THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, October 3, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 9 a.m. [ET], for the purpose of studying the main estimates for the fiscal year ending March 31, 2024.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: I wish to welcome all the senators as well as the viewers across the country who are watching us on sencanada.ca.
My name is Percy Mockler, senator from New Brunswick, and Chair of the Standing Senate Committee on National Finance. Now, I would like to ask my colleagues to introduce themselves starting from my left.
Senator Forest: Good morning. Éric Forest, senator from the Gulf division in Quebec.
Senator Gignac: Good morning. Clément Gignac, senator from Quebec.
Senator Galvez: Good morning. Rosa Galvez, senator from Quebec.
[English]
Senator MacAdam: Jane MacAdam, senator from Prince Edward Island.
[Translation]
Senator Loffreda: Good morning and welcome. Senator Tony Loffreda from Montreal, Quebec.
[English]
Senator Smith: Larry Smith, Montreal, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
The Chair: Thank you.
[English]
The Chair: Honourable senators, today we will continue our study of the Main Estimates for the fiscal year ending March 31, 2024, which were referred to this committee, order of reference from the Senate of Canada on March 7, 2023.
[Translation]
Today we welcome senior officials from the Department of Finance Canada.
[English]
Welcome to all and thank you for accepting our invitation to appear in front of the Senate National Finance Committee. Since there are so many of you — and I was chatting with Mr. Veilleux — Mr. Veilleux will be making the opening remarks, and I will ask the others to please introduce yourselves if you’re invited to answer a question.
Therefore, from the Department of Finance Canada, the Chief Financial Officer, Christopher Veilleux.
[Translation]
Mr. Veilleux, you have the floor. We will then have questions from the senators.
Christopher Veilleux, Chief Financial Officer, Department of Finance Canada: Thank you, Mr. Chair.
[English]
Good morning, Mr. Chair and members of the committee. Thank you for the opportunity to present these 2023-24 Main Estimates on behalf of the Department of Finance. I would like to begin by acknowledging that I am speaking to you from the traditional, unceded territory of the Anishinaabe Algonquin peoples.
Joining me today are other departmental officials to assist in providing a more in-depth perspective on the rationale and policies supporting the numbers within these estimates. As you know, the department supports the Deputy Prime Minister and Minister of Finance by developing policies and providing advice to the government with the goal of creating a healthy and resilient economy for all Canadians.
The 2023-24 Main Estimates identify total budgetary requirements of $128.9 billion for the Department of Finance. Of this amount, approximately 99%, or $128.8 billion, relates to the statutory items that have already been approved by Parliament through enabling legislation.
There is a net increase of $18.3 billion in budgetary statutory payments in 2023-24 compared to the 2022-23 Main Estimates. This increase is primarily attributable to the following items:
There was an increase of $14.2 billion in interest on unmatured debt, reflecting the increased level of debt as well as higher interest rate expectations on market debt, as noted in Budget 2023. There was also an increase of $4.2 billion in the Canada Health Transfer, or CHT, reflecting the 9.3% gross domestic product-based escalator being applied to the 2022-23 level. The Canada Health Transfer grows based on a three-year moving average of nominal gross domestic product growth, with funding guaranteed to increase by at least 3% per year. Further, there was an increase of $2 billion in fiscal equalization payments, reflecting the 9.3% GDP-based escalator being applied to the 2022-23 level. Equalization payments grow from year to year based on a three-year moving average of nominal GDP growth.
There was also an increase of $478.1 million in the Canada Social Transfer, reflecting the annual increased funding commitment of 3%, as legislated; an increase of $281.6 million in Territorial Financing, reflecting the incorporation of new and updated data for territorial expenditures requirements and revenue capacities into the program’s legislated formula; a decrease of $1.6 billion in payments to the Canada Infrastructure Bank to carry out approved activities as outlined in their 2022-23 to 2026-27 corporate plan; an increase in recoveries in the Alternative Payments for Standing Programs in the amount of $678.5 million as a result of the forecasted growth of national basic federal tax, reflecting a strong GDP growth forecast for 2023; a decrease of $424.5 million in payments to the International Development Association, or IDA, reflecting the schedule of payments agreed upon between the Government of Canada and the IDA; an increase in recoveries for the Youth Allowances Recovery in the amount of $151.6 million as a result of the forecasted growth of national basic federal tax, reflecting a strong GDP growth forecast for 2023.
There is a statutory non-budgetary decrease of $361.7 million in financial assistance to the International Development Association in 2023-24, as Canada will not be providing a loan. In 2022-23, Canada provided a loan as part of the nineteenth replenishment of the World Bank Group’s IDA.
Lastly, the voted program expenditures of $128.5 million cover the day-to-day operations of the Department of Finance and include salaries and goods and services.
The 2023-24 Main Estimates reflect a net decrease of $9.4 million in voted budgetary expenditures since the 2022-23 Main Estimates, stemming primarily from sunsetting funds related to the COVID-19 economic support and recovery advertising initiative.
Mr. Chair, this concludes my overview of these estimates for the Department of Finance. My colleagues and I would be pleased to answer any questions the committee members may have.
[Translation]
Thank you.
The Chair: Thank you, Mr. Veilleux, for your comments and your team’s statement.
[English]
Now, honourable senators, we will proceed to questions, and I would like to share with you that you will have a maximum on the first round of five minutes each.
Senator Marshall: Thank you to the witnesses for being here. You mentioned in your opening remarks about the public debt charges — the interest charges. I know it says $32.9 billion in the Main Estimates, but the budget says $43.9 billion. With the increase now in interest rates, do you have a revised figure? What’s the revised figure? It’s more than $43.9 billion.
Mr. Veilleux: Thank you for the question, senator. I invite my colleague Evelyn Dancey to the table.
Evelyn Dancey, Assistant Deputy Minister, Fiscal Policy Branch, Department of Finance Canada: Good morning. I’m Evelyn Dancey, Assistant Deputy Minister of the Fiscal Policy Branch at Finance.
At present, we do not have a revised estimate for public debt charges in 2023-24. That will be disclosed when we are able to table the fall statement.
Senator Marshall: Can you clarify? You said you don’t have it yet. You’re the Department of Finance. All the smart people are in the Department of Finance. Is it that you have the number and won’t disclose it, or you don’t have the number?
Ms. Dancey: Currently, we are undertaking our fall forecast, so all these pieces come together. We determine our financial requirements and update the forecast into that fall statement.
Senator Marshall: It’s unbelievable that you don’t have a new number. I find the government is very secretive about information. I just make that statement that you can’t give us a number for revised public debt charges.
Can you clarify on the borrowings? I know in the budget, the government was forecasting additional borrowings of $63 billion, and The Fiscal Monitor for July references $40 billion. Am I comparing apples to apples? I’m wondering if the $63 billion was the budget number, and three or four months into the year, it’s up to $40 billion. Is it anticipated that there are going to be additional borrowings above the $63 billion?
Ms. Dancey: I’m sorry, I don’t have those two documents. I came up to this table without my material, but, in general, The Fiscal Monitor is providing our best monthly and year-to-date information. The basis of comparison might be different compared to what you’re looking at for the budget because the budget would tend to be by fiscal year, and The Fiscal Monitor is reporting year to date as well as monthly. But I’m happy to follow up afterwards.
Senator Marshall: That’s not very helpful. So I can’t get those numbers, I can’t get the interest numbers, and I can’t get the borrowing numbers.
Can I ask a question on The Fiscal Monitor: Why does it take two months? We only have July, and here we are now into October. Why does it take so long to put The Fiscal Monitor together? Can anybody answer that question?
Ms. Dancey: We do depend on actual financial data, the availability in particular from the CRA for revenue data. We don’t actually have the data very long before we turn around The Fiscal Monitor. It is a pretty short time, just a couple of weeks to create it.
Senator Marshall: So we’re slow getting that bit of information. Some we don’t get. I will move to some information I was trying to get all last spring on the budget. I’ve asked a number of people and can’t seem to get it, so I will ask you: The health money for the provinces — the $49.4 billion — it’s in the Main Estimates, in Supplementary Estimates (A), but when you look at the budget document, there is a graph on page 55 that actually shows $55 billion for this year. What’s the right number: Is it $49.4 billion or $55 billion?
Alison McDermott, Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Sorry, maybe I can follow up in terms of this specific figure because I don’t have the budget in front of me. There are several parts, different elements of the health deal that I can walk you through if you would like, but it may be referring to the Canada Health Transfer. We have those numbers here today.
