Government Operations Committee on April 12th, 2010

[Kevin Page]

Yes, actually, we'd be happy to undertake some work that looked at that. There's a fairly rich literature that looks back at particularly our program review lessons learned from the mid to late 1990s. More recently, it has looked at some of the work of the expenditure review committees of recent times trying to find savings, at whether we were able to attain all those savings, and at the lessons from departmental cuts and from more horizontal exercises.

We could certainly look at other jurisdictions. In fact, a lot of other jurisdictions, I don't mind telling you, actually look to Canada for advice. Some of their fiscal problems, as you noted, are actually even more severe and unsustainable than ours.

I would just make a point about our fiscal situation. When we look at the numbers, we're still seeing deficits in 2009-10 and 2010-11 of roughly $100 billion for those two years. Of that, 70% is cyclical and roughly 30% is structural. That means it won't go away unless the economy operates well above its potential.

When we look to the long term, we see aging demographic issues. I think it's important that when we look to the finances of Canada, we take a long-term perspective. We've costed that out.

[Chris Warkentin, Conservative, Peace River, AB]

I appreciate that. That's actually something that I've been working, over the last four years, to address. As a committee, I think the issue of demographics is something that we as parliamentarians have to get our hands around and understand truly what's coming. Of course, there are many things that could be considered in addressing this concern, possible immigration issues and all the rest of that.

On that front, on the demographics, since we've got you here and since you've done some work on this, are there things that you would suggest we as a committee look at specifically as it relates to demographics and the budgetary challenges our demographics are going to present for the country?

[Kevin Page]

As you noted, in February we made available to parliamentarians a substantial report on long-term demographics, a sustainability study similar to what's done in other countries. There are a lot of questions there that we can come back to and perhaps explain in more detail. I think first it's probably important for people to understand what's involved and the kinds of calculations we do in that type of exercise. They see that the aging demographic issue is not something that's decades away from us now. In fact that old age dependency ratio is going to rise dramatically in the next ten and twenty years. That's going to put a lot of pressure and reduction on our labour supply, which means the government is going to have less budgetary revenue as you go up to 2020, 2025, and 2030. That means expenditures for benefits for the elderly and the whole issue of our health care transfer system are going to be very important to discuss, and that discussion is coming. We know we are headed to that discussion in 2014, because that is when our big transfer programs are set to renew. We would be happy to come back and, based on our studies and the work we have done already, start to lay it out piece by piece.

[Chris Warkentin, Conservative, Peace River, AB]

You made the statement that unless the economy works well above its potential, we would have issues related to deficits and the rest of it. I'm wondering what you would define as the economy's current potential and what we might be able to do as government, as parliamentarians, to try to allow that potential to be larger than what it currently is--so essentially support productivity in this country--and what the worst things that we could do as parliamentarians would be. I am just putting this out there. You are an economist, and of course if you get five different economists, you get five different opinions. However, certainly this committee is interested in this stuff, because of course this is all related to future budgets and possible deficits of government, and we want to get our hands on this. I know this is diverse and divergent stuff, but I'm wondering if you could comment on that as well.

[Kevin Page]

I would be happy to. In fact, again, I think it will probably require more time to provide you that kind of analysis, but we would be happy to come here and explain how the Parliamentary Budget Office calculates potential output growth, what the key components in labour supply are, and what productivity looks like.

[Chris Warkentin, Conservative, Peace River, AB]

I'd just like some point forms. You made the statement about what our economy has the potential to produce right now, but I just want to talk about seeing that potential increased or reduced. What are the policy decisions we have to be concerned about?

[Kevin Page]

Well, sir, when you're talking about the potential of the economy and its growth rate, you are really talking about either labour supply or productivity. In terms of labour supply growth, because of the aging demographics, you are going to see a reduction in the growth rate in labour supply. In terms of productivity over the past ten years, we have seen very low productivity in Canada, something in the neighbourhood of 0.7% when you look at real output relative to man-hours. We're assuming we can still bump that back up to its long-term trend of 1.2% over the next five years. Actually, we use that assumption going forward. So we would be happy to come back and talk to you about strategies the government can look at to boost productivity, but obviously that is going to be key.

