THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Monday, June 16, 2025
The Standing Senate Committee on National Finance met this day at 6:01 p.m. [ET] to study the Main Estimates for the fiscal year ending March 31, 2026, with the exception of Library of Parliament Vote 1, and to study the Supplementary Estimates (A) for the fiscal year ending March 31, 2026.
Senator Claude Carignan (Chair) in the chair.
[Translation]
The Chair: Good evening and welcome, everyone.
Before we begin, I would like to ask all senators and in-person witnesses taking part in this meeting to consult the cards on the table for some guidelines.
Please make sure to keep your earpiece away from all microphones at all times. Do not touch the microphone. It will be turned on and off by the console operator. Please avoid handling your earpiece while your microphone is on. You may either keep it on your ear or place it on the designated sticker.
Thank you all for your cooperation.
I wish to welcome all of the senators as well as the viewers across the country who are watching us on sencanada.ca.
My name is Claude Carignan, senator from Quebec, and Chair of the Senate Committee of National Finance.
I would like to ask my colleagues to introduce themselves.
Senator Forest: Good evening, everyone. Éric Forest, independent senator from the Golfe district.
Senator Galvez: Rosa Galvez from Quebec.
Senator Gignac: Good evening. Clément Gignac from the Kennebec district in Quebec.
Senator Moreau: Good evening. Pierre Moreau from the Laurentides district in Quebec.
Senator Cardozo: Andrew Cardozo from Ontario.
[English]
Senator Kingston: Joan Kingston, New Brunswick.
Senator Ross: Krista Ross, New Brunswick.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
The Chair: Honourable senators, today, we will resume our study on the Main Estimates for the fiscal year ending March 31, 2026 and the Supplementary Estimates (A), 2025-2026, which were referred to this committee on May 29, 2025 and June 11, 2025, respectively, by the Senate of Canada.
For our first panel, we are pleased to welcome with us today the Parliamentary Budget Officer, Yves Giroux, as well as Mark Creighton, senior analyst, and Régine Cléophat, analyst. Welcome and thank you for accepting our invitation. Even on short notice, you always answer the call. Your availability is always appreciated.
You now have the floor for approximately five minutes. We will then go to a round of questions.
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for the invitation to appear before you today.
We are pleased to be here to discuss our publications on the “The Government’s Expenditure Plan and Main Estimates for 2025-26,” and “The use of Governor General’s Special Warrants as a result of the 2025 General Election,” published June 4 and 11, 2025, respectively. We are also pleased to discuss Supplementary Estimates (A), which was tabled on June 9, 2025.
With me today I have our lead analysts on these publications, Régine Cléophat and Mark Creighton, as well as Albert Kho, who is sitting quietly in the back in case you have questions about other topics.
The Government’s Main Estimates for 2025-26 outline $486.9 billion in budgetary spending authorities. Parliament’s approval is required for $222.9 billion. Statutory authorities total $264 billion.
Consistent with previous estimates, money transferred to other levels of government, individuals and other organizations account for most of the planned spending, totalling $294.8 billion.
Notable areas of spending include $85.5 billion for elderly benefits, $54.7 billion for the Canada Health Transfer and $49.1 billion for interest payments on the public debt.
[English]
These estimates reflect the termination of the fuel charge, effective as of April 1, 2025, and include the final payments for the Canada Carbon Rebate for individuals.
These Main Estimates also reflect $73.4 billion in expenditures that were authorized through the issue of Governor General special warrants as a result of the 2025 General Election. This is the first time that these have been used since the 2011 General Election.
As a spring budget was not tabled, the 2025-26 Main Estimates do not reflect any prospective measures. Budgetary authorities for 2025-26 will rise with these anticipated funding requests in subsequent supplementary estimates.
To that point, an additional $9 billion in budgetary spending authorities was outlined in Supplementary Estimates (A) 2025-26, tabled on June 9, 2025, only 13 days after the Main Estimates.
Parliament’s approval is required for $8.6 billion, with statutory authorities totalling $467 million. These supplementary estimates are focused on matters of defence, with the majority going to the Department of National Defence.
We would be pleased to respond to any questions you may have regarding our estimates analysis or other PBO work.
Thank you.
[Translation]
The Chair: Thank you, Mr. Giroux. We will now begin the questions.
[English]
Senator Marshall: Thank you, Mr. Giroux and your officials, for being here.
I know that the two reports you issued were the Main Estimates and supplementary estimates, but can you broaden that a bit? We have no budget. We just have some information on expenditures. We don’t know anything about the revenues. We don’t know anything about the borrowing. We have no idea what the deficit is going to be.
You issued a report in March on the economic and fiscal outlook in which you made certain projections, which I think will change now. But can you just elaborate on what we can expect with regard to the deficit? I don’t know if you have any comments on the revenue. Can you flesh that out a little for us, because we’re just looking at a very narrow aspect of the government’s financial situation?
Mr. Giroux: That is a good point, senator. As you pointed out, we released an economic and fiscal outlook in March, but since then, in the absence of a budget, it is very difficult to know exactly what the government’s forecasts are with respect to revenues. To address that lack of information, we will be releasing a report on Thursday that will update our economic and fiscal forecast for the current fiscal year as well as last year. The numbers are still in flux, but we estimate that the deficit for last year was slightly lower than what we anticipated at the time, due in good part to increased revenues — revenues that are likely to have come in higher than expected a couple of months earlier this year. It was mostly due to stronger and unexpected corporate income tax revenues, and slightly higher expenses than anticipated. We’ll be providing more information when we release that report on Thursday morning.
Senator Marshall: The Fiscal Monitor for March — and I know that’s not a really reliable figure — indicates $39 billion. Based on what you are saying, we shouldn’t be looking at something over $60 billion like we did last year.
Mr. Giroux: Probably not. I would say probably it will be in the range of $45 billion to $50 billion.
Senator Marshall: Your second report on the supplementary estimates focused mostly on the Department of National Defence, and you have issued several reports in the past on National Defence. Can you just talk a little bit about how there is such a significant increase in the amount of money that is being requested by the department, but in the past, they have been very challenged to spend the money that they were provided with? Can you just speak to the challenges now that they have this increased level of funding and what you would expect to be in the area of challenges for the department?
Mr. Giroux: What we have seen over time is that when it comes to the capital budget of the Department of National Defence, they vary in their capacity to use and spend it all, with lapses varying from a few percentage points to close to 20%. With the sharp increase in funding this year, even before the supplementary estimates — and now with the supplementary estimates — one can expect the lapse in the capital budget to be significant this year, especially at a time when most of our allies are ramping up spending on defence. There could very well be an issue of capacity in providing the equipment — capital spending — but also operating spending.
The supplementary estimates, as you pointed out, has significant amounts for recruitment, and recruitment has recently been an issue in National Defence. More money for even more recruitment could prove difficult to materialize. One could easily anticipate the Department of National Defence lapsing as opposed to spending most of its authorities.
Senator Marshall: Thank you very much.
[Translation]
Senator Forest: Thank you for being here, Mr. Giroux. It’s always a pleasure to see you again.
My first question primarily concerns the Main Estimates. Regarding the outside consultants’ fees, the government promised to considerably reduce its use of outside consultants. I saw in the House of Commons that the budget allocated $26 billion for outside consultants. Is that accurate?
Mr. Giroux: The amount in the Main Estimates is $26.2 billion. There are several figures. However, they are all on that order of magnitude. That is higher than what we saw a few years ago. That said, they are maximum amounts. Departments and agencies may potentially spend less. The Main Estimates still allow them to spend up to these amounts, which suggests that they feel their needs may be as high as these amounts.
Senator Forest: How do you explain that the government wants to use fewer outside consultants, yet the budget allocates around $6 million more for them than last year’s budgets? That is a strange way of reflecting the government’s wish to use fewer outside consultants.
Mr. Giroux: I would say that the numbers tell a different story than what has been said. The words and the numbers don’t match. In this case, the numbers seem to be correct.
Senator Forest: As they say, the government is not putting its money where its mouth is.
Mr. Giroux: That is a great expression that I think applies to this situation.
Senator Forest: My second question concerns the Canadian carbon rebate. Observers in Quebec and B.C. feel that their provinces’ taxpayers are being short-changed. The final amounts should not have been paid, since the government did not charge the carbon tax. Basically, payments will be reimbursed for a quarter when they weren’t collected. How does that make sense?
Mr. Giroux: The Canadian carbon rebate, or CCR, is an advance payment to offset what people will pay for the carbon tax. Since the rebate was paid in April, but the carbon tax is no longer being collected, the money will come from the consolidated revenue because there will no longer be a fuel tax rebate or surcharge. The money will come from the consolidated revenue fund.
Senator Forest: You’re saying that everyone will pay to reimburse revenue that wasn’t collected?
Mr. Giroux: Exactly. It was an advance rebate for a tax that was supposed to be collected, but won’t be. The rebate was still paid, but the tax to fund it no longer exists. The money will have to come from the consolidated revenue fund.
Senator Forest: Thank you.
Senator Gignac: Welcome, Mr. Giroux.
I’d like to pick up on a question from Senator Marshall about the deficit.
I understand that the official figures from your report will be published on Thursday morning. I imagine you already have a good idea of whether the deficit will be higher or lower. When you published your report in March, you projected a $50 billion deficit for the last year. You confirmed that earlier. However, you anticipated that the deficit would decline by around $8 billion to reach $42 billion. Now that the capital gains inclusion rate has been abandoned and Prime Minister Carney has announced investments in military spending, do you still believe that the deficit will be lower for the coming year or higher for the current year?
Mr. Giroux: For 2024–2025, you’re right. In March, the deficit was projected to be around $50 billion. In the report that will be released on Thursday, it will be a bit lower than that. However, for the current year, 2025–2026, the Liberal Party anticipated a deficit of around $60 billion to $61 billion in the budget plan it released during the election campaign. I will try to decipher that, since the operating budget was separate from capital expenditures. With Supplementary Estimates (A) and the defence spending, the deficit will likely be between $60 billion and $70 billion if spending is not cut somewhere else. We would know better had there been a budget.
The government may still stick to a $60 billion deficit. However, that would mean that spending would have to be reduced in other areas, or revenue would have to be increased through additional, unanticipated cash flows, and the government has given no indication to that effect. For the current year, the deficit will probably be above $60 billion as things stand.
Senator Gignac: Thank you. That is very clear.
Unlike what we’ve seen in the past, the current Prime Minister seems to make a distinction between operating expenditures and capital expenditures. However, in the Main Estimates, there are items, including the operating budget, for capital expenditures. For the Department of National Defence, for example, we are talking about $10 billion in capital expenditures for the coming year.
I think you’ve previously touched on that. Have you added up the capital expenditures? It seems that the Prime Minister might have a new fiscal approach, or perhaps he wants to balance the operating expenditures while accepting a deficit for capital expenditures. Could you tell us more about that? What is behind these definitions? Does a department decide what is capital and what is operating? Have you looked into that?
Mr. Giroux: Capital expenditures are defined by specific accounting standards. What constitutes a capital expenditure is determined by accounting science. I believe there are accountants around the table, so I will refrain from commenting. The definitions are fairly clear.
The treatment of capital expenditures, with regard to the federal deficit, is also fairly well defined and governed by accounting conventions and standards.
To answer your specific question, we reviewed total capital expenditures a few years ago. We are currently updating that information by submitting more specific requests for information to certain key departments where capital expenditures are more significant.
As for the Prime Minister’s promise to distinguish between the operating budget and the capital budget, that distinction already exists in the accrual accounting system under which the Government of Canada operates. If the Prime Minister wants to redefine what constitutes an operating expenditure and a capital expenditure, as he has suggested, we will need more details on this new definition. We do not yet have that information. It is understandable that the Prime Minister and the public service are busy with many other important matters. We expect to receive those details in the coming months.
Senator Moreau: Good evening, Mr. Giroux. I would like to thank your colleagues for joining us today.
It seems to be accepted by senators who have been members of this committee for much longer than I have that the Department of National Defence has recurring, annual difficulties in spending the appropriations allocated to it. For what reasons does the Department of National Defence find it virtually impossible to spend all the appropriations allocated to it?
Mr. Giroux: This applies to the Department of National Defence, especially when it comes to capital expenditures. This includes, in particular, expenditures for the acquisition of military equipment and, to a lesser extent, operating expenditures.
