Proceedings of the Standing Senate Committee on
National Finance
Issue No. 60 - Evidence - February 13, 2018
OTTAWA, Tuesday, February 13, 2018
The Standing Senate Committee on National Finance met this day at 9:30 a.m., in public and in camera, to study such issues as may arise from time to time relating to federal estimates generally, including the public accounts, reports of the Auditor General and government finance, and to consider a draft agenda (future business).
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Welcome to this meeting of the Standing Senate Committee on National Finance.
[English]
My name is Percy Mockler, senator from New Brunswick. I’m chair of the committee. I wish to welcome all of those who are with us in the room and viewers across this country who may be watching on television or online. As a reminder to those watching, the committee hearings are open to the public and also available online on the Senate website at sencanada.ca.
Now I would like to ask the senators to introduce themselves, starting on my left, please.
[Translation]
Senator Pratte: André Pratte from Quebec.
[English]
Senator Marshall: Beth Marshall, Newfoundland and Labrador.
Senator Eaton: Nicole Eaton, Ontario.
Senator Neufeld: Richard Neufeld, British Columbia.
The Chair: Thank you.
I would also like to recognize the clerk of the committee, Ms. Gaëtane Lemay, and our two analysts, Sylvain Fleury and Alex Smith, who support the work of this committee.
Today, we welcome the Parliamentary Budget Officer, who we invited to discuss two of his recent reports, both published on January 23, 2018. I would like to take this opportunity to thank you, Mr. Fréchette and your team. Every time we have asked for you to appear, you have always said “yes,” and you have always participated in our deliberations and questions.
The first report is entitled Economic and Fiscal Monitor - January 2018. It provides an in-year estimate of Canadian gross domestic product in 2017 and the Government of Canada’s budget balance in 2017-18, based on data released since our October 2017 economic and fiscal outlook, up to and including January 12, 2018.
[Translation]
The second one, entitled PBO and Finance Canada Long-Term Projection Comparison, provides a comparison of long-term economic and fiscal projections prepared by Finance Canada and PBO in 2017.
[English]
To discuss these two reports, we welcome Mr. Fréchette, the Parliamentary Budget Officer. With him are Mr. Mostafa Askari, Deputy Parliamentary Budget Officer; Trevor Shaw, Economic Advisor-Analyst; and Tim Scholz, Economic Advisor-Analyst. Welcome. Again, thank you, Mr. Fréchette, for being with us and answering our questions.
I have been informed that you have no opening remarks, so at this point in time we will go immediately to questions.
Senator Marshall: Thank you for being here this morning. I have a number of questions on the reports, but I wanted to start off by asking a question about a press release or report I saw last night. It appears you’re going to get the information now from the Canada Revenue Agency so you can do some work on the tax gap. I know this has been a big project for a long time, and it seems like you’ve finally been successful. Could you give us an update on that?
Jean-Denis Fréchette, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: My voice — it’s probably the emotion of yesterday, after five years. It’s certainly good news, particularly for Senator Downe, because as you know, he was behind that. He was the original requester of the tax gap analysis in 2012. Since then, my predecessor and I always promised to Senator Downe that we would never give up. It was a long battle, until yesterday.
I sent a letter on January 17, following a meeting with officials, and I told him that would be the last letter I would send them requesting data on the tax gap. In other words, you don’t have to read between the lines: It was like an ultimatum letter — something had to give after.
We had a good discussion with CRA. They were open to provide some information and the way we asked for it. Yesterday, we had that kind of confirmation, not only in the House of Commons but from CRA as well.
We’re looking forward to having the data. We’ll take several months for analysis, as you know, but we look forward to providing that to Parliament and Senator Downe, as the requester.
Senator Marshall: Is the response focused on giving you all the data that you need, or is it worded so that you’re left to wonder that maybe you won’t get all the data? Is it emphatically you’re going to get everything you’ve asked for?
Mr. Fréchette: It is what we were told. I’m really always careful. Being an old man, I remember that sometimes you don’t always receive exactly what you’re promised to receive. I’m hopeful, and I’m also an optimist. We’ll see. It’s certainly a good step, if it’s not exactly what we asked.
Yesterday, the Prime Minister, the House of Commons and the CRA said they will follow what was in the letter, which is the T1, T2 and T3, as we asked for them, regarding electronic support. It is anonymized data, which was mentioned as well.
Apparently, we can have the first set of data this Friday, so I can probably debrief you later next week.
Senator Marshall: Thank you very much. That’s good news.
My second question relates to your reports. I’m wondering if you’ve done any additional work on the projected cost of borrowing for the federal government. I know from last year’s budget, the minister does provide numbers with regard to the estimated costs of borrowing. I think it’s somewhere in the vicinity of $25 or $30 billion over the next five years. You have made comments on the increase in interest rates, and there may be more increases coming forward. Have you done any additional work? I’m very much interested in the projected cost of borrowing because it’s such a significant amount of money. Could you provide us with an update as to whether any additional work is being undertaken?
Mr. Fréchette: I will ask Trevor Shaw to give you details on this.
Trevor Shaw, Economic Advisor-Analyst, Office of the Parliamentary Budget Officer: Both our recent updates, our economic and fiscal monitor that we published in January, provide a current snapshot of our view on public debt charges. Over the medium term, we have our October 2017 economic and fiscal outlook. That would be over a five- or six-year horizon, our most recent outlook on borrowing costs.
Our model at the PBO takes into account a number of different aspects of public debt charges. There are both the ordinary public debt charges on bonds and treasury bills that one ordinarily thinks of as well as the borrowing costs on things like pensions, which would be pensions for public sector employees, et cetera. The public debt charge projection in our model take into account both of these.
One thing I will highlight is that we do have a rising interest rate forecast, as do many economic forecasters. This doesn’t take hold on public debt charges one for one because there is some delay as the bonds come for renewal. The entire stock of public debt isn’t renewed all in one year; some bonds are renewed periodically, based on the judgment of officials at Finance and the Bank of Canada. Bonds may not expire for five or ten more years, at which point they will be renewed at market interest rates. While our rising interest rate forecast does have upward pressure on public debt charges, it doesn’t happen instantaneously; it’s a gradual increase over time.
Senator Marshall: What do you do with your projections? I’m speaking from memory. I think I saw something where the Parliamentary Budget Officer indicated that you expect another interest rate increase this year, so do you continually update those numbers?
Mr. Shaw: That’s right. Our economic projection underpins all of our fiscal projections. My colleagues, Chris, Tim and Mostafa, are responsible for developing our economic forecasts, generating numbers that you’d see from many public sector forecasters, the Bank of Canada. And this needs into our fiscal model, which would take our interest rate forecast, both for short-term treasury bills, 90-day borrowing, as well as long-term bonds, 10-year bonds and longer, both of which are sources of funding for the Government of Canada. It’s these projections which are our forecasts for what borrowing costs will be at the time of issue.
Senator Marshall: So if there’s another rate increase, the next time round you automatically generate new numbers?
Mr. Shaw: Yes. We have projections for interest rate increases throughout the medium-term horizon, so we have interest rates returning back to more equilibrium levels, which my colleague Tim could discuss in more detail. If interest rates increase faster than we had anticipated, we would update our model on that basis. If interest rates don’t increase as fast as we expected, which sometimes happens, we would adjust downward.
Senator Marshall: Mr. Fréchette, I know that in one of your earlier reports, you spoke about the provincial governments and their financial position. In one of the reports we’re discussing here today, you looked at the issue of the provincial governments, but the federal government wasn’t considering it. I’m from the province of Newfoundland and Labrador, and you had a section in a previous report on our bad fiscal situation. Why do you think it’s important that the federal government include this when it’s looking at its forecasts? Exactly what was the issue you had with regard to the federal government?
Mr. Fréchette: Before I ask Mostafa, I’ll tell you that the Auditor General of Canada requested that.
Senator Marshall: Yes, you’re right. I remember that.
Mr. Fréchette: That’s the first part of the answer. This is in response to the Auditor General, wherever they come from. It’s certainly a good idea to have these kinds of projections. I don’t know if Mostafa wants to add something.
