Government Operations Committee on May 13th, 2008

[Kevin Page]

I see my role as providing independent, non-partisan advice, and in the context of providing independent advice, at times this may mean there will be a strong challenge function on certain issues. At times, as well, it could be quite complementary with respect to what the government is putting forward.

In the context of the latter, when one looks at Canada's fiscal situation and compares it with what's going on south of the border or in European countries that are generating large deficits as a percentage of the size of their economies, one could argue that Canada has done some extraordinary things over the past ten years or so with respect to its fiscal situation. I hope the parliamentary budget officer can contribute to that sound fiscal record over the next number of years. So I think independence means to be able to look at the situation in a truly independent way and to highlight both the good and sometimes areas that need to be strengthened.

In terms of costing, I know the costing of private members' bills is a big issue, a big concern for the Department of Finance. I think just working in a minority government is new for this country to some degree and these private members' bills have taken on new significance in the context of fiscal planning at the Department of Finance. I think costing earlier in the process and costing that not necessarily looks at the point of estimates, but explains some of the range that some of these bills might produce, depending on if there's different take-up or not, will also help increase an understanding around some of these issues and help improve the whole parliamentary private members' bills process.

So I'm hoping we can play that kind of role as well.

[Dean Del Mastro, Conservative, Peterborough, ON]

I couldn't agree more. I see your role as one of building confidence for Canadians that what they're being told is accurate. I know that was the government's intention when we brought that forward, certainly not as one that would kind of see behind the curtains and go on goose chases on behalf of the opposition.

Largely the federal budget is a document that has a lot of commitments that have already been made. A fair portion of the federal budget is spent annually for commitments that have been made. In that, we talk about provincial transfers, social transfers, equalization, and so forth. I know my colleague from Ajax--Pickering is pleased that we now have per capita transfers in the province of Ontario brought forward by this government.

But last year we had three independent fiscal forecasts, and we also had the forecast from the federal government. I think what we've done is try to really open things up, make it very open so that Canadians have an understanding how these forecasts are made so we don't have these large surprise forecasts at the end of the year, being forecasted to be one number and then suddenly being another much more significant number. We've worked to make that much more open.

Unfortunately, all of them were wrong last year. They were all lower. Maybe you can give your opinion on that. Does that speak to the caution that goes into planning these numbers, that they're putting a lot of prudence into these numbers to make sure that they're right? If anything, they're under on the surplus, but they're not going to go the other way and be wrong to the point where you'd risk a potential deficit.

Is that why you see that all three private forecasters and the government forecast were under with the surplus that actually came in?

[Kevin Page]

Thank you very much for that question. Just to step back, if I could, on forecasting, as you noted, sir, a lot of changes have been made, and the process is much more open now. I think this is a result of actually, in some cases, some pressure by parliamentarians as well and work by different finance ministers to open up the process.

Now the Department of Finance is taking an average of a number of private sector forecasts on the economy and they're working with, as you say, sir, three other fiscal forecasters to look at and prepare their fiscal projections. So the process is quite a bit different.

Even within that process, though, even in the last economic fiscal update in the budget, one would note that there was quite a bit of range between the low side and the projections on the high side. I think we're in a period of quite significant fiscal uncertainty as we look forward.

We think it is true that most of the private sector forecasters got it wrong last year, particularly on the fiscal side. If you look back historically, there are probably different reasons for that. I think last year they probably got it wrong because we were fooled partly by just the strength of the Canadian economy, particularly on the income side, and the relationship between how incomes were growing and the tax collections. Tax collections on the revenue side, both on the personal income tax side and the corporate side, came in much stronger relative to the income growth that we did see in the economy. I think that fooled almost all the forecasters.

These can change pretty rapidly, though--for instance, if the economy were to turn in a significant way, potentially due to, if one looks farther out, U.S. economic weakness. So while we all erred on one side, we could see a different type of erring, or more balanced erring, as we look forward.

