government first poked its head up. In our Canadian democracy, which is based upon that single important convention based upon the concept of responsible government, it is astonishing to hear that the government would claim that greater transparency and accountability result from the Parliament of Canada being cut out.

I want to end by saying, on a bit of a personal note, that my office is in 229 in the East Block. It was formerly occupied by Sir John A. Macdonald and various other prime ministers, by Sir Charles Tupper who gave us public education, and by Joseph Howe, who fought and led Nova Scotia into Confederation and was the father of responsible government. As I was thinking about coming over here tonight, I wondered what those gentlemen would be saying. They probably are rolling over in the grave to think that we are even talking about this, that all that they fought for, that all they put together, has been taken away in one slippery little line in a budget omnibus bill in 2007.

I want you senators to think about this. I think it is bad, and I think we should put this parliamentary oversight, Parliament's role of control of the purse, back in the hands of the people.

Thank you.

The Chair: Thank you, Senator Moore. Just so I can summarize what you are proposing, you are proposing to put back into the Financial Administration Act the two sections that were taken out.

Senator Moore: Yes, Mr. Chair.

The Chair: It is the same words. We do not have to study the words. They are the same two sections going back in again.

Senator Moore: Yes.

Senator Callbeck: Thank you, senator, for bringing this bill forward and taking the initiative to do so. As I understand it, with the changes that came about in 2007, it means there is no parliamentary oversight of borrowing.

Senator Moore: Correct.

Senator Callbeck: The Governor-in-Council can authorize the minister —

Senator Moore: Minister of Finance, yes.

Senator Callbeck: — to borrow up to a certain amount that the Governor-in-Council determines. I read somewhere that it was $300 billion for 2013-14. Can that figure be changed by the Governor-in-Council every year, or twice a year, or is there any limit?

Senator Moore: There is nothing I am aware of to prevent it.

Senator Callbeck: In other words, the Public Accounts of Canada will not come out on this borrowing till the fall of 2014.

Senator Moore: After.

Senator Callbeck: That is when we find out about how this money was used.

Senator Moore: Yes. You do not find out in advance how much the government wants to borrow, what it hopes to spend it on and the terms of the borrowing and the interest rate and so on. You do not find out any particulars in regard to the borrowings. After the fact, you do, and there is a report and so on, but that is all after the fact. That is not our system of responsible government.

Senator Callbeck: No. I agree with you. We would not know anything about the borrowing or how that money was used until the fall of 2014 when the public accounts come out.

Senator Moore: Correct, and you get the debt report.

Senator Callbeck: The Minister of Finance tabled a report in debt management in the first 45 days. That has been changed.

Senator Moore: Prior to this act in 2007, the debt management report came out 45 days after the tabling of the public accounts. This bill, in 2007, moved it to 30 days. That is a bit of a red herring. It does not matter if it is 10 days or 20 days or 30 days or 40 days. It is all, again, after the government has had access to funds without sharing that with the people, and spending it and accounting after the fact.

Senator Callbeck: Yes. I agree. On the reports, just so I am clear, you are replacing a section here. It requires the minister to table a report on debt management. It then goes on to talk about — are they two different reports?

Senator Moore: Yes.

Senator Callbeck: You want a report on the activities of the minister regarding the management of public debt, and you also want another report in relation to management of the public debt for the fiscal year.

Senator Moore: The intent of the bill is to restore to Parliament the requirement of the government, ministers of the Crown, to come before the Parliament of Canada, the people of Canada represented by its elective representatives, to ask for permission to borrow money. That has always been our system.

As a matter of fact, in 1994, then Leader of the Opposition Mr. Harper had the opportunity to go to the House of Commons and rail against the government of the day about that. He would not have had the opportunity to do that if this bill had been in effect then. I find it interesting that his government would bring it in.

Senator Callbeck: Prior to 2007, Parliament had to grant approval for borrowings beyond $4 billion?

Senator Moore: That is right.

Senator Callbeck: That is what you are restoring it to.

Senator Moore: Yes.

Senator Buth: Thank you very much, senator, for being here this evening to explain your bill. I am wondering if you could comment on how you think the government would have been able to respond to the economic crisis that we faced in 2008 if we had not had the changes in 2007.

Senator Moore: First of all, in 2007, there was no economic downturn. It happened in 2008. I can show you speeches from the Minister of Finance of the day, Mr. Flaherty, and the Prime Minister in January 2009 denying that there was a recession.

I do not know whether there was some kind of crystal ball gazer in the Department of Finance who came up with this idea, but this was not necessary. We have been through crises before. All you do is call Parliament back. That is what should have happened.

Senator Buth: I am not sure about parliamentary rules. Can you call Parliament back when you are in the middle of an election? Is Parliament not dissolved?

Senator Moore: Parliament is dissolved. Certainly it is. The people have not been re-elected. The contest has not happened, so they are still sitting members. They are still there until they have been returned or voted out.

Senator Buth: My impression is that when you dissolve Parliament, Parliament then does not exist until you actually form the next election.

Senator Hervieux-Payette: No. He is right.

Senator Buth: He is right. Okay.

My other question relates to the consolidated borrowing for Crown corporations, which you do not address at all in this. I am just wondering, if this was passed, what would happen to the consolidation of the Crown corporation borrowing, which we believe saves the government a considerable amount of money?

Senator Moore: I remember your remarks in the Senate, Senator Buth, saying that the government was able to borrow at its sovereign rate and therefore able to lend money to the Crown corporations.

I am saying to you, why could it not have done that anyway?

Senator Buth: But your bill does not address that.

Senator Moore: No.

Senator Buth: Okay.

Senator Moore: This returns everything to —

Senator Buth: 2007.

Senator Moore: Because I think that the government could have borrowed, as I am sure it did before 2007. It borrowed wherever it borrows its money — from the various markets — and it would provide those funds to the Crown corporations, at whatever rate it chose. It could have done that without having this bill, and savings could have been had the same way.

Senator Buth: Without a lot of parliamentary experience, as a citizen — a taxpayer — my impression is that things change, procedures change, governments decide to do different things in terms of administration and what is needed in terms of changing financial situations, changing social programs, et cetera. I am having a bit of a hard time with the premise that, just because this is the way it has always been, this is the way it always must be.

Senator Moore: This is preposterous.

Senator Buth: That is getting kind of rude.

Senator Moore: This is not some kind of a loose social program. You are talking about the system of government that we have. We are talking about the accountability of the people in government to the people of Canada.

This is not something like, "Oh, we are going to change this program; we are going to give you less.'' This is not that kind of thing. This is at the very core of our Constitution, of our Parliament. It is at the very core of it, senator.

Senator Buth: I beg to differ. Thank you.

Senator Wells: Thank you, Senator Moore, for your presentation and your answers thus far.

I will very briefly follow up on Senator Buth's position on the rapid response requirements of today.

In the past, things were not managed by computer programs, and things did not move as fast as they do today.

Parliament does not always sit, and Parliament can be recalled with time and with notice. Can you comment on the necessity, in today's world, of requiring rapid response and your contention that if Parliament is not sitting, Parliament should be recalled for decisions of this nature?

Senator Moore: I am sorry; I do not understand your question. I thought I dealt with that, but —

Senator Wells: Sure; I understand. For instance, during the summer, when Parliament does not sit, you are suggesting a recall of Parliament for questions of this financial gravity. Because things happen so quickly and because decisions have to be made in such a rapid way for the protection of our economy, how would your bill address that need for rapid response?

Senator Moore: Well, we have had situations in the recent past where Parliament had to be recalled. You recall Parliament. I cannot think of a situation that is such a crisis on such short notice. Usually, when issues arise, the government and the people in Parliament, in the House of Commons and in the Senate, usually have some feeling of what is going on in the country and in the world. It is not a matter of a 24-hour "We have to do this; everybody come back.'' However, we still have the ability to call people back, and it has happened. It has happened in the recent past.

Senator Wells: Okay, thank you. I would suggest that crashes happen quickly, not slowly.

The second question I have for you is this: The voters do not say to us, as government, "Check with us every time an important decision has to be made.'' That is what voting is for, every four years or less than that. How can you square the argument that this is being removed from accountability, when the voters essentially select who governs and, therefore, who makes decisions on behalf of the country, including the Minister of Finance?

Senator Moore: Yes, the Minister of Finance and his cabinet colleagues, but I think the people of Canada think that the all of the people they send to Ottawa are looking after their tax dollars, not just a cabinet and one minister. If you went onto the street corner and started asking people, "Do you think this is right?'' I do not think they would think that it is right, senator. I think they would expect the people in Ottawa to be the people who have the final say because those are the people they get to vote for.

They do not get to vote for a cabinet minister. They are picked. I think that they expect the people they send to Ottawa to be ultimately responsible for looking after their interests.

Senator Wells: Are you saying that there should be some sort of cutoff for being accountable and not being accountable? The voters put these people in place to make decisions. They do not put them in place to say, "Check back with us when you have got something important to think about.''

Senator Moore: I agree with that, but they have taken away that decision part that you are talking about.

Senator Wells: They are elected to make decisions.

Senator Moore: The bill in 2007 took away the opportunity for those people who come to Ottawa to make that decision with regard to the public purse. That is the very point I am trying to make here.

Senator Wells: My point is this: How can you square that with the reality that, every four years, they say, "This is who we would like to make decisions on our behalf?''

Senator Moore: Yes, they want them to make decisions, but you have to give them the opportunity to do it. You cannot take it away from them. That is the whole point.

