THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, April 5, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 9:31 a.m. [ET] to study the Main Estimates for the fiscal year ending March 31, 2023.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Honourable senators, before we begin, I’d like to remind senators and witnesses to keep their microphones muted at all times, unless recognized by name by the chair.
[English]
Honourable senators, should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk, and we will work to resolve the issue. If you experience other technical challenges, please contact the ISD service desk with the technical assistance number provided.
[Translation]
The use of online platforms does not guarantee speech privacy or that eavesdropping won’t be conducted.
As such, while conducting committee meetings, all participants should be aware of such limitations and restrict the possible disclosure of sensitive, private and privileged Senate information.
[English]
Participants should know to do so in a private area and to be mindful of their surroundings.
We will now begin, honourable senators, with the official portion of our meeting as per our order of reference that we received from the Senate of Canada.
My name is Percy Mockler, senator from New Brunswick and chair of the Senate National Finance Committee. Now, I would like to introduce the members of the National Finance Committee, who are participating in this meeting: Senator Dagenais, Senator Duncan, Senator Galvez, Senator Gerba, Senator Gignac, Senator Loffreda, Senator Marshall, Senator Moncion, Senator Pate, Senator Richards and Senator Wetston.
I wish to welcome all of the viewers across Canada who are watching us on the Senate of Canada website.
This morning, we will begin our study of the Main Estimates for the fiscal year ending March 31, 2023, which was referred to this committee on March 3, 2022, by the Senate of Canada.
[Translation]
Today we have the pleasure of welcoming Parliamentary Budget Officer Yves Giroux.
[English]
He is accompanied by the analyst Ms. Kaitlyn Vanderwees. Welcome to you, Mr. Giroux, and Ms. Vanderwees. Again, we want to say thank you. Every time we have asked you to be a witness, you have responded positively.
We’ll hear comments from Mr. Giroux and then proceed to questions. Mr. Giroux, you have the floor.
[Translation]
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for the invitation to appear before you.
We’re pleased to be here today to discuss our analysis of the government’s expenditure plan and Main Estimates for 2022-23, which were published on March 1, 2022.
With me I have Kaitlyn Vanderwees, one of the lead analysts who worked on the report on the 2022-23 Main Estimates.
The Main Estimates for the current fiscal year outline $397.6 billion in budgetary authorities, $190.3 billion of which requires approval by Parliament.
I should note that proposed spending for the Indigenous portfolio totals $45.4 billion in this budget, which represents a 214% increase over Indigenous-related budgetary expenditures compared to 2017-18. This significant increase is due primarily to approximately $20 billion in compensation for First Nations children and their families. In addition, federal spending on elderly benefits is set to go up by $6.7 billion, or 10.9%, to a total of $68.3 billion in 2022-23, and the Canada Health Transfer is set to increase by $2.1 billion, or 4.8%, to $45.2 billion for the current fiscal year.
[English]
A concern I would like to point out is that while the government refers to the Main Estimates as the government expenditure plan, they generally fail to include any measures in a corresponding budget, nor do the department plans. They, therefore, present an incomplete picture of the government’s spending. As such, it hinders your ability to understand and scrutinize the government’s funding requests, track new policy measures announced in the budget or to identify the expected results of new budget measures.
The House of Commons Standing Committee on Government Operations and Estimates has released recommendations to remedy these shortcomings, notably, tabling the budget and Main Estimates concurrently with consistent information and that details of new spending presented in the Main Estimates and supplementary estimates appear in departmental plans as soon as possible. I see no reason why these measures cannot be implemented.
These changes would create a cohesive, intuitive and, critically, transparent financial decision-making process for legislators. We would be pleased to respond to any questions you may have regarding our analysis of the expenditure plan and Main Estimates for the 2022-23 fiscal year, or any other Parliamentary Budget Officer, or PBO, work. Thank you.
The Chair: We will now proceed to questions, and I would like to remind senators that for this meeting, you will have a maximum of five minutes each for the first round. Therefore, please ask your questions directly to the witnesses and witnesses should respond concisely. The clerk will make a hand signal to show that the time is over.
Senator Marshall: Mr. Giroux, thank you very much for being here this morning.
I wanted to focus on one particular department. I don’t know if you’ll be able to answer these questions, but I was particularly interested in your recent report on the Department of National Defence and their capital projects. You were able to reconcile the numbers, but does the department have a project-costing system? I’ve been trying to find those numbers, as you know, for a number of years. You said there were 348 projects there. Is the funding allocated by project, and is there a listing of those projects that are publicly available that we could look at and track those particular projects?
Mr. Giroux: Thank you, senator. I’m not aware that there’s a specific way of costing these individual projects within the Department of National Defence but not because it doesn’t exist; it’s just that I’m not aware of such a costing process. I know there is a costing for big projects, but the big projects — such as the Canadian surface combatants or the Arctic offshore patrol boats — are significant, and there’s obviously a costing project for that. For the smaller projects, for example, refurbishments or construction of buildings on bases, I’m not aware of the process or what it entails.