The main cause of lapsed appropriations or the inability to spend all appropriations is chronic recruitment difficulties in the Department of National Defence, largely owing to the state of the labour market. There is also an element of caution. For a chief financial officer, the best way to get fired is to exceed your budget, which no executive or deputy minister wants to do. Therefore, a certain degree of caution is always exercised.
With regard to capital expenditures, most of the lapsed appropriations or inability to spend all of the funds is due to procurement challenges. This can be seen with the F-35s and combat ships. These are projects that take longer and cost more. A number of witnesses and agencies have commented on this situation.
Therefore, the Department of National Defence has difficulty completing projects on budget and on schedule, which means that the overall budget, projects or capital expenditure planning at the Department of National Defence always have a time lag. Plans are made, but projects end up being delayed. That is a recurring pattern.
Senator Moreau: For capital expenditures, are any of these difficulties related to the public tendering process?
Mr. Giroux: Partly. Not being a procurement specialist, I would say that it is a possibility. However, we see and hear that equipment requirements change over time. Initially, a certain design is planned, but it is modified as the project progresses, which requires going back to the drawing board and making changes to the original design. For instance, a ship needs to be a little stronger to accommodate equipment that was not originally planned. So that’s part of the reason. However, over the next few years, with significant increases in military spending, we are likely to see inflation and a shortage of capacity, which will increase costs and delay timelines.
Senator Moreau: So, could there be better planning upstream for the equipment or the type of procurement the government wants to have?
Mr. Giroux: Yes. However, that’s much easier said than done.
Senator Moreau: In the supplementary analysis document you produced today, you describe how the $8.2 billion for the Department of National Defence would be allocated. Which of those appropriations are most at risk of not being spent? I understand that military aid to Ukraine is special, but we also have recruitment, research and development, and building of strategic military capabilities.
Mr. Giroux: It is difficult to answer without having the details of each of those lines. For recruitment, it is possible to spend all of these funds. For example, if the government increased military salaries — so if existing Canadian Armed Forces members were paid more — it would be easy to spend everything. However, if recruitment of new members was being targeted, it would be more difficult. With regard to aid to Ukraine, writing a cheque would also be fairly easy. However, providing equipment that has to be manufactured in Canada would be more difficult. We will need the details to determine which appropriations are most at risk of not being spent.
Senator Moreau: Could we imagine that research and development, and assistance to the Canadian defence industry are among the most sensitive issues?
Mr. Giroux: Yes.
Senator Moreau: As well as building strategic military capabilities?
Mr. Giroux: Yes.
[English]
Senator Pate: This is the first, perhaps the only opportunity, that the Senate is going to be able to talk to you about Bill C-4, for the proposed tax cut. I know we’re here for Main Estimates, but in light of this it strikes me as important to speak to you about it.
The PBO costed the proposed tax cut as part of the government’s election platform. In your analysis, is there anything that would contradict the data from Canadian Centre for Policy Alternatives, or CCPA, who found that despite the assertions in the platform, that, in fact, 9.6 million Canadians — that’s one in four — would likely not have any benefit from the proposed tax cut, basically because they are all low-income earners, but that the richest 40% of Canadians would benefit? Is there anything in that bare analysis that you would take issue with?
Also, how would you square that against the bill’s stated goal of making life more affordable for Canadians? Could you please remind us which would cost more: This one year of the tax cut or the annual net cost of a national basic income?
Mr. Giroux: I haven’t seen the study in detail for the CCPA, but we have looked at the impact of the tax cut that you mentioned, and it is designed so that only if you pay income do you benefit from it. So Canadian tax filers who don’t pay income tax — so their income is below the threshold — don’t benefit. Off the top of my head, I don’t know how many Canadians are in that situation. Of those who benefit, to get the maximum benefit, you have to be above the threshold or reach the second threshold of income. I think it means that it is $50,000 something where it kicks in. It means that the maximum benefit is reached at that level and above. In that sense, I think the CCPA’s conclusions are probably accurate.
Senator Pate: In terms of costing, that is estimated to cost some $4.3 billion per year, and directly benefiting 40% of the wealthiest Canadians.
Your net cost for national basic income, as I recall, was significantly lower than that. Is that your recollection as well?
Mr. Giroux: Yes, it’s my recollection. It depends on the specific design of the basic income.
Senator Pate: In 2020, you testified:
I am convinced, . . . having worked both at the CRA and been PBO for a year and a half now, that there are hundreds of millions, if not billions, of dollars in taxes that go undeclared, unreported and that escape Canadian tax authorities, probably on an annual basis due to the international transactions that take place.
Would that still be your assessment five years later?
Mr. Giroux: Yes, without a doubt.
Senator Pate: Worse?
Mr. Giroux: Probably slightly worse with the expansion of internet banking and the new FIN tax, and the ease with which it’s possible now to transfer funds and open bank accounts remotely without even setting foot in these foreign jurisdictions. I would think it’s probably gotten worse.
One of the issues raised — I thank our colleague, Senator Downe, for raising this — is the fact the Pandora Papers and the Panama Papers which outline — you know I have asked about this before: Canada is an outlier in not seeking the lost tax revenue. One of the arguments given to this committee previously in the last Parliament was the investigations are too complex. Yet, we’ve heard from Senator Downe that countries as small as Iceland have been able to claim more than $20 million in lost tax revenues. Do you have any further comments on that? Is this political will? Is it something more? You have worked in these areas.
Mr. Giroux: It’s hard to answer without having recently been at CRA and the tax authorities.
To me, because something is difficult, it doesn’t mean it shouldn’t be done, if it’s the right thing to do and has the potential to yield significant revenues for the Crown.
In that case, difficult doesn’t mean it’s impossible. There should probably be more effort, given the prominence and impact it has on the trust Canadians put in the tax system.
Senator Pate: An unnamed source from Revenue Canada indicated that part of the reason may be people are compensated based on closed files. The easiest to close is probably the people who have the least and are easiest to catch. Is that part of your assessment as well?
Mr. Giroux: It’s true that if you have a T4 — for example, employment or investment income — it’s easy to recoup that because CRA gets these returns from banks, financial institutions and employers. If you forget to include that type of income, it’s very easy to catch that. This is the low-hanging fruit. It’s almost automated. Whereas, international tax evasion requires much more investigative powers and resources. It could be an explanation.
Senator Galvez: Thank you, Mr. Giroux, for coming in and always answering our questions.
We started a new Parliament. We have to ask questions that prove not only the fiscal discipline and transparency, but also policy alignment, not only in the short-term — which it seems the government is so focused on these days — but also at the long-term priorities, such as climate change, Indigenous reconciliation and socio-economic resilience.
With respect to the government expenditure plan and Main Estimates, given Canada legislated climate targets — and the commitments made under the 2030 Emissions Reduction Plan — has your office assessed whether the 2025-26 expenditure plan allocates sufficient and strategically targeted funding to meet these obligations, particularly in high-emitting sectors and vulnerable regions?
Mr. Giroux: We have looked at the numbers. We haven’t looked at how these funds, the funds sought in the Main Estimates, would allow the government to deliver on these previous commitments and on these priorities.
Senator Galvez: Do you think it would be possible for you to answer this question in more detail?
Mr. Giroux: Certainly.
Senator Galvez: In a written form?
Mr. Giroux: Yes, we can try.
Senator Galvez: Chair, he is going to provide something written.
The Chair: Yes.
Senator Galvez: My second question is with respect to the supplementary estimates. Again, with respect to climate-related spending adjustments and emergency or ad hoc spending.
We see there is a big increase for the Communications Security Establishment, or CSE, and with the Department of National Defence. Summer has not started yet and we are already at record forest fires — a record already, and summer has not started yet.
Are some of these expenditures in communications security and national defence going to be allocated to emergency response?
The reason I’m asking this is because we have been told many times here that using military-trained forces to rescue and evacuation operations is inefficient and a waste of money. Can you comment on that?
Mr. Giroux: Being vaguely familiar with the mandate of the Communications Security Establishment, I doubt very much that any of these funds allocated to the CSE would be devoted or going to emergency management, or anything related to public safety, in the sense that you’ve discussed.
With respect to funding for the Department of National Defence, it’s possible that some of these amounts in the Supplementary estimates would or could be used for emergency management or responses.
Without having the breakdown, I don’t know if anything would be allocated to that type of spending.
Senator Galvez: Can you ask for that breakdown? Do you have access to that breakdown?
Mr. Giroux: Yes, we can ask.
Senator Galvez: Can you ask and give it to us?
Mr. Giroux: Sure. If it’s the wish of the committee, and if there’s a motion, we would be happy to do that.
Senator Galvez: Is it the wish of the committee? I propose that motion.
The Chair: Your wish is the wish of the committee.
Senator Galvez: I propose that motion. Thank you for your support.
Senator Cardozo: I have a few questions that go back and forth between the supplementary estimates and the Main Estimates.
On defence spending, you note that $2.1 billion is to be spent on funding for recruitment, retention and support programs for the Canadian Armed Forces, or CAF. Does that include an increase in salaries for CAF members?
Mr. Giroux: My colleague, Albert Kho, tells me yes, so the answer is yes.
Senator Cardozo: Do you have a sense of how much and when that happens? Does that go into effect when we pass this? Does it happen now?
Mr. Giroux: It would be after appropriations get approved by Parliament.
Senator Cardozo: The supplementary estimates, do they include dental care and pharmacare? I wasn’t able to see that.
Mr. Giroux: They were not in the supplementary estimates.
Senator Cardozo: Okay.
Mr. Giroux: It will probably be covered in the Main Estimates.
Senator Cardozo: Of next year?
Mr. Giroux: It would be in the current fiscal year, because the program is currently in place, so the Main Estimates would have to include dental.
Senator Cardozo: Both those programs began in the previous fiscal year, certainly dental did.
Mr. Giroux: Yes. The Canadian Dental Care Plan started before, but it would certainly be in the Main Estimates. I believe it’s probably a statutory program now, so it would be included in Main Estimates for information.
Senator Cardozo: In the estimates, you talk about the money Canada will be giving NATO. Do you know if that expenditure — according to my rough calculations, it is about $505 million in total — would count toward NATO’s requirement of the 2%.
Mr. Giroux: Yes. Usually, the funding that countries allocate to NATO itself count toward meeting the targets for defence spending under the NATO definition.
Mr. Kho is not screaming, so that’s the right answer.
Senator Cardozo: Thank you, Mr. Kho.
Regarding the CBC funding at $1.38 billion, have you ever done a study on the cost of defunding the English arm of the CBC as opposed to the rest of the Radio-Canada? There has been a proposal for this, as you know.
Mr. Giroux: Yes, I heard about that, but we haven’t looked at the impact of reducing or increasing funds for CBC/Radio-Canada.
Senator Cardozo: With regard to the Canada Border Services Agency, or CBSA, the Main Estimates has money set aside for management, enforcement and services. If there’s an increased role at CBSA, as is being contemplated, do you know where that would be included? Would that be under “enforcement”? Do you see CBSA staying as its own agency, or would it come under DND in some form? What is your sense of what could happen?
Mr. Giroux: If there’s an additional, bigger role for the CBSA, it would depend upon exactly what that role would be and how the government would choose to implement or operationalize that. It would likely be under “enforcement,” but it could be under a different item. If it is, for example, additional intelligence work, it could be under a different line item.
With respect to the role of the CBSA and whether that would fall under a different agency or department, it’s really a prerogative of the Prime Minister, as are all machinery-of-government decisions. I, obviously, have no information on that — no more than you.
Senator Cardozo: Do you know about counting any of its costs toward the 2%?
Mr. Giroux: For the CBSA, it would be unlikely, unless it were to be militarized or be deployable in the context of military operations, which is the general concept that NATO adheres to when defining spending as counting toward their target. For example, the Coast Guard, if it’s deployable and can conduct military or military-type operations, can be counted. NATO defines what counts; it’s not up to each country to determine that.
Senator MacAdam: Thank you for being here this evening.
I want to go back to the issue of capital and operating spending. The fiscal and costing plan included in the Liberal platform outlines that the government will separate capital and operating spending within the government. It backed this with a change in legislation that will be supported by new powers and resources for the Parliamentary Budget Office.
Can you comment on those potential new powers and resources for your office?
Mr. Giroux: I haven’t heard anything aside from what was in the platform. I don’t know; I haven’t been consulted or approached as to what these new powers or resources could be. You know as much as I do on this.
Senator MacAdam: It also mentions that the new approach will not change how Canada’s Public Accounts are built and will maintain Generally Accepted Accounting Principles. With respect to that new approach, in a recent interview, you mentioned there are consultations going on regarding what and how the government wants to separate the capital and operating. Do you know whom those consultations are with?