Senator Wells: Okay, thank you very much.

Senator Hervieux-Payette: I would like to congratulate my colleague for having had the foresight to do this. First, I have a question. You said, at the beginning of your exposé, that it was $1.3 trillion borrowed since then. Since we are collecting — I hope — taxes, and I know each year, year after year, we spend over $200 billion a year for different programs and transfers and so on, I tried to make the calculation. Where did the $1.3 trillion borrowed go? Do you have any idea? Is there a justification for that? This is a huge amount of money.

Senator Moore: It is a huge amount of money.

Senator Hervieux-Payette: Since we are receiving money from the taxpayer, this is supposed to help manage the whole apparatus, whether we are talking about government or the Crown corporations, but where did the money go?

Senator Moore: I expect the only answer I could give you, senator, is to look at the public accounts.

Senator Hervieux-Payette: Okay.

Senator Moore: I do not know what else to —

The Chair: We have, in our next panel, witnesses from Finance and the Bank of Canada who might be able to help us with that.

Senator Hervieux-Payette: I thought, when he gave that figure, that we might know. I was just making a rough estimate. This was, over a period of six years, a little bit over $200 billion a year, which is a lot of money on a yearly basis.

As far as I am concerned, I strongly support this bill because we have to make a difference between the executive, who are there to execute, and Parliament, who are the ones that they are reporting to.

If I am a corporation and I go to a bank, of course I have to explain why I need that money and also how I am going to collect it and pay it afterwards.

In this case, it is the same. When we are, in fact, requesting some extra money, we have to say what it is going to be used for. We discovered, if you remember, chair, when we were discussing some expenses that we could not see, that the money was already spent but not in the budget. It was in the supplementary estimates we got a few weeks ago. There is a reserve. Okay, so there is a reserve. Would you agree that they could maybe increase the reserve but have no need to borrow on demand, without any justification before Parliament?

Senator Moore: Well, I —

Senator Hervieux-Payette: For unexpected expenses.

Senator Moore: There is a reserve of $4 billion that they can borrow over. I cannot imagine that, as the managers of the economy, somebody would be in a situation where that would arise. I think that if the government is going to borrow money, they should be coming to the Parliament of Canada and asking permission to do it.

Senator Hervieux-Payette: I have been here for quite some time, and I will tell new colleagues that it takes 24 hours to recall Parliament. It can happen fast. We are in office in this place until we retire and in the other place until the new MP is elected, so there is no gap. There is not a vacuum such that the government suddenly cannot operate. You need to have special circumstances. I hope that with the kind of management we have, we do not discover overnight that $20 billion is missing and that we need to have $20 billion immediately. We are talking about $250 billion. My support for this is the fact that it is a huge amount of money and the government is accountable to Parliament, and Parliament is the representative of the taxpayer.

We all bear part of that debt. Do you agree?

Senator Moore: Oh, yes. There is no question about it.

Senator Hervieux-Payette: Try to explain to the Canadian taxpayer that the government can borrow any amount at will without limit. Let us go back to where we were before. If government needs extra money over what has been voted in the estimates, and there is a $4-billion reserve, then they come back to see us again.

Senator Moore: Exactly. They come back and explain the situation. There cannot be such unaccountability and lack of transparency. It just does not make sense.

Senator Hervieux-Payette: I do not buy the argument that things change. To be serious about this, we are not talking about a small amount of money. I did not see a justification at the time. I agree with you, and I was on the committee. We had to dig into these big budget bills, and we did not see it. I realize now, through your reflection, that we are probably inspired by the former Prime Minister. We had a good system; why did we change it? I always say it is better late than never, so I totally support your initiative.

Senator Moore: Thank you.

[Translation]

Senator Bellemare: Senator Moore, you are aware that every year Parliament adopts the government's Main Estimates. Parliament adopts the budget, so revenues and expenditures. These two exercises represent government accountability to Canadians. As it now stands, Parliament adopts all expenditures made within the Main Estimates, and Supplementary Estimates A, B and C, after which the Minister of Finance's budget is adopted. Under your bill, any transaction related to the management of the debt would also have to be passed by Parliament. Is that correct?

[English]

Senator Moore: My bill proposes to restore to the House of Commons the oversight of the public purse such that if the Crown, represented by the cabinet and the Minister of Finance, wants to borrow money, he or she must come to the people of Canada, to the Parliament of Canada, and explain why and ask permission to do so. That was taken away in 2007. All this other stuff that you mention is fine, but most of it happens after the fact. They are not coming and asking for the money.

[Translation]

Senator Bellemare: Each year, the budget's schedule contains the government's debt management strategy. In the last budget, the total amount borrowed on Canadian markets by the federal government was $648 billion dollars. Certainly, in the course of a year, many changes are made to the way the debt is managed. Some debts expire, while new borrowing may take place. There can be exchanges between treasury bills, negotiable bonds and the foreign debt. Don't you think that, if we had to go before Parliament for any transaction over $4 billion dollars, this would remove a great deal of flexibility for the government, and that it would not necessarily increase transparency because all the information would already be contained in official documents which are tabled?

[English]

Senator Moore: The public debt is an accumulation that is built up over the years. It was $428 billion in 2006, and now it is $600 billion and some. That is an accumulation of the performance of the government and how they operate and manage the accounts. The government has to borrow money to service that debt, and that is part of the money they have to come ask for because some of that debt is renewed on a revolving basis, I expect. Some of it comes up for renewal at certain times, and the debt instruments have to be refinanced. That is part of the borrowing process. That is part of getting permission from the people to get the money to do that, as part of the accountability, I am suggesting to you.

[Translation]

Senator Bellemare: Am I to understand that what you are asking for is that any transaction over $4 billion dollars related to the management of the debt be authorized by Parliament? Is that how things were done before 2007? Is that what your bill implies?

[English]

Senator Moore: No. It was $4 billion before. There is a cushion or tranche of money available for the government in the event of emergencies.

Senator Black: Thank you very much, senator, for your commitment to this. This is to me very impressive that you hold this view so strongly that you have come here tonight to propose this.

I would like to understand from you whether you worry that your proposal might risk politicizing a process that should not be political, that is to say the issue of borrowing money. I worry about borrowing money in the situation of a crisis. If that were to become unduly politicized, do you not worry about the consequences of that?

Senator Moore: I do not worry about that at all, senator. It is an interesting question, but it did not prevent the proper functioning of the governing of the country since its beginning.

Senator Black: I am not being at all adversarial because I really respect your point of view on this. I thought Senator Wells was on to a very interesting line, which is that the world has changed so dramatically in terms of how decisions are taken, the time frame in which decisions can be taken, and the consequences of not acting on a timely basis. Do you not worry that with this proposal, recalling Parliament and then going into a political circumstance could disadvantage the country?

Senator Moore: I am not worried about that.

Senator Black: Very well.

Senator Moore: I will tell you why. I have seen it happen in the Senate in the various committees I am on, particularly the Senate Committee on Legal and Constitutional Affairs, which I was on for a number of years. When it comes down to the national good and the welfare of the country, I would put my trust in the people in the House of Commons because they would do the right thing. I really believe that, Senator Black.

Senator Black: I want to believe that, too. One last question, if I may. Do you know what practice is followed by our major trading partners in this regard?

Senator Moore: I have not made a study of that.

Senator Black: I have not, either. It has been suggested to me that some of our major trading partners have in place exactly the process that we currently have for the reasons we are talking about, so that they can act with expediency. I am not suggesting that. It has been suggested to me, and I was hoping you might know. Very well. Thank you.

Senator Chaput: I want to make sure that I understand the bill that we have in front of us, your bill. It outlines and explains the changes made to the borrowing authority process in 2007, and you want to bring those changes back with Bill S-217. Is that correct?

Senator Moore: Correct.

Senator Chaput: In 2007, when those changes were made, or slipped through, as you have said, do you know if there had been discussions with regard to that? Had there been consultations? Were they recommended? How did they come about? Do you have any idea?

Senator Moore: No. I was on the Banking Committee at the time, and it certainly was not something that we saw or that was brought to our attention by anyone. I do not remember it being brought to the attention of Finance. I do not remember any department official standing in public or saying something to the effect that this has to be. It just was not made known. It was not made known.

Senator Chaput: In those years, before the changes were made in 2007, do you have an idea how often the government had to go ask permission to borrow more money? Do you have an idea?

Senator Moore: Certainly annually. It was part of the process. It had to have an act of Parliament to borrow money.

Senator Chaput: In your view, senator, if these changes are not brought back, when we are looking at this borrowing without justification or without permission, can we say that it is accountable?

Senator Moore: As I mentioned in my opening remarks, and I seem to have a difference of philosophy with my colleagues on my left, to me, the ultimate accountability and transparency is what takes place when matters are put before the House of Commons. That is where it should be done. That is where it always was.

What price do you put on your democracy? What price do you put on savings and interest, which we could have achieved anyway? Is it expediency? I do not think so. It took a long time for Canada to be built up to get this far, and that was at the core of our whole system of governing the country and of financing the country. I just do not think that this was the right thing to do.

Senator Chaput: Thank you, senator.

The Chair: Colleagues, I have, on round two, Senator Callbeck and Senator Buth. If your question is exclusively for Senator Moore, I would like you to ask it. Otherwise, I would ask you to consider holding your question and I will put you at the top of the list for the expanded panel that we will bring in, the Bank of Canada and the Department of Finance.

