Proceedings of the Standing Senate Committee on
National Finance
Issue 1 - Evidence
Ottawa, Wednesday, March 20, 1996
The Standing Senate Committee on National Finance met this day, at 5:15 p.m., to organize the activities of the committee.
[English]
Mr. John Desmarais, Clerk of the Committee: Honourable senators, the first item of business on the agenda is the election of the chairman. I am prepared to receive nominations.
Senator Cools: I nominate Senator Tkachuk as chairman.
Mr. Desmarais: It is moved by the Honourable Senator Cools that the Honourable Senator Tkachuk be elected chairman of this committee.
Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
Mr. Desmarais: I declare the Honourable Senator Tkachuk elected chairman, and invite him to take the chair.
Hon. David Tkachuk (Chairman) in the Chair.
The Chairman: Thank you, honourable senators. I will try to dispense with the organizational part of the business as quickly as possible.
Some of you are new to the National Finance Committee. I have served on the committee before, but this is the first time I have served in this particular role.
I should like to begin with the next item on the agenda, which is the election of a deputy chairman.
Senator Stratton: I nominate Senator De Bané as deputy chairman of the committee.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
The next item is a motion to establish the Subcommittee on Agenda and Procedure. Would you read the motion please, Mr. Desmarais?
Mr. Desmarais: The motion reads as follows:
That the Subcommittee on Agenda and Procedure (Steering Committee) be composed of the Chair, the Deputy Chair and one other member of the Committee to be designated after the usual consultation;
That the Subcommittee be empowered to make decisions on behalf of the Committee with respect to its agenda and procedure.
That the Subcommittee be empowered to invite witnesses and schedule hearings; and
That the Subcommittee report its decisions to the Committee.
Senator Cools: I so move.
The Chairman: If there is no discussion, is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
The fifth item is with regard to printing the committee's proceedings. The motion reads:
That 480 copies be printed for distribution; and
That the Chair be authorized to adjust this number based on demand.
Senator Poulin: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
Item six on the agenda is with regard to holding meetings and printing evidence when a quorum is not present. The motion reads:
That, pursuant to rule 89, the Chair be authorized to hold meetings to receive and authorize the printing of evidence when a quorum is not present.
Senator De Bané: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
The Chairman: Carried.
Everyone should have a copy of the financial report. The motion reads:
That, pursuant to rule 104, the Chair be authorized to report expenses incurred by the Committee in the First Session of the Thirty-fifth Parliament.
Senator Stratton: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
The next item is with respect to research staff. The motion reads:
That the Committee retain the services of the Parliamentary Centre to conduct research on behalf of the Committee; and
That the Chair, on behalf of the Committee, direct the research staff in the preparation of studies, analyses and summaries.
Would anyone care to move that or an alternative motion?
Senator Stratton: What is your recommendation, Mr. Chairman?
The Chairman: That we retain the Parliamentary Centre.
Senator Losier-Cool: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
Under item nine, with regard to authority to engage staff, the motion reads:
That the Chair be authorized to seek authority from the Senate to engage the services of such counsel and technical, clerical and other personnel as may be necessary for the purpose of the Committee's examination and consideration of such bills, subject-matters of bills and estimates as are referred to it.
Would anyone care to move such a motion in order that I can present a similar motion in the Senate chamber?
Senator Stratton: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
With regard to authority to commit funds and certify accounts the motion reads:
That, pursuant to section 32 of the Financial Administration Act, authority to commit funds be conferred on the Chair or, in his absence, the Deputy Chair, and
That, pursuant to section 34 of the Financial Administration Act, and guideline paragraph 3:05 of Appendix II to the Rules of the Senate, authority for certifying accounts payable by the Committee be conferred on the Chair or the Deputy Chair or delegated to the Clerk of the Committee.
Senator Cools: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
Item 11 has to do with the travelling expenses of witnesses. The motion reads:
That, pursuant to the Senate Guidelines for witnesses' expenses, the Committee may reimburse reasonable travelling and living expenses for no more than two witnesses from any one organization and payment will take place upon application.
Senator Losier-Cool: I so move, Mr. Chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
I do not know how much time we want to spend on the next item right now. The Chairman of the Internal Economy Committee, Senator Kenny, has offered each committee the opportunity to develop a communications plan with a reasonable budget, which would be supported by the Internal Economy Committee. I would ask the members of this committee: Do you think that is necessary? Should we proceed with something like that? Should we put it in the budget for the upcoming year, or not?
Senator Cools: Absolutely. Senator Kenny has offered, and I think we should take up the offer with enormous relish. How much money are we talking about?
The Chairman: I have no idea.
Senator Stratton: I suppose everyone is in the dark about what the budget should or could be. If we approve it in principle, as we go on we will see how we should proceed, and whether we should establish a budget, or indeed whether or not we need it. Would that be acceptable? Will they present us with a recommendation for a budget?
The Chairman: I had a look at what the Banking Committee does, and I liked it.
Senator Cools: How much was it?
The Chairman: I do not know how much they spend on that item.
Senator De Bané: Mr. Chairman, we are fortunate to have among our membership our colleague Senator Poulin who is a former vice-president of CBC, and who has spent her professional life in communications as a journalist and in the world of communications. Perhaps she would give us some advice.
Senator Poulin: The first thing we could do is establish an objective. I propose that we request an amount of money from the Internal Economy Committee to let Canadians know of the valid work that we are doing in this committee, and to bring added value to the reflection on national finances. That would be our objective and we could submit to the Internal Economy Committee an appropriate communications plan for a reasonable amount of money.
The Chairman: What amount do you suggest?
Senator Poulin: I suggest $20,000.
Senator Cools: Suppose they are willing to give us $50,000?
The Chairman: We are the finance committee, after all.
Senator Poulin: When one knows the amount in advance, it is always easier. I suggest $20,000.
Senator Stratton: I am disturbed about picking a number out of the air without knowing what it will cost, realistically.
The Chairman: First, I would rather have ideas on what we might want to do, and then we can cost it out. I can do that in conjunction with the clerk's office, but I need some direction on what the committee wants to do first.
Senator Stratton: I agree with the Banking Committee's method of communicating.
Senator Cools: How much do they get?
Senator Poulin: Twenty thousand dollars.
Senator Stratton: Did you check it out?
Senator Poulin: Yes, I checked it out.
Senator Stratton: If Senator Poulin checked it out, that is fine with me.
Senator Cools: Very good. I was about to propose that we request the same amount that every other committee is getting.
The Chairman: In order that the clerk can get some direction, shall we model our plan on the basis of what the Banking Committee is doing? We may come up with a few new ideas, but we will do it from there and see what happens.
Senator Poulin: Also, the starting point should be our objective. Knowing where the goal posts are permits us to do work related to what the reality is. It will be easier for the clerk, therefore, to do the work. I would be happy to cooperate with the clerk if the chairman so wishes.
The Chairman: We will do that. That is great.
Item 13 with regard to time slots for regular meetings is just an informational item.
Senator Stratton: What is the reason for the seven o'clock time slot on Wednesday evening? Is it in the event that we sit late in the Senate? I am just curious.
The Chairman: The seven o'clock time is to allow us some flexibility in case we run into problems such as I ran into today. I am on the Aboriginal Committee, which starts at five o'clock. Some of you may be on other committees. We have two time slots. If we want to use them both, we can, or we can have our meetings at five o'clock. Whenever possible, we will meet at five o'clock, but if there is other business to be done, we have the seven o'clock slot.
Is that agreed?
Hon. Senators: Agreed.