Canada's potential growth rate is falling particularly because we've seen reductions in Canada's productivity rate over the past ten years, and labour supply numbers and growth rates are coming down.

[Chris Warkentin, Conservative, Peace River, AB]

In terms of the labour supply, many people looked to immigration as the solution to that. Has your office done any work in terms of the potential benefit and some of the difficulties in addressing our labour shortages through immigration?

[Kevin Page]

Actually, we build a model around labour supply, so we look at working-age population, we look at employment rates, and we look at hours. And we provide a lot of transparency in those calculations. We do sensitivity analysis around employment rates and around immigration rates in our studies, and you can see if we make fundamental changes to immigration what the impact on our fiscal unsustainability problem is. It has an impact, sir, but it's very difficult to offset through immigration policy any substantial proportion of our decline in labour supply growth.

[Chris Warkentin, Conservative, Peace River, AB]

Am I out?

[The Chair, Liberal, Yasmin Ratansi]

No, you have 30 seconds. Go for it.

[Chris Warkentin, Conservative, Peace River, AB]

In terms of the issue of a freeze, there has been some debate around this table even today as to whether deputy ministers are the right people to address the fiscal challenges or the fiscal challenge within their own departments. Do you have any opinion on allowing deputy ministers the full capacity to determine how to distribute and manage their own budgets?

[Kevin Page]

I think deputy ministers are accountability officers for their departments. I think there is significant accountability there. I think what's important to support the work of parliamentarians and actually just for Canadians is to make sure we are reporting adequately on how those savings are being secured and what the impacts are, both from a fiscal perspective and from a service delivery perspective.

We have a lot of very strong deputies, a lot of strong departments that can come in and say whether there is or isn't an impact on the ability of the coast guard for example, to deliver services--search and rescue, ice breaking--or of food inspection agencies to deliver the kind of surveillance work that they need to do, or of HRSDC to say what it takes to produce a cheque and get it out the door, and what kinds of impacts that would have. Again, I think we need to have a structured analytical approach to determine the risk and impact from a fiscal or service delivery perspective. We think parliamentarians will be well served.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Mr. Page.

[The Chair, Liberal, Yasmin Ratansi]

Thank you.

We now go to Mr. Martin for eight minutes.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Chair.

Thank you, Mr. Page. Welcome, to your team.

We very much appreciate the work you do for parliamentarians, the committee, and taxpayers in general. It's very appreciated, and it's important to us.

I'd like to essentially go back to your opening comment on the key question for today: Does this committee or do we, as parliamentarians, have the information we need to exercise oversight on the proposed operational budget freeze? Quite simply, you said the answer is no.

Frankly, I'm happy to have that validated. We find it frustrating. We don't really know whether it's our inability to evaluate the situation or whether we're sometimes not really given the tools needed to do our jobs as lay people and as MPs. I'm concerned that you made the statement, but as I said, I appreciate the validation of the way we feel.

What do we need? What additional information should we demand? As you know, as a committee, we have the power to compel the production of documents. Can you summarize or itemize what we should ask for more specifically? Believe me, we will ask.

[Kevin Page]

Yes. Sir, I would again stick to the framework. I apologize. This has been put in front of you very quickly. Again, we would like to make sure this committee has a good framework to look at both fiscal risk and risk on service deliveries.

On the fiscal side, to get at the question of whether or not these savings are achievable and whether or not there are downstream risks, we need planned reference levels and approved reference levels for all departments over the next five years.

We also need to know the history of lapses for voted budgetary authorities. Some of the departments have had lapses and have not spent all the money they've had in recent years. It would give us a sense of the type of cushion they have in those departments.