Senator Buth: Specifically, Senator Moore, have you ever reviewed the debt management strategy and the debt management report?

Senator Moore: Have I read them through?

Senator Buth: Yes.

Senator Moore: No.

Senator Buth: Thank you very much.

Senator Callbeck: I have a question on the proposed new section, 46.1. The Governor-in-Council can authorize the minister to borrow money. There is (a) and there is (b). I want to ask about (b), "to extinguish or reduce any liability of Canada that the Minister is of the opinion should be extinguished or reduced.'' Can you elaborate on that? What sort of situations do you have in mind here?

Senator Moore: The liability is I guess what Senator Bellemare was asking about with regard to the debt. That is a liability of the country. We have to reduce it or extinguish it, and you have to borrow funds. You come to Parliament, and you ask for permission to borrow those funds for these reasons.

Senator Callbeck: That is the debt you are talking about here?

Senator Moore: Yes.

Senator Mockler: We could certainly have a political debate here, when listening to my colleagues on both sides of the table. I would like to follow from Senator Buth and Senator Wells. I know that Senator Moore has an understanding of the three powers of democracy, which are legislative, executive and the judicial system.

With that said, you are asking us to consider your bill. The people of Canada were aware, and we were all aware. We voted in 2007 on the changes. From that point on, the people of Canada gave the present government two mandates, 2008 and 2011. They will certainly have a chance in 2015 if they want to make other changes.

For the time being, my question to you is this: Is it possible that the approval process for borrowing limits will further reduce the federal government's capacity to borrow? Have you made an analysis of that?

Senator Moore: Could you repeat that, please?

Senator Mockler: Yes. Is it possible, with what I have said about the three powers of government and what happened in 2008 and the 2011, two consecutive elections, and 2015, do we agree that the people of Canada will decide? I say yes. Therefore, is it possible that, in considering your bill, the approval process for borrowing limits will further reduce the federal government's capacity to borrow if we consider a bill?

Senator Moore: No. It sounds to me like you are suggesting that the government can borrow more in secret than it can in public.

Senator Mockler: Absolutely not.

Senator Moore: That is what you are saying, sir.

Senator Mockler: The public knew at all times what we were doing since 2007.

Senator Moore: We did not know about this bill. You did not know about it.

Senator Mockler: I rest my case, Mr. Chair.

The Chair: Thank you. I always give the witness an opportunity to reply to any comments you make, and I think he has replied.

I invite Senator Moore to join us on the sidelines when we bring in our panel comprising representatives of the Bank of Canada and the Department of Finance.

Senator Moore: Chair, I want to thank you and the members of the committee. Senator Buth, if I insulted you, I did not mean to. I believe very passionately in this. I think I am right. Others have their opinions, and I respect them. Thank you.

The Chair: Thank you for that.

Colleagues, I am now very pleased to welcome to the Standing Senate Committee on National Finance, from the Department of Finance, Wayne Foster, Director, Financial Markets Division, Financial Sector Policy Branch; and Marie-Josée Lambert, Chief, Domestic Debt Management Policy, Financial Sector Policy Division. From the Bank of Canada, we welcome Ron Morrow, Chief, Funds Management and Banking Department.

Do either or both of you have introductory remarks before we get into questions and answers?

Wayne Foster, Director, Financial Markets Division, Financial Sector Policy Branch, Department of Finance Canada: I do, and I believe my good friend Mr. Morrow does. Maybe we will just do them one after the other?

The Chair: We will start with Mr. Foster, and then I will go to Mr. Morrow. Then we will get into the questions and answers.

Mr. Foster: Good evening, everyone. It is certainly our pleasure to appear today before the Standing Senate Committee on National Finance, on behalf of the Department of Finance, at least as regards myself and my colleague, Ms. Lambert, to assist you in your study of Bill S-217, which, as we have heard, proposes to amend certain provisions of the Financial Administration Act regarding the borrowing of money. Currently, Part IV of the Financial Administration Act sets out the authorities under which the Minister of Finance can borrow on behalf of her Majesty in right of Canada. In particular, section 44(2) specifies that "The aggregate principal amount of money borrowed by the Minister under this section in any fiscal year may not exceed the amount that is specified by order of the Governor in Council for that fiscal year.''

The maximum amount requested by the minister from the Governor-in-Council is based on the projected financial needs of the government, laid out in the budget, which include both budgetary and non-budgetary requirements, plus a margin of prudence. It is set out in detail in the debt management strategy, which is published as part of the annual budget. For the current fiscal year, again as I think you have heard, this amount is $300 billion, which is $15 billion lower than last fiscal year.

The current framework in which the Governor-in-Council approves the borrowing limit for the government has been in place since October 2007, when it came into force. Prior to that, there was a statutory limit on borrowing that only Parliament could change.

Under this regime, the government had standing authority to refinance maturing market debt; plus, there was this $4 billion of what was called non-lapsing borrowing authority. That was pursuant to the Borrowing Authority Act of 1996-97.

As presented in the budget on March 19, 2007, a key motivation for changing the borrowing authority framework at that time was to streamline and modernize the process and increase flexibility to meet future borrowing needs, particularly with respect to the consolidation of Crown corporation borrowings.

In that same budget, the government announced that beginning in 2008 it would meet all of the borrowing needs of the Business Development Bank of Canada, the Canada Mortgage and Housing Corporation and Farm Credit Canada through direct lending to these Crown corporations. They had previously issued debt under their own name, with the backing of the government.

This meant that financial requirements were about to increase and become less linked to net budgetary revenues and expenditures or, in other words, the deficit.

A key benefit of this additional flexibility was demonstrated in November 2008, when, in response to the turmoil in financial markets, the government was able to act quickly, in the midst of the financial crisis, and seek a higher borrowing limit. In November 2008, the Governor-in-Council quickly approved an increase of $90 billion to the original 2008-09 aggregate borrowing limit of $206 billion.

This increase, as you might recall, enabled the government to commit up to $75 billion in loans to the Canada Mortgage and Housing Corporation to fund the Insured Mortgage Purchase Program and to help finance the injection of over $40 billion in short-term liquidity to financial institutions, through the Bank of Canada.

Along with the removal of the statutory borrowing limit, the 2007 amendments established enhanced disclosure requirements on anticipated borrowing and planned uses of funds through the debt management strategy, which, as I indicated, is now part of the budget. There were enhanced disclosure requirements on actual borrowing and uses of funds — ex post — compared to those forecast in the debt management report, which, as we heard, comes out in the fall, and more detailed general information in the public accounts.

The 2007 amendments also provided for more timely disclosure of borrowing activities. We have heard that the debt management report is now tabled within 30 sitting days of the tabling of the public accounts, rather than 45.

In summary, compared to the previous framework, the borrowing authority regime has provided for more efficient, responsive and prudent financial management and greater transparency and accountability with respect to the government's borrowing activities.

In closing, I would just like to thank the chair and the committee for inviting us to appear, and we look forward to your questions.

Ron Morrow, Chief, Funds Management and Banking Department, Bank of Canada: Thank you very much. Good evening. I am pleased to present the Bank of Canada's views on Bill S-217, An Act to amend the Financial Administration Act (borrowing of money.)

At the outset, I would like to offer some brief context with regard to the Bank of Canada's role in debt issuance. As fiscal agent, the Bank of Canada issues debt on behalf of the Government of Canada and does so in a manner consistent with the legislative requirements laid out in the Financial Administration Act.

While the Bank of Canada and the Department of Finance collaborate to offer debt management advice to the Government of Canada, debt policy decisions are ultimately the responsibility of the Minister of Finance.

The changes made to Canada's borrowing authority framework in 2007 were focused on creating a more efficient and flexible process for approving Canada's annual borrowing plan. The changes also provided for transparency and accountability by establishing enhanced disclosure requirements on anticipated borrowing and actual borrowing undertaken in a fiscal year.

[Translation]

During the global financial crisis, and especially in the fall of 2008, the framework which governed the power to borrow as currently laid out in the Financial Administration Act served Canadians well. Among other things, this framework allowed Canadian authorities to react efficiently and quickly to major shocks which shook the Canadian financial system.

As you know, the world had to deal with an exceptional situation when Lehman Brothers declared bankruptcy on September 15, 2008. The most striking aspect of this bankruptcy was an unprecedented increase in the cost of interbank financing, which then spread to other markets. Global financial institutions became reluctant to lend to other financial institutions.

Key intermediaries began to accumulate liquid asset reserves, and some of them even halted their market holding activities. At various moments, interbank credit markets and other short term loans, including those to banks, were nearly paralyzed. It is clear that the global financial system was undergoing a major systemic shock. To deal with the situation, central banks and governments the world over took unprecedented measures in the interest of stabilizing the financial system.

[English]

Here in Canada, our actions during the crisis were supported by the current borrowing authority framework. Specifically, the framework allowed Canadian authorities to respond quickly, with the approval of an increase of $90 billion to the inter-year borrowing limit. This increase aided the Bank of Canada by facilitating the rapid deployment of a number of measures that provided over $40 billion of short-term liquidity to the Canadian financial system.

These measures, and this additional liquidity, were essential to ensuring the ongoing functioning of the Canadian financial system.

In summary, as a result of the framework we have, when global headwinds of the crisis were threatening financial stability, authorities were able to provide a fast infusion of needed liquidity into financial markets, which, in turn, helped to maintain the availability of longer-term credit in Canada.

The current framework has been tested and has proven its ability to allow for quick and flexible responses in times of crisis. Although we hope not to face other crises of similar proportions, and efforts to make the global financial system more resilient are advancing, we must remain prepared to respond effectively when required.