The meeting continued in camera.
Ottawa, Thursday, March 21, 1996
The Standing Senate Committee on National Finance met this day, at 11:15 a.m., to examine Supplementary Estimates (B) laid before Parliament for the fiscal year ending March 31, 1996.
Senator David Tkachuk (Chairman) in the Chair.
The Chairman: Honourable senators, we have with us today from the Expenditure Management Sector of the Treasury Board, David Miller, Assistant Secretary of the Program Branch, and Norm Everest, who is Senior Estimates Advisor of the Program Branch.
Perhaps, Mr. Miller, you would introduce the other people you have with you this morning and then we can begin. I believe you have some opening remarks.
Mr. David Miller, Assistant Secretary, Program Branch, Treasury Board of Canada: Thank you very much, senator. We have representatives from the Department of Justice here today, and from the Department of Agriculture and Agri-food, to answer some of the specific questions senators may have.
The Chairman: Please begin your presentation, Mr. Miller.
Mr. Miller: Thank you, Mr. Chairman and honourable senators. Supplementary Estimates (B) for the fiscal year 1995-96 were introduced in Parliament on March 8, 1996. These Supplementary Estimates seek new authority to spend approximately $675.8 million. From a fiscal planning perspective, these amounts were provided for in the recent budget of March 6, 1996, and represent reallocations of funds within and among departments and agencies, or seek Parliament's authority to discharge liabilities that were provided for in the deficits of previous years.
An additional purpose of Supplementary Estimates is to inform Parliament of the latest forecast of spending under certain statutory authorities. These Supplementary Estimates identify a net increase of $711.l million, also provided for within the current expenditure framework.
I should like to inform honourable senators of some of the major items for which appropriations are requested in these Supplementary Estimates. There is $333.4 million for nine departments and agencies for the separation programs of public service employees, such as the early retirement incentive, the early departure incentive, and, for national defence, the civilian employee reduction plan. There is also $141.4 million for 13 departments and agencies to meet various operational requirements by using the 5 per cent operating budget carry- forward provision.
This year, departments and agencies were permitted to seek carry-forward authorities in the first regular Supplementary Estimates, and that took place in the fall of 1995. Most departments and agencies took advantage of this provision, with the result that there are relatively few requests for the carry- forward provision in these Supplementary Estimates. Further, $85 million in grants is included to enable Agriculture and Agri-food Canada help individuals and organizations adjust to changes in the grain transportation system. Finally, $23.8 million is included for Statistics Canada to apply against the forecast costs of the 1996 census.
The statutory adjustments included in these Supplementary Estimates reflect the total net expenditure of over $700 million, as I mentioned. The major items are $3.2 billion in three separate items related to the transfer of both Petro-Canada and Canadian National to the private sector. Of this amount, there are two Transport Canada items totalling $2 billion for CN, and one Department of Finance item of $1.3 billion pursuant to the Petro-Canada Public Participation Act. These particular entries are technical in detail, and relate to how the government does its actual accounting and record-keeping. Perhaps I should explain how these actually relate.
Of the two items in Transport Canada, the first represents an additional equity injection of $900 million in CN just prior to privatization, in order to reduce CN's outstanding debt and make the company more attractive to investors. The other Transport Canada item, in the amount of $1.1 billion, and the $1.3 billion item in Finance for Petro-Canada, deal with adjustments that are required to the accounts of Canada to report the difference between the total value of the investments in the corporations that Canada has reported in public accounts of previous fiscal years and the amount investors were willing to pay.
The public accounts of each fiscal year report the total cash value of Canada's assets related to such things as loans and investments, including investments in various Crown corporations. At the end of each fiscal year the true, or book, value of each asset is determined. If the value has changed from the amount of the previous fiscal year, the amount of that change is recorded in the public accounts within the provision for valuation. However, when an asset is sold or otherwise removed from the accounts, Parliament must appropriate the difference between the original value and the amount received upon disposal. Parliament authorized the appropriate ministers to effect these adjustments when the two pieces of legislation were approved. These items in the Supplementary Estimates are now reporting the amounts of these adjustments.
The next major statutory item is $400 million for the Treasury Board of Canada, to reflect accounting entries associated with the transfers to the Special Retirement Compensation Arrangements Account to cover the costs of pension implications for public service employees who elected to take the early retirement incentive during the 1995-96 fiscal year.
Another item reflects an increase of $325 million for Human Resources Development Canada related to assistance under the Canada Students Loans Act and the Canada Student Financial Assistance Act. A decrease of $2.5 billion in 1995-96 public debt charges is due to more favourable interest rates than forecast in the budget of February 1995. A decrease of $656 million in forecast payments for the unemployment insurance account is also reflected. Finally, a decrease of $412 million in transportation payments relates primarily to the repeal of certain legislative authorities, chief among them the Western Grain Transportation Act.
Mr. Chairman, honourable senators, this concludes my opening remarks. I will be pleased to respond to any questions you may have concerning Supplementary Estimates.
Senator Stratton: With respect to your opening comments, Mr. Miller, I assume these are one-time-only charges for Petro-Canada and CN?
Mr. Miller: That is correct, senator. When we purchased the shares, the value of those shares were recorded in the accounts of Canada. Subsequent to that, we made adjustments to more accurately reflect the value that those shares held. When we sold the shares, we had to eliminate those from the account. Therefore this is a one-time-only adjustment.
Senator Stratton: We will not see any of this again?
Mr. Miller: That is correct.
Senator Stratton: Second, in agriculture and agri-food, regarding the $85.1 million in Vote 15 for grants to individuals and organizations in support of grain transportation reform, what are the criteria for payment of these grants? What is the average size of the grant per recipient? Over what period of time will these, presumably transitional, grants continue to be paid to the recipients?
Mr. Miller: Perhaps I could ask Mr. Migie to respond to that.
Mr. Howard Migie, Director General, Adaptation and Grain Policy Directorate, Policy Branch, Agriculture and Agri-Food Canada: We start with the $85,075,000 that relates to four items. There is $20 million that affects the change in Canadian Wheat Board pooling. This is part of a larger amount, but there is $20 million that would be needed for 1995-96. The distribution of this $20 million is based on current deliveries this year in Manitoba and the eastern part of Saskatchewan.
Another item is $45 million for alfalfa products and compressed hay. Producers received between $10 million and $15 million for each year from the subsidy over a long period of time. This is a one-time payment of $45 million to all the plants that will reflect the extra freight costs they will have to bear to help them make the adjustments.
There is $20 million for feed freight assistance; the ending of the subsidy. That goes on for two more years. In addition to this $20 million, there will be other amounts, not part of these Supplementary Estimates, that cover close to an additional $40 million.
Finally, there is $75,000 which relates to individuals in northwestern Ontario who were affected by the ending of the transportation subsidy. Each one of those programs is somewhat different. In the case of the pooling, it was based on current deliveries, because we announced the change too late for farmers to adjust their cropping patterns in 1995-96. In the case of feed freight assistance, following extensive consultations the funds were divided by provinces which benefited from that subsidy in relation to the extent to which they benefited. Within each province, the industry will be determining the highest priorities for distribution.
Under the $45 million for alfalfa products and compressed hay, there is a provincial allocation which is based on the historical use of the subsidy. Therefore we have just taken a three-year average of the subsidy payment. Within each province it is based upon production in some previous year.
For the $75,000 in north-western Ontario, there are a very small number of producers who historically have delivered under the Western Grain Transportation Act subsidy. The percentage was so small from the $1.6 billion that we are just duplicating that same program for those few producers who did move their grain under the subsidy.
