Government Operations Committee on Feb. 10th, 2009

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

How do you define imports? Just anything that does not originate within Canada?

[Karen Wilson]

That's correct.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Okay, but you wouldn't define the country of origin.

[Karen Wilson]

No. We have no capacity to do that in input-output modelling, no.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

When you break down components in a vehicle, there may be components within components. I'm thinking of several hundred computers, diagnostics, on a vehicle. How do you actually break that down, import-export, if the casing is made overseas but the actual high value added inside the casing is made in Canada?

[Karen Wilson]

I'll defer that question to Michel Girard, who is more of an expert on input-output modelling.

[Michel Girard, Director, Industry Accounts Division, Statistics Canada]

We don't have imports by industry, but in our model we assume that the imports go to the industry in the proportion of the inputs that they require to produce a certain amount of product. So there's an assumption made in the model about that.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

There are some very good points that will be drawn, I hope, later on.

Have you actually done a model that provides us with any type of understanding of the relationship or correlation between the investment in infrastructure and its impact on GDP? And how long does that take to measure? Is it quarterly? is it yearly?

[Michel Girard]

There are three types of impacts you can calculate from a model. There is a direct impact: if I increase the production of a certain good, and I need a certain amount of input to construct that product. That's the first impact. We can measure that impact in terms of GDP and in terms of employment.

Now, of course, because somebody increased its production, some other industry will also increase its production. So there are secondary effects or indirect effects, and we can measure those.

The third impact is that if people at the end of the day have more dollars to spend, they will spend on goods and services. The government will spend more. Those effects we don't measure. They're called the spinoff effects. We can do simulations for some of our customers, especially related to the personal expenditures, but we don't do them for all sectors of the economy--personal expenditures, the government, business capital formation, and exports.

[Karen Wilson]

The model is annual only, not quarterly.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

You mentioned a little earlier the overall analysis of the state of infrastructure in Canada, which you can make precise by region, etc. Speaking globally and perhaps generally, can you make a comment on the state of Canada's infrastructure? I think it's clear we believe something needs to be done. We all tend to be believe that. Where does StatsCan sit on this? Where do you believe the state of Canada's infrastructure lies at this stage?

[Karen Wilson]

Basically, we're the economic historians. We can tell you facts about the state of the infrastructure, but it's up to analysts like you to decide where it's appropriate to make decisions.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

No, I mean what is the state of infrastructure in Canada according to those analyses you've done historically?

[Karen Wilson]

That's a very detailed question, and I would leave you the paper to read on that.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

For roads, bridges, sewers, would you have any idea?

[Karen Wilson]

I don't have those facts in front of me right now.

[The Chair, Liberal, Derek Lee]

Essentially, we have to ask the right questions before StatsCan can give us the precise answers, but obviously there's a lot of information there.

We'll go to our second round then.

Madame Bourgeois, you have eight minutes.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Thank you, Mr. Chair.

Thank you for coming here this morning, ladies and gentlemen.

My first questions go to the Department of Finance representatives. The figures in the estimates that deal with infrastructure programs are difficult to understand. Here is the problem.

In the budget, the government set aside $323 million over two years, in cash accounting terms, to repair and renovate infrastructure belonging to the federal government. Yet Table 3.7 indicates that the amount allocated to this item is $120 million for the two years. Can you explain the difference to me? About $200 million are missing.

[Paul Rochon, Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance]

The difference lies in the fact that, in one case, figures are given on a cash accounting basis, that is the amounts that are actually spent during the year. Those amounts are higher.

Table 3.7 shows the amounts on an accrual accounting basis. That shows the amortized costs of the infrastructure investments.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Let us go back over that in a language we can understand. You are saying that cash accounting shows the actual expenses made in the course of one year or two years. So you mean that these are the real costs, infrastructure aside. I suppose that there is something else to it.

For me, accrual accounting is very fragmented. It might involve several departments.

I would really like to know the difference between the two kinds of accounting.

[Paul Rochon]

Essentially, cash accounting shows the real amounts spent in a year. Let us suppose that the government spends $100 million to build a building and construction takes two years. Using cash accounting, the $100 million would be shown as a cost in those two years. In accrual accounting, you have to show the amortized amount. For a building, amortization is normally somewhere between 25 and 40 years, so a twenty-fifth of the cost.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Right. I understand.

Do you not find that this can mislead people who are not familiar with the two kinds of accounting? How is it that Canadians are given the figures on a cash accounting basis in the main budget but you operate on an accrual accounting basis that people do not understand. Why are you not consistent?

[Stephen Richardson]

Madame, if I may respond to that question, the accrual accounting system is mandated by accounting standards for the Government of Canada and other governments in Canada. It's necessary that the accounts of Canada, and therefore the budget of Canada, be prepared indicating the accrual numbers. That's the starting point.

As you note, there is a difference in explaining from the accrual numbers how one gets to the actual expenditures of cash in a period. We have come to the conclusion that we should give both sets of numbers, particularly in these kinds of circumstances where it's important to explain to the population and to members of Parliament what cash is being expended, because that's where the effects of stimulus come into play.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

You will agree that, when the government sets aside $323 million over two years, it can seem like a lot for the person in the street, whereas really, the amount is $120 million. I think that is not really being honest with ordinary people.

[Paul Rochon]

We have to understand what is really spent, those are the most important amounts in the two years. For example, the money the workers receive is based on cash accounting, not on accrual accounting.