Senator Marshall: There are two different sets of numbers out there, so I would like to read something into the record to make sure I get the information I have been looking for since the budget was released last spring. I’m referencing page 55 of the budget document.
For the five years beginning in 2023-24 and ending in 2027-28, can you provide the committee with the actual numbers for each of the following: the pre-pandemic growth track for each year; the post-pandemic surge — I know I have the $2 billion for the pediatrics — the CHT 5% guarantee; the existing bilateral agreements; and the amount of the new bilateral agreements? I want the numbers that are represented in the chart.
I have enlarged the chart, and I have asked a number of people for the numbers so I can track them, and I can’t get the numbers. I would like to say into the record that I can’t get anything on the public debt charges or any clarification on the borrowing. I’m not happy that it takes two months to get The Fiscal Monitor and I have been four or five months trying to get the information on the federal health transfer. Is my time up?
Ms. McDermott: I would like to respond if I may. Not right now? I now have the chart in front of me, so I am happy to follow up. We should be able to get you numbers for all of those.
Part of the confusion may lie in the fact that there is some complexity in the way the federal transfers work, and because the Canada Health Transfer works on a formula basis, there are certain amounts of funding that were included before the new deal was announced. There are certain amounts of funding that would happen as a result of the formula growth anyway.
In addition, there were new funds put forward in the health transfer that was announced last winter, and so what this graph tries to do is show the amount of money that would have been provided before and the amount of money that resulted from the faster GDP growth, which then implicated the formula. We should be able to give you all these things. I don’t know why you have not been able to get your hands on it before.
Senator Marshall: Will the provinces and territories receive the $49.4 billion or the $55 billion?
Ms. McDermott: Sorry, which is the $49.4 billion that you are referring to?
Senator Marshall: They are either going to get the money in the Main Estimates or the money in the graph.
Ms. McDermott: They are getting a lot of money under the health transfer. As Chris Veilleux’s numbers show, they are getting $49.4 billion in the Canada Health Transfer directly this year, as outlined in the Main Estimates, and that reflects the strong growth in GDP and the fact that the CHT is driven by the growth in GDP.
The Chair: On that, Mr. Veilleux, we have an agreement that this will be answered as per the question asked by Senator Marshall. We will give you an end date to answer in writing, which will be by the end of the day on October 17. Thank you.
[Translation]
Senator Forest: My first question is: On September 14, the government announced a reduction in the GST rebate to encourage housing construction.
Several provinces followed suit, but Quebec did not because it believed the measure would cost too much. Before the announcement, did your department assess the estimated cost of the government announcement?
Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada: Thank you for the question, senator.
The September 14 announcement represents a major investment by the federal government in rental housing. It’s a multibillion-dollar investment over the next five years, and it’s primarily to recognize the fact that the cost of financing these buildings has skyrocketed over the last 12 to 18 months or so.
At the time, the expectation was that this cost reduction through the reduction or elimination of the GST — essentially 3.2% and 5% — would have a positive medium-term effect on investment and would therefore help accelerate it.
Senator Forest: That seems clear in terms of construction and labour costs. However, am I to understand that you didn’t estimate what eliminating the GST associated with this measure would cost?
Mr. Jovanovic: We’re talking about an investment of about $4.5 billion for this year and the next five years.
Senator Forest: So the measure would cost about $4.7 billion?
Mr. Jovanovic: About $4.5 billion.
Senator Forest: Has anyone evaluated the positive impact this measure could have? How can this accelerate the construction of rental housing, which is sorely needed across Canada in big cities and small towns alike? Has anyone assessed how this could help get more housing built?
Mr. Jovanovic: That’s a very important question, but unfortunately, it’s very hard to answer.
There are different factors at play. The cost of financing is one of them, especially in the current context. It would have been extremely difficult to come up with an estimate, and the very value of the estimate could easily be called into question. What we do know is that it’s a step in the right direction and that it significantly reduces the cost of financing when the cost of financing is on the rise. So, yes, it is a positive measure.
Senator Forest: Therefore, there is no upside, downside or real-life scenario, correct?
Mr. Jovanovic: The measure itself is positive, because as I said, it makes it possible to significantly reduce the cost of financing. We think that’s a step in the right direction.
Senator Forest: My second question has to do with raising the cap on mortgage bonds. Last week, you raised the cap on mortgage bonds from $40 billion to $60 billion, according to your estimates at the time, which would ensure that 30,000 more housing units are built.
First, this time, they were able to identify a number of basic housing units to produce the estimate.
Could you explain how the program works and how raising the annual cap from $40 billion to $60 billion will help build 30,000 housing units — and how people were able to estimate the desired target?
[English]
Grahame Johnson, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance Canada: I am happy to discuss the decision to increase the Canada mortgage-backed bond limit.
I will start with the fact that this supports the securitization of guaranteed mortgages. It’s a key component of financing, particularly for multi-unit residential construction. In the current interest rate environment, it’s quite expensive to fund these programs. The most cost-efficient and, for a lot of projects, the only cost-effective way to fund them is through the developer getting a mortgage guaranteed by the Canada Mortgage and Housing Corporation, or CMHC, which is then, in turn, securitized into a mortgage-backed security and sold into the Canada Mortgage Bonds program.
The limit of $40 billion, which has been outstanding for close to a decade, has been a constraint on that; it has been a bottleneck in the amount of this funding that can be done. By increasing it to $60 billion, that incremental $20 billion will be directed toward multi-unit residential financing. It is CMHC’s estimate based on their experience year to date and last year that the incremental $20 billion will fund up to 30,000 new units of construction.
This is calibrated based on the amount of funding they have put in place in the past 18 months and what that has actually led to.
[Translation]
Senator Gignac: Welcome to our witnesses. My questions relate to servicing the government’s debt, which is now the Department of Finance’s second highest line item. We’re talking about $32 billion, which is more than the amount allocated to equalization payments. It’s almost double what we had two years ago; this line item has gone from $17.8 billion to $32.9 billion.
My questions are an extension of Senator Marshall’s, but I will try to get a better response. I understand that you will review these figures and include this in the Fall Economic Statement, but what assumptions did you make in terms of interest rates when you put $32.9 billion forward for the main estimates? Are these the same numbers we’re seeing in the 2022-23 budget?
Ms. Dancey: Exactly. These are the numbers in the budget that we’re using right now. We’re now in the process of preparing projections for the fall statement, so we will use the private sector forecasters’ interest rates.
Senator Gignac: Thank you. I bring this to your attention, Mr. Chair, and it’s also for those watching and listening to us: in terms of the policy rate, the budget forecasted 4.4% this year and 3.3% next year. We wouldn’t be surprised if you brought up the policy rate, of course, due to the cost of servicing the debt and interest rates.
The other thing that concerns me is how sensitive our government finances are to interest rate hikes. The year before the pandemic, so in 2019, for every increase of 100 basis points in the rate, our spending rose $1.9 billion in the first year and $5.7 billion after five years. Today it’s twice that: for a sudden increase in the same 100 basis points four years later, we’re talking about an impact of $3.8 billion on federal government spending in the first year and $10.3 billion after five years.
I’d like to hear your comments on the government’s debt strategy. What did you do during the pandemic, and what’s the average term of that debt? I’d like to hear from the department. Thank you.
[English]
Mr. Johnson: Thank you. I am happy to address Canada’s Debt Management Strategy.
Through the pandemic, Canada’s Debt Management Strategy has been guided by a principle of balancing costs and risks while, at the same time, supporting and maintaining well-functioning markets for Government of Canada securities. That is key for both the stability and efficiency of the broader financial system and for the government’s ability to raise stable, low-cost funding in a range of different environments.
Pre-pandemic, that led us to issue a debt stock — and I will speak in terms of average term to maturity here, although there are other measures — with an average term to maturity of between six and seven years. It took that long to roll over.
When the pandemic struck, the initial very sizable financial shock was met by a sudden and large increase in Treasury bill issuance, which is what one does as a debt manager. That’s your shock absorber. That’s the market that can provide the greatest amount of funds most easily.
That led to a lowering in the average term to maturity and an increase in the sensitivity of the debt. That was then something that we worked our way through. In subsequent years, there was a shift toward an increased amount of longer-term bond issuance, culminating in a state where almost 40% of issuance was 10 years or longer, well above the historical average.
What has happened is that, by now, we have returned the debt stock to that reasonable steady state of between six and seven years average term to maturity. Reflecting that, we have pulled back from the long bias. I think about 30% of all issuance now is 10 years or longer.
Your point about the sensitivity to a basis point is a good one, but I would say that more reflects the aggregate increase in the size of the debt given the necessary response to the pandemic than it does a fundamental change in the interest rate sensitivity of Canada’s debt stock or of the Debt Management Strategy that we follow.