In terms of prudence that's built into the forecast, there have been changes. Certainly in the mid-1990s I think the sense was, by the government of the time, that we needed to build in substantial prudence. So we built in contingency reserves of about $3 billion a year in these forecasts. We built in economic prudence of different varying amounts over time. Government made a conscious choice to make sure that they erred on that side. In terms of fiscal planning, I think that was a very prudent thing to do at the time.

I think, as well, this government has decided that with the progress we've made on lowering the debt—in absolute terms, over $100 billion over the past 10 years and almost a cutting in half of the debt as a percentage of GDP—federally that's a substantial improvement. We didn't need as much prudence. In a relative sense, I think that probably is true; you could probably get away with less prudence. But now we're seeing a lot of uncertainty in the economy, particularly to the south of us, and we're worried about the impact it may have. But there is less prudence in the forecast now in general.

So the error really was just a surprise around the relationship between income and collections.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. Angus.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you very much.

First of all, I'd like to congratulate the work of the Library of Parliament in terms of allowing members of Parliament to have the information necessary to make sure that we can do our job in opposition, which is to hold the government to account.

I'm still trying to get a sense of how the parliamentary budget officer works. You work through the library. Would individual offices come to you with requests? Would you be there in a planning sense overall for committees, or in a role almost like the Auditor General, someone who's making pronouncements periodically? How do we interact with your office?

[Kevin Page]

Thank you for your kind words about the Library of Parliament. I know it's always music to the librarian's ears; he is very proud of the reputation that the Library of Parliament has been able to build over time.

In terms of how we will work, partly, as Mr. Sabourin said, we have a bit of a blank sheet. We're working out the business model right now. The business model, in terms of how we interact with committees, how we interact with members, and how we interact with even the Library of Parliament, is something for which we're looking at different options.

One of the easiest options for us to look at, in terms of the relationship with committees, is to work within the current Library of Parliament model, in just the same way. You have requests that come from committees or from individual members on costing bills; there's an established process right now. Work that is of a cost nature or an estimates nature or that deals specifically with economic analysis of fiscal forecasting—very much within the mandate of the parliamentary budget office—will be steered to one single window, towards us. That is definitely one model we're looking at right now.

[Charlie Angus, NDP, Timmins—James Bay, ON]

One of the things we learned out of the sponsorship scandal is that if mis-spending occurs and parliamentarians have no ability to check or challenge, a lot of damage can be done long before anyone is able to actually hold government to account. What ends up happening is often in hindsight: access to information requests, and having to track down how the money was spent.

It's a very frustrating situation for a member of the opposition to be looking at certain line items in the estimates, where there is clearly a substantial amount of discretionary spending power for the government, and to have no accountability from the government on how this is being spent.

For example, in the 2005-06 and 2007-08 budgets under Heritage, the “Celebrate Canada!” fund was bumped up 900%; it was a major anomaly of $30 million, when over that period other Heritage Canada funding had been dropped by $31 million, and trying to get an answer as to whether we were buying cake and balloons across the country with $30 million was like dealing with a labyrinth in Heritage. They were claiming no, this is money that's going for the 400th anniversary of Quebec, even though we already had another line item for the 400th anniversary of Quebec, or it's for this, it's for that, it's for the other. But under the line item it was clearly for “Celebrate Canada!”

You can raise alarm bells, you can deal with the media, and you can try to get access to information—although good luck, these days; all your access to information is being delayed. Do you have a role whereby we could then ask the Library of Parliament how money is normally spent through this, or an independent voice that can actually tell us whether this discretionary line item has substantially changed and whether it's a common practice for certain line items to be boosted like that?

If we don't have the ability to challenge government—we often can't challenge them until after the money is spent, and we have to then go and see where it was spent—major problems can occur. How do we work with your office to be able to verify the claims that are being made when the estimates come out?

