Proceedings of the Standing Senate Committee on
National Finance
Issue 38 - Evidence - May 1, 2013
OTTAWA, Wednesday, May 1, 2013
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2014.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, this evening we continue our study of the 2013-14 Main Estimates for the fiscal year ending March 31, 2014.
[English]
In our first session this evening we are very pleased to welcome the following officials from Agriculture and Agri- Food Canada: Mr. Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch; and Pierre Corriveau, Assistant Deputy Minister, Corporate Management.
From the Canadian Food Inspection Agency we welcome Mr. Peter Everson, Vice President, Corporate Management; and Mr. Paul Mayers, Associate Vice President, Policy and Programs Branch.
I understand that Mr. Meredith and Mr. Everson each have brief introductory comments.
I would remind honourable senators that, from the point of view of Agriculture and Agri-Food Canada, we had a session with the Treasury Board that explained the role of the Reports on Plans and Priorities in the abstract and then they chose, as a good model, Agriculture and Agri-Food Canada. That is why we are hoping that each time you are in the process of asking for funds we will have you back to explain to us the process, no matter how large or small. We appreciate your being here and making this more real to us.
For each of the departments and agencies, we have the Reports on Plans and Priorities in front of us, as well as the estimates. If, in your remarks or in answering a question, you can help us refer to either the plans and priorities or the estimates, that would be appreciated. That helps us understand the process better.
We will start with Mr. Meredith and then proceed to Mr. Everson.
[Translation]
Greg Meredith, Assistant Deputy Minister, Strategic Policy Branch, Agriculture and Agri-Food Canada: Thank you, Mr. Chair. As always, Pierre and I are pleased to be here. It is an honour to appear before the committee today to review the 2013-14 Main Estimates for our department. As you mentioned, my colleague Pierre Corriveau is Assistant Deputy Minister, Corporate Management Branch, and we will be pleased to answer questions during the meeting.
[English]
The outlook is bright for Canadian agriculture, with a strong farm economy, growing global demand and world- class producers. Once again, for the 2012 year, we are forecasting that the sector will report record high incomes and can count on another positive outlook for the coming year. For 2012, net cash income for the entire sector is expected to have risen 14 per cent.
Performance varies by sector, of course, but the average net operating income for Canadian farms in 2012 is expected to rise 50 per cent higher than the average of the last five years. Average net worth for the individual farmer will grow by 8 per cent to $1.8 million per farm.
Over the next decade, strong global demand, particularly from emerging economies, will underpin continued strong prices, we expect, and growth for the sector.
The agriculture sector in the 2012 crop year went through a major transformation, as committee members are probably aware, as the grain sector was opened up by the Marketing Freedom for Grain Farmers Act. I must say that the first year under this new, open economy was very successful and we are pleased to report that.
The Main Estimates for Agriculture and Agri-Food Canada this year comprise $2.2 billion. Of that amount, approximately $850 million requires approval by Parliament: it is voted. The remaining $1.3 billion represents statutory estimates that do not require approval by Parliament, but we felt it important to provide them to the committee for information purposes.
[Translation]
The 2013-14 Main Estimates you have before you is the starting point for a transformative shift as a result of the new Growing Forward 2 agriculture policy framework that started on April 1.
[English]
The future prospects for the sector that I highlighted earlier have created a real opportunity for producers and us to focus on proactive investments that will help producers to grow and be more productive across the sector. Growing Forward 2 represents a shift in focus towards innovation, competitiveness and market development initiatives that will help producers meet domestic and rising global demand. The new framework is quite an important point of departure. It invests more than $3 billion over the next five years — $600 million a year from provincial and federal governments. From a cautionary point of view, the amount of money available to provinces is an increase of 50 per cent over Growing Forward — quite a remarkable commitment by governments to the sector in a period of restraint.
The 2013-14 Main Estimates also include about $236 million in funding for what we call Non-Business Risk Management programming but funding for the cost-shared initiatives has not yet been presented to Parliament but will be in the supplementary estimates and, therefore, is not reflected in the numbers that Mr. Corriveau and I have here today.
As I mentioned, GF2 kicked off April 1 with three federal programs: AgriInnovation, AgriMarketing and AgriCompetitiveness. Bear with me and I will give you the top of the waves of those particular programs.
[Translation]
AgriInnovation is now taking applications. It will focus on investments that will help the industry get new products and technologies off the drawing board and out into the marketplace. We will support the market cluster model, which has done a great job of driving industry-led research across a number of sectors.
[English]
AgriMarketing is a new program designed to help producers and processors gain and maintain access to global markets as well as markets at home. A full 60 per cent of our pork production, 70 per cent of our wheat production and close to 85 per cent of our canola is shipped beyond our borders. The sector is highly export-dependent. Recognizing that, the minister has made the Market Access Secretariat under AAFC a priority and will be strengthening that secretariat over the course of GF2.
AgriCompetitiveness is a program to enhance industry capacity. It does that by helping them to adapt to domestic and global opportunities, respond to new market trends, enhance business and entrepreneurial capacity amongst producers and attract young farmers.
[Translation]
I thank the honourable senators of this committee for their time and will be happy to address any questions they may have.
[English]
The Chair: Mr. Meredith, before I turn to Mr. Everson, at the beginning of your comments, you were talking about the year 2012. Were you talking about the fiscal year 2012-13?
Mr. Meredith: It would be for the crop year. Our estimates are on a crop-year basis.
The Chair: Is this winter wheat or summer wheat?
Mr. Meredith: A lot of it is stored, as you can imagine. The crop year 2013 actually starts August 1, 2013.
The Chair: All of the figures that honourable senators will see in the estimates are normal fiscal year as opposed to calendar year.
Mr. Meredith: That is right.
Peter Everson, Vice President, Corporate Management, Canadian Food Inspection Agency: We are pleased to be with you this evening. The Canadian Food Inspection Agency is committed to ensuring that Canada has among the best food safety systems in the world. Much has been accomplished in the past year that will allow the CFIA to continue to evolve to meet food safety challenges today and tomorrow. The most significant of these accomplishments is arguably Parliament's passage of the Safe Food for Canadians Act. With Royal Assent being given to the bill, the CFIA is now positioned to undertake a comprehensive approach to its food regulatory framework to improve consistency and reduce complexity, while strengthening consumer protection. In tandem with modernizing our regulations, we are modernizing our inspection system.
Following extensive consultation with stakeholders, an improved inspection model has been developed. The new model, which will be phased in starting this year, moves from commodity-specific inspection to a more comprehensive and consistent inspection approach.
[Translation]
Our modernization efforts are about delivering better service, more efficiently, for Canadians. Leading into Budget 2012, the CFIA participated in a government-wide review of all its operating and program spending in an effort to support the Government of Canada's goal to return to a balanced budget.
[English]
This work has identified cost-saving opportunities, 50 per cent of which come from internal administrative efficiencies. It is important to note that food safety will not be compromised as a result of any cost-saving measures undertaken by the CFIA. The agency will not be making any changes that would in any way risk the health and safety of Canadians. Administrative savings include sharing some internal support services with other government departments. Our arrangement with AAFC is an example of that.
Internally, the CFIA has identified a number of other opportunities to reduce costs associated with management, administration and other internal functions. In some cases, the CFIA has found better ways of operating, while in other cases, work has been eliminated or reduced. For example, CFIA is reducing its executive complement by approximately 12 per cent and standardizing executive and management support organizations to eliminate duplication and inconsistencies.
[Translation]
Mr. Chair, these efficiency gains will enable the agency to focus its efforts and resources on its core mandate programs and modernization initiatives.
The federal government's significant investments in food safety have enabled us to put in place a solid foundation in these areas.
[English]
The CFIA has received over $150 million for food safety in the past three budgets. Budget 2012 made an additional $51.2 million to sustain the agency front-line effort in food safety. Since 2006, there has been a 25 per cent increase in the number of front-line field inspectors. In 2013-14, we will build on this foundation. The public expects us to continually improve so that Canada's food safety system remains one of the best.
The CFIA will continue to focus on prevention, which will minimize the risks to human, animal and plant health. Service delivery will be a priority with consistently high service standards in place for all stakeholders. We will make the most effective use of our resources by assessing internal performance to evaluate policies and programs and to allocate resources to areas of highest risk. This has been our approach all along.
We will continue to ensure that we have a highly skilled and adaptive workforce supported by effective training and improved tools. In some areas, there appears to be reduced funding for core activities. Much of this is due to certain funds being scheduled to sunset, such as the resources for bovine spongiform encephalopathy. The CFIA plans to seek renewal for BSE and other sunsetting resources.