The $17,280,000 is part of what we call our agricultural and rural development programming. We are encouraging the industry to take direct involvement in deciding on priorities and actually administering the program. In the case of the $17 million, we have $7 million which would be for Ontario. With the agreement of the federal and provincial governments, they have identified priority areas, which I can go over with honourable senators if they wish.
The same applies to Quebec, where we have $10 million allocated. Two-thirds of that would go to the UPA and one-third to the Coopérative fédérée du Québec. We will have understandings with them that set up certain principles and criteria upon which we have agreed with the industry, such as what are the priority areas. Within that, there are certain principles that they must follow. There are to be no international trade problems. We are not talking of direct transfers to individuals. It will cover things that deal with competitiveness, research and environment.
At the time of last year's budget, we indicated in the Estimates that there would be programming of $17 million per year in Eastern Canada, which was connected with the changes we made in all of our transportation subsidies to address the concerns that Eastern Canadians had that they would be adversely affected.
Senator Stratton: My question deals with the $17.3 million for rural development. You talked about various forms for competitiveness. What exactly does that mean? How do you allocate dollars to make rural Manitoba, Saskatchewan and Alberta more competitive?
Mr. Migie: These particular amounts that we are requesting relate only to Ontario and Quebec.
Senator Stratton: Then it has nothing to do with the west?
Mr. Migie: That is right. We have an allocation which adds up to $60 million per year for adaptation in total. We have worked with Ontario and Quebec first to develop the model. Ontario has taken the lead. In the Ontario industry, rather than having programming where officials from the provincial and federal governments are making all the decisions on priorities and allocation, they are setting up corporate entities. The terms of that corporate entity specify the ground rules. The priorities are agreed upon with the industry in a broad way, and the two levels of government are part of it, both in Ontario and Quebec. We hope to duplicate that in the west, wherever the industry wants us to.
We went through a process as part of our adaptation program in Ontario and Quebec, identifying programs which they feel are the highest priority, such as the environment, or items that lower costs. After agreement on the areas, we will allocate funding.
In the case of Ontario, we are specifying four years. We will continue this program for four years. It is a bit of an experiment in some respects because we are providing a grant under agreed-upon ground rules, but it is a grant. We will be sitting as an observer, as will the province. The province will be deciding on the most important needs to help that industry adjust in the future. That adjustment cannot be of a type that will cause trade problems, or problems for neighbouring provinces. It will not be direct payments to individuals. It might end up being farm business management. We do not want to duplicate any programs, but it may be in that area for training.
Senator Stratton: Would the Farm Credit Corporation do some of this?
Mr. Migie: No, not the Farm Credit Corporation. However, we have programs that could deal with farm business management. One of our ground rules is that we do not have duplication with either federal or provincial programs. In some cases, the province feels that our marketing programs have gaps. It feels that better marketing would be helpful to the industry. It is that type of program.
Senator Stratton: I must ask the question about the $4.5 million grant to Manitoba for the transfer of responsibility for the Assiniboine River dike system.
Mr. Migie: Robert Caron is here to answer that question.
The Chairman: How about the cheques due to all the farmers in Western Canada under the Crow Rate Benefit? Have all of them been sent out?
Mr. Migie: Not all have been sent out, Mr. Chairman.
The Chairman: I need a special favour from you, sir. My mother-in-law thinks that, because I am a senator, I have some influence over these matters. The faster you get those cheques out, the less she will phone me about these things.
Mr. Migie: We have begun the process. By the end of tomorrow, half a billion dollars will have been sent out. We still have a few more weeks to go, probably until late April, before we can get the entire first set of cheques out. They cover up to $1.2 billion of the $1.6 billion. We get more and more out every week.
Senator Stratton: What is the average pay-out to a farmer?
Mr. Migie: I do not have that information with me.
Senator Stratton: Can you obtain it for us, please?
Mr. Migie: Again, it is not part of what is before you, but I will obtain it.
Mr. Robert P. Caron, Senior Corporate Financial Planning Advisor, Planning and Resource Management, Corporate Services Branch, Agriculture and Agri-Food Canada: I will attempt to give you an idea about this particular program. A bit of background may be useful.
Since the turn of the century, the Government of Canada has constructed and maintained a system of dikes adjacent to the Assiniboine River for the purpose of flood control. In 1950, the responsibility for the performance of Canada's role in the construction and maintenance of the Assiniboine River diking system was transferred from the Department of Public Works to our Prairie Farm Rehabilitation Administration.
By 1967, our PFRA had constructed an improved system of continuous dikes which extend from Portage la Prairie to just below Winnipeg. This is a distance of approximately 67 kilometres on each side of the river. This is a total diking of approximately 134 kilometres. The dikes currently protect well over 200,000 hectares of prime agricultural farmland, several hundred farmsteads and a number of rural communities.
The province of Manitoba owns the Shelmouth dam, which is located on the Assiniboine River north of Russell and the Portage diversion, which diverts flood waters from the Assiniboine River to Lake Manitoba. The diking system, together with these two diversions and dams, are an integral part of the flood protection system on the river, up to and including the City of Winnipeg. The principal benefit to Manitoba includes the ability to operate all three major flood control projects on the Assiniboine River as a single management unit, naturally with increased provincial visibility.
The $4.5 million transfer to Manitoba will provide sufficient funding to rehabilitate the dikes, including any land acquisition, and will provide Manitoba with a fund for ongoing maintenance and any future capital repairs to the dikes.
Senator Stratton: This is a transfer of responsibility. Subsequent to this transfer, it will be the responsibility of the province of Manitoba to maintain those three systems?
Mr. Caron: That is correct.
Senator Losier-Cool: Mr. Chairman, I am not a westerner and I am not a farmer. However, I am a teacher. Like Senator Tkachuk, my former students believe that, as a senator, I too have an influence on the decisions made here.
My questions relate mostly to page 4 with respect to education, the Canada Student Loans Act and the Canada Student Financial Assistance Act. May I go back and tell my students that they will have more money?
Mr. Miller: Unfortunately not, senator. That is not the reason behind the increase. There is a table in my notes that relates to the change. The bulk of the requirement for the Canada Student Loans Program is actually a series of claims. Two hundred million dollars of the cost of the overall change relates to paying off the backlog in claims from financial institutions for defaulted student loans. Paying off this backlog subsequently increases the amount required for alternative payments to provinces that do not participate in the program, which is Quebec and the Northwest Territories.
The changes in the costs of various program components under the Canada Student Loans Act and the Canada Student Financial Assistance Act include interest calculations, some relief from those interest claims which, as I mentioned, is the bulk at $200 million, and alternate payments, which in the changes are almost another $80 million.
The default rate on the loans is now at about 11 per cent. All new student loans are negotiated under the Canada Student Financial Assistance Act and are not guaranteed by the federal government. Therefore, the significant current default rate will fall. As of December 1, 1995, and excluding the backlog, the federal government had $1.3 billion in accounts receivable respecting defaulted student loans, the value of which is less than $800 million. We have still a significant backlog under the previous arrangements.
Senator Cools: I have several questions, some of which are quite complex.
I believe there are two gentlemen here from the Department of Justice. If you do not have the answers to my questions today, I have lots of time.
The particular issues I raised last night had to do with the current situation in Toronto and Ontario with respect to the Legal Aid Plan. I find it curious that this matter has possessed the mind of the media and is discussed daily and reported daily, yet Parliament does not seem to be aware of the enormous scandal as the so-called "law profession" has collapsed.