Senator Marshall: In one of the charts in your report, there are numbers for 2022 that weren’t available at the time. Will you be updating those numbers to reflect more current numbers? Would that be a possibility?
Mr. Giroux: It’s certainly something we can do if there’s interest from parliamentarians, and my uninformed bet is there will be continuing interest from parliamentarians, so it’s something we will undertake as information changes and becomes available from the Department of National Defence.
To answer your other question, senator, there is a list of projects. The Department of National Defence was helpful in providing that list to us, but it is confidential because it entails some information that is rather sensitive, so they’ve asked us not to share it for these particular reasons.
Senator Marshall: Thank you very much.
In your opening comments, you talked about the government spending plan, and I call it the “misalignment between the Main Estimates and the budget.” Do you have any suggestions? I was trying to track last year’s budget initiatives to see if they have been fully funded through Supplementary Estimates (A), (B) and (C), and I can’t find them all because of the number of projects. Because of this misalignment, is there any way parliamentarians can track which budget initiatives have been implemented and which ones remain outstanding? We’re going to get a budget this week and we’re trying to match them up ourselves.
Mr. Giroux: That’s a good point, senator. The fact that the budget comes after the Main Estimates and, therefore, the Main Estimates do not reflect any budget initiatives makes it much more difficult for parliamentarians to track the implementation of budget initiatives. So budget initiatives often end up being reflected in Supplementary Estimates (A), (B) and sometimes (C), and sometimes in subsequent years in the Main Estimates. There could be a few ways to make that easier for parliamentarians to track budget initiatives, for example, a budget that would be much sooner in the budget cycle, or estimates that would be later, so that the Main Estimates can reflect more and ideally all of the budget initiatives. That way one document would track all budget spending, and it would be the Main Estimates.
Senator Wetston: Mr. Giroux, thank you very much for the work you do. I was going to follow up on Senator Marshall’s question about the incomplete picture, which obviously puts parliamentarians, and, of course, the Senate, at a bit of a disadvantage on the path going forward.
First, do you believe the Government of Canada is living on a credit card?
Mr. Giroux: Yes, as attested to by the fact that the government has needed to borrow hundreds of billions of dollars and probably needs to borrow over a $100 billion in the year that ended March 31 and will probably still need to borrow dozens of billions of dollars, there is a significant recourse to what people usually refer to as the “credit card” or deficit-financed spending.
Senator Wetston: I appreciate your comment, and I wasn’t being facetious about it, because I think the context is important to understand.
I take a step back and want to understand what the budget bill might propose. I expect there will be a lot of expenditures in the budget bill, whenever we get the bill, and I think, on balance, attempting to rationalize the Main Estimates with the potential budget bill and more spending leads me to the concern that we have about more and more borrowing.
I understand you would probably have concerns with respect to that as well. What tools do you use to assess the implications of the Main Estimates and a future budget bill that will likely have more spending with respect to programs? Do you use cost-benefit analysis, or what do you do to come to the point of view that you present to Parliament?
Mr. Giroux: We don’t do cost-benefit analysis because that would entail a couple of judgment calls, especially when it comes to the benefit of some government spending and initiatives, and that can be highly subjective in some instances.
We tend to look at the long-term fiscal sustainability of the federal government as well as the provincial governments. The last time we did that was in June 2021. We will update that again this year, and the Fiscal Sustainability Reports that we release look at the current policy trajectory and whether it leads to a sustainable level of debt, or, in the opposite, it leads to an unsustainable debt level that becomes out of control over a long period.
It’s difficult for us to do a cost-benefit analysis. We tend to focus on the cost part, and we’ll leave the trade-off between cost and benefit to parliamentarians, but we can look at the longer-term implications of various spending and tax policies and their combination and whether that leads to an unsustainable debt track. We do that through the Fiscal Sustainability Report.
Senator Wetston: Thank you, Mr. Giroux.
[Translation]
Senator Gignac: Good morning, Mr. Giroux, and thank you for being here. I’d like to expand on the discussion we had earlier with Senator Wetston. In my former life, when I was a Quebec government minister, we had two kinds of expenditures: operating expenditures — which we called “déficits d’épicerie” — and deficits caused by infrastructure spending. I believe you did a report in early March on infrastructure spending.
Regarding the next budget, would you be able to tell us how we might analyze what part of this deficit is infrastructure-related? I would like to know if we are talking about $30 billion, $50 billion or $75 billion.
The federal government has its own infrastructure. Obviously, it amortizes the expenditures in its budget, but it transfers funds to the provinces, which also build infrastructure and fund businesses that also build infrastructure.
Can your study give us a sense of whether this is a good deficit or a “déficit d’épicerie” that’s going on the credit card?