Senator Gignac: I understand that most of it is due to the huge increase of the debt during the pandemic.
So before the pandemic, the debt maturity was around six years, and during the pandemic, you reduced it to four years. Now it’s back to six years.
Mr. Johnson: That’s roughly right. Before the pandemic, it was six and a half years maybe. I believe it got down to approximately four and a half to five. It is back up to six and a half now, so we’re largely in line with where we were pre‑pandemic.
Senator Smith: Just to continue on with Senator Gignac’s questions, one of the key risks for Canada’s public finances is the target for indicator 2.3 in your Departmental Plan, which measures the general government net debt to gross domestic product. It says it is “low by international standards defined as compared to G7 countries.”
First, what is defined as “low,” and how do we compare with other G7 nations in that regard?
Mr. Johnson: “Low” is a relative measure. Based on the other G7 countries, I would suggest that means we are in the bottom half of that. In terms of net debt to GDP, we fare extremely well and are probably the lowest of the G7. Net debt to GDP, I believe, is close to 40% right now.
Senator Smith: Can you give us a couple of examples of us versus other countries?
Mr. Johnson: The United States is close to 100%. Japan is close to 200%. Germany, France and the U.K. would be in the 80% to 90% range. These aren’t the exact numbers.
Senator Smith: So this might be an easy question to answer, but to what do you attribute our “success” or our debt level compared with the other countries? Are there a few key indicators that we hit the ball out of the park versus other countries?
Mr. Johnson: The single biggest thing is our net financial assets in that we have a fully funded national pension plan through the CPP. There is a significant amount of financial assets there that do not exist in other countries like the U.S. Also, we have an A-level of gross debt that is equal or lower than a number of our other comparators.
Senator Smith: Basically, we have been more conservative and cautious in the way we have set up our programs so that —
Mr. Johnson: We have actually funded the program. If you look at the U.S. as an example, social security is unfunded; it’s pay-as-you-go. We have a very sizable pool of financial assets that will not represent a borrowing drain on the federal government in the future.
Senator Smith: I’m glad to hear that.
In September of this year, Finance Canada and the Bank of Canada launched a Debt Management Strategy consultation, seeking input from stakeholders on the design and operation of the Government of Canada’s domestic debt program.
I would like to get a sense of how your department is collaborating with the Bank of Canada and its partners on managing the government debt. Who does what in that scheme?
Mr. Johnson: It is a partnership, as you pointed out. The Bank of Canada is the government’s fiscal agent.
In terms of a very basic division of duties, the Bank of Canada is responsible for the actual market operations. They conduct the auctions; they conduct bond buybacks. They’re the market-facing aspect of it. In terms of the setting of debt management policy, it’s done in a collaborative way. On the consultations to which you refer, they’re joint Bank of Canada–Department of Finance consultations.
The policies are created by committees, the Debt and Treasury Management Committee and the Funds Management Committee, which are jointly staffed by both the Bank of Canada and Department of Finance representatives. Those policies are put forward to the minister, who has ultimate authority and approval for these before they get published in the budget as the actual Debt Management Strategy for the coming fiscal year.
Senator Smith: Is there direct communication between the groups in terms of checkpoints?
Mr. Johnson: Daily. Within the Department of Finance and the Bank of Canada, the more formal meetings are held monthly, but informally there is a high level of communication.
Senator Smith: Are there any surprises which you would like to share with us that have come along during this process — positive, negative or neutral?
Mr. Johnson: No. There is a high level of engagement with the market at all points, too. I can’t put my finger on something and say that the process emerged a huge surprise. Obviously, the literally overnight ramp-up in borrowing conditions that hit in March and April of 2020 was a surprise, but given the circumstances, I would say that the partnership and the systems worked very well together.
Senator Smith: Thank you so much.
Senator Loffreda: Welcome to the witnesses. Thank you for being here this morning.
On page 6 of your Departmental Plan, under the section “Inclusive and Sustainable Economic Growth,” I noted your commitment to “provide policy advice . . .” to support a well-functioning “. . . financial sector that continues to meet the needs of Canadians.”
You submit that the financial sector priorities include providing advice on Canada’s financial stability framework and the domestic housing finance system, among other priorities and items. Can you speak to us about the discussions you are having with Canada’s banks and how these priorities have been established? What kind of advice are you providing to the financial sector, and how receptive are the banks and other financial institutions? How are they receptive to your feedback? Any specific examples you could provide would be most appreciated.
Mr. Johnson: Thank you for the question. It’s fairly broad arching. The responsibility for the stability and efficiency of the financial sector really does broach a large number of areas. It does include the banking system, it includes capital markets and non-bank financial institutions, or NBFIs — I would say a number of areas with regard to the banking system.
The department alongside with its Financial Institutions Supervisory Committee, or FISC, partners, which are composed of the Office of the Superintendent of Financial Institutions, the Bank of Canada, the department and the Canada Deposit Insurance Corporation, meet regularly to discuss the regulatory framework the banks operate in, the stability and health of those banks, to get updates on where there may be stresses and to discuss policy actions to react to those stresses.
In terms of a fairly significant NBFI sector, the department engages with the Bank of Canada and entities like the pension funds and non-bank lenders to better understand their vulnerabilities and the approaches that they manage. In that regard, I’d point to some of the liquidity stresses some of the large pension funds faced very early on in the pandemic as some of the capital markets momentarily seized up, and we’ve looked at and worked with industry to take steps on that.
There is also international engagement through the Financial Stability Board, where the bank and the Department of Finance have representatives who attend these meetings to discuss a range of issues, again, including things like the resilience of the non-bank financial institutions, the resilience of things like central counterparties, whereby market trades are settled to reduce the stress on the system. It really does cover the gamut.
For some specific examples, I would say FISC is currently engaged very much with all the partners keeping an eye on some of the stresses within some of the smaller and medium-sized banks that I can’t get into very specifically here, but just ensuring that capital and liquidity ratios are well served.
We are also, of course, engaging with the FCAC, the Financial Consumer Agency of Canada, to make sure that consumers aren’t — they’re, of course, feeling stresses given the change in interest rates, but to make sure that the banks are giving them the avenues and working with them to manage those stresses as best as they can within the environment.
Senator Loffreda: Are you satisfied that the banks are doing exactly that?
Mr. Johnson: The banks are working very closely and very well with their borrowers to help them work through these periods of stress.
At the risk of generalizing here, and I won’t speak for the banks, but it’s not in their best interests to foreclose. Foreclosure rates and, indeed, arrears on mortgages are minimal. The banks are working with the lenders to structure payment plans and the mortgages in a way to keep people in their houses and in a way to keep them making their debt payments. There will always be stresses; there will always be people who have overextended; there will always be stresses in the system, but I think the banks have demonstrated an ability to work with the borrowers in a way that has not as of yet resulted in any sort of noticeable spike in foreclosures.
Senator Loffreda: Is there a concern with the increase in credit card delinquencies? Are the banks concerned with credit card delinquencies increasing?
Mr. Johnson: The banks have increased their provision for credit losses, so that certainly is an indication that they’re concerned or perhaps that they’re just really marking those to market.
From a financial stability perspective, I’m not concerned. I think it’s indicative of macroeconomic stresses out there. That’s the first debt that people tend to run up, and that’s the first debt that people tend to be delayed in their payments on.
Senator Loffreda: Well, the first is credit cards and the last is mortgages, right?
Mr. Johnson: First is credit cards, then auto loans and the very last —
Senator Loffreda: And then it’s mortgages. Auto loans is second-to-last.
Mr. Johnson: Yes, exactly. You need your car to get to work and you need your house to live.
Senator Loffreda: Exactly.
Mr. Johnson: You will make those payments come hell or high water.
Senator Loffreda: That’s how we stay on course, and the economy keeps progressing. Thank you.
Senator MacAdam: Thank you to the witnesses for being here. I’m wondering when the Public Accounts of Canada for the year-end of March 31, 2023, will be tabled. Do you have that information?
Ms. Dancey: I’ll take the question because it is my team at Finance that is involved in the production of the public accounts, but the tabling and all the logistics around it are the responsibility of the Office of the Comptroller General. So that would be a question best posed there. I don’t know the tabling day.
Senator MacAdam: Do you know what the consolidated total debt is for the Government of Canada for the year-end of March 31, 2023?
Ms. Dancey: That figure at this point has been calculated. I don’t have that information.
The Chair: Ms. Dancey, could you provide an answer in writing to the last question that was posed by Senator MacAdam?
