Government Operations Committee on May 10th, 2016

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Colleagues, as I mentioned at the outset of this meeting, we do need a bit of time at the end of the meeting for some committee business. Therefore, I think we have time for two five-minute rounds.

I have on my list Mr. McCauley on the official opposition side, and Mr. Grewal on the government side.

Mr. McCauley, you have five minutes, please.

[Kelly McCauley, Conservative, Edmonton West, AB]

I want to thank Mr. Whalen for stealing my questions.

[Nick Whalen, Liberal, St. John's East, NL]

Yes, yes.

[Voices]

Oh, oh!

[Kelly McCauley, Conservative, Edmonton West, AB]

About the amortization risk, about governments playing “silly bugger” with the books, do you see any other possible transparency risks if we went to accrual, besides the amortization bit?

[Michael Ferguson]

It depends what you mean by those types of risks. In New Brunswick, we had an accrual-based budget and accrual estimates. There was a period of time, believe it or not, in the early 2000s when pension plans were making large returns. I remember one year when the pension plan in New Brunswick made a 20% return, and it was essentially a fully funded plan.

[Kelly McCauley, Conservative, Edmonton West, AB]

Yes, I fondly remember those days.

[Michael Ferguson]

Significant returns.... In fact, there was a year or two when our pension expense was negative. In other words, we were earning more in terms of the interest and investment income on the pension plan assets than the pension plan expense. The pension plan expense was essentially zero or negative, but we still had to make contributions to the plan, because the employer was still essentially matching employee contributions. There was a disbursement of cash, even though the amount voted was very low, because on an accrual basis the expense was very low.

There are some of those things that I think people need to be aware of. Fundamentally, though, that can be dealt with just by understanding what the total cash requirements of the government are going to be over the year, and where those cash requirements are going to be put. Then, on the expense side, the expenses are all on an accrual basis, so people understand that this is what the accounting is going to show.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Mr. Ferguson, your recommendation is clear: you want the main estimates and the supplementary estimates to change to cash accounting. You have also explained clearly that it is important to consider risk capital in relation to budgetary and non-budgetary measures.

To complete your testimony, if you have recommendations to make to the committee's analysts, I invite you to sent them to them so that we can migrate to cash accounting that reflects budgetary and non-budgetary items as well as non-capitalized items, as you have done.

The members opposite say they are transparent, but they did not want to acknowledge the fact that the last government left them a budget surplus. It is all very well to say that the old age pension age will be brought back down to 65 from 67, but we must not forget that there are costs associated with doing that.

How can we, as politicians or as parliamentarians, make sure that this aspect is properly accounted for to the public?

[Michael Ferguson]

I will take the first part of that question, in terms of other recommendations we may have. I think I want to go back to your earlier comments about the importance of the timing of everything as well, and being able to match up the budget and the estimates. Again, right now the estimates are prepared before the budget, so they include some things, and then you end up with the supplementary estimates afterwards.

I think it would be preferable if there was a way of making sure that the budget and the estimates are put together at the same time. There would need to be some process for interim supply, probably, because by the time the budget and the estimates are prepared and it goes through all of the process in Parliament to get approved, you would be a month or two into the fiscal year. There definitely would have to be a method for interim supply. As I said, in New Brunswick, that was managed through.... It was the legislation that allowed expenses to continue to be paid. I think that would be something important.

The other thing that would need to be built into the budget, similar to amortization, would be the impact on the budget of consolidated organizations. Some organizations operate on their own. They may need very little in terms of an appropriation, or they may need a certain amount in an appropriation, but then they generate their own revenue. Their expenses would be the combination of what they received in an appropriation and their own revenue, when they spend that. Making sure that the estimates include not just the amount appropriated for the government to pay to those organizations, but also how much those organizations are going to raise on their own, which will be consolidated into the financial statements of the government at the end of the year—finding a way to build that into the estimates—would also be an important aspect of this.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Our final intervenor will be Mr. Grewal for five minutes.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

I'll be splitting my time with Ms. Shanahan.

Sir, we ran on a platform in the campaign to be more accountable and more transparent, and that's one of the reasons that accrual-based accounting does make a lot of sense. It gives you a more transparent outlook on the government's financial structure.

My question is on point number 9 in your submission. It says, “in 2015, we noted that tax-based expenditures are not subject to scrutiny through appropriation bills and are therefore not reviewed by parliamentarians”. Can you expand on that a little?

[Michael Ferguson]

I'll ask Monsieur Domingue to expand on it, but before I do, I want to make sure everybody is absolutely clear that the federal government's year-end financial statements are on an accrual basis. As the Office of the Auditor General, we audit those financial statements and we've been expressing a clean audit opinion on those financial statements for the last 17 years. Those financial statements are on an accrual basis. They respect all the standards of the Public Sector Accounting Board with all the relevant transparency around that, so the financial statements are very transparent.

I think the transparency issue is more one of the estimates are on one basis and the year-end financial statements are on another basis, so we're worrying about the bottom line on this basis, but we're worrying about complying with parliamentary authority on this other basis. I think that confuses people.

I'll ask Mr. Domingue to talk about the comment.

[Richard Domingue]

Tax expenditures would include, for example, refundable tax credits like the GST tax credits, which are not reported in the main estimates, but are reported in the public accounts. One could argue that the tax system is used to determine the eligibility for the tax credit and not to assess the tax liability of that individual, so there's a disconnect between the treatment of tax expenditure for the public accounts and the way they are treated in the main estimates.

[Raj Grewal, Liberal, Brampton East, ON]

I have a clarification question about the previous textbook tax credit. Are you saying technically because that was passed in a previous budget, that now and for future years it's not being approved by parliamentarians?

[Richard Domingue]

Mr. Chair, when a tax measure is adopted through legislation, it is approved by itself every year through the legislation that gives the authority to the Department of Finance, or CRA in this case, to issue a tax credit, if it's a tax credit. That's something different from the way the reporting is done in the main estimates. As I said before, tax expenditures are reported in an annual report called “Tax Expenditures and Evaluations”, which lists all the tax expenditures. That's one thing.

Then you also have, as an example, the refundable tax credit, which has nothing to do with the tax liability. The tax system is used to assess the eligibility of the individual to that benefit, and that benefit is accounted in the public accounts, but not accounted in the main estimates.

Going back to the question that was raised before with regard to the reporting, and shall it be reported in the main estimates, the problem is that you cannot add up tax expenditures because they don't add up because of the effect that each one has on each other. Adding a big number like this as the value of all the tax expenditure measures in the main estimates would be an impossible task.

[Raj Grewal, Liberal, Brampton East, ON]

What's your recommendation on that?

[Richard Domingue]

The fact is that the basis used to prepare the main estimates is not the same as the one used in the budget or the public accounts. In the budget, in the Department of Finance's numbers, you will see embedded in the expense row the cost of those tax expenditures. When you look at the expenses reported in the main estimates, it's on a different basis.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Ms. Shanahan, your colleague has left you with 20 seconds.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

I just want to say thank you so much. We're finally getting to the nitty-gritty. I think this will be useful to help us tackle underlying assumptions, to be able to make good assessments, and not to spend our time taking political cheap shots.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Thank you all, colleagues.

Mr. Ferguson, once again, it has been an honour and a pleasure to have you here, as always. Thank you so much. I'm sure we'll be seeing each other over the years on a more frequent basis.

Colleagues, we'll suspend for about two minutes and we'll get back to committee business, which will be in camera.

[Proceedings continue in camera]