Finance Committee on Feb. 10th, 2009

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

So the minister signs off on that?

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Pacetti.

Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I have a few questions for you concerning the equalization formula. The budget implementation legislation provides for some changes to the equalization formula.

I have two main questions. Firstly, if we disregarded these proposed changes and used the formula in effect in 2008-2009, what would Quebec's equalization entitlements have amounted to in 2009-2010 and in 2010-2011?

Secondly, can you confirm that without the changes to the equalization formula proposed last fall by the Minister of Finance, Quebec would have received roughly $1 billion more in equalization payments that it stands to receive under the new formula?

[Alfred LeBlanc]

The numbers for 2009-1010 were announced to the provinces in mid November. The difference between what Quebec will receive in 2009-2010 and what it would have received, according to our calculations, without the changes to the equalization program, totals $991 million for 2009-2010.

We don't have any figures for 2010-2011. They don't exist.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

You've confirmed that as a result of the amended formula, we're looking at a difference of $991 million. You maintain that the cost of the equalization program was growing at an unsustainable rate. Do you have a rough idea of the size of the equalization envelope for the next five years?

[Alfred LeBlanc]

On December 16 or 17 last, the Minister disclosed to his colleagues the latest growth estimates as compared to the forecasts in the 2008 budget. The projected increase was estimated at $25.7 billion over five years.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

In the midst of the holiday season, the government published in the Canada Gazette changes to the way in which Hydro One would be treated for the purposes of calculating Ontario's equalization payments.

Will these changes have a negative or positive impact on Ontario's equalization entitlements?

[Alfred LeBlanc]

Regarding the measures that have been announced, the provinces were consulted in mid November. The changes are of a technical nature. The O'Brien report policy and recommendations were fairly clear on this score. Crown corporations involved in the generation of hydro-electric power must be considered under the natural resources base, while those that are not must be considered under the corporate tax base.

Hydro One is not involved in the generation of hydro-electric power, unlike SaskPower and NB Power. As a result, Hydro One has been moved to another base, while SaskPower and NB Power have been slotted into the same base as Hydro-Québec.

The policy is clear: even if we're dealing with corporations that carry out a range of activities, their overall revenues must be considered under the natural resources base. Hydro-Québec is being treated exactly the same as BC Hydro or Ontario Power Generation.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I have a question on this subject.

If Hydro-Québec was treated the same way, that is if revenues stemming from the corporation's generation activities were considered under the natural resources base, while revenues stemming from transportation and distribution activities were considered under the corporate tax base, or in other words, if the revenue stream was split in two, what impact would this have Quebec's equalization entitlements?

[Alfred LeBlanc]

I cannot confirm the calculations that were done by Quebec. Nevertheless, we could never just do this for Hydro-Québec, because we would have to do the same for BC Hydro, Manitoba Hydro and NB Power. Since we do not have any figures, it would be difficult to calculate the impact this action would have.

Quebec has done some calculations and can give us some figures, but we cannot confirm them. Changing the status of Hydro-Québec or making an exception for another Crown corporation is not an option, however.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Aside from Ontario, have any other provinces benefited from these changes? You mentioned Saskatchewan.

[Alfred LeBlanc]

SaskPower has been shifted to the other base, along with NB Power. The impact of the move is extremely marginal. The move to put Hydro One in the proper base has had a very slight impact on the province of Ontario. However, the impact of the shift in the case of SaskPower and NB Power has been virtually nil.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I thank you for coming. I always enjoy these meetings dealing with supplementary estimates.

I want to make a clarification so we all understand something here--which I believe I do. When you talk in your opening statement about the $79 billion, that's not what it costs to run the finance department. That includes the transfer payments for health, equalization, and the social transfer. All those transfer payments are in there. Is that not correct?

[David Miller]

Yes, that's correct. That includes public debt charges as well.

[Mike Wallace, Conservative, Burlington, ON]

Okay. On the interest charge, you show that you're down by a few billion dollars. If I understand this correctly, it's because the interest rate is not what you thought you would be paying. Is that an accurate statement?