Thank you very much. I would be happy to respond to your questions.

The Chair: Thank you very much, Mr. Morrow. I will go to the list. Honourable senators, I remind you that we have another panel after this one of two outside witnesses. I have six senators on the list; so try to keep questions and responses to five minutes in total, please. We will start with Senator Hervieux-Payette.

[Translation]

Senator Hervieux-Payette: I would like to begin by thanking you for lending us your crystal ball, since it seems you are able to predict crises a year before they happen. However, I would like you to explain certain terms to us.

[English]

You both used the words "efficient,'' "responsive,'' "transparent'' and "accountability.''

Do you think that Parliament could not provide this possible increase and be accountable to the Canadian taxpayer because the money was issued by the Bank of Canada? People were under the impression that our banking system was in fabulous shape. In fact, it cost us $75 billion at the time, which we have recovered.

Tell me why this system is superior to the previous system where government had to come before Parliament and explain why they needed the money. In this case, I think the amount you gave us was $206 billion. It was increased by another $90 billion, $75 billion and $40 billion to the Crown corporations: EDC, BDC, and Farm Credit Canada. These were the three corporations that got money.

Why do you think Parliament would have refused to get this amount of money — it would be less accountable, less efficient, less transparent?

We are talking about two philosophies for the role of Parliament. We are here to serve the Canadian public, so I do not see why we would have refused these measures when they were needed because the law was passed long before. You can each give me your definitions of "efficient,'' "responsive,'' "transparent'' and "accountability'' after the fact.

Mr. Foster: I mentioned $75 billion, which was the amount committed to the Insured Mortgage Purchase Program. When first announced, it was $25 billion, which went quickly. There was a subsequent announcement.

At the same time, the Bank of Canada was injecting liquidity into the banking system. They funded some of that from their balance sheet, but a lot of it had to come from new borrowings from the government. All this happened during a period when Parliament was not sitting as there was an election. I cannot opine on whether Parliament could have been reconvened to consider this and pass it any more quickly than taking it through the Governor-in-Council.

As it turned out, while we are great forecasters, we did not envisage that the new framework would be tested so soon after it was announced. In fact, it made things efficient to get the increased borrowing authority and to commit $75 billion and the $40 billion. There was no specific number there. The loans to the Crowns were really the motivation that required that there be an increase in the borrowing limit to begin with. That was one of the triggers for changing the framework when we looked at that.

We do not know whether Parliament could have been reconvened to consider and pass this in the time frame required to ensure that markets would be stable. You remember things moved very quickly.

Senator Hervieux-Payette: What was the cost at the Bank of Canada at the time? Did you have to issue bonds?

Mr. Morrow: I am not sure I understand the question.

Senator Hervieux-Payette: You had to borrow $100 billion. What was your cost?

Mr. Morrow: That debt was raised through our regular process of issuing treasury bills and bonds at auction. I do not have the exact prevailing cost of funds at that time, but the cost of funds was consistent with the prevailing cost of funds in Government of Canada bond markets at the time.

Senator Wells: Thanks for your presentations thus far. I have two quick questions. The answers will be dependent on you. When one decides that we have to act quickly, what is the machinery? What happens when we decide we need to borrow? What is the machinery of that? What is the timing of that?

Mr. Foster: In this particular situation, obviously, we were monitoring the financial markets carefully and engaging daily with our friends at the Bank of Canada who were reaching out to other central banks to see what the situation was. It was clear during that time that this was an historic event. Numerous other jurisdictions had already introduced programs to help support their financial systems. At the time, you will recall the U.S. debate on the Troubled Asset Relief Program, TARP, and the volatility surrounding that negotiation.

Leading up to it, we spent a number of weekends talking about what we might do, if necessary, to ensure that our banks remained liquid and could obtain funding. We also were cognizant of other countries considering programs to support their banks that might put our banks, even though they were solid, at a disadvantage. We wanted to be prepared to roll out a program that would work that we thought made sense from both a taxpayer point of view and a financial stability point of view.

The program to buy mortgages was developed over a relatively short time.

Senator Wells: What would that be, days?

Mr. Foster: It was days, but there was some consideration over a couple of weeks. We had an amount in mind that we knew we would have to fund. We were cranking up the machine to get the approvals necessary starting with senior management, the minister and then cabinet. That was how we came up with a number to go to cabinet with for additional borrowing authority.

We have a bond program and a treasury bill program. We lay out our plans in detail in the debt management strategy as part of the budget. Every quarter, we put out a notice through the Bank of Canada as to our schedule for bond issuance, and we hold auctions for treasury bonds every two weeks — a few times per quarter. It is pretty predictable, unless there is a major change in financial requirements.

It is more or less laid out. It is only otherwise in extreme situations, which have been rare. This was the main example where we had to rethink in the middle of the year and go back for more authority.

Senator Wells: That was in a dynamically changing situation internationally.

In the absence of that ability or that provision to be able to act rapidly and directly, what position would Canada be in? I know it is hard to project, but so far you do a good job of projecting. What would Canada have not been able to do if that provision had not been available?

Mr. Foster: As Senator Moore would know, under the previous regime there was a provision, I believe section 47.

The Chair: Yes.

Mr. Foster: It provided for emergency funding. You could borrow for up to a six-month term. We were already leading into the fall of 2008 period and increasing our treasury bill influence fairly significantly to fund the Bank of Canada's activities.

If we were to rely only on that provision, we could have gone to cabinet and got that presumably through, right? We would have had to fund all of the $75 billion I mentioned, all of the $40 billion and other amounts through the short end of the market. We were already ramping up that short end of the market. The loans to CMHC are five-year mortgages, essentially. We would have had to fund them short.

It could have been funded. It would have been interesting to see how the markets reacted with such a huge ramp-up in short-term funding. I cannot say it could not have been done. It just would not have been as prudent.

The Chair: Until Parliament was called back in.

Mr. Foster: Called back, and then you would have to bring forward, yes, legislation and so on.

Senator Buth: Thank you for being here. Can you comment on transparency and what your opinions would be of transparency pre-2007 and post-2007 when the legislation was brought in?

Mr. Foster: Sure. I can start, and I do not know if Ms. Lambert has anything to add. If you look at the debt management strategy now, there is a detailed table showing the sources and uses of funds, and it lays out what the financial requirements are, the details of that, the borrowing requirements, the re-funding requirements, the non- budgetary transactions, and it adds that all up into a number that throws up a base kind of amount to be borrowed. That then forms the basis of what the minister takes to the GIC to ask in terms of the limit.

Most of the borrowing limit finances two things. The first is the refinancing of existing debt. You need to do that. You cannot default. That is a given. That is a big part. The second is the deficit, which is part of the budget. It is what the main part of the budget ask is, right? Here is the program, here are the revenues and expenditures, and here is the deficit. That is a given.

The only thing missing is the funding that is used to essentially finance assets, which are loans to the Crown corporations. It could be the Bank of Canada. It could be, as well, the Insured Mortgage Purchase Program. That is specified as well in this table in terms of funding that will be used for non-budgetary, as we say, requirements. That is more detail than before.

Afterwards, in terms of ex post, there is the debt management report that puts out the same table. It shows what was in the debt management strategy as projected against what was actually used, so it provides a reconciliation. Here is what we said we would do, here is what we projected, here is what was actually done, and here is the difference.

That would probably be the most important example of the increased level of detail and scrutiny on the particulars of what makes up the borrowing limit amount.

Senator L. Smith: For Mr. Morrow or Mr. Foster, a couple of words: "systemic shock.'' Walk us through what happens in a situation like this and the concept of systemic shock and what it is. I would also like to know, as you looked at the world unfolding in front of you, your sense of what happened in the U.S. and the rapidity of the Dow Jones. Could you just give us feedback on that?

Mr. Morrow: Certainly. In terms of a systemic shock, a systemic shock to the financial system is a shock to a single financial institution or a single part of the financial system that then has ripple effects that spread outward through the financial systems, which can lead to a domino effect. The failure of one single institution in turn reduces confidence in the financial system, causes financial losses on other participants and cascades into the other elements of the financial system, leading to a much broader collapse or set of losses within the financial system.

In the throes of the crisis in 2008, there were great concerns, real concerns. We saw the bankruptcy of Lehman Brothers subsequently erode trust in the financial system and trust in the banking system. We were in a world where people were no longer willing to make loans against good, high-quality collateral. The fully collateralized loans, no one wanted to lend to anybody else, and the financial system itself was seizing up.

Many of the actions that the Bank of Canada undertook in terms of its provision of liquidity to the financial system here in Canada were geared towards ensuring that we provided sufficient liquidity to financial institutions to keep them in the business of providing credit to Canadians and Canadian businesses to keep the financial system running at a time when that level of trust and confidence in the financial system was severely eroded.

Senator L. Smith: Was Lehman's downfall caused by the subprime lending with mortgages?

Mr. Morrow: That was certainly a significant contributing factor to the problems of Lehman Brothers.

Senator L. Smith: When the alarm bell went off for Lehman Brothers, how fast was this implosion? Try to jog my memory. How fast did it take place?

Mr. Morrow: The transmission of that shock to the broader global financial system happened virtually instantaneously. The Lehman bankruptcy was over a weekend, and that Monday morning there was a very severe dislocation in financial markets.

That concern around the erosion of confidence and the worry about what shoe would drop next — that extreme level of uncertainty in the financial system — really cascaded broadly out.