Mostafa Askari, Deputy Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: The Finance Department definitely looks at provinces’ situation; it’s that they don’t publish anything on this. We always thought, especially after the Auditor General request, that it would be useful for the public to know what the Finance Department thinks of the fiscal situation of each of the provinces, because it affects the way that they form policy. They provide transfers to provinces, and the economic situation certainly has some implications for the provinces, so it is essential for the transparency and also sustainability of the whole economy and the whole government financial situation to have official numbers on those.
That’s one of the reasons we did what we did. We provided details for each province because we thought there’s a gap there, and it’s important for Parliament and the public to know what’s going on in each of the provinces.
Senator Marshall: I don’t know if this is a fair question, but is there an expectation that the Parliamentary Budget Officer is thinking that maybe the federal government may jump in and provide some type of extra financial assistance to the provinces that are experiencing serious financial problems? I know in Newfoundland and Labrador, a lot of people raise the issue of whether the federal government is going to step in and help us. Were you thinking along those lines?
Mr. Askari: It’s not really our position to provide that kind of policy advice to the federal government, but there are issues there in terms of the transfer payments, for example. When you look at transfer payments — different parts of the transfer equalization, health — there might be room for some changes, not necessarily just to focus on one province. The system may not be properly designed for the current date. Equalization is a very complex system, and many provinces have issues with their equalization. This kind of report brings those issues out, and maybe there will be some discussion about how to reform those transfer systems.
Senator Marshall: That’s true. It does raise the equalization formula.
Senator Pratte: I want to follow up on this issue of transfer payments and the fiscal gap. You don’t say this exactly, but when you measure the fiscal gap, right after mentioning the situation of the sub-national and the provincial and territorial governments, it’s sort of obvious that you make the link between the two. You mentioned there is a fiscal gap and that the federal government could either diminish its taxes or increase its expenses, depending on the horizon, by $13 billion or even more than that, I think, if you take the longer-term horizon.
You’ve certainly answered this in the past, but I want to go back to this concept of the fiscal gap. This is over the whole horizon; right? So if we take the $13 billion, does it mean that, starting today, the government could spend yearly $13 billion more, or decrease its taxes $13 billion more? Because if it did, it would change the whole equation, wouldn’t it?
Mr. Askari: Again, I think we have to look at the target we have set there. The target and objective here is to keep the debt-to-GDP ratio level at the end of the five-year term. Whatever that current rate is, we want to maintain that.
I don’t remember exactly what the ratio was, but whatever that ratio is, let’s say 25 per cent, the objective is that if we change the expenses and revenue in a way that that debt-to-GDP ratio, after the horizon, 75 years, remains at that level, then you have achieved your objective of sustainability. That doesn’t mean you won’t see changes during that period. You may see ups and downs in the fiscal situation and debt. But by the end of the horizon, you are achieving your target of stable debt-to-GDP ratio. That’s the criteria used in this kind of analysis, and it’s not only us, actually. Most countries and international organizations use that, just to give you a sense of what the current fiscal structure will give you over a long-term horizon.
If you look at the debt-to-GDP ratio profile that we are showing, it goes down over time. Eventually it will disappear. But in reality, that is never going to happen because the elimination of debt over time means that you have to run huge surpluses for a number of periods, and I don’t think any government, from any party, would be able to accept those kinds of surpluses continuing over a long period of time.
So, again, this goes back to the idea that you have a fiscal structure that is right now sustainable, which means that your debt-to-GDP ratio is either constant or it’s going down, but you do have some room. Even if you raise your expenses and reduce your revenues, you can still achieve that sustainability, although with a different profile.
[Translation]
Senator Pratte: Mr. Fréchette, given this situation, wouldn’t you want to study this important issue with respect to the possibility of changing the transfer system to subnational governments?
Mr. Fréchette: As already mentioned, we could do that. However, making recommendations is another thing. I do not know if your question refers to a review to make recommendations. We will soon publish a report on major transfers, but we will never make recommendations or proposals as such.
Senator Pratte: What will be the focus of your report? Will it be the transfer system?
Mr. Fréchette: It will cover major transfers.
[English]
Senator Pratte: It’s not in your report, but I was wondering if you saw anything in the short and medium term on inflation. This is one of the preoccupations of many as to whether there are signs that the inflation rate would be increasing in the next year or two years. Are you seeing anything in the data that you have that would show this?
Tim Scholz, Economic Advisor-Analyst, Office of the Parliamentary Budget Officer: Based on our medium-term forecast from October, we don’t see inflation picking up. We see it returning to 2 per cent by some time in late 2018-19, but we don’t see it taking off or exceeding beyond that level afterwards.
Senator Pratte: I thought there were signs that wages were increasing and so on. That could have an impact on inflation.
Mr. Scholz: Based on our assumptions and economic projections, an offsetting impact on inflation would be the fact that we’re assuming that the Bank of Canada will continue to raise interest rates in response to stronger inflation in an economy that’s around potential.
Senator Eaton: Welcome, gentlemen. It is always nice to see you. I’m really looking forward to hearing about your tax gap analysis. It would be interesting to hear if it’s CRA inefficiency or whether it’s a lot of people not paying their taxes.
I’m very interested this morning in your paper. Do you really deal with NAFTA? Trump was threatening again yesterday or this morning about the Canadian border and how unfair we are. If NAFTA is in jeopardy, what kind of effect do you think that will have on our growth and on our exports? He’s threatening to unveil a tax on imports. What kind of disruption will that mean to our economy?
Mr. Askari: It’s very difficult to do anything right now about NAFTA because we don’t know exactly what the outcome is going to be.
Senator Eaton: But the instability must be having some effect.
Mr. Askari: Certainly there’s some uncertainty. The way we have dealt with it in our projection is that on the other side of this is that the U.S. economy is expected to do much better because of the tax cuts that they have done.
Senator Eaton: Their tax cuts will help the economy, but isn’t their deficit growing too?
Mr. Askari: That’s correct, but that’s a fiscal issue. On the economic side, the way their economy affects us, if they’re growing faster, obviously that’s going to help Canada. Whether we have NAFTA or not, we will have to trade with the U.S., so is it going to have a positive impact on us.
The way we have dealt with it in our projection is that we are assuming that the positive impact we are getting from higher growth and a different fiscal situation in the U.S. is going to be offset by any negative impact from NAFTA, whatever the results are. This is a very high-level assumption we have made. We can’t really do much beyond that until we know exactly what the details of the final NAFTA agreement or no agreement is going to be at the end. Then we have to evaluate the impact of that on the Canadian economy and then we can provide a better result.
But at this point, there’s not really much we can do in terms of our own projection. Certainly there’s uncertainty, and everybody knows that. Some of that is probably reflected in some of the numbers in Canada, whether on the interest rates or on the exchange rates. But those are there. What we have to deal with is what’s going to happen in the future, which is really unknown.
Mr. Scholz: We’re actually looking at this. We’re starting to prepare and update our economic outlook, which we usually publish in April. I think we have more details now on what impact the tax cuts in the U.S. might have. But with NAFTA, as Mostafa said, we have threats and rhetoric, but we don’t have hard details on what that might be. That assumption that Mostafa talked about is something we will revisit in the context of April, but we don’t have any numbers yet.
Senator Eaton: Some people have come to this committee and said that we’re not tax competitive anymore; we’ve become less and less tax competitive as the U.S. legislated new taxes and with our closing of several tax loopholes here in this country. Do you agree with that? Do you think we are uncompetitive tax-wise, or do you think we’re just fine and just as tax competitive as we should be? I’m sorry if that seems like a political question, but I know from an economic number point of view you could probably give us a non-political answer.
Mr. Askari: Certainly with the changes in the corporate taxes in the U.S. and their income taxes, there will be pressure on Canada in terms of whether companies and international companies want to come to Canada or not, but the tax rate is only one factor in decision-making for companies. So, yes, there is some disadvantage from that, but that doesn’t mean that all the Canadian companies are going to pack up and leave.
Senator Eaton: It is one factor.
Mr. Askari: It is one of the factors that will certainly enter into their decision-making, but it doesn’t mean that we are doomed in any way, certainly not.
Senator Eaton: That’s a very political answer. Thank you.
We’ve been looking at infrastructure in this committee, and it seems that the infrastructure money is not getting out the door as planned. Do you have any comments on that? Is it because deals haven’t been made with the province? What are the things that are blocking it?