I want to point out that I have the main estimates and the supplementary (A) estimates with me, and to me it's crazy that they're both about the same size--it's the same with the supplementary estimates (B). They should be getting smaller, not bigger.

How do you determine that interest rate when you're determining your main estimates?

[Paul Rochon]

The interest charges that are reflected in these supplementary estimates are actually from the 2008 budget. We typically include a budgetary estimate in the mains or the supplementary estimates. The most recent interest charge for 2008-09, updated in the 2009 budget, is $30.7 billion, so about $800 million lower than this amount. And the way to go about determining the interest rate is based on a combination of, in this case, mostly actual interest rates that we've paid in the market and a little bit of a forecast for a couple of months.

[Mike Wallace, Conservative, Burlington, ON]

Thank you for that. It makes a significant difference if we're off a little bit on our estimates on the interest, and I just wanted to know where we got that from.

I'm going to ask you a policy question, which you may or may not want to answer. I don't like supplementary estimates that much. We put the mains together, we vote on them, it's $230 billion worth of spending, and then we have supplementary estimates (A) come in. It's not that far off in terms of how long that spread is between mains being passed and supplementary estimates (A). The supplementary estimates (B) are normally in the fall, and there are possibilities for supplementary estimates (C).

My experience is that you put a budget together and you live with it, and obviously—and I know you've indicated here—when our budget, the political budget, gets passed there are programs in there that may not have been accounted for before because you've done the budgets previous to that happening.

Now with this budget, which we're hoping go get passed soon, that will be done earlier than it has been in the past. So my question on that is, first of all, will that assist in making the mains more accurate or the supplementary estimates more accurate so there'll be less reliance on...? You've got stuff in the supplementary estimates (B) from last year's budget, right, but you will know whether that's passed or not relatively soon, and will that assist in the budgeting aspects of setting this up?

[Paul Rochon]

Somewhat. I know your problem, and what we're trying to do—I shouldn't say “we”, but we in the general sense of the word, and it's mostly Treasury Board Secretariat and the Treasury Board working on it—is introduce an early supplementary estimate, and we did that for the first time last year, to incorporate budget measures as soon as possible, so that one doesn't wait till the end of the fiscal year, both to reflect them in the estimates, one, and then, more importantly, to get the money out quickly.

[Mike Wallace, Conservative, Burlington, ON]

I have an additional question to that, then. I know it requires something completely different around here from what happens now, but for an improved budgeting system, from a financial perspective, would it more ideal if the Government of Canada, whoever is in power, had their budgets presented and approved prior to Christmas for the next fiscal year?

[David Miller]

Perhaps I can address that. It's interesting because the timeframe that's necessary in order to produce the main estimates documents, of which you have an example, plus the reports on plans and priorities that are done by virtually 90 departments and agencies, takes several months. So in fact the closing date for getting new approvals that are required by, say, the Treasury Board to include items in main estimates...it's actually finished almost in October for the following year. So it's very difficult in the approval process to ensure that all those things are lined up and then have a document that's produced and accurately reflects all of the kinds of information that you would require. So there's a huge lag between when in fact the departments prepare the material and when it's presented to Parliament, which causes the first problem.

Again, to allow parliamentarians to see the changes during the year, yes, now we have three supplementary estimates; in days gone by we've had up to seven or eight. So it's very difficult, and it's the lengthy times it takes to prepare the information, to get the approvals necessary to include it before Parliament, as well, of course, as the review by Parliament itself. It just takes a long time.

[Mike Wallace, Conservative, Burlington, ON]

Am I done?

[The Chair, Conservative, James Rajotte]

One minute.

[Mike Wallace, Conservative, Burlington, ON]

One minute. Which one will I ask?

On the horizontal piece, the only time I've seen Finance involved is on the advertising. When I look at the horizontal supplements, they're for programs that are effected by different departments. Is that basically what I'm reading there? And the only one that Finance is really involved in is the advertising, and you happen to be working with CRA and whoever else might be in that. Is that what this is telling me? Is there an accountability for that total dollar, or are those all for different programs, do you know?