Ms. Dancey: I’m happy to follow up in writing. I would be working with the Office of the Comptroller General.
The Chair: In writing, please. Thank you.
[Translation]
Senator Dagenais: Mr. Veilleux, since this budget was tabled, the Treasury Board president has asked the various departments to cut government spending by $15 billion. That’s huge.
How does the Department of Finance expect this exercise to be carried out? Do you believe that it can be done on time, or are we looking at a vote-seeking political exercise that has very little chance of success but looks good given the growing criticism of current government spending?
[English]
Mr. Veilleux: Thank you very much for the question, senator. I will speak specifically to how Finance is tackling that exercise and then maybe if there is anything to add on, Evelyn Dancey can speak to the broader initiative.
Within Finance, we have undertaken the challenge of our portion of the $15 billion in reductions across the portfolio with the underlying principle and concept of “do no harm,” which is trying not to affect people with workforce adjustment or anything like that. It is a very lean organization if you look at the operating vote that’s actually contained within these estimates. Finance itself is only approximately $130 million to $140 million, so it’s a very small organization. These are initiatives that are looking at shaving the ice cube.
If you look at the proportionality of the funding we have, it’s about 80% salary dollars and 20% GNS. To look at the efficiencies that are proposed, i.e., our portion of the $15 billion, if the underlying principle is “do no harm” and you are at 80% salary, then you’re looking at vacancy management, attrition as positions are vacated or at the relative need to staff those positions down the line — looking at more efficient and economical ways of doing things.
We have four broad proposals that we put forward to the minister as part of our proposal. It is achievable in the time frame if you look at the full implementation of 2026-27, when it fully ramps up, but it is going to be very tough for the organization if you look at the composition and the size of the budget that Finance works with across all of the various branches. It’s attainable. There will be some pain points in trying to look at efficiencies and economies of scale that we can in implementing ours. Again, that’s from the Finance perspective of tackling the $15 billion. I don’t know if there is a broader perspective that we could speak to on the $15 billion across the portfolio, but for Finance, that’s how I would frame our approach to hitting our reduction targets.
[Translation]
Senator Dagenais: While the current government departments are being ordered to cut spending by $15 billion, we’ve learned that the government has committed $10 billion to Ukraine. May I remind you that the war has been going on for 19 months and that there’s no end in sight?
Can you shed some light on the spending commitments for Ukraine, when the government wants to cut $1 billion in defence spending? I feel it’s important that the source of this money be found in the budget, because I see only $7.2 billion for all Global Affairs Canada expenses.
[English]
Mr. Veilleux: My colleague will respond to the Ukraine component of that question.
[Translation]
Julie Trépanier, Director General, International Finance and Development, International Trade and Finance Branch, Department of Finance Canada: Good morning. My name is Julie Trépanier, and I’m the Executive Director of International Finance and Development at the International Trade and Finance Branch.
With respect to the amounts committed to Ukraine, currently, Canada has committed $9.8 billion in military and humanitarian aid to Ukraine. $4.85 billion of that will be in the form of bilateral loans to Ukraine, including $4.35 billion under the new account for Ukraine administered by the International Monetary Fund, which was established by Canada. I don’t know if that answers the question.
Senator Dagenais: Yes, you answered part of my question. Do I have time for another question? The government funds 129 agencies and departments, of which only 10 have over $5 billion in annual expenses. The highest spending item is Indigenous Services Canada, and it represents $39.5 billion, but we must also add a second line item of $9.1 billion for Crown-Indigenous Relations and Northern Affairs Canada. Why have two different line items to track the annual cost of these services? Are these really two different line items?
Ms. McDermott: I didn’t quite understand the question; do you want to understand why we have the two departments?
Senator Dagenais: We have two different line items, namely $39.5 billion allocated to Indigenous Services Canada and $9.1 billion going to Crown-Indigenous Relations and Northern Affairs Canada. Why are there two different line items? Why not put all that in the same line item?
Ms. McDermott: The government decided several years ago to split these responsibilities in two. I imagine the departments themselves would be better able to answer your question and tell you why the government made the decision, but I think the service organization concept aims to continue transferring responsibilities to Indigenous people and it allows for some suggestions to be made. In addition, advancing reconciliation with Indigenous peoples is another priority for the government. I think that’s the reason for the split, but I imagine the departments would be better able to answer that question.
Senator Dagenais: I’ll wait for the second round of questions.
[English]
Senator Pate: Thank you to all the witnesses. Without pointing to evidence, some have raised concerns about the impact on inflation of such income support programs as the Canada Emergency Response Benefit, or CERB, particularly with respect to the costs of rents. The evidence seems to indicate to the contrary, however: that income supports are vital to countering poverty and income insecurity for those in need. I point to the information from the Parliamentary Budget Officer where they recently determined that pandemic spending actually helped to preserve lower-income families’ purchasing power and allowed them to afford rising costs of living during the pandemic.
Are you aware of any concrete evidence that suggests that cash transfer programs such as CERB contributed to driving up rents in this country?
Julie Turcotte, Acting Assistant Deputy Minister, Economic Policy Branch, Department of Finance Canada: Thank you for your question. I’m Julie Turcotte, Acting Assistant Deputy Minister, Economic Policy Branch. Just to clarify, your question is about the inflationary impact of some of the income supports.
Senator Pate: The alleged inflationary impact, without evidence; I haven’t been able to find any evidence in your department, and the PBO points to the opposite. If you have evidence and you could provide it, that would be great.
Ms. Turcotte: What we have done internally would be consistent with the PBO findings. We saw a big surge in inflation just after the pandemic, and most of it was driven by global factors, so think about the supply chain disruptions and then the war in Ukraine. We saw inflation increase to about 8% last summer.
What we saw since then is that it has declined to 2% earlier this summer. In fact, it was really the unwinding of global factors — supply chain disruptions starting to ease, energy and food prices coming down a lot — so it has resulted in inflation. That would be consistent with the fact that a lot of the run-up was driven by global factors.
Senator Pate: Thank you for establishing there is no evidence to support those kinds of ideas that are being put out there in the public.
Since I last asked your department about what steps it’s taking to assess the feasibility of a guaranteed livable income, you may be aware that a new report from the University of Saskatchewan comprehensively models the cost savings associated with implementing a guaranteed livable income, for example, with respect to health care, the criminal legal system and emergency shelter systems. They concluded that every dollar invested in a guaranteed livable income would be matched by $1.06 in savings.
Does the department have information available to indicate that the cost savings predicted by the University of Saskatchewan report are inaccurate, and if not, how is the department factoring this new report into its plans to address poverty and the consequences as well as the lack of affordable housing?
I’m looking at you, Ms. Turcotte, because it sounds like you’re the one who is working on this, but whoever else is welcome to answer.
Ms. McDermott: Maybe Julie is more familiar with that specific study. I would just say that it doesn’t align with the findings of the B.C. panel that studied the issue quite extensively.
Our understanding, and I don’t have specific figures to support this, is that there would be, indeed, administrative savings from that type of a program, but probably not sufficient to cover the cost of such an increase in spending.
I imagine that you are familiar with the outcome of the B.C. panel. That is one that we consider quite authoritative, but I’m happy to follow up and have a look at the new study that you referred to.
Senator Pate: If you could, that would be great because, in fact, this flies in the face of the B.C. study. I think the B.C. study acknowledged that, largely due to the pandemic, they had not followed through on a number of their costings through the panel. In fact, they actually recommend an incremental start to a guaranteed livable income, starting with certain populations. I think it would be useful to compare the two. If you could provide something in writing, that would be great. Thank you very much.
[Translation]
Senator Galvez: Thank you very much to our guests for being here to answer our questions this morning.
We’ve heard from Infrastructure Canada, and we will be hearing from the Auditor General, but I would like to take advantage of your presence on the policy front to ask you some questions about the infrastructure polycrisis we are currently experiencing.
[English]
On the one hand, this is becoming chronic and it’s increasing homelessness. We have a lack of rental housing. Young people, young couples cannot afford houses.
There is a premature destruction of basic infrastructure due to extreme weather events. Only last year, there were $3.1 billion in insured losses and that’s only part of the whole cost. The previous year was the same, and next year will probably be even worse.
At the same time, many have recognized an infrastructure gap. We are between 1% and 3% of our GDP, and we need to be 4% or 5% given all this destruction. In terms of what we are spending on infrastructure, how does it compare to the polycrisis needs? I have heard people call it a drop in the bucket.