Mr. Askari: You know better than I that at a high level, there is always delays and lags in any infrastructure program because of different players who are involved and some of the projects don’t get started right away and there are other issues. We don’t know exactly what the reasons are for the current lapses we are seeing, but we see the lapses are slightly higher than what we had projected in the infrastructure. That again doesn’t necessarily mean that money doesn’t come. It may come later .
Senator Eaton: But do you think it’s an advantage, Mr. Askari, that the federal government has most of the infrastructure money or controls most of the infrastructure money, yet the provinces and the cities build 40 and 50 per cent of the infrastructure? Is it a matter of the government should cede more tax points to the provinces and the cities for infrastructure?
Mr. Askari: That’s a real policy question. I can’t really answer what would be the best way to deal with this. We do have the gas tax that will go to municipalities. That’s one way of dealing with that. I’m not sure the delays in infrastructure spending are because of the control of the federal government or control of the provinces. It’s the nature of these projects. The provinces have to start these projects, and they get the funding and the approval. They do their own thing internally and then the projects will start.
We are actually looking at the infrastructure numbers. We are going to have a report on monitoring how the spending is being done. Hopefully we’ll release that in a month or so.
Senator Eaton: That will be interesting. It will tell us a lot.
Mr. Askari: But again, we won’t be able to tell you why there are these delays, because the delays are more technical in nature in each jurisdiction.
Senator Eaton: We’ll see where the delays are, though, won’t we?
Mr. Askari: That’s right. Hopefully you’ll see where the delays are.
[Translation]
Senator Forest: Senator Eaton has already touched on the infrastructure sector. I met with people from the municipal sector before coming to the meeting this morning. I was intrigued by your report, which indicates that the pace of investment has been slow in 2017-18. Are these investments or amounts committed by the federal government that are not disbursed? For instance, if a municipality or city that carries out the project makes the claim for disbursement, as the project progresses, are you able, in clear terms, to identify what is being committed in relation to what is being disbursed, in order to state that infrastructure investments are a little slower than in 2016-17?
Mr. Fréchette: Thank you for your question. If you spoke to someone from the Union des municipalités du Québec —
Senator Forest: I can tell you that I did not speak to anyone from the Union des municipalités du Québec.
Mr. Fréchette: We look at provincial spending in our reports. We go back and forth between the provinces and the federal government. Municipalities operate on lines of credit. They start projects before getting approvals. Afterwards, they can pay out and obtain federal funds as such. With respect to federal funds — and Mr. Askari alluded to this — once the program is accepted and the money has been approved, it is completed by Infrastructure Canada. The money may not have been disbursed and used, but the program has been used and it stops there. For them, there is not necessarily a follow-up that is done until the end. It may be a problem of dichotomy in how disbursements work between municipalities, provinces — let’s not forget that there are provinces between the two — and the federal government.
[English]
Do we have some numbers on infrastructure?
Mr. Shaw: Maybe I could describe why our current view is that infrastructure is lagging from what we expected. There’s not a definitive set of numbers currently that can track the implementation of infrastructure, so we use many different sources at the PBO. As Mostafa mentioned, we’ll be publishing a report that looks at the federally owned aspects on a project-by-project basis in the coming months.
We also use information that we’re gathering from accounting data from the provincial budgets themselves to try to form a view of how quickly these monies are actually flowing. Then we’ve compared how quickly the money is being disbursed this year relative to years past, and we see that, year over year, comparing back to 2016-17 and then the years prior, there hasn’t been the uptick in infrastructure spending one would expect if the plans set out in Budget 2016 and the All Economic Statement that year are to be realized.
There were lapses last year. One might expect that the money provisioned in 2016-17 would be spent in this fiscal year, but in order for the government to reach those targets, there would have to be a pretty sharp increase in the last six months of spending.
Senator Pratte: My understanding is that the federal government was giving out the money when the work was completed. Is that correct? So the projects could be undertaken and construction could be started, but the federal government was just giving out the money at the end when the bills were coming in. Would that have an impact on the data you compile?
Mr. Shaw: This certainly would have an impact. My general understanding as well is that a municipality or province that might own an asset might start construction, be incurring expenses and economic activity would be unfolding, but it might not necessarily be registered in the accounting ledgers of the federal government. Yes, this is true; this is generally how the system is working. However, that’s also how it’s worked in years prior. If there’s a tendency for money to lag in the current year, we should also pick up those delays in prior years. Given the fact that these patterns continue throughout time, the trend suggests that there will continue to be delays in implementation in this fiscal year.
[Translation]
Senator Forest: When a project is started, a loan by-law needs to be approved at the municipal level. The disbursement is done in stages until the loan by-law is applied. What surprises me is that we cannot evaluate the overall impact. The government’s main strategy for contributing to economic recovery is to fund projects in partnership with the federal, provincial and municipal governments, one-third, one-third and one-third. It is difficult to assess the overall economic impact and relevance of the strategy. This surprised me. There is a partnership between the provinces and the municipalities, but there are significant budgets that are funded from the various appropriations of the departments. Are you able to follow up more closely? For example, last year, Fisheries and Oceans had about $318 million, but not all of that funding for infrastructure projects was spent. Can the Parliamentary Budget Officer follow up more rigorously? There is no intermediary or partnership in the chain regarding the projects.
Mr. Fréchette: In terms of moneys to be provided, the budget cycle is updated every three months. This is one way we can see if certain amounts have been transferred the following year.
Senator Forest: Carried forward.
Mr. Fréchette: We follow the entire budget cycle, particularly because of the infrastructure programs that represent a large part of the budget. As for your economic question, this is probably the trick, but also the crucial question for parliamentarians, whether all these investments are made according to the infrastructure needs with the highest added value. When we talk about a train, as in Ottawa at the moment, or the Réseau électrique métropolitain de Montréal, it’s relatively easy. For other projects, it is more difficult because it is based on the needs of the municipalities. For example, it’s extremely important for the city of Rimouski, with its marine park and its docks. Is the impact and long-term economic activity as great as a high-speed train between Rimouski, Montreal and Toronto? It may be another story. It’s not up to us to do these assessments. We are basically evaluating the use of money and transfers to municipalities.
Senator Forest: Are there direct benefits? With the example of Rimouski, where $41 million is being invested, there is one-third, one-third and one-third. However, the overall activity can be around $64 million or $65 million, except that you can’t get those numbers when you apply for an infrastructure project.
Mr. Fréchette: Indeed.
[English]
Senator Neufeld: I’ll be brief, as most of my questions have been answered.
On equalization and transfers, there are different opinions across the country, obviously. I come from Western Canada. When you talk about transfers changing to different provinces and looking at provinces’ debt-to-GDP ratios and those kinds of things and you make some assumptions, do you look at the different services that are provided by different provinces and put those in the equation? For example, Quebec may fund their education system way higher than another province does. Tuition is way lower in Quebec than it is in the province I come from. Is that part of the whole equation that you look at? Do you take all that into account, or is it just the dollars that are going out?
Mr. Askari: As I mentioned, the equalization formula used by the Finance Department is very complex. They take into account the ability of provinces to tax and also the various spending programs that they have. Everything goes into that pot. We use essentially the same model that they are using to project this forward for our projection. So those things are taken into account, certainly. But one of the things, for example, that is really important is the way that the provinces can tax their citizens. That’s a major part of the formula that they are using.
On the other transfers, for example, the social transfer is done on a sort of a per capita basis, so that doesn’t really take into account the aging of the population in different provinces. It’s the same thing for health. Health transfers are also on a per capita basis. If one province, like Newfoundland, has an older population, which means that on a per capita basis they have to assume higher health expenses, that’s not taken into account in terms of the allocation of those transfers.
As I said, there are some issues with the transfer formulas that are being used, and perhaps there will be a need for a discussion on how those things need to be reformed. But as I said, the equalization takes into account the structure of different provinces and the ability of different provinces to raise funds so they can provide the same minimum level of service to their citizens.
Senator Neufeld: The second question I have is about NAFTA. I realize that if NAFTA fails, for instance, there are people who say this is going to be pretty catastrophic for some parts of Canada, especially in the manufacturing world.
