Proceedings of the Standing Senate Committee on
National Finance
Issue 21 - Evidence
OTTAWA, Wednesday, March 19, 1997
The Standing Senate Committee on National Finance met this day at 5:15 p.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 1998.
Senator David Tkachuk (Chairman) in the Chair.
[English]
The Chairman: Before we begin, I want to acknowledge for the record the ceremony held earlier for the Clerk of the Committee, Mr. John Desmarais, who began with this committee when the Honourable Doug Everett was Chair. This month marks John's fifteenth year as a clerk. Tomorrow will be his last meeting with us because, as you know, we will not be sitting next week and he retires at the end of the month. I understand that he will be working with the Canadian Archeological Institute in Athens, Greece. While he may not be in Athens all the time, I am sure he will spend as much time digging around Europe as he possibly can.
We wish him the very best.
This is the first meeting to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 1998. It is the custom of the committee to invite the President of the Treasury Board. He has agreed to appear. There is a vote in the other place which has delayed him, so we will wait for his arrival.
The committee recessed.
Upon resuming.
The Chairman: Welcome, Minister Massé. Please proceed.
Hon. Marcel Massé, MP, President of the Treasury Board and Minister responsible for Infrastructure: Honourable senators, I will provide copies of my statement after the meeting. Also, a table has been prepared by the department. With your permission, I will have it in your hands, in both languages, tomorrow. I will be referring to it, but because I do not have it in both languages tonight, I cannot give it to you officially.
[Translation]
Honourable senators, it is my intention today to be brief and to leave as much time as possible for questions. I will be pleased to have my Deputy Minister and the other Treasury Board representatives here answer your questions if they concern details that fall within their areas of responsibility.
[English]
I am happy, as the minister responsible for the Treasury Board, to be the bearer of good news -- I hesitate here because of the next part of the sentence -- for all Canadians. Since my time, Treasury Board has not always been considered in such favourable light. I am proud to say we are well on the way to meeting the objectives we have set for ourselves.
Four years ago, the federal government embarked on the most comprehensive transformation ever seen of the public service and of the manner in which it delivers its service to taxpayers.
[Translation]
We got government right by making well-thought out decisions, and Treasury Board has contributed significantly to reducing the national deficit. Furthermore, we took action and introduced new initiatives in many areas of responsibility inherent to our role as a central decision-making agency.
The global context has changed and continues to change rapidly from a structural, economic and human point of view. We had to adapt and that is what we did.
"And just what have you changed?" you might ask. We are hard at work putting our financial house in order. Although we have had to wait for the end of the fiscal year to determine the final results of our efforts, we are confident that the deficit for 1996-97 will be less than $19 billion, or $5 billion better than the target we had set.
[English]
For the 1998-1999 fiscal year, the target of $9 billion represents an amount which the government will be able to finance without entering into any new loans on the financial markets.
We have also reformed the expenditure management system. Our forecasted program spending for the 1996-1997 fiscal year is essentially at the $109 billion level as we anticipated one year ago. Our planning for the next two fiscal years remains essentially the same. Program spending in 1997-1998 will be $105.8 billion, slightly less than the $106 billion we had forecasted last year.
I must say, in all my years in the government, I have never seen a budget actually come so close to the forecast.
At $103.5 billion, spending levels for the 1998-1999 fiscal year will, in fact, be $2 billion lower than the amount we had planned to spend.
We have also established an ongoing reassessment of government programs. The program review was implemented as soon as this government came into office. Our objective was simple, we wanted to "get government right." This objective remains our ongoing concern. The program review also enabled us to reduce spending in a more rational way than the old method of arbitrary cuts.
In this context, we have been able to improve the delivery of services to citizens. We have also clarified the federal government's role in various spheres of activity.
[Translation]
We have created a stable framework for long-term planning for departments. Government program spending will account for 11.9 per cent of GDP in 1998-99, a drop of nearly 5 per cent since the 1993-94 fiscal year.
We reduced the size of the Public Service from 225,000 to 195,000 employees during the period from April 1995 to December 1996.
[English]
I am sure you are aware of the press stories which suggest that our program review and spending are behind schedule. The record needs to be set straight here today because nothing could be further from the truth. The figures in the news articles which grabbed some attention compared forecasts made in 1995 about 1997-98 with forecasts made last month for the same period of time. The government's program spending reductions, however, are being delivered on time and on track. In the 1995 budget, we projected a 1994-95 departmental expenditure level of $51.875 billion and $42.089 billion for 1997-98. These figures were contained on page 36 in the table about program review spending and were quoted in the budget documents for 1995.
Using a consistent accounting basis, the last projection for expenditure levels for 1997-98 is $44.986 billion instead of $42.089 billion. The difference accommodates modest spending increases that reflect government priorities.
By this, Mr. Chairman, I mean that the cuts in department spending programs were done as planned, almost to the last dollar. However, in the last two budgets there were government expenditures announced after the drafting of the budget in 1995; for instance, the $425 million of additional money for the infrastructure program that is at present being negotiated with provinces. These are additional expenditures which will, we hope, increase spending for the various departments in 1997-98.
However, even though expenditure amounts have increased because of decisions announced in budgets, they do not affect cuts that have been made in the departments through the program review. These cuts have been implemented as planned and have left our totals, as I will indicate when I comment on the table, similar to those forecast in the 1995 budget which was based on fiscal 1994-95.
