Government Operations Committee on Dec. 2nd, 2010

[The Chair, Liberal, John McKay]

Good morning, everyone.

This is the 41st meeting of the government operations committee.

Good morning, honourable members and witnesses. Welcome to the committee.

I call the meeting to order.

Our witnesses this morning from Treasury Board are Mr. Smith and Mr. Enns, and they are here to speak to us about departmental freezes on budgets and about supplementary estimates (B). Thank you for coming.

Mr. Smith, you've been before committees from time to time and you know the process. We look forward to your opening statement and then questions from members.

Thank you.

[Alister Smith, Associate Secretary, Treasury Board Secretariat]

Good morning, Mr. Chair. Thank you for your invitation to appear before your committee on the supplementary estimates (B).

Thank you for your invitation to appear. We are happy to be here to answer questions. We hope we can answer all of your questions.

I have with me David Enns, who is acting assistant secretary of the expenditure management sector at Treasury Board.

My colleague and I are here to respond to questions on supplementary estimates (B), but we are happy to try to answer other questions you may have on the operating budget freeze or other elements with which we can help you.

Each year the Government of Canada prepares main estimates and supplementary estimates as required, in support of its request to Parliament for authority to spend public funds. This request is formalized through the tabling of appropriation bills in Parliament.

Supplementary estimates seek Parliament's approval for expenditures that were already planned in the budget but for which the necessary approval had not been obtained in time to be included in the main estimates or in supplementary estimates (A), which were approved earlier this fiscal year.

Supplementary estimates seek the funding required by departments and agencies to implement government-approved programs. They are also required to transfer funds approved in the main estimates from one organization to another, within organizations, or from one appropriation to another. In addition, supplementary estimates are used to inform Parliament of changes in the estimated costs of programs that are now authorized by legislation, other than by an appropriations act.

Tabling the main estimates and supplementary estimates to seek Parliament's authority for spending is a critical part of Parliament's oversight of the government spending plans.

The 2010-11 supplementary estimates (B) seek Parliament's authority to spend $4.4 billion this fiscal year for items that were not completely developed or approved in time for inclusion in the main estimates or supplementary estimates (A). These supplementary estimates also reflect a decrease in forecast statutory spending in the amount of $2 billion. Even though you will not be voting on statutory items, we reflect them in the estimates documents for information purposes and to provide a broader context.

The amount sought through supplementary estimates (B) is within the spending level specified in budget 2010. It does not represent an increase to the amounts in budget 2010.

The amounts do not represent an increase in the amounts provided for in Budget 2010.

This concludes my preliminary remarks. At this time, my colleague and I would be pleased to answer any questions the committee may have on these estimates.

[The Chair, Liberal, John McKay]

Thank you, Mr. Smith and Mr. Enns.

Ms. Coady, you have the floor for eight minutes.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

We are pleased to have you before us again, and we thank you for your assistance in helping us to understand the estimates and to get some detailed answers to questions.

Last week, I had a number of questions that I asked the panel before us, and they felt they couldn't answer on a broader scope. They could give us vote 1(b) and so on, but they couldn't give it in a broader scope. I'd like to start with some broader questions. Perhaps you could help me with those, and then we can get a little more detailed.

I asked each of the people who were before us last week what they had done to achieve the savings required under the budget, what the impacts were on existing departments, how these were being mitigated within those departments, and if the savings were one time or ongoing; it was kind of in that thread. As you can appreciate, those were some of the questions of the Parliamentary Budget Officer, and he will be before us later this morning.

I'd like for you to give me a broader overview. I know it's difficult, because you can't talk to each department. We got some indication last week. They talked about travel. They talked about hospitality. But I don't know if that's going to give us the budget requirement on a go-forward basis, and I don't know what the concerns are within that requirement. Perhaps you could review this generally, and then I have other questions.

Thank you.

[Alister Smith]

Certainly, I'd be happy to address that.

As you know, from Budget 2010 onward we're starting to set the stage for restraint. As I think your questions last week noted, there's still a lot of spending this fiscal year as we continue with the economic action plan for another year. Essentially, we're hitting a reset button on the operating budget controls or restraint for the current fiscal year, that's the 2010-11 fiscal year, and the two subsequent fiscal years. So there will be restraint within government departments on operating expenses over that period through 2011-12 and 2012-13.