I got the idea from the way you folks responded to the questions about NAFTA that that may not be that big of a deal. There are some who say, “If we didn’t have NAFTA, where would we be?” And then we hear that it may not be that big. I realize we’ll still have trading back and forth — I understand that — but I was surprised. At least that’s the feeling I got, but maybe I’m wrong. Maybe I misunderstood your responses, but especially in Ontario and in Quebec my sense tells me that it’s going to be pretty severe.
But help me a little bit here: Is it not going to be as severe as what people think?
Mr. Askari: I think maybe I will answer in two ways. One is that even without NAFTA, we still have the WTO. Every country has the WTO. In terms of tariffs themselves, the United States still has to follow the WTO, so we won’t see significant changes in tariffs in general.
There are some sectors that are definitely going to be affected significantly. Exactly what those are and what the impacts will be, I don’t think anybody can tell you right now exactly what is going to happen. That depends on many different criteria and many different things that may happen at the time.
There’s no doubt there will be a negative shock on Canada. How big that shock is going to be, I won’t be able to tell you.
Senator Andreychuk: I’m going to resist talking about NAFTA. Is it a shock or has the uncertainty already started to have an impact on our relationship and on investment and businesses? I don’t know if it’s going to be a shock or if it’s already a shift. I’m not going to get into that.
My question is to Mr. Fréchette. I’m not a numbers person, as you know. I’m a policy person, and I appreciate that you don’t talk about policy. But when you say that the spending is sustainable and the budget probably will be balanced in 2040 or 2050, I hear these figures, and it’s taking into account that you know what’s going to happen in the future.
The rebuttal I get from people is, “Why are you worried about a balanced budget when the PBO says it will work itself out in 40 or 50 years?” There are some other people who say yes, it will, but on the backs of our children and grandchildren. Is there a way that you can relate to the public who are concerned about this that what you’re giving is a projection based on numbers and what you presume will be the factors?
In 40 years, different governments will approach this whole issue very differently and big shocks can occur. It could be NAFTA or it could be something else, and people are being given that signal that there’s a comfort zone that, somehow, in the fullness of time, it will work itself out. I’m concerned that that may be a policy message that you’re giving out rather than a fiscal message.
Mr. Fréchette: I have a very short answer. As we and Mostafa have all mentioned in previous meetings, it will not happen, as we are good forecasters but we are not that good at forecasting. Our chief forecaster is not at the table right now, but it will not happen.
It is a scenario not for us but for politicians and policymakers who take a picture at one point in time, which is now, and it is based on demographic and economic progression and what could happen if you maintained the same policies in the future as you see right now.
As Mostafa said, it will not happen, but it tells you something. If you begin to have an imbalance right now, you will create a greater impact in the future on the youth and younger generations and so on. That is what these projections are trying to do: inform policymakers of what could happen if you change all these policies right now.
Senator Andreychuk: I guess that’s the messaging that I’d like you to contemplate: if everything stays the same, but the chances are that it won’t. Is there some messaging that you can give that your projection is just that and is based on what you know today and taking that forward so that there isn’t a feeling of a comfort that all is well? Thank you.
The Chair: As we prepare for the second panel with the CRA, on the second round, we have three senators. If we could, we would ask that you keep your questions short and ask Mr. Fréchette to give short answers. We would appreciate it. If not, you could send your answer to the clerk in writing.
Senator Marshall: I think I’ll ask one about NAFTA. I know Senator Eaton asked this question and then Senator Neufeld followed up, but I was surprised to see you discuss in your report that the slowdown in the third quarter was primarily due to a contraction in exports, and then you say that you anticipate a rebound in exports. Do you still expect that? I was surprised to see that. I thought it was a brave statement considering what’s going on in the United States. Does that still hold, based on what’s been happening the last few days?
Mr. Scholz: Yes. I don’t have the exact number in front of me, but we saw a sizeable contraction in exports across a number of categories in the third quarter, and we do expect it to bounce back, given the size of the contraction.
The Chair: You said yes, but if you want to add to your answer to that question, please follow up with the clerk.
[Translation]
Senator Forest: As part of our analysis of the changes to the tax system, which we traveled across Canada to do, we came to the conclusion that the entire tax system must be re-evaluated to make it more equitable and more competitive.
Since the tax reform in the United States is extremely radical, are you considering a reform of the tax system as part of your long-term forecast?
Mr. Fréchette: Yes, it is something we are considering.
[English]
Senator Eaton: Will you be examining the effects, for instance, that the CETA trade deal has on Canada? Is CETA working? Is the free trade deal with the EU working? How well is it working?
Mr. Askari: It’s early to say whether it’s working or not. We have done one estimate of the impact of CETA on Canada in general but, to evaluate whether it is working right now, we need some time before we see the impact.
Senator Eaton: So next year?
Mr. Askari: Hopefully.
The Chair: To Mr. Fréchette and his team, thank you very much. We will now suspend for a few minutes to bring in the CRA. Honourable senators, at the end of this second panel, we will take 15 minutes to go in camera to discuss a few items you should be made aware of.
For this second part of our meeting, we welcome officials from the Canada Revenue Agency. This is a follow-up to the Auditor General’s appearance two weeks ago when he discussed with us his fall report No. 2 on CRA’s call centres.
From the Canada Revenue Agency, we welcome Mr. Bob Hamilton, Commissioner; Mr. Frank Vermaeten, Assistant Commissioner, Assessment, Benefit and Service Branch; and Ms. Gillian Pranke, Director General, Call Centre Services Directorate, Assessment, Benefits, and Services Branch.
I have been made aware, Mr. Hamilton, that you have some comments. Following the comments, we will proceed to questions. Mr. Hamilton, again thank you for being here to share your comments or opinions.
Bob Hamilton, Commissioner, Canada Revenue Agency: Thank you, Mr. Chair, for the opportunity to appear before the Standing Senate Committee on National Finance in my capacity as the Commissioner and CEO of the Canada Revenue Agency. As you mentioned, I have with me Frank Vermaeten and Gillian Pranke to help answer any questions you may have.
I am here today to provide an update on the CRA’s call centres in response to concerns raised in the Auditor General’s fall 2017 report. The issue is important for CRA, as call centres are a key part of the services that we provide to Canadians and an important part of the mandate the Prime Minister gave to our minister.
In terms of the Auditor General’s recommendations —
[Translation]
The Auditor General recommended that the CRA take action in three areas to address service standards offered by its call centres, including improving accessibility, strengthening the quality and accuracy of its responses, and enhancing program measurements and reports.
[English]
The agency agreed with the Auditor General’s recommendations and committed to do better. We have tabled an action plan to address the Auditor General’s recommendations and improve the services at CRA’s call centres.
Let me assure you that the staff who work at our call centres across the country, together with their colleagues responsible for the information technology and reporting, are committed to implementing this plan. I am committed to implementing the plan.
In my first 18 months on the job, I have had the opportunity to go across the country and visit our operations. I’ve seen first-hand the work of our employees, including those employees who work in our call centres. I am very proud of the work that CRA’s employees do, and we need to ensure we are providing them with the proper support and tools necessary to do their jobs.
Let me go through the items the Auditor General raised.
The first issue raised by the Auditor General concerns how difficult it can be for Canadians to get what they need when they call the CRA. Performance in this regard is a combination of whether callers get through to the call centre or get a busy signal and ,once connected, how long they have to wait.
Our current approach, which the Auditor General described and which has been in place for a number of years, is to queue as many callers as possible before their call is picked up. The callers we can’t serve in a reasonable time frame are either presented with a busy signal or are routed to our interactive voice response system.
We have taken a number of important actions to improve access to our call centres. Through Budget 2016, the CRA received more than $50 million in funding over a four-year period to improve call centre programs. This has allowed us to hire more people to help improve the level of service provided by the call centres.
We have extended our wait times from two to five minutes to allow more callers to enter the phone queue, resulting in fewer busy signals. We have also increased self-service options for callers to help Canadians access information available online, freeing call centre agents to assist callers with more complex requests.