The total Main Estimates 2013-14 for the CFIA is $687 million, which is $2.4 million higher than the estimates for 2012-13. Major items contributing to this increase are resources to modernize Canada's food safety inspection and for the Plum Pox Monitoring and Management Program. This reflects efforts to allocate resources to priority activities, even as we contribute to deficit reduction.
In closing, I would like to underline that protecting the health and safety of Canadians is and always will be the agency's top priority. Food safety will not be compromised as a result of any cost-saving measures undertaken by the CFIA, and no front-line food safety inspection staff will be affected.
The Chair: Mr. Everson, thank you very much. We will go immediately to questions. We have three quarters of an hour. Please keep in mind the time we have available and try to answer your questions as succinctly as possible. If there are any questions that you need to go back and do some research and provide an answer in writing, you can provide that to the clerk and it will be circulated to all members of the committee.
Senator Buth: Thank you very much for being here today. I will start with a general question for Mr. Meredith in terms of the agricultural situation right now. It is really a shining light in terms of the economy and the things we have been facing around the world. Agriculture has come through the recession very well.
Can you comment about what Agriculture Canada does in terms of forward projections and what the future may look like?
Mr. Meredith: Yes. Thank you for that question. We spend a great deal of time trying to look out over the medium term to understand what challenges the sector will face because there are programmatic or policy responses. I must say, echoing your introductory remarks about the health of the sector, we foresee, for the next significant period, continued strong prices, particularly in grains and oilseeds. We see population growth in the emerging economies as a significant driver. At the same time as you see populations growing rather significantly — growing by 50 per cent by 2050 is a bit of a consensus estimate — we foresee the emergence of a very strong middle class in these emerging economies. That is important for us because, as people's disposable income increases, their dietary habits change. They tend to eat more meat proteins. They move upmarket in terms of vegetable oils. You will see them convert from palm to high-value oils which are healthier, such as canola. That represents an enormous opportunity for Canadian growers. We have a very healthy grains and oilseeds sector; we have a very strong beef sector. Market access efforts by the minister are regaining space in these markets progressively. Our pork sector is still struggling a little bit but is very healthy in terms of potential export growth. Overall, the future looks very bright.
Obviously, this is a cyclical sector, so prices will not always be at record highs, but we think we have hit a new plateau. Where prices might have cycled down in the past, they will cycle up in the future.
Right now, for example, as I mentioned in my opening remarks, some sectors, and overall on average, producers' incomes are up 50 per cent over the last five-year average, so very significant increases, which means that even when there are cyclical downturns we think the sector can remain healthy and profitable.
Senator Buth: Can you comment specifically on wheat exports? You made a comment in terms of removing the monopoly from the Wheat Board. There was tremendous support across Western Canada for that, but there were naysayers who said everything will fall apart. What has happened since then?
Mr. Meredith: This was probably the most significant policy change in the grain sector over the last 10 or 15 years. There was understandably some uncertainty, but we saw, as we felt would happen, grain companies that have been in other grains marketing and trading globally for the past 50, 60 years step into the wheat market and pick up the slack. The Wheat Board is still operating as a pooling opportunity for producers, so those who wanted the pooling opportunity to reduce their risk were able to work with the Wheat Board and did so. The Wheat Board is functioning well; the grain companies stepped in; the railroads will tell you that cycle times were up, meaning the railroad cars are getting to port, positioning faster and returning faster because logistics are clearer and individual grain companies can now command their own logistical performance.
There is an indication this year from initial StatsCan surveys that planting acres of wheat will be in the record levels in the coming years. That may not be good news for those who took over from your previous occupation as head of the Canola Council of Canada, but I think wheat has become a resurgent crop, whereas before it was becoming almost a rotation crop, in other words, one would focus on one crop and put in wheat when necessary for agronomic purposes. We see quality continuing to be high. The sector is reorganizing itself. There are some very active and committed people in the sector who are looking at sector governance. With the absence of the Wheat Board, there are opportunities for that.
Last, not to take up too much time, we see a strong level of interest from the life science companies, those who invest in crop science and crop development, a high level of interest in investing more in Canadian wheat research, whereas in the past, wheat research and wheat yield productivity was down significantly compared with other crops.
The Chair: I am afraid Mr. Meredith has used up all your time.
Senator Buth: I have many questions. Please put me down for the second round.
Senator Callbeck: Thank you all for coming this evening.
Mr. Meredith, you mentioned supporting science cluster research. When I look at these estimates, I see the amount of money that universities receive for research has been cut considerably; also, science innovation is dropping by $39 million.
In the Agriculture Committee the other day Mr. Roy McAlpine from Maple Leaf Foods indicated that we have 50 per cent fewer scientists at Agriculture Canada than we had in 1992. He said:
According to the International Food Policy Research Institute, global spending on agricultural R & D grew by 22 per cent from 2000 to 2008. In Canada, it has remained flat and, of course, has declined in real terms.
Contrast this with Australia, with an industry very similar to Canada's agri-food industry, where public funding with respect to research in the agri-food sector is roughly double what is in Canada, albeit they seem to have a lower level of private investment in agricultural research.
Last year, the only national centres of excellence program supporting food and biomaterial research — this was at the University of Guelph — was terminated.
Would you comment on that? It seems our research is certainly not keeping pace with other countries.
Mr. Meredith: I have a great deal of respect, senator, for Mr. McAlpine. I know him quite well. However, I take issue with his interpretation of some of those data. Let me go back, for example, to the 1992-to-today comparison with the number of scientists. There are a couple of things to consider.
In 1992, my colleagues and I were in one department and all of the science and scientists that CFIA had were counted as part of Agriculture Canada. Those scientists are still there, just in a different organization. That is important to consider.
The other thing to consider is I cannot overestimate how much the performance of science has changed over time. As an example, new genomic and biotechnology techniques will cut the wheat breeding cycle from 10 years to 12 years to get a new variety down to 5 or 6 years. You need fewer scientists to do that and get virtually double the productivity. Counting scientists is not always the best measure of science capacity.
The other issue is in Growing Forward 2. We have actually invested 40 per cent more in innovation than in Growing Forward. There is nearly $700 million devoted to innovation, which includes research, science work by the industry, as well as the department, that is available over the course of the next five years. There are very significant investments on behalf of governments, federal and provincial, to the innovation stream of Growing Forward 2.
Lastly, I take your point on the Guelph situation, but we are in collaboration with the NRC with its Wheat Flagship centre of excellence based in Saskatoon, which will bring a critical mass of new dollars, both from industry and from governments, as well as the NRC, to advance wheat research in Canada. That is a very significant commitment, and I must say again the policy environment is very different right now than it was a year or two ago, especially with respect to wheat. We will see more investment by life sciences companies in the wheat sector.
Lastly, the government is looking carefully and thoroughly at what aspects of the investment climate will be important to adjust to encourage more investment in research and development. I am talking now about the regulatory changes my colleagues are undertaking, about looking more carefully at intellectual property protection in Canada so that we will get more investment in R & D and looking at how we register varieties to ensure that that process is transparent and encourages companies to develop varieties in Canada.
Perhaps Mr. Corriveau could address the specific numbers that you raise.
Pierre Corriveau, Assistant Deputy Minister, Corporate Management, Agriculture and Agri-Food Canada: With regard to the Main Estimates, if you focus on page 24, under ``contribution'' you will see that the department is launching a new program called AgriInnovation in the context of Growing Forward 2, which is $60.4 million of new investment in innovation for the agricultural sector.
Also, I would like to mention a point that my colleague mentioned earlier, namely the cost share portion of our agreement with the provinces is not included in the Main Estimates so that when you compare it to last year that part was included. When Supplementary Estimates (A) are tabled you will see a significant investment that will be added to what is seen right now. As you know, the mains are just a picture in time. At the time the mains were produced, that part was not approved. It has been since, and I think Mr. Meredith can talk later about the signature process with the provinces.
Senator Black: Thank you very much to you all for being here.
I am a senator from Alberta. While we hear so much in Alberta about oil, gas and energy, I am cognizant of how important agriculture is to the province. I want to offer you and the department my compliments on the Growing Forward 2 plan.
I also heard the testimony from the gentlemen from Maple Leaf last week and it clearly struck me that you in your department have figured out this is an important global industry and we have to start playing with those tools in mind. I want to commend you. I think it is tremendous. The question will be: How do you measure success? I am sure someone will ask you about that.
I have a question for our friends at food safety. Thank you also for what you do. That is very important work.
Regarding the listeriosis inquiry of 2008, I am interested in hearing from you about the recommendations that you accepted from that investigation and, as importantly, those that you did not.