In addition and on an ongoing basis--and this is not news--we're continuing with strategic reviews. This year, as budgeted in Budget 2010, we are expecting to achieve significant savings, which will materialize in future years. So three years down the road we will be able to capture the savings from this round.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

My concern is more along the lines of when you're doing strategic reviews, you're looking for about 5%. You've already frozen budgets, and they've taken what I'm going to call the high-level savings out of hospitality and all those things. When you couple those two things, how are we going to mitigate some of those reductions in budgets available to departments on a go-forward basis? If you could, talk about what you're hearing from departments, because as Treasury Board you hear everything. I'm sure some of them are being squeezed. What are they having to cut or what are they having to do in general? I'm not talking about the easy stuff, hospitality and travel; I'm talking about how it's penetrating within departments.

[Alister Smith]

I think in the first year, this year, 2010-11, departments are experiencing the absorption of the 1.5% wage increases. We have anticipated that will have a savings effect of about $300 million overall on the system. It's not a huge amount, but it does increase over time, and as the operating budget freeze applies in the next couple of years, I think you will see more of a pinch on departments' wage bills.

At the moment I think that is the main thing departments are experiencing in terms of restraint. As they mentioned to you already, they are introducing economies on travel, hospitality, conferences, other spending within that operating budget cap. They're also looking for ways of trying to plan for economies over the next couple of years. I would say this is not a major concern for departments at this point. I think it will get tighter over the next couple of years as they absorb the wage increases, and that will be the main effect of the restraint.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

What are you planning from a Treasury Board perspective for those departments that are not finding it yet, as you said, because there are what I'm going to call easier savings? It's not easy--none of it's easy, but easier savings. As they go forward, as you described it, I think you'll find some of the departments within a pinch. Are you giving any guidance, oversight, assistance to departments in terms of helping them mitigate some of these concerns? My concern on a go-forward basis is ensuring that we have considered the ebb and flow of a government in terms of what your priorities are. Some departments might need more assistance.

[Alister Smith]

We do have some elements in the operating budget restraint that allow for flexibility. For example, departments can still reprofile, so you see a lot of reprofiling from the previous fiscal year in these supplementary estimates (B). Quasi-statutory expenses are still accommodated, so increases that are quasi-statutory that are going to be outside the control of departments are permitted. There can be exceptions, if Treasury Board ministers agree, to accommodate certain significant pressures that may arise due to unanticipated changes.

As you know, we do meet with departments regularly and frequently. We keep track of what they tell us about their pressures. We feel this restraint will engender innovation and economies to reduce costs. As you mentioned, everybody's looking for the low-hanging fruit and trying to save the taxpayers' dollar. I think that's a very good thing. This discipline is a good thing.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Obviously, always reviewing your budget is a good thing, I agree with you.

I have two quick questions and I only have a minute left.

Will we, as Parliament or even as a committee, be given what I'm going to call the overview of the remaining budget, the details regarding the remaining budget reductions and how that might come about? Will you be providing this committee, or Parliament in general, with information on how that's going to be achieved, how we're going to achieve those budget savings?

[Alister Smith]

In each case here, the departments' operating votes, their vote 1 or program votes, are the budgets that are being constrained. Every time we come here, you will see how those operating budget votes are going up or going down, and you will see the progress of those votes.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

It will be an estimate, so we'll have to go through that. There won't be a report.

I've got one--

[Alister Smith]

And you will see that in departments, both in the plans and in the results--both the RPPs and BPRs. You will also see what they plan to do and what the results are of what they planned.

In addition, as you can see in these documents here, we have taken out of a department's reference levels this year any money that would have been provided for the wage increase, the 1.5%, and that's also evident in the footnotes throughout the document.

[The Chair, Liberal, John McKay]

Thank you, Ms. Coady.

Ms. Bourgeois, you now have the floor for eight minutes.

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

Thank you, Mr. Chair.

Good morning, Mr. Smith. It is always a pleasure to have you here. You provide us with valuable information.

Good morning to you too, Mr. Enns.

I have trouble understanding a few things. We know that the collective agreements between the government and its employees have practically all been signed, if I'm not mistaken. The departments will be cutting their operating budgets, especially—you said so yourself—by absorbing 1.5% of the wage increase we hear so much about.

So could you then tell me why you are asking for a $137.1 million vote to compensate the departments, organizations and crown corporations for retroactive adjustments?