As a result of these changes, Canadians have higher success rates when they attempt to access call centre telephone lines. For example, Canadians will have to call the CRA approximately two times, on average, before being able to speak with an agent on the individual tax inquiries line. This is an improvement on the three to four times that was stated by the Auditor General at the time of his report. Now, we need to do better, but this represents some progress thus far.
Quality was the second issue raised by the Auditor General in terms of the information received from the call centres. The agency, again, has taken important steps to improve in this area.
We have begun to provide additional training to ensure that call centre agents can effectively deliver the services upon which Canadians rely. The new approach to training builds on the previous six-week training program. Newly hired call centre agents now receive additional support and coaching throughout the on-boarding period, which ranges from three to 10 weeks, to ensure they have the necessary skills to deliver a highly reliable client-focused approach.
We have begun a new process of quality control. A national team has been set up to make blind calls into the 1-800 inquiries line during tax-filing season to assess the accuracy of responses across the national network and consequently recommend improvements to training and reference material. The team will use the same 17 questions the Auditor General used to help us compare results over time.
The third issue raised by the Auditor General is reporting and how we can report more clearly about the accessibility, the accuracy and the timeliness of call centre services. We are committed to being more transparent with Canadians to ensure they know the level of service they can expect from the CRA and how we are performing against those expectations.
Beginning with the CRA’s Departmental Results Report for 2016-17, the CRA provided comprehensive information about our call centre performance, including the number of calls answered by an agent, the number of calls routed through automation, self-serve and the calls that could not be served.
In order to update our service standards, the CRA is launching public opinion research among Canadians to assess its call service. Moving forward, we will ensure we are providing Canadians with more comprehensive information about our service standards and the performance of our call centres.
Let me say a word about technology. Our existing technology is old. We are working to put in place new technology as part of a government-wide initiative led by Shared Services Canada. When in place, our services would better align with Canadians’ expectations in this regard.
For example, callers could be given an estimated wait time to speak with an agent, an option that isn’t available with our current technology, and they would have the option to wait in the queue, receive a callback or use the automated self-serve options available. New technology would also help us improve the quality of services by giving us call recordings to allow us to better track, monitor and improve the performance of our agents.
But we are focused on improving things today for Canadians who try to reach us by phone and, hopefully in near future, the technology will help us improve even more. I’m confident that through our action plan, we can and we will do better.
[Translation]
I will be pleased to answer all your questions about the agency’s responses to the Auditor General’s recommendations or about its action plan. Thank you very much.
The Chair: Thank you, Mr. Hamilton.
[English]
Senator Neufeld: Thank you, folks, for being here today. It was obviously a little bit of a tough audit on CRA, I would say, and rightfully so. But I have some particular questions of CRA.
Why would you report that you were answering most of the calls when you weren’t? I don’t know if you use different numbers than the Auditor General does, but the Auditor General came in and you’re capitulating to what he said. You didn’t respond that way. Why would CRA do that? Why would they give the incorrect information to tax filers, who later on could be audited and found to be in lots of trouble? Why would CRA give the information to the public that they were actually answering those calls, that you were actually answering them correctly, to tax filers in Canada, when CRA must have known the same as the Auditor General knew? You deal with numbers. You must have known that some of this stuff wasn’t cricket. Can you help me to understand, with an agency as important as CRA, as important as tax filing is to people in Canada, why that would be done?
Mr. Hamilton: Let me take the two questions in order, first on transparency of information and how are we doing in answering calls in a timely way, and then I’ll talk about accuracy.
I agree that we have to do better in how we report information, but let me talk a little bit about how the system is set up and why we were reporting the way that we did before. But I want to acknowledge we’re going to be reporting in a much better way going forward.
When we ran the phone system — and this has been in place for a number of years — you have a limited capacity, and the question is: What do you do when you have more people calling than you can answer? There are different approaches one could take. You could just let everybody wait. We don’t have the capacity in our technology to tell them how long they will have to wait. It could be one minute; it could be thirty minutes. You could just let them wait, or the other option is to say, “We’ll make a commitment that if you get through to the agent, we’ll answer your call within two minutes 80 per cent of the time; then, if we can’t satisfy that, then you will get a busy signal or get routed to self-serve.”
So the agency took that decision based on — this is a number of years ago — what it felt consumers wanted, or people calling, and reported in our public reports how are we doing in answering the calls within two minutes 80 per cent of the time. In my view, the other part of that has to be reporting on how many busy signals do we get, how many people did not get through. But that’s the basic reason the agency took the approach that it did to how it treats the calls and then how it reported.
We are now in a process, starting with the departmental results report that I mentioned, where we will be reporting not only how we are doing on answering the calls quickly, but how many people did get busy signals and how many people were transferred to the self-serve system. I think that will present a more comprehensive picture. We will still have the same issue that demand could equal supply. That’s a question of how we resource this and the choices that get made, and we’ll be responsible for that. But that’s an improvement on the reporting side.
I would say in that regard that one of the suggestions the Auditor General made, which we had looked at and have tried, is to increase that time from two minutes. So rather than have people get a busy signal if we think the wait will be greater than two minutes, what if we expanded that to five minutes and said you will have to wait a little longer, potentially, to get through, but it will allow more people to get through. That’s one of the choices one can make and we have opted to have a little longer time, and we’re tracking what customer satisfaction is out of that. We’ll see how that plays out, but so far it has allowed more people to get through.
On the issue of quality, I’ll come back again, because I think out of the pieces in the Auditor General’s report, this is one that struck me as quite important. What is the quality of responses that people get when they call the CRA? I would say when we’re looking at questions that come in, there are two types of questions. One is the general type: What’s the filing deadline? What’s the interest rate? That’s one type. The other type is taxpayer specific: I’m calling about my situation, and can you tell me a little bit more about that? That’s obviously confidential information that others don’t test for, and the Auditor General tested for that first type.
We saw that there were a number of answers, and the percentage was very high. The Auditor General said 30 per cent of the answers were incorrect. So what we have done, and what we had started to do, is improve our training for people and try to make sure that the right question gets to the right agent. We have introduced a system whereby, in addition to the six-week training plan, we will have additional on-boarding of three to 10 weeks where people will spend time together, be coached and will go through gates to allow them to get to more complicated questions. An agent can get a question that they’re not really ready to answer, and we need to make sure that agent is better prepared, but if they really don’t know, that they get the question to someone else. We take these concerns seriously. We are improving.
I would say, coming back to technology again, if we are able to get the new technology going soon, we will be able to have more independent internal monitoring of what’s going on. Right now, we don’t have call recording capability so we can’t listen to the call to see how exactly did it go and was there any error. We would have that capacity with new technology. Right now we do tests, people side by side in the region. As the Auditor General pointed out, that’s not as effective because sometimes people know they’re being watched and so they may give an answer different from what they normally would.
Again, I think the technology points to improvements, but we need to make sure that we’re increasing training and support and giving better training materials right now for people. I hope to see some very good progress on these fronts as we speak and into the future.
Senator Neufeld: So when the Auditor General says over half the calls, or 29 million calls out of the calls that you receive, were blocked, that’s going to change dramatically; is that correct?
Mr. Hamilton: We will certainly improve that. I think the numbers were even worse than that, if I can put it that way, in his report. And we can say that since then, we believe that we’re getting to a point where about half the calls are getting through.
I’m not trying to say that’s perfect. I’m saying it’s an improvement, and we’re looking for ways to keep on improving. But I do think that if we are able to get a system in place, a technology, a platform that allows us to tell the person calling in how long they will have to wait, then they can make a choice, and maybe we’ll be able to allow them to call back. But even without that technology, we have hired more people and we are training them better to be able to improve those call statistics, as you mentioned.
Senator Neufeld: I have one last question. The bonuses that had been given out also bother me. If the information was incorrect 30 per cent of the time, obviously some people — I don’t know who, and I don’t want to know — were receiving pretty healthy bonuses and, according to the Auditor General, it was higher than the standard bonus people are getting in other departments with Canada. Can you tell me why? The Auditor General came in and found all of these things wrong. Let me tell you: I know from experience, because I’ve gone through an audit with the Auditor General recently, too. But he found these things that were wrong, yet the CRA was still paying bonuses. The CRA must have known some of that information wasn’t correct and that a lot of calls were being blocked and all of those kinds of things. People weren’t getting the correct information to do their tax filing, yet people were still reaping in bonuses that were above average. Can you explain that?