Senator L. Smith: From an execution perspective, you and Mr. Foster have explained how you went through this process, but having the speed of action of rapidity because of the rules that you were working under, what is your assessment of the position that you were in in terms of your manoeuvrability?

Mr. Morrow: The flexibility accorded to us through the current framework certainly did give us a good margining manoeuvre to do what was necessary to provide the necessary liquidity through the Insured Mortgage Purchase Program and through the actions undertaken by the Bank of Canada to ensure that the financial system remained functioning in Canada.

As Mr. Foster alluded to, I cannot really say what would have happened under a different framework. What I can say is that under the current framework, we were able to respond with —

Senator L. Smith: I think Mr. Foster alluded to the fact that maybe under the old framework, with potentially a bit slower manoeuvring time, you might have had to go short more than you did, and the balance of how you adjusted yourselves between short and long might have been displaced and therefore might have cost us more money to even borrow what we did to inject in the market. Is that correct, if I understand what you are saying?

Mr. Foster: It certainly would not have been the ideal structure of debt issuance that —

Senator L. Smith: You could have done it, obviously.

Mr. Foster: It would have all been short end and unprecedented levels of treasury bill issues.

Senator L. Smith: Through the process, did you ever have a chance to do a post-mortem and look back? Obviously you must have looked at what you did right and what you did wrong. Did you ever look at what would have been the implications if the system had been the old system? It would have been interesting to see that.

Mr. Foster: We have not done that. Of course, we have looked back at the things we did in terms of the programs, their structure and their detail. We continually look at them as part of normal, ongoing contingency planning. We are always looking to learn from the past and understanding that the next crisis — maybe there will not be one, but if there is, it probably will not look the same. You need to be flexible.

Senator Callbeck: Thank you for coming this evening. I wanted to go back to this greater transparency and accountability. It has been mentioned by a couple of senators, and both of you mentioned it in your presentation. From what I understand, it seems to me that the changes in 2007 would do the opposite. Before 2007, the government had to get the approval of Parliament if they wanted to borrow over $4 billion. With the changes in 2007, the Governor-in-Council could authorize the minister to borrow money, and the amount would be determined by the Governor-in-Council. The taxpayer really did not know how those dollars were spent until the next fall, in 2014.

Mr. Foster, you talked about a table that laid out the funds and I do not know what else. When is that presented to the taxpayer?

Mr. Foster: That is part of the budget and the debt management strategy. It presents all of the details that add up to the amount of money that is required to be borrowed to finance all of those activities. They include funding the deficit and refinancing the debt that is maturing, which are givens, and then some other elements, which would include the loans to Crown corporations and so on. It lays all that out ex ante. It is part of the budget.

Senator Moore: What is ex ante exactly?

Mr. Foster: Ex ante — ahead of the fact. It lays it all out. The limit that the minister will take to cabinet is presented. That is all in the budget. That limit itself gets put to the Governor-in-Council and is approved, but it is actually written in the budget as well. That is the ex ante, and then the ex post is the debt management report. It is the same table. I think it is identical. It shows the actual against the past. In the interim, there are all kinds of information that flow out on the terms of our borrowing, as I say, the results of every auction and, every month, on the Bank of Canada's financial statistics. There is the Fiscal Monitor, which is monthly and which has all kinds of data on revenues, expenditures, borrowing, debt and so on. All of that happens, and then there is the fall update and the like. We are into the next budget before you know it.

Senator Callbeck: Where does the Fiscal Monitor appear?

Mr. Foster: You can get that on our website. It is not a document that we prepare. It is by our Fiscal Policy Division, but it provides monthly information on all of the revenues, expenditures, borrowing, debt levels and a number of other things. It is pretty detailed. You can find it on the website.

Senator Callbeck: It is up-to-date?

Mr. Foster: Yes. Your next witness, Mr. Devries, used to be the fiscal policy director, and he will know all about that.

Senator Black: My questions have been answered by this excellent panel.

The Chair: Good. Thank you.

[Translation]

The Chair: Senator Chaput from Manitoba.

Senator Chaput: My first question is for the representative from the Department of Finance.

[English]

It is a very short question. In 2007, when the changes were made, do you believe that Canadians at large were aware of those changes?

Mr. Foster: The changes were in the budget. There was about a page written on it, and it appeared in three different places. Page 287 is the one that comes to mind, but you can check that out. Do Canadians read the budget? Not every detail probably, but I cannot speak to whether they read this page.

Then, it was, of course, debated in Parliament, and whether that particular element was discussed or not, I do not know. Then the budget bill was brought forward, and it would have been a measure there that could have been discussed in committee.

Senator Chaput: Thank you.

[Translation]

Senator Chaput: My next question is for Mr. Morrow, the representative from the Bank of Canada. It is about the daily life of Canadians.

When a client shows up at their financial institution, the institution has already set a ceiling for how much money it is willing to loan a client, and this amount has already been preapproved by the board. So there are restrictions in place. Lending officers from the institution meet with the client and determine whether he or she can borrow money or not, and if so, how much. These officers, in turn, must receive final approval before signing off on the loan.

Why should Canadians be treated differently from the government they elected?

[English]

Mr. Morrow: Thank you very much, senator, for your question. The framework that is in place for the Government of Canada to borrow — the current borrowing authority framework — was changed in 2007, as you are aware, to vest that authority in the Governor-in-Council, changing it from the Parliament of Canada. They approve a ceiling on the amount of borrowing. There is, I would offer, a further check on that borrowing, through financial markets. As Mr. Foster alluded to, every two weeks we have a treasury bill auction, where we issue $15 billion to $20 billion worth of treasury bills. On an almost weekly basis, we have a bond auction. Just today, we issued $3.3 billion worth of two-year bonds. It is the confidence that markets show in our ability to borrow and the judgment they pass on the rates. Because we are auctioning, the market determines the rates at which the government borrows. That provides a further check on the level of confidence in borrowing. If there was a sense that there was a limit being approached and too much money was being borrowed, participants in financial markets are a pretty savvy bunch, and you would see that reflected in borrowing costs and in the terms under which the Government of Canada borrows.

[Translation]

Senator Chaput: In your opinion, isn't this a double standard: one for Canadians in their daily lives and one for the government?

[English]

Mr. Morrow: I believe that, just as Canadians, in their daily lives, have external limits placed on their ability to borrow, so too are there external limits placed on the government's ability to borrow.

Senator Chaput: Thank you.

The Chair: Senator Moore, I want you to get your questions in. You know we have two other witnesses waiting to come. We are over our time, but this is your bill. You have the floor, sir.

Senator Moore: Thank you, chair, and thank you, witnesses, for being here. Mr. Foster, I would like to know from you, where did the idea come from for the bill in 2007 to remove Parliament from the oversight of the purse and the spending?

Mr. Foster: The measure was included in the budget, which means it was the Government of Canada's initiative.

Senator Moore: Was it initiated in your department?

Mr. Foster: Obviously, our department is important in terms of the formation of the budget. As I explained, we had gone a decade or so without the need for a borrowing authority bill because of the budget being balanced and in surplus.

Senator Moore: Yes, I know.

Mr. Foster: We decided to, for good reason, consolidate the borrowing of three Crown corporations to save taxpayer money. That was pursuant to an external evaluation that occurred a year or two before that. As a result of that decision, we were going to have to borrow more than the prevailing authority would have allowed, so we were going to have to bring forward a bill of some sort to increase our borrowing authority. We looked at that issue and determined that, as part of the parliamentary ask for more borrowing authority, the government would put forward a new proposal, a new framework that would allow for the financing of those Crowns to be done, as well as for the new accountability and transparency measures around that regime.

It was due to that decision that there needed to be an increased limit, and that was brought forward in the budget by the government, as part of a revamped proposal for the borrowing regime.

Senator Moore: It seems to me — and I might be wrong on this — that prior to 2007 the government could have borrowed, at its own sovereign rate of borrowing interest charges, and lent the money at whatever rate it wanted to its Crowns, could it not?

Mr. Foster: It could have, but it would have had to borrow within the limit, so the limit had to be increased.

Senator Moore: They could have come to Parliament and asked for that increased limit.

Mr. Foster: They did. Budget 2007, in fact, did that, yes.

Senator Moore: They could have done that. You talked about increased parliamentary ask. There is no parliamentary ask because you took that away. The government does not come to Parliament now and ask; they come with a projection and they come after the fact with a report, but they do not ask.

I really do not understand. If this is now deemed, after the experience of the downturn — and I do not think you anticipated this, but if you did, I will give you the benefit of the doubt — to be such a fundamental part of the functioning and the financing of the country, why would you not have brought that forward in a separate bill standing on its own, not hidden in an omnibus bill?

Mr. Foster: As a bureaucrat, I do not determine what form any bills take, omnibus or otherwise, so I cannot comment on that. In terms of Parliament opining on this 2007 budget, that indeed was presented to Parliament and debated in Parliament, as was the subsequent bill, which you describe as an omnibus bill.

Senator Moore: No one saw this in either house. We were all focused on equalization, the heavy program with regard to the provinces and the feds. The Atlantic accords, which my Atlantic colleagues can testify to, were all- consuming and totally preoccupied us. I just wonder about that. The whole tactic of how that was done was mischievous at best. I do not see how you can say now that we have better transparency and accountability when you do not go to the people in advance. Explain to me how taking Parliament out of the approval process in advance and taking Parliament out of the control of the public purse achieves greater transparency and accountability. I just do not understand that, I am sorry.