In particular, I am referring to a newspaper article in The Toronto Star dated June 24, 1995, in which the headline reads: "Fraud Alleged in Legal Aid Lawyers' Bills". That is just one of dozens of articles on the same subject matter. If the staff wishes, I would be happy to table a copy of this article.
To my mind, more dramatic and more troubling than the reports in the press is a report to the convocation of the Legal Aid committee of the Law Society of Upper Canada which mirrors precisely the content of the newspaper article written by someone called Tracy Tyler.
I would refer to the report at Schedule E. The page numbering is rather complicated. At the bottom of the page, I read that the law society considers the total hours billed, mainly by immigration lawyers, to be disturbing and to suggest serious fraud.
This is very damning, and very telling. I know the profession has a sense that even its own wrongdoings are its own affair. That is not my view.
Perhaps the witnesses could tell the committee what they know of this situation. What kind of dollars are involved? Tell us a little about the transfer operations. However, most important, I want you to dwell on the department's response to this subject matter. What has the department been doing about it?
Mr. John H. Sims, Associate Deputy Attorney General, Citizenship and Immigration, Legal Services, Department of Justice: In my position, I have an interested in the potential impact of the the situation which you describe upon the viability of the immigration program.
In the first instance, however, the responsibility for monitoring the way in which the immigration lawyers are paid by the Ontario Legal Aid Plan is not a federal matter. The program, as you know, is run by the Law Society of Upper Canada. It uses money which certainly comes from the province and from the federal government. However, responsibility for running the program resides at the moment with the law society. If there are allegations of fraud which ought to be investigated, it should be the law society that does so.
I do not know the details of the allegations although, like yourself, senator, I have seen press accounts. I would take it as a positive step that the law society is reporting to itself, or that a committee is reporting to a public forum like the Convocation of the law society about the allegations. Presumably that is to get it on the table so that matters can be investigated and properly dealt with.
In the first instance, the money which goes from the federal government to the province, and through the province to the law society has no strings attached. We have no way of insisting upon accountability. It is run by the law society.
Senator Cools: I did not mean to be so trite as to suggest that the sole issue is the administration of the dollars. I am looking at the issue of the responsibility for money being spent properly, and not dishonestly. Parliament has an enormous role in making sure that withdrawals on the treasury are handled appropriately, and at least honestly. I do not quite accept that it is somebody else's responsibility and not ours.
Mr. Sims: There are two parts to your question, senator. The first is what will the impact be on the viability of the federal government's immigration program. The second part deals with how the federal government transfers money to a province under the new CHST system. I certainly cannot speak to the second issue, althoug I am sure there are people in the room who can.
Senator Cools: I am sure there are.
Mr. Sims: Subject to what the experts here will say, my quick understanding is that we are moving away from the CAP system towards a new system which attaches fewer strings to the money transferred to a province. There will be less control by the federal government in future over how a province spends its money. However, you must ask my colleagues with respect to that.
Senator Cools: I understand that. If the government were to transfer money which was then simply embezzled, what would be the government's responsibility in that regard? Based on what you say, the government hands over the money, and then looks the other way. I am very interested.
I am a little bewildered at the silence of federal people on these issues. I have many more questions, but I am amazed that we are so silent. I get many calls on these kinds of issues. People do not believe me when I tell them that no one here is discussing it.
Mr. Sims: Senator, you have met the wrong federal official this morning to answer the question. We will find you the expert on that subject. There are experts. My colleagues who are associated with the Department of Human Resources Development, which is the department responsible for the new program, I am sure have all the answers. I am simply not in a position to help you this morning, senator.
Mr. Miller: Perhaps, senator, just in the way that we do transfer funds to the provinces and under the CHST, as Mr. Sims mentioned, it is a much more general transfer. There are no strings attached. Under previous programs, there was an association that so much would go for post-secondary education and so much for welfare, et cetera. We tried to actually move away from that, so that the provinces would then be in the best position to determine their relative priorities.
As such, in terms of financial management, these are statutory programs wherein the payments are stipulated. The follow-up is done in a program evaluation of how the money was used. Certainly, it would be my assumption that the responsibility for the administration of the programs into which those funds are being transferred ends up being a totally provincial responsibility.
Senator Cools: Let us put the question another way: What kinds of conversations have your deputy ministers of Justice been having with the Attorney General of Ontario about these matters which are so troubling?
Mr. Ajit Mehat, Director General, Programs Directorate, Department of Justice: We need to make a distinction between the basis on which money flows for legal aid in respect of criminal matters, and that on which it flows for legal aid in respect of civil matters. In both instances, the agreements are from government to government. That is one of the fundamental points which we need to keep in mind.
With respect to civil legal aid, or funds in support of civil matters, in which is included immigration and refugee issues, it has been correctly pointed out by Mr. Sims that that is funded through the Department of Human Resources Development. In that instance, the money flows through, currently, the CAP program. Next year it will be part of the CHST.
There are no strings or conditions attached to the money which flows with respect to civil legal aid. On the criminal legal aid side, however, there is a very specific agreement with the Province of Ontario which stipulates what the money will be used for, and how the claims process will be respected before the money flows to the Province of Ontario. I wish to ensure that we understand that, on the one hand, we have a different mechanism for the flowing of money which allows us a greater ongoing discussion and dialogue with the province as to how that money is used.
Senator Cools: Perhaps I could have some copies of those agreements.
Mr. Mehat: Of course, senator.
Senator Cools: I understand the situation. I know a lot about how the Legal Aid plan came into existence. It was John Turner's brainchild, in a way.
One of my major concerns is about this issue of fraud, and constant references in newspapers about fraud among lawyers and the law society. In the long run, it must have a major impact on any confidence that people have in the administration of justice.
I take our role here in the Senate very seriously. If money is being misspent, or stolen or whatever, I sincerely believe that is our business. I do not believe for a moment that you just hand it over and say, "Well, if it gets lost or stolen, there is nothing we can do."
I would have thought that the minimum we could be doing is perhaps referring the matter to the Auditor General. The Auditor General is a servant of the House of Commons and not the Senate. It is curious to me that these issues seem to pass unnoticed simply because the lawyers are preserved. I would like to see that attitude rethought, and perhaps probed a little more. Then perhaps you could bring me some more information.
Mr. Sims: Senator, we will give you better information than we have been able to provide you with this morning.
Senator Cools: I would also like to know the total amount of dollars expended to pay lawyers in the Bernardo cases. I would like to know exactly how many dollars were paid to John Rosen, to Ken Murray and to George Walker. My intelligence tells me that Rosen was paid $200,000 and Walker was paid $400,000. These are mystical numbers. I would love to know what those costs were.
Mr. Sims: Senator, may I say, please, before we undertake to produce that material, that on behalf of the department I am prepared to do what we can within our power to get you that information.
Senator Cools: You have the powers to enquire.
Mr. Sims: Clearly, the matter of billing between John Rosen and the other gentlemen and the Ontario Legal Aid Plan is not something that the federal Department of Justice has any right to insist upon seeing, as far as I know.
Senator Cools: If you told them that a committee of the Senate of Canada was interested in knowing something about this subject matter, I would suspect you would receive a high degree of cooperation.
Mr. Sims: I would expect it too, senator. I will certainly point out the source of the inquiry. We will do what we can within our power.
Senator Cools: I am certain you will have a lot of cooperation.
I have one other question with respect to how dollars are being spent. I want to know out of which budget or vote the money is being spent currently on the Airbus-Mulroney case. I want to know exactly how much money has been spent thus far.
