Finance Committee on March 1st, 2011

[The Chair, Conservative, James Rajotte]

I call to order this 60th meeting of the Standing Committee on Finance. Our orders today, colleagues, are pursuant to Standing Order 81(5), dealing with supplementary estimates (C) 2010-11, votes lc and 5c, under Canada Revenue Agency, as referred to our committee on Tuesday, February 8, 2011.

We want to welcome two officials from the Canada Revenue Agency who are with us here this morning: Monsieur Filipe Dinis, chief financial officer and assistant commissioner, finance and administration branch, and Mr. Richard Case, director general, resource management directorate, finance and administration branch.

Thank you, gentlemen, for being us here this morning.

Monsieur Dinis, I understand you have an opening statement to present to the committee. Then we'll proceed to members' questions.

[Filipe Dinis, Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency]

Thank you, Mr. Chairman.

Good morning and thank you for the opportunity to appear before the committee to present the Canada Revenue Agency's 2010-2011 supplementary estimates (C) and to answer any questions that you may have.

Before I begin I would like to take a moment to introduce my colleague, Mr. Richard Case, the Director General of the Resource Management Directorate within our Finance and Administration Branch.

As you are aware, the CRA is responsible for the administration of federal and certain provincial and territorial tax programs, for delivering various benefit and credit programs, and for supporting numerous other government programs. Each year, the CRA collects hundreds of billions of dollars of tax revenue for the governments of Canada and prides itself on distributing timely and accurate benefit payments to millions of Canadians.

Through these supplementary estimates, the CRA is seeking two adjustments to its appropriations.

First of all, the agency is requesting $57.8 million in 2010-11 to cover the incremental cost of implementing and administering the harmonized sales tax, the HST, for Ontario and British Columbia, as well as the new affordable living tax credit for Nova Scotia.

These initiatives have resulted in a significant increase in the agency’s workload across a number of core program areas. Given the increased amount of revenue now being collected by the CRA since the introduction of the HST in Ontario and B.C. on July 1, 2010, and the administrative complexity of certain new HST measures, the CRA has dedicated additional resources to ensuring that businesses understand and comply with the new legislative requirements.

The CRA is also identifying, in 2010-11, a downward adjustment to the estimated disbursements to provinces under the Softwood Lumber Products Export Charge Act, from $479 million to $200 million. This adjustment reflects the revised forecast provided by the Department of Finance, which we understand is based on changing prices and volumes in the Canada-United States lumber market. The original estimate was established by the Department of Finance back in 2009, when the 2010-11 main estimates were completed. It is being updated now in the interests of transparency, given the materiality of the change.

Overall, these supplementary estimates (C) are displaying a net reduction of $221.5 million to the CRA’s 2010-11 authorities granted by Parliament to date. The CRA’s revised authorities for 2010-11 will therefore total $4.478 billion.

At this time, Mr. Case and I would be most happy to respond to any questions from the committee.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your opening presentation.

We'll begin members' questions with Mr. Szabo.

[Paul Szabo, Liberal, Mississauga South, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for the brief intro.

Something struck me right off the bat with regard to your comments on softwood, that is, you understand that the numbers—you used the word “understand”—were developed by the department. Do you know whether they were? Have you seen them?

[Filipe Dinis]

Yes, Mr. Chair. I can confirm that the forecasts were developed by the Department of Finance. As you may know, at the CRA we're responsible for administrating the softwood lumber act, in conjunction with our partners at the Department of Foreign Affairs, and we work closely with the Department of Finance in arriving at the forecasts of the disbursements.

[Paul Szabo, Liberal, Mississauga South, ON]

I'm sorry. I missed the last part. You were involved?

[Filipe Dinis]

We were engaged in terms of administrating the softwood lumber act, but the forecasts actually come from the Department of Finance.

[Paul Szabo, Liberal, Mississauga South, ON]

What were the assumptions or significant changes that had to be addressed?