Mr. Giroux: That’s a good point, senator. The government uses accrual accounting, so when it acquires infrastructure, be it buildings, combat vessels or other equipment that can be amortized over a longer period than, say, salary expenses, that does not have an immediate effect on the deficit. What affects the deficit is the amortizing part. If the government buys combat vessels that have a useful life of 40 years at a cost of $70 billion, only one-fortieth of that expenditure affects the deficit for a given year. That means the deficit takes into account not only expenditures and the difference between expenditures and revenue, but also the fact that the government is acquiring tangible assets.
Senator Gignac: When it’s the provinces, are those amounts amortized as well, or are they immediately transferred to the expense column?
Mr. Giroux: No. Provincial transfers, whether for infrastructure or health, all go under expenses.
So for the Invest in Canada program, which transfers tens of billions of dollars to the provinces over a fairly long period of time, all that spending is logged as expenses right away, which means it impacts the deficit directly rather than amortizing just a portion of the expenditure.
I’m going from memory here because I don’t remember all the details from that report we did in early March, but the government transfers about $20 billion to the provinces in various envelopes. It might be more than $20 billion, but it’s roughly that. Virtually all of that is expenses even though part of it could be amortized, and the provinces and municipalities might amortize it because it’s for building or buying infrastructure, public transit, roads and other types of infrastructure with a useful life of years or decades.
Senator Gignac: With inflation soaring and interest rates about to go up, can you revisit your opinion on debt servicing? I think you ran simulations with basic interest rate increases of around 100 or 200 points.
Are you still comfortable with what you said last time you were here about how servicing the debt is still manageable and under control? Debt servicing costs are going to rise from $20 billion to nearly $40 billion over the next three to four years. It’s going to double, but if we look at it in terms of revenue percentage, I think it’s still affordable. It’s about 6 cents rather than 12 cents.
In light of what’s happening, are you still just as optimistic, or are you a little more worried about the debt servicing element?
Mr. Giroux: I wouldn’t say I’m getting more worried. Of course debt servicing costs will go up, as you said, and we think it will probably be $46 billion or so in a few years compared to $20 billion two years ago. That is an astronomical increase due in part to the fact that the debt is significantly higher and in part to higher interest rates.
For now, I wouldn’t say I’m as optimistic as I was, but it’s not about optimism. As you said, debt servicing costs will continue to represent a manageable fraction of revenues.
This Thursday’s budget will probably change things somewhat if we see the government going forward with major permanent spending without also increasing revenue because that could increase the permanent deficit, the structural deficit.
We’ll wait and see what’s in the budget, and then the tone of our discussion may shift a little, becoming a little more pessimistic or optimistic. Everything depends on what expenditures and revenues are in the budget.
Senator Gignac: Thank you.
[English]
Senator Richards: Thank you, Mr. Giroux, for being here as always.
I have two quick questions, and I think Senator Wetston brought up the first one. I’ll ask it again. Because of the billions and billions of dollars we’re spending, the C.D. Howe Institute came out with a report in which it is a little concerned about a recession. How do you feel about that, sir? Then I’ll have a follow-up question.
Mr. Giroux: It’s a concern I have seen expressed mostly from Europe about the possibility of a recession in the U.S. It’s not something that we anticipate as having a high likelihood in Canada. As experience has shown us over the last few years, it’s possible, but so far the Canadian economy has proved to be very resilient with strong employment and economic growth. For these reasons, I don’t anticipate a recession, unless we have a very unpleasant surprise on the world stage. So far, it’s not something that is a significant concern.
Senator Richards: Thank you. I know you can’t answer this follow-up question, but I’m going to ask it anyway. How much extra do you think the supply and confidence handshake between the Liberals and New Democratic Party might cost Canadians in the next four years?
Mr. Giroux: We have costed the implementation of a national pharmacare program. We estimated it at $11 billion to $12 billion per year. It depends what details and parameters are included, if and when the government decides to move forward with the implementation of the pharmacare program.
With respect to a dental care program, we estimated it at a cost of $1.5 billion per year, with about $4 billion in the first year of implementation because of unmet demands. This was with very strict parameters that saw it totally phased out at a household income of $90,000 per year, which is not very high. So that would leave out a significant portion of the population.
These are the types of costs that we have estimated for two of the main elements of the Liberal-NDP agreement. Beyond that, I cannot speculate as to what the costs could be.
Senator Richards: Thank you very much, sir.
Senator Galvez: Thank you, Mr. Giroux, for being here with us this morning.
You are right that it is becoming very evident for some of us that it’s difficult to reconcile the Main Estimates with the budget. You said this is an incomplete picture and hinders our ability to track all the expenses.
In your opinion, how much are we missing of this total? Why is that and was this before COVID? I know the government is not following the recommendations, but we know, for example in Ontario, there are penalties to the premier and ministerial salaries of 10% if they miss the budget timeline.
