Finance Committee on May 5th, 2009

[The Chair, Conservative, James Rajotte]

I call to order the 25th meeting of the Standing Committee on Finance. Our agenda today is to discuss the Canada Revenue Agency's main estimates for 2009-10.

We have with us here today three officials from the Canada Revenue Agency, and we should have four officials from the Department of Finance. We'll have a two-hour meeting on the estimates.

I believe, Mr. Baker, you'll be presenting for the CRA. Then, Ms. Harrison, are you presenting for the department?

So we'll start with you, Mr. Baker, for your opening statement please.

[William Baker, Commissioner and Chief Executive Officer, Canada Revenue Agency]

Thank you, Mr. Chairman. Merci beaucoup. I'm pleased to have an opportunity to be here today to present the CRA's 2009-10 main estimates. We're certainly prepared to answer any questions you may have.

Joining me today are two officials from the CRA. To my immediate right is Jim Ralston, the chief financial officer; and to his right is Filipe Dinis, the acting deputy assistant commissioner of our finance and administration branch.

Our mandate at the CRA is, of course, to administer federal and certain provincial and territorial tax programs, as well as delivering a number of economic and social programs on behalf of the government. To fulfill this mandate, we are seeking a total of approximately $4.4 billion in resources through the 2009-10 estimates. This represents a $650.6 million increase over the amount displayed the previous year, largely because of the timing of one large transfer payment. There are two transfer payments overall, totalling $431 million, and they account for two-thirds of the overall increase in the authorities requested compared with last year's main estimates.

The first transfer payment is $429 million and represents the forecast 2009-10 statutory disbursements to provinces under the Softwood Lumber Products Export Charge Act. In 2008-09, $419 million was expended, and this was represented in supplementary estimates (B), rather than the main estimates.

The remaining transfer payment is just $2 million, and this is an increase in the children's special allowance, a payment made for children who are under the care of institutions in lieu of their parents getting the child tax benefit.

The remaining 34.8% of the increase pertains to changes in program expenditures, of which $78.2 million is with respect to the corporate tax administration for Ontario. Members may recall that we assumed responsibility for corporate tax administration in Ontario.

I'm pleased to tell you, Mr. Chair, that is now fully functioning as of April of this year and has come off extremely well. We're very pleased with how it's progressing.

The increase in CRA's main estimates also includes resources of total $38.7 million in response to the 2007 and 2008 federal budget announcements. The initiatives to be implemented and administered by the CRA will address these tax policy and legislative measures. Some of the key measures are the following: administering the tax free savings account, $19.8 million; administering improvements to the scientific research and experimental development program, $9.1 million; expanding capacity to combat terrorist financing through charities, $4.7 million; and implementing a provision to allow multinational corporations to file income tax returns in currencies other than the Canadian dollar, such as the Euro and the American dollar, $4.4 million.

Finally, there's an additional $78.3 million in the main estimates to fund the salary increases attributable to new collective agreements, particularly with respect to an agreement signed with the Public Service Alliance of Canada in December 2007.

Finally, Mr. Chair, there are a number of minor adjustments totalling an amount of $24.4 million. This is a net amount; it includes some increases and some decreases.

That, Mr. Chair, is a quick overview of what these main estimates represent in terms of year-over-year changes, and certainly I and my colleagues are available to answer any questions you may have.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Baker.

We'll now go to Ms. Harrison for her opening statement.

[Sherry Harrison, Executive Director, Corporate Services Branch, Department of Finance]

Good morning. My name is Sherry Harrison. I am the Executive Director responsible for the Financial Management Directorate at the Department of Finance. With me today are departmental officials, who are here to assist me in responding to your questions. I would ask them to briefly introduce themselves and their roles.

[Paul Rochon, Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance]

I'm Paul Rochon, senior assistant deputy minister, economic and fiscal policy.

[Alfred LeBlanc, Director, Federal - Provincial Relations and Social Policy Branch, Department of Finance]

I am Alfred LeBlanc, from the Federal-Provincial Relations and Social Policy Branch.

[Jeremy Rudin, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance]

I'm Jeremy Rudin, assistant deputy minister, financial sector policy.

[Sherry Harrison]

We are here today to answer your questions on the 2009-2010 main estimates for the Department of Finance.

As you are aware, the department's responsibilities 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.

As you would expect, during the current fiscal year, the Department of Finance will focus on continuing to manage economic and fiscal policy issues in response to the economic outlook.

The estimates that have been tabled in the House identify total budgetary requirements for the Department of Finance of $82.9 billion. It is important to note that $82.4 billion, or 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 transfers, and equalization payments. These statutory votes are displayed in the estimates document for information purposes and will not be included in the appropriation bill. Within the statutory votes, there is a net increase of $2.9 billion over last year, with the major contributing factors being a $4.7 billion increase in transfer payments to the provinces and territories and a $1.8 billion decrease in public debt costs.