Senator Stratton: Does that include the RCMP investigation?
Senator Cools: Yes. I want to know who are the lawyers working for the Justice Department, and how much they are being paid. As well, I want to know what the costs are of the RCMP. I also want to know the department's financial plan in the event that Mr. Mulroney wins. What is the financial plan for the payment of $50 million to him? I want to know if the department intends to come to us with a vote with which to pay to him.
The Chairman: Are you asking, if he wins, what the procedure will be for producing the $50 million?
Senator Cools: I want to know what the financial plan is now, within the department, as this case is in progress.
Mr. Miller: Senator, this is probably the only portion of that question that I can address, and it would be normal accounting practice in government that when cases are brought against the Crown, there is recognition of that contingent liability associated with the amount of the claim. Those are recorded overall, and a provision is made, not specifically on each case but in general. There is nothing specifically for the one case, but there is overall provision for the multitude of claims, including those of some of our First Nations against the Crown.
Senator Cools: There are dozens of these cases, but this is a particular one that I am focusing on now. I would like to know how the decisions are being made. I want to know the amounts that the department is contemplating spending.
Mr. Sims: Senator, as I listen to your question, I can think of a number of issues that one would want to think through before undertaking to respond. If I can explain, the simplest example, I suppose, is that if one were to say publicly that in any piece of litigation the Crown believes that its liability is X, then that piece of information is pretty important, and interesting to the opponent in the lawsuit. That reveals an interesting and vital piece of information that the opponent, indeed the judge or the jury sitting on the case, would factor into its own deliberations. To pick a hypothetical case having nothing to do with the Airbus business, if the Crown in one case is publicly saying, as it must perhaps in the early stages of litigation, "We admit no liability," but privately they are saying, "I think we are very liable. We will have to pay 100 per cent of the claim, and we put the claim at $100 million," that would weaken the Crown's ability to defend itself. That is why Mr. Miller explained a moment ago that, normally, contingent liabilities are all rolled up into one big number so that the public accounts of Canada are public, but no litigant can derive a strategic benefit from saying, "Ah hah, they think they really do owe me money, and I will redouble my efforts to get it." I have concerns, senator.
Senator Cools: You need not be concerned, because if any information that you bring to us is delicate, we can go in camera and receive your information in the highest confidence. I can assure you that I will be shocked and surprised if Mr. Mulroney could derive any advantage whatsoever from any information that you would share with us.
The Chairman: What section within the Department of Justice would have handled the Airbus investigation?
Mr. Sims: I would be guessing this morning, senator. I know that the Department of Justice is actively involved. The investigation arose out of a police matter, involving the RCMP.
The Chairman: There would have to be a specific investigation section. Would there have been a specific section with the department that would have investigated this matter?
Mr. Sims: It would have begun as a police matter.
The Chairman: To whom would it have been referred?
Mr. Sims: I am now going by press accounts that I have read - I do not have any personal involvement with the case. However, from what I have read and from what I know generally, it is a police matter, unlike a civil matter of the kind for which I am responsible, which has a client department attached to it, such as the Department of Agriculture or Immigration, with its lawyers. If it is a police matter, they might be called self-starting investigations.
The Chairman: I understand that. However, I asked a question. I think I have a good idea of how the Department of Justice operates. I think it would have been a matter of evidence brought forward to some prosecutor in the Justice department, and then the prosecutor would have had to take some action. Is that not so? In this particular case, there was action taken. Where would the police normally go in a matter such as this? To which department would they go? They would have had to go to someone.
Mr. Sims: We know that in this case they came to the Department of Justice to get help.
The Chairman: That is not good enough. What organization in the Department of Justice would have handled this matter? You work for a group; each of your colleagues works for a group. What group would it have been?
Mr. Sims: I cannot give you the exact title but I will describe it. It is the group that deals with foreign governments, obtaining the assistance of foreign governments to gather evidence abroad and bring it back into Canada. It was an unusual situation, as we know from the press, in that the RCMP was seeking the assistance of the Swiss authorities, and they came to the Department of Justice, which has the responsibility. The group within the Department of Justice which does this is International Assistance.
The Chairman: This is big news. Would it have gone to a group within the Department of Justice, before it went to International Assistance, to determine whether there was any evidence of a crime having been committed in this country? The alleged crime was committed here, yet they want the evidence from somewhere else.
Mr. Sims: I do not know, senator.
The Chairman: Could you undertake to find out for us? I want to know what little unit received the evidence, and what happened to the evidence. We in the Senate have tried to obtain this information, and we have not been able to do so. This may be a good opportunity. It just so happens that I had been asking those questions, and I could never find out. There had to be a unit that would have received the evidence, and then it would have been sent somewhere, I would think.
Mr. Sims: Senator, again, as I said in my answer to Senator Cools, I do not know whether there are privileges that ought to be raised in this respect, inasmuch as it is part of pending litigation now before the Quebec Superior Court. Subject to any privileges which ought to be raised, I will endeavour to find that information for you.
The Chairman: However, you will undertake to do that, and if there is a problem with it, you will write to the clerk and tell us that there is a problem?
Mr. Sims: I will write.
Senator Cools: I am convinced that these are not the right people for us to be talking to with respect to this particular matter. The other matters, I think, are within their purview. The witness is trying to be judicious, but he obviously does not know.
The Chairman: Senator Cools, I have given you about 25 minutes now. I know that there are others who wish to ask questions.
Senator Cools: Perhaps we can get to the right people, somehow.
The Chairman: During our study of the Main Estimates, you will have plenty of opportunity, if you wish, to continue this line of questioning with the Department of Justice. There will be no problem doing that.
Senator De Bané: I have a question for Mr. Miller or Mr. Everest. Yesterday, I brought the topic of the expenditures of the Canadian government to the attention of the committee. I said candidly that I would never have thought that, suddenly, at the beginning of the 1980s, the debt of Canada would start to expand very quickly and reach the level that it has reached to date.
In retrospect, when you consider what has happened in the last 15 years, could that situation have been predicted or expected, or how did it happen? I am sure that if someone had said in 1978, 1979 or 1980 that in 15 years' time the debt would have multiplied 10 or 15 times, no one at Treasury Board would have said, "Yes, that could happen." However, it has happened. We are now in a situation in which I understand the debt is almost 80 per cent of GDP. What lessons do you draw from that? Has there been put in place a system to prevent such things from happening again? What are your thoughts about what happened in the last 15 years?
Mr. Miller: Perhaps, senator, I can refer to a few numbers in trying to answer your question. Perhaps I could indicate what has occurred with respect to the federal government expenditures over the last 20 years. In 1974-75, public debt charges were $3.2 billion in total. Ten years later, they were at $22.4 billion; and in 1994-95, they were at the highest level, at $42 billion. Those were the kinds of changes that occurred in the actual interest on the public debt over that 20 year period.
What is also interesting, though, is that many of the major programs introduced in the 1970s had a component to them whereby they were indexed based on inflation rates. I like to use the Old Age Security as the best example of that. It is now the largest program of government. Twenty years ago, it was $3 billion; for 1994-95, it wax over $20 billion. Thus we have a situation where many of our social safety net programs, including many which involve transfers to the provinces, have an inflation factor. Just when the economy has difficulty, those same programs kick in to help more individuals in Canada, and therefore the costs rise.
Over the same period of time, if we exclude public debt charges, the Old Age Security and the Guaranteed Income Supplement, all other spending went from about $22 billion in 1974-75 to about $66 billion in 1984-85, and is now at $83 billion. That will, of course, come down substantially based on the changes initiated by things such as program review and the announcements in the budget of exactly where those will move.