Paul Mayers, Associate Vice President, Policy and Programs Branch, Canadian Food Inspection Agency: Thank you very much for the question. The report of the independent investigator included a broad suite of recommendations. The government accepted all of the recommendations, acted on all of the recommendations and reported its progress in terms of delivery, including its conclusion that it implemented all recommendations of the independent inspector.
Senator Black: That was easy, was it not?
The Chair: Thank you for that clarification.
[Translation]
Senator Chaput: My questions are for Agriculture and Agri-Food Canada. Reference is made to a program called the farm debt mediation service in the third paragraph on page 42 of the English version of your report on plans and priorities.
You say that 79 per cent of mediated cases resulted in a signed arrangement. I wondered what that represented in absolute numbers. Second, was there a loss? If so, how much was it and who bears it? Lastly, how does that compare to the previous year?
[English]
Mr. Meredith: Forgive me, senator; I do not know the exact number and how that 79 per cent translates. We will commit to the chair to get back to you in writing on the comparison as well to the previous years. I would say that the farm debt mediation service is highly successful. In the cases where it is not successful, it is hard to estimate what occurs because the producer and the bank may continue to negotiate a settlement outside of our formal process. At the end of the day, however, the farmer and the bank will probably end up sharing the losses.
[Translation]
Senator Chaput: Will you be able to send the information to the committee? Thank you.
My second question concerns the reference made on the same page to the 80 agricultural internships created annually across the country.
Are those 80 internships filled? In how many provinces have those young people gone on internships? Are they paid or do the interns work as volunteers?
Mr. Corriveau: They are paid by the department. This is an approximately $860,000 program. That is indicated in our estimates; I can give you the page again. We will have to get back to you regarding the difference per province. This is a horizontal program that you will find in several departments. In fact, funding is managed by Human Resources Canada. For our department, a portion of that budget is administered for the agricultural component. We can get back to you on that point. There are internships across the country.
Senator Chaput: Could you send us the information on how many departments share those costs?
Mr. Corriveau: We will send the request to the Department of Human Resources since it is managing that. We will give you the information on our department's portion for the YES program.
Senator Chaput: Thank you very much. Last question: on the same page, we have rural and co-operatives development.
When I look at the planned spending, I see it will decline by half in 2014-15 and in 2015 and 2016.
I was wondering to what extent that program usually reaches the rural communities and co-operatives.
Mr. Corriveau: We will also have to get back to you with the exact figures on that; we do not have that information at the moment.
I can say that the co-operatives function has been transferred to the Department of Industry; the transfer took effect at the start of the year.
Senator Chaput: That is why there is a reduction?
Mr. Corriveau: That is not yet reflected in those figures because the transfer had not yet been made official at the time the document was prepared. Now it is official. A portion of the reductions is the result of our deficit reduction exercise.
Senator Chaput: Why were the co-operatives transferred to the Department of Industry?
[English]
Mr. Meredith: There was a special parliamentary committee on cooperatives that reported to Parliament with a number of recommendations, one of which was to consolidate the government's management of the cooperative file in Industry Canada. The department and the government agreed with that recommendation and carried it out.
[Translation]
Senator Chaput: Can you tell me how many co-operatives there are in Canada?
Mr. Meredith: We will have to get back to you with that figure. I apologize.
Senator Chaput: That is quite all right. Thank you.
Senator Bellemare: I have a question for each of you. I am going to start with Agriculture and Agri-Food Canada.
Earlier we were talking about innovation. I am a senator from Quebec and I do not know much about agriculture, but I do know that we are increasingly seeing organic products and regional and local products. Is your department monitoring the organic file? Do you also have any co-operative arrangements with the provinces to ensure that organic certification actually means something?
[English]
Mr. Mayers: Absolutely; indeed, Canada has an organics standard and that standard, when implemented by a particular company, affords them the opportunity to mark the product as ``Canada organic.'' That standard is confirmed through a process of verification. Meeting a standard is an ongoing process for the producer, verified by a compliance verification body.
Canada also addresses that issue, not only in terms of domestic production but in relation to imports as well. In order for a product that is imported to Canada to be represented to consumers as meeting Canada's organic standard that, too, must be verified through a strict compliance approach.
[Translation]
Senator Bellemare: So you monitor the process in all Canadian provinces.
Mr. Mayers: Yes.
Senator Bellemare: Your agency does that?
Mr. Mayers: Correct.
Senator Bellemare: Are the related budgets large?
[English]
Mr. Mayers: We do not break out down to that level of detail in our estimates, the budget for our oversight of organics. The program is delivered though third party compliance verification bodies which are audited by the Canadian Food Inspection Agency.
[Translation]
Senator Bellemare: We note from your introductory remarks that spending has fallen in your sector since 2011. You said you wanted to contribute to achieving deficit reduction objectives while increasing efficiency and reducing certain services.
What is the ratio of efficiency increases to service reductions? Is it half-half or one-third to two-thirds? What do the service cuts entail?
[English]
Mr. Everson: Perhaps a few examples would be helpful to illustrate.
As I mentioned, about half the reductions are what we term ``administrative reductions,'' and those are really efficiency oriented.
A concrete example is that we share the same building in Ottawa, it is the national headquarters, so we merge activities like security, commissionaires, that type of thing. It is not a lot of money, but an important step forward. By reducing some of the executive structure in other bodies we made other savings.
In other situations we recognize that other bodies should probably do the work and we should not. We have returned, for example, provincial meat inspection to the provinces where we had long-term contracts. That is the case in British Columbia, Saskatchewan and Manitoba.
Another small example is that we are no longer going to be involved in washing cars in Port aux Basques and Argentia, although we will continue to provide an inspection service. That will be done through another party.
It is very much focused on administrative savings first, and alignment to mandate would be the second theme. We are getting out of things that should be done by someone else. Finally, we are looking to streamline certain service delivery activities.
[Translation]
Senator Bellemare: What is the efficiency percentage then?
Mr. Everson: Approximately 50 per cent.
The Chair: Senator Chaput, you have a question.
[English]
Senator Chaput: You said you returned meat inspection to the provinces and that was a saving for your department. How much money are we talking about here and how much money will it be for the provinces to ensure that the service is being given? We are talking about how much here?
Mr. Everson: It was relatively small for us. It was in the order of about $4 million.
Senator Chaput: Per year?
Mr. Everson: Per year, yes, for all three provinces.
Senator Chaput: For all three provinces?
Mr. Everson: Yes.
Senator Chaput: Which provinces?
Mr. Everson: British Columbia, Saskatchewan and Manitoba.
Senator Chaput: Thank you.
[Translation]
Senator Hervieux-Payette: I am curious. A study group was chaired by Gaétan Lussier, a former deputy minister. In setting your priorities, did you draw on the report developed with the provinces, the industry, academia and the federal and provincial governments?
One of the tables that inspired me indicated that less research was being done than 25 or 30 years ago. It is less than half. What is the explanation for this constant decline over many years? It is not very high relative to Australia. How are research and development measured for genetically modified products and for basic research on food processing?
[English]
Mr. Meredith: That is a tough question. Referring back 20 or 30 years ago, we did science differently, and we can do it much more efficiently today. We have also taken steps to ensure we are not duplicating or crowding out the private sector.
If I refer back to Mr. McAlpine's testimony, investment by the private sector in R & D levels out at around $80 million a year in around 2004. This is why we are looking at the policy, legal and regulatory environments to ensure we create an environment where innovation, research and development is incented and rewarded accordingly.
There are ways to do that. As I mentioned at the outset in response to Senator Buth's question about wheat, the sector is reorganizing itself and looking at a check-off system whereby the commodity producers contribute money to an organization which then leverages, partners up with others, to do science and research to benefit their commodities. There are evolutions happening there.
The department has become, over the course of Growing Forward and Growing Forward 2, quite adept at developing partnerships, what we call ``clusters.'' That eliminates duplication among university and private sector R & D performers and us, but collaborating to create a critical mass of research and development dollars to advance the sector in a number of a ways.
In Growing Forward we had 10 such clusters around commodities like dairy, poultry, beef, canola, flax, that kind of thing. We have initial indications, as I mentioned in my opening remarks, that we will have more. One of our programs is accepting applications in this area and getting quite a range of responses from industry because the model and partnership works.
We might be spending fewer dollars in a particular sector, but the dollars are leveraging more science, because we are doing it more efficiently, and leveraging private sector and university investment.
[Translation]
Senator Hervieux-Payette: I do not think you are doing a bad job in view of the fact that the budgets could be higher. We and the government grant the budgets. You do what you can with what you have.