[Kevin Page]

Sir, that's an excellent question. The Office of the Parliamentary Budget Officer will try to give you the kind of support you need in terms of dealing with some of those questions.

I'd like to make a few points in response to your question. The first is in terms of best practices around estimates in general. And the second point I'd like to come back to is financial management and whether or not we're putting too much emphasis in the government right now on the back end, as you related, as opposed to more on the front end, and how this committee has worked on that. And third, related to the first point, is really just transparency in reporting in general and the work of this committee in the past to improve transparency, and the work it's doing right now on accrual budgeting.

On the first point, in terms of best practices around estimates, I think there are three points. One, the parliamentary budget officer needs to play a role in making sure you understand the information that's there. The information that is there is quite complicated, and it's probably been said many times before this committee that not many people can walk through the federal budget, which is on an accrual budgeting basis, to the estimates, which are on a cash basis, divided into things called program activities and votes that are very horizontal in nature, to the public accounts, which again are also on an accrual basis but look different from the estimate numbers. So we will try to help you go from A to B to C by better packaging information.

Another best practice, which has been established in the OECD, is the capacity for committees like this, which are working with appropriations, to look at big material changes. In some cases those big material changes show up in big numbers like the big transfer numbers. If the government decides to do something significant with respect to a fiscal balance issue in this country, there are big numbers. But also, as you've alluded to, sir, there could be 900% increases on small line items in certain budgets, which could raise certain alarm bells. So providing capacity so that you could see those big material changes in some of those smaller line items is something we would definitely want to look at, which is also a best practice by the OECD.

If I could go to one of the points I made concerning transparency in reporting, the work done by this committee in 2003 really pushed the government to provide more transparent reporting and it changed the whole planning system. Up until that point we had a business approach to the way the estimates were changed, and the government was under a lot of pressure from this committee in the 2003 important move to more program activity, almost a grocery-list approach to the presentation of activities in the estimates. That gives us a lot more transparency in the current system, so it's a big change.

But I think the work of this committee needs to continue to put pressure on the government to provide more transparency around that, because even though we're moving in the right direction, we need to make more progress. And that will get at some of your points, sir, in terms of looking at some of these smaller items and identifying these particular activities so they show up and you know these things exist and are driving change.

Previous comptrollers general have looked at this issue. We spend a lot of money and attention on the Auditor General's reports, which are very much the back end of the whole financial management process. There is the issue of whether or not we should be spending more time and energy on the front end. This committee has looked at those types of issues. When you look at issues like sale-leaseback, you're looking at those issues in almost real time as a government. Making sure we have best practices early on in those processes helps a lot so we prevent those future failures before the Auditor General has to come in and clean up that stuff. So making sure this committee has information on best practices on these new proposals as they come through and as you challenge them is something we'd be very interested in doing, because we think that's good practice.

[Charlie Angus, NDP, Timmins—James Bay, ON]

To follow that, we often end up picking up the pieces after a debacle. I'm thinking of this subprime mortgage crisis in the U.S. When we start to look through what happened there.... How could this have been allowed to happen? How could such dodgy mortgages have been put on by so many credible institutions and sold to so many investors to the point that it's almost created a global crisis?

Who was to blame there? Where was the federal oversight? How could so many people have turned their eye...? But it happens, whether it's Bre-X in penny mining stocks or the subprime mortgage.

When we are in boom cycle, it's very difficult to make those challenges, to raise those warning flags, because everybody is looking at the good picture and not the potential downturn.

Is your role providing prudent reporting to politicians? How do you see your ability to challenge when red flags are starting to appear? Are you going to be presenting that to individual members of Parliament if they ask, or are you going to be saying, “From what we're looking at, we've got certain problems developing here that could create a major problem down the road”, whether it's a situation like the subprime mortgage or whether it's just going into not having enough reserve funding coming into a recession?

