Public Accounts Committee on Nov. 6th, 2014

[Bill Matthews]

That's why you see the increases. If I remember correctly, the Alberta flood relief is in that number, and it was $2.2 billion.

[Ted Falk, Conservative, Provencher, MB]

What other types of things would be in there?

[Bill Matthews]

In terms of what else is in that $34 billion, maybe if you can give me a minute we can answer your question, but we'll come back to that one.

If you wanted to keep going down that list, you have other program expenses for crown corporations and departments and agencies. The amount for crown corporations, you'll see, has dropped from 2012-13. You have $7.4 billion in 2013-14 versus $9.5 billion in 2012-13. There was a drop because the previous year was a bit of an anomaly in that we had a large increase because of Atomic Energy. That has returned to a more normal situation. They took a bit of a bump because of an increase in the liability related to the cleanup. “Other ministries” refers to our regular departments and agencies, in terms of their operating expenses.

If you want to go back to the other transfers, please do.

[Nicholas Leswick]

Just to put some meat on the bone, other transfers—I think this is your question—refers to the suite of grants and contributions delivered by departments. That's anything from aboriginal programming, other infrastructure programming, or labour market programming in an employment and social development context, which amount to—

[Ted Falk, Conservative, Provencher, MB]

That's $36 billion.

[Nicholas Leswick]

Right, so in the estimates, where you see grants and contribution elements, that would be those things.

[Ted Falk, Conservative, Provencher, MB]

Would it be fair, then, to assume that the table is telling us that year over year the government has actually reduced the cost of operating government and has increased the transfer payments both to individual persons and to other government bodies?

[Bill Matthews]

Thank you for the question.

You'll recall that the government put in place the economic action plan, which resulted in growth in spending, and then on the heels of that, as that was wound down, the government went through some reductions. Certain categories of spending were off limits in terms of reductions, including transfers to individuals. Transfers to our provinces were held harmless as well. There was a focus on reducing the operating costs of government as well as other areas, so you are seeing that take place now.

Program spending is certainly dropping down, as you have mentioned.

[The Chair, NDP, David Christopherson]

Thank you. You're good for time. Thanks very much.

We'll move along now.

Although he's not a regular member of the committee, he's certainly a veteran and a distinguished one at that.

Mr. Regan, it's good to have you here. You have the floor, sir.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman, for those kind words and for allowing me the floor.

Ms. Cheng, on pages 1.45 to 1.49 of volume II, in the summary tables, you've outlined the $7.4 billion in lapsed spending from various government departments.

As Mr. Allen did, I'd like to focus on one of them just for the moment, which is National Defence. Obviously military procurement is something that's particularly important for a government to do well. It provides our men and women in uniform with important equipment and makes them safer, obviously, and allows them to do their jobs. It can help create jobs and spur research in Canada. Yet this government has talked a lot more about procurement and equipment than it has actually delivered, especially when you think about the ships they've been talking about lately.

In 2006 the Prime Minister promised that three Arctic icebreakers would be in service by the end of 2014—that would be this year. That promise, of course, became one icebreaker by 2022, and six to eight smaller Arctic offshore patrol vessels.

Now the Parliamentary Budget Officer is actually telling us that with the current budget, the government can only afford four Arctic offshore patrol ships, and only three if they delay another year. In a case like this, where we're seeing $1 billion lapsed from the defence budget, and we're seeing this pushing off of these expenditures, and apparently reductions in what we're going to get for those expenditures, what does that mean in terms of greater expense to the taxpayer, in terms of value for money?

[Nancy Cheng]

Thank you, Mr. Chair.

The question does not really pertain to the financial reporting. Essentially, if the department overspends its appropriation, then there is disclosure in the notes, and according to note 2 or note 3 there isn't any this particular year. So the focus of the audit would not lead us to look at the lapsing of funds at National Defence. That would not be part of the scope of a public accounts audit but maybe rather one of a question of financial management and control at National Defence, should we undertake a performance audit.

[Geoff Regan, Liberal, Halifax West, NS]

It looks as though Mr. Matthews wants to say something.

[Bill Matthews]

I can comment on the lapse in general, and I will get back to your specific question.

The lapse in general is not well understood. I do want to make one very important point. When Parliament authorizes spending, it's an “up to” amount. It's not that you must spend a hundred; it's an “up to” or a maximum. It is against the law to overspend, so some degree of lapsing is actually expected, because if departments are right up to the penny, they're risking going over. So we do expect some degree of lapsing.

When you look at the lapsing, it's down this year over the previous year on a whole-of-government basis, and what we like to look at is whether the lapse was planned or unplanned. So if you go back years ago, we do vote money year by year. If you didn't spend it, it evaporated and you had to reapply for it.