However, more research could be done. To give you an example, we compared pork production in Quebec with that of Denmark. In that country, sows yield more piglets and the product costs less to produce than here. That is really an example that we should follow. The best part is that it did not involve hundreds of millions of dollars in grants. So something is not right.
If it works elsewhere, we should change the way we do things. As a taxpayer, because you also work on grants in the hog sector, if costs were lower, we could invest in research rather than hog breeding.
I believe we could improve our performance after examining and clearly explaining these kinds of specific examples.
The Chair: Do you have any comments?
[English]
Mr. Meredith: I do not disagree that investment in the research and development sector is important. In fact, we have a program that we are currently looking at extending, in collaboration with the Canadian hog sector, to look at two things. First, we are developing biosecurity standards and practice. One of the major issues of cost is mortality and disease in hogs, things like a particular disease called circovirus.
We invested in developing and deploying vaccines for circovirus, developing biosecurity standards and practices, which are now being deployed throughout the country, and then investing money in long-term research and development in genetics, disease control and other areas where we can really get the sector back on a competitive footing.
I would agree with you. I neglected to mention an aspect of your first question, senator, which was how we measure R & D and the success of R & D. One of the measures is return on investment. How much value do you bring back to the sector for every dollar that you invest in research and development? Depending on the study and on the particular sector, we are getting results of anywhere from $24 for one dollar invested to $40 in value to the sector for every dollar invested. This is a pattern that has been repeated again and again by a number of academic institutions that find that an investment of a dollar in R & D is one of the highest payback areas. That is one way we measure ourselves and our success.
Senator McInnis: I have a question for the Canadian Food Inspection Agency. The following is one of your priorities in 2013:
An increased focus on prevention will provide an opportunity to reduce risks to human and ecosystem health.
Aquaculture is a growing industry, particularly in Atlantic Canada. Infectious Salmon Anaemia, commonly known as ISA, has been found in a number of salmon. Hundreds of thousands have been culled, and then it is reported that they were seen to be, all of a sudden, fine for human consumption. I know that your department has a lot of scientists and researchers and so on. What is correct? Is it safe for human consumption or is it not?
Mr. Mayers: The short answer is that, indeed, any products that go into the marketplace are safe for consumption. In addition to the short answer, there is some explanation that I think is important for you, honourable senators, and, indeed, for Canadians. Infectious Salmon Anaemia is a fish disease. It represents no risk to humans because it cannot be transmitted to humans. That said, it is a disease of fish. The Canadian Food Inspection Agency's response in a disease situation — when Infectious Salmon Amaenia is identified — is quick. We respond very quickly, in those situations, to quarantine affected fish. Infected fish are culled, as you have noted.
However, in a facility where there are multiple pens, we undertake significant surveillance after that first response. We respond quickly because we want to remove the source of infection, and that is why we cull. Once that culling has taken place, we are looking at the entire facility and assessing the fish. If pens in the facility had the potential to be exposed but show no evidence of the disease, then, because, first, it does not represent a risk to consumers; and second, the fish are not diseased, those fish can go to market. The Food and Drugs Act clearly precludes introducing a diseased animal into the food supply, and so, in the context of your question, certain fish associated with a facility that experienced ISA were permitted to go to market. Those were not diseased animals. We would not permit diseased animals to be processed for human food. The Food and Drugs Act precludes that.
Senator McInnis: Within the pen, you could have as many as 600,000, how do you determine this?
Mr. Mayers: In a facility, you will have more than one pen, so we would cull the entire pen, but we might not cull other pens if no disease is present. We are not culling only certain animals within a pen and allowing other animals from the same pen to go to market. That is simply not a practically achievable outcome. We would cull the entire pen where disease is present. We would assess other pens in the facility to see if disease is present, and, if disease is not present and provided that it is appropriate to do so, for example, that the fish are market size, then those fish might be permitted to go to market. However, at no time would we accept that a diseased animal would be processed for human food.
Senator McInnis: It will be an interesting discussion. The Senate is just commencing quite a massive study into aquaculture, really for first time because there are no real in-depth studies. I am sure we will have this discussion in the future. You can understand that we are talking about the shellfish industry, the pristine waters, the new markets where traceability of the shellfish is important, Asia in particular, where the waters of these fish are seen to be organic, clean and wholesome, and there are problems emanating out of this because there is uncertainty with respect to ISA. There is a lot of work to do. I am sure you and I will have discussions on this, later on.
Mr. Mayers: I look forward to it.
Mr. Chair, if I could make a couple of clarifications. Infectious Salmon Anaemia is not a disease of shellfish; it is a disease of finfish. Nonetheless, the points you raise in terms of the potential for uncertainty are important to us as well.
Senator McInnis: I know they are.
Mr. Mayers: It is important to get the message out with respect to consumer protection. It was important to note that, when that ISA event occurred, there was a lot of misinformation circulating in the media, for example, the view that the United States barred entry of the animals that were processed. Indeed, they did not. In fact, the Food and Drugs Administration in the U.S. went so far as to issue a release to make clear that it considered the measures that Canada was taking to be appropriate. Indeed, they saw no risk related to those fish.
Senator McInnis: Perception can sometimes be reality.
Mr. Mayers: Understood.
Senator De Bané: Your department is one of the oldest in Canada, I think, established in 1868. Today, you represent over $100 billion in our GDP. The government has decided on a policy that I think is absolutely important to expand our markets. Our domestic population is small. We should try to negotiate free trade agreements with other countries, particularly with Europe. I understand that the main characteristic of the new policy is not to react to changes but to forecast what is coming, to innovate instead of reacting.
Do you think that what you have in place at the moment will bring to the farmers and to the food industry — because they are the two pillars — the support they need to become even more competitive on the world stage?
We are already an important trader in food and agriculture but, if we want to achieve free trade with other countries, we should do even more. Can you advise our committee if you are confident that you can bring the agriculture and agri-food sector to a new level so that the government, when it looks with a wider perspective, can negotiate with other countries, or if your department is the fragile one that could prevent the conclusion of free trade agreements?
Mr. Meredith: Senator, that is quite an astute question. It is something that we ask ourselves continuously. I think your premise is exactly right, that Canada is a small country and the market for food will grow incrementally with population, which is maybe 1 or 2 per cent annually. Globally, the demand for food, as I mentioned earlier, will explode and present Canadians farmers with enormous opportunities. In terms of the role of government, it is really to facilitate.
If you are asking if I have confidence in Canadian producers, I do — 100 per cent. They have shown to be the most entrepreneurial of Canadians in terms of developing new products and tackling new markets.
There are a couple of things that we are doing as a government. You mentioned the comprehensive free trade agreement efforts with Europe. We also have the Trans-Pacific Partnership, which is a market of nearly 700 million people and a $21 trillion GDP. This government has recognized that we need to develop global market agreements and global trade agreements and has so far struck agreements with a number of countries and continues to open up new avenues. From the farming or the agricultural sector point of view, that is a highly important risk management strategy so you are not dependent on one market. You diversify your markets. You reduce your risk. Of course, growth in the sector is highly dependent on access to these markets.
The other thing, though, that the minister has made a very high priority is something called the Market Access Secretariat. I will illustrate for you what happens. The United States makes a rule up about country of origin labelling. That means that our producers in beef and pork are suddenly discriminated against, and exports plunge. The Market Access Secretariat is there to challenge the Americans, to work with them to readjust that particular decision and, if we cannot do it collaboratively, to pursue it at the WTO, which we have done successfully. Hopefully we will know in the next couple of weeks if the Americans will comply with the WTO rule.
Another example comes from Senator Buth's former sector, working in canola, where the Chinese shut down our market due to suspicions or concerns about a disease called ``blackleg.'' The government, including CFIA and my colleagues at DFAIT, Agriculture Canada, immediately begin to work with the Chinese authorities, in this case CFIA and ourselves working with the Chinese to do research to demonstrate the safety of the product. Most recently, that resulted in access to another canola processor in China worth about 1 million tons of seed exports. That kind of collaboration between industry, our colleagues and governments makes sure that when we run into roadblocks like that, that we quickly engage officials with science-based decision-making to reopen markets.
You have a number of things happening. You have proactive investments helping farmers adjust and compete better. That is Growing Forward 2. You have market access, which is an issue-by-issue effort. You have a global or comprehensive effort by the government in opening up markets through free trade agreements.
Senator Duffy: Thank you, gentlemen, for coming. I want to pick up on an issue raised by my colleague Senator McInnis from Sheet Harbour, if I have it correct. Earlier in your testimony, you said that food safety is your top priority and will not be compromised by any changes in your budget framework.