My second question is this: What are your indicators? How are you evaluating the amount of financing, and how do you see that this is efficient? Earlier, one of you said that you are keeping an eye out. I’m sorry, but keeping an eye out doesn’t work for me. You have to tell me exactly what you are doing. What are the indicators? How is the performance?
Finally, proportionally speaking, how do we compare with the Bipartisan Infrastructure Deal in the U.S.? Are we doing our part, or are we going close to the cliff? Thank you.
Ms. McDermott: Maybe I’ll start, and I would invite my colleague Samuel Millar to speak to the Infrastructure Department budget, in particular, if he would like to add anything on that front.
Rental housing and the provision of housing is not something that’s covered under the ministerial responsibility of Infrastructure Canada, although that department and the Minister of Housing have been very involved in the government’s housing agenda.
As you are probably aware, the $82-billion National Housing Strategy has provided financing and funding, with a particular focus on affordable housing. In general, it is the role of the private sector to provide housing for most Canadians. Obviously, the work and support of governments through infrastructure projects is important in facilitating the building of private-sector housing. As noted, the role of the federal government in supporting affordable housing through the National Housing Strategy is an important element of addressing the housing shortage that we’re facing right now.
Julie may want to speak more to the broad macro factors, but most analysts would acknowledge that the big source of the housing affordability challenges that we’re facing in Canada right now is an imbalance between strong demand for housing and the supply of housing. There have been impediments to the building of housing. Many of these are at the municipal level, and that’s why some of the activities of the federal government have been directed at supporting municipalities through programs such as the Housing Accelerator Fund to encourage municipalities to remove some of those impediments to building.
It is a broad topic, and there are many elements we could cover, but I hope I’ve given you a flavour of the responsibilities.
Senator Galvez: Mr. Millar, do you have any comments?
Samuel Millar, Acting Assistant Deputy Minister, Economic Development Branch, Department of Finance Canada: Good morning. As you said, senator, I think the question is best directed to Infrastructure Canada, but I’ll comment on a couple of points.
You see in the Main Estimates the significant amount that the government is contributing through the Canada Infrastructure Bank, which clearly is making investments in a number of critical infrastructure areas.
You mentioned climate change in your question. Canada’s National Adaptation Strategy is also making investments in infrastructure. The government has significant programs that Infrastructure Canada officials would be well placed to speak to around community building and transit or other measures that are relevant as well.
Senator Galvez: Thank you. For me, it is evident that things are related. Housing is related to infrastructure and funding for housing. Everything should be combined and interrelated. For example, the new housing that will be built, will it be safe for the climate extremes that we are living in? There is a relationship. We should be aware of that.
The Canada Infrastructure Bank is behind in its purpose. It was set up in 2017 to attain certain goals and it is not attaining those goals. It is not bringing private investment.
What are you doing? You’re the ones providing the funding. How are you checking up on this?
Mr. Millar: There are a number of questions there. Thank you again, senator, for the points.
In terms of the Infrastructure Bank, we are seeing progress there. We are seeing increased disbursements. It is actively pursuing a number of projects, including with private investors. We are seeing good progress on that front.
In terms of housing — and maybe Alison McDermott would like to comment as well — that is another area where the National Adaptation Strategy is playing a big role in terms of supporting provincial and municipal governments to do flood mapping at the local level, as one example. Obviously, it also plays a big role in terms of forest fires and the municipalities’ planning in terms of the protection from wildfire events.
Senator Galvez: Thank you.
[Translation]
Senator Forest: We have just been talking about the Housing Accelerator Fund, which is aimed specifically at municipal partners. Has the agreement with Quebec been reached that would allow Quebec municipalities to have access to this fund?
Ms. McDermott: These negotiations are ongoing. I hear that they are progressing well. We have not yet reached an agreement. For most of these applications, negotiations are under way with other provinces and municipalities.
Senator Forest: In fact, most of the other provinces have signed an agreement. From what we have been able to gather, the number of registered applications already exceeds the budgets allocated for each of the provinces. We have a problem in Quebec; we are seriously behind schedule.
Ms. McDermott: Actually, it is a program offered to municipalities, but because of Quebec’s unique situation, the government is included in these discussions. I know that there are funds earmarked for Quebec, and we are having these discussions. They are progressing well.
Senator Forest: Thank you.
[English]
Senator Gignac: Last December, the Finance Department took many financial market participants by surprise with the decision to cancel the real return bonds issue. We will be the only G7 country to no longer have such an asset-class product. That product has existed since the launch of the 2% target by the Bank of Canada in 1990, so it’s a 40-year history here.
The Canadian Bond Investors’ Association blamed the Finance Department for a lack of proper consultation, and the Canadian Institute of Actuaries asked the government to reconsider that. It’s a different asset class, a very useful tool. Could you share with us what the rationale and the matrix were that you used to take that decision? Do you have an open mind to reconsider that and launch a proper consultation, to use the expression of the Canadian Bond Investors’ Association?
Mr. Johnson: Thank you for the question. The Canadian Real Return Bond program has long been described as a relatively small, illiquid program. Issuance was $1.4 billion a year in the context of a gross borrowing program of 100-and-some billion dollars in a lot of years. It was always quite small, even in terms of its aggregate, and quite illiquid in terms of trading. It was more of a buy-and-hold product. As well, by the nature of it, it led to a higher degree of variability in the government’s interest charges. I think those were the reasons that fed into the decision to cancel it.
I would like to stress that we do recognize the importance of real and in-depth consultations with financial market participants. I would highlight the consultations that have been done around the Canada Mortgage Bonds program. Those were extensive and provided the department with a lot of valuable feedback. We will be working closely with the market to make sure that any changes to that program are smoothly implemented. Similar consultations around the cancellation of the three-year bond and around any decision for Treasury bills —
Senator Gignac: I understand it’s very illiquid. I have worked as a portfolio manager with a Canadian insurance company. It is small but very useful, and in fact it’s not because it’s an illiquid buy-and-hold that it’s not useful. The point is, I try to read between the lines.
You mentioned proper consultations around the Canadian mortgage bonds, but are you open to reconsidering because, at the end of the day, the Bank of Canada mentioned that this is the Finance Department’s decision; that’s it, and that’s all? A lot of people were taken by surprise. Is it something that you are open-minded about — launching longer, deeper consultations in the coming months?
Mr. Johnson: These are ultimately ministerial decisions, and I can’t speak for the minister. The market should raise this issue with the department in future consultations. It is very important for the department when it structures the government’s borrowing program to take on board this advice. So raise it again in future consultations and bring the discussion forward again.
Senator Smith: A part of your Departmental Plan is responsible for ensuring Canada’s tax system is “fair and competitive.” Indicators 3.1, which is taxes on labour income, and 3.2, which is the tax rate on new business investment, have been met, according to the Departmental Plan.
Could you elaborate further on where we stand compared with other G7 nations in terms of the area of taxation?
Mr. Jovanovic: Thank you for your question. The international competitiveness of Canada’s tax system is an important consideration and it is always in the backdrop of most of the decisions taken by the government. It is based on advice from the department. It is something we keep track of and follow closely.
It goes at the international system and rates and also at very specific measures. I think a good example is Canada’s reaction to the Inflation Reduction Act in the United States, also Canada’s participation in the OECD with respect to international taxation pillar 1, pillar 2. So it is clearly something we are constantly looking at.
With respect to how we compare with the G7, for instance, with respect to the marginal effective tax rate on corporate investment, we are still faring very well — if not the lowest, maybe the second lowest. I don’t have the numbers in front of me, but we are very good.
Senator Smith: What distinguishes us from these other countries? What is their key success factor?
Mr. Jovanovic: With respect to corporate investment, the statutory rate is by and large in the middle of the OECD countries, so we stay in that range.
We do also have important measures in our system that, for a marginal investment, matter a lot, for instance, our value-added tax compared to some other recognized states where you have a lot of state taxes that are not value-added tax that impose a higher burden typically on corporate investment as opposed to a value-added tax. It has a significant impact on the marginal effective tax rate. That context of the marginal effective tax rate takes into account all taxes on business investment, so you have to take it holistically to understand that.
The Chair: Mr. Jovanovic, if you want to complete your answer in writing, it would be appreciated, because I believe you could have additional information on Senator Smith’s question.
Mr. Jovanovic: Absolutely. Thank you.
[Translation]
Senator Dagenais: Mr. Veilleux, your documents sometimes indicate that there are structural changes in government that require new spending authorizations. Do you have any examples of such changes? Perhaps you could provide them to us in writing? To what extent can these changes alter the budget or make things more difficult for you, the officials, and for us when it comes time to keep track of government spending, which can then be entered elsewhere? If you change things around, it becomes difficult to keep track.