The non-statutory votes of the Department of Finance show a decrease over last year. This consists of a reduction of $43 million in grants and contributions, mainly due to reprofiled amounts from 2007-08 to 2008-09 of certain grants, updated estimates of debt relief in 2009-10, and the completion of contribution payments in 2008-09. The decrease is partly offset by contribution funding related to the transfer of the Toronto waterfront revitalization initiative and Harbourfront Centre from Environment Canada.

Additionally, there is an increase of $3.8 million in the operating vote. This is mainly due to the transfer to the department of responsibility for the Toronto waterfront revitalization initiative and Harbourfront Centre, increases for advertising campaigns, which are time limited, and security regulations. These increases were offset by reductions resulting from the strategic review reallocation, amongst others.

We will be pleased to answer any questions that the committee may have on these main estimates.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Harrison.

We'll go to Mr. McKay for seven minutes.

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

Thank you, Chair.

I thank the witnesses.

My first question is to Mr. Baker, and it was my last question to Mr. Baker the last time he was here.

I've written to you subsequently and you did respond, but I'm still not clear. The government, with great fanfare, introduced the tax-free savings account. I was trying to get a handle on what this is actually costing in terms of reduced revenues, actual out-of-pocket expenses, and things of that nature.

On the actual out-of-pocket expenditures, it appears that's around $19 million, declining over the years to around $15 million on an annual basis. It starts out with about 100 people and then it ramps itself up to about 180 people just to run this plan. But what's not clear to me is how much revenue is actually forgone in order to do this plan. That's my first question. Is it fair to say that in the first year you're going to be down $20 million if there's not a dime put into this plan?

[William Baker]

Certainly that's approximately the amount that's been set aside to cover the costs to the Canada Revenue Agency to set up the systems and other information, such as web sources and publications, to support the administration, regardless of the actual flow-through on that measure.

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

Are there any other associated costs, out-of-pocket expenses, on the part of the government needed to start this program?

[William Baker]

At this point in time, that estimate would be all in. It would be everything we think we are going to spend.

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

Okay. Again, if there's zero uptake, the government's revenues are down $20 million, or the expenses are increased by $20 million, however you want to put it.

The second question is this. In that first year, or second, as the case may be, what are the forgone revenues of the Government of Canada to fund this? Just give me the forgone revenues, not to fund anything, really. What are the forgone revenues?

[William Baker]

Sir, I think my response is not going to be unlike my response when I was here before.

First of all, it's a new program. We do not have any experience with the administration of this. We do not know yet what the uptake will be in terms of the number of taxpayers who choose to benefit from this program or the amount of money that will go into it. It's also, as we observed last time we met in the context of the supplementaries, an interesting year, so it's probably a bit more difficult than normal to predict the uptake. Certainly our colleagues in the Department of Finance may have some estimates based on the year. That is certainly their responsibility.

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

It's an extraordinary response, when you think about it, Mr. Baker, to say that we know it's going to cost us $20 million, but we're not quite sure what the benefit to Canadians might be. I'm not trying to be awkward with you, Mr. Baker, but it is an extraordinary response.

Maybe I could turn to our folks at Finance and ask what your forgone revenues are going to be. Mr. Rochon, you're looking as if you have that answer on the tip of your tongue.

[Paul Rochon]

I don't have it immediately on the tip of my tongue. It was reported in the 2007 budget. The cost of this program will rise over time as uptake increases. My recollection is that it's in the neighbourhood of $2 billion a year at maturity. Brian, I'll let you comment more specifically on that.

[The Chair, Conservative, James Rajotte]

Just introduce yourself, sir, to the committee.

[Brian Ernewein, General Director, Tax Policy Branch, Department of Finance]

I am Brian Ernewein.

Very quickly, I don't have the numbers with me, or those in the 2008 budget, but we will get those and return to the table with them.

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

I guess we'll have to live with that response. We'll move on then.

Is Mr. LeBlanc returning with the response, or are we going to have a reply formally to that?

[The Chair, Conservative, James Rajotte]

Will we have a formal response, or can someone reply?

[Paul Rochon]

We'll get back to you by the end of the meeting on that.

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

Okay, so I'll come back to that.

[The Chair, Conservative, James Rajotte]

Yes. You have two minutes.

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

Thank you, Chair.

I direct this question to Ms. Harrison. Am I reading this correctly, that the interest costs of the government have been reduced from $33.6 billion to $31.8 billion. Is that correct? There's a saving of $1.8 billion.