Mr. Mayers, across the hall in the Agriculture Committee, we are also looking at the question of food safety and, in particular, traceability. How close are we, in your view, should something happen that is untoward as we have seen in the past, to the situation where we are able to trace it from farm to fork, or in this case, from the fish pen to the supermarket?
Mr. Mayers: Canada has made great strides in terms of its traceability framework. My colleagues from Agriculture and Agri-Food Canada may want to add to my remarks, because the Canadian Food Inspection Agency and Agriculture and Agri-Food Canada have worked closely with the industry in advancing the development of a framework for traceability. Most of that work to date has been in the terrestrial sector, in terms of livestock, where we have made great progress.
That said, we recognize that an effective traceability system represents a competitive advantage for Canada, and so there is that broad interest. We are not yet there. In terms of your question as it relates to fish pen to market in terms of tracing, we do not yet have the means to provide that, but we have that solid foundation in terms of an effective traceability system that can then be implemented as we move through sector by sector, which is necessary because they are each different.
Senator Duffy: I gather that is the plan. On the conflict that some people have suggested exists between the agriculture promotion side of Agriculture Canada and the protection of the public side of CFIA, we have now discovered that you are sharing commissionaires. How can you have an arm's-length relationship? How do you operate to make sure that somehow you are not contaminated?
Mr. Mayers: I would hesitate to characterize it as ``contaminated.''
Senator Duffy: One by the other.
Mr. Mayers: There is an important relationship but a very clear distinction in terms of mandates. Where this issue of conflict is most often raised is in the context of issues like market access. We are clear with respect to the Canadian Food Inspection Agency's role in our market access activities, and that is to defend the Canadian system of control. We are not promoting the product. What we are doing is demonstrating to a trading partner that Canada's controls, which they can rely on in terms of the safety of the products, are sound. The example that Mr. Meredith used in terms of blackleg and canola is an excellent one. We have a solid suite of controls and interventions that the Canadian Food Inspection Agency is proud to defend to a trading partner. What we are not doing is we are not at the same time seeking to have another country make choices with respect to canola. Our colleagues in AAFC are well placed to explain the benefits of Canadian canola.
Senator Duffy: It affects domestic consumers as well.
Mr. Mayers: Absolutely.
The Chair: Honourable senators, as Senator Duffy has pointed out, the clock is not being friendly with us this evening, but that is because of the very good witnesses we have. We had a lot of interesting questions. The good news is that, as a committee, we are focusing on Agriculture and Agri-Food Canada this year, so we will be inviting you back again for Supplementary Estimates (A). Most likely we will have those before the end of June. We will be seeing you within a month probably.
I have four senators who have asked to pose questions on round two. I would ask you as witnesses to make note of the questions and provide us with written answers.
I would ask senators to only ask time-sensitive questions of Agriculture and Agri-Food Canada and the Canadian Food Inspection Agency, the representatives of which will not be back as soon. You may want to focus your questions that way. Please keep them succinct.
Senator Black: How will you measure success under Growing Forward 2?
[Translation]
Senator Hervieux-Payette: With respect to the inspection of foreign foods, I would like to know the costs and number of people who are affected in and outside Canada. The fact remains that other provinces are still involved even though three provinces have withdrawn.
When we receive fish, fruit and vegetables from China, does irradiation play a role in your inspection? Because I cannot believe that not all fresh foods are treated when they arrive here from 8,000 kilometres away.
[English]
Senator Chaput: My question has to do with meat inspections being returned to provinces again. I would like to know what you mean by ``inspections'' in terms of what kind of inspections they will be. Is it equipment, meat, hygiene, et cetera?
Also, will these inspections be standardized across each province or are they regulated by the province?
Senator De Bané: Is the scientific team of Agriculture and Agri-Food Canada the most important scientific establishment of the federal government?
The Chair: Thank you. This has been a most interesting evening, and there have been a lot of very interesting questions. I wish we could continue our discussion, though we may well be able to in regard to Supplementary Estimates (A). Thank you to our witnesses from Agriculture and Agri-Food Canada and the Canadian Food Inspection Agency.
I apologize to our witnesses from the Department of Finance Canada for the delay in getting under way. You saw all the excitement we had with respect to Agriculture and Agri-Food Canada, so you can expect that that interest will continue in this session, as well.
[Translation]
Honourable senators, we continue our study of the 2013-14 Main Estimates for the fiscal year ending March 31, 2014.
[English]
In our second session this evening, we are pleased to welcome a number of officials from the Department of Finance Canada. Some of the officials are seated at the table and others are in the audience and will be called to the table if necessary. We have been through that when we have done budget implementation bills, as well, and I think I see some of our colleagues from that experience, which may be repeated fairly soon.
We welcome Sherry Harrison, Assistant Deputy Minister, Corporate Services Branch, who will be delivering the opening comments on behalf of the Department of Finance Canada this evening. Accompanying Ms. Harrison at the table are Diane Lafleur, Director General, Financial Sector Branch; Brian Pagan, Director, Fiscal Policy, Economic and Fiscal Policy Branch; and Chantal Maheu, General Director, Federal-Provincial Relations and Social Policy Branch.
[Translation]
Sherry Harrison, Assistant Deputy Minister, Corporate Services Branch, Department of Finance Canada: My name is Sherry Harrison and I am the Assistant Deputy Minister responsible for Corporate Services at the Department of Finance. Departmental officials are with me today to help answer your questions on the 2013-14 Main Estimates for the Department of Finance.
The overarching priority of the Department of Finance for 2013-14 is to manage the return to balanced budgets over the medium term. In doing so, the department will focus on four operational priorities.
[English]
First, effective management of the fiscal framework includes responsible management of the federal budget and the federal debt; ensuring the stability of the financial services sector; and continuing to improve the integrity of Canada's tax system.
Second, sustainable economic growth requires sound macroeconomic, tax and structural policies that support the drivers of productivity and growth: business investment and innovation, human capital formation, renewed public infrastructure, and a safe and sound financial system. The Department of Finance Canada will continue to play a leadership role by promoting measures that support competitiveness and business innovation; financial sector stability; training and skills development; and a competitive, efficient, fair and simple tax system.
Third, sound social policy framework requires managing current and emerging pressures related to social policy and major transfer payment programs to ensure that those programs are sustainable and effective for all Canadians.
Fourth, effective international engagement requires active engagement with key economic partners on bilateral, regional and multilateral issues to leverage Canada's strengths and to promote Canada's interests. This effort includes promoting Canada's trade and investment interests, fostering effective and innovative aid policies aimed at reducing global poverty and working toward a more stable and secure international financial system.
In support of these priorities, these Main Estimates for 2013-14 total $87.6 billion. Over 99 per cent of total departmental requirements, or $87.5 billion, relate to statutory items that have already been approved by Parliament through enabling legislation. The statutory items are displayed in the estimates document for information purposes and will not be included in the appropriation bill.
Within the statutory forecasts, there is a net increase of $2.4 billion over the 2012-13 Main Estimates, with the major contributing factors being a $2.7 billion increase in transfer payments to the provinces and territories, resulting from the legislated funding formulae; a $1.5 billion increase as a result of transitional assistance payments provided for under the comprehensive integrated tax coordination agreements with Quebec and Prince Edward Island; a $1.3 billion decrease in interest on unmatured debt as a result of the interest estimate being revised to reflect the decrease in the average forecast of interest rates; a $0.4 billion decrease in other interest costs as a result of the interest estimate being revised to reflect the decrease in the average long-term bond rate; a $10 million increase for a payment to the International Bank for Reconstruction and Development for the development and implementation of pilot projects to demonstrate the role of innovative market incentives in agricultural-applied research; and a $6.5 million increase for the purchase of domestic coinage, which reflects the savings identified as part of the spending review offset by net redemption and administration costs due to an accelerated profile of penny redemption rates as well as increased cost estimates for demand and metal price increases reflective of recent growth projections for overall coinage.
The voted grants and contributions include a decrease of $210 million resulting from the cessation of payments to Export Development Canada for debt relief via the Paris Club.
The operating vote reflects a net increase of $9.4 million over the previous Main Estimates. The increases are mainly due to a $10 million increase for the department's relocation to 90 Elgin Street in 2014-15, $6.8 million for government advertising programs; and $1.2 million for collective bargaining. The increases were offset by decreases of $4.2 million related to savings identified as part of the Budget 2012 spending review and $4.4 million for various sunsetting funding related to personal income tax initiatives, corporate finance and asset management, G20 framework working group, GST technical issues and maintaining the strength of Canada's financial system.
[Translation]
We would be pleased to address questions that the committee may have on these Main Estimates.