The Chair: Mr. Veilleux, could we get that answer in writing, please?
Mr. Veilleux: Yes.
The Chair: Thank you very much.
[English]
Senator Pate: My question can also be followed up in writing. Going back to my previous question, the B.C. report did not look at other jurisdictions like Ontario, Finland and some of the others that the University of Saskatchewan report did. In your written response, if you could take that into account, as well as the current government’s incremental approach to embarking on this kind of funding model as evidenced by the Canada Child Benefit, the cash transfer made to families living in poverty, the CERB, the GST credit and the Canada Workers Benefit as well as the plan for basic income for those with disabilities through the Canada disability benefit and the long-standing Guaranteed Income Supplement, which functions as a form of basic income for seniors.
Could you look at those and talk about the benefits that we have seen and, particularly at this time when we’re looking at homelessness and the crisis of inflation, why the next incremental step isn’t being looked at? That would be extremely helpful. Thank you.
The Chair: Mr. Veilleux, before we conclude, we do have an end date for getting written responses, which is Tuesday, October 17, 2023 — or earlier, please. Direct your responses to the Clerk of the Finance Committee.
On that, thank you very much again, Mr. Veilleux and your team, for accepting our invitation.
For our second panel, we’re joined by Andrew Hayes, Deputy Auditor General, who is accompanied by senior officials from the Office of the Auditor General of Canada. I understand that Mr. Hayes will introduce his senior officials. Welcome and thank you for accepting our invitation to appear in front of the Senate National Finance Committee, Mr. Hayes.
[Translation]
We will start with Mr. Hayes’s opening remarks. Mr. Hayes, you have the floor.
Andrew Hayes, Deputy Auditor General, Office of the Auditor General of Canada: Mr. Chair, we are pleased to appear before the committee today to discuss our office’s work. I would like to acknowledge that this hearing is taking place on the traditional unceded territory of the Algonquin Anishinaabe people. With me today are Nadine Roy, Chief Information Officer, Jean-René Drapeau, Chief Financial Officer, and Vicki Clement, Principal of Corporate Services.
The Office of the Auditor General of Canada serves Canada through leadership and partnerships in audits that support trust in public institutions and continued public service excellence. We do this by providing Parliament and territorial legislatures with independent and objective information, advice, and assurance about government financial statements and the management of government programs. The Commissioner of the Environment and Sustainable Development assists the Auditor General by conducting reviews and audits according to his area of expertise.
Our office provides audit reports to Parliament on topics that touch upon all of government activities, from audits of procurement and defence, to audits of access to benefits for hard-to-reach populations and chronic homelessness. We are also the auditor of the three territories. As always, we would be happy to discuss any of our reports with the committee.
[English]
I would like to turn now to our Main Estimates and Departmental Plan for the 2023-24 fiscal year. In this plan, we updated our departmental results framework, which provides revised departmental results and the indicators we will use to measure our progress in delivering these results.
Our total budget is $122.6 million for the 2023-24 fiscal year. With those resources, we plan to employ the equivalent of 765 full-time employees. During this period, we plan to issue 89 financial audits, 6 special examinations and 25 performance audits. Those include the audits that Parliament has requested on the government’s ArriveCAN application and the use of contracts for professional services.
We will be presenting our next audit reports to Parliament on October 19 and in the new year. We will also be presenting reports that include an audit on housing in First Nations communities in the new year, and we will deliver all other reports that are required annually in the environment and sustainable development portfolio.
We will also be working on several large initiatives that are already under way in our office, which include our transformation journey and adapting our work spaces and systems. For example, we are in the process of replacing and modernizing important IT systems.
Enhancing the value of our audits and better understanding stakeholder needs remain priorities for us.
Recognizing the time, Mr. Chair, this concludes my opening statement. We would be pleased to answer any questions the committee may have. Thank you.
The Chair: Thank you, Mr. Hayes. We will now move to questions. Senators will have four minutes each.
Senator Marshall: Thank you for being here today.
Has your office signed off on the Public Accounts yet for March 31? You have? The audit is done, is it?
Mr. Hayes: Yes, it is. We completed our work at the end of August and early September, and we are ready for tabling with our financial commentary that normally comes with the public accounts.
Senator Marshall: When would you have signed off?
Mr. Hayes: I believe it was September 12, thereabouts.
Senator Marshall: That’s good. Thank you.
Regarding the performance report for your office — we ask the departments a lot of questions on their performance reports. I notice that in yours you have 15 performance indicators. You’ve met five, you have not met five, and there are five not available. When I looked at the exact indicators of what you are measuring, a lot of the things you are measuring are outside of your control. Is there any plan by your office to go back and redo your performance indicators? It seems that you’re near the bottom of the list for meeting your performance indicators, but when I look at what exactly they are, well, I would be more interested in, for example, the date you sign off on the public accounts. That would be a good performance indicator.
Are you looking at redoing your performance indicators? I need a short answer because I have more questions.
Mr. Hayes: We are currently updating our performance indicators. About the ones in the past, we took a conceptual view to those indicators, recognizing, for example, that we can’t make Crown corporations do better on their financial statements, but we can influence it. That’s the way the definition was in the past for these indicators. We knew we couldn’t control everything, but we wanted to create accountability.
Senator Marshall: So you will change them.
Can you tell me what percentage of the time in the office is spent doing financial statement audits versus — I don’t know what you call them now — performance audits? What’s the breakdown?
Mr. Hayes: It’s probably easiest to give it in the sense of the number of people we have working in each practice. In the financial audit practice, we have roughly 240 auditors, and in the performance audit practice, we are trying to get to roughly between 160 and 170. It’s heavily weighted on the financial audit practice, which is required under statute.
Senator Marshall: You’re aware that we’re more interested in the performance.
This leads to my next question: Do you sense a move afoot by the government to give the financial statement audits to the private sector?
Mr. Hayes: I don’t sense that. There are joint auditors on some of the Crown corporations, but over the last few years, additional funding has been given to our office, namely, to up our game on the performance audit side. We had to scale back because of the Deficit Reduction Action Plan spending cuts about a decade ago. In 2021, we received word that we were getting additional funding, and now we’re ramping up our performance audit.
Senator Marshall: You feel that the support is there.
My last question is this: I know you received additional funding a couple of years ago because I can remember that it took a while for the office to receive it. Do you have any comments now on the adequacy of your budget? Also, are there any challenges with staff recruitment?
Mr. Hayes: Since we got the additional funding, I would say our budget is sufficient. We didn’t spend the entire amount of the additional funding in the first year and a bit because we got it late in the fiscal year. Then it takes a little while to staff and to procure.
To answer one of your earlier questions, before we got this additional funding, we were down to 14 performance audits per year. We expect to be at 25 or 26 moving forward, and we should hit that this year.
In terms of recruiting staff, we are facing the same challenges everyone is facing with skilled workers, particularly with the aggressive diversity and inclusion targets that we have. However, we are committed to reaching those targets.
[Translation]
Senator Forest: Thank you for being with us. You will commend the Auditor General, Ms. Hogan. We would have liked to have her here this morning.
My question is about your 2022 audit on chronic homelessness, which is an increasingly important issue. We can see that the situation is changing and that more and more young people are in this situation.
In your audit, what were your key findings when it comes to managing this problematic situation by the CMHC, Infrastructure Canada and Employment and Social Development Canada?
Mr. Hayes: I would say that the observation I want to emphasize is that there is no federal organization that has taken the initiative to achieve the strategy’s objective. In fact, even if there were a department and Crown corporations, no organization wants to be accountable or play a leadership role.
I would also say that the entities had not analyzed the information required to better understand the groups of people who are experiencing homelessness and to know what has been done to remedy the problem.
Lastly, we found that there was a problem with the definition of affordability used by the Crown corporation and by the government. The impact of this problem is that the Crown corporation had targets that were not realistic for the people who needed rental housing.
Senator Forest: So there are lots of good intentions, but no concrete action plan to make a significant impact on Canada’s homelessness crisis.
Mr. Hayes: I would say that there is a strategy; there is funding that was announced in 2017, but now there is a lot of work to do to meet the 2030 and 2027 targets.
Senator Forest: Thank you.
Senator Gignac: Thank you, and welcome.
In your 2022 report, Arctic Waters Surveillance, which I have gone through, it says that the actions taken by the government have not remedied long-standing shortcomings when it comes to surveillance of Arctic waters.