Mr. Hamilton: Yes. Just one point of clarification: There was a newspaper article that said CRA bonuses are higher than the federal government on average, but that’s actually inaccurate. We have an almost identical system of performance pay to the federal government. Unfortunately, what the reporter had done is they took the bonuses for the very top level of the executives and compared them across all the executives in the public service, so it was kind of an apples to oranges comparison. When you actually do the apples to apples and you take CRA executives against all government executives, we were about the same or, in fact, a little bit lower. It is important just to clarify that point.
Also, as you say, we can’t talk about individual bonuses in this situation, but we do have a very rigorous system at CRA of looking at results and measuring performance pay based on that.
I would say, to the extent that an agent gives out incorrect information, we do our best right now to find out and correct that problem, and there’s a varying degree of reactions to that. If it was an honest mistake or inadvertent, that’s one thing. If we see a systemic problem, then we take a different set of actions. But again, I would say that if we can get to a system where we can do better monitoring internally, I think we’ll be better able to deal with any issues that arise and correct them in a timely way.
Senator Neufeld: So even though these mistakes were made, people were still receiving bonuses and, I guess, still receive bonuses today. Is that correct, or are there any bonuses being paid back?
Mr. Hamilton: The bonuses for that period have been paid according to the system that we have in place, and there have been no bonuses paid back.
We have taken action. I think it has caused us to make sure we are better training our people, we are trying to better monitor them with the existing technology and we have a plan to do even more of that going forward. So we’re prospectively trying to fix the problem and address the issues that came up, and I’m confident we’ll be able to see significant improvements in the near term.
Senator Pratte: Mr. Hamilton, I want to dig into this issue of training a little bit more to understand what led to these poor results as far as accuracy is concerned.
First of all, according to the Auditor General, CRA was alerted by others before the Auditor General came out with its report. I have the French version of the Auditor General’s report, but there was an audit division, I guess, of the CRA that had verified the accuracy of information provided by the CRA’s agents that came out with the results in 2013 of inaccurate responses of 17 per cent and then, in 2016, 20 per cent.
The Canadian Federation of Independent Business also did checks of the accuracies of responses and came out with 24 per cent inaccurate responses in 2013 and 31 per cent inaccurate responses in 2017.
Did the agency not have any indication at all of a problem before the Office of the Auditor General came out with its report of a problem with accuracy of the information that was provided to taxpayers?
Mr. Hamilton: Yes, we did have some knowledge that we had some challenges on accuracy through the studies that you’ve determined, some of which were from the outside and which were, generally, on that type of question that I described earlier, generic questions. Then we did an internal examination as well in 2016, I believe. I’ll ask my colleagues to corroborate what I’m saying.
We had a sense that we needed to improve, and the question became: How do we best do that, again knowing that we couldn’t have call recording or some of the systems that you might have with other call centres around. So we tried to beef up our training program and tried to provide the agents with better source material that they could use. It led to the new training system that I described earlier, where, in addition to the six weeks of core training that we give to someone, we have another period of three to 10 weeks where they spend time together and get coached on the go. They actually have to demonstrate that they can pass through a gate to get to a more sophisticated, higher skill level call. So we’re trying to do that to improve the training material.
We are going to be doing some blind tests, as I said, along the lines of what the Auditor General did, to see if we can uncover some systemic-type errors: Is there a type of thing that people are getting wrong more obvious than not, and can we send out messages to make sure people understand what the filing deadline is, or whatever the question might be.
So we’re doing our best to uncover that, but the best thing will be when we are able to have the technology that allows us to listen anonymously to the call and then diagnose it and say, “Okay, this is the error,” and give direct feedback. And then, if we see something happening at the national level across the board, we can take broader-based action to improve that.
So, yes, the Auditor General wasn’t the first time we heard of that. I thought the numbers were a bit higher than what I would have expected, but we knew we had a challenge and we were trying to address it as best we could, and we have redoubled our efforts to improve that.
Senator Pratte: I think the Auditor General provides four or five of the questions that they used to verify the accuracy of the responses. I wouldn’t know the answers to those questions, but are these difficult questions, or are these basic questions that the agents should know off the top of their heads?
Mr. Hamilton: I don’t have the questions right here in front of me, but I think they were a mix. Some were relatively simple, as I mentioned, such as, “What is the filing deadline?” For example, one of the responses that came back was April 31, but there is no April 31. Again, one also goes to what the severity of that error is. We have to think about that in the context of all of these. There were some basic ones and agents potentially got confused because, from one year to the next, we might have the filing date as May 1 or May 2. But I would count that as a relatively basic piece of information that the agent should know. We need to make sure that we’re giving them the right information and that they’re digesting it, and if they’re not, we need to take corrective action.
Some of the other questions were potentially a little more difficult, about topics such as when interest starts accruing. I’m trying to think of some of them in my head that, again, might be a bit more difficult, but the expectation is that we equip people with the answers and, if you don’t know the answer to that question as an agent, please find someone who does and refer that person there. So I would say it’s a mixed bag.
I’ll ask Frank if he wants to add something to that.
Frank Vermaeten, Assistant Commissioner, Assessment, Benefit and Service Branch, Canada Revenue Agency: Maybe I can add a couple of things.
One is that, as far as the quality, it’s an ongoing process to try to improve quality. We commissioned an internal evaluation to determine what the quality was on our account-specific calls. We instigated that because we wanted to be sure we’re providing accurate answers, and that gave us the results which then led us to hire a consultant right away to try to see what we could do about improving quality. So there was a process there.
We hired a consultant in early 2017, who then provided us with a report on what other things we can do to improve quality, which resulted in a new training program — the nesting and gating — which went in stages. First we wanted to try it with one call centre to make sure it was successful, and we did that in the fall of 2017, which really helped prepare new hires for answering the calls, and we got some very positive results on the impact of that.
We then rolled it out nationally so, for this filing season, I think we will have new hires that are significantly better equipped to answer questions. I do feel confident that we’re taking the right steps.
As Mr. Hamilton mentioned, we now are trying to measure accuracy in a more objective way by having the accuracy assessed at headquarters rather than in the regions, and remotely where we can. Once that technology comes in, I think you will see another significant increase in the quality of our responses.
Senator Pratte: Just one very short point: I was surprised by the fact that, of course, one accurate answer to all these questions would have been: Well, I’ll transfer you to one more senior person because I don’t know the answer. Would there have been some kind of penalty or whatever if someone transfers a call to a senior person? I’m just surprised by the fact that obviously in a lot of cases they didn’t know the answer, yet they didn’t transfer the call to a senior person.
Mr. Hamilton: I’m not aware of any penalty we would have. Our service, our agency, is built on trust. People have to trust us to administer the tax system in a fair, equitable way and to give information. So I don’t think it’s a problem at all if somebody says, “I don’t know the answer to that question. I’m going to put you in touch with somebody who does.” We are encouraging the people in the call centres, whenever I talk to them, to get as much knowledge as they can in their head and try to answer them, but if they’re not sure, then send it.
The difficulty is people try to do as much as they can, and they might think they know the answer to a relatively simple question, but indeed they don’t. So we have to encourage them, if you’re not sure, get the right information out there, transfer it to somebody else, because, again, it’s one thing to say we can’t answer every call that comes in. I think we understand that we have to make choices and we have to figure out how to best deal with that system, but we need to be stronger on quality and that people can trust the information they get from CRA.
Senator Marshall: My question is on the service standards that the Auditor General commented on. He said that the service standards you had reported on your website were significantly different from what he found. What kind of verification process do you go through before you put those standards on your website? Because with Canada Revenue Agency, we think of you as an organization of auditors. You’re auditing taxpayers. You’re auditing our tax returns. So who is auditing the information that you put on your website? It’s quite surprising that it’s so inaccurate, given the nature of the mandate of Canada Revenue Agency.
Mr. Hamilton: We have quite a rigorous process of auditing information that we put up, as you can imagine, for the agency.
What I would say is it’s important to recognize what we were measuring and reporting versus what the Auditor General did. I don’t want to overly defend the way we were reporting because, since I came in I’ve had some difficulty with it, and I think we can do a better job, and we are and we will.