Departments are allowed to carry forward five per cent of their unspent operating into the next year. They're allowed to carry forward 20 per cent of their capital spending unspent into the next year. So it's not lost money. In the case of National Defence, that money isn't going away. It will be back in the reference levels, but Parliament does vote money year by year.

But you've raised an interesting point on the shipbuilding. What you'll see for projects that are long term in nature and complicated is there are often delays, as you have mentioned. The prices and the costs of those projects are often in the case of shipbuilding at the mercy of prices of steel. So if you delay five years, ten years, whatever, at the end of the day you actually get less steel for your money than you did when the project was first conceived.

So when these projects are managed, there are really two ways to do it. You can set aside money for the department to build a certain number of ships, or if you know it's a long-term complex project, you can set aside a certain amount of money and say to the department, you need to live within that envelope and you figure out how many ships you're going to get.

I can't speak to the Parliamentary Budget Officer's methodology, but there is an erosion of dollars over time because of inflation as the projects are delayed. With complex projects like shipbuilding, it's quite normal that they will slide a bit from their initial focus. But to your comment on Defence, that money that they lapsed is all within their carry forward limits or reprofiled, they're not going to lose that money.

[Geoff Regan, Liberal, Halifax West, NS]

But it sounds as if you're telling me that there's no reason to believe that we're going to receive the number of ships the government's been talking about.

[Bill Matthews]

I can't speak to the plans on the shipbuilding and what the Parliamentary Budget Officer's analysis is based on. There have been delays. As I've said, as time goes on, you do lose inflation dollars on things like steel.

[Geoff Regan, Liberal, Halifax West, NS]

This spring, you were looking at both the public sector pension plan and also the question of aggressive tax planning. And now we have news yesterday from CBC that, in fact, Germany has accused Canada's federal public sector pension board of being involved in aggressive tax planning.

What are your thoughts on this when we have our public sector pension board engaging in this, the kind of aggressive tax planning that the federal government seeks to avoid and discourages and, in fact, says it's cracking down on? What kind of example is this setting to Canadians?

[Bill Matthews]

I have a couple of comments on the pension plan in general. The liabilities of the government's pension plan are included in the financial statements, and you'll see those there. The pension plan produces its own financial statements. The organization in question here is a crown corporation. It's the Public Service Investment Planning Board. It's a crown corporation at arm's-length from government. It is managed by a board of directors. I haven't yet heard their response to the allegations, but it's really up to them to respond to those. They are at arm's-length from government for a reason. They do the investments—and the story you refer to, I believe, just broke this morning or last night, and we'll see what they have to say. But they are arm's-length from the core government.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chair.

[The Chair, NDP, David Christopherson]

Your time has expired. Thank you very much.

We move now over to Mr. Woodworth.

You now have the floor, sir.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Thank you very much, Mr. Chair.

My thanks to the witnesses. It's always fascinating information to delve into. I appreciate your expertise all around.

I'd like to ask some questions of Mr. Leswick. I'll begin with the chart on page 1.20 of the English version, which I'll just summarize by saying that it reviews the net government debt percentage to GDP of the G-7 nations, including Canada, and points out that the OECD estimates that the average percentage of debt to GDP for those G-7 nations is 84.3%.

I understand that the Canadian government has managed the lowest total government net debt to GDP at around 40.3%. I'd like to ask Mr. Leswick how the government managed that. What factors contributed to, what I would consider to be, a successful result?

[Nicholas Leswick]

In describing the statistic, we're looking at both the numerator and the denominator. This is net debt on a total government basis. This includes national accounts data across provinces and the federal government. It also includes the assets of the QPP and the CPP in order for it to be comparable on an international basis, because not every federal state is designed like Canada. There are different levels of sovereign and sub-sovereign responsibilities. So we accumulate all the debts of the provinces and the federal government together to be consistent. As for the denominator, it is just GDP, which reflects the size of our economy.

How did the government get there? We did it through responsible fiscal management. We've maintained an eye on our debt dynamics, so that our debt burden does not overwhelm the size of our economy. It has been going down recently. From a federal government perspective, we've gone from peaks of close to 70% debt-to-GDP ratios in the mid-1990s to something in the order of 30% today. So when you put that into a total government perspective, you can see how we contribute to the all-of-Canada picture. That is an accurate representation of where we're at.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Among the provinces and agencies that make up that average percentage, are there any that do better than the Government of Canada's 30% you just mentioned? If you don't know, perhaps I'm going beyond your jurisdiction.

[Nicholas Leswick]

I do know. Those numbers are somewhere in this binder, but I don't have them at my fingertips.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Maybe we could take a rain check and get that later.

[Nicholas Leswick]

Absolutely.