Certainly, if you look at where the federal government has spent its resources in the last 20 years, the bulk of the increase in the public debt is associated with those programs that were indexed to inflation. When the economy had difficulties and the tax revenues were not realized, which tend to be indexed as well but have a much longer recovery rate when there are difficulties, there was a major gap.
In the latest budget, although the percentage of debt to GDP is at about 77 per cent, it actually decreases over the period covered by that budget, so it starts to tail down slightly. Certainly, some of the other program spending that has been changed through the program review process is dropping dramatically. For example, direct departmental expenditures, which include everything but those major statutory transfers to persons and to other levels of government, will have decreased by 21 per cent between 1994 and 1998-99.
If the economy does not perform as expected, then undoubtedly our safety nets will still be there to protect Canadians, and that would cause some changes to that plan. As the Minister of Finance has pointed out, however, his forecasts in this budget are based on advice from external parties in terms of legitimate, underlying assumptions about performance in the economy, and so on. It appears that we are over the worst in that situation, and the trends in the next few years will bring down both the financial requirements or the borrowing requirements of government, and also the proportion of debt to GDP.
Senator De Bané: Thank you very much, Mr. Miller. From what I understand, the Auditor General represents the shareholders of this country, the people of Canada. His job is to look at how government spends its money. He then reports to the shareholders, through Parliament, on his examination of those expenditures.
I understand that his mandate is to look to the performance benchmarks, if there are benchmarks, to see if those expenditures are made in an efficient way, where performance measurements exist. I believe he also looks for value for money, to see if the shareholders are getting maximum value for their taxes.
Every year, the Auditor General has a chapter in his report in which he comments on what policies have been put in place to correct deficiencies that he has identified in past years. Departments make commitments to correct those deficiencies that the Auditor General has identified on behalf of the shareholders of this country. Often, however, the departments do not follow through with their commitments to correct those deficiencies.
I should like very much to hear about how those recommendations of the Auditor General are taken into account to correct the deficiencies that he has identified, or whether the attitude of the departments is always that they know better than he, and that he is really out of step with what is proper management, and so on. How do you interface with his recommendations?
Mr. Miller: The evolution of the work that is being done by the Auditor General's office, as you mention, is interesting. They certainly perform what would be the financial attestation to the information and the expenditures of the government in general.
However, in the last number of years, they have moved to value-for-money audits and they have moved to undertaking a series of smaller, more focused studies in concert with departments. My experience in dealing with those kinds of initiatives is that they are very much more interested in helping the department achieve the objectives of dealing with the outcome of those, and not so much on what would be the headline of the day in pointing out some kind of wrongdoing or some kind of improper procedure in place.
Therefore, if the Auditor General has a major undertaking to which he would devote a chapter - and now, of course, he reports to Parliament several times a year, not just on an annual basis - then they would undertake to spend a significant amount of time in working with that department or agency before that initial report is done. Within that report, there are management responses. Each specific recommendation has a response indicating how the corrections will be made, or how that will be changed. Certainly, there is accountability there by publicly indicating exactly what changes will occur as a result of the findings.
Normally, after two years, a follow-up is also done, and perhaps that is what you are referring to as the chapter where, after two years, the Auditor General returns to that specific area of interest, ensures that those recommendations have been followed through, and does a follow-up report to Parliament, and to Canadians in general, on exactly what steps have been taken or how things have been resolved. Those would be for the major findings and the major initiatives undertaken.
The bulk of the work that the Auditor General does with departments and agencies results in items such as management letters, where they would write to the minister or deputy minister, or even the chief financial officer of an organization, requesting that things be adjusted or cleaned up. Where you see the vast majority of the information being changed and the program criteria being adjusted is through those reviews and reports which may be less dramatic but are certainly more important to the ongoing administration of government. There are a series of mechanisms. The Auditor General works on a continuing basis with departmental officials, and probably only 10 to 15 per cent of that activity is formally reported in his periodic reports to Parliament.
Senator De Bané: Would you say, Mr. Miller, that in general most of the main recommendations of the Auditor General are taken into account by the different departments? Do they try to implement his recommendations so that they are not shelved and then forgotten? What is your overall impression?
Mr. Miller: My overall impression is that by the time the report is written, in the sense of a formal chapter, the department has already recognized that changes should be made, and that is normally indicated in their portion of management response, so that those changes are often well under way. The dilemma that arises in many cases examined by the Auditor General is that, by the time the report comes out, the program has already changed direction, and thus it is difficult to relate it to the observations. Those would probably be the only situations, in my personal experience, where you run into difficulty with the conclusions. In other words, the Auditor General's report is saying, "You should be assessing this program and you should be reviewing the implications of it," when in fact that program had been changed substantially and new criteria established. Therefore, from that departmental perspective, then, it would not make much sense to go back and evaluate the predecessor. Those were the only cases in which I have been personally involved where the recommendations have not been followed.
It is difficult to avoid completing many of the observations of the Auditor General. He always has another opportunity the next year to review and to update his information.
Senator De Bané: Finally, Mr. Miller, I wonder if you would consult with the Office of the Auditor General and obtain their feedback about those instances where departments have announced formally that they will implement some recommendations of the Auditor General but, unfortunately, have not followed through with that commitment. My information is that, from the perspective of the Office of the Auditor General, sometimes the department has said, "Very well, you have made that recommendation. We think it is a good one and we will implement it." However, a few years later the Auditor General says they have not followed through. Perhaps you could check with them to see if there are instances where they found that the departments, despite their commitment, over the years have not acted upon those recommendations.
Mr. Miller: Certainly, we could follow up with that.
Senator Stratton: You were talking about the reasons for the growth in the deficit and the debt. We are all assuming now that the deficit is pretty well a dead duck; that there will be a balanced budget by the turn of the century, more or less, give or take. That is the argument. All things being equal, that is the target, or so it would appear. I have qualified that a great deal.
The question then becomes: If the deficit is gone and we are operating with a balanced budget, what happens to the debt? When does it start to diminish? Is the forecast for 2008, or does it start happening sooner?
Mr. Miller: Unfortunately, senator, I do not have the exact timing. One of the key considerations is the difference between the budgetary deficit, which is a measure of budgetary expenditures less budgetary revenues, and the financial requirements of the federal government, which is the borrowing that we must do externally. The target is to reduce those financial requirements to zero at some point in the next period of time. The target for next year, I believe, is 2 per cent. If we reach those kinds of targets, we would have the lowest financial requirements of any of the G-7 nations. In 1997, I believe it will be about $6 billion. That will be the lowest percentage. Many other countries use that to indicate that they have a balanced budget. In our case, it would mean that we still have a difference in the budgetary deficit but, overall, we could fund internally. We would not need external borrowing.
Senator Stratton: That is the problem with the current deficit.
Mr. Miller: That is correct. In terms of the retirement of the debt, I have no idea when that will start to happen, given the trend lines. If we reach a balanced budget, I do not know exactly at what point it would turn around.
Senator Stratton: Have you done no projections? Surely to goodness you have.
Mr. Miller: I am sure my colleagues in the Department of Finance have done considerable work on this, but from a Treasury Board perspective, our responsibility is on the expenditure side. The Department of Finance normally worries about revenues and matching.
Senator Stratton: I understand that. It would be interesting to know, because in the next couple of years I am sure it will become a hot topic in the eye of the public.
Senator De Bané: I would venture to say, Senator Stratton, that there is no ambition to pay off that debt.