Mr. Giroux: Thank you, senator. It’s difficult to determine how much parliamentarians are missing by not having a very well-aligned budget and estimates process. The government spending is well over $400 billion. Whether parliamentarians are missing scrutiny of $50 billion or $60 billion or $100 billion is an open question, because you might be missing only $1 billion, but that could be the $1 billion that makes a difference in government spending that is not allocated to priorities that were stated in the budget or misspent.
So I don’t think it’s a matter of how much you are missing. It’s probably related to the principle of parliamentarians not having the proper tools to carry out their constitutional duties, as they should by being able to hold the government to account and scrutinize government spending. I think it goes beyond just a dollar amount.
Senator Galvez: Thank you. My specific question concerns the Trans Mountain pipeline. Minister Freeland said there will be no additional public money invested. However, in the Main Estimates, we see Natural Resources Canada plans to transfer $6 million for “Contributions in support of Accommodation Measures for the Trans Mountain Expansion project.” Can you comment on this? What are the reasons for this? Thank you.
Mr. Giroux: I can’t speak to that specific line item, but that seems to be inconsistent with what the minister previously said. Aside from the apparent contradiction, I’d have to look into that aspect a bit deeper. It’s not something I’ve looked at specifically. We looked at the valuation of the Trans Mountain pipeline, but not as to whether or not there is additional government funding. It could be an issue of a loan or covering some interest on a temporary basis. I’d have to look at this issue in more detail.
Senator Galvez: Can you send us that answer in writing later on? Thank you so much.
The Chair: Senator Galvez, did you say $6 million or $6 billion? For clarity, please.
Senator Galvez: I think it is $6 million.
The Chair: Okay. Thank you.
Senator Pate: Mr. Giroux and Ms. Vanderwees, thank you for coming in and for all the work that your office does on an ongoing basis. It’s a tremendous bonus and benefit to all of us and it assists us to do our job.
This may sound like a very obvious question, but what is the rationale that has been provided to you by the government for not bringing the Main Estimates and budget in concordance?
Second, in the mandate letters of every minister is the importance of “investing” in reconciliation by the government. I’m curious whether any of that has been costed. I’ll provide a bit of context to that.
In addition to these Main Estimates there being $20 billion in terms of compensation, we know that compensation was actually almost double that as was awarded by the courts. How will that be registered, or will it be an after-the-fact reporting again, in your opinion? Obviously, you may not know exactly. If you do know, it would be useful to hear.
To your knowledge, is there a costing or projections that are being provided by either your office or by the government for each of the departments in terms of how that “investment” in the mandate letter of every minister will manifest itself in terms of dollar figures?
Mr. Giroux: Thank you, senator. On the rationale for not aligning budget and Main Estimates or supplementary estimates, there has not been any rationale per se provided to me. It has just been going on for so long that it’s taken for granted. Rather, it’s almost questioned why would you want to move in any other way? It’s the way we’ve done budgets since time immemorial. It’s convenient for communications purposes. It’s also convenient for strategic political purposes for any government to have flexibility in the date of tabling the budget.
I’ve heard sometimes that it’s very difficult to table an early budget when there is uncertainty around the world. Sure, but what difference does an April budget versus a February budget make when the war in Ukraine is going on, when there will be changes throughout the year anyway? We can debate that for a long time without ever agreeing on anything. There is no clear rationale on that.
Whether there is a costing for mandate letters or the commitments related to reconciliation, it’s a very broad topic. We have done costing on specific elements of commitments made with respect to reconciliation, notably, housing, water and waste water for First Nations. But to my knowledge, there hasn’t been a comprehensive, overall costing of the commitment for reconciliation between the Crown and First Nations or Indigenous communities. It’s something that has been done for specific areas but not in a comprehensive way. I’m not sure that there is tracking of how these commitments are being implemented in a comprehensive manner.
I know the government is tracking pretty closely the boil-water advisories on reserve. But aside from that, I’m not aware as to whether there’s very closely tracked monitoring and implementation of progress when it comes to implementation. I mentioned boil-water advisories. There must be other areas where there is tracking. But I’m not aware that there is a comprehensive tracking of progress made on that government priority.
Senator Pate: In terms of the First Nations Child and Family Caring Society case, have you cost what the difference would be had there not been a long legal case against the government, instead if there had been compensation provided earlier or an adjustment in accordance with what the rulings have been in the court?
Mr. Giroux: We did cost our own estimate of settling the case, but we did not cost an alternative scenario where the government would have acted earlier and provided services to prevent a court case. That would have been very difficult for us to cost, but probably not impossible because we’ve cost other areas that at first seemed, at least to me, to be very difficult to cost. The short answer is no, we didn’t cost an alternative scenario regarding how much it would have cost to spend or invest enough to avoid a court case.
Senator Pate: Thank you.
[Translation]
Senator Moncion: Good morning, Mr. Giroux.
