Finance Committee on March 30th, 2023

[Christopher Veilleux]

Thank you for the question. I'll hand it off to Alison McDermott.

[Alison McDermott, Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

I won't go through all of them. I'm assuming you have some information in front of you about what the major changes are. I'll go through some of the major transfers to other levels of government that are probably most relevant to the increase, which is what you asked about.

There's a very large increase in the Canada health transfer. It's a historical 9.3% growth, from $45 billion to $49.4 billion. That's from last year's 2022-23 figures. There's a similarly large increase in the equalization transfers, from $21.9 billion to $24.0 billion. There's also a 3% increase in the Canada social transfer, from $15.9 billion to $16.4 billion. In the territorial financing line, there's an increase from $4.5 billion to $4.8 billion.

I think I'll stop there. There are a lot of smaller changes. Those are some of the very significant ones.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

[Inaudible—Editor] health, social transfer and equalization are some of the largest transfers.

I'm not going to ask you to respond to this, but I think for context—for the folks at home who are watching—I'll note that transfers to provinces for health are designed to improve our health care system. Equalization can obviously be used by provinces to support whatever programs they deem necessary for their citizens. I think it goes without saying that the social transfer is there to help folks across the country who need support.

Anyway, it's important to highlight that for folks. Where you put your money speaks to your priorities, I think, as a government. Your answer helps us highlight what those priorities are.

How much time do I have left, Mr. Chair?

[The Chair, Liberal, Peter Fonseca]

You have a little over two minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

One thing that's in the news a lot, which I think a lot of folks at home are concerned about, frankly, is interest rates. They're impacting a lot of folks' borrowing costs, mortgage payments and ability or inability to buy a house. They're also having an impact on the government's finances and how much it costs us to service our debt.

Could you talk about what the impact of interest rates has been on our debt servicing costs? What are your expectations for interest rates going forward, and how will that impact our debt servicing costs?

[Christopher Veilleux]

I'll hand that one over to Evelyn. I think we can supplement that with one of the other witnesses supporting us here.

Go ahead, Evelyn.

[Evelyn Dancey]

I'll start the response with your question on debt service charges.

Our most recent information is in the budget we tabled just a couple of days ago. We highlight how the rising interest rate environment and higher borrowing requirements result in higher debt service charges. Public debt charges have risen compared with those in our fall economic statement. That being said, they remain, as a percentage of GDP, around 1.5%, which is still low by historical standards.

From our perspective, this debt service is still sustainable, affordable and within the lower bound from a historical perspective.

[Julie Turcotte, Director General, Economic Analysis and Forecasting, Economic Policy Branch, Department of Finance]

Thank you for the question on interest rates.

As you alluded to, yes, interest rates are higher than they have been in a while. This is acting to slow the economy now. Inflation is expected to slow as well throughout the year. Given that, expectations are that rates will start to go down next year and return to what we call the “neutral rate“ of interest, which is between 2% and 3%. In fact, the private sector expects interest rates will go back to 2.4% in 2027.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Baker.

We'll now go to the Bloc and MP Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, deputy ministers and directors.

Thank you for being here and for waiting. We know your time is valuable and you have a lot of work to do. So thank you for so many of you being with us.

I would like to start with a special request.

The budget was tabled this week. It was very interesting. However, I have a lot of questions and concerns about the plan for $80 billion over ten years in response to the Inflation Reduction Act and how that will be broken down.

There are a lot of details in chapter 3 of the budget, but I would like to know whether you can provide your estimates by sector, as precisely as possible, and by province.

For example, what provinces will be getting the money for carbon capture? How will the small modular reactors and the advance tax credits for rebuilding power stations be allocated?

Are you able to give us the estimates for those tax credits and tell us how that $80 billion will be spent?

[Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you for your question.

I am going to note your questions. We will certainly be able to give you the information, but we have to check whether we are able to give you the information at all levels, by sector or by province. We will have to look at it, but definitely, at a minimum, we will be able to give you certain disaggregated data.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Deputy Minister.

That is my main request. So I will wait impatiently for that information. Thank you for your cooperation.

I have another question.

In media coverage at the end of January, there was talk about lapsed authorities. According to Public Accounts of Canada, the last data available is from 2021‑22. The article said that lapsed voted authorities amounted to $38 billion. When we look deeper, and if we look at all of the lapsed authorities, it comes to $41 billion. That's a lot of money.