We would as well need a breakdown of the operational spending for those departments so that we have something consistent with page 180 of the budget on a department-by-department perspective.

[Pat Martin, NDP, Winnipeg Centre, MB]

The information is there. The Treasury Board Secretariat or somebody should be able to provide that information.

[Kevin Page]

They have the information, sir, but we have to basically reconcile what's in the budget to what's in the information base of the Treasury Board Secretariat, broken down by department. We need to get at the operational spending component of this.

We then go specifically to the service delivery question, sir. We need to know the strategies to find those savings department by department. The strategies are important to assess the risk.

When I said that I think the measure is ill-defined, it's because we don't know if every department is going to be treated in the same way or if some departments are going to be treated differently. There's a difference between cutting a policy type of department, such as the Treasury Board Secretariat, or cutting a department such as the coast guard, border services, or Correctional Service of Canada, etc.

Sir, we then need to know the service level standards. A lot of departments have good information on service level standards. I've worked at Agriculture Canada. They can tell you, sir, what the processing time is to provide a stabilization cheque to a farmer, a crop insurance cheque, for example. What are those service level standards?

We then need a full breakdown of the costs for the types of programs that are going to be affected. We can then tell you, sir, whether or not there is a downstream type of risk.

We have learned lessons in the past. I think it goes to Mr. Warkentin's question. Back in the 1990s, when we had a significant public debt crisis, we cut very deeply. We significantly cut capital to save operational spending. We need to know the relationship between operations and capital in this plan.

We can put a very well-defined request for information. As I said, we requested planned five-year reference levels for Treasury Board Secretariat in the summer of 2009. We were told it's a cabinet confidence, but we don't think it should be a cabinet confidence. We think you absolutely need the information in order to do assessment work on the impact of this operational freeze.

[Pat Martin, NDP, Winnipeg Centre, MB]

I absolutely agree. Frankly, I believe we're handicapped without that information. We can't do the job we were tasked to do on behalf of the taxpayers. We were sent here with a specific duty. Without being given the tools we need to do our job, we're impotent as a committee.

Having it summarized in that clear language is very useful. Frankly, we need more guys like you on our side to guide us through this morass of public policy and public administration, because we don't actually know those things. Perhaps the single most valuable thing you can do for us is to be a translator.

[Kevin Page]

We'd be happy to do that, sir.

[Pat Martin, NDP, Winnipeg Centre, MB]

That's very helpful.

I like the terminology you used. You were talking about a risk-impact analysis more than a cost-benefit analysis. That is the point we were making to the Treasury Board Secretariat officials who were here earlier today. I honestly don't believe they can implement this freeze, which is really a cut, without some impact on the quality of service. Isn't it a kind of chimera to think you can freeze or cut and not have any appreciable impact on the quality of service to the public?

[Kevin Page]

To make sure there is honesty in this conversation.... It's hard to believe that with a three-year freeze there wouldn't be an impact on service levels over a period of time without fundamental adjustments to those service processes. We need this sort of basic, tombstone information on spending and on the service levels they have right now so that we can actually do the due diligence at both the front end and the back end of this exercise.

[Pat Martin, NDP, Winnipeg Centre, MB]

It's actually hard to believe that we aren't given that voluntarily. As far as freedom of information and access to information goes, why is that kind of information held from the general public? Why isn't that kind of thing openly circulated to us without our having to beg for it? It really bothers me. I know you're not in a position to answer that, but that is some of the frustration we feel, as committee members. It's like pulling teeth. They ration things out to us in little tidbits and snippets, just barely enough, and only when they absolutely have to. That's one of our greatest irritations.

[Kevin Page]

Sir, we would be happy, actually, to put together and draft this analytical framework. We would elaborate, if it requires elaboration, and specify quite clearly what those information demands are so that all departments can be treated equally when we do the risk-impact assessment for the operational phase.