I would like to talk more about the agreement with Indigenous peoples. In your most recent report, the one before us today, you talk about $20 billion in financial compensation for three groups: First Nations children living on reserves and in Yukon from April 1991 to March 2022; children impacted by the former narrow interpretation of Jordan’s Principle between 2007 and 2017; and children who did not receive or were delayed in receiving an essential public service between 1991 and 2007. Later in your report, you talk about compensation periods from 2007 to 2017, which is significantly shorter than the eligible period of compensation agreed to by the government.
I want some clarification about that $20 billion and the dates. We seem to be talking about two or three different programs here. I would like a better understanding of this part of your report, which is on page 10.
Mr. Giroux: That’s a complex question. Quite honestly, I’ll probably have to get back to you with a fulsome answer because the consequences are more far-reaching than cost estimates alone. We based our cost estimates on an interpretation of the Human Rights Tribunal’s orders. If memory serves, that was for the period from 2007 to 2017. The government decided to expand that for reasons of its own. I’m not questioning that or the validity of that time period, but that explains some of the discrepancies. We based our calculations solely on the tribunal’s orders, but the government decided to tack on four or five years for public policy reasons. That explains the differences in part. We decided to go with the tribunal’s decision, but the government decided to go further. To understand why that decision was made, you’d probably have to ask the minister responsible for Indigenous issues, or I’ll have to get back to you after I take a closer look at the documents.
Senator Moncion: Thank you for that.
Is there enough money? In one case, it says $20 billion, and in another, it says $15 billion. I think you just answered my question about the $15 billion, but what I’m most concerned about is the $20 billion and the dates because this goes back to 1991.
I’d like to know if that amount of money is enough or if we can expect the government will eventually ask for more money for this compensation.
Mr. Giroux: That’s a legitimate concern because often, when the government announces compensation programs, and I’m not just talking about Indigenous issues, but things like Agent Orange in New Brunswick, for example, where the government set aside a certain amount when it agreed to receive compensation claims. Then the government realized it underestimated the number of eligible individuals. In this case, I’m hoping the government did its homework because there is data about which children and families are eligible for this settlement. I hope the $20 billion will be enough. Again, past experience with other programs suggests that may not be the case. The government has already put up the money in its financial statements, which explains why these amounts are in last year’s financial statements, in the public accounts tabled on December 14.
This amount should be adequate because the government set that money aside following negotiations with the groups that took the case to court. As I said, there could be huge or unpleasant surprises with respect to costs.
Senator Moncion: Thank you.
The Chair: Mr. Giroux, if you’d like to reply with a written response, I’d like us to agree on a deadline of April 12, if possible. I’d like to congratulate you on always meeting deadlines for the Standing Senate Committee on National Finance. Is that enough time for you to get us the additional information?
Mr. Giroux: I think so, Mr. Chair. Thank you for saying we always meet our deadlines.
The Chair: Thank you very much.
Senator Loffreda: Thank you for being here, Mr. Giroux.
[English]
It is always nice of you to accept our invitation, and welcome.
We’ve talked a lot about increased spending, inflation, increased interest rates and increased debt servicing. I’d like to explore something very important. Has your office conducted any work on some of the potential savings the government could achieve in terms of its operating costs moving forward?
I ask the question within the context of the pandemic and how the traditional definitions of workplace and workforce have changed. For example, I’ve argued many times in the last two years that the government should seriously consider re-evaluating its multi-billion-dollar real estate portfolio now that remote and hybrid work arrangements are here to stay and many office spaces will likely remain vacant indefinitely.
I also get the impression that public servants are equally, if not more, productive working from home and more efficient than ever. A lot of corporations agree with that. Surveys confirm that.
Do you see an opportunity for services to be streamlined and some cost-saving measures within the public service and overall government operations?
I’m not calling for austerity measures, but I think there is some potential for cost savings. We talk a lot about being in an era of increased spending, but where can we save? Because I don’t believe in increasing taxes. I would like to see where else can we fund ourselves and all the programs coming forward and all the increased spending that we’re looking at. Thank you.
Mr. Giroux: That’s a good question.
In fact, my office was called by Public Services and Procurement Canada to see if we still needed all that space or if we expected to continue to need all that space. They’re doing that, I think, across the public service to hopefully rationalize some of the real estate holdings of the Government of Canada in an era where we are expected to move to hybrid working.
So there is, for sure, the opportunity to realize savings or to rationalize the real estate holdings of the government now that there seems to be a movement towards working from home part time and working in the office less than on a full-time basis. It’s clear that there are opportunities for savings in that area.
We have not costed that because nobody has asked us yet. It would depend on the assumptions that people would want us to use when it comes to the proportion of employees who would telework and how many days per week or per month they would do so, or whatever the format that is chosen ends up being.
It would also be difficult given that Treasury Board has not given any clear instructions to departments and agencies. Rather, they leave it to individual departments to decide when employees will be back to work in person and whether it will be full time, part time and so on.