[English]
The Chair: Thank you very much. For clarification, you talked about the comprehensive integrated tax coordination agreement, and you referred to Quebec and Prince Edward Island, which is an outflow of money to those provinces. What happened to British Columbia and the money that went there? Has it started to come back yet? Have you netted that out or what has happened?
Ms. Harrison: The money coming back in is not reflected in the Main Estimates, which is a spending document. Those revenues will be reflected in the public accounts as revenue coming back.
The Chair: We do not see this as part of this account as a net?
Ms. Harrison: No.
The Chair: Thank you.
[Translation]
Senator Hervieux-Payette: Welcome, everyone. I am pleased to see we have a panel consisting of three women and a man.
In the third paragraph of your presentation, you talk about responsible management of the federal budget and the federal debt, ensuring the stability of the financial services sector and continuing to improve the integrity of Canada's tax system.
My interpretation of the government's operation is that $3 billion has disappeared from the books as part of the responsible management of the federal budget and the federal debt.
As for ensuring the stability of the financial services sector, speculators in the financial markets are currently betting that we will encounter serious problems with our banks since household debt levels are now at more than 160 per cent of income.
Lastly, with regard to continuing to improve the integrity of Canada's tax system, we are told that some $29 billion has not been collected.
I ask you the question because you say it in your presentation, but the question is: who is ultimately responsible for ensuring that everything is in order? Should the Treasury Board oversee all that? Is it you? Do you have a cabinet committee? How does that work?
We on the outside see the results, but we do not know who makes what decision or how it is reached.
[English]
Ms. Harrison: The Department of Finance is responsible for the development of tax policy for the government. The operational requirements for the collection of tax fall under the Canada Revenue Agency. The department's responsibility is in the development of legislation and tax policy changes.
[Translation]
Senator Hervieux-Payette: But do you also work with Treasury Board? You have prepared a budget, you have allocated funding to everyone. Someone approves them. Do you sit on a committee that then ensures that the budget is balanced?
Because we are told that no one has absconded with the $3 billion, the amount that has not been found, but we do not know where it has gone. So who does the follow-up? Is it Treasury Board or a cabinet committee? How is internal management done within the government?
What answer can you give us, me and the average taxpayer who wonders who is responsible?
[English]
Ms. Harrison: I will turn to Mr. Pagan to speak to you about how the tax policy changes fit in the fiscal framework.
Brian Pagan, Director, Fiscal Policy, Economic and Fiscal Policy Branch, Department of Finance Canada: In fact, senator, it is a very timely question for many reasons, including the fact that only today we welcomed a delegation from the International Monetary Fund who are undertaking a study of all G20 countries to look at the processes and institutions involved in developing budgets and managing public expenditures.
What is clear through their study and analysis is each country is different, and they adopt processes and institutions unique to their system of government and political situation. In Canada we have been, I think, very fortunate over many years with stability in our institutions and budgeting processes. However, that does not take away from the fact that there is some confusion or lack of understanding of the different roles and responsibilities of various institutions and, in fact, the actual purpose of the documents.
I could speak at great length on this, but simply, there are three key documents for transparency and accountability purposes. In no particular order, the budget sets the vision, the broad direction of the government for the year ahead, both the revenues that we will take in and the priorities that we will expend public money on, and the actual report card against that budget is the public accounts. The fiscal year has recently concluded. The Comptroller General and the Auditor General are now working up the public accounts and those will be presented to Parliament in the fall.
What falls in between that vision of what one wants to accomplish as a government and that report card of what they have actually done in the form of the public accounts is what we are here to talk about today. That is the estimates. It is the cash requirement of the government in the aggregate and individual departments for the fiscal year, in this case, 2013-14.
Those are the basic processes. I have mentioned some of the institutions. I can assure you that with these different documents there is a great deal of coordination by the Department of Finance with Treasury Board, probably most directly, but with the Privy Council Office, the Office of the Comptroller General and the Auditor General, the Receiver General at Public Works, which signs the cheques, and the Canada Revenue Agency, which takes in our revenues. I could go on all night about this.
The Chair: No, you could not.
Mr. Pagan: Suffice to say, we appreciate that there are a multitude of players and actors. Each serves their purpose and the system works because they can collaborate together to develop the documents, the policies and the processes to put in place the government's priorities and programs.
Senator Hervieux-Payette: At least, I know that you are aware that we could increase.
[Translation]
Senator Hervieux-Payette: We see a $6.5-million increase for the purchase of domestic coinage. How many dollars are we buying? We are spending $6.5 million more, but what is behind that $6.5 million? Is it $100 million, $300 million? To what predetermined amount is that amount added?
Diane Lafleur, Director General, Financial Sector Branch, Department of Finance Canada: The base amount was $120 million covering all the coinage that we buy from the Royal Mint. Several factors affect that amount, including the price of the metals used to produce the coins, demand in the market of the financial institutions that distribute the coins to citizens and the revenue — which is not shown here — that we make from producing coins.
We withdrew the penny from circulation because we were losing money — it cost 1.6 cent to produce a penny — but we are still making a profit on the 5 cent, 10 cent and 25 cent pieces. That will also be entered in the public accounts.
[English]
Senator Buth: My question relates to the $10 million increase for payment to the International Bank for Reconstruction and Development for the development and implementation of pilot projects in the area of agriculture.
Can you tell me what that initiative is, when it was announced, how long it will be going on and how you measure impact?
Ms. Harrison: We have Mr. Leswick joining us.
The Chair: Thank you, Mr. Leswick.
Nicholas Leswick, Director, International Finance and Development Division, Department of Finance Canada: This is a payment to the World Bank to support the Ag Result Initiative, which is advance market commitment. Where most development programming is push in nature, we push research and development on to a sponsoring country. This is putting a market incentive to private sector players to help compel them to innovate, to crowd in private sector research and development in the agricultural productivity space, specifically in Africa.
Right now our planned programming is for $10 million a year over the next four years, for a total envelope of $40 million. We will measure results in line with World Bank program activity results frameworks. Right now, it is in a trust fund to the World Bank and we are working with partners in the U.S., U.K. and Australia in order to implement the initiative.
Senator Buth: Was this an initiative that the Prime Minister announced about two years ago with the U.S.?
Mr. Leswick: Correct. It was announced at the previous G20 summit in Mexico in partnership with the U.K. and the Australian governments.
Senator Buth: Why would this not have been included in CIDA funding?
Mr. Leswick: By virtue of the fact that the Minister of Finance is the Governor of the World Bank institution, so payments to this Bretton Woods institution flow through the Minister of Finance.
Senator Buth: Do you know what money would be coming from CIDA into the World Bank?
Mr. Leswick: CIDA has a portfolio of trust funds with the World Bank. Just general capital subscriptions again flow through the Minister of Finance, so this is just our share capital in the bank. CIDA also operates off-balance transactions with the World Bank through trust funds that the World Bank sponsors, for instance, in other agricultural contexts or infrastructure or different types of development programming.
[Translation]
Senator Bellemare: Thank you for coming to meet with us. I have a question about the department's strategic plan. We know that employment is increasingly considered an economic outcome target. For example, in its administration of monetary policy, the U.S. Federal Reserve Bank views employment as a measure of the outcomes of that policy. We know that employment is a priority for the government — it is a fundamental issue for the government — so I am curious; I have looked at your strategic plan and tried to find an outcome target in this area but have not found one. I would like to hear your comments on the subject.
You say you are seeking sustainable growth and the sound management of public finances, but at the same time our government is trying to create jobs in Canada. That is a fundamental objective. I was surprised to see that there was no specific target for measuring results since this is a trend, and even the World Bank says that should be done. I would like to hear your comments on that.
[English]
Ms. Harrison: Thank you for that question.
We have tried to set our priorities where we can get a relatively linear relationship between the mandate of the department and the outcome. The department does not have direct responsibility for employment programs. I think that is why you do not see it as a direct measure in our priorities. The four priorities that I outlined in our opening remarks you will see in the strategic plans under those things within the department's mandate that we are doing to support those priorities.
Details on employment might be more appropriate for an organization such as HRSDC or another organization that has a greater link to actually delivering that result. We do not deliver those types of programs, but I understand the nature of your question. One of the challenges that we have in setting our priorities and our measures is as a policy organization giving information and policy advice, the nature of our measures. Sometimes our results are through others, other levels of government or other departments.
[Translation]
Senator Bellemare: I am going to continue in the same vein. I know that the Department of Finance has relations with the Bank of Canada. You sit on the bank's board of directors. I was wondering whether the Department of Finance had considered doing somewhat the same thing as the United States, where they are targeting employment slightly more for monetary policy purposes. In other words, they are setting interest rates and establishing targets for that.