But if we can report on a term that we called “accessibility of calls.” What’s the caller accessibility? We might say that’s 80 per cent, just to give a number. I think it was actually a bit higher than that. And the Auditor General would say, “How can you say accessibility is 80 per cent when I’m seeing that 60 per cent of the calls go unanswered?” So one could portray that as inaccurate. I’m not sure that “inaccurate” is the right term. I’m not sure that the 80 per cent is true.
Let me tell you what that accessibility is in essence. Again, Frank or Gillian could correct me. Basically, we measure for a unique caller, so say I call in four times this week and I get busy signal, busy signal, busy signal, and I get through. We would say you have accessibility. You got through to the agent within a week. So that becomes a plus for us.
Senator Marshall: Are you still calculating your service standards that same way? I know you’ve made some changes with your phone system, from two minutes to five minutes, but are you calculating your service standards the same way?
Mr. Hamilton: We are in the process of changing our service standards. What we did do is in the Departmental Results Reports, which we put out in the fall, we actually gave all of the information and said, “Here’s the number of calls that came in, here’s the number of people who got through, and here’s the number of people who got busy signals.” So rather than get caught up in a measure of something like accessibility that might be — I don’t want to use the term “misleading,” but it could be misinterpreted — we’re trying to present a more comprehensive picture. So I don’t want to say it was inaccurate because what it was trying to measure, it measured accurately. I just don’t think it’s the right measure.
Senator Marshall: Are those numbers still on your website now, the numbers that the Auditor General took issue with? Are they still on your website?
Mr. Hamilton: They could be, from the past.
Senator Marshall: They were several weeks ago when I checked.
Mr. Hamilton: I’ll have to double-check.
Senator Marshall: I would suggest you look at what you’re reporting to make sure that you provide information that’s more factual.
I know that you did mention in your opening remarks things that you’re doing to improve, using the system that you have now. But in your response to the Auditor General, you’re talking about the Government of Canada’s Contact Centre Transformation initiative, and it sounds like you’re going to have a new telephone platform. The commitment in the response is that the migration is expected to begin in early 2018, with the bulk of the transition being completed by the end of 2018. Are those dates still achievable?
Mr. Hamilton: We are still planning, hoping, to have it in place in 2018. We’re in the development stage. As I said, this is a government-wide initiative that Shared Services is leading and we’re one of the key participants along with Service Canada. We hope we will be able to get it in place this year, and we are in the developing and testing phase. But the only thing I would say in that regard is what we want to be sure of is when we start up the system, it works. So we’re not going to compromise on testing to get a quick implementation. We need to work through that. We’re in the process of doing it, together with our partners. We would hope to be able to have that technology in place this year. We will definitely do the proper testing to make sure it works when we implement it.
Senator Marshall: We’re also having hearings on the Phoenix system. So when you’re talking about a new system, I think about Phoenix.
The other concern I have is in your opening remarks you talked about Shared Services, that you’re working with Shared Services. We have heard other organizations haven’t been complementary to Shared Services. So there are two issues there.
My last question relates to the new initiative, the filing of tax returns by phone for low-income earners. My understanding is that this is something that you’re hoping to have in place this year. If the telephone system is not working or not working up to the standard that it should be, and I know you’re trying to change the existing system, how practical is it to put a new initiative on top of all these other problems that you’re having and think it will be successful?
Mr. Hamilton: I think the one point to make is that the new File my Return, which you would do by telephone, that would be a different telephone line.
Senator Marshall: It’s a different system?
Mr. Hamilton: It won’t be people coming in and getting busy signals to do that. But the only place they will intersect is if you have a problem with it, then you will be into the general system.
Maybe I’ll ask Frank to elaborate a bit on that, because it is important. I think it’s a very good initiative, and we are confident that we will be able to deliver it through this different phone line.
Senator Marshall: Perhaps you could tell whether this is a separate, new system and whether it’s been properly tested.
Mr. Vermaeten: Absolutely. The File my Return, the invite letters are going out this week to people. When individuals receive that invitation letter, if they are qualified to use File my Return, they will call a dedicated telephone number. That’s an IVR system, an Interactive Voice Response system, where they need to answer in most cases several yes/no questions, and in some situations they might need to provide a number or two.
That works off of our IT system and it’s completely separate from the phone system. It has been rigorously tested and works extremely well. Of course, it’s the first year. We’re going to find out whether people feel that this is a good system to use in situations like that.
Senator Marshall: But there is some interaction with the existing system? Do I understand that to be correct?
Mr. Vermaeten: There’s no interaction with our call centres per se when an individual uses the IVR to use File my Return. The only interaction, as the commissioner said, was in situations where an individual then has some questions. For example, it could be, “I got an invitation letter and I’m not sure whether I qualify.” That would go to our call agents, and they’ve been trained to answer questions.
Senator Marshall: It’s a stand-alone system. Could you tell me the estimated number of taxpayers that can use that system?
Mr. Vermaeten: We’ve sent the invitation letters to 973,000 Canadians, approximately.
Senator Marshall: About a million.
Mr. Vermaeten: Yes. It’s difficult to say how many people will actually use it. There are two factors. First, this is based on a system where we’re looking at people whose financial situation hasn’t changed significantly. We send out our invitation letters by observing what happened last year. But if something changed, for example, they now have a higher paying job —
Senator Marshall: More income.
Mr. Vermaeten: Yes. They no longer qualify. So those people won’t qualify.
Second, it will be the preference of people. There will be a lot of people who really enjoy this system and find it a good convenience. Others will still want to go to a traditional route.
Senator Marshall: I wish you every success.
[Translation]
Senator Forest: Thank you very much for accepting our invitation.
I am rather optimistic, and I see there is at least one piece of good news: it gives you enough room for improvement, the situation being so difficult.
In my opinion, the Canada Revenue Agency is one of the main agencies where taxpayers establish a relationship of trust with the government. You are where we put our personal money for the well-being of the whole community.
I find it very important that you agree with the Auditor General’s recommendations. You have told us that you want to make changes. However, in my opinion, for the action plan to be truly credible, measurable indicators need to be implemented for wait times and the number of calls answered. For example, your goal in 12 months is to increase the number of calls answered from 33 per cent to 60 per cent. An action plan must be presented on the accuracy of responses, the waiting time and the number of calls answered, and measurable criteria and performance indicators put in place.
Right now, technology does not allow you to do that. However, there are indicators that have been measured by the Auditor General and that have been counter-measured by you. It is essential for carrying out your action plan. Given the seriousness of the situation, you need to be able to put measurable targets on paper with indicators of what is happening today.
I am particularly thinking of the wait time and accuracy of the information. Is it possible to add these indicators in your action plan?
Mr. Hamilton: Yes, it is possible, and it is important to have indicators. Yesterday, the House of Commons Standing Committee on Public Accounts requested a report within four months on the progress of the statistics. The new technology will improve the system for service, but it is now possible to have statistics and a report on statistics. It’s possible to have a new level of transparency. We will continue in this direction with the goal of improving the situation over the next four months and the four months after that.
Lastly, the new technology will enable us to have better statistics. It is always possible to have the statistics, and one of the elements of the action plan is to have a report for the public that is more transparent and more understandable.
Senator Forest: Thank you. Regarding the percentage, I was totally shocked to see that close to 70 per cent of calls were blocked. In Australia, the number is 4 per cent. Have you been able to verify what is going on in Australia to arrive at results and ways of doing things, practices that would improve the situation? You have to put yourself in the shoes of Canadians who want information because they pay taxes and, 70 per cent of the time, the calls are blocked. This is a source of significant frustration. Have you communicated with those who are performing better?
Mr. Hamilton: Yes, I have spoken to my colleagues in Australia and in the United States about their experiences.
In the case of Australia, I will ask Mr. Vermaeten or Ms. Pranke to provide clarifications. In Australia, they have invested a lot of money in the system, in the technology, so it’s possible to get better results with this system. We will also see the process system, whether there are better processes that concern us. Generally speaking, Australia’s system is better than ours. It’s a factor, but there are others.