Mr. Foster: As I say, all of the details of the elements of the borrowing limit, including the limit, are presented in the budget in the debt management strategy; so it is there. The only difference is that the actual limit gets approved by order-in-council.

Senator Moore: You do not ask. You do not ask.

Mr. Foster: Therefore, it is transparent in that regard.

Senator Moore: Mr. Morrow, when you were worrying about the status of the Canadian banks and keeping them liquid, did you know about the billions of dollars they got in TARP monies?

Mr. Morrow: I can only speak for myself. I was aware at the time of the need for Canadian dollar liquidity for Canadian operations of Canadian banks. That was the motivation for the liquidity that was provided through the Bank of Canada.

Senator Moore: You were not aware of the billions of dollars they got from the TARP monies in the United States of America?

Mr. Morrow: I was not aware.

Senator Moore: No. That was not factored in. If you did not know, you could not factor it into the funds you were giving them. I do not know if I have anything else, chair.

The Chair: You undoubtedly do, but Mr. Devries could probably help you with those.

Senator Moore: No, that is good. Thank you very much. Thank you, witnesses.

The Chair: To finish up on the U.S. situation running parallel to Canada, did they have to go to Congress to get approval or was that all done by executive order like we were able to do here in Canada?

Mr. Foster: I remember watching it on TV and watching the Dow go up and down and up and down as they debated TARP. It was voted down, and they had to come back. TARP was a program of an expenditure of money — an injection of money. They have in the U.S., separate from their budget process, a debt ceiling, which gets its own discussion and debate. You may recall that from 2011 and more recently actually.

The Chair: It is an interesting situation. We have to be careful when we try to draw parallels. Thank you to the Department of Finance, Mr. Foster and Ms. Lambert. We did not ask you too many questions, Ms. Lambert. Thank you, Mr. Morrow, from the Bank of Canada. You were here earlier and heard some of the questions. You are welcome to stay and hear Mr. Devries tell us what a good job you are doing.

I am pleased to welcome Ms. Lori Turnbull, Assistant Professor, Dalhousie University in Halifax, Nova Scotia; and Mr. Peter Devries, Consultant on Fiscal Affairs.

I would ask each of you to provide us with any brief comments you have. I will start with Ms. Turnbull and then go to Mr. Devries.

Lori Turnbull, Assistant Professor, Dalhousie University, as an individual: Thank you. I am going to be general in my comments at first rather than address the specific financial side as I think Mr. Devries is much better to do that. I will talk about the more general issue of parliamentary scrutiny and approval.

The bill is about restoring Parliament's ability to approve expenditure. For a lot of people who study Parliament and for people who do this kind of stuff like I do, this is sort of the primary reason why Parliament exists, especially from an historical context. We have Parliament because first and foremost we want Parliament to approve the expenditure of money and the raising of money. That is why historically Parliament exists. Expenditure without parliamentary approval seems to be at odds with responsible government — "responsible government'' meaning the government needs the support of the house in order to be able to do what it wants to do. Anything failing that means the government cannot act legitimately. If you see a government doing something without legislative approval, especially when it comes to money, it sort of seems to be at odds with what we expect in a parliamentary system.

Even in the context of responsible government as it exists every day, we give what some people call money bills a sort of enhanced status. We always treat a money bill as a confidence measure, whereas other things are not necessarily treated as confidence measures. When we talk about what we do with taxpayers' money and the government spending it and the raising of taxpayers' money, it is dealt with in the parliamentary context in a very special way. That is first and foremost.

The justification for bypassing parliamentary approval or parliamentary scrutiny of the raising and spending of money is often efficiency. It will be quicker. It makes more sense to do it this way. If we do not have to go through that extra step, it means that government can be more responsive and efficient. It can handle things better and respond to crises better.

We have a kind of tension between democracy on the one hand and efficiency on the other hand. For the most part, you want to have that tension there all the time. You always want to have a healthy back and forth between democracy and efficiency. Otherwise, you kind of have a mess if you go in either direction too far. If you have too much democracy and too many supposed checks and balances and too many institutional things in the way, then they become just things in the way and you lose sight of what you are doing. On the other hand, if you go too far towards the efficiency model and put the focus on that, then democracy becomes the thing that is in the way and Parliament becomes in the way, and you do not want that. You do not want to be in a situation where there is not the proper value given to parliamentary scrutiny and approval. The question seems to me, how do you maintain that healthy tension between democracy and efficiency without the pendulum swinging too far in one direction?

For a lot of people who work in this area, the pendulum is already swinging too far in the direction of efficiency if you consider what we are talking about today in the context of some other things that we see on a pretty regular basis and perhaps on an increasing basis. For instance, if you look at government's willingness to use closure to shut down debate, and governments of all partisan stripes, I am not talking about any government in particular, and if you look at a prime minister's willingness to prorogue Parliament if things get messy and difficult and scrutiny becomes too much for a government to bear, and prime ministers do have the ability to shut down Parliament for a period of time, and if you look at it in the context of using omnibus bills to push things through budgets, which makes it difficult for Parliament to perform its scrutiny function efficiently — if you take all of those things at the same time, I think a case can be made that we are becoming perhaps too efficient at the expense of democracy, and we are losing the healthy tension that is supposed be there all the time, and we all benefit if it is there all the time.

By way of opening comments, I will leave it at that.

Peter Devries, Consultant on Fiscal Affairs, as an individual: I have brief opening remarks. Prior to the Budget Implementation Act of 2007, the Financial Administration Act did require that the government seek parliamentary authority every time it required funds over and above existing funding requirements and the non-lapsing $4 billion statutory limit.

The importance of having the borrowing authority act I believe was twofold. One, it provided Parliament with increased financial oversight and scrutiny. As it was considered a money bill, as Ms. Turnbull just said, a vote on a borrowing authority bill was a vote of confidence in the government. The borrowing authority act, the budget and the related budget bills were all considered important instruments for accountability and transparency purposes for Parliament. With the new bill, one of these instruments is gone. The borrowing authority act requirement is no longer there.

The second point I would mention is that the borrowing authority act required an economic and fiscal context. This meant that the budget would have to be tabled with or before the borrowing authority act. For effective borrowing management purposes, as you may have heard before, it was preferable to have the borrowing authority act tabled in Parliament before the end of the current fiscal year so it could be effective for the next fiscal year, once it received parliamentary approval. This meant that the budget had to be tabled before the end of the current fiscal year as well, either at the same time as the borrowing authority bill or in advance of the borrowing authority bill.

This committee, back in 1985-86, actually held up the borrowing authority bill because there was no budget as a context for that bill. I spent many long hours in the Senate and in committee trying to defend why we had a borrowing authority bill with no budget to provide the context for that bill. It was this committee that felt it was very important that there be a budget linked to the borrowing authority bill to give it a context.

What we see now, over time, without having to table a borrowing authority bill because there was no requirement to issue new borrowings, as well as since 2007, is that the budget has been tabled later and later all the time. It is now being tabled either in late March or early April/May, after a borrowing authority bill would have been tabled.

More importantly, it is now being tabled after the Main Estimates are being tabled. Now the Main Estimates, which also require an economic and fiscal context, do not have the budget to be that context. The Main Estimates have to be tabled on or before March 1 in order to follow normal supply procedures at this time. What you have now are Main Estimates that are completely disconnected from the budget. We saw this in the last few budgets where the government announced very major initiatives in the budget that were not reflected in the Main Estimates. They came out later in supplementary estimates, or, if there were reductions in spending, they were not shown at all to Parliament. We miss a link here now. The borrowing authority forced the government to table a budget in early or mid-February. With that requirement gone, for those years in which the government had to require a borrowing authority act, now you do not even have to link with the Main Estimates any more. There is a complete disconnect between those two, and I think this committee has brought that up in the past.

In the 2007 Budget, the government argued that the changes were primarily made for transparency and accountability purposes. I do not think it did either. It also argued that the changes were necessary to meet future borrowings with respect to the consolidation of these three Crown corporations. This it did do, because it made it very easy to do that. However, in the end, I believe it removed an obstacle to the government in the event of new borrowing requirements and an instrument by which Parliament could hold the government accountable. In addition, the vagueness of the proposal in the budget is also of concern. The wording outlining the changes to the FAA highlighted this.

At the time of the 2007 Budget, this proposal went virtually unnoticed. It was this committee that first raised it when it was studying the budget implementation bill, not the budget but the budget implementation bill, well after the fact. Now one has to wait, I would argue, because the budget is really the budget omnibus bill, not the budget. The details are presented in the budget omnibus bill; they are not clarified in the budget per se. That is another thing we saw for the first time in the 2007 Budget. With the elimination of the borrowing authority act, we saw the vagueness in budget language in order to be able to justify the initiatives they were putting into the budget or the omnibus bill. This undermines the credibility of both the budget and requires much more due diligence in assessing the budget proposals. Thank you.

The Chair: Thank you very much, Mr. Devries. You are quite right that it was this committee that first raised the issue. It passed through the House of Commons without any debate and, in fact, there was virtually no debate in the Senate either because we noticed it late in the process, so we did not have it in committee. We did see it and we did raise it, and that was thanks to Senator Lowell Murray, one of the senators involved, and Senator Tommy Banks, who first focused on that. Senator Moore and I had the pleasure of sitting next to Senator Banks, so we learned about this through that process at the very last minute. It is good that our committee was doing its job, and now Senator Moore is back asking us to think about this again and give it the debate it deserves.