Mr. Giroux: I don’t know who they are with, but I understand the Department of Finance is considering launching these consultations. That’s as much detail as I have on this right now.
Senator MacAdam: I find it very interesting, because as far as capital spending going through the operating statement goes, it’s only the amortization of the tangible capital assets and the acquisition of the capital assets shows up in the statement of national debt. It’s very interesting to see how this plays out in terms of reporting.
Mr. Giroux: Yes, I’ll be interested in seeing that, too.
Senator MacAdam: I read somewhere that, by year four, your deficit would be entirely comprising capital spending, which, if that’s the amortization of capital assets — which, back in 2024, was only $5.6 billion — there has to be a huge reduction in operating expenses.
Mr. Giroux: Exactly.
Senator MacAdam: Huge.
In a recent interview with the Ottawa Citizen, you stated that the promise of a cap on the public service will not be enough to mitigate government’s additional spending and that you expect higher deficits. As a result, there would be higher debt-servicing charges over the next few years. You mentioned that the Main Estimates don’t suggest major cuts to the public service, but that to balance or pay for the additional spending, there would need to be severe and significant cuts to the public service.
Can you speak further to the cuts that you think will be needed?
Mr. Giroux: Sure.
Personnel spending is about $60 billion — in that range. If the government wants to finance the $9 billion additional spending for national defence through reductions in the public service — operating is broader than that, but let’s say it’s the public service — it would mean a cut of about 15% in the public service just to finance the DND spending — the additional spending in the supplementary estimates. That is just for that aspect.
So if the government wants to return to lower deficits, regardless of how it’s defined — but based on accepted accounting principles — it would need to reduce spending significantly. There’s a tax cut, additional spending on defence and there are social programs — for example, dental care. There’s not that much discussion of pharmacare, but there will eventually be pressure for additional spending there. There is also spending on seniors, which keeps increasing due to demographic factors.
And that’s not counting other pressures, for example, the government indicating a desire to invest in certain sectors of the economy.
These are a lot of constraints. Something has to give.
Senator Kingston: Welcome, all of you. I always enjoy when you and your team come, because you answer a lot of questions.
I’m going to take a different tack but keep on the same idea of what we’ve actually got to spend.
About 60% of government spending is on things like the Canada Health Transfer, which leaves only 40% left for the rest, but I won’t touch that for now. What I’m interested in finding out from you is this: It says that the growth rate, which is 5% this year, is tied to nominal gross domestic product. Could you explain what that actually means? What is “nominal”?
Mr. Giroux: Are you talking about the CHT, Canada Health Transfer?
Senator Kingston: Yes.
Mr. Giroux: It’s a legislated program that transfers equal amounts per capita to each province, and the growth of the envelope itself is determined based on the growth in the economy. If the economy grows by 5%, it means the CHT grows by 5%. The idea behind that is to ensure the CHT remains affordable for the federal government, because the size of the economy is the best indicator of its capacity to generate revenue. If you have a transfer that grows at the same rate as the economy, it means that it will, roughly speaking, represent a stable share of federal revenue.
The nominal GDP is what is produced in Canada in a year, and that includes inflation. That’s why we say, “nominal;” it’s in today’s dollars.
Senator Kingston: Another question about the same thing — not in your documents, but somewhere else, it says that it won’t be less than 3%. I assume that our optimistic selves think it will never happen that it would be below 3%. Is that correct?
Mr. Giroux: It could happen, if there’s a period of very low inflation and low growth or a recession. It was in anticipation of this potential situation arriving that the government of the day put in the floor, so it will grow by at least 3%. It means if there’s a period of stagnation in Canada, transfers to provinces for health will grow at least at 3% per year.
Senator Kingston: In the government expenditure plan and Main Estimates, it looks like it kind of drifts down to closer to a 4% increase by 2029-30. Is that based on any real projections?
Mr. Giroux: It’s based on projections for real growth and inflation combined. Real economic growth and inflation should be around 4%. Of course, these are projections, there for they are for illustrative and planning purposes. It’s hard to predict the future, as somebody said, but it gives an indication as to how much that envelope will be growing.
Senator Kingston: That’s less than what it is in this particular year, which is 5%.
Mr. Giroux: Yes. It’s a moving average, so it’s an average of the last three years. There was significant inflation, if you remember a few years ago, and that’s still having an impact on the growth and the health transfer.
Senator Kingston: In the Canada Health Transfer, we know that there is a commitment to the Dental Care Plan, for instance. Is that considered part of the Canada Health Transfer, or is that something extra that also has to be spent?
Mr. Giroux: My understanding is that it’s distinct from the health transfer, because the health transfer goes directly to provinces. It’s a transfer of funds — a block transfer — whereas the dental program is a program offered by the federal government. To the best of my knowledge, it’s not deducted from the transfers to provinces.
Senator Kingston: Pharmacare would be slightly different from that in the way it’s set up, is that correct?
Mr. Giroux: I don’t think it would be deducted from CHT either, to the best of my knowledge.
Senator Kingston: It’s a separate agreement.
Mr. Giroux: Yes.
Senator Ross: Thank you very much for being here with us this evening. In your report, you mentioned that there is nearly $50 billion in debt servicing, and that’s a $700 million increase from last year’s estimate. A lot of that is due to pandemic spending and interest rates. You’ve also predicted $70 billion in public debt charges by 2029-30. I would be interested in your level of concern over this amount — the cost of servicing our debt.
Mr. Giroux: It’s increasing, obviously. It’s not concerning to the extent that we returned to slightly lower deficits. The number that is of concern, generally speaking, is the deficit or the surplus, and the debt-to-GDP ratio. If the debt-to-GDP ratio is stable or declining, it’s an indication that public finances are under control. If the debt-to-GDP ratio keeps increasing, that suggests that there is an adjustment that will have to be made sooner rather than later. Of course, debt-servicing costs at $70 billion a year or $60 billion a year is becoming an increasing part of the expenditure.
It has to be looked at in the broader context. If the government doesn’t spend a lot on anything else and can have small deficits, decreasing the debt-to-GDP ratio, it’s less of a concern. Where it is a concern is when you compare debt servicing costs with other types of government spending and when you have a servicing cost that is as large or larger than transfers provinces for health, for example, then you start to wonder if it is really worth spending that much to service the debt. Did we get our money’s worth when we incurred that debt in the past that we are now stuck with paying $60 billion to $70 billion in interest? That’s a good question, and I don’t have the answer to that question.
Senator Ross: That was a helpful answer, thank you.
Recently, there was a decision to move the Coast Guard from under Fisheries to Defence, and I wonder, first of all, if that is in any way reflected here in these numbers. We also heard that the funding would still be in Fisheries, despite changing the reporting.
I wonder if it’s realistic, in your opinion, that we will get to 2% this year, given that in the past it was estimated it would take years, and we couldn’t actually spend the money that we had for defence.
One last question: Are there any other new items that had never been accounted for in defence in the way that the Coast Guard appears to be in this go around?
Mr. Giroux: I’ll ask Mr. Creighton to answer your question on whether the move of the Coast Guard from Fisheries to DND is in the Main Estimates, but before that, moving the Coast Guard to DND will not affect whether we meet the 2% or not because it will not change the NATO definition. NATO considers these things, so even if we deem something to be defence, it would have to change the mandate itself for NATO to consider it part of DND or not. If the Coast Guard remains with the same mandate, whether you move it to DND, Fisheries or Finance, some parts of it will count toward the 2% and others won’t, because it’s not a military-like mandate. We can deem it defence, but it’s what they really do that matters.
As to whether it’s realistic to meet 2%, the NATO target depends on what we spend, not what we budget or what we promise we will spend. At the end of next year, when we tally the amounts actually spent by DND, Veterans Affairs, the RCMP, Global Affairs and so on — all those that count — it will be the actual amount spent that will determine whether we have met the 2% target. DND has a tendency to lapse money, based on experience. Mr. Creighton will tell you whether the move is reflected in the Main Estimates.
Mark Creighton, Senior Analyst, Office of the Parliamentary Budget Officer: I’m not seeing a decline in the budgetary authorities for the Department of Fisheries and Oceans. I would reflect that —
Mr. Giroux: It’s still in Fisheries.
Mr. Creighton: Yes. The decline in total budgetary authorities for the Department of Fisheries and Oceans has gone up since last year, so I wouldn’t see the allocation —
Mr. Giroux: So the Coast Guard is still under Fisheries and Oceans in the Main Estimates.
[Translation]
The Chair: I will continue on this topic. It is an area that interests me greatly and will be of increasing interest to Canadians.
In a few days, a NATO summit will be held in The Hague. In the wake of discussions at the NATO Parliamentary Assembly, I understand that NATO wants to increase military spending to 5% of GDP by 2030, with 1.5% for what is known as soft security, including cybersecurity and the Coast Guard, and 3.5% for structural military spending, which is traditionally part of general military spending.
Can you tell us what 5% of GDP will look like in dollars by 2030? If the Prime Minister returns from The Hague having committed to reaching 5%, how many tens of billions of dollars are we talking about?
Mr. Giroux: If we’re talking about 2030 and 5%, it’s no longer a matter of tens of billions of dollars, but of hundreds of billions of dollars. We’re looking at around $185 billion or $190 billion in defence spending in 2030.
The Chair: So, how much more compared with last year? You have the amount that was actually spent last year.
Mr. Giroux: It would be about $140 billion more.
The Chair: Are you saying $140 billion more?
Mr. Giroux: Yes. Spending would need to be quadrupled.
The Chair: So, nearly 30% to 35% of Canada’s total budget would go to military spending in 2030?
Mr. Giroux: Yes. And if we went for it this year, the spending would be around $125 billion to $130 billion in order to reach 5%. That’s a hypothetical scenario.
The Chair: That would be impossible because they are unable to reach 2%, so 5% is a pipe dream.
Mr. Giroux: I wanted to illustrate how much money that represents.
[English]
Senator Pupatello: Good afternoon. My quick question is on the process.
The items I was reading about in the paper over the last month or so — a 20% increase in military salaries, potential participation in the dome, the increase to meeting the 2% quickly — are those numbers to be approved by this process that I have already read about publicly?
Mr. Giroux: Yes and no. The process here is the Main Estimates and the supplementary estimates that grant authorities to various departments and agencies, including the Department of National Defence, to have access to the funds. You are asked to vote on whether to grant these departments the money, as laid out in their Main Estimates and supplementary estimates, to spend up to these amounts for the various items. Some of that includes money to reach these targets, yes.
Senator Pupatello: Then it is incumbent on this committee if that 20% increase in salary is not given?
Mr. Giroux: If you were to vote down, reject the supplementary estimates, then they would not have the funds to grant that salary increase. They could grant a salary increase by reducing spending elsewhere, but they would have to squeeze something else.
Senator Pupatello: Okay. The number that you mentioned earlier about a 15% reduction in public service, if they were to meet that target of savings somewhere, is there a chance that with the addition of more digitized government, focus on AI and a lot of those new companies that are saying they are reaching the order of 10% or 20% savings with the administration of companies, for example, in the private sector through this use of AI, that if we actually jump on that bandwagon, there is an opportunity between use of AI in delivery of public service, digitization more generally like Service Canada, those operations that already do that online, et cetera, and in addition, the loss of the public sector, just that we’re not hiring as people are retiring, and that attrition may account for a big number as well — that’s already happening every year — is there a way that you would reach that 15% without feeling the kind of pain that 15% elicits when you hear it?
Mr. Giroux: It would be possible over time through attrition, as you mentioned, but not in one year because the number of departures in the public service is not 15% per year. To give an order of magnitude, it’s probably 5%, something like that. To hit 15% in one year would mean layoffs, and it costs something to terminate employment. It would not be possible to reach that target in one year.
Senator Pupatello: What is the attrition rate per year at this point? Do you know?
Mr. Giroux: Off the top of my head, it is in the range of 5%, but it depends on the specific employment sectors and specific departments.
Senator Pupatello: There has likely been a direct relationship between the attrition of 5% and the increase in consultants being used. Is that how that has worked?
Mr. Giroux: In fact, we have seen both increase at the same rhythm. The size of the public service has gone up, and the use of consultants has also gone up. It is not one compensating for the other; they have been complementary rather than a substitution.
Senator Pupatello: Thank you.
Senator Loffreda: Thank you, Mr. Giroux. It’s always a pleasure to have you here with us.