There hasn’t been clear instructions from the Treasury Board as to what format will the back-to-work in person take. It would be difficult to estimate at this time. But the short answer is there are clearly savings possible.
Senator Loffreda: Thank you for that answer.
I’d like to explore cost-saving measures going forward. I believe in a fiscal responsibility, obviously. Tax and spend is not sustainable going forward. Where can we save?
If no parliamentarian has made that request, I could make that request now officially and we could look at that. With the expertise that you have in your office, it’s something we should look at going forward. Thank you for considering that.
I also want to look at the sustainability of elderly benefits. It’s so important. In your report on the Main Estimates, you provide some commentary on federal spending on elderly benefits. You note that the Old Age Security is currently the largest federal program, representing $1 in every $7 of federal spending. It will reach $68.3 billion in 2022-23. And we know that, due to the pandemic, the number of retirements dropped significantly. However, retirements are coming back to pre-pandemic levels.
We also know that a cohort of retiring baby boomers is in the pipeline. Your projections show that these benefits continue to increase significantly, reaching nearly $90 billion by 2026-27.
With our aging population and higher inflation, how sustainable are our elderly benefits — I’d like to have your insight on that — which are financed from the government’s general tax revenues? As I said, I’m not advocating for a tax increase; I’m looking at tax savings.
Are you concerned about the sustainability of the program, given the fact that we talked about an extra $12 billion for Pharmacare, an extra $1.5 billion a year for dental, $4 billion in year one? What other policy changes should the government consider besides savings?
We also know that an aging population will put additional pressure on our health care system, which is already fragile, and the aging population will put pressure on Pharmacare, on dental care going forward.
This is where my concept comes in — savings — and I’d like to have your insight on the elderly benefits on that. Thank you.
Mr. Giroux: Savings for elderly benefits would not be easy to realize, aside from moving the retirement date to better align it with the life expectancy, which was done a couple of years ago and then undone for reasons that are beyond my mandate to comment on. These would have meant savings accruing gradually over time, and that’s one potential way to realize savings and ensure that elderly benefits don’t represent an ever-increasing share of government spending.
That being said, elderly benefits are financed by general government revenues and their sustainability has to be looked at in the context of overall government spending.
[Translation]
Senator Gerba: Thank you very much for being here, Mr. Giroux. Your answers are always very enlightening. On page 5 of your report, it’s very clear that transfers, at 61.1%, represent the largest portion of budgetary authorities in the 2022-23 Main Estimates. However, when we look at the details, it seems this budget has shrunk in comparison to the 2021-22 period, as you yourself said.
What’s the reason for that drop, in your opinion? Is it because of lower COVID spending or is it because other programs have been cut? Can you tell us more about why that’s lower?
[English]
Kaitlyn Vanderwees, Analyst, Office of the Parliamentary Budget Officer: Senator, the drop occurred because of a change in COVID spending that fell significantly.
[Translation]
Senator Gerba: So that’s why it’s lower?
[English]
Ms. Vanderwees: That is the largest reason. The change in COVID spending went from $134 billion to $31 billion in the past fiscal year.
[Translation]
Senator Dagenais: Good morning, Mr. Giroux. My question is about the Canada Revenue Agency’s performance report. Correct me if I’m wrong, but I was surprised to see that the agency has nearly 42,500 employees, making it the second-largest battalion of public servants in the country after the Armed Forces with a budget of $4.5 billion. Do you think that number is justified considering how its performance stacks up against those of other countries you included in the report?
Mr. Giroux: I find the battalion analogy interesting. I was going to say that Canada Revenue Agency employees don’t have weapons, but the weapons at their disposal could be considered quite dangerous to people being audited. It’s hard to answer your question about whether staffing is adequate and effective. Based on the conclusions and indicators in the report, I think the agency could do better by increasing the efficiency of its staff as a whole. That’s my short answer.
Are there enough public servants? It’s not that straightforward. Are there enough people to answer the phones? Those of us who have tried to reach CRA by phone would say no.
People who get audited, on the other hand, would say there are too many. I disagree with that. I think that an honour system requires auditors. However, the agency needs its people to invest their energy where it counts so they get the best possible returns on their investments. Still, random audits have to happen in order to get that deterrent effect.
Does CRA have enough employees? That’s open to interpretation. Are the employees as a whole efficient and optimized? I believe that, like any organization, they could do better. When we compare our data to that of other countries, it’s clear that our tax agency could be more efficient.
Senator Dagenais: Shifting gears, when we look at price inflation and salary increases, that represents a significant revenue increase for the government. Is the government about to get richer because of inflation, which is becoming quite a burden for taxpayers and consumers?
Mr. Giroux: I haven’t looked at that issue specifically to see how much inflation influences or boosts government revenue. However, government revenue represents about 14% or 15% of the economy. If we do the math using much higher inflation and we look at the impact on nominal GDP, about one-sixth of that amount ends up in government coffers. Plainly put, when people buy goods and services that cost more, they pay more GST. If wages and corporate profits increase, more income tax will be collected. That’s a simple way of explaining it.