[Kevin Page]

I don't think I'll provide too many specific comments on the diagnostic around the subprime situation, particularly in the United States, that also has an impact in Canada. I know there's been other testimony from other independent organizations. The Governor of the Bank of Canada, Mr. Carney, in front of the finance committee has talked about that and its relationship with Canada.

I actually think, sir, your diagnostic is right. Particularly in boom times--we've seen this with different bubbles as we look back--we tend to lower our guard with respect to how we look at risk, particularly with issues around transparency. There was an enormous amount of complexity, specifically with those kinds of transactions, and things simply got out of hand.

There is a relationship--I think this is your point--between that and specifically how we look at expenditure management in the government. I read a quote recently by Leonardo da Vinci, I think, that simplicity is basically the best form of sophistication.

We need to worry about whether or not we find the estimates to be overly complicated. If you can't get the kind of answer, sir, that you raised earlier around a 900% increase in a line item in a vote appropriation, that's an issue that's actually not that far different from the issue we're experiencing on the subprime stuff.

How can a parliamentary budget officer help? I think, like the work of this committee in 2003 in terms of pushing transparency and pushing simplicity, it's working with you in terms of best practices around the estimates. It's also by having a careful eye, sir, which you alluded to in your previous question around those big material increases that show up in estimates from time to time, so that we flag this. I think that is a fundamental role of a parliamentary budget officer.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. Silva.

[Mario Silva, Liberal, Davenport, ON]

Thank you, Madam Chair.

First of all, I want to begin by congratulating Mr. Page on his new position. I also want to thank the Library of Parliament for the wonderful work they do for us as parliamentarians. I think it would be unanimously agreed that we certainly could not carry out our functions as parliamentarians if it weren't for the Library of Parliament, so we thank them for all the work they do on behalf of the Parliament of Canada.

Mr. Page, I've listened to your comments and I think there still needs to be some further clarification that perhaps you can provide. You can help me to understand, first of all, the difference between the function of your office and that of the Congressional Budget Office, because I think it's modelled a little bit after that. That is very important.

The other thing, too, that you had spoken about at great length is the whole idea of independent opinion. I'm still trying to figure out how you're going to arrive at that. It's very important for this committee. Your position could be extremely valuable to all of us here, because we deal with the estimates on this committee. That independent opinion is extremely important to us--as parliamentarians, of course, but more specifically at this committee.

How do you arrive at that independent opinion in the forecasting if there is concern as to whether your particular office is totally independent when it comes to financial resources? I think resources are extremely important.

Also, we have a concern as to how you're going to arrive at that opinion. If it's simply to be a collection of opinions, then it presents a bit of a problem. I think we would like to have a more frank opinion, an assessment of where things are.

Finally, you talked about the establishment of protocols and service standards. When are you going to have this dialogue with...? First of all, when will we be seeing these protocols and service standards in place? What will be the interaction you'll have with parliamentarians, and when will you begin that interaction?

These are my questions. I throw them all out to you at once, then you can take your time to answer them.

[Kevin Page]

Thank you very much, Mr. Silva.

In terms of the relationship between the parliamentary budget officer and the Congressional Budget Office, I think there are things we can learn from the way the Congressional Budget Office operates, but we have to take into account the fact that it operates in a very different system. I also wish to highlight—there was some work done and I don't know if it was made available to you—that before I arrived, the Library of Parliament did a review of budget offices in parliamentary-like settings and congressional settings across the world.

So while the Congressional Budget Office is one of the first offices set up in the mid-1970s, a number of other countries have actually moved forward to create the kind of capacity to support the oversight function. This includes a wide range of countries, such as the United Kingdom, the Netherlands, the Philippines, Korea, and some others. But the Congressional Budget Office was definitely the first one. It has been in operation since the mid-1970s.

One thing that is pretty impressive about that office is the quality of its advice. It has maintained a perception of providing independent high-quality advice pretty much from the beginning, but again it operates in a congressional system that is very different from a Westminster system. In the congressional system, the executive provides a budget, but both chambers of congress can also provide alternative budgets, and there's a negotiation. So in a congressional budget system like that, there's a lot of need to provide alternative budget capacity.

