Finance Committee on Nov. 15th, 2007

[The Chair, Conservative, Rob Merrifield]

We'll continue now. I believe we have it sorted out. Sorry about that.

We have with us Coleen Volk and Paul Rochon from the Department of Finance.

We'd like to hear from both presenters, and then we'll open the floor to questions and answers.

Ms. Volk, the floor is yours.

[Coleen Volk, Assistant Deputy Minister, Corporate Services Branch, Department of Finance]

Thank you, Mr. Chair.

I have several departmental colleagues with me here today who will assist in responding to your questions. They are Paul Rochon, Barbara Anderson, Louise Levonian, Brian Ernewein, and Serge Dupont. We are all with the Department of Finance. There's also a representative from FINTRAC with us.

It's our understanding that the committee has called us here today to focus on the Department of Finance and FINTRAC supplementary estimates (A) for 2007-08.

The Department of Finance's estimates reflect its responsibilities which, as I am sure you are aware, include preparing the federal budget, developing tax and tariff policy and legislation, managing federal borrowing on financial markets, administering major transfers of funds to provinces and territories, developing regulatory policy for the country's financial sector and representing Canada in international financial institutions and fora.

The Financial Transactions and Analysis Centre, or FINTRAC, is responsible for producing financial intelligence that contributes to the detection and deterrence of money laundering and terrorist financing in Canada and abroad.

The Supplementary Estimates that have been tabled in the House for the Department of Finance are only requesting the approval of $272,000 that will be included in the proposed Appropriation Bill supporting these Supplementary Estimates (A).

In total, these supplementary estimates (A) have identified adjustments to appropriations of over $5 billion. This is in addition to the approximately $76 billion identified in the main estimates for this fiscal year. It is important to note that the remaining adjustments to appropriations of over $5 billion have already been approved by Parliament through various pieces of legislation, including the recent Budget Implementation Act. The same is true for the $76 billion previously identified in main estimates. Over 99% of this amount relates to statutory votes for items that have already been approved by Parliament through enabling legislation. These include items like the payment of public debt charges, Canada health and social transfer, and equalization payments.

These statutory votes are displayed in the estimates document for information purposes and they're not included in the appropriation bill. The gross increases to these statutory items in these supplementary estimates amount to $5.9 billion, but they are offset by declining interest in other debt servicing costs, for the net increase of approximately $5 billion.

The increases are mainly attributable to revised forecasts for transfer payments to provincial and territorial governments, including increases to fiscal equalization payments of $1.2 billion, a new $1.5 billion clean air and climate change trust fund, and increases to the Canada social transfer of $794 million.

The non-statutory votes of the Department of Finance are requesting an additional $272,000 in this fiscal year. This funding is part of an overall envelope that has been provided to departments to facilitate the evaluation of grant and contribution payments and to meet the Federal Accountability Act commitment to evaluate these programs for relevance and effectiveness on a five-year cycle.

FINTRAC has requested $5.4 million in their supplementary estimates to bolster the combat against the laundering of proceeds of crime and the financing of terrorist activities in accordance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Specifically, FINTRAC's funding in the supplementary estimates will be used for staff costs to implement significant new functions resulting from Bill C-25, such as a money services business registry as well as an administrative monetary penalty system, to enhance FINTRAC's financial intelligence products and to meet the investigative demands from domestic law enforcement, national security agencies, and foreign financial intelligence units. The funding will also be used to renew FINTRAC's IT systems and assets, and to implement and support the business continuity plan, which includes securing an alternate operating site.

We would be pleased to address any questions the committee may have on these estimates.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

For clarification, what is going to happen here? Are we going to hear also from the Canada Revenue Agency afterwards?

[The Chair, Conservative, Rob Merrifield]

No. We're going to hear from both right now, and then we're going to go for....

Oh, they're not at the table. I'm sorry. Okay, I thought they were. Fair enough. We'll do the questions right now, then.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I just want to clarify until what time we go so we can allocate our time.

[The Chair, Conservative, Rob Merrifield]

Let's try to split our time. Let's go a half hour now so we have a full round to go here, seven, seven, seven. We'll go to the first round.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair. Thank you, witnesses.

As you know, this briefing on the Nova Scotia accords has been on again, off again, on again, off again. I know it's a great frustration to Mr. Casey. It's rather a pity that he's not able to be here.

You put into your schedule (S), “Fiscal Equalization (Part I – Federal-Provincial Fiscal Arrangements Act)”, $1.2 billion, which I assume reflects the costs that are associated with Nova Scotia's new money. For the purposes of this hearing, can you outline to us in rounded numbers, if you will, what Nova Scotia was going to get under the original accord, what Nova Scotia is now going to receive under this clarifying agreement, and what are the assumptions, if any, underlying both agreements?