Ms. Lafleur: The board of directors of the Bank of Canada is not responsible for making monetary policy decisions. It is really a board of directors that manages the bank's administration as such, but monetary policy is set by the council, which is a different entity. Consequently, the Deputy Minister of Finance is a member of the board, but that is not where the discussions are held.
Senator Bellemare: So the Deputy Minister of Finance is not a member of the strategic council, but rather of the board of directors?
Ms. Lafleur: Precisely.
Senator Bellemare: I have another question.
The Chair: You have a minute.
Senator Bellemare: Then I will wait for the second round.
[English]
Senator Callbeck: Ms. Harrison, in your presentation you talked about interest decrease. One was for $1.3 billion and the other was $0.4 billion. What is the annual estimated interest cost of the debt for this year?
Mr. Pagan: In fact, senator, there are two components of our interest cost. There is interest on unmatured debt, which is the holdings of T-bills, real return bonds, Canada domestic bonds and global bonds, which are bought and sold daily, and there are other interest costs which reflect our liabilities for future pension and benefit obligations. We cannot speak of a single interest rate because there are different rates depending on which element of the composition of our debt you are talking about, and these interest rates change regularly.
What you see in the Main Estimates is a decrease in our interest costs that is driven by forecasted decreases in the projected interest rates from the last time we presented estimates to Parliament. There was an update of economic and fiscal projections done in the fall. This is an annual part of our project process; in fact, it is done at the start of the pre- budget process. At that time we surveyed public sector economists, as we always do, and they gave us their forecast for the different components of our debt, and those forecasts were less than the forecast from the previous year, which is why we are seeing a decrease in the statutory vote for interest this year.
Senator Callbeck: We are seeing a decrease, but what is the amount? What is the forecast?
Ms. Harrison: The Main Estimates amount for interest on unmatured debt in this estimate is $18.4 billion, and the other interest costs are $8.733 billion in the Main Estimates for this year. As Mr. Pagan explained, those forecasts are adjusted throughout the year.
Senator Callbeck: So $26 billion to $27 billion.
There is mention of a decrease because of sunsetting funding relating to personal income tax initiatives. What are those initiatives?
Ms. Harrison: In previous estimates the department received operating resources related to GST technical issues and personal income tax initiatives. We are looking at a number of GST technical initiatives such as treatment of the financial services sector, the review of RDSPs and the review of employment profit sharing plans, so we had incremental resources to do some particular work in those areas.
Senator Callbeck: Is that just the work?
Ms. Harrison: These are operating resources, correct.
Senator Callbeck: You mentioned an increase of $6.8 million for government advertising programs. What is the total? This is spent for the Department of Finance, right? Every department has their own advertising dollars?
Ms. Harrison: That is correct; yes.
Senator Callbeck: What is the total for Finance?
Ms. Harrison: The Main Estimates amount is $10 million, I believe.
Senator Callbeck: What topics would that cover?
Ms. Harrison: Advertising in support of the initiatives within the Economic Action Plan.
Senator Callbeck: What media do you mainly use?
Ms. Harrison: Perhaps my colleague Mr. Catta could come to the table to speak to that, but I believe it is television, radio and press.
The Chair: While he is coming in, Ms. Harrison, could you refer us to where that is in your Main Estimates?
Ms. Harrison: You will not see the advertising separately because it is part of the operating vote. As Mr. Pagan indicated earlier, we have given the deltas from Main Estimates to Main Estimates, but it is part of that operating vote envelope.
The Chair: If we are fortunate enough to move into this new way of reporting by project, might we expect to see this in the future as opposed to this reporting by operating and capital?
Ms. Harrison: I have not seen the details of what is being proposed, but as I understand it, it would be part of the program activity along with other costs. Instead of having one large amount for operating costs, the operating costs for us would be split into a total number for the internal services group and another total number for the policy group based on how we have currently defined our program activity. I think there is more information to follow on how that initiative might unfold.
The Chair: Thank you.
Senator Callbeck: You say that the total for advertising is $10 million. That includes the increase of $6.8 million, so last year it was roughly $3.2 million?
Jean-Michel Catta, Assistant Deputy Minister, Consultations and Communications Branch, Department of Finance Canada: If I may, last year the department received $16 million for Economic Action Plan advertising. Of that amount, $3.2 million was identified for this year as part of the estimates process at the end of the last fiscal year. This year's $6.8 million, which my colleague mentioned earlier, plus $3.2 million equals $10 million for Economic Action Plan advertising this year.
On your earlier question, no decision has yet been made on how this funding will be allocated beyond the fact that it will be focused on Economic Action Plan advertising. Decisions will be taken over the next few months, but generally speaking 90 to 95 per cent of the funding goes to what is called ``media placement,'' which is placing the ad and buying the air time, and the rest is for production costs, which is producing an ad and bringing it to the moment that it is actually broadcast.
Senator Callbeck: Thank you.
Senator Black: Ms. Harrison, as you know, there is continual discussion in Canada around our falling position in terms of research and development, productivity and competitiveness. I think it is a concern for us all.
I note with interest the second priority indicated in your opening remarks. Would you talk to us about the structural policies that you are speaking about there? A little more colour would be helpful, please.
Ms. Harrison: I am going to have to have colleagues from tax policy and economic development come to the table to assist with that.
The Chair: Ms. Harrison, we still have 15 minutes, so we are not pressed for time. However, if you do not have that resource with you, then we are certainly prepared to receive a written reply as well. You have the floor.
Ross Ezzeddin, Director, Sector Policy Analysis, Economic Development and Corporate Finance, Department of Finance Canada: I can speak briefly to the tax policy perspective on the question that the centre brought up in terms of productivity.
In our case, from the Department of Finance's perspective, we do not have direct control over what the firm's decisions are in terms of investments, but we can certainly incentivize the decisions. The government has made significant decisions in this regard. You will note that since 2006, there have been significant reductions in corporate income tax, which was very much meant to fuel investment decisions by those firms to make sure the productivity of the companies was increased.
There was also significant debate, reflection, an expert panel and decisions announced in last year's budget around the SR&ED, the Scientific Research and Experimental Development tax credit, which was meant to shift some of the emphasis from tax measures or tax incentives into direct support to companies. Some of my colleagues also worked on announcements with regard to venture capital, which was announced in Economic Action Plan 2013.
There have been a slew of measures introduced in recent years to try to enable Canada to make progress on this challenging indicator. We all recognize that trying to move productivity is not something you flick on and off like a switch. It is certainly something the government has seized upon in taking some action, and the department tried to make its contribution in this regard.
Ms. Harrison: I believe Mr. Pagan has information on that for you as well.
Mr. Pagan: Senator, was it a follow-up question?
Senator Black: No. It is an important question from my point of view, and I do not want to put you on the spot. You have given some examples, some tremendous examples, but it might be most helpful if you came back with a report.
Picking up on your fourth paragraph, talking about the policies that have existed or are proposed to exist to support the important work that you are talking about, you are right onto something. This is good, but I would like to have a comprehensive understanding.
Ms. Harrison: Certainly. We will get back to you with further information.
The Chair: Ms. Harrison, if you could provide that information to our clerk, it will be circulated to everyone.
Senator Gerstein: Thank you, witnesses, for being before us. I will ask the committee's indulgence because the question I will be asking is with embarrassment but not sufficient embarrassment that I will not ask it.
Ms. Harrison, your well-prepared opening remarks cover Main Estimates that total $87.6 billion, so I found with some interest that my eye was drawn to the smallest item you referred to, which was $6.5 million. I want you to know it was not the $6.5 million that drew my attention, but I saw the word ``penny'' in the paragraph. As you know, it was under the great leadership of our chair, Senator Day, that a study was conducted by this committee that led to the demise of the penny. I can remember it like yesterday, the currency that has no currency.
My question is the following: As I read the final point, it says: A $6.5 million increase for the purchase of domestic coinage, which reflects the savings identified as part of the spending review — here is where it comes — offset by net redemption and administration costs due to an accelerated profile of penny redemption rates.
Perhaps to bring closure to this subject for this committee — because I suspect this is the last time, Mr. Chair, that we will hear the word ``penny'' mentioned around this table — could you kindly tell me what in the world that means?
The Chair: A penny for your thoughts.
Ms. Lafleur: I would be happy to answer that. When we forecast what the cost and savings would be around the elimination of the penny, it was an imperfect science in that you are trying to predict human behaviour, what people will do when they are told the penny will be eliminated.
Senator Gerstein: Did you say that to us as a witness when we were studying the penny?
Ms. Lafleur: I may have, or one of my colleagues may have.
