Finance Committee on June 18th, 2019

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

Pursuant to Standing Order 108(2), this is a study on the subject matter of the main estimates 2019-20: votes 1, 5, 10, 15 and 20 under Department of Finance; votes 1 and 5 under Financial Transactions and Reports Analysis Centre of Canada; and vote 1 under Office of the Superintendent of Financial Institutions.

Witnesses at the table include Darlene Bess, chief financial officer, and Andrew Marsland, senior assistant deputy minister, tax policy branch. Both are with the Department of Finance Canada.

There are quite a number of other officials in the room, including those responsible for some of the agencies, such as FINTRAC and OSFI. If there are any questions on these, we can bring people up to the table and move ahead.

Please go ahead, Ms. Bess.

[Darlene Bess, Chief Financial Officer, Department of Finance]

Good morning, Mr. Chair, and members of the committee.

Thank you for the opportunity to present the main estimates for the 2019-20 fiscal year on behalf of the Department of Finance.

With me today, as you mentioned, are departmental officials to assist in providing you with a more in-depth perspective on the rationale and policy supporting the numbers within our estimates.

As you know, the Department of Finance's mandate is to assist the government in developing and implementing strong and sustainable economic, fiscal, tax, social, security, international and financial sector policies and programs with the goal of creating a healthy economy for all Canadians.

This year's main estimates reflect a departmental budgetary spending of $99 billion, which is composed of $99.4 million in voted expenditures, $1.4 million in budget implementation vote items, and $98.9 billion in statutory expenditures. These main estimates reflect a net increase of $5 billion in departmental budgetary expenditures, stemming from forecasted increases of $4.2 million in vote 1 program expenditures and an increase in statutory spending of $5 billion.

The increase of $4.2 million in vote 1 program expenditures in this year's main estimates is due to increased activity under the following initiatives: $1.6 million for a carbon pollution pricing system, $1.5 million for tax competitiveness monitoring, $1.2 million to enhance capacity for indigenous policy, $0.8 million for an open banking review, and $0.6 million to increase trade dispute resources. This increase is partially offset by sunsetter funding that the department received for the G7 summit.

The 2019-20 main estimates also include $1.4 million of new budget implementation votes for each spending measure announced in budget 2019. Funding for these initiatives will be allocated to the department through Treasury Board submissions.

The 2019 budget implementation vote items are made up of $0.8 million to strengthen Canada's anti-money laundering and anti-terrorist financing regime, $0.4 million to introduce a Financial Consumer Agency of Canada governance council, and $0.2 million to protect Canadians' pensions.

The 2019-20 anticipated statutory spending is based on the most recent official estimates from budget 2019, released by the Department of Finance on March 19, 2019. Statutory expenditures are not included in the appropriation bill, as they have already been approved by Parliament through enabling legislation. They are included for information in the estimates documents.

As identified in the statutory forecast, the main contributing factors to the $5-billion increase are an accumulation of the following: $2.1 billion due to increased interest on unmatured debt, $1.8 billion due to an increase in the Canada health transfer, and $0.9 billion due to an increase in fiscal equalization payments.

Mr. Chair, this concludes my overview of the main estimates for the department.

We would be pleased to answer any questions the committee members may have.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Bess.

We will start with Mr. Fragiskatos. We'll have seven-minute rounds for the first four.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much, Mr. Chair.

Thank you to the officials for appearing this morning.

I see that on the first page, you allocate $1.5 million for tax competitiveness monitoring. In what ways are we going to be doing that? Could you be more specific?

[Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you for the question.

As all members are aware, in 2017 the United States implemented a comprehensive tax reform that eroded much of the tax advantage that Canada enjoyed for many years. In the fall economic statement, the government took initial steps to respond to that, in terms of the accelerated investment initiative.

The U.S. tax reform was a comprehensive reform and extremely complex, touching many areas. The purpose of this additional funding is to bolster the government's ability to assess the impact of that tax reform, which is not a single event. It rolls out over a number of years and presents further challenges down the road. It's to bolster our ability to model the impacts on the Canadian economy and our tax system, develop appropriate responses and provide advice to the government, in respect of the—

[Peter Fragiskatos, Liberal, London North Centre, ON]

I don't mean to interrupt you, Mr. Marsland, but when you say assess and model, could you give examples?