Senator Moore: Thank you, witnesses, for being here. Dr. Turnbull, I know that you write. Have you written a book with regard to democracy, responsibility and so on? Did you deal with this issue in that book? What is the name of the book, and how did you deal with it?

Ms. Turnbull: The book is Democratizing the Constitution: Reforming Responsible Government. The book is about Parliament in general as opposed to anything in particular like a particular bill or something.

What we wanted to explore in the book was the idea of constitutional conventions. When you have a system like ours where some things are written down and some things are not written down, the things that are written down are clear, and we can point to them and argue about them, but we can understand what they mean. The unwritten things are far more open to interpretation. We derive our constitution from the U.K. and the U.S. We have the American tradition of writing everything down, and then we have the British tradition of not writing things down.

The problem is that, from our perspective, the parts of our Constitution that make it democratic are the ones that are not written down. For instance, the fact that the Prime Minister and cabinet need the confidence of the house to govern is not written in the Constitution anywhere. The trouble is, when you try to apply a convention like that, especially in a situation of political crisis, which we see a lot now, there is a lot of disagreement about what it means. What does it mean to have confidence? Does it mean you have to have it every day or every minute? The fact that money bills are treated as confidence bills is a convention because it is not written down anywhere. The fact that a prime minister must resign or dissolve the House of Commons if he loses confidence is not written down anywhere.

When you start to look at the unwritten constitutional conventions, you see how much we rely on some kind of understanding of how things work. We do not really have an understanding of it because as soon as you start to pick it apart, it unravels. People like me write letters to the editor 15 times a day when someone prorogues Parliament and someone thought the Governor General should have said no; and it all blows up. It is good for people like me. It is great. The last thing I would want from my own perspective is to resolve all this stuff.

Generally speaking, we need answers to these questions. That is what the book is about.

Senator Moore: At the outset, I should have congratulated you and Patrick on the birth two weeks ago of Mercedes. For you to come here at this time is important; and I thank you. How did your book do? Was it received well?

Ms. Turnbull: Some people hate it; but some people really like it.

Senator Moore: Did you win any prizes?

Ms. Turnbull: We won two prizes: the Donald Smiley Prize from the Canadian Political Science Association and the Donner Prize.

Senator Moore: You won the Donner.

Ms. Turnbull: We did.

Senator Moore: Congratulations. In the context of what we are talking about here and what this bill focuses on, you mentioned about the pendulum swinging too far and democracy getting in the way.

I do not know if you were here earlier, but for me, the main thrust of this bill is to return the necessity for government — the Crown — to seek the approval of Parliament for borrowing. To me, that is the greatest opportunity for and the greatest provider of accountability and transparency. What do you have to say about that as it applies to this bill and what I am trying to achieve here?

Mr. Devries, if you want to chime in on that when Ms. Turnbull is finished, please go right ahead.

Ms. Turnbull: People want to know how their money is being spent. People want to know that they can have access to that information. People expect these things to go before Parliament. One thing we learned when we were working on the book was that a lot of people sort of assume that processes are in place and that of course the government cannot spend money without asking Parliament first. You say, "Well, actually, here is how they can do it''; and they say, "Oh.''

Part of it is not just people like us having arguments over how things work, but also Canadians being not totally sure all the time about how things work and assuming that the right checks and balances are there when they actually are not. Not only that, but if we expect voters to have the right information at election time, we need parliamentarians to be involved in these things. That is how voters know what is going on. Parliamentarians know what is going on.

When we have the upshot of two institutions, the House of Commons and the Senate, to scrutinize from different perspectives, take different approaches, have different partisan mixtures at whatever time, that is what voters are supposed to expect.

Senator Moore: Thank you.

Mr. Devries: I would agree with Ms. Turnbull. One of the first things she said in her opening remarks was that the borrowing authority bill is a money bill. Money bills should be approved by Parliament.

The other thing is that most Canadians get their information about the government's financial situation from the media or from financial advisers. At the time of the budget, no one picked this up. There was not a soul in the print media or in the financial markets that picked this up, unless they were told beforehand that this was coming. I did note it when I was reviewing the budget. I did raise it with some people, but there were other issues that were more important at that time that they focused on.

It was not until the budget implementation bill came in and the second round of the scrutiny by Parliament, the Senate, that it was actually discovered. The House of Commons missed it altogether on two occasions. Canadians had no idea what was going on with their finances — that all of a sudden an extra $40 billion was being borrowed on behalf of Crown corporations. Why should Parliament not approve that borrowing for Crown corporations?

On top of that, of course, shortly after we had the 2008 and 2009 recession. All of a sudden the surplus went to a $55 billion deficit. Yet Parliament had no say as to how that money was being raised or what the money was being used for, which they would have had through a borrowing authority act.

Senator Buth: Thank you very much for being here today. Ms. Turnbull, where is that fulcrum point between democracy and efficiency? You talked about a variety of different things that move towards efficiency versus democracy. Where is the fulcrum? How do you decide that perhaps one thing is too much or where the focus should be?

Ms. Turnbull: I do not know how you decide that once and for all. It is probably different for different people. To take it a step further, we have a lot of media coverage because we have things like Facebook and Twitter and the 24- hour news cycle. There is constant commentary. We have people talking about what the Harper government has done to erode democracy, and there will be a big list of things. As well, somebody will come and say, well, if the Liberals were in power, they would do the same thing. If you look back to previous, you see that they all did the same things.

On the one hand, we have a consensus building toward the sense that democracy is getting sidelined, because it is possible for governments to do these things to get around the democratic checks and balances that we think are there. On the other hand, if you ask somebody whether there was a golden age of democracy with the pendulum there, no one can think of that time either, no matter who you ask.

At the same time as we can see governments becoming more creative and cleverer at getting around some of the democratic checks and balance that are there, we also see a far more sophisticated media. For those citizens who want to get involved and want to be informed, we have far more information available to them should they choose to use it; but most citizens do not. The ones who do are able to be more attentive than they have ever been before. You can make the argument that there is movement on either side of the pendulum.

If we were to look for indicators, how do we know if the balance is on efficiency rather than democracy? Voter turnout is miserable. That could be one indicator. People are less likely to get involved in pressure groups, political parties and social networks that are not based online. People are more likely these days than they were decades ago to give to charities, but not as likely to participate in a charitable event in a community. The social capital and social policy are shifting. It is that sort of thing.

You can find those indicators that people are stepping away from traditional politics and younger generations are not taking up the interest. People who are becoming old enough to vote are not replacing the older generations who are dying.

Senator Buth: How do you determine whether that is due to apathy or confidence in the system?

Ms. Turnbull: Most of the time you do not. You have some indicators of people who are protestors, who do not get involved and it is a conscious decision not to get involved. They are informed about the system. They know everything about what is going on. They do not vote or participate because they are taking a principled stand. They do not want to get involved in that.

Most people are not that. They are just not into it altogether as opposed to knowing about it and not participating.

There is an argument to be made that if there is a sophisticated democracy with a healthy middle class in a reasonably well-functioning economy, if you do not have everybody participating in politics, then who cares; it is probably better that way. There are actually several studies to show you do not want everybody participating in democracy. You do not want democracy to get too healthy because then it becomes too hard to control and then too hard to govern.

Again, we have this sort of unknowable happy place where — what is that saying? Everybody is equally displeased. I do not know. Yes, somewhere in the middle, but I do not know how you get there.

Senator Buth: I find your comments about there is no golden age in politics interesting because my experience has been that if you look at comments about how bad things are in the house, or in my personal experience, how bad farming is, and then you go back and look at the media of the day or what is actually happening, things are no better or no worse, essentially, but we all think it is the very worst of times or it is the very best of times.

I want to ask, too, about this business of something being buried in a budget. Whose responsibility is it when a budget comes forward to look at it and to determine whether or not something needs to be pulled out or debated? Where does criticism come from in Parliament?

Ms. Turnbull: We generally expect it to come from the opposition. Government backbench MPs are also part of that. Anyone who is not in cabinet is supposed to be performing that scrutiny function.

Senator Buth: Would you say essentially that missing something in a budget bill was the responsibility of the opposition, and if they missed it, then they missed it? The bill was debated in Parliament. The budget implementation bill was presented. If something was not highlighted, there was no criticism of it and Parliament clearly voted for it. People elect Parliament essentially to do that, to approve budgets.

Ms. Turnbull: They elect them to approve or to reject. You can make that argument up to a point. If there is a bill that is designed in such a way that there is not a reasonable expectation that the scrutiny function can be performed because the bill is just too big, because the bill has too many purposes and there is no rhyme or reason to it, we tend to associate these things more with American politics where you see these giant pieces of legislation that come flying through and they have no narrative sense whatsoever. They have a million different things in them, and it is all because different Congress people have said, "I will do this if you do that'' and they shove it all in one bill and it gets passed. We generally do not see that as much in Canada, but we are starting to see it more.

If a bill is designed in such a way that the government is — and I am not saying this with any particular government; it could be any government — if they are packing a ton of things into one bill hoping no one sees that thing on the second-to-last page, that is not a good-faith exercise. On the other hand, is it part of the opposition scrutiny function to pick things up? Well, of course it is.

I think because that scrutiny function is so important, then we have to be reasonable and get to a point where we have the same expectations about what is going to be in a bill and whether we are going to allow it. If omnibus politics is what we are going to do, I think we need to be more open about that.