The Standing Senate Committee on National Security, Defence and Veterans Affairs released a report entitled Sovereignty and Security in Canada’s Arctic. I have some concerns, because we know that China is deploying surveillance capabilities. In addition, we recently learned — I think it was at the House of Commons Standing Committee on National Defence — that the Department of National Defence will have to cut almost $1 billion from its budget. This is affecting troop morale, and it is not sending the right message to our NATO colleagues.
How vulnerable is the Department of National Defence to foreign influences, and are we able to protect that sovereignty?
Next, I would like to come back to the conclusions of your report.
Mr. Hayes: I am not in a position to comment on that, but in our audit we found that there were significant risks and gaps in terms of surveillance, patrols and Canadian presence.
I would say that the government has been aware of all the shortcomings in terms of supplying ships and other ways of monitoring the Arctic for a long time. The important message of this audit is that there is now an obligation to take concrete action to ensure that Arctic waters can be fully monitored.
[English]
Senator Smith: Good morning. You mentioned in your response to Senator Marshall regarding recruitment that you’re facing a challenge in that your aggressive diversity targets are also making it difficult. Could you elaborate on that point? What are your diversity targets, and why is it a challenge in terms of recruitment?
Mr. Hayes: Thank you. I would clarify that we are facing the same challenges that every organization is facing, trying to find skilled employees.
Using the examples that are most pertinent to our organization, finding qualified auditors when all of the firms and the government are looking for auditors means that we’re in a competitive marketplace all the time. It is likewise for cybersecurity specialists and other specialists we might need for our audits.
In terms of the diversity and inclusion targets that we have, at a fundamental level, the Employment Equity Act puts some expectations out there, but we consider that to be the absolute minimum. We want to have representation across our entire office, including in our management group, of people coming from all different backgrounds and representing the Canadian population.
At this point, following the pandemic and the realities of the workplace, it is different recruiting in this day and age. While we do have access to the entire Canadian population in terms of being able to staff across the country, there are different expectations in terms of working remotely and the conditions people want to work in, et cetera. We are in a dynamic recruitment reality right now.
Senator Smith: Does that slow you down in terms of your ability to recruit? Are you saying that there may be a challenge in getting the level of sophistication required, so therefore you slow it down? Does that then push you to maybe invest in consultants? Consultants are very expensive. Do you have that issue?
Mr. Hayes: We’re trying to balance the use of consultants. The reality is that we’re having to take more creative measures for staffing, like leaving staffing processes open, targeting particular groups of people and people with different skills. I won’t hide the fact that we will use professional services firms when needed to augment the skills that we need for particular audits or for overflow reasons. If it doesn’t make sense to hire an employee full time, for example, an actuary in our public accounts work, we will contract out that work. I think that would be better value to the Canadian taxpayer.
Senator Smith: Your Departmental Plan for 2023-24 includes new performance indicators that will provide information on how well departments are implementing the recommendations of the Auditor General, based on various audits and special examinations that are being concluded. Could you discuss how these new indicators will increase transparency and accountability within the federal public service?
Mr. Hayes: Absolutely. To get to the problem that we’re trying to address, it’s frustrating — and I’m sure that the Senate feels the same way — to be making recommendations to government to improve but not seeing the improvement being made, or we come back three or four years after we’ve done an audit, and the same problems exist. Our performance indicators are intended to get at that while also trying to make sure that we are meeting the needs of and providing the best value possible to parliamentarians and also to the government. Frankly, our work should improve government services and outcomes for Canadians.
Senator Smith: I won’t ask the next question, because you’re going to have to answer “yes” or “no.” Thank you very much.
Senator MacAdam: Thank you to the witnesses for being here today.
Your office provides many excellent reports to Parliament, and I realize that the Standing Committee on Public Accounts examines many of those in a lot of detail. Do you follow up on the implementation of all the recommendations you make, and if not, how do you decide which ones to follow up?
Mr. Hayes: Thank you. We haven’t historically followed up on all the recommendations we’ve made. Over the last two to three years, we started a new initiative called Update on Past Audits, which can be found on our website. It’s not something that is tabled in Parliament, but we do bring it to Parliament whenever we can when we’re talking about audit results.
Ultimately, what we’re doing is picking not just recommendations but also important indicators from our audit reports that we feel should be improved in order to help Canadians. A good example of this is when we did an audit on call centres and how long it took for people to get answers from the government and how accurate they were, and we followed up on those indicators in addition to our recommendations.
We are trying to expand that work because that’s where accountability can be promoted. We’re also trying to expand it from the federal government to also include the three territories. We haven’t done that to date either. That’s a work in progress, but it’s definitely becoming a bigger part of our work.
Senator MacAdam: Are you satisfied with the rate of implementation of your recommendations?
Mr. Hayes: I think the short answer is “no.”
Senator MacAdam: I was expecting that.
Mr. Hayes: The reason why I say that is because it seems that all too often we are coming forward with findings that have already been made in the past, maybe by us, maybe by other groups. The Senate committees study lots of important topics and make recommendations, and we sometimes build on those or external reports from other government organizations, and we come back saying that there are long-standing known issues that haven’t been addressed. On the environment and sustainable development side, the track record is not good at all. I don’t believe we’ve ever hit a target on the environment and sustainable development side, so the answer has to be “no.” We are trying to focus on how we might push our government to do better, though.
Senator MacAdam: Thank you.
[Translation]
Senator Dagenais: Mr. Hayes, there are two organizations I really enjoy working with: the Office of the Auditor General of Canada and the Office of the Parliamentary Budget Officer. The transparency of your work is very useful to us, and I am sure that my colleagues share my opinion.
My first question is very simple: Do your two organizations share certain information on the figures the government provides, or do you work individually?
Mr. Hayes: We have a good relationship with this organization. We have very different mandates, but we share information whenever possible. The Auditor General has access to different information from the Parliamentary Budget Officer. For example, there are legal opinions from the Department of Justice. Cabinet confidences are accessible to our organization, but not to the other. We work together in situations where it is possible to do so.
Senator Dagenais: I would like to come back to your report on the state of defence surveillance capabilities. If the issues were known to the government and nothing has been done yet, can you tell us, based on your audits, whether the shortcomings could be corrected? There are indeed shortcomings in terms of defence, if only the fact that there is a shortfall of 16,000 military personnel and inadequate equipment.
Do you think the government will be able to meet certain objectives if $1 billion is cut from National Defence spending, given that there is a lot of work to be done in the Arctic?
Mr. Hayes: To answer that question, I would say that in the National Shipbuilding Strategy, there were deadlines and requirements that were known. As part of our audit on Arctic waters surveillance, we produced a chart that, among other things, showed challenges associated with this supply. I would say that satellites are also a major challenge for the government, but this issue was known beforehand.
The Auditor General recently appeared before the House of Commons Standing Committee on National Defence — last June, I think — and talked about procurement issues for the Department of National Defence. She said that it was necessary for this department and other federal departments, such as Public Services and Procurement Canada (PSPC), to work together to address the procurement and delay issues we are seeing.
Senator Dagenais: As you know, our allies criticize us for not investing 2% of GDP in defence. I get the impression that they will continue to criticize us, because we aren’t going to reach the famous 2% of GDP by cutting $1 billion from spending. I’m not sure our allies are going to like it — they already don’t like us on certain issues.
Mr. Hayes: We recognize that this is a national and international issue. We are looking at the government’s spending decisions.
Senator Dagenais: Thank you very much.
[English]
Senator Pate: Thank you to all of our witnesses for your ongoing work. You may be aware I asked some questions of CMHC, Infrastructure Canada and Employment and Social Development last week, and that actually came from going almost backwards. I heard about a project, found out it had been funded through homelessness, and nobody within the departments even seemed to be aware not just that they funded it but how effective it was.
In your 2022 report on Chronic Homelessness, you documented the fact that Infrastructure Canada, Employment and Social Development as well as CMHC did not know whether their efforts improved housing outcomes for people experiencing homeless or chronic homelessness and for other vulnerable groups. You specifically were looking at what they had done to monitor how they had expended the resources they were allocated.
I’m curious today — some time on since your report — whether you’re satisfied with the departmental responses you’ve received to your recommendations and what steps you’re taking to continue to monitor their progress in this area. That’s just one small project I became aware of with incredible results, but if nobody knows about it, it’s obviously not benefiting others.
Mr. Hayes: Thank you. When we completed the audit report, I think I would say that we were satisfied with the responses that came to the recommendations, especially when they identified a deadline for action.