Senator Stratton: There is no ambition to pay it down?
Senator De Bané: What I think they are looking for is that the servicing of that debt, including the annual interest, will go down every year as a percentage of GDP.
Senator Stratton: I understand that.
Senator De Bané: Not to pay off the accumulated debt, but the servicing of it.
Senator Stratton: I understand all that, but this issue will loom large once the deficit is gone and we have a balanced budget. What will we do with this debt? Our children and grandchildren will still be saying, "You guys created it, and what will you do with it?"
Senator De Bané: I am telling you what I think is the philosophy.
Senator Stratton: I understand, but I think that is a legitimate question to ask. I may be asking it of the wrong folks, but nevertheless it is something that should be addressed.
Mr. Miller: Perhaps the discussions on Main Estimates would be a better forum.
In terms of the other question associated with the average payouts for the transition programs - and I believe that these are overall averages - based on an average payment of about $20 per acre and an average farm size of about 600 acres, we end up at about $12,000 per farm. A number of factors are involved in calculating the different factors. It is almost misleading to use averages.
Senator Stratton: You must use something.
The Chairman: I have a couple of supplementaries to some of the questions that Senator Stratton asked earlier about Petro-Canada and Canadian National, regarding an equity injection. Let us start with Petro-Canada. How much cash has been injected into Petro-Canada since its inception? After the write-offs and after you receive the money that you think you will get for the shares of it, what will be the accumulated loss on Petro-Canada? Will there be a gain?
Mr. Miller: Actually, there is a gain, but it involves the way we account for those changes.
I should say that the equity injection related to CN rather than to Petro-Canada. In Petro-Canada's case, we were recognizing the difference between how much we established as the book value of the shares and the amount we received.
The Chairman: Was the book value established by the amount put in?
Mr. Miller: Or the value of it, yes. I am not familiar with the details. These are all shares now. We did not divest ourselves of the complete number of shares that we held. The book value of the roughly 173 million shares that we held was at almost $25 a share, or roughly $4.3 billion. The book value of the shares that we sold, which was 124 million shares, roughly, then works out to be a little over $3 billion. That difference, then, is the amount that we are actually deleting. In other words, in order that we will have the residual value of the balance of those shares, it is still reported at the original book value of almost $25.
During the intervening years, for good accounting reasons, we realized, through an offset or a valuation provision, that the value of the shares was not $25, and an amount was deducted from that. It is my understanding that our proceeds exceeded the reduced amount that we had established for the share value. Although it is less than the amount originally recorded, it is more than the amount that we carry currently on our books.
The Chairman: Your writedowns were greater than what you finally got for the shares, is that right? In other words, you valued your shares at $15 and managed to get rid of them at whatever.
Mr. Miller: That is correct.
The Chairman: Therefore, you had a gain.
How much cash has been put into Petro-Canada? How much equity has the federal government put into Petro-Canada?
Mr. Miller: Other than the book value, which normally represents the amount that we had taken over, I honestly have no idea.
The Chairman: Would you find out for us, please?
Mr. Miller: Certainly.
Senator De Bané: With respect to Petro-Canada, is it true that the Auditor General came to the conclusion that the government of the day, the Trudeau government, overpaid when it bought Petro-Canada?
Mr. Miller: Honestly, I have no personal knowledge of that, senator. I am not sure what consideration was given on the establishment of the value of Petro-Canada because of the different transactions. Several transactions were involved in accumulating the interest that eventually became Petro-Canada. Again, we could find some material for you.
Senator De Bané: I would like to know what advice the government of the day received from the firms hired to advise the government on the value of the company they wanted to buy. Will you obtain that information for me?
Mr. Miller: Yes.
The Chairman: Before CN was privatized, the decision was made that there would be an equity injection of $2 billion, was it?
Mr. Miller: Nine hundred million dollars.
The Chairman: Was that to reduce the outstanding debt of CN to the federal government, or the outstanding debt with respect to the banks and other institutions, and the federal government?
Mr. Miller: That is an interesting question. Unfortunately, I do not know the composition of the CN debt at that point. I am sure it is not in our briefing note. I could not hazard a guess. We will need to find out the composition of the debt. These were done through a statute or a piece of legislation, and I am not familiar with the exact kind of information that was included in that provision other than an allowance for an equity injection.
The Chairman: Who was the lead broker of each of these two, Petro-Canada and CN?
Mr. Miller: I do not have that information. Do you mean, who did the underwriting?
The Chairman: Which one was done by Gordon Capital?
Mr. Miller: I cannot remember. We have experts in the privatization area within the secretariat. I am not sure how those two were handled.
The Chairman: What was the normal commission charged? What was the value of the privatization in each case? What were the commissions paid to the underwriters? They do not like to be called brokers.
Mr. Miller: To use Petro-Canada as an example, when the shares were sold, provision was made for interim payments and then some final payments. There was about $52 million worth of underwriting fees on the overall share disposition of about $750 million.
The Chairman: We are talking about Petro-Canada here?
Mr. Miller: That is correct. I should correct myself. The total proceeds from the shares would be about $1.8 billion from the 124 million shares which were sold. The only information I have is that the underwriting fees were $52 million of that amount.
The Chairman: There would be a lead broker or a lead underwriter and a number of others who are engaged to assist them. This is quite a large underwriting so it would not have been done by one person.
Mr. Miller: That is my understanding.
The Chairman: Who were the other underwriters and what was their percentage of the underwriting? How were they chosen? I would like the same information with respect to CN.
Mr. Miller: Very well.
The Chairman: Regarding the expenditure management system, I will ask, with the committee's permission, that you come back to explain this to us in a special session. This is a new system where the department heads get to keep a certain percentage of money which is saved and to spend it somewhere else. Is that right?
Mr. Miller: I would not refer to it in that way, Mr. Chairman. That particular element is related to what I said in my opening remarks is the 5 per cent operating budget carry-forward. That is one particular element of the system.
The government was criticized in the past for year-end spending. There was concern that expenditures made in this period of the year were somehow made because the money was there, and that it must be used or else it would be taken away.
A number of factors contribute to prudent management. We will use as an example a manager who has two responsibilities in his budget: one is to buy a new typewriter, and the other is to pay the telephone bill for the whole year. That manager will not buy the new typewriter until he is sure that he has enough money for the telephone bill.
It used to happen that the manager would recognize by about December or January that the money would be there for the new typewriter. He would then go into the process of tendering and approving the lowest bidder through Public Works and Government Services. The contractor says that the typewriter will not be available until April 1. The manager replies that he will try again at the same time next year because the authority to purchase the typewriter will lapse on March 31.
The Chairman: Can the funds be borrowed from another department?
Mr. Miller: No.
The Chairman: Can another department buy it on that manager's behalf? I think they do that.
Mr. Miller: Actually, the Financial Administration Act precludes that. There are arrangements for a common interest where things may be bought together, but their authority would lapse at the end of the year as well.
In recognition of this, we have suggested a change. Obviously the authorization of Parliament is still required. There is no special authority. A manager's operating budget is normally made up of 60 to 70 per cent for salaries, a portion for small and minor equipment and also operating costs like telephone bills and repairs. Now, in the following year, a request can be made through a supplementary estimate to get back an amount of up to 5 per cent of the budgeted funds.
When a manager reaches that period at the end of the year where he sees he has enough money for a new typewriter, which will inevitably still happen, and when the contractor says that delivery must be on April 1, the manager can quite confidently approve the purchase because the money that lapses in the current year can be returned in the following year. Treasury Board has issued an open invitation to go back and seek that authority from Parliament. In this way we can avoid the problems which arise from an authority which simply ends on March 31. It provides a large amount of managerial flexibility for those kinds of purchases and expenditures.