[Andrew Marsland]

For example, the United States implemented restrictions on interest deductibility. Those have an initial impact, which we then attempt to understand, in terms of the propensity of corporations to shift interest expense to Canada in response to that measure. I believe that in 2022, those restrictions in the U.S. become more concentrated on U.S. corporations, so we want to understand and monitor the impact on our tax base. To do that requires building complicated models, looking at the tax data and modelling the impacts, both present and future, on Canadian corporations and the tax system more generally.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

I was also interested in how you allocated for “trade dispute resources”. Compared to other funding pools, it is only $0.6 million, but it's still sizeable. Could you go into that? What do we mean by that?

[Darlene Bess]

Thank you for your question. I could answer it at a high level, and perhaps my colleagues from International Trade and Finance will join me at the table.

This really supports the international trade policies division. It's to assist with safeguard and trade remedy issues. such as tariff issues, including remission requests for free trade agreement negotiations and Global Affairs Canada's challenge function. The funding we have here is to hire people to assist in this trade-related policy work.

I have my colleague here, Paul Samson, who can provide more details.

[Paul Samson, Associate Assistant Deputy Minister, International Trade and Finance Branch, Department of Finance]

Thank you very much.

To add to that, this amount relates to five new people who would be hired specifically due to all the action related to new tariffs and monitoring and acting on those tariffs. It was specifically for that reason. Over a period of several years, we expect this to continue in some form or another. Even though the tariffs have now been lifted in the case of steel and aluminum, it's still a very active space.

[Peter Fragiskatos, Liberal, London North Centre, ON]

It's very good to be proactive and prepared, so thank you for that explanation.

I'm also interested in item 3 here, at the bottom of the page. It mentions $1.2 million, to enhance capacity for indigenous policy.

By “enhanced capacity”, what do we mean there?

[Darlene Bess]

We're really looking at dedicating resources to deal with the policy and costing for indigenous policies. It's looking at dedicating resources beyond what we have, to address the increased volume and complexity of budget and cabinet proposals related to indigenous issues.

This additional capacity would help the department advance and implement new fiscal relationships with indigenous peoples and contribute to longer-term program reforms. It would also provide strategic advice on the management of the indigenous policy agenda.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I was also interested in how you talked about an open banking review. I hope I'm not taking a question away from my colleague to my left—I know this is a great passion of his—but I do want to ask it, because I am interested in it. This is something the committee has—

[The Chair, Liberal, Wayne Easter]

Then you might as well just stay at the table. There likely will be more for you too. As we add, we'll tell you to stay.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Open banking and a review of it is what's being contemplated here. How does that compare to what other countries are doing? Would you be able to comment on that? Where is Canada in terms of considering open banking, and what are the implications of it for financial systems? I know you want to commence a review here, but are we behind? Are we ahead? Where are we?

[Darlene Bess]

I'll let my colleague Leah Anderson respond to that. Thank you.

[Leah Anderson, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance]

We're in a perfect position as a fast follower, I would say.

It was first implemented in the U.K. They've rolled out an open banking framework. Australia, another country with a banking system very similar to Canada's and the U.K.'s, is also moving forward on an open banking model. We have had the privilege of learning from their successes and their challenges in operationalizing their frameworks.

We did launch a review. In fact, the first phase of the review is nearing completion. The first phase was really considering whether this was appropriate for Canada. Then, should that be meritorious and appropriate for Canada, we will move into implementation. It looked at things like benefits to consumers and businesses in being able to control their data and access a wider range of services from a range of different service providers, while at the same time looking at whether issues like privacy risks, cyber-risks, or risks to financial stability can be appropriately mitigated.

We had consultations led by an expert panel across the country. We had tremendous feedback from a diverse range of stakeholders on those fronts, and very good information to help guide us in this initiative going forward.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Very good. Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you all.

Mr. Kmiec is next.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you, Mr. Chair.

I'm going to talk about non-budgetary items here, starting with the Asian Infrastructure Investment Bank and the purchase of shares, because in the main estimates I see $51,400,000.

Can somebody please tell me how much has been spent to date in cash terms, and how much will be spent in the following fiscal year and the year after, if you have those numbers already, if they're preset?

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Samson.

[Paul Samson]

The total amount to be paid to the Asian Infrastructure Investment Bank is $199.1 million U.S. dollars, which translates approximately, depending on the exchange rate, to $256.3 million Canadian. It will be paid in five equal instalments, which would translate into $39.8 million U.S., or approximately $52.3 million Canadian, starting in 2017-18 with the first payment. There would be five equal payments of that amount over a five-year period.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

That will be at the beginning of the year? Is there a fixed time of the year when it's paid out?

[Paul Samson]

I believe it typically goes out in the first quarter of the year, but my CFO colleague might be able to confirm otherwise.

[Darlene Bess]

I'm sorry, but I don't know at this time.