I would like to address the topic of public debt servicing with you this evening, an issue this committee has examined on several occasions. As we know, the cost of servicing Canada’s debt has risen significantly since the pandemic. In your report, you note that 10.1% of the authorities in the Main Estimates are allocated to debt servicing.
I’m curious whether you have looked into how Canada compares with its international peers in this regard. The pandemic had a global impact, and many governments engaged in substantial borrowing from 2020 onward. We have studied that issue here many times. We have discussed it. With roughly 10% of our annual budget now dedicated to debt servicing, how does Canada’s position stack up against that of other major trading partners?
Mr. Giroux: I don’t have the comparisons with other countries because some countries finance their debts slightly differently than we do. In our case, it is market debt in good part.
What I can provide in terms of comparison is historical. Going back 30 years, we were probably in the range of upwards of 30% of federal revenues that were going to service the federal debt. We have come a long way from 35%, I think, down to 7% just before the pandemic. In context, it is still low by historical standards.
Senator Loffreda: Thank you. I have another question. I would like to address the use of special warrants.
As we know, two special warrants were issued this spring following the general election, totalling $73.4 billion. You did publish a brief on that matter last week. In that note, you highlight that the President of the Treasury Board must attest that no other funds within approved appropriations, including contingencies, are available to make the required payments.
How familiar are you with the use of the special warrants? In your view, were the two warrants issued in April and May justified? Did they meet the requirement that no alternative funds were available?
Mr. Giroux: I didn’t audit the warrants because it is not my role to do so, but I have experience with previous warrants, having been in the public service. At Finance or the Privy Council Office, or PCO — I think it is Finance — the last time warrants were issued, the public service back then — and I’m sure it’s still the case — took that issue very seriously. Warrants were to keep the lights on and not be used for new programs or to launch new expenditures. It was steady state, keep the lights on. That was my experience back then.
Based on what we saw in this current round of warrants, there is no reason to believe it was anything but the same thing than in 2011.
Senator Loffreda: Thank you.
Senator Marshall: Mr. Giroux, I wanted to go back to the deficit and the pressure on the deficit. In the last two years, the government has put through an adjusting entry at year end for increase to the contingent liabilities for Indigenous claims. The year before last, I think it was $26 billion, and last year, it was $16 billion.
When you are talking about forecasting the deficit, do you take into consideration any possible increases in the Indigenous claims? It is a very complex area, as you know, and it seems like it keeps cropping up.
Mr. Giroux: It is an issue that can throw a monkey wrench in our projections of the deficit. It is not an issue that we have enough information on to be able to accurately determine, even after the end of the year, the legal liabilities or these surprises, what they were last year. Unfortunately, it is very hard for us to figure out how much of these liabilities could be or would be included last year, in the year that ended March 31, and clearly not in the current fiscal year either.
Senator Marshall: They put through the adjustment for $16 billion last year, but at the end of the year, the contingent liability was actually less. I can’t figure it out either. That could affect the deficit quite significantly as it did in the last several years.
Mr. Giroux: Indeed. It has happened, and it was a surprise in the previous year, where we had a deficit of $60 billion. But I think the Office of the Auditor General of Canada would be in a better position to explain what is included and what the source of these significant variations is.
Senator Marshall: Okay, thank you.
[Translation]
Senator Forest: My two questions are for you, Mr. Giroux.
In your latest publication, you mentioned special warrants, including two warrants totalling $73.4 billion that are subject to very strict rules. Have you conducted an audit of whether there was compliance with the purpose for which these warrants were issued?
Mr. Giroux: We have not conducted an audit on that. It is not within our mandate to conduct ex post audits. That would require allocating significant resources to determine the financial resources of each department at the time they requested funds through the Governor General’s warrants.
Senator Forest: So the Auditor General is responsible for conducting these audits?
Mr. Giroux: That’s right. Deputy heads — in other words, deputy ministers — are in charge of requesting the funds they need, without adding anything else, including funds to launch new initiatives.
Senator Forest: A number of federal infrastructures across the country, including fishing harbours and wharves, are in serious disrepair. This situation is having a major impact on a number of coastal communities. Supplementary Estimates (A) currently contain no provisions for this purpose. Shouldn’t we set a minimum goal of repairing these infrastructures that belongs to us?
Mr. Giroux: That would be a commendable goal. There have been efforts over the years, especially during economic downturns, to repair federal infrastructure and infrastructure in general. However, that falls under the purview of the public service. Unfortunately, that is not a subject on which I have much useful information.
Senator Forest: Thank you.
Senator Gignac: I have two questions for you, Mr. Giroux.
Last January, you estimated at 61% the probability that the government would deliver on its fiscal anchor in 2029–2030. This means that the debt-to-GDP ratio could be lower in 2029–2030 than in 2024. Based on what you are seeing and hearing, particularly with regard to military commitments, is there still a more than 50% probability that this debt-to-GDP ratio can be achieved?
Mr. Giroux: Without a budget, it is difficult to predict and get an idea of what the government is planning beyond this year. However, based on what we are seeing and the pressures we are facing, the likelihood of achieving these targets is much lower.
Senator Gignac: Thank you for your concise answer.
In a report dated August 2024, you said that the government had $45 billion in fiscal room to maintain fiscal sustainability. That represents 1.5% of GDP. Does this mean that, if Canada exceeds 3.5% in military spending, there will necessarily be tax increases or significant cuts to other public services?
Mr. Giroux: That is probably the case. So we would see funds reallocated from other areas to National Defence, or increases in revenue through taxes and duties.
Senator Moreau: I place a lot of trust in information that comes directly from those who work in public services. Recently, on a flight, I was sitting next to a Royal Canadian Navy officer. I don’t know if she thought I looked like someone who worked for the federal government. She told me about the state of disrepair of the navy’s ships.
I note that the only fund from which the appropriations to restore the fleet could come is the one for new and existing equipment and infrastructure for the Canadian Armed Forces. The appropriations provided are $756 million. In the Supplementary Estimates (A), we have $0.8 billion for the same item. Based on your analysis, what percentage of these amounts is earmarked for the improvement and upgrading of our ships, which, according to the description given to me, are dangerous for members of the navy?
Mr. Giroux: With the Main Estimates and Supplementary Estimates (A) documents, it is difficult to determine exactly how much funding will go toward maintaining or upgrading existing infrastructure. That is high-level data. It is difficult for us to determine the proportion of these funds that will be used to address the dilapidated or obsolete condition of the vessels with the information we have.
Senator Moreau: I imagine that the navy and National Defence must have a fairly accurate picture of the state of disrepair of their equipment?
Mr. Giroux: That’s right. They have a status report and an infrastructure plan. National Defence needs to know the information regarding the planned expenditures for the specific projects on which they plan to spend the funds. However, we do not have this information at our disposal.
Senator Moreau: So there is no reason for us not have access to this information when they appear before us?
Mr. Giroux: Especially if they know you’re going to question them about this.
The Chair: They are listening to us. They know it.
Mr. Giroux: Yes. They definitely have that information. They should be ready to provide it to you.
Senator Moreau: Since they are listening to us, it would be surprising if they did not have the answer to my question.
The Chair: They are not the only ones listening to us.
[English]
Senator Galvez: Mr. Giroux, given that no spring budget has been tabled and the Main Estimates for fiscal year ending March 2026 do not reflect the financial implications of Bill C-4 and Bill C-5 — we heard earlier about infrastructure, pipelines, mines, ports and corridors which represent significant legislative and budgetary fiscal initiatives — how can Parliament exercise its constitutional role in scrutinizing government expenditures effectively?
Mr. Giroux: That’s a very good question, senator. I wonder how you can achieve that. You are asked to approve funding without the plan, the longer term or even the medium-term plan as to what the government plans on doing beyond these Main Estimates and supplementary estimates, knowing that they have an active agenda. There are a lot of things happening in the world right now, so good luck to you.
Senator Galvez: Can you speak to the risk of decoupling the process — the transparency and the accountability?
Mr. Giroux: Well, the risk is that you as legislators have to put even more faith in the government than you would otherwise have to do if you had a budget, for example, where you could see the broader picture and the government’s intentions for this year but also for the next year. Whereas, now the only thing you have to make that judgment is the Speech from the Throne which was vague on details, to say the least. It is very difficult for you as legislators to decide what makes sense and what is less solid.
Senator Cardozo: Coming back to the increase in defence spending. There is $2 billion for aid to Ukraine to be used to support the acquisition of drones, et cetera. What is the most efficient and quickest way of supporting Ukraine? Is it giving them money to spend in Europe and buy from other places, or do we have better control if we just do it from here? I suppose better control if we send arms from here, but is that efficient?
Mr. Giroux: That’s a question that I think would be best answered by somebody who has experience of military doctrine and has a much better understanding of the military needs of Ukraine than me, whose comfortably sitting in an Ottawa office for most of my time.
Senator Cardozo: In terms of the four different areas that are planned for this funding, the increase to DND, is there one area you feel we should be looking at a bit more closely, keeping an eye on, monitoring?
Mr. Giroux: Referring to Ukraine, specifically?
Senator Cardozo: Well, no, all the increased funding to DND for the rest of this fiscal year.
Mr. Giroux: I think military acquisition is an area of constant challenge for DND, so that’s probably an area worth exploring, if you agree, of course, but my free advice is exactly to focus on military procurement and acquisition, major projects.
Senator Cardozo: Thank you.
Senator MacAdam: Based on CBC reporting in June, there was mention of some potential government increased revenues and savings. There were a number of items mentioned, but it did state that the government would like to increase government efficiency, and it would begin with $6 billion in savings in 2026-27, rising to $9 billion in the following year and hitting a peak of $13 billion a year in 2028-29. I wanted to get your thoughts on whether you think that level of efficiency is achievable.
Mr. Giroux: The previous government had made a series of commitments to find efficiencies and savings, and yet when we try to track them, most of them were either abandoned or quietly tossed aside. A few were started to be implemented, but by and large, generally speaking, these are very often commitments that lead to little tangible results.
A budget may have shed light on what exactly the government plans on doing with this commitment. For now, we don’t have the details. Is there a scope for improvement and efficiencies? Clearly. Will that be easy? I don’t know, not knowing exactly what the government plans on doing.
Senator MacAdam: Thank you.
Senator Kingston: I’m going to talk about defence now, not the capital piece. You say that Defence has trouble spending the money that they could on procurement of the things they need in terms of equipment. I’m fascinated about the recruitment piece. You say they also have trouble spending their operating budget because of issues around recruitment.
If they give a 20% increase, as we have heard around the table, that would obviously eat up some of their operating budget. Are there other challenges? Why do they have trouble recruiting? What are some of the problems they face?
Mr. Giroux: I’m not familiar enough with what the needs of the Canadian Armed Forces are and whether it is an issue of inadequacy of skills on the market, a tight labour market — which seems to be less the case now — their requirements being too high or whether it is that the pay that is too low. I think it is maybe a combination of all of that, but I don’t know which one is the predominant factor.
Senator Kingston: It did seem a bit coincidental that they are talking about a 20% increase in pay when they are having problems with recruitment. Maybe that is the major issue.
Mr. Giroux: Yes.
Senator Ross: I was reading an article by a gentleman who was the former chief economist for the province of New Brunswick. He was talking about the impact of military spending on our economy and on our GDP. What he said was we may have some impact from operation or maintenance and that sort of thing, but the actual purchase of equipment, although it is part of our spending, actually doesn’t impact our GDP, it impacts the other country’s GDP where it is being purchased.
He also talks about military spending being one of the fastest growing industries in Europe, North America and some countries in Asia. I wonder if you could give me a sense of your thoughts on what kind of an impact this kind of spending could have on our economy and our GDP.
Mr. Giroux: That’s an interesting question. It could have a potentially significantly positive impact considering that we procure the majority of our military equipment from abroad. Shifting just a few percentage points of that domestically would have significant economic impacts.
That being said, it is a matter of having the capacity and also having the right equipment produced domestically that corresponds with our needs; but it is true that having additional spending, especially if it is on equipment, would have positive economic impacts on the industries that support DND.
The Chair: That’s a really good question. In fact, you have a spiral, because when you put $10 billion, you have an impact on the [Technical difficulties] and your percentage of expense is also on the [Technical difficulties] so that creates a negative impact. The more you spend, the more you have to spend.
Mr. Giroux: The richer you become, the more expensive it gets to meet the 2% target or the 5% target.