The Chairman: Let me ask a question on the Supplementary Estimates. At page 115, regarding Western Economic Diversification, there is a transfer of $2.527 million. Is that amount simply transferred from one vote to another?
Mr. Miller: Yes. In this particular case, Mr. Chairman, the funds were set aside for these Canada business service centres of which there are 10 across the country. Western Economic Diversification has responsibility for those in the western part of Canada. Yes, we are moving money here from their previous Vote 5 into their operating Vote 1.
The Chairman: Was Vote 5 for grants and loans to business?
Mr. Norm Everest, Senior Estimates Advisor, Treasury Board of Canada: Those are the transfer payments to grants and contribution centres.
The Chairman: The department is supposed to use those funds to help business through grants or loans, but they transferred those funds to personnel and operating budgets?
Mr. Everest: In this case, yes. At the end of the fiscal year, they had some surplus funds which had not been claimed by qualified claimants in their Vote 5.
The Chairman: They did not know this was coming up last year when the budget was introduced, that they would do these business centres?
Mr. Everest: Yes, I think that was announced in the budget of last year. However, there were provisions made within the framework for departments to claim these funds once the plans and the details were finalized. As we got to the end of the fiscal year, they had a choice of either asking Parliament for an additional appropriation in their Vote 1, or looking at their Vote 5 to see if there was any surplus cash available in that vote. Then they could ask Parliament to realign the funds which had been previously set out.
The Chairman: They get to decide what is surplus cash. The head man at Western Economic Diversification can decide whether or not to give out the loans as requested. He is the person who decides. Once in a while the minister may get involved. Therefore, instead of saving money in his regular operating budget, that manager can choose to give out fewer grants and loans and then transfer the excess upstairs to his budget.
Mr. Everest: In this case, that is more of a conflict of interest decision.
The Chairman: That is my point.
Mr. Everest: However, I do not think that applies in the sense that there was, for example, a certain amount of money allocated to Western Economic Diversification for their transfer payment programs. If, during the course of the year, there were not sufficient applicants to draw down all those funds, then those funds would lapse.
The Chairman: Let us go to ACOA.
Mr. Miller: ACOA is found on page 35.
I should add that the Canadian business service centres were an important initiative, and all of the regional agencies, as well as Industry Canada, have taken this on as a new initiative and a new way of disseminating information across Canada. In real terms, there must be trade-offs between what is being spent on the direct programming and what is being spent on other issues. They have identified together sources of funding and said, "Our highest priority in this case is funding those business service centres, and therefore we are willing to reduce our programming in certain other areas which may be under the contributions, in order to make sure these things go."
The Chairman: ACOA did the same thing. It is almost a plan. It is not happenstance that they happened to save the money. They probably sat around and said, "At the end of the year, instead of saving money in our present operating budget to have the business centres, we will take the money that we told the taxpayer in the budget we would give in grants and subsidies as program money and we will lift it upstairs and drive it through administration and hire a lot more people," which is what they did with all the cash.
Mr. Miller: I would put a slightly different twist on that, senator, in this particular case. It was an important initiative, because what we are trying to do is disseminate information on all government programs to a series of locations. It was not just those of the regional agencies such as Western Diversification and ACOA. They felt it was necessary for us to invest these funds in salaries and operating costs. This was a higher priority for them in order to achieve the overall objectives of their organization than a particular amount provided as a contribution or grant.
That is a change from the initial plan, which is how it shows up in these supplementary estimates. They are indicating that they are offsetting one with the other. Since the service centres have been in operation for more than a year, they knew this was coming, so they built it into their programming. They would need to provide for these centres, and there is no way they could obtain incremental resources to do that. They had to establish their own priorities and realize that something else will have to drop off for them to go ahead with this new initiative.
The Chairman: Quebec has one of these, too.
Mr. Miller: That is correct.
The Chairman: Did they do the same thing?
Mr. Miller: That is correct.
The Chairman: If we go to Veterans Affairs on page 114, we have another transfer of about $4 million.
Mr. Everest: That is for the Veterans Review and Appeal Board.
The Chairman: Where do they get their cash from?
Mr. Everest: In September of last year, a new piece of legislation was approved by Parliament to establish the Veterans Review and Appeal Board, and at the same time it repealed other pieces of legislation, the Veterans Appeal Board Act and the portions of the Pension Act which dealt with the Canadian Pension Commission. Those responsibilities were then transferred to this new board. As a result, there was cash available in some of the Veterans Affairs votes because of those organizations having been taken off the books. They had been appropriated funds for an entire year. We have identified funds in, I believe it was, Votes 10 and 20. However, in order to keep the estimates as simple as possible, rather than transferring from several votes into Vote 21, the department identified that it had surplus funds in Vote 5. They said, "Take it all out of Vote 5 and keep the realignment as simple as possible."
Senator Cools: I sponsored that bill.
The Chairman: Do they have that right, then, as managers in areas where grants and expenditures would be budgeted for the taxpayers' benefit? Cash would go to some taxpayer who is not working for the government, i.e., a business or organization, a UIC cheque, whatever, and they can take money out of that and dump it into operating, which they have done in a number of cases throughout the Supplementary Estimates.
Mr. Miller: First, there are provisions for maximum amounts under grants that individually must be approved by Parliament, since essentially they are gifts. Contribution arrangements are more like a contractual obligation, where there is some ultimate benefit from that agreement.
Yes, as individual managers, a department could take money from a contribution arrangement and move it into operating costs. It would require, in most cases, a transfer between votes, which would require a supplementary estimate. In effect, the final supplementaries of each year are normally full of those kinds of transactions. In most cases, they reflect a change in priorities.
It may be the other way, too. It may not just be from contribution arrangements into operating. It may be from operating costs into contributions. We have examples of that in Health and in Indian Affairs, where the money has not changed in purpose, but in the way in which those services were delivered, because the devolution of responsibilities to Indian bands has now increased the amount of contributions required, since that is the financial arrangement for them, rather than direct program expenditures by a department or agency.
We do have situations where money moves around. We have not changed the objective. In fact, in that case we would not even change the program we were delivering. However, that was not the appropriate way of actually and ultimately making those payments, so we are required to come to Parliament in order to authorize that change.
The Chairman: I have one more question on UIC. Is there a surplus in the unemployment insurance fund?
Mr. Miller: Yes.
The Chairman: That surplus is what?
Mr. Miller: I honestly do not know.
The Chairman: Is it $500 million?
Mr. Miller: I have no idea.
The Chairman: Is it $5 billion?
Mr. Miller: It is closer to $5 billion.
The Chairman: Is that in a fund, or is that simply bookkeeping? It is really part of general revenue, actually reflected in decreased deficit numbers, is it not?
Mr. Miller: The recommendations of the Auditor General about 10 years ago were that we consolidate those specified accounts, principally the UI account, into the books of Canada. We do have, in both the budget and the way we report in public accounts, entries to collapse those special accounts into the operations of the accounts of Canada. You may hear two different numbers. You may hear it on a consolidated basis or not. The UI account would be the difference, effectively. That would depend on the calculations for both the financial requirements and for the budgetary deficit, depending on which way it is stipulated.
The Chairman: We will follow that up with the Main Estimates.
If there is no other business, I need a motion to have Supplementary Estimates presented as a report to the Senate.
Senator Cools: I so move.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: The motion is carried.
The committee adjourned.