Senator Dagenais: Thank you very much. Your answers are always very clear, and I appreciate that.
[English]
Senator Duncan: Thank you, Mr. Giroux and Ms. Vanderwees, for being here today. It’s greatly appreciated.
I understand you’ve addressed the issue of the compensation for First Nations children and Jordan’s Principle. I’m looking forward to reviewing the transcripts. Parliamentary Budget Officer, you’ve also done a report on First Nations and Inuit health care.
Now, my understanding is that part of the issue that gave rise to Jordan’s Principle funding was that of health care and the delivery of health care. I’m curious if we’ve applied the Jordan’s Principle funding lens to health care spending as well, linked the two and done an examination to ensure that we are addressing the problems and that the funding is going where it needs to go.
Mr. Giroux: I don’t think I can honestly provide a complete answer for you right now, because it’s a big question. It’s a question that the Minister of Indigenous Services, hopefully, would be in a much better position than I am to answer, because we haven’t done a study on that recently. We haven’t looked at the appropriateness of First Nations and Inuit health care spending in regard to the population that it serves. Unfortunately, I cannot provide you with a complete answer.
Senator Duncan: To focus the question, there’s the Minister of Indigenous Services, but there’s also the Minister of Health who’s responsible for First Nations and Indigenous health care. It seems to fall between the cracks to account for the spending by the public. Should my question be more appropriately addressed to the Minister of Health?
Mr. Giroux: I’m not an expert in the machinery of government, but I think the reorganization that took place a couple of years ago transferred the First Nations and Inuit Health Branch from Health Canada to Indigenous Services.
That doesn’t mean your question would not be well addressed to the Minister of Health, because it’s quite possible that when such a big transfer of responsibility takes place from one department to the other, there are things that can fall through the cracks. My gut feeling is that the question would be best addressed to the Minister of Indigenous Services, but it could also be equally addressed to the Minister of Health. That’s one thing I’m not 100% clear about.
Senator Duncan: It seems to me that the funding for Jordan’s Principle was designed to address that fall between the cracks, if I’ve interpreted it correctly.
Mr. Giroux: Yes. I think it was to address discussions or disputes among jurisdictions, mostly between the federal government and provinces, as to who should pay for Indigenous health care, especially for young children and to avoid a repeat of that very sad event. However, not being a person who’s on the ground and specialized in the delivery of health care, I cannot answer that specific question. I’m not sure the minister could either, to be honest.
Senator Duncan: Thank you.
The Chair: Honourable senators, I see that we have time for a second round. I also have to recognize that we have six senators for the second round. We will go to second round, and I’ll ask each senator to ask one question, please, because of the time frame.
Senator Marshall: Mr. Chair, I’m happy to receive an answer in writing.
The Senate approved the $13 billion in Supplementary Estimates (C) on Thursday, which was the last day of the fiscal year. It’s approved so late every year that I always wonder if the departments need that money. Do they actually spend it? Have you ever carried out any kind of review of this, Mr. Giroux, to correlate lap spending with the amount funding that’s approved in Supplementary Estimates (C)? That’s my question. An answer in writing would suffice. Thank you very much.
Senator Wetston: I have a very quick question. As you know, we do not have a fiscal anchor. There has been much discussion about that. Some consider that we have a monetary policy anchor in the 2% or 3% price stability inflation range. Does any of your work on an ex ante basis take into account the relationship between fiscal policy, lack of an anchor and monetary policy to a 2% to 3% target, which is, of course, under some stress at this point in time? Thank you.
Mr. Giroux: The short answer to that question is we haven’t done a study like that directly. However, it’s clear that the fiscal policy that tends to be expansionary, such as deficit financing, makes the job of the Bank of Canada more difficult when the economy is already running close to or at full capacity, employment growth is very strong and the unemployment rate is low. So running deficits that are significant makes the job of the Bank of Canada in taming inflation much more difficult.
Senator Wetston: Thank you.
[Translation]
Senator Moncion: I’d like to talk about the figure on page 7 that shows the growth in elderly benefits, which are expected to rise to $80 billion by 2027. You’re forecasting an annual decrease of 6%. Can you explain the correlation between the two? I’d like to understand the connection you’re making here.
Mr. Giroux: Yes. The growth in elderly benefits is due primarily to the growing population of people 65 and up and to the inflation we expect to see in the coming years. The unusual growth on this graph is due to the interaction between inflation, which is higher, and a lump sum payment to seniors who had to repay part of their Guaranteed Income Supplement or whose GIS was cut because of CERB benefits. The government promised to compensate seniors for that, which resulted in a very significant one-time increase in elderly benefits. Inflation, which should drop in the coming years, will align the growth rate with population growth and inflation.