Senator Pate: Thank you. Mr. Giroux, I want to pick up on something Senator Galvez raised with you. The expenditures that the government is predicting, have you had any opportunity to try and cost any of them at this stage? Do you have any estimates?
Mr. Giroux: We are in the process of estimating the costs of the tax cut with some impacts by tax bracket. It is one costing that we will be releasing tomorrow or sometime this week, so very soon. I think that’s it for now.
Senator Pate: So none of the expenditures beyond that?
Mr. Giroux: No. We have costed some electoral promises, but sometimes these change. For example, yes, now that you mention it, the GST rebate for new homes, it is something we have looked at and we released a report on that last week.
Senator Pate: And the Defence spending and some of those others?
Mr. Giroux: Defence spending, it is still a work in progress. We are trying to look at the cost of acquiring submarines, but, again, that’s a work in progress.
Senator Pate: Thank you very much.
[Translation]
The Chair: Mr. Giroux, it has not been an easy year for you: You are the Parliamentary Budget Officer, and you have not had a budget.
If my information is correct, your term will end on September 4. Do we have any inside information indicating that your term will be extended or renewed?
Mr. Giroux: When I was offered the position, I was told it was for a fixed term. There is a possibility of an extension. However, no one has called me to ask me to pack my bags or to ask me to stay a few more months. In the absence of any news, I assume that my term will expire on September 2.
The Chair: No news is good news. We hope your term is renewed or extended.
This could be the last time you appear before us. Speaking for all members of the committee, thank you for your availability and analyses. Your work is invaluable to us as parliamentarians, especially at the Standing Senate Committee on National Finance. Hats off to you. You always answer accurately. Your answers are clear and the public can understand them. Bravo!
If I may, I would like to propose a motion on behalf of the committee to extend our congratulations to you. The motion is moved by Senator Forest. We will send it to the Prime Minister’s Office to ask for your term to be renewed.
Senator Forest: Yes, indeed. Selfishly, the motion should say that we would like it to be renewed.
The Chair: Perfect. If I may then, we will add it to the motion. Thank you very much.
We are now pleased to welcome officials from Public Services and Procurement Canada (PSPC): Michael Hammond, Chief Financial Officer and Assistant Deputy Minister, who is a regular at our committee; Kim Steele, Chief Technology Officer, Human Capital Management, the new term for “human resources”. Thank you for being here. We also welcome Mark Quinlan, Senior Assistant Deputy Minister, Real Property Services. Hello, Mr. Quinlan.
Welcome. You are regulars here. We will begin with a brief introduction by Mr. Hammond, to be followed by a question period.
[English]
Michael Hammond, Chief Financial Officer and Assistant Deputy Minister, Public Services and Procurement Canada: Good evening and thank you for the opportunity to discuss Public Services and Procurement Canada’s Main Estimates for the fiscal year 2025-26. I would like to acknowledge that we’re meeting today on the traditional, unceded territories of the Algonquin Anishinaabe people, honouring their deep connection to this land.
I’m joined by Mark Quinlan, Senior Assistant Deputy Minister for Real Property Services; Kim Steele, Assistant Deputy Minister and Chief Technology Officer of Human Capital Management Solutions; and Jennifer Garrett, Assistant Deputy Minister for Science and Parliamentary Infrastructure.
Mr. Chair, Public Services and Procurement Canada, known as PSPC, has a wide-ranging mandate, aligned with the mandate letter in May 2025, which touches on many aspects of daily and long-term government operations. The department is well positioned to support this government’s goals of protecting Canadian sovereignty, investing in our country, strengthening our economy with nation-building projects and creating new careers in the skilled trades.
To help deliver on this mandate for the 2025-26 Main Estimates, PSPC is seeking a net increase in funding of $2.5 billion to bring its opening net budget to $7.3 billion.
[Translation]
Mr. Chair, committee members will note that the majority of the department’s increased request for funds — an increase of approximately $1.9 billion — relates to the long-term capital investment plan and pre-planning for capital and fit up. This includes investments in the Parliamentary Precinct, offices and scientific facilities, as well as bridges, roads and docks.
These projects include the multi-decade strategy which is currently under way to restore and modernize the Parliamentary Precinct, including the Centre Block building, the home of Canada’s democracy. This is an enormous undertaking that will result in an integrated parliamentary campus, while moving us toward carbon neutrality and climate resiliency.
Our energy service modernization project is another example of the types of projects this funding will support. Under the program we are modernizing the district energy system that heats and cools 80 buildings in the National Capital Region, and we are on track to meet our goal of being net-zero emissions by 2030.
This increase in the Main Estimates also supports the government’s Laboratories Canada initiative, which will create a national network of world-class, tech-enabled laboratories. These facilities foster the science that drives economic growth and enhances health and safety, creating a more resilient and brighter future for all Canadians.
[English]
Mr. Chair, these and many other initiatives are made possible by Canada’s hardworking public servants in the National Capital Region and across the country. They deserve to be paid accurately and on time, and the Government of Canada is taking action on all fronts to resolve pay service issues.
In the Main Estimates, we’re seeking an increase of about $247 million to support the next generation human resources and pay strategy. As part of that work, PSPC is now testing a new pay and human resources system called Dayforce, which will replace and integrate a significant number of HR systems in use across the government. It will bring important efficiencies to the government, and its implementation is a transformational and complex undertaking.
Mr. Chair, PSPC is also committed to this government’s promise to spend less so that Canadians can invest more. For example, the department is focused on reducing its office portfolio by 50% and thereby cutting operating costs and reducing greenhouse gas emissions. On this front, PSPC is seeking an increase of $102 million to support its office portfolio reduction plan. This plan supports another urgent government priority — making housing more affordable for Canadians. As PSPC reduces its portfolio, some federal properties are being made available to support housing and other community needs.
[Translation]
Mr. Chair, I have touched upon only a fraction of the important work happening at Public Services and Procurement Canada. We enable the government to deliver for Canadians, and our work, supported by these Main Estimates, will be crucial in the months ahead. Thank you.
The Chair: Thank you very much, Mr. Hammond. We will begin the question period, unless your colleagues have anything to add.
[English]
Senator Marshall: Thank you for being here tonight. All of the negative reports that we’re seeing on procurement must have an impact on your department. One report was recently released by the Auditor General, last week, on GCStrategies Inc. We had the ArriveCAN app. The list goes on. We know about Phoenix, and you mentioned you’re looking at the next generation pay system.
But I was looking at your professional and special services. The government has always indicated that they’re trying to contain the growth in expenditures in that area, but you’ve gone from $2.1 billion, to $3.6 billion this year. Why are you asking for such a significant increase? How will that contribute to less negative reports and more positive reports?
Mr. Hammond: Thank you very much for the question, senator. I will endeavour to provide a little bit of additional detail around the professional services request.
Professional services income is a broad category of expenditures, everything from architectural, engineering, construction, and all the way to management consulting and informatics services. The category is extremely broad. PSPC is involved in major capital projects. Actually, the major part of our increase this year is related to some of our capital and infrastructure projects, which translate into increases in our construction, architectural and engineering costs.
Senator Marshall: Are the amounts itemized? If you’re asking for $3.63 billion, can you give us a list of what’s in that $3.63 billion? It’s right down to the dollar amount, so you must have a list or something that indicates what each project is and how much it will cost.
Mr. Hammond: We could provide some detail around the estimated cost by project. The actual amount that is included in there, by standard object, when you see it in the estimates, is based on a methodology on our previous spend in each of those categories. So it’s applied to the amount that is included in the Main Estimates. It’s not broken down to a specific level by project for the estimate; however, we do have actual expenditures by those various categories for the last several years, which we can provide to the committee.
Senator Marshall: I would like to see that. Also, does Treasury Board attach any conditions to the granting of that money? Is a certain amount frozen pending a certain outcome? I’m trying to link it back to the negative reports on procurement. Is the money being granted on the condition that your performance improves or that you start getting some positive reports?
Mr. Hammond: There are no conditions attached to the funding that’s here. None of it is frozen; however, the department has been taking steps to strengthen the procurement process. Our colleagues in the procurement branch have implemented a number of controls over the past couple years to enhance professional services — controls and the diligence around contracting. A lot of steps have been taken in order to strengthen procurement and require a greater oversight around the award of contracts.
Senator Marshall: When will we start seeing improvements?
Mr. Hammond: In terms of our professional services spending, we’re taking steps to ensure that we get value for money. We’ve implemented caps on certain professional services categories where we’re able to scale back — things like management consulting services and business consulting services. We’re taking active steps to reduce our spending in those areas, and we’re starting to see results as we look at the fiscal year that just closed.
Senator Marshall: Last year, in the budget, there was an indication that — some of the vacant office space, you were going to convert into housing. For the year just ended a couple months ago, there was an indication that it was going to cost — I’ve got the numbers here now; I was kind of surprised when I read it in the budget — that you were going to spend $28 million, but you were going to save $22 million.
Is there some sort of report that’s going to indicate whether those — I don’t question the expenditure of the $28 million, but I am doubtful as to the savings of the $22 million. Is there a report that would reference that project?
Mr. Hammond: Thank you for the question. I will turn to my colleague Mark who could talk about the office portfolio reduction plan and the status of where we’re at.
Senator Marshall: Did you actually save $22 million?
Mark Quinlan, Senior Assistant Deputy Minister, Real Property Services Public Services and Procurement Canada: Thank you. I’m mindful of the time, but we were able to achieve a space reduction of 160,000 square metres in the last two fiscal years, and there’s a dollar figure attached to that. I would remind you that, in Budget 2024, the government committed to a 10‑year plan to reduce 50% of its office space, which is 3 million square metres of space. So far, with the 160,000 — we could provide the detailed breakdowns of that space.
Senator Marshall: I was interested in using the office buildings to convert them into housing; that was the project I was interested in.
The Chair: Maybe you could answer.
Mr. Quinlan: In regard to the housing angle — and I’m pleased to get into it in more detail — the government endeavoured to accelerate the process to get a government property ready for it to be disposed and for those that are appropriate for housing to be transformed. That work has gone on for dozens, if not hundreds, of properties. Now, we’re at a stage where the government was re-elected on a platform to create a new entity called the “Build Canada Homes” initiative that will be mandated to build on federal properties. So we are collaborating with the creation of that entity and in ensuring that a maximum number of properties are ready to go when the government wants to take that on.
Senator Marshall: Did you save the $22 million? I was very doubtful when I saw that figure.
[Translation]
Senator Forest: Good evening and welcome.
You said that PSPC had been working toward the overall objective of reducing the use of outside professional services. We note, however, that other departments have not followed that example, since $26 billion is earmarked for outside professional services.
If PSPC has been able to reduce spending on professional services, by how much has it reduced that spending?
[English]
Mr. Hammond: Thank you for the question, senator.
As a department, we are taking steps to reduce our professional services spending and our reliance on professional services. We are a common service provider for the Government of Canada, and we do get our requirements from other departments in terms of their requirements for professional services. However, we have provided some oversight and requirements for those clients that are using our services to ensure they are adequately documenting their files for requests for professional services and other types of contracting.
[Translation]
Senator Forest: Can you give us an idea of the extent to which PSPC has reduced its spending on professional services?
[English]
Mr. Hammond: Thank you for the question, senator.
Once we have the results for the fiscal year that ended last year, which would be a full year when these controls have been in place, we would be able to provide some details around our efforts to reduce our professional services spending in certain key categories. I would qualify that there are certain types of professional services that are core to our mandate, such as construction, architectural and engineering services, which are based upon the projects that are in flight. As you will see from these Main Estimates, we have a number of large projects that are currently in flight and have significant costs associated with construction, architecture and engineering services, so those areas are more difficult for the department to demonstrate tangible reductions in our spending.
However, despite that, we are still taking steps to ensure that we are contracting for those services in an appropriate way, ensuring that we get appropriate value for taxpayer dollars.
[Translation]
Senator Forest: Once you have that information, it would be interesting to track your progress toward that objective.
My other question relates to an important mandate of PSPC. In her horizontal internal audit of procurement management in 2025, the Auditor General noted that PSPC has the ability to analyze data for the prevention and detection of wrongdoing, but that the department does not have the necessary resources to monitor the standing offers and supply arrangements issued under its authority.
My question is the following: What is limiting your department’s ability to monitor the professional services contracts issued by other departments? Is it a lack of resources, integration or access to data? Because ensuring that what is delivered to us matches the specifications, whether that is in the private or public sector, is the very foundation of sound procurement management.