[Alister Smith]

I think it probably was generally the case in the past that when the federal government signed collective agreements, they were after the fact, after the expiry of the previous collective agreement. So we're always in this mode of retroactivity and making payments to departments for wage increases retroactively. You will still see in these documents some retroactive payments that applied before Budget 2010, and indeed there are still some collective agreements that are open.

The retroactivity only applies to agreements that were not completed in time for Budget 2010 and subsequent estimates and documents. Where we could advance the funds for collective agreements, the 1.5% increase for this year, prior to the operating budget freeze, we had to take out of the reference levels. This is really simply a series of adjustments, in effect to say that departments, as of fiscal year 2010-2011, will absorb the wage increases. That's really what you're seeing. That's where you see retroactive compensation. It's to cover those collective agreements that applied retroactively.

It's a bit complicated, but that's the explanation.

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

It is not easy to understand, especially since, in another document, I saw that the accounting standards have been changed for the Department of Finance.

[Alister Smith]

No.

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

No? The accounting standards have not been changed?

[Alister Smith]

There are adjustments in the documents for changes in the public debt charges. They show up in the Department of Finance votes. Public debt charges are statutory--not voted in the first place--and we report them in here. They are also well documented in the public accounts. I can refer you to table 3.8 in the public accounts, which breaks down all these debt charges.

They stem from a change in the way the EI account is handled as a result of changes to legislation, moving to a new EI operational account. The old EI account was taken out of the estimates, if you wish. The old EI account surplus was consolidated with the previous accumulated deficit. All of that came out and a new EI account was put in place. As a result of that, the EI account does not pay interest to the Consolidated Revenue Fund.

Because of that--this becomes very technical--there's a change in the way we use the numbers we get from Finance in the budget for the public debt charges. It just so happened in the past that the interest and accrual adjustments offset each other. Now, with no interest coming from the new EI account, that offset is not there and we have to reflect a different number in estimates.

So it's really going from accrual to cash, and there's a different type of consolidation because it's a different account. It's not a change in accounting. By the way, it was all audited by the Auditor General in the public accounts. We're just reflecting it here in the estimates.

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

You are telling me in veiled terms that we will have to invite you back because we are not up to speed on cash accounting and accrual accounting. I am personally a little more familiar with the terms, but I am not sure whether everyone else is. So you or the Parliamentary Budget Officer will have to come and explain the changes to us. We are really under the impression that the changes are well known, but that does not seem to be the case.

My final question is about the budget freeze, particularly in a department like the Correctional Service of Canada. The budget is frozen. But roughly 4,000 full-time people are going to be hired.

How can we calculate that there will be a freeze this year and next year, when we are going to increase the staff? How are we going to do that?

[Alister Smith]

I know this seems difficult to understand. When new policy measures are introduced by cabinet and appear in the budget, they have to be implemented. There is an operating component to them. A key exception to the operating budget freeze is for the operating required for those new policy measures. There are some other exceptions, as I mentioned: quasi-statutory changes, reprofiles, and the operating budget carry-forward.

So a fair amount of flexibility is actually built into the operating budget freeze. If a department does not have new policy measures--does not have an expansion of activity, like Corrections has--it is still bound by its previous level of operating spending. If a new measure is approved by cabinet in the budget, it's a budget measure and has operating consequences, so those changes will be made to the operating....

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

That's it? That's too bad.

[The Chair, Liberal, John McKay]

Thank you, Ms. Bourgeois.

Mr. Warkentin, you have eight minutes, please.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Mr. Chair.

Thank you, Mr. Smith and Mr. Enns, for being with us this morning. We appreciate your testimony and your help.

I don't have any specific concerns with the estimates that our committee is responsible for this morning. I'm quite comfortable that we got great clarity on them from our previous witnesses.

However, I just want to talk about the global sense of your responsibilities within Treasury Board, especially at a time when I think Canadians generally expect that the Canadian government is constraining its spending. Canadian families from coast to coast have to make their budgets work and constrain their spending so it fits the income they are making at a time of an economic downturn. I think Canadians generally expect that the government is undertaking the same types of cost-cutting measures, and looking at all the ways it can save.

You, at Treasury Board, are responsible for the challenge function when different departments come to you looking for additional money. I'm wondering if you can give me a little bit of a breakdown of the components of the challenge function. Then I have a couple of questions I'd like to ask related to that process.