We haven’t been back in to look at what has transpired since our audit report, but this is definitely one that we will be following up on using that update on results measures that I mentioned earlier. In addition to that, in each of the three territories, we’re looking at housing or homelessness. We completed an audit in the Yukon; it was tabled in June. We are working on one in Nunavut right now, and we are doing one in the Northwest Territories. I believe it’s next year. In addition to that, we are also looking at housing in First Nations communities. That report should be coming, I believe, in the spring next year.
This is a topic that we are digging right into. It obviously has incredible impacts on Canadians across the country. It has become a focus area given the challenges with affordability. Obviously, there are connections with other government services, whether it’s benefit programs or immigration. There are a lot of interconnections with housing and homelessness. Thank you.
Senator Pate: Thank you.
[Translation]
Senator Galvez: Thank you very much, ladies and gentlemen.
[English]
You are a very prolific office producing an extremely high number of reports, and I thank you for that. You are saying that you’re going to execute 89 financial audits in this coming period, which is incredible.
Reading your reports, I can’t help realizing that some of them have overlapping subjects, and what worries me on this occasion is the gap in infrastructure — what is going on in infrastructure — which relates to the lack of residences, to homeless people, to the issue with affordability of buildings that are safe and that young couples can buy and to the premature destruction of basic infrastructure due to extreme weather events.
One thing that I keep noticing is that the government keeps working in silos, and you just mentioned interconnectedness. Everybody is aware that things are related, but everybody is still working very much in silos. I was wondering if in one of the reports or audits that you’re going to do you are going to consider looking at things horizontally. You’re giving recommendations to the government, but the government isn’t doing anything. How can we help you? I think there is a lot of inefficiency because we are working in silos. Can we attain our goals? Can you comment on that?
Mr. Hayes: Thank you, yes. One of the realities for our office, which is actually a competitive advantage, if I could use this kind of term, is the fact that we can look cross-government at everything. Unlike when a department hires a contractor to come in and look at a program, or they use their internal audit branch to look at how they’re doing on a particular program, we can look across departments. That is something we are challenging ourselves to think differently on in the selection of our audits.
That said, what we do run up against when we do horizontal work — and you’ll see some examples that are easy to put our heads around are in the environmental area, so climate change — there are so many departments and agencies that have a role in climate change or sustainable development, and yet what we often find is that each organization works in their own sphere of responsibility, without pulling everything together, without a leadership role.
In fact, in our homelessness report, what we were expecting to see was that there would be a single point of responsibility from one of the government organizations. It would probably have been Infrastructure that would have taken the lead for the National Housing Strategy, but we didn’t see that.
The answer that we get from deputy ministers and the government is that in the realities of ministerial responsibility, the way our Constitution works, et cetera, the horizontality is difficult to achieve with everybody being responsible and accountable for their slice of the pie.
That being said, from our perspective, I don’t think any Canadian comes to the Government of Canada and thinks, “Okay, I have to go to five different places to get my answer.” No, they want a one-stop shop. How do we improve that service mindset, whether it’s on front-line services or on a broader, horizontal program like housing or climate change? Or you can look at a ton of them, frankly.
We are challenging ourselves. I can’t say that we have the silver bullet, but we are also going to keep pushing that. Thank you.
Senator Loffreda: Thank you to our witnesses from the Office of the Auditor General for being here this morning.
To complete this question period, I would like to continue discussing housing and homelessness; they are a main concern, as we all know. Looking forward, given the significant increases in housing prices and the current state of housing affordability, do you plan to continue to prepare performance audits? If so, how, on housing and homelessness programs? Do you plan to do it any time soon? Will the nature, extent and timing of your audit differ from previous audits, given the current environment and given the previous recommendations you’ve made and the follow-up you will continue to perform? We have all read your audit reports and thank you for those and all the work that you do.
Mr. Hayes: Thank you. I would say that following up on those recommendations, whether it would be in a full performance audit or through our update on audit results, that will happen.
How we end up determining our scope for future work will depend in part on what the government does and the announcements and commitments that it makes along the way. We recognize, though, that housing is — I used the word “interconnected” before. We will look at some of those other areas where they intersect with housing.
For example, we have an immigration report coming out in two weeks where we’re going to be talking about permanent residency and how the program is working there. While it won’t touch directly on housing, it will talk about some of the realities that people wanting to come to Canada face, particularly in terms of having their applications dealt with by the government.
We will look at infrastructure more broadly. We always have infrastructure front of mind considering the amount of money being spent.
We recognize, however, that our ability to look at what the government does is constrained by the commitments the government makes. We have to recognize we are not able to set policy. We check on whether the government delivers on what it has said it would do.
Senator Loffreda: Do you feel our government institutions are doing enough to combat homelessness and improve housing affordability, not to mention all of our government institutions? We know who they are.
Mr. Hayes: In our report, we recognize that somebody has to take the lead. Somebody has to own the accountability for this. That wasn’t happening. When you don’t have somebody taking accountability, you create the situation where you have silos working, and it’s not going to be efficient and effective.
Housing has become an even bigger challenge for the country over the last number of years. The Parliamentary Budget Officer earlier this year talked about the realities; the dollar is not going as far any more, so people can’t afford housing as much as they might have been able to, say, 5 or 10 years ago. Cost of repairs, cost of materials, availability of skilled work to address construction and repair are even more challenging. The amounts that the government has announced for the targets to build new units and repair old ones might not go as far.
That means the government will have to take a look at where their commitments are right now. They will have to use the information available to identify what is realistic and what needs to be addressed. But most importantly — and this was one of the big concerns from our audit report — they need to know whether the people they’re targeting to help in these strategies are actually getting the housing being funded by the government.
Senator Loffreda: Thank you very much.
The Chair: Senator Loffreda, with the indulgence of all the senators, this prompts me to ask a question as chair of the committee.
We have a common denominator: It’s about transparency, accountability, predictability and reliability. There is a concern that has been boiling since 2015-16, and that is the Phoenix pay system.
[Translation]
In your comments on the financial audits published each year, along with the Public Accounts of Canada, you are monitoring the situation with the Phoenix pay system. I have three short questions that you could answer or provide comments on in writing. How many pay transactions are still pending? Second, has the Phoenix situation improved in the past two or three years? Finally — and this is the killer question — is Phoenix being replaced by another Canadian system? I would like you to comment on that.
Mr. Hayes: I can provide you with the information you requested. I don’t have the numbers here, but in our commentary on our financial audit that comes with the public accounts, when the public accounts are submitted to Parliament, all the numbers you’re looking for are in that report. As for the last question, yes, the government is looking for a permanent solution for Phoenix. We did an audit a few years ago — I think it was in 2021 — on the early stages of this procurement. I think there has been progress in terms of the early stages, but in terms of the status of this bill, I’m not aware of that.
[English]
We have a report coming out next week on the Benefits Delivery Modernization. That is about is the Old Age Security, Employment Insurance and Canada Pension Plan benefits. The system for that is getting modernized. We wanted to look at that early because the last thing Canadians can handle is a Phoenix-like situation when it touches those three major benefit programs. That report will also be coming next week.
The Chair: From the Finance Committee, thank you, Mr. Hayes, for your leadership. We have seen how enlightening and educational this is. You continue to inform and bring to the attention of Canadians the importance of accountability.
That said, if you want to follow up in writing or expand answers on the last three questions, we would appreciate that.
Mr. Hayes: Sure.
The Chair: The written answers must be sent to the clerk before the end of day on Tuesday, October 17, please.
Honourable senators, our next meeting will be on October 3 at 6:45 p.m. to continue our study of Main Estimates. Before we adjourn, I will recognize Senator Marshall.
Senator Marshall: Could we just get a clarification on the date that the office signed off on the public accounts? You said maybe it was September 12. I know they’re signed off on, but a date would be helpful.
Mr. Hayes: I can put that in writing as well. The report I was referring to, the financial commentary, will come with the public accounts. It will come on the same day those are tabled. The numbers you are looking for are in that report.
If I could make a clarification, I said our performance audit report will be next week. It’s actually on October 19, so two weeks from now.
Senator Marshall: I need to get clarification. Are the public accounts ready? Have you done everything, or do you need that commentary done before — no? The government has everything it needs to table the public accounts?
Mr. Hayes: We have done our work. We always have a side piece that comes with the public accounts. That’s our financial commentary. It’s up to the government to decide when the public accounts get tabled. Our work is done.
Senator Marshall: But can it be tabled without that commentary?
Mr. Hayes: Yes, absolutely. That commentary is ours. It’s ready to go.
Senator Marshall: Your commentary is ready to go. There is no reason why we can’t get the public accounts, is there?
Mr. Hayes: That would be for the government to answer.
The Chair: Thank you.
(The committee adjourned.)