[English]
Mr. Hammond: Thank you very much for the question, senator.
I’d be happy to go back to my departmental oversight branch colleagues to have a bit more detail around what they do have. I’m afraid I’m not able to answer your question; I don’t have that level of detail with me today.
[Translation]
Senator Gignac: Since my questions have already been asked, I will move on to something else.
On your website, it says you are the federal government’s central purchasing agent. On average, you spend $37 billion annually on behalf of federal departments and agencies. Of that $37 billion, what percentage goes to operating expenditures as opposed to capital expenditures? On average, what is the relative proportion of capital and real property expenditures to operating expenditures?
[English]
Mr. Hammond: Thank you for the question, senator.
I don’t have the breakdown between capital and operating for the government as a whole. We do a lot of defence procurement for DND; that makes up a large proportion of the spending. Also, our colleagues in real property doing contracting for various buildings, leases, and so on are also a large proportion.
I’d be happy to go back to the department and provide you with some more details.
Senator Gignac: I think it would become a topic, because what I heard is that maybe the Defence Department will go with their own procurement. This is possibly in the context of geopolitics with President Trump, NORAD and so on. At the end of the day, I think it’s not exactly the same policy when you talk about defence and then other spending in terms of transparency and so on. I would appreciate if you could be back on how important DND is in your $37 billion, please.
[Translation]
The Chair: Yes, I am interested in the breakdown by department, especially National Defence.
Since there was a question about professional services earlier and you said there are a lot of engineers and architects, I would imagine there are lawyers as well. Can you give us a detailed breakdown by type of professional services and subcategories so we know exactly where that spending on professional services goes?
[English]
Mr. Hammond: Thank you, Mr. Chair. Absolutely, we can provide some [Technical difficulties].
Senator Gignac: Maybe a quick follow-up. Since defence will become a hot topic for many countries, you probably have your counterparts in other industrialized countries. Is it the norm that defence has their own procurement or usually it is centralized like your service, who take care of the procurement for the Department of National Defence? Because I think something will be discussed about that.
Mr. Hammond: Thank you for the question, senator. There are active discussions happening around the commitment to establishing a new defence procurement agency. Those conversations have been happening for some time, and PSPC is involved in those specific conversations.
I have not been part of the conversations in terms of analyzing our model versus other countries’ models, so I can’t exactly speak to that particular piece. However, I can say that the department is actively working with DND as well as other colleagues within central agencies in terms of an approach for the new agency.
[Translation]
The Chair: If I may say so, surely you must compare your model to best practices around the world. Do you have tables comparing your model to that of other countries to demonstrate your level of effectiveness? You do not want to be at the bottom of the class; you want to be first in class, I assume, as everyone does. You must certainly make comparisons. Do you have comparative tables on the time it takes you to procure equipment, infrastructure or ships?
[English]
Mr. Hammond: Thank you for the question, Mr. Chair. I do not have details around that. I would be happy to go back to our colleagues in the procurement branch and defence procurement to get a sense of timelines for their various procurements.
[Translation]
The Chair: The best you can find; perfect.
Senator Moreau: My question is for Mr. Quinlan and pertains to the 3 million square metres that are available. When will those 3 million square metres be available? What is the breakdown per province in Canada?
Mr. Quinlan: I can give you the order of magnitude, which is probably the same example I provided the last time I was here. The federal government has 24 million square metres across the country. PSPC is primarily responsible for that office space. We have about 25% of the portfolio or 7 million square metres. The remaining infrastructures are held by the custodial departments, such as National Defence, Correctional Service Canada, Canada Border Services Agency and so on.
Our portfolio is about 50% Crown buildings that we own and rental leases. The breakdown between the National Capital Region and the rest of the country is about even. So we have a large portfolio in Quebec, for example: We have Crown buildings in Montreal and a few in Quebec City. That is the case right across the country. We also have several rental leases, at Place Bonaventure in particular.
Budget 2024 was based on a number of hypotheses. The first hypothesis was that the government would continue with a hybrid model. Some public servants work five days per week in the office. When that plan was devised, however, the majority of public servants had to work in the office two or three days, with a number of exceptions. Call centre employees, for instance, could work remotely full time. That was the foundation.
Another factor is the number of public servants. We do not have work spaces for all public servants. I am sure you know that the public service increased by 100,000 employees in recent years. Our internal figures show that we provided space for 270,000 employees, whereas we had planned for 290,000. Finally, when we asked all chief financial officers to confirm the number of employees per department who have work spaces in various PSPC locations, we found that there were actually 306,000 employees.
As to the hybrid work model, the government decided to move away from the rule of two or three flexible days per week with exceptions and instead eliminate exceptions and require all public servants to be at the office at least three days per week. As to the 9,000 public service managers, they work at least four days per week in the office.
Since the plan was devised, the other factor is that the public service has grown in regions where we do not necessarily have enough office space. We might have an office in Montreal with more than enough work spaces for all employees under the hybrid model, but in Quebec City, where some departments have hired bilingual call centre employees, there is not enough space. Without going into too much detail, we are also working with the Quebec government, which also uses a hybrid model, to save taxpayer money.
The planned time frame was 10 years. The plan is to confirm every year the number of employees we have to accommodate, give up certain leases, consolidate certain Crown buildings, and in some cases vacate Crown office space and declare it surplus. Some of those buildings might be used to create housing in the future.
Right now, we are at about 33% over 10 years, looking at each transaction. We are not at 50%. I mentioned the mortgages that have since evolved. We are nonetheless confident that 50% is achievable, but maybe not over 10 years. We have various strategies that lead us to believe that we can do even more.
Senator Moreau: Do you mean 50% of spaces would be vacated, converted or made available for housing?
Mr. Quinlan: Exactly. In our world, we often refer to square metres. We have 7 million square metres, with warehouses accounting for 1 million square metres of that. We will exclude them from the plan to reduce the portfolio and office space. That leaves 6 million square metres. We think certain leases can be terminated. Those commercial buildings could then be released to other clients or converted. We will also be able to vacate certain Crown buildings that could then be converted. In other cases, we will be able to consolidate the number of employees working at each office.
Senator Moreau: If a lease is terminated, it is up to the owner to decide what to do with it.
Mr. Quinlan: Exactly.
Senator Moreau: As to the buildings that belong to the Crown, are you not subject to restrictions as to zoning and the use of the buildings? Do you consider that in your available square metres that could be converted into housing?
Mr. Quinlan: Yes, we do. The first thing is to check whether the building can be converted, or if the property can be converted. In some cases, for instance, we have huge pieces of land with smaller or modest-sized buildings. The land could be divided into lots and might perhaps all be made available.
In the case of certain federal partners, we evaluate the number of suitable accommodations and units. Not all buildings are suitable. Certain heritage buildings have potential, while certain other buildings also have potential, so we prioritize those buildings. Infrastructure is also a consideration. The federal government has control over those lands. If it disposes of them and sells them, however, they will be subject to municipal zoning. So partners are needed. It is not just our department that has to be involved.
What I can confirm is that a building that is still half occupied cannot be converted into housing. The first objective is to vacate it and then make it available on the market.
[English]
Senator Loffreda: Thank you for being here this evening. I reviewed several of your department’s targets and most recent departmental plan, and I was pleased to note a number of improvements. Well done; congratulations on that. However, there are two specific targets moving in the wrong direction that I would like to explore further with you.
The first concerns the percentage of contract value awarded to small- and medium-sized enterprises. In 2020-21, this figure stood at 47%. By 2022-23, it had declined to 24%, and falling just below your 25% target — that is your target, 25%. As a strong advocate for Canada’s small- and medium-sized enterprise, or SME community, I would be interested in hearing your perspective on this result.
The second question relates to overall client satisfaction, with PSPC procurement services, which has recently declined from 90% to 80%. I think 80% is still a good number if I compare you to other departments, but I would like to have your take on that. I would appreciate your comments on both of these targets. What may be driving these changes? What steps, if any, are being taken to address them?
Mr. Hammond: Thank you for the question, senator. This is a little bit outside of my area. We have ADMs that are responsible for our procurement area and they would be able to speak more clearly to those particular targets. I would be happy to take the question back and provide a response for you that is more fulsome than what I can provide today.
Senator Loffreda: Maybe you can help me with this one: As senators, one of our key roles is to engage with businesses and individuals. I’m certain that we all continue to receive calls and e-mails from business people eager to pitch their ideas and projects, and it is no surprise that many ask us — all the senators, I’m positive that many do get these phone calls or requests — to help open doors within the government or connect them with the right contacts in the public service. Going back to the SME target of 25%, with this in mind, could you briefly explain both for me and for the benefit of my colleagues and our listeners, how the federal procurement process works, and specifically how Canadian suppliers and entrepreneurs navigate the system and successfully get their foot in the door?
Mr. Hammond: Thank you for the question, senator. Again, this is a little bit outside of my core area of expertise, but the department does facilitate a number of tools for the supplier community to help them navigate the procurement process. We have the Procurement Assistance Canada office, which is part of PSPC, and they provide tools and support to companies that are interested in bidding on government work.
Senator Loffreda: Can they reach them directly?
Mr. Hammond: Yes.
Senator Loffreda: I have a real estate question, which I have raised over the COVID years with ministers. There have been a quite a few ministers who have changed over the years. We should reduce the real estate that we have at the government level because of the fact that we will need less. That was well covered with the 50% reduction and achieving 33% instead of 50%, I think you have covered that well.
I have another question regarding your department’s commitment to re-evaluate its real estate portfolio — property portfolio — and the topic I also raised with the Government Representative in the Senate last week. What criteria does your department use to define affordable housing? Specifically, is affordability assessed in relation to household income? I say that because in a report last week the Auditor General noted that the affordability requirement used under the Federal Lands Initiative to convert office space into housing was not designed to provide housing that would be affordable for the lowest-income households. I think that’s within your scope.
Mr. Hammond: Thank you for the question. My colleague is able to answer.
Mr. Quinlan: It is not exactly in our scope. The Federal Lands Initiative is under the responsibility of the Minister for Housing and Infrastructure. In the context of that initiative, when we do surplus a government building — and in some cases it gets transformed through that program, though there are other ways — then it is subject to the terms and conditions of that program, which is not under the responsibility of PSPC.
Those questions would be better addressed, respectfully, to that department. PSPC has a very limited role when it comes to housing. Mainly, we own housing and we lease housing in Iqaluit to house public servants. We have some legacy housing, including some affordable housing. Le Complexe Guy-Favreau in Montreal, for example, when it was built, had a number of units of affordable housing. That is administered in the long-term land lease with a non-profit. We are technically the owners, but we do not administer that space.
Our role in housing has been, and continues to be, rather modest. Our job is to ensure that when we do have assets that can be put to good use through housing, so that we don’t sit on them for years and years. Fortunately, that has been the case. We have been actively trying to speed that up, because it doesn’t help anybody and it costs taxpayers’ money for no value. Those are the things that we are focused on.
When it comes to the definition of affordable housing, what is the right percentage, what is the right number and how you evaluate that across the country or look at various jurisdictions based upon the cost, those are outside of our level of responsibility.
Senator MacAdam: As mentioned earlier, there have been several reports in recent years by the Auditor General and the ombud that have been highly critical of the department. In the most recent report that covered contracts to GCStrategies Inc., she didn’t include any recommendations, because she said the recommendations were made before but they weren’t acted on and that it was incumbent on the department to take action to examine the root cause of the non-compliance.
I’m wondering what the department is going to do in terms of analyzing the root causes. For instance, she said that maybe there are too many rules. There are too many rules and, therefore, it is difficult to follow all the rules. There could be issues of a lack of training. There are many possible root causes, but really, put it on the department to identify root causes and to take action and make improvements. I’m wondering if you have a plan to do that.
Mr. Hammond: Thank you for the question, senator. Our colleagues in the procurement branch are taking active steps to tighten up the process, and they have rolled out a number of tools and training materials to our counterparts across the government in order to deal with some of the concerns that have been raised about the procurement process. The steps are under way, and there are more that are continuing to be rolled out over the next few months as well.
Senator MacAdam: Have any root causes been determined yet? I know it is a process and it is not going to happen overnight in terms of the total analysis of why there is non-compliance, but have you established any root causes up to this point where you can clearly state that it is an issue?
Mr. Hammond: Thank you very much for the question. I don’t have information around any of the root causes that have been specifically identified. I do have some details on some of the measures that the department is taking to address contracting and procurement within the system. Again, I would be happy to take the question to procurement branch colleagues and get back to you on any root causes that have been identified.