Do you have the data for 2022‑23 yet? If not, do you have estimates for 2022‑23?

In the budget that was just tabled, are you able to predict whether there might be lapsed authorities?

[Christopher Veilleux]

Thank you for your question.

I am going to ask Ms. Dancey to answer it.

[Evelyn Dancey]

The details concerning the estimates are the responsibility of Treasury Board. However, regarding our estimates, we have access to certain data for submitting our estimates.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

So you don't have the details. Okay.

At the time when the Hon. Paul Martin was Minister of Finance, we in the Bloc Québécois had discovered his strategy.

Every year, and in every budget, he underestimated revenue by a few percentage points. Applying a conversion factor, we could predict the amount of his surplus or the leeway he had at the end of the year.

Budgets today seem to be based on market growth predictions. However, I am concerned about the lapsed authorities. I am afraid spending in recent years is being artificially inflated. Of course, there may have been more spending because of the pandemic.

When the deficit announced, $45.5 billion, and the lapsed votes from last year that were not spent, $41 billion, are looked at side by side, we have apparently achieved budget equilibrium.

Do you have an answer to give or comments to make about that assertion?

[Christopher Veilleux]

Thank you for your question.

I am again going to ask Ms. Dancey to answer the question.

[Evelyn Dancey]

I can simply tell you that our estimates, which were tabled two days ago, are our best estimates and are based on the data and information available at present.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay, thank you.

At least I tried to get more information.

In the French version of the budget, at page 30, there is a graphic that I think is extraordinary. Despite the current deficits and debt, during the pandemic, graphic 29 projects the federal debt in the long term. We see that in 30 years, the debt to GDP radio will be practically zero.

Your predictions about debt repayment are even more optimistic than the Parliamentary Budget Officer foresees. This is unprecedented in the G7 or in history.

Why are your predictions about complete repayment of the debt, that is, the debt to GDP ratio, so optimistic?

[Julie Turcotte]

The long-term estimates set out in the budget do show that the federal government's debt should be virtually eliminated by 2055‑56. The Parliamentary Budget Officer's estimates also suggest elimination of the debt at approximately the same point.

Did your question also relate to the provinces?

[Gabriel Ste-Marie, Bloc, Joliette, QC]

My question related to the federal government.

You may have a comment to make for the provinces, but I don't think the situation is the same.

[Julie Turcotte]

Obviously, these are not forecasts. What they are is actually scenarios based on a certain number of reasonable economic assumptions. That doesn't include the effects of future recessions and the major challenges that we might have to deal with. Essentially, it shows that maintaining the downward trend of the federal debt to GDP ratio will enable us to meet those challenges. That is kind of the idea behind it.

In the budget, we also illustrate other assumptions relating to the economic factors and how that might have an impact on the debt to GDP.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, Mr. Ste-Marie.

Now we'll move to MP Blaikie and the NDP for six minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

I'm going to come back to the question of the 3% savings across departments. The Minister of National Revenue was here earlier, and she concluded her opening remarks by praising the staff at the CRA for the good work they do. No doubt there are folks across government who have done a lot of hard work over the last number of years.

Many of them have been two years without a contract, and those two years have been incredible with inflation and the cost of living. I think there's some concern that naming a 3% savings target in advance of concluding those agreements is an attempt to try to put constraints on what's possible at the bargaining table.

I'd like to hear whether it's the department's intention to see the 3% savings represented in the mandate of the Treasury Board at the bargaining table, or if the idea is to find those savings outside of the collective bargaining process so that this period of inflation, which we've all been going through, can be recognized in some appropriate way at the table in those negotiations.

[Christopher Veilleux]

We'll go over to you, Evelyn.

[Evelyn Dancey]

Thank you for that question and for sharing that observation from the minister, because we weren't in the room yet. That was an interesting connection to make.

I'm the ADM at finance responsible for both of these tracks of work. In my mind they are quite separate. The President of the Treasury Board has a mandate for collective bargaining that she and her officials are pursuing right now, with dozens of bargaining agents, in good faith.

The refocusing of government spending measure really is forward-looking and a response to the understanding that the size of government grew quite significantly through the COVID-19 period. It is an appropriate and fiscally important time to pause and ensure that we are being most efficient with taxpayers' resources in light of some very significant and costly priorities the government is advancing, including in health care and dental care.

In my mind, these are quite separate.