Finance Committee on May 17th, 2012

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mrs. McLeod.

Mr. Casey has a five-minute round, please.

[Sean Casey, Liberal, Charlottetown, PE]

Thank you, Mr. Chair.

Mr. Macdonald, how will the borrowing limit be determined?

[Daniel Macdonald]

The borrowing limit is reviewed upon request by a territorial minister of finance. The reason for that is it's left at an amount to ensure predictability for fiscal planning purposes. So you have an amount, it applies, and you know what it is. These are long-term projects we're talking about, so you need to know what your room will be for a very long term.

When a minister of finance applies to our minister for an increase, the analysis done is in keeping with the general approach to autonomy of the territorial governments to take the decisions they wish. We look at the general economic and fiscal outlook of the territorial government and its economy. We consult with territorial governments on what its forward-looking budget revenue stream is expected to be. We look at things like what interest rates are available or were available for existing debt of the territorial government, to get an idea of their ability to seek funds in the market.

What you're after is a general estimate of what the forward-looking ability of the territorial government, given its economic outlook, will be to carry a given amount of debt. There's a great deal of scenario analysis, as there are a lot of dynamic parameters in that. At the end of the day there is a decision taken about what a sustainable level will be.

[Sean Casey, Liberal, Charlottetown, PE]

What about inflation? Will these limits be indexed, or is that something done on a case-by-case basis? Will they be automatically indexed to inflation?

[Daniel Macdonald]

Limits are not indexed automatically to inflation. The method, if you will, for now, is that we set the limit to an amount. That provides, as I said, for managing any projects over a very long term. You would know, for all years, what your limit is going to be. If there is a change in the territory's economic circumstances, and there's an application to the Minister of Finance for a review, they would then look at those changes and what the impact on the territorial government's financial capability to carry debt would be.

[Sean Casey, Liberal, Charlottetown, PE]

What analysis has been done with respect to the potential impact on aboriginal governments?

[Daniel Macdonald]

I'm sorry. Can you be more specific?

[Sean Casey, Liberal, Charlottetown, PE]

Has there been any analysis done to determine what impact the borrowing limits will have on aboriginal governments and first nations within the territories? Part of what I'm getting at is that they would have land claims agreements, which would be constitutionally protected. What analysis, if any, has been done with respect to how borrowing limits will impact on those governments and those agreements?

[Daniel Macdonald]

This is an authority that is within the federal act, which describes the powers of the territorial governments. We do not conduct an analysis of the capacity or capability of aboriginal governments within the territories.

[Sean Casey, Liberal, Charlottetown, PE]

So there is none.

[Daniel Macdonald]

That's correct.

[Sean Casey, Liberal, Charlottetown, PE]

On the borrowing limits, I'd be interested in your comments on their potential to restrict economic growth and the flexibility of territorial governments with respect to their own government programs.

[Daniel Macdonald]

There is a relationship, obviously, between a government's decision to take on debt and its ability to provide programs and services. Both of the territorial news releases actually acknowledged that link. They spoke to the importance of understanding that borrowing takes away from a government's ability to offer important programs and services and that they need to balance decisions taken today with the future.

That's, in essence, the intent of the analysis undertaken to arrive at a sustainable amount of debt servicing a territorial government can undertake. Given the Government of Canada's significant investment, through other transfers, in ensuring that territorial governments have the capacity to take decisions to provide programs and services comparable to those in the rest of Canada, part of the intent of the borrowing limit is to respect that balance.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Jean, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

I'm very interested in this. I'm a northerner as well. I've lived in northern Alberta my entire life, or pretty much, anyway.

One of the major complaints I've heard in my communities, which are mostly smaller communities, except for Fort McMurray, is that when they are applying for funds, it is very difficult to understand what people need. They can't hire a full-time person to fill out applications for federal government funding.

I see you nodding your head, so you understand that this is a common complaint.

Clearly, by changing the act to be more specific, I would suggest that there's going to be more certainty, less spinning of wheels, and indeed more effort put into things that will actually see a concrete and positive result. Would that be fair to say about applications in particular?

[Daniel Macdonald]

The intention of the new regulation is that it will be perfectly clear to territorial governments, as they are considering various projects, and particularly how to structure them and what instruments they may wish to use to finance them, exactly what their options are.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Indeed, I think it sort of moves it from “Dad knows best”—you know, ask dad for everything—to a clear set of guidelines, including money and the perception and expectations of the federal government in these applications. It moves it towards a cooperative government style with an understanding of where they can go and where they will receive success. Is that fair?

[Daniel Macdonald]

Yes, clear guidelines are the objective.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Okay.

I'm curious. What would be an average amount that one of the territorial governments would have received from Ottawa over the last 10 years? Would you have those kinds of statistics on what they would normally receive on average over a 10-year period, for instance, prior to this legislation?

[Daniel Macdonald]

Are you speaking of total transfer funding?

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Well, I'm thinking more along the lines of these changes—and we're going to see some changes relating to this legislation—and the moneys that are utilized for this. I don't know how it's transferred to the territories; I know there are a lot of mechanisms to transfer based on per capita funding and also other things.

But over the last 10 years prior to this legislation, what would they have received under the same auspices and the same programs as what they're expected to receive with this change in legislation?

Was that clear enough?

[Daniel Macdonald]

The legislation is not going to change the amount of funding received from the Government of Canada to territorial governments.

But I can observe that, as it's disclosed on the Finance Canada website, for example, if you're looking to territorial formal financing, I have figures here that read that in 2005-06, territorial formal financing was just over $2 billion to the three territories in total, and for the 2012-13 year it's $3.1 billion.

Is that...?

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Yes, in fact, that was the point. It's not to deal with the change of money; it's a structural change to be more efficient in government and to have clearer expectations and understanding of how they can proceed and whether or not they're going to be successful or what the chance is of success. Is that fair to say?

[Daniel Macdonald]

Yes.