Senator Buth: I am a year-and-a-half into a Senate appointment. I came last year, and I had carriage of the budget bill last year. I looked at the budget bill — the first bill last year, which was considerable — as a major cleanup of things that had been waiting for a long time, years and decades, to get cleaned up, whether it was legislation or agencies that had not been cleared off the books or Supreme Court decisions that had not been dealt with, et cetera.

How would you know that a bill had been designed to deceive versus a bill that was really looking at trying to move things through that really needed cleanup? Your comments lead me to believe that you think there was deception, that this was purposeful deception. I am wondering where you would get that opinion from.

Ms. Turnbull: It is not about purposeful deception; it is about knowing how much time and how many resources MPs and senators have to review legislation and for everybody to have the same assumptions about how broad a scope a piece of legislation is going to take.

Senator Buth: That is helpful. Thank you very much.

Senator Hervieux-Payette: When you talk about the media, I just have a comment about the media. They are supposed to inform the population. They are probably doing their best, but if you were ever to take a poll and ask how many people in Canada knew that $75 billion went to the bank, the most informed people around me, who are astute businesspeople, were not aware of it, so I wonder how the ordinary person working at Tim Hortons would know about it. That is just a comment.

I would like you to elaborate on the convention. People think the constitutional convention is something you can get around very easily. My legal background leads me to think that the convention, when it comes to constitutional matters in common law, has the same force as law. There is no escape from it. You have to apply the convention; otherwise, you are, in fact, breaking the law. Do you agree with me? Thank you.

Mr. Devries, with respect to restoring the process, if we were restoring the process that would allow us to do our work with regard to all financial matters relating to budgets, first, would you clean up the budget and just leave budget matters in a budget bill? As you said, it is non-confidence. What would be the different steps in order to get the information out and then have the approval done in due time with due process? What would be your time frame so that Parliament would function properly?

Mr. Devries: My first wish would be that the budget would be more transparent in what it actually wants to deliver on. We have seen in the past a lot of initiatives where vague references were made in the budget, but the real details of them were not found until you saw the budget implementation bill.

As I said before, the real budget seems to be the budget implementation bill, not the budget per se. There are a lot of words in the budget — in fact, it is 400-plus pages — but a lot of it talks about what has happened in the past and what they have done in the past. Very little of it then goes on to say, "We are now going to do this and here are the details of how we are going to do it.'' That I would like to see restored in a budget.

With that said, I was as guilty as the current people are in finance of trying to hide stuff in a budget when I was in that area, but maybe I found religion in the last few years.

Senator Hervieux-Payette: We know why.

Mr. Devries: I also think that the budget implementation bill should be restricted to tax measures. It has gotten to the stage where there are so many things now in that budget implementation bill that no one committee can do what it has to do in order to be accountable to themselves in accurately approving or not approving the various measures in the bill.

Many of the initiatives on the spending side, which were announced in previous budgets, go back not only in the last six to seven years, but even before that. These budgets should have come either in separate legislation and gone to their respective committees for review, which then would have had the time to do those reviews, or they should have gone through the Main Estimates process.

As far as the spending side of things, there are two options that one could choose. One is through the Main Estimates, and the other is through separate legislation. Unless something really needs to be passed in a hurry because of the consequences of its not getting passed, such as you are not able to deliver support to a certain region because of a natural disaster and you need the money to get out there right away, but you need parliamentary approval for it, then maybe you could put it into an omnibus budget bill. However, for most of the spending initiatives, I believe they should go on their own separate track and not be buried in a budget bill.

Now you are spreading the work of Parliament among many more committees than just having it at a Finance Committee stage. You are bringing in the proper experts in order to debate the issues that should be debated at that time.

Senator Hervieux-Payette: I totally agree with you. We just went through Bill C-48, which is 900 pages and 500 clauses. Even the people who are experts said that nobody can go through it. It took a long time to go through.

The Chair: Dr. Turnbull, did you have a comment on the earlier question being asked?

Ms. Turnbull: Thank you. I wanted to say that the difference, or the tension, between law and convention is that perhaps convention should be enforceable by law, but it is not, and that is the problem because conventions are not written down in law or in the Constitution; or in some cases you could make the argument that certain laws could be convention if certain conditions are met, but that is not the way they are framed.

Conventions are enforceable in a political context, not in a legal context. A Supreme Court might acknowledge there is a convention that exists. They will not enforce it or make sure it actually goes ahead.

I could go on at length about Trudeau's "This is legal but not constitutional'' result. If you read that reference question that is probably more information than you want about what is the difference between law and constitutional convention.

Some people like constitutional conventions because they are not written down. They think that there should be certain rules that are enforceable in a political context. It means that you need to have the political will and the information among the relevant actors to have them enforced. Otherwise, they do not work; they do not do anything.

The Chair: Thank you.

Senator Hervieux-Payette: If we were going to spend the billions of dollars, you say you would want to have the budget implemented as the only bill dealing with money and tax issues. Secondly, what about the borrowing authorities? Where would you put that?

Mr. Devries: I would go back to having a borrowing authority bill, a separate bill.

Senator Hervieux-Payette: Where?

Mr. Devries: A separate bill in Parliament. It would come with the budget. It needs an economic and fiscal context.

Why does the government want to borrow X number of more dollars than what it said it originally was going to borrow? That should be in the budget. That should be explained in the budget, that it is either because of economic conditions or because of some extra factors that have happened outside the government's control. That is why they want this extra money.

That should be detailed in the budget. There are tables which show here is the deficit, here is the amount of money, here are the non-financial requirements, here is the amount of money that we require in order to finance our ongoing activities, and here is the amount of money that we have to refinance on bills that are coming due. The total is how much money they require for that current year.

The incremental part, which is part of a borrowing authority bill, would be determined by the deficit and the non- budgetary requirements.

That would all be spelled out in the budget and would form the context for the budget authority or borrowing bill.

Senator Hervieux-Payette: Thank you.

The Chair: Senator Mockler.

Senator Mockler: Thank you very much. I know time is of the essence.

The Chair: You have four minutes.

Senator Mockler: I have not read your book, doctor. I am reading one now titled Whatever Happened to the Music Teacher, by Donald Savoie.

The book's central purpose is to show how policy and budgetary decisions are made in today's public sector, being mindful that what has an impact on the decision process of any government — local, provincial, municipal, provincial, federal, and international — is what we call social media.

Mr. Chair, I also go to Tim Hortons, as a matter of fact, last Saturday morning. The people at Tim Hortons tell me that we have elected MPs to make a decision, and if we do not like those decisions, we will take care of them at the next election. That is what they call democracy.

Thank you both for coming. We can look at what has happened in Europe and south of the border — and I live in a border town, and I know what the Americans tell me — had the government not moved or gotten involved when we had the biggest meltdown of all the countries, what would have happened to our economy?

Mr. Devries: I will take a first crack at it.

What happened following the 2008 recession was not unlike what happened in the mid-1990s. The circumstances were a little bit different, but the financial situation was not.

At that time, we had a severe fiscal crisis. The deficit was considered to be out of control. There was talk about the IMF coming in here. New York would downgrade us. We were paying a premium on our interest rates. There were people in the government who thought that we were up against the debt wall, and that we were not going to be able to borrow any more. At the same time, we had a referendum. We were involved in that era as well as to what would happen to our country.

Here was a situation which I say was just as extreme as the one we just faced; yet we got through it with the borrowing authority act. We were able to put a borrowing authority act in Parliament. We were able to manage our affairs during a most tense period of time.

There were a lot of people in Wayne Foster's old shop who were up all night long monitoring and trying to make sure that they had some money lined up so we could pay our bills on time and would not go into default. We were able to get through that issue with full transparency and everything else associated with it.

We are now in a situation where we still could have put a budget or a borrowing authority bill with the 2009 Budget. There is no reason why we could not.

The budget was tabled in January of that time. You remember that an economic outlook was put out in the fall of 2008, and the government said everything was fine; there is nothing to worry about. Two months later, they came back and said, "The sky is falling, and we need $55 billion for new initiatives.''

That should have had more Parliamentary scrutiny than it did. It would have had more if there was a borrowing authority act.

I submit that that borrowing authority act would have passed within a time period sufficient enough to provide the government with flexibility to meet its requirements.

The Chair: Dr. Turnbull.

Ms. Turnbull: Mr. Devries is far more qualified to answer that question, so I will second what he said.

Senator Mockler: With all due respect, you did not answer my question.

Regardless of political parties, what would have happened to our economy? I see what has happened in the U.S. and what has happened in Europe.

Mr. Devries: What would have happened to our economy? I do not think it would have been any different than what did happen.

The 2009 Budget came out in January. It detailed what the borrowing requirements for the government were going to be for that upcoming year. The government had separated out into two parts. This was economic; this was policy. There is no reason why, in my view, the government could not have put out a borrowing authority bill at the same time it was asking for incremental borrowing authority. It would have been debated in Parliament, it would have been passed before the end of the fiscal year, and it would have had the same impact as what the current system would have had. Except it would have given Parliament much more scrutiny over what the government actually required. As far as the economy, I do not see any difference.

The Chair: Thank you very much, Senator Mockler.

On behalf of the Senate Standing Committee on National Finance, I would like to thank Peter Devries and Dr. Lori Turnbull for being here. You have given us a lot of interesting matters to think about over the next while. Thank you.

We will adjourn now. Steering will consider the next steps in this particular matter, and we will give you an opportunity to think about the evidence that we have heard this evening.

This meeting is now concluded.

(The committee adjourned.)