[Filipe Dinis]

My understanding is that there are various factors that impact the estimation of the forecasts, including lumber prices and the demand for lumber. There are various other elements, such as any international settlements that are arrived at. All of these have an impact on the forecasted amount.

[Paul Szabo, Liberal, Mississauga South, ON]

Were there any significant changes?

[Filipe Dinis]

In the past couple of years, our annual disbursements to the provinces have been around $180 million to $200 million. We recently shared with the committee that we were of the understanding that the Department of Finance was adjusting its forecasts.

Based on current market conditions--and I don't have too many details on these--in terms of the demand for lumber and the pricing, there has been an adjustment downwards to better reflect what the disbursements have been over the last two to three years.

[Paul Szabo, Liberal, Mississauga South, ON]

In terms of the process, you mentioned you don't have certain details. You're basically relying more or less on the bottom-line assessment and the numbers as opposed to scrutinizing the details?

[Filipe Dinis]

The Department of Finance scrutinizes the details. It has a handle on, as I understand, the market conditions, the demand, etc. From our perspective, we scrutinize, and there's an attestation of the costs before the disbursements are made to the provinces. There are certain costs we review, such as administrative costs and legal costs, which are deducted from the amounts we collect. It's basically a flow-through, an in-and-out to the provinces. There is an actual official CFO attestation on the numbers related to the administration costs.

[Paul Szabo, Liberal, Mississauga South, ON]

If you want those details, are you authorized to have them?

[Filipe Dinis]

In terms of the details of administrative costs and legal costs, we do have them at the CRA, because we administer the program itself. In terms of the numbers themselves, we have them within the CRA, because we have to attest to those administrative costs.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay.

Could we turn to the HST with regard to Ontario and British Columbia? HST exists in other provinces already. Have the introduction of HST and the arrangements with those two provinces required any substantive changes to the way in which the other provinces are already administered?

[Filipe Dinis]

I'll ask my colleague Mr. Case to add to this, but my understanding is that we're very much focused on implementing the Ontario HST and the British Columbia HST.

Richard, do you want to add anything?

[Richard Case, Director General, Resource Management Directorate, Finance and Administration Branch, Canada Revenue Agency]

I think my colleague is correct. For the most part, this initiative did not represent immediate changes for the other provinces, although you will note here that Nova Scotia has introduced, as part of its HST regime, an affordable living tax credit now, which we began implementing and administering this past year. That is one instance where another province has chosen to make certain adjustments to its HST regime.

For the most part, the work we're doing now is primarily focused on Ontario and B.C. with regard to the supplementary estimate item here. It is related primarily to the additional work that the agency must undertake as a result of the introduction of the HST in Ontario and B.C.

[Paul Szabo, Liberal, Mississauga South, ON]

It's a volume issue?

[Richard Case]

There are workload volume issues. There are systems changes that need to be made and so on and so forth, and additional compliance efforts obviously are required.

[Paul Szabo, Liberal, Mississauga South, ON]

With regard to human resources requirements, how has the addition of these two provinces been handled with regard to transferring the responsibilities from the provincial to the federal jurisdiction?

[Filipe Dinis]

Regarding a number of provincial resources, we have entered into agreements with both provinces in terms of transferring expert resources into the CRA. The resources are going to join the agency in waves, if you will. The first wave occurred in November 2010. These are resources that have a certain expertise, so they will join--

[Paul Szabo, Liberal, Mississauga South, ON]

I don't think I have the time to get the answer, but I am interested in the settlements that had to be made to provincial employees who were being transferred from one employer to another. There were apparently substantial settlements for losing one's job?

[The Chair, Conservative, James Rajotte]

You have about 30 seconds.

[Filipe Dinis]

In terms of the number of employees coming over, just to share with the committee, from the perspective of the Province of Ontario, we have an 80% take-up rate so far, and it's 99% in B.C. As to the settlements, that isn't something the CRA can speak to. It is a provincial matter. The settlements were entered into by the employees and the province.