What we have seen in the early days is that people actually returned their pennies to financial institutions, and therefore to the mint, much faster than originally anticipated. We are seeing a blip. We have to pay for those pennies that come back. We are seeing a blip at the front end, and we expect to see a slowdown. A lot of that was attributable to the fact that a number of charities went out and mounted penny drives and campaigns and have done so quite successfully. We saw some right out of the gate. Habitat for Humanity, for example, was out with a campaign early last spring, and a number of other charities followed suit.
The bottom line is we have actually had a lot of success with the elimination of the penny. That has meant that some of those costs have moved up in terms of profile, but the overall savings profile remains the same over the longer term.
Senator Gerstein: Have you had any push-back on the penny situation?
Ms. Lafleur: What we did was adopt a very proactive strategy with all of the stakeholders that were involved, from retailers to other government departments, charities, consumer groups, et cetera. We brought them all in to talk about the issues they could see in terms of implementation challenges. We worked collaboratively with them in terms of trying to address the technical issues.
What they wanted more than anything was proactive communication on the part of the government. The tool that I think has been the most successful — and I suspect a number of you would have seen this in various stores — there is now signage in a number of places to the effect that the Government of Canada is phasing out the penny and will be adopting a rounding guideline. What we did in collaboration with those stakeholders is develop material that we posted on our website that they could download and turn into whatever signage they wanted in their place of business to make people aware. That has worked well. The bottom line is that it has been as smooth as anything.
Senator Duffy: What happens to the old pennies?
Ms. Lafleur: The old pennies return to the mint where they will be destroyed and melted, and we will recover some alloy from that and generate some positive things.
Senator Gerstein: I thank you, chair, for indulging me on that question. It brings closure, as it does to other members of the committee. I promise not to raise the subject of the penny again.
The Chair: I am not sure that will be full closure, but if you say so.
This committee, Ms. Lafleur, you will be pleased to know, part of our report, which I am sure you take to bed with you each evening and read for the ideas, one of the suggestions was the one that you indicated, about charities getting involved in helping to take the penny out of circulation in that manner. I am glad that has been so successful.
[Translation]
Senator Chaput: The Department of Finance expects to spend an additional $177.6 million on territorial financing for 2013-14. That is a 5.6 per cent increase from the amount requested in 2012-13. I read that that was due to new and updated data being entered in the territorial financing formula. Could you describe those data and provide the new updated data that the department has received?
And my second question is this: what factors do you take into account in calculating the amount that will be spent for territorial formula financing?
Chantal Maheu, General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Thank you for the question. I will try to answer in order. The way in which the territories are financed is conceptually quite simple. On the one hand, we assess the revenues that they could generate if they had a tax system similar to those of the provinces. On the other hand, we assess the needs they have, given their populations and the territories' unique circumstances.
The federal government has a formula to evaluate these two things and finances the difference between the two. Every year we assess their needs and their ability to generate revenue, and we make up the difference between the two.
It becomes quite complicated to determine those amounts. You requested the updated data. However, it must be understood that revenues are estimated based on various factors: there is revenue from personal income tax, corporate income tax, sales tax and so on.
Various bases are evaluated to determine what territories could generate if they had a tax system similar to those of the provinces. At the same time, we assess expenses when we establish the formula, and we increase those expenses at the same rate as provincial expenses. They are therefore indexed every year. The data are different for each territory and are updated by Statistics Canada every year, but the formulas are quite complex. The data are shared for the territories; officials have access to the formulas and know the data and the basis of the calculations.
Senator Chaput: What is different about the data this year? Why is an increase needed?
Ms. Maheu: Territorial financing generally increases every year, as does provincial financing as well. Budgets increase, partly because rising costs are indexed every year. Part of that is simply related to the normal increase in spending, and the formula is adjusted for that.
Senator Chaput: Is it based on the number of inhabitants or is that one of the criteria?
Ms. Maheu: That will be one of the factors, yes.
Senator Chaput: Is poverty considered as a factor, along with welfare?
Ms. Maheu: No, not directly. Spending was evaluated when the formula was put in place. All spending at the territorial level was evaluated at the time, and, since then, costs have increased and are indexed at the same rate as provincial spending.
Senator Chaput: Was the formula established with the territories, or does the federal government decide on a formula and subsequently apply it?
Ms. Maheu: For tax transfer purposes, there are federal-provincial committees and committees in the territories as well. Discussions were held with officials, and consultations are held with the territories even though the legislation is federal and administered by the federal government.
Senator Bellemare: I am going to ask a question in the same vein as that of Senator Chaput, and it concerns the Canada Pension Plan. Your report on priorities contains plans to continue cooperating with the provinces and territories to ensure the ongoing sustainability of the Canada Pension Plan. We are not talking about the Quebec Pension Plan, since that is in Quebec, but is Quebec involved in those debates since the two plans must evolve in a similar way?
Ms. Maheu: The Canada Pension Plan system operates under federal legislation but is administered in cooperation with the provinces. The act is very clear: no change may be made to the program without the consent of the provinces. The formula applied calls for two-thirds of the provinces representing two-thirds of the population. Quebec sits on the committee of ministers when these issues are discussed, and their officials as well, because their program must be aligned with the federal program. When the Quebec Pension Plan was created, it was deemed to be a program similar to that of the Canada Pension Plan. Quebec therefore takes part in those discussions.
Senator Bellemare: You talk here about continuing to work with the provinces and territories to ensure the plan's ongoing sustainability. Does that involve future discussions about potential changes to the plan, or is it only administrative?
Ms. Maheu: It could be both. A three-year review is published every year in accordance with the act. The chief actuary will publish a report this fall which will be submitted to the minister, and a review was conducted with the provinces.
[English]
Senator Duffy: Following up on this whole question related to equalization and fiscal transfers to the provinces, my colleague from Nova Scotia had to leave to go to another committee meeting and he asked me to ask about a change in transfers to Nova Scotia. Then I will follow up on Prince Edward Island, if you have a moment.
Ms. Maheu: The changes to Nova Scotia are not spelled out specifically in the Main Estimates. Nova Scotia will receive equalization, CHC and CST, so the amounts are not pulled out for Nova Scotia. Actually, I could refer to the amounts in a few minutes.
There are two specific transfers to Nova Scotia that are spelled out in legislation and in the Main Estimates. I will start with the easiest one. It is called the Additional Fiscal Equalization of Said Payment to Nova Scotia. That payment was negotiated and put in place with Nova Scotia to ensure they would not be penalized by any offshore revenue.
Senator Duffy: This is the so-called Atlantic Accord?
Ms. Maheu: Indeed. It looks at how much Nova Scotia would receive in equalization if it had no offshore revenues, if it does, and then it compensates for the difference.
Senator Duffy: Do we know how much that would be, approximately?
Ms. Maheu: Yes. In 2013, it will be $89 million. I am struggling with my billions and millions.
Senator Duffy: I do not think Mr. Flaherty would like that.
Ms. Maheu: No, indeed.
The Chair: At page 138 of the Main Estimates, it is shown as $56.6 million. It is about the fifth bullet down.
Ms. Maheu: That is the decrease. The question was how much the payment is in 2013. The 56.6 is the decrease from last year.
The Chair: Additional fiscal equalization is the decrease of $56 million due to what? I see it. It is a decrease from what it was.
Ms. Harrison: From May to May.
Senator Duffy: Transfers to Prince Edward Island often seem to get lost with all of the equalization-receiving provinces. My particular interest, as is my colleague's, is Prince Edward Island. Often the federal government seems to get lost in the traffic when it comes to the important role the federal government plays in the economies of equalization-receiving provinces. Do you have any statistics you can share with us on that?
Ms. Maheu: Sure. P.E.I. in 2013-14 will receive 128,000 of CHT, the Canadian Health Transfer; an additional 50,000 for the Canadian Social Transfer; and about $1 million for what is called the Wait Times Support Transfer.
Senator Duffy: Is that for health care to eliminate wait times?
Ms. May: Indeed. In equalization, they will receive about 340,000.
Senator Duffy: Is it not 340 million?
Ms. Maheu: Yes, you are right.
The total will be $520 million.
Senator Duffy: So it will be half a billion dollars to Prince Edward Island from the Government of Canada. Thank you very much.
The Chair: Thank you all very much, Ms. Harrison and your team. We appreciate you being here from the Department of Finance Canada. We plan on beginning our study of Bill C-60, the budget implementation bill, and we may well see a number of you as we delve into that piece of legislation. For now, thank you for helping us with the Main Estimates.
Honourable senators, this meeting is now concluded.
(The committee adjourned.)