Government Operations Committee on April 12th, 2010

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

I understand that it is a freeze on budget increases. All departments will see their budgets frozen for the next three years.

I also understand that departments will be given more leeway so that their deputy ministers, assistants and actuaries can find innovative solutions and have the flexibility to provide Canadians with the services they need. They will be able to change the way they operate.

We know that many public servants will be retiring. But they can also be rehired. I do not believe that there is a hiring freeze, but you might want to clarify that for me. Will we be looking at what is done in other countries, or for another Canadian approach, in order to meet these major challenges?

[Michelle d'Auray]

You have asked a number of questions. Madam Chair, I would like to address each one separately.

As for whether we will be able to cope with the relatively high retirement or departure rate within the public service, I would like to point out that the number of persons who left the public service in 2009-2010 topped 13,000. We expect that the departure rate will increase slightly over the next three or four years. The number of retirements is nearing a peak, if you will, given the average age of public servants. This gives us an opportunity to rethink our approaches and operations.

As you have indicated, there is no hiring freeze. The public service would like to engage in and offer value added work. Taking in to account our own ways of doing business, we would like to become a little more innovative and reduce the amount of repetitive work over the next few years. Data entry, for example, is not a particularly value added activity. That is a task that is being transformed. When you look at the kind of work that public servants are doing today, you realize that there has been an increase in particular in value added work. Electronic data processing, services to the public and policy development are some of the areas where we have seen the greatest increase in value added work.

With the regard to the changes that we could make by reviewing our internal operations, obviously, we will look at what is done in other jurisdictions. We have begun to consider some of the approaches taken by British Columbia and Ontario. Our goal is to maintain and, in some cases, increase the level of services by doing things differently.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Merci.

[The Chair, Liberal, Yasmin Ratansi]

Merci beaucoup.

Thank you, Madame d'Auray and Mr. Smith, for being here. We thank you for the dialogue we're going to have. Collectively we hope to figure out what your department does and what other departments are supposed to follow through on.

I'm going to suspend for a few minutes. We have the next round of witnesses coming in.

I need to have the precision of the military here. We have until 5:15, so I'd like to welcome the Parliamentary Budget Officer, Mr. Page, along with Mr. Askari, Mr. Khan, Mr. Weltman, and Mr. Mathilakath.

I understand you have some opening remarks, Mr. Page.

[Kevin Page, Parliamentary Budget Officer, Library of Parliament]

Yes.

[The Chair, Liberal, Yasmin Ratansi]

You may begin.

[Kevin Page, Parliamentary Budget Officer, Library of Parliament]

Thank you.

Good afternoon, Madam Chair, vice-chairs, and members of the committee.

I would like to thank you for having invited me and my colleagues to speak to you about the freeze on operating budgets imposed by our government as part of Budget 2010.

I would like to make a few opening remarks on the fiscal context for restraint and on a proposed framework for analysis that could help serve this committee.

I wish to note that I am making available two documents: a document that describes the proposed risk and impact assessment for spending restraint, and a document for your information that provides an update of the Parliamentary Budget Office's assessment of the government's infrastructure stimulus fund, based on data from applications received on the January 29, 2010, closing date for the program.

I also wish to note that later this week my office will be releasing an analysis of the projected employment insurance premium revenues and expenses.

I have three key messages for you today.

One, the fiscal context is challenging. Notwithstanding Canada's relatively strong fiscal performance when compared to some other countries, parliamentarians are facing two large fiscal waves. First comes large federal budgetary deficits caused by the economic downturn and the implementation of a deficit finance stimulus package. This short term wave will be followed soon after by growing costs for baby boom retirees drawing elderly benefits and health care services as well as weaker budgetary revenues due to declining growth in labour supply.

Two, there is no fiscal consolidation without pain. To avoid large unsustainable budget deficits over the long term, parliamentarians may need to choose between higher taxes, changes to statutory transfer programs and less spending on direct program expenditures. According to PBO analysis and fiscal projections, the restraint measures introduced in Budget 2010 are not sufficient to return the federal budget deficit back to balance over the next five years based on average private sector forecasts, or to address the fiscal pressures related to aging demographics.