Senator Kingston: I’m going to add on to what Senator Loffreda was talking about — affordable housing in particular.
You were here — well, I don’t know if all of you were here, but Mr. Quinlan was here — about a year ago and, at that time, information that we were provided in preparation for the meeting said that you were active participants in the Federal Land Initiative and gave some examples, which you have reiterated today.
I’m wondering a few things. One, you have some money in the current estimates that would help you to speed up the reduction in the use of federal buildings for employees, the greening initiative and so on. Will that help to accelerate the number of properties that would be available to possibly convert into affordable housing? It seems that CMHC is behind in terms of being able to provide those. I know that you don’t do that part, but I’m wondering, now that you have some money, will there be an acceleration of buildings that are available to be converted into affordable housing?
Mr. Hammond: Thank you for the question, senator. You are right, we have $102 million, as I noted in my opening remarks, that has been allocated toward the office portfolio reduction initiative. Mr. Quinlan can give you details in terms of what that money will be used for and how that would accelerate the process.
Mr. Quinlan: Thank you. My colleague is right; that money is mainly for decommissioning and moving. We will be moving tenants out of some buildings with the potential for housing conversions. We have already started that, but we are accelerating it. In some cases, when we move departments out of leased facilities, we have to decommission the space and return it to the way we got it originally, so that is an important investment. That money is aimed to speed it up.
I could go into a bit of detail on the disposal process. This is a process that is outlined in Treasury Board policy but also with constitutional and legal requirements. PSPC or the other custodial departments, when they determine that an asset is no longer needed to deliver the programs, it is declared surplus. Once it is declared surplus, the amount of time it takes for that asset to be able to leave the federal government and go into the private sector or another level of government in order to be converted, there is a period of time there because there are a number of steps. We have been focused on accelerating those.
I could get into detail, but it is not automatic. In fact, there were reports that indicated we were in the seven, eight and nine years between a property being declared surplus and actually being disposed of, which feels unacceptable to all who hear it, but when you break it down, it means that there was not enough focus.
We are laser beam focused on all of those different steps. What can we do concurrently? We have to be very mindful about it. One of them is our constitutional requirement to consult First Nations. When we consult First Nations on properties that we’re going to make surplus, we have to ensure that we maintain the honour of the Crown, and we consult them with a purpose in mind. If that changes over time, we have to go back.
There are other requirements. Again, I don’t want to take up too much time in the weeds, but once the property is made surplus, the next step is getting it disposed. That is also critical because, again, as long as it is in the government’s hands, it is not going to be converted into housing.
Senator Kingston: You working with CMHC, for instance, wouldn’t speed up that process because the surplus is going to another federal entity?
Mr. Quinlan: We do work with CMHC in terms of speeding up that process to be able to get the properties in their hands if it is going through that route. There are many other routes.
Again, in terms of CMHC’s Federal Lands Initiative program, I can’t speak to the percentages. What I can say is we are focused on properties that will go to that program and other properties that will go to housing. How do we get them there as fast as possible? Again, the government’s track record has not been very fast because there are a number of legitimate steps, but we’re innovating to be able to do things concurrently and get there sooner.
Senator Kingston: That would be great.
Senator Ross: I’m interested in knowing how much has been spent on IT contracting in the last fiscal year and what you are budgeting for this year.
Back to an earlier question one of my colleagues asked, what requirements are given to departments when they are requesting these services? I just want to read a few sentences from an article that I read. It says:
Many IT specialists actually leave the public service to take on higher-paying jobs in the private sector . . . .
Then it goes on to say that:
There is a capacity gap that must be fed by consultants, which essentially means the building of a shadow bureaucracy . . . .
These were statements by Robert Shepherd, a professor of Canadian public management and federal program evaluation at Carleton University. I am just interested in your perspective on that.
Mr. Hammond: Thank you for the question, senator.
In terms of the spend, I can tell you that over the last four to five years in informatics professional services, we range between $200 million and $250 million, on average. Again, that is increasing a little bit with some of the work that is happening on the next generation pay system because that’s a primarily IT system that is not being entirely developed with in-house capacity within PSPC, supplemented with external specialized skills.
In terms of the skills shortage, I know our colleagues in the IT space do struggle in terms of recruitment for specialists in particular within the IT space, so we do end up contracting for a number of those services. Kim Steele could probably speak to this quite adequately in her role with the pay system because it is very much an IT-type project.
Kim Steele, Chief Technology Officer, Human Capital Management, Public Services and Procurement Canada: Thank you for the question. I would say that there are a number of skills shortages, not just within the federal government but across the board. If you were looking for an expert, I’m going to say in cybersecurity, the students coming out of school are in very high demand. That’s one example of an area where I would think, across the board, we have shortages. One of the things that we are trying to do is incentivize with training to retain the folks that we have.
Other examples are large enterprise resource planning systems. Whether it is a financial management system — SAP or the HR system that we have today, PeopleSoft — those skills are very hard to find and maintain within government, so we do look to get that expertise outside of government.
That being said, again, it is a constant work effort to encourage employees to take training. We offer training. We want them to stay. There are different things that I think the government can offer that private sector companies don’t. It is a bit of a balancing act as well.
Senator Pate: I’d like to pick up on that line of questioning.
One of the things that has emerged as we have been looking at procurement is the fact that public service is just that — it is supposed to be a public service, not a for-profit venture. Increasingly, we are seeing concerns being raised as we move into efforts to remove barriers to interprovincial trade, including limitations on exceptions under the Canadian Free Trade Agreement. Concerns emerge about how these exceptions will be dealt with, especially given the increased use of standardized tendering processes that you have been using that have often been dominated by procurement consultants who, by their very nature, are chasing profits rather than effective outcomes for Canadians.
In addition to the concerns raised by the Auditor General and others, including my colleagues, I’m curious what your response is to the findings of an investigative journalist, Dean Beeby, who recently called attention to overbilling scams by which subcontractors defrauded 36 government departments to the tune of at least $5 million and what that tells us about our ability to be ready, particularly agencies that are created for the safety of Canadians, who now will no longer be exempted from Canadian Free Trade Agreement rules, while remaining general exceptions to the act because national security and social services have been rarely used in the past.
Can you please advise what concrete measures you are taking to ensure that in a situation such as another potential pandemic, where time and flexibility may be of the essence, government agencies are not hamstrung by the types of concerns we have seen previously with tendering?
Mr. Hammond: Thank you very much for the question, senator. I can speak a little bit to the overbilling issue in particular. Our colleagues within the departmental oversight branch have been quite heavily involved in those files as we’ve taken the lead in terms of identifying and also taking action to collect back those overbilled amounts.
We are also actively in conversations around a process to be able to have a better view on the billings across the federal government system, because right now, quite often, when another department is contracting for a specific service, the billing goes to that particular department, and we don’t necessarily have the data within PSPC to be able to see that whole-government-wide view. So we’re actively working with colleagues in the oversight branch to identify a process whereby we could gain access to that information to be able to do further analysis around overbilling.
In terms of the cases you specifically talked about, our colleagues in the oversight branch have taken steps to collect, and we have collected approximately $3 million of the $4.6 million that was identified as part of those cases. And they continue to do analysis on contracting data to identify if there are other situations that are arising. So the department is actively taking steps to deal with concerns around overbilling.
Senator Pate: Are there other steps being taken to ensure that you’re not looking at those kinds of contracting situations in the future?
Mr. Hammond: The overbilling tends to be on certain procurement tools, such as the task-based tools, which are kind of a time and materials contract. Colleagues in procurement branch are taking steps to try to move away from those task‑based contracts into a solution-based contract, which is based on payment for a deliverable, and it takes us a little bit out of the risk associated with those time and materials contracts, because you’re actually paying based on the receipt of a deliverable.
Senator Pate: Thank you.
Senator Galvez: My colleagues have mentioned that PSPC has significantly ramped up its procurement budget, and when we look at your website, there are some things that are very clear and there are some things that are not clear. What is clear, where the money is going is on property and infrastructure upgrades, $3.4 billion; payment and accounting system, $618 million; goods and services, defence procurement, government-wide support, $156 million. But there are areas which are a little risky or grey, and I would include the costs of outsourcing to consultants that my colleague referred to.
Critics point out that high consultancy use can obscure costs and erodes internal expertise. There is low Indigenous procurement uptake.
You aim for 5% of contracts awarded to Indigenous businesses, but you have reached only 3.4%. And there are a lot of infrastructure project overruns, particularly with respect to the heritage building rehabilitation and shipbuilding. I know you’re going to provide a breakdown of consultant expenditures, but I would like if you could add to that project-specific budgets, specifically for high-risk and for life cycle programs.
I want to ask you: Have you requested performance reporting on Indigenous procurement and have you asked to have project audits and progress reports for major infrastructure and shipbuilding initiative, highlighting the cost and timeline variances?
Mr. Hammond: Thank you for the question, senator. Maybe I’ll start with your first question around the Indigenous piece and then move to the monitoring of project spending.
In terms of the Indigenous target, you’re right; we are targeting 5%. We are sitting at 3.4% currently. We’re also looking at identifying using Indigenous businesses as subcontractors, because currently we have only been looking at our direct procurement for Indigenous, and a number of our projects, like construction, have a number of subcontractors that are providing services and we haven’t been tracking the Indigenous element of that. That will be part of the analysis we are doing, so we expect to see some improvement in the Indigenous participation on our targets.
In terms of the project spending and against timelines, we actively monitor project spending against budget, and we have internal governance within PSPC that is monitoring the progress of our projects and any cost overruns and requirements to increase come to that committee, and there’s an active discussion around increases that are occurring on those projects.
Senator Galvez: Can you give an example of what is going on with the shipbuilding, and how far we are from the initial budget?
Mr. Hammond: On the shipbuilding?
Senator Galvez: Yes.
Mr. Hammond: I, unfortunately, don’t have those details with me. The National Shipbuilding Strategy is a large project. There are a number of initiatives that are going on within that. I’d be happy to provide some more detail around the current status of those projects.
Senator Galvez: What about transforming the federal buildings to affordable housing? It has been two years we’ve been talking about this, but we don’t see the progress. In the last year, how much transformation of federal buildings into affordable housing has happened?
Mr. Hammond: Thank you for the question, senator. I could maybe ask my colleague Mr. Quinlan to give a bit of an overview on the progress that has been made —
Senator Galvez: I am interested in the progress, yes.
Mr. Hammond: Exactly.
Mr. Quinlan: Thank you, Mr. Chair. As I mentioned earlier, we recently had a federal election where the re-elected government indicated that it was going to create a new initiative called “Build Canada Homes.” That is being worked on actively right now, and it will include the mandate of developing on surplus public lands and public properties. Our job at PSPC will not be to do that work; it will be the “Build Canada Homes” initiative. Our job will be to ensure that the real property that we have — and again, from a size-of-buildings perspective, we have about 25%, so there are a lot of other properties out there that belong to other federal departments. But for those that we have, the ones that we are reducing, surplusing, and exiting, we want to ensure that we follow all the disposal process steps to get them into the hands of “Build Canada Homes” or another entity, where they will be able to transform them into housing.
How many federal buildings do we have that are currently surplus within PSPC? We have various properties, about 117 at last count, and there are some large buildings, and there are some small plots of land. Not all of them are suitable for housing. We’ll be this year, hopefully, disposing of a significant amount of buildings that will have that housing potential, and will be able to be taken on by “Build Canada Homes” or another entity that will have the mandate to transform them into housing.
Senator Galvez: So up to this date there is no single transfer of federal buildings to whoever is going to transform them into affordable housing?
Mr. Quinlan: What I can confirm, Mr. Chair, is that the government has indicated so far a certain number of buildings that are suitable for housing that are already ready. It created a geospatial tool that called the Canada Public Land Bank. Budget 2024 had the objective of having 250,000 units built on federal properties, converting them or on vacant federal land. There are currently 90 properties, a lot from PSPC but from other departments, on that land bank, and so far the conservative unit count is 42,000.
But to answer, Mr. Chair, the direct question, in terms of how many of those are actually housing units right now, out of those 90 properties, none of them are.
Senator Galvez: None of them are.
[Translation]
Senator Dalphond: My question is for Mr. Quinlan.
You said earlier that you prioritize heritage buildings. I assume those are buildings that are hard to convert into housing, such as old post offices or old office space and so on. Can you elaborate on the strategy for heritage buildings? We can see them everywhere. In Quebec, I have seen some that have been vacant for several years, that have literally been abandoned. It seems like no one wants them; they are like white elephants.