Senator Moncion: So you took population growth into account for both younger and older age groups?
Mr. Giroux: Yes. For the Guaranteed Income Supplement and Old Age Security, it’s only growth of the population 65 and up, and, in some specific cases, 60 and up, but in general this is about the growth of the elderly population.
Senator Moncion: Thank you very much.
[English]
Senator Loffreda: I have a quick question. We talked about certain issues relating to Indigenous-related matters where there was no tracking of progress. I would like to know who bears that responsibility of tracking progress. Because if we track progress in a better way, we can make required improvements. If I look at your report on the Main Estimates, you pointed out that Indigenous-related budgetary spending has increased significantly. If I look on page 9, I see it has quadrupled in 10 years, and it’s justified. Obviously, there are many urgent financial needs to address the series of issues that touch Canada’s First Peoples, and it’s justified. But I would like to track progress to see where we can improve. Are they getting their value for money? In essence, is the government achieving some success?
In reviewing the government’s operating costs, do you believe the decision to dissolve Indigenous and Northern Affairs and replace it with Crown-Indigenous Relations and Northern Affairs Canada and Indigenous Services Canada was a sound decision financially? What can we do to better track progress, make improvements and be certain we’re giving the proper service and making progress on our spending, and if we have to spend more, we will? What are your thoughts on that?
Mr. Giroux: The main vehicle, senator, for tracking progress when it comes to departmental spending are the departmental plans and the departmental reports, which, as you may know, departmental reports were tabled very late last fiscal year. They were tabled in December when almost three quarters of the fiscal year had already elapsed.
In the departmental reports, it’s very often the departments themselves that set out their own targets with oversight from the Treasury Board Secretariat and Treasury Board. It’s a tracking system that could be improved, to say the least. That’s a short answer to a question that could warrant a full hour’s worth of discussion, I’m sure.
Senator Galvez: Mr. Giroux, every year we have increasing numbers of extreme weather events that are becoming very costly to reconstruct. We used to have them in the billions and now we are expressing them in terms of percentage of GDP. Recently, the Office of Management and Budget assessment in the United States found that it will cost US$2 trillion per year. In today’s money, it is equal to $7.1 billion annual revenue losses in extreme weather events.
In Canada, we don’t seem to be counting those costs. The numbers indicate that it could cost $18 billion per year, and some indicate it will cost $150 billion per year before 2050. Does this worry you? Do you think there should be in the budget and in the estimates a way of putting these numbers aside so we can track how much these extreme weather events are costing? Thank you.
Mr. Giroux: As a taxpayer, anything that has a significant cost worries me. But to answer your question more directly, you’re probably referring to the cost of climate change.
There has been interest from multiple parliamentarians and questions related to that, which I initially thought would be very difficult if not impossible to estimate. But smart people who work in my office have decided it would be a challenge worth taking, and we will try to estimate the cost or at least a range of costs related to climate change. I think the government should probably try to do the same. If my small team can come up with an estimate of the cost of climate change, there’s probably no reason why the government couldn’t come up with at least an attempt or a range of these cost estimates.
We’ll do our best to provide you with at least a range in the next several months. I cannot commit to a specific timeline, because it’s a significant undertaking.
Senator Galvez: Excellent. Great news. Thank you so much, Mr. Giroux.
Senator Pate: Thank you again to our witnesses.
In your report on carbon tax, you said that when economic impact is combined with fiscal impact, more households will see a net loss. However, your report states that it does not account for the economic and environmental cost of climate change.
Considering that the government’s main objective with respect to the carbon tax is to fight climate change, could you please explain how you decided what to include in your report, particularly in terms of that issue?
Mr. Giroux: That is a good question. I’ve said in interviews a couple of times that we did not include the cost of climate change, so the cost of doing nothing, because we have not yet been able to provide an estimate that is solid enough to be presented publicly. But as I just said, it’s something we plan on remedying by at least an attempt at estimating the cost of climate change.
The other thing that’s not included in the report is the potential benefits of breakthrough technologies to address climate change. The reason for that is that we don’t see any such technologies on the horizon — or we see some of them on the horizon but not sufficiently advanced for implementation in the time horizon of the report, which is between now and 2030.
I’ve also said it’s quite possible — and, in fact, it’s expected — that some of these technologies will entail technological benefits, but beyond 2030. Between now and 2030 is a very short period of time for technological benefits to be materialized. We don’t know yet whether these will be domestic or international. They would have differential benefits for the Canadian economy.
The Chair: Mr. Giroux, on behalf of the National Finance Committee, there’s no doubt in my mind that we want to unanimously thank you and your team for a job well done. Thank you as well for responding when we have timelines. You and your office have always been very cooperative.
Before we adjourn, honourable senators, I want to inform you that the next meeting, as we progress with our report, will be Tuesday, April 26.
Thank you, senators and staff.
(The committee adjourned.)