Three, there is both a strategic opportunity and a need to strengthen the estimates review process. Recent improvements in expenditure management information and the implementation of strategic reviews helped set the stage for new levels of fiscal transparency and involvement in a decision-support capacity of the government operations and estimates committee and indeed all standing committees that support the review of departmental activities.

Budget 2010 proposes expenditure restraint on operational spending. For 2010-11, departmental budgets will not be increased to fund the 1.5% increase in annual wages, which will require reallocation from operating budgets. For 2011-12 and 2012-13, operating budgets of departments will be frozen at 2010-11 levels.

The key question for today is, do parliamentarians have the decision support information they need to exercise parliamentary oversight on the proposed operational budget freeze? I think the answer is no. In the view of PBO, my office, the Budget 2010 operation restraint measures are ill-defined. There is insufficient information available on the planned spending baseline the government has chosen. We do not know from a fiscal planning basis what it includes or excludes, relative to operational spending, nor do we have a departmental breakdown on the spending baseline.

We do not know the strategy the government will employ to implement the savings measures. Will it be broad-based or targeted? Will central agencies responsible for the provision of policy advice be restrained in the same way as departments and agencies like the Canadian Food Inspection Agency, the coast guard, or border services, which are responsible for the provision of health and safety services?

In our view, Parliament needs information and analysis in a structured and timely fashion in order to examine the risks and impacts of restraint measures. The PBO proposes the need for an analytical framework to support the work of this committee that provides a risk and impact assessment from both a fiscal and a service delivery vantage point.

From a fiscal vantage point, committee members need to know what the risks are in achieving the proposed fiscal targets. Are the savings realizable? Are they cashable? Are they dependent on reasonable levels of demand for programs or services? Are there potential downstream fiscal pressures resulting from cost deferrals related to an operational freeze?

From a service delivery vantage point, committee members need to know the risks and impacts to service levels for Canadians, from speed of service, quality, or cost perspectives. Are there risks and impacts to the longer-term service capacity of government related to changes in employment, processes, or capital levels?

To prepare this type of analysis, the PBO, working on behalf of this committee, needs access to information. From a fiscal perspective, PBO needs access to planned and approved fiscal framework and departmental annual spending reference levels--historical and projected--as well as lapsed voted authorities.

From a service delivery perspective, we need departmental strategies for savings, service level standards, and fully loaded costs for program activities for affected departments. PBO requires committee support to obtain the required information for decision support to members. A previous request for similar information made by the PBO to the Treasury Board Secretariat has been turned down. Planned approved reference levels were deemed a cabinet confidence.

In the report PBO is releasing today on infrastructure, PBO benefited significantly from the support of this committee in receiving information. We've had good collaboration with officials from the department of transportation and infrastructure. As a result, members have timely access to information and analysis on the size, type, and nature of projects in the spending profile of the infrastructure stimulus fund.

PBO is undertaking a survey this summer to examine the impact of the infrastructure program. With timely and adequate access to information required to assist the operational freeze, PBO could prepare for this committee an assessment of risk and impact of 2010-11 savings in the fall of 2010 and a similar assessment of future savings prior to Budget 2011.

Thank you very much. We look forward to your questions.

Thank you very much. We look forward to your questions.

[The Chair, Liberal, Yasmin Ratansi]

Thank you very much.

We'll start the first round of questions with Mr. Kennedy for eight minutes.

[Gerard Kennedy, Liberal, Parkdale—High Park, ON]

Thanks very much.

In a way, we wish we'd had you here before some of the department officials, because we have learned there is no baseline being done about the actual cost implications--in other words, not collecting even government-wide data about what a fixed cost that can't be changed over the next few years is or isn't, nor is there any anticipation of service level impacts, which you have identified in your remarks. That surely has to be the bottom line.

We've had governments in the past—I was in the opposition of one in Ontario—that said you can get more for less, and we got Walkerton. One of the implications is caution and knowledge ahead of time of where cuts are taking place.

This is what I am looking for here. On the money that is being cut, the Treasury Board Secretariat talked about $300 million, and within the deputies...but that was just on the salary side. It didn't have a quantification of what would have to be cut on the other side or where we would get it from.

Are you able to give us any outlook about what those choices might look like, what kinds of pots departments will be able to get to, or do you need our help, from this committee broadly, to be able to get some of that information?

My concern is that we