Mr. Quinlan: Thank you very much. At PSPC, we are the custodians of several heritage buildings. A few metres from here, my colleague manages Parliament Hill. There is the Connaught Building, for example, which looks like a castle, where the Canada Revenue Agency is located. That building is part of our portfolio and we are responsible for preserving it as a whole, its heritage aspects, as well as practical aspects. We do not intend to dispose of it.
We have buildings in certain sectors. You mentioned Canada Post. Those buildings are part of the federal family, but we are not responsible for them. Canada Post is responsible for them.
As to the properties for which we are responsible, the heritage aspects will be considered to determine whether or not to dispose of them. Various factors will be considered in our decision, and that is the case right across Canada.
There has been a tremendous lack of investment in our buildings and infrastructure, which makes it more expensive if we want to preserve them. So we have to make choices. Some buildings have potential to be used for housing, while others less so. Those that have potential but are not very effective in terms of cost or space are identified as buildings that we can dispose of on a priority basis. We do nonetheless encourage the preservation of the heritage aspects. You have seen several examples across Canada where shells of buildings have been preserved and then people build around them. That is part of the developers’ strategies.
We are responsible for preserving certain buildings. In other cases, if it is not part of our program and it is very expensive, we try to dispose of them. We are the custodians until we dispose of them.
I hope that answers your question.
Senator Dalphond: The Connaught Building has been renovated over the years. We recognize that transforming other heritage buildings into modern office buildings with air conditioning and all the high-tech infrastructure needed can be more expensive than using a more modern building that meets the requirements and can accommodate as many employees.
What do you do in such cases? If preserving a heritage building costs twice as much as using an ordinary building, do you decide to dispose of the heritage building?
Mr. Quinlan: Right now, the priority for the portfolio plan is basically cost savings. If you look at the new government’s mandate letter, it is clear: Point 7 says that the government wants to reduce its operating expenses in order to reinvest in other priorities. Office space is a major operating expense. In this context, when making portfolio choices, we look at expenses, as well as our responsibility for certain assets. We have to strike a balance.
If you know Old Quebec well, there is a building at 3 Passage du Chien-d’Or, a few steps away from Château Frontenac, where federal public servants have worked for many years. It is a prime location. We have decided to preserve, maintain and invest in that building, even though we could move all operations to D’Estimauville, where there are much more modern, efficient and cost-effective buildings.
So we have to strike a balance. If a building has heritage value, if it is extremely expensive and we have not invested in its maintenance for years, and if there is community mobilization in some cases for another project, whether specifically for housing or for related services, we work with all stakeholders to make it a priority.
The Chair: The Federal Heritage Review Office advises departments on the heritage aspect of buildings. Do you work with this office often?
Mr. Quinlan: Absolutely. It’s a requirement. I believe that Parks Canada is responsible for the office.
The Chair: Exactly. Parks Canada is responsible for the office.
Mr. Quinlan: I would say that we work with them and take their policies into consideration. These policies aren’t legal requirements.
The Chair: That’s what I want to know. You aren’t required to follow their advice. However, they give you advice and this advice plays a part in the assessment criteria?
Mr. Quinlan: Absolutely. It will be considered, but it isn’t a legal obligation. For example, the government made changes to the Official Languages Act. It’s now mandatory to consult official language minority communities. This was not the case in the past. The government made this choice. It’s a new step in the disposal process. Before anything is done, consultations must be held.
The Chair: A legislative gap persists regarding the heritage protection of federal buildings. Senator Joyal tabled a private member’s bill, which didn’t pass and which died on the Order Paper. You aren’t subject to provincial regulations. You’re under no obligation to comply with them. Good will is needed.
Mr. Quinlan: For example, the federal government is under no obligation to make payments in lieu of taxes. Yet the federal government does this in all jurisdictions, because the government has a responsibility within these communities. These investments benefit the government-owned infrastructure. Without any constitutional obligation, the federal government tries to be a good neighbour in a number of ways.
The Chair: A good citizen.
On the topic of good citizenship, as you said, it’s quite costly to convert an office building into an apartment building. The disposal process steps aren’t the same. It involves engineering and architecture. Seismic standards must automatically be reviewed. This calls for strengthening, which is hugely expensive.
How do you and the National Capital Commission work together? It takes seven to eight years to turn an office building into potential housing. After talking with Senator Galvez, we learned that you’re still five years away from the affordable housing stage. Meanwhile, the National Capital Commission is buying a former golf course in Chelsea. The city’s urban plan included the golf course within its urban perimeter for housing development. This land wasn’t within the Gatineau Park perimeter. It bought the land and prevented the construction of about 1,600 to 1,800 housing units.
Don’t you find that frustrating? How do you and the National Capital Commission work together? You don’t need to pull in the same direction. Isn’t that an issue?
Mr. Quinlan: Mr. Chair, it’s important for federal entities to work together. This topic arose with regard to areas outside real estate services. The National Capital Act doesn’t apply outside the Ottawa-Gatineau region. However, in the region, people take it into account and adapt to it. This complicates the process of disposing of a building by adding additional responsibilities.
There are a number of examples of good cooperation. The government made an announcement last year to dispose of the Centre Asticou in Gatineau, a former Quebec high school transferred to the federal government. The centre housed training activities and other government operations.
The Chair: This facility will serve as a hospital.
Mr. Quinlan: The idea was to turn it into a hospital. The Quebec government was interested in acquiring the land. The National Capital Commission was responsible for authorizing the transaction. The three parties worked together. In the end, an agreement was reached. The hospital won’t take up the entire site. We drew certain boundaries to expand Gatineau Park, which was in the interest of the National Capital Commission. At the same time, we allowed the Quebec government to take back a large part of the site, which could be used to build a new hospital. That way, the federal government could reduce the number of square metres and increase its savings.
The Chair: However, we can still sense that the left and right hands are at odds with each other.
Mr. Quinlan: Each federal entity has its own mandate. As senior public servants, we’re responsible for resolving these situations within everyone’s respective mandates, Mr. Chair.
The Chair: Thank you. As you can see, we feel passionate about this. You’re getting many questions. This isn’t over.
Senator Hébert: Procurement and tendering are a bit like the song Everybody Wants to Go to Heaven, but Nobody Wants to Die. Everybody wants to be thorough, but also flexible. As some of my colleagues said earlier, the government announced significant investments in defence and an acceleration of investment in major infrastructure projects. This will affect the tendering and procurement processes.
In the light of this government direction, is work under way to adapt PSPC’s processes to ensure the necessary flexibility to meet the government’s objectives, particularly in terms of deadlines?
[English]
Mr. Hammond: Yes. It is a constant evolution of the procurement process to make it better. Our colleagues within the procurement space in PSPC are constantly looking for ways to improve the process, streamline and make it quicker.
If I can go back to a question Senator MacAdam raised in terms of the root causes, I’ve been told one of the main root causes is training. Ensuring our procurement officers across the federal system understand the process and are able to navigate that quickly is key for us in terms of blocking our ability to ensure that procurement is done quickly and effectively with the appropriate controls in place to ensure we’re getting appropriate value for money.
Senator Marshall: There were a couple of requests, when you look by main object, where there were significant increases; the first was the one we discussed earlier.
Your request for consultant services went from $2.1 billion last year to $3.63 billion this year. That is a significant increase of 70%. You’re going to send us something on that.
The other one I had a question on, the acquisition for land and buildings went from $888 million to $1.573 billion. I thought the government was getting out of real estate.
What is being bought in the land and buildings account that you would need $1.5 billion?
Mr. Hammond: I don’t have that piece of information at the tip of my notes here. I’m happy to provide that.
Senator Marshall: If you can send that in.
The last question, which you can also send in, is the debt charges of $119 million are consistent with last year. It looks like you’ve got a mortgage on something. Can you send in what the $119 million is?
Mr. Hammond: Certainly. I’d be happy to provide more details in terms of what is in that category.
[Translation]
Senator Forest: We know that the Translation Bureau is your responsibility. The goal is to cut 339 positions through attrition, which is a bit concerning. What indicators will you be monitoring to avoid any cuts in services? Translation is always a sensitive matter.
[English]
Mr. Hammond: One of the items within our Main Estimates is funding for the Translation Bureau to ensure there are appropriate interpretation services within Parliament. That’s one of the areas that is of particular focus.
In terms of the adjustment within the Translation Bureau, this is to adjust to volumes of translation work they’re receiving over the coming years. They are seeing some reduction in the volume. They’re also implementing new artificial intelligence tools which will help to streamline the process and create additional efficiencies. That is the adjustment they’re proposing as part of their business plan for the next three years.
[Translation]
Senator Gignac: In the private sector, artificial intelligence is seen as a tool for increasing productivity. Last year, you launched a pilot project called CANChat. How many public service employees have shown an interest in taking part? What feedback have you received so far?
[English]
Mr. Hammond: Shared Services Canada is launching the CANChat tool. They might be better able to answer your questions with respect to the usage. I’m not aware of the departments that are using that.
[Translation]
Senator Moreau: Some buildings are Canadian symbols. We have 24 Sussex Drive, which is falling into disrepair, and soon into the Ottawa River. We also have the Supreme Court of Canada building, for which renovation work was announced in 2012. Last week, at a press conference, the Chief Justice of the Supreme Court said that he had no idea how long it would take or how much it would cost to renovate and upgrade the Supreme Court building, in particular to meet seismic standards.
Should we expect the Supreme Court of Canada to suffer the same fate as 24 Sussex Drive?
Mr. Quinlan: First, PSPC isn’t responsible for 24 Sussex Drive. I’ll refrain from commenting on that matter.
The Supreme Court is in our portfolio. We worked closely with the Chief Justice and the entire Supreme Court administration to plan a complete renovation of the building. Before we can do this, we need to provide accommodation for the Supreme Court, just as we currently do for the Senate. We had a surplus building, the West Memorial Building, just across the street, at an angle. We invested in it. Great strides are being made to relocate the Supreme Court to that building.
Once the court has been relocated, we can address the current building’s issues. It’s a magnificent building. You’re right to bring it up. The architecture is incredible. It’s a gem. We haven’t invested the right amount of money in it for decades. The underground parking is in bad shape. The systems must be replaced. There have been some rather awkward situations with flooding and other issues. This is one of our priorities.
[English]
Senator MacAdam: In your opening remarks, you mentioned energy services modernization. You referenced about 80 buildings in the capital region where the plan was to be net zero by 2030. Can you elaborate on that and where you are with the modernization process?
In the interests of time, if you want to provide something in writing, that would be fine.
The Chair: That is a good idea, to provide a written answer, the same thing if others have a question.
Senator Pate: My question is specific to consultant suppliers who subcontract their services. I’m interested in how you scrutinize. I was pleased to hear you are developing some standards, how you’ll scrutinize for things like the modelling of labour, health, environmental and other standards and ensure internal talent within the public service is improved and retained rather than undercut through outsourcing.
Mr. Hammond: Thank you for the question. I’d be happy to provide more detail. I think our colleagues in the Procurement Branch would be better positioned to provide that detail. Thanks.
Senator Loffreda: Mr. Hammond, how does PSPC ensure effective oversight and risk management in major procurement contracts, particularly when multiple departments and jurisdictions are involved? Are there mechanisms in place to detect and adjust potential delays or cost escalations early in the process?
Mr. Hammond: Thank you for the question. This is another question that our procurement colleagues would be better able to answer.
Senator Loffreda: You could send me that in writing. That’s an important topic especially with all the infrastructure we are —
[Translation]
The Chair: We went over our time by a minute. My apologies. Perhaps I didn’t manage the speaking time strictly enough.
Thank you for your availability.
Could you send us your written responses by June 17, 2025? I gather that we may receive additional responses for summer reading. Thank you.
Our next meeting will be tomorrow, June 17, to continue our study. Take note of the room. It will be our usual room at 1 Wellington Street. By the way, it’s likely a PSPC property or under PSPC management. This change is an exceptional situation, given the break for caucus meetings that will be held in this room. Since we weren’t sitting at the time, I agreed to have our meeting at 1 Wellington Street.
Before wrapping up, I would like to thank you all for your availability. I would also like to thank the support teams, the clerk, the Library of Parliament team and so on. We have tight deadlines. People work hard to meet them. It’s much appreciated. Thank you and good evening.
(The committee adjourned.)