[Barbara Anderson, Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

These numbers in the supplementary estimates represent the Budget Implementation Act that was passed. They do not include forecasts for the October 10 agreement. That agreement will be implemented with legislation that the government will be tabling in the near future. It will not change the amount that Nova Scotia will get in the first year. Beyond that, because equalization is a formula-driven program, because mainly the equalization payments and the offset payments for Nova Scotia are heavily driven by resource prices, it is impossible to forecast with any kind of accuracy what they might receive from that October 10 agreement.

[John McKay, Liberal, Scarborough—Guildwood, ON]

If I understand this, your $1.2 billion in the second line here has nothing to do with the October 10 agreement.

[Barbara Anderson]

It has nothing to do with the October 10 agreement. Once that agreement is legislated and approved by Parliament, it will be included in the next set of estimates.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So in theory, then, you would come back with a further supplementary estimate for Nova Scotia.

[Barbara Anderson]

Yes, although we do not forecast there being an extra payment this year. The Budget Implementation Act included the choice for Nova Scotia for this year and the extra payment, but not October 10.

[John McKay, Liberal, Scarborough—Guildwood, ON]

The clarifying agreement for Nova Scotia will require no further funding for Nova Scotia in the fiscal year ending March 2008. Is that correct?

[Barbara Anderson]

Yes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Explain to me how this clarifying agreement is a clarifying agreement. Nova Scotia had a stream of revenue set out for it, and now there's apparently an additional stream of revenues, not necessarily starting this year but in the subsequent year. So can you explain to me those two streams of revenue?

[Barbara Anderson]

If you're referring to two streams of revenue, Nova Scotia has released forecasts of what they think they might get, but the Department of Finance has not, because we don't have reliable forecasts beyond next year. Equalization is just heavily data driven and changes, so we do not forecast it with that kind of accuracy, for obvious reasons.

What the October 10 agreement gives Nova Scotia is a guarantee that they would be no worse off by coming into the new equalization formula than they would have been if they had stayed under the previous equalization formula. That was the choice that was provided them in Budget 2007, and on October 10, the government committed to ensuring, once they'd made the decision to come into the new equalization formula, that they would not lose money compared to what they would have got under the other one.

That comparison will be made and calculated year after year.

[John McKay, Liberal, Scarborough—Guildwood, ON]

This whole “you get ahead” or “you don't go behind” analysis is entirely driven by Nova Scotia's analysis of what they will receive over the lifetime of the agreement and has nothing to do with Finance's views on what may be the cost of the agreement.

[Barbara Anderson]

It is a guarantee that is attached to a formula-driven program, so that every time we do the annual calculation of what all the provinces will receive in equalization, we will do a calculation of what Nova Scotia would receive under the new formula, what they would have received under the old formula, and there will be a payment made, if required.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So you don't have any estimated costs of that clarifying agreement at this time. Will you? Will there be at some point?

[Barbara Anderson]

Not over the long term, because we don't forecast equalization over the long term. But in December, under the current legislation, the minister releases the equalization numbers for 2008-09.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Parliament will be asked to vote on a clarifying agreement, and presumably pass the clarifying agreement, where Finance will not attribute any number to that clarifying agreement.

[Barbara Anderson]

Yes, as they were asked to vote on the equalization formula that had no outward stream.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. St-Cyr, the floor is yours. You have seven minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chairman. Greetings to all of you. We saw each other not so long ago.

At our last meeting, I asked a number of questions with respect to tax evasion. We also had discussions in committee with respect to the use of tax havens, like Barbados, which allow people to patriate, tax-free, profits realized in Barbados on which very low tax rates were levied in Barbados. We're talking about 2%. These individuals bring that money back to Canada, tax-free. We also talked about taxes that can be saved by deducting interest paid abroad. We discussed double dipping and other similar matters as well.

I asked you how one could go about estimating what that would represent if all those monies were taxed. In committee, you were unable to provide a precise answer and you sent along additional information subsequently, saying that you did not have the numbers from tax returns. In other words, you did not have enough detail to be in a position to answer that question.

Could you tell me what steps you have taken since then to be able to accurately assess foregone tax revenues associated with these tax exemptions, so that parliamentarians are able to determine how much money would be involved if, for example, it was decided to no longer allow people to patriate tax-free profits to Canada from Barbados? What steps have you taken to obtain these figures?