All of this has been accomplished within the fiscal framework established by the government and implemented since 1993. Even with the additional spending, our figures show total direct program spending -- that is, spending done by federal departments -- in 1998-99 will be about 18.6 per cent less than it was in 1994-95.
[Translation]
We have also improved the timing of the performance reports we submit to Parliament. Last fall, I submitted to the House on a trial basis reports that enabled Parliament to evaluate the results achieved by 16 departments. This meant that information was made available to members of Parliament some six months earlier than when we followed the former submission procedures under Part III. These 16 reports represent the Outlook Documents of 16 departments and agencies. They are their plans and priorities as submitted under Part III.
[English]
We have implemented a series of initiatives and action strategies including la relève, the cornerstone of the public service renewal. Furthermore, this year marks the return to collective bargaining. In the coming months we wish to sign both private and public partnership agreements.
[Translation]
We have changed the way government operates. And there is still much to be done to transform the government and to infuse it with the process of ongoing change we have initiated.
[English]
We will continue to make changes, we will streamline our operations even further, and we will move toward ever greater efficiency in our decision-making process. We have embarked on a major administrative shift and are preparing to head straight into the 21st century.
[Translation]
In conclusion, Mr. Chairman, let me say that we are establishing a new culture surrounding the administration of federal programs and the services the federal government delivers to Canadians. I am proud of what we have accomplished.
We have gotten government right. We are offering you a new government that is responsible and respectful of all Canadians.
[English]
The Chairman: I wish to clarify something you mentioned toward the end of your remarks. You talked about operating expenditures being about 18.6 per cent less in 1998-99, which are Estimates we will not get until next year. What would be the reduction in those operating expenditures from the 1994-95 budget to this year's Estimates?
Mr. David Miller, Assistant Secretary, Expenditure Management Sector, Treasury Board: Would you prefer to talk about Estimates or the total plan? There is a difference. We have Main Estimates and then there are provisions in the budget to provide for Supplementary Estimates or other items that come up during that year.
The Chairman: If you can make the supposition of 18.6 per cent for 1998-99, can you do the same for the current year? These are figures that we will not see for another year. What would that number be currently?
Mr. Miller: We can have that for you in a minute, I believe, senator.
The Chairman: As soon as you have that number, would you give it to us.
Senator Stratton: I know that you are the bearer of good news. You said that the deficit is $19 billion, down from the $24 billion it was projected to be. That ties in directly with the surcharge on the Employment Insurance Fund premiums which bring in $5.6 billion more than is required. In other words, it is a slush fund and is being used to reduce the deficit to the number you have arrived at; is that not true?
Mr. Massé: It is true that with the present accounting system the premiums that accumulate in the Employment Insurance Fund are counted as part of the revenues of the government. You will remember that the situation was different before 1986 when the fund was a separate fund. Since then, the Auditor General has asked that the government report the outflow from the fund in terms of payments for unemployment insurance as part of our expenditures and the input as part of the revenues.
It is also correct that at present the surplus that the fund accumulates is about $5 billion a year. However, you must take into account that these figures are accounted for a number of years in advance. In each budget, Mr. Martin has announced Estimates for the existing year and the next two years to come. These were accounted for previously in the $24 billion.
You are half right and half wrong. Yes, these amounts are included in the revenues and, as such, they are part of what makes the deficit lower.
The Chairman: Were they included in the revenues when you estimated them? Was it the same number?
Mr. Massé: Yes. Do not forget that the fund had a deficit of $12 billion just a few years ago, and as the unemployment rate decreased from 11.4 per cent to the present 9.7 a reversal began.
It came to the point where there was no net deficit, at about the end of 1995, and then it started going into surplus.
Senator Stratton: In effect, the moneys from 1995 have been used directly to reduce the deficit.
Mr. Massé: Yes, and that practice has been in place since the change in the accounting formula in 1986.
Senator Stratton: I appreciate that, but it has developed its first surplus, and you were using that to reduce the deficit.
The next question relates to the article in the Financial Post which you have quite clearly stated was in error. We have a concern, because opposition politicians continue to argue that there has been a 14-per-cent rise in tax revenues, to $132 billion for 1997-98 from $116 billion in 1994-96. That increase deserves most of the credit for the reduction in the deficit. Provincial governments are continuing to complain that Ottawa has not cut in its own backyard, while imposing cuts amounting to 26 per cent on them. That is their side of the story.
I appreciate your arguments; however, these counter-arguments continue to arise. The finance finister in Manitoba argues, in essence, the same thing in his 1996 budget. He hoped, along with other provincial governments and individual Canadians, that the federal government would reconsider its priorities and not proceed with massive funding reductions for vital social programs. The federal social transfer reductions represent 77 per cent of all federal cuts over the next two years. The Premier of Ontario indicates that, over the period of 1995-96 to 1998-99, the federal government will cut payments to the provinces for health, education and social programs by 42.2 per cent. During the same period, it will cut all of the rest of its spending program by only 1.3 per cent.
The dichotomy which we are facing is that these provincial premiers and finance ministers are saying, "Fellows, you really cut the social transfer payments quite dramatically." Are you saying something contrary?
Mr. Massé: Yes. I am tempted to start my sentence by saying, "The truth is"; however, in politics, we know there is no truth.
Senator Stratton: Do not say that. It is all relevant.