You will not get that capacity from the parliamentary budget officer, not with the resources that have been set aside, but also for the good reason that we operate in a very different system. It's the government, the executive, that brings forward the budget. The parliamentary budget officer, in that capacity, will help provide the appropriate challenge in the appropriate areas in the mandate that has been specified, particularly with respect to those forecasts you've alluded to, but also with the downstream estimates-related issues.

This is a five-year appointment. Five years from now, if the parliamentary budget office is on such solid footing that it continues to thrive over a number of years, I'd be very proud. That would certainly be a great accomplishment.

In terms of independence and what we mean by independence and how it will relate to the way we do economic and fiscal forecasts right now, I think you could probably say—in relation to a question that was put earlier by another member of this committee—that we may actually have the best practice in the OECD right now, with respect to forecasts, just in terms of the transparency around forecasts.

The question then becomes, what is the role of the parliamentary budget officer, and have we not already solved this issue? I think you have to go back to the importance of forecasts. Forecasts are very important public policy tools, very important fiscal planning tools, and notwithstanding the fact that we have a lot of transparency around fiscal forecasting now, we live in a very risky environment and particularly an environment where there's a lot of downside-related risk.

So I think providing independent advice in the context of where we see those risks, in terms of the fiscal forecast now going forward and what its implication could be for budgetary choices and fiscal planning, would be an important provision of advice. In terms of the protocols and when will they be in place, we're looking to have them in place in the fall, and we would like to have them approved by a number of members of both sides in both the House and the Senate.

[The Chair, Liberal, Diane Marleau]

Thank you.

Ms. Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, Madam Chair.

I want to take this opportunity to congratulate you on your appointment to this position. After having heard all the questions that you were asked concerning your role, I am rather confused. While listening to you speak, I got the impression that you are in the midst of turning the Library of Parliament into a huge bureaucracy.

Earlier, you said that the current government had lowered the debt. I have some doubts on the impartiality of such an opinion. Can you tell me who appointed you to this position? How did you get here?

[Kevin Page]

I would be much more comfortable if Mr. Sabourin were to talk about the process used to select candidates.

[Jacques Sabourin]

The process leading to the creation of the Office of the Parliamentary Budget Officer and appointment to this position is set out in the Federal Accountability Act. Is a very specific process. The Parliamentary Librarian must launch an open selection process. If necessary, the Parliamentary Librarian can recommend three names to the leader of the government in the House. It is up to the leader of the government in the House to make a recommendation. This is a governor-in-council appointment, as it the case for other high level appointments of the Senate and House, such as the appointment of the Parliamentary Librarian himself.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Therefore, you are not an officer. There is a difference between an official and an officer of Parliament, is there not?

[Jacques Sabourin]

There is not a very specific statutory distinction. Mr. Page enjoys the same status as other senior officials of the Library.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Did other economists working for the Parliament apply for this position?

[Jacques Sabourin]

Absolutely. The process was very open and held Canada-wide. We also hired a head-hunter to conduct research within the public, parapublic and private sectors before drawing up a list.

I may forget some names because I was not involved in the process as such. A very high-level selection jury was struck, did a pre-selection, and held interviews before recommending the following people: Mr. Drummond, vice-president of the Financial Group of the Toronto-Dominion Bank, a former parliamentarian who now works as a consultant, the Parliamentary Librarian, and Mr. Allan Darling, who served as senior special advisor to the librarian during this entire process when the act was first adopted.

In that regard, the process was very open. At one point, we had at least 60 candidacies to review. I am not referring to the total number of candidacies received.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Of the 60 candidates, were there several economists who currently work for Parliament?

[Jacques Sabourin]

I believe that there was only one application submitted by an employee of the Library of Parliament.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Very well.

[Jacques Sabourin]

The process was very open. Anyone who wished to apply could do so.