In the case of the United States, it’s interesting. In my opinion — and we can verify that — in the United States, there is a system where the person waits for a long period of time, perhaps 30 minutes, to get access to an agent. This is another approach. Our approach is to have a fairly short time for the person who does not like getting a busy signal. But there is another approach where all callers wait in line for a long time. We are seeing the experiences of other countries, recognizing best practices and learning from them. It is certainly true that they spent a lot more money in Australia to improve the technology.
Senator Forest: One last question?
The Chair: Quickly. We have 10 minutes left.
Senator Forest: People have a hard time navigating websites, and they say that call centres are complex. Can the website be made more user-friendly? Have you reviewed the website? It is a compromise if the system is easy to use, and people can find the answers to their questions. People don’t talk much about websites, but in my opinion, improvements are needed and should be at the heart of our priorities.
The Chair: Is it a good comment, Mr. Hamilton?
Mr. Hamilton: I would add a small comment. I fully agree. The service for Canadians includes the call centre, the website and the process for resolving taxpayer problems. We need to have a complete system that can reduce the number of calls. It is important to have a global perspective of the system of services available to Canadians.
[English]
Senator Eaton: I’ll be quick. I have one comment. I find it absolutely stunning, sitting here listening to you and having listened to the Auditor General. If you don’t understand Canada’s tax code, how can you expect Canadians to? I mean, really. Have you questioned the calibre or the standard of education of people you are hiring?
We went across Canada, as a Finance Committee, listening to Canadians talk to us about the new tax loopholes that are coming in. What stunned us is how little faith they had in being able to access you and, second, how unhopeful they were about getting good answers.
People have asked you about your service standards in the AG. There is no point in my going over that. But when do you expect to have the new technology up and running? Are you in the process? And how high a standard is your training for the new tax loopholes going to be so that Canadians — small businesses and doctors phoning you up — will get the correct answers?
Mr. Hamilton: Yes. I think we’ve described that the training enhancements are in progress. I won’t deny that —
Senator Eaton: More weeks? Higher standards of education? That’s so much blah blah: “Training enhancements are in progress.” That means nothing to me. What exactly does it mean? How many more hours? What standards of education are you demanding from people who answer calls and give Canadians the answers?
Mr. Hamilton: I can’t speak precisely to the qualifications, but we do have a process to try to make sure that —
Senator Eaton: Could you send us that?
Mr. Hamilton: Sure.
Senator Eaton: I don’t want to take any more of your time because I know there are two other senators who want to ask you questions. It would be very nice if we could receive a sheet of paper from you describing exactly how you are enhancing your training programs and what standards you expect of people who answer the phone and answer people — small business people, doctors, anybody. What is their training?
Mr. Hamilton: Yes. Notwithstanding the standards, one small point: I think we shouldn’t minimize the value of the training that we offer. It’s six weeks. Now we’re enhancing it, having an extra three to 10 weeks to get people to the right skill level.
Senator Eaton: How many hours and who teaches them and how they do it. I’d like to know, because we have all the answers from the Auditor General.
The Chair: If can you give us a chart, through the clerk, to show us exactly what happened before and what is happening now, and also to answer the question by Senator Eaton.
Senator Cools, please, the dean of our Parliament.
Senator Cools: Soon to be not the dean. Anyway, thank you so much, and I thank our witnesses for coming before us.
I’m sure, commissioner, that you would be very well aware that CRA is a relatively recent creation in Canada’s governance. I think it happened about 20 years ago when the department was moved from a department of government to being an agency, and there was a lot of concern at the time. I believe, chairman, that this committee might have done the bill when it happened. I could look that up to be sure.
My point is that, for whatever reasons and however done, CRA is the agency that has been delegated the power, what I would call the government’s power in taxation, which is akin to the sacred — I’m sure you know all of that very well — and it has a long history and so on.
I must say, chairman, two things. One, we have to explore the possibility of CRA returning to be a department of government headed by a minister. We have to explore that possibility.
The other issue that we should deal with, and we should advance here, is the question of the role of the Auditor General of Canada, and he comes up again and again and again. This committee did a study on the Auditor General in 1988, and I think we should consider bringing a witness like Professor Sharon Sutherland, who made it her business to study the role of the Auditor General. So I would like to suggest that. I realize we’re short of time, so it’s a conversation we’ll have to pursue again.
Senator Marshall: I’d like to ask the witnesses: They’ve indicated that they are preparing a report for one of the committees of the House of Commons. Is my understanding correct? If so, could we get a copy?
Mr. Hamilton: We just received yesterday a readout from the Public Accounts Committee. The Auditor General and myself went in front of the Public Accounts Committee of the house, and then yesterday that committee sent their report and had four recommendations for us on how we would report back. Certainly, we will be working on that, and I’m certain that you would get a copy of that.
Senator Andreychuk: You indicated that you’re going to extend the time on telephone calls — two minutes now and you’re rerouted — and you noted that in the U.S. you wait on the line. I think that’s a very important thing. If you look at the studies done on human behaviour, if you come to a point that you’re desperate and you have to talk to your tax person, I think you’ll hang on that line and get it over with rather than having to phone four times. Because you’ve got to find time in your busy life: Okay, I’ll phone at 10. But then something else comes up and you’re going to phone at 4. I think many people have chosen to extend the time so that you have something certain by the time you invest; otherwise, 4, 5, 6. I think the psychology is important to look at.
My question is this: People have been phoning and getting advice, and they don’t know it’s wrong. They think it’s right, and they act on it. It’s a reverse onus situation. Somewhere in the system, they’re going to be found wanting. How do they prove that they acted on your advice? It’s a reverse onus system. Under other systems, there’s a recording that you can go to. Here, I presume you’ll be able to point out how many calls, but to get at your entire list will be forever. So what grace element is there for all of these taxpayers, who I’m going to start out with are honest taxpayers? The system isn’t built for the wrongdoers. There is a consequential section about wrongdoers. But this is to encourage trust. Taxpayers want to pay their money, built on your advice, and then they’re going to be penalized. How do we get out of that conundrum, including disability cases?
The Chair: Commissioner, you can answer now or you can answer in writing, please.
Mr. Hamilton: I’ll take a stab at it right now, if you want, and then get it done. We may want some stuff in writing. I’ll ask Frank to precisely define the recourse mechanism that you described. Two comments on my part, though.
You’re right on the two to five minutes. It’s something relatively recent for us. It will be interesting to see. We are monitoring client satisfaction: Do people like it? Do they not? As I said, a number of years ago the agency took a view that people would rather get a busy signal than sit on the line for hours, for an undetermined amount of time. We’re challenging that and seeing what we can do.
On the issue of recourse, if someone calls and gets incorrect information from the agency and acts on that, I know there is some recourse that you can take advantage of. It is a reverse onus system, as you’ve described it, but we can look at it and reduce penalties, et cetera. I’ll ask Frank to make that precise, but I would say that the new technology will make that easier when we can actually hear what went on.
Mr. Vermaeten: Just briefly, yes, we do have a taxpayer relief program — and that’s done on a case-by-case basis — when individuals feel that, for a variety of reasons, they should have a situation reversed. One of them could be that they believe they got wrong information from the call centre. We deal with that on a case-by-case basis. We do provide relief. We look at the credibility of the claim. We don’t have a recording. We would love to have call recording to be able to look at the veracity of the statement made, and we do want to give people the benefit of the doubt. So we might look at things, for example, such as has this person asked for tax relief several times before, and what were the situations that they asked for it before? We do our best to provide relief where we can, and we do that on a fairly regular basis.
The Chair: Mr. Hamilton, if you could look at that last question; and if you want to add anything in writing, would you please do that?
Mr. Hamilton: We’ll do that. I’m not sure that we have much to add, but if we do, we certainly will.
The Chair: Thank you. I want to follow up on two questions. I don’t want the responses verbally; please put them in writing.
As Senator Marshall alluded to with Phoenix, we have over 153,000 public servants, which represents more than 50 per cent of our public servants from coast to coast to coast. First, what treatment will CRA give regarding the T4 slips that are being provided and that are erroneous? Second, can you provide us with how you will treat interest and penalties on those erroneous T4 slips?
With that, Mr. Hamilton, thank you very much for providing the information and for being here at the Senate Finance Committee.
Honourable senators, we will go in camera to discuss a few matters.
(The committee continued in camera.)