Mr. Massé: There is no doubt that both the increase in revenues and the decrease in expenditures have contributed to reducing the deficit. This is like a pair of scissors; you need both sides in order to get the result. However, we had planned it like that. In fact, in the speeches I made to explain the 1995 budget, I used the example of the scissors, in that we have to count on the two parts in order to reduce and eventually eliminate the deficit.
Let me define my terms. Total spending, if I exclude interest rates, is total program spending at $120.9 billion. That is the actual figure.
We had planned a review of the program during the first three years. The program review was then extended for one year to four years, between 1994-95 and 1998-99. We had planned to reduce actual expenditures -- and I do not mean to reduce from what had otherwise been programmed and so on, but in absolute terms -- by something like 18 per cent. In fact, by this year, we will have reduced program expenditures from $120.9 billion to $105.6 billion. This is what you will see in the Estimates for this year. The figure that we have for 1998-99, which we will reach, is about $103 billion.
Up to this year, there has been a net reduction of $15 billion in government expenditures, notwithstanding the increase in inflation and all these other influences. Of course, there also will have been a reduction of about 55,000 employees in the public service. There is no doubt that the greatest part of the reduction has been done through reducing the actual size of expenditures, including, of course, the number of people working in the federal government.
Your second question is what they usually call the pelletage dans la cour des provinces. There, of course, provincial politicians, especially the premiers, will use certain ways of looking at it, and we will use others. However, taking our expenditures for fiscal 1998-99, and the expenses of the last full year for the Conservatives, which was 1993-94, you will see that, in fact, our expenditures, the ones made by departments like Transport, Agriculture and so on, have been reduced by about 14 per cent, whilst the total transfers to the provinces will have been reduced by about 9.9 per cent, which means we will have cut our expenses by 40 per cent more than we have cut the provinces.
The provinces, especially Ontario, are measuring the highest year for transfers to the provinces, which was 1995-96, and comparing it with the lowest year, which is two years later. We are using as the basis the last full year of the previous government, and, of course, we started our program after that year, which seems to us a rational basis from where to begin. Also, you may remember that, at the meeting of first ministers in December 1993, right after we came into power, there was a discussion on whether or not the federal and provincial governments would try to carry on through the early years, even though everyone agreed that expenditures had to be reduced. At that point, it was agreed that the federal government would give a two-year leeway to provincial governments to get their finances back into equilibrium, before we would start to cut transfer payments. This is why 1995-96 is the highest year for transfers and why they then decreased in the two successive years.
The base year, of course, affects the percentage, and the period of time that you use to calculate the percentages will obviously affect it as well. A number of the figures used by the provincial premiers are right, but they are right because of the base that they use. Of course, our figures are also right because of the base we use.
Essentially, senator, the aim of the government has been to reduce its absolute size. We did not have a choice. We came to the conclusion that, over the period of program review, the government had to be reduced by about 20 per cent. However, 55.9 per cent of the expenditures of the federal government are transfer payments. You cannot expect that we would have been able to reduce the size of the government by 20 per cent without reducing transfer payments. That proportion, of course, was a political choice which can be judged to be good or bad. In our case, we came to the conclusion that we had to reduce our own expenditures more, and this is what we did over time. However, we could not avoid reducing transfer payments to the provinces.
Senator Stratton: My numbers show that the 1995-96 figures were something like $29.6 billion and the 1997-98 figures show $25.1 billion. That is a reduction of $4 billion; is that right?
Mr. Massé: Yes.
Senator Stratton: When you look at the operating side, you say you have cut $15 billion. Is it measured over the same period of time?
Mr. Massé: Yes.
By the way, when I was comparing the $120.9 billion to the $105.6 billion, that is the $15 billion difference that I mentioned, which includes the transfer portion and our own departmental expenditures. Federal departments were reduced from $51.7 billion in 1994-95 -- and that is the same table in the 1995 budget -- to about the $44 billion that I mentioned in my speech. That includes program review cuts of $9 billion, going from $51.7 billion to $42 billion. I have added the $2 billion in additional expenditures, which includes expenditures such as the $425 million for infrastructure payments.
The Chairman: Is that $44 billion for this year or next year?
Mr. Massé: That is planned for 1997-98.
The Chairman: What about this year, 1996-97?
Mr. Massé: I will have to ask my experts. Have you calculated that?
Mr. Miller: No, unfortunately.
I should add that the minister, when he was speaking about the implications, mentioned the reduction in the operating budget between 1994-95 and 1997-98 as being 13.7 per cent.
The Chairman: With all due respect, we are trying to get a handle on what is going on. We are interchanging the numbers in your answers between 1994, 1996, 1997 and 1998. I am confused. What I would like to do is use 1994 and this year. Let us do a year-to-year comparison which makes sense instead of taking the same thing and using different years, because we are not learning anything here. I should like to see if we can get somewhere here.
Mr. Stratton: From the tables I am looking at, cash transfers have dropped $7 billion in that time frame.
Mr. Massé: Yes.
Senator Stratton: You have increased the tax points.
Mr. Massé: The tax points themselves have an elasticity that increases their yield over time.
Senator Stratton: In essence, if the provinces have lost out on $7 billion of cash, the tax points will take it down to a total loss of $4 billion. Is that to what you were referring?
Mr. Massé: That is right.
Mr. Chairman, on your question about the years, yes, it is difficult, because in every year we have different adjustments. The reason I am using 1994-95 and 1997-98 is that the first period of program review, if you will remember, was three years. The table of program review reductions in the budget of 1995 compared these two periods, the beginning of the program review and the program review at the end of three years.
The Chairman: I understand that, Mr. Minister. It is just that we have had two questions about 1996-97, which is the current year. We have been able to get answers with regard to 1997-98, which is the next fiscal year, but we do not have answers for 1996-97. They should be more accurate than predictions for the next fiscal year.
Does someone have the answer yet to the question I asked earlier?
Mr. Miller: The question related to 1997-98, as I understood it, since those are the Estimates we are considering. That is the 13.7 per cent.
The Chairman: Then I asked for the current year.
Mr. Miller: Because the focus is on 1997-98, I may not have those figures here today. However, I will have them for you tomorrow.
Senator Milne: Mr. Minister, I have two quick questions for clarification. You are probably aware that the Senate has a committee studying post-secondary education. It has travelled across the country. I am concerned about the Main Estimates on student loan interest and payments. I understand they are marginally lower this year, by about $3 million, than they were last year. The total is $616.4 million for 1997-98, the coming year. Is this a recent phenomenon, or has the student loans program always cost the government over half a billion dollars?
Mr. Massé: The 1993-94 cost was $499.2 million.
Senator Milne: It is still in the ballpark, but it is going up.
Mr. Massé: Yes.
Senator Milne: Does this figure represent the net cost of the student loans program, or could possible payments from students who are in default offset some of these figures? Are there more students in default; is that why it is going up?
Mr. Miller: There is a combination of factors. In fact, the loan limits were raised during 1994, and that is working through the system in terms of loans. If there are defaults on those loans, then we come back to Parliament and ask for the authority to have those forgiven through Supplementary Estimates. In fact, the Supplementary Estimates I was dealing with in this committee a few weeks ago included a significant amount to forgive those types of loans. The difference between the two loan programs is that in the first one, the federal government guaranteed the loans, and in the second one, we paid a premium to the financial institutions to guarantee the loans. There is a switch between those two programs as well, with our emphasis being on the second one.
Senator Milne: Defaults on loans do not enter into these particular figures at all.
Mr. Miller: That is right.
Senator Milne: These are past decisions working their way through the system.
Mr. Miller: There is an increase in the number of students as well.
Mr. Massé: Most of the cost increase is due to the number of students. This year it was 385,000 compared to 322,000 in 1993-94. There has been a steady growth in the number of students who are assisted by the program.
Senator Di Nino: Perhaps I can follow up on Senator Stratton's line of questioning. Cash transfers to the provinces will be cut by something like $7 billion or $8 billion as of next year.
Mr. Massé: Seven billion.
Senator Di Nino: However, the actual transfers have only been reduced by something like $4 billion because of the extra tax points that would have been allocated; is that correct?
Mr. Massé: Yes. The transfers to the provinces are, of course, based on tax points, and as they continue to grow over time they are compensated for the decrease in the cash amount.
Senator Di Nino: You also said something about taking out $5.5 billion annually in payroll taxes under the EI program, which amount is in excess of what we need to cover our EI requirements at this time.
Mr. Massé: Be careful, because, once again, that is the pair of scissors. The increase in revenues between the same years, 1994-95 and 1997-98, was about $119 billion at the beginning; it is about $135 billion now. You would have had an increase in revenues of $16 billion, including $5 billion from premiums.
On the other hand, you have had a reduction in expenditures of $15 billion, from $120.9 billion to $105.6 billion. You can see that the reduction of the two is about equal. Of course, when you are talking about the reduction in transfers to the provinces, you are only talking about the reduction in expenditures. You can say that the total requirements of the government have been reduced by the addition of the two, giveing you a reduction of between $30 billion and $34 billion, but half of that is due to the increase in revenues and half of that is due to the decrease in expenditures.
Senator Di Nino: Let me ask the question this way: What you are saying is that a huge chunk of the reduction in the deficit is coming from those two sources; is that correct? It comes from cuts in transfer payments to the provinces and from, in effect, taking from Canadians an extra $5 billion through the EI program. It is about $10 billion altogether.
Mr. Massé: The difference between $42 billion and $19 billion is $23 billion. Out of the $23 billion, about $10 billion is due to these sources.
Senator Di Nino: It is actually more than that because you are transferring less to the provinces.
Mr. Massé: However, our revenues depend on tax points.
Senator Di Nino: I understand that.
In the same vein, the 1995 budget program review called for a reduction of 19 per cent by fiscal 1997-98. If the figures that have been given to us are correct, they amount to only 9 per cent, so that is only about half of the projected reduction.
Mr. Massé: That figure is not correct, and that is why I had this table prepared.
Senator Di Nino: Will you give that table to us to compare?
Mr. Massé: Yes. Do not forget that every year a considerable number of changes are made in the way that the Estimates are accounted for. For instance, the National Research Council expenditures used to be set out in the accounts on a net basis. The Auditor General indicated that it would be much better or more correct for Parliament if the total expenditures were set out on one side of the ledger and the revenues that amortize a part of these expenditures were set out on the other side of the ledger. The result is that the Estimates show an increase in spending or expenditures by the National Research Council that does not correspond to a real increase in expenditures. After four years, you have to have a page like this to reconcile the various accounts.
We have compared what we said we would do in the budget of 1995 with what actually happened, and the difference over four years is barely $100 million out of the $9.7 billion which we said we would achieve through program review.
Senator Di Nino: For us to be able to do a half-decent job at this, we should be able to get some information to compare a certain relative value from the first of the numbers with the last of the numbers. Our frustration comes from trying to reconcile the numbers that are given to us, particularly when changes have taken place in accounting standards or in reporting procedures and so forth.
I am not suggesting, Mr. Minister, that it is being done on purpose, but it would be useful if we could get this information, as the chair says, so that we could draw comparisons and sound much more intelligent than we do currently.
The Chairman: Mr. Miller, when I said "current", the confusion started at the beginning. The minister said his figures were based on the period from 1994-95 to 1998-99. I wanted 1997-98, when you said there was an 18.6 per cent decrease. I am getting confused, but I was talking about this year's figure, and you jumped to next year. I do not know what will happen next year. Do we have that number?
Mr. Miller: Over the four-year period, the figure would be 18 per cent or 19 per cent. For the 1997-98 Estimates, which are the focus of this review tonight, the figure is about 13.7 per cent, which I believe the president mentioned in another context when he was dealing with the details, not in the context of the 18 per cent. The reduction in program spending by departments between 1994-95 and 1997-98 is about 13.7 or 14 per cent.
The Chairman: What was it supposed to be in the original estimate?
Mr. Miller: That is close to what that number would be.
The Chairman: You mean 13.7 per cent?
Mr. Miller: I would have to look at the table and work backwards. When we talk about overall spending, we must realize that the only number we have in the 1995 budget relates to just a portion of departmental spending. We have to look at the budget for 1996 to determine what those numbers mean. We have to actually work through three documents to get a proper understanding of the numbers.
The Chairman: I understand that, but you were so clear on 1998-99. You said 18.6 per cent. I cannot understand why you cannot be clearer on 1997-98 and 1996-97.
Mr. Miller: I can be clear on 1997-98, the current estimation being 13.7 per cent. As the minister mentioned, that is the track that we are on now.The actual track that was originally set out would require an adjustment.
Senator Stratton: I have a supplementary question. I want to go back to the EI surplus of $5.6 billion and the cuts to the transfers to provinces of $4.5 billion, which takes you to $11.1 billion. There are also the cuts to Transport which they report to be $1.8 billion. When you throw in Transport, that adds up to $13 billion of the $15 billion; is that correct or not?
When you take those three large, significant numbers, it seems that there has not been much cutting anywhere else. Yes or no? You have agreed on the EI surplus and the transfers, and the cut to Transport is reported as $1.8 billion in the Financial Post.
Mr. Massé: Once again, you must not confuse revenues and expenditures. The EI premiums are on the revenue side.
I will answer your question directly. This kind of reduction in the size of government, which was at the level of 18 to 19 per cent, has not taken place since the Second World War.
The level of spending by the federal government as a proportion of the gross national product, which is the best measure of the total expenditure by the government, is now below 12 per cent, a figure that it has not been at since the year 1949-50. I have been in government for 26 years. In 26 years, we have never had a reduction of that size. We have never made a reduction that has been more than 2 or 3 per cent. What you have through the program review is a reduction, in absolute terms, of the size of the government by between 18 and 19 per cent over a period of four years. I am taking the four years of the program review.
You should be under no illusions. What we have done in terms of spending has not been equalled. It is also unheard of to have a reduction in personnel by 55,000. That has not been the case since the Second World War.
The Chairman: We commend you on your success. Therefore, you were not supposed to have cut 19 per cent by 1997-98 according to the Financial Post article, is that correct?
Mr. Massé: We were supposed to have a reduction, as I remember the figures in the 1995 budget, of about 18.8 per cent over the period 1994-95 to 1997-98.
The Chairman: Will that happen?
Mr. Massé: That will happen. Instead of 18.8 per cent, as I indicated in these figures that you will get once they are translated, we have a difference in the reduction of barely $100 million out of a total of $9.786 billion. In other words, the cuts that we predicted will be almost exact .
There is one reason for that. I remember the years of the Nielsen exercise and how difficult the experiment was to perform. What we did this time was also tough. We made decisions on by how much the various programs would be reduced within the various departments, and we took the money away so that departments could not legally spend it . It is no surprise that the program review results have been so close to what was forecast.
Senator Di Nino: In the Main Estimates, it states that there are a number of expected expenses that have not been included for this fiscal period. A couple of them, which amount to about $1 billion, are the Department of Agriculture and Agri-Food, for the safety net, and approximately $700 million for the Department of Industry. The information is not clear.
First, why do we have items or expenses that we expect to incur in this period of time not included in the instruments? Second, how much is that figure? I cannot put a number on it by looking at the information.
Mr. Massé: That is a proper question. There are a number of reasons indicating amounts that will most likely be spent, but are not included in the Estimates. In the Estimates, we can indicate only the spending that has been approved by the budget, by the House, and so on. Under agriculture, the safety net is a mixture of programs that basically involves the whole farm income program. That program has not been approved. We knew more or less how much it would cost; namely, approximately $3 billion. We put that amount aside so that Parliament would know what is likely to be spent. However, we cannot put it in the Main Estimates because we do not have authority to spend that amount.
Another problem -- and, the safety net is an example -- is that the companion programs with the provinces, which are shared with the federal government, usually top up such programs. Often, we know more or less that these companion programs will come into place. We have an idea of the amount of money but, because they have not been identified specifically, we cannot put them in the Main Estimates. We include them in that overall amount that we set aside. Therefore, Parliament is informed about it, but it is not contained in the Main Estimates.
Concerning the example you indicated with industry, for instance, the main reason why the two totals differ is that we had proposed $425 million for the infrastructure program delivered through the regional agencies, which will form part of the overall budget of Industry Canada. However, since it had not been indicated in the budget, there was no authority to spend it, until we obtained that authority.
Senator Di Nino: How much is that total number?
Mr. Massé: It is $2.606 billion.
Senator Di Nino: Would these amounts be obtained through a supplementary estimate at some point in time?
Mr. Massé: Yes. It is in Part I on page 12.
Senator Di Nino: Will these items be authorized through a Supplementary Estimate at some point in time? Is that the normal procedure? In other words, will they receive the same scrutiny?
Mr. Miller: Definitely. In some cases, as the minister mentioned, the legislation necessary to allow the payments has not gone through. At the point that the legislation comes in, then the payments become statutory. Any items requiring parliamentary approval through a normal annual vote would appear through Supplementary Estimates.
Senator Cools: My questions tend to be repetitive to some and consistent to others. I was impressed when you spoke about the fact that Treasury Board has been rethinking the role of the state. I do much thinking about the role of Parliament, as do many of us. That is part of the problem, namely, we only get to think.
Today, we say that our process is based on a system of ministerial responsibility to Parliament, and ministerial responsibility is based on the concept of parliamentary control of the purse. In reality, we look at some of you fellows and we cannot get much control over anything you do. That fact causes me a certain amount of disquiet, especially when many ministers openly articulate their disregard for the Senate and openly articulate their disregard for Parliament. <#0107>I refer not only to this government; one could go through files of many quotations.
I have a question for you concerning the Somalia inquiry and the Mulroney Airbus situation. I have been troubled by both of these matters. I will first address the Somalia inquiry.
How can Parliament, through you, execute any concept of accountability or control over the purse for a Royal Commission? We are living in the era of the Somalia commission. I am speaking quite candidly to you. The inquiry took on a life of its own. We are into an era where everyone is politicized. The RCMP, the police and the judiciary are politicized. One of these commissions comes up and, lo and behold, it can go forever. This particular minister has been very brave in saying "Enough!" What are the limits to the amount of money that they can spend? How do you control that and how do we control you?
I am sure you share this concern. It is a profound matter, so you can choose your words carefully. Basically, how long can they keep going, if permitted to continue? Could they continue for five years or longer? Who knows?
Mr. Massé: Inquiries are a difficult problem. Some 20 years ago, when I was in the Privy Council Office, we had the same problem with inquiries. Once they have been created, they really take on a life of their own. The ministers responsible find them politically impossible to control. We have seen, as you mentioned, a good example of that. In all commissions, it is the same thing.
The pressure to let the inquiry continue until its members, and especially its chairmen, feel satisfied that they have looked at everything under the sun is enormous. The ability to control the amounts of money they spend and what they spend their time on is almost nil.
Inquiries are, by definition, at arm's length. The government cannot and should not interfere in how they do their work. Whenever there is a new request for money, the only way to prevent the money from being expended is to stop the commission. If you do that, then you run into political problems. It is a problem for which there is no real solution at present.
Senator Cools: There are a few solutions, but we can discuss them at another point. I am interested in the process. I have been watching some of the commissioners, some of whom have been aggressive and extremely political. I have never heard such blatant political comments as those which I have heard coming out of their mouths. Basically, it niggles at me all the time. To whom are they accountable and to whom do they answer?
Mr. Massé: I would be delighted to see the options you have in terms of control because we do need guidance on this matter.
Senator Cools: I wanted to put it into our hopper for discussion.
Mr. Chairman, I do this to you often, but this is something about which we could devote an entire meeting, or even two or three. That is to say, we could look at the business of these commissions and parliamentary control of the purse. It is a ticklish and troublesome matter. Had the situation been better handled, we would not have had as many problems.
The Chairman: I am not surprised by that tendency. I have never seen a government program of any kind, let alone a commission, that has ended on time. It just continues to grow. It is the nature of the beast.
Senator Cools: My next question has to do with parliamentary control of a department. I come in particular to the Mulroney Airbus situation. We had the Deputy Minister before us. Some of us attempted to probe the amount of money paid to which law firm and lawyer. We had enormous difficulty getting facts out of the Deputy Minister. Of course, he insisted upon shielding himself, although he was not successful, on the premise that the matter is before the courts. As you know, that is nonsense. On other occasions, they hide behind solicitor-client privilege which, too, is nonsense.
In a case like this, you are the master treasurer for all of us. We are supposed to hold you accountable. We will not cut off your head as in the days of King Charles, but you are accountable. What can Parliament do to hold those ministers and their staff more responsible and more accountable for the dollars being spent?
We sat here and heard officials saying, "Well, we paid him this amount of money. We paid him that amount of money." One would think they were speaking about $5 or $10. I am concerned about it. It is an issue which I will visit and revisit until I can get some answers. Government has a duty to act responsibly with taxpayers' dollars.
Mr. Massé: There is no doubt that one of the best ways to make sure that ministers and officials are accountable is to get them into a session like this and ask them pointed questions until you are reasonably satisfied with the answers.
From Treasury Board's point of view, of course, it is a question we have to ask of the system. We are doing it in two ways. The first question we ask is this: Is there a way of setting out the Public Accounts that will permit members of Parliament and senators to know more clearly what a program is about, what is its objective, and to be able to judge reasonably quickly whether this program has been properly implemented? We have done that through introducing the judgment by results. You have seen it here in the 16 pilot departments that are doing it this year and I hope next year.
The traditional way to judge departments is through accounting methods and a series of inputs that go into implementing a program. You then have the difficult task of saying, "If you have not spent what you said would be spent on that line or item or program, why not?"
We are trying to make it easier for members of Parliament to understand what is going on, to ask the proper questions and to force officials and ministers to be accountable. For each program there should be a series of concrete and measurable results so that we can see whether the program has been successful. For example, if it is an employment program that is aimed at getting people back into the workforce, you should have some indicators that can tell you for "x" dollars we have been able to place "y" people back into the workforce, and so on.
This project is being done. It is an important part of government renewal. Government by results, of course, is something that has been talked about for years. We are implementing it correctly, but perhaps not fast enough.
There are now 16 departments where you will find that basic approach. I hope that, within two years, the system will have been completely reformed to that method.
Senator Milne: Is the Department of Health included in those 16 departments?
Mr. V. Peter Harder, Secretary of the Treasury Board and Comptroller General of Canada: It is one of the 16 pilot projects. It is the Improved Reporting to Parliament Project.
Senator Kelly: Mr. Minister, first, I would like to congratulate you and your group for what you are doing; it is quite remarkable. You are standing up well under this cross-examination which you are getting, and which you deserve.
My question speaks to what the books actually show and relates to a question which was raised recently by the Auditor General as well. It concerns when an item gets booked and in what year it gets booked. I cite, for example, the Canada Foundation for Innovation. That foundation booked $800 million in this fiscal year. That money was not spent. The Minister of Finance was questioned on that. He said, in his words, "Take their profits when they come in, but acknowledge your liability." I understand that totally. Of course, the government does not have a balance sheet. However, it does acknowledge this $800 million decision that had been made that would affect future years, but not this year. Yet, I believe it went into this year's books.
At the same time, last summer, $300 million was announced for this Technology Partnerships Program. None of it went into this year's books. However, it does appear in next year's books.
A mean-minded person would say what we are really doing is shifting these dollars around to come out with the annual result that we would like to have.
Again, I understand that if you are a manufacturer and you are supplying distributors, it is not unusual, toward the end of the year, to load up your distributors. It will all be sold. The fact is, it is out of your warehouse and your books look pretty good for that year. It is not illegal. Over a four-year period, all this will balance out. I understand that, but is there some policy that guides you in when to do what?
Mr. Massé: These are general accounting principles which I know fairly well but my officials know the rules much better. The principle which we discussed for the research and development foundation involves the year in which an expenditure is not only announced but is allocated , according to certain rules which state that the government cannot intervene to reallocate the amount.
Senator Kelly: Can they draw?
Mr. Harder: The economic event has taken place.
Mr. Massé: According to that rule, when we established, for instance, the foundation, if it is an arm's length transaction and if we can send them the cheque for what they are to spend in this fiscal year, that is "do-able."
Senator Kelly: Is it charged to that year?
Mr. Massé: I have the Comptroller General here. Perhaps he can answer that question for you.
Mr. Harder: We close our books some time after the end of the fiscal year, usually around July or August. The Public Accounts are available usually in September. The minister is quite correct. As we look to closing the books, there are a number of items in the normal course of the period that, if the economic event has taken place, we are able to book.
These discussions take place under the generally agreed principles of accounting and in discussions between the office of the Comptroller General, the Auditor General and the Department of Finance.
The Auditor General obviously signs off on the Public Accounts. There are three signatures on them. If he has any reservations with respect to the accounting principles or the way we have gone about them, he can so indicate.
He has not indicated a reservation in a good number of years. I do not remember the last one. There are often discussions amongst ourselves with respect to whether the economic event has taken place and how the principles which guide us -- the agreed upon principles of accounting -- best address how the government wishes to proceed.
Senator Kelly: That does not, however, explain these two events I described. They went in two different directions.
Mr. Harder: We have not yet determined, on the Canada Foundation for Innovation, when to book it because the legislation is not yet completed. The discussions with the Auditor General and other interested parties are taking place.
Mr. Miller: Senator, on the second item, although the program is announced, as you indicated, only when the economic event occurs do we have to recognize that liability. In this case, there were contribution arrangements and agreements that had to be signed, and they were not planned to happen until the 1997-98 year. It was announced but there was no economic event which occurred during 1996-97. Therefore, the expenditure would occur in the following year when those agreements were signed or when the liability could be recognized.
Senator Kelly: You can see why it is puzzling at first glance.
Mr. Harder: You recall that there was some discussion last year on the cost of GST harmonization.
Senator Kelly: Yes.
Mr. Harder: You will note that, in the end, the Auditor General did not make a reservation. He did, though, comment because it was in the grey area, and that is the kind of discussion that we have.
Senator Kelly: I have had interesting arguments with the Auditor General on that issue, because you get a clean sheet. He signs off on your accounts, but then he comes up with a book with all sorts of reservations. That is unusual, to my way of thinking. You either have a clean sheet or you do not.
The Chairman: The liability would normally go in when either legislation or something like that gives it effect. Is that usually when the liability for the expenditure would go into the books?
Mr. Harder: If the economic event has taken place and the government's obligation is such that it has no option but to pay the expenditure, it is proper to book it in that year.
The Chairman: On the question of the blended sales taxes, is that the reason it was booked last year?
Mr. Harder: Yes. You will recall that there was an agreement undertaken between the governments concerned that involved the expenditure of some funds.
The Chairman: Did the agreement not take place in April?
Mr. Harder: The economic event took place before April 1, whether or not the legislation was passed.
The Chairman: The legislation was not passed until this year, though.
Mr. Miller: There was another example of a program to assist farmers and producers. It was announced, and the Auditor General said we must show all $800 million against this year, even though Parliament had not approved it and there was no legal liability because it was a grant. The reason was that that $800 million worth of payments was to be based on people who owned land and produced crops in the previous year. In terms of accounting, the Auditor General wanted the government to recognize that liability even though, technically, it would have been illegal to make the payment at that time. We had to wait until Parliament actually authorized it.
The Chairman: In a court case like Pearson airport, would there have been a contingency or a liability entered because of the possible outcome and because the court case has been going on for two years? The government had already said there would be a liability, but it did not know how much. Would you have placed that possible expenditure in the books somewhere?
Mr. Miller: There are provisions for contingent liabilities in the books of Canada, that is correct. It is a compilation of a whole series of different types of court cases and different expectations on outcomes. Obviously, we do not indicate exactly how much has been reserved until the court decides, but on the basis of prudent accounting, a reservation or an amount is put aside for that. It is done every year.
The Chairman: How would you arrive at those numbers?
Mr. Miller: Fortunately, I do not have to calculate those. It is actually done through the Department of Finance. They ask each department about their outstanding liabilities or contingent liabilities, the items before the courts. You have a whole series of what you would call nuisance suits. Someone may slip on a sidewalk.
The Chairman: How much would be in there?
Mr. Miller: I am not sure. It is identified in the Public Accounts. I do not have that document in front of me but, again, we could probably identify that for you tomorrow.
The Chairman: It would appear under what department?
Mr. Miller: My understanding is that it is against the entire government, rather than a particular department. It is on the financial statements of the Government of Canada.
Senator Kelly: It is likely an individual figure that combines a whole bunch of possibilities.
The Chairman: It would be what, $50 million?
Mr. Miller: It could be considerably higher. It usually is considerably higher, but I do not have the number.
Senator Taylor: In the transfers to the provinces for post-secondary education, the amount the federal government has been contributing has been going down. Have you graphed or tracked whether the provinces are just passing that so-called shortage of grant onto the students, causing the students to take out more in loans? In other words, is what you are not giving to the provinces as a result of reduced grants showing up as increased loans to the students?
Mr. Harder: There would not be a linear equation yielding that result. You cannot say that because student fees have gone up there are higher student loan applications. However, it would not be unreasonable to say there is a relationship, although it would not be linear, and it would not explain why more students are applying, other than perhaps there is more of a demand.
It would be wrong to say that because of a reduction in post-secondary contributions, the provinces are passing on those reductions directly, on a dollar-for-dollar-basis, to students, and that is appearing back in the Government of Canada's accounts through student loan applications. One must take a more global view of all the expenditures.
Senator Taylor: Have you taken the global view? Are we not outsmarting ourselves; robbing Peter to pay Paul, assuming that Paul is a student?
Mr. Harder: We at the board have not done that work.
Mr. Massé: It is a good idea. I should like to know the answer.
Senator Taylor: What has been the increase in agricultural cost recovery fees over the last few years? Cost recovery is all the rage in the U.S., and I expect it is a plague that will spread to the north soon.
Mr. Miller: In one of the 80 volumes that we table as the Main Estimates, there is a chart which identifies exactly what you have asked; that is, the change in cost recovery levels.
The Chairman: Would you identify for us which volume that is, please?
Senator Forest: There has been much discussion on cuts, Mr. Minister, but I am interested in one department which has had an increase, and that is the Department of Human Resources Development. I note that the income security program has increased by over $400 million. Much of that is Old Age Security and so on.
What is the reason for that? Is it demographic changes?
Mr. Massé: The increase is due mostly to demographic changes; principally an increase in the expected number of beneficiaries of Old Age Security. The indexing of payments also accounts for some of the difference, but in some cases its overall impact is offset by changes in the characteristics of the beneficiaries.
Basically, it is the population pyramid which gives you the difference in the amount of money. Indexing, of course, also adds to it.
Senator Forest: This is my first year on this committee. Has that been a gradual increase over the four-year period?
The Chairman: Senator Forest, the minister cannot be expected to know the whole government. We may be able to deal with that question tomorrow.
My understanding was that the government had expected to cut its operating costs by 18.6 or 19 per cent between 1994-95 and 1997-98, but now that has been extended to 1998-99. Is that correct?
Mr. Massé: No. From 1994-95 to 1998-99 --
The Chairman: That will achieve an 18.6 per cent decrease?
Mr. Massé: Yes; between 18.2 and 18.8 per cent.
The Chairman: I wanted to ensure I had that right.
Thank you, Mr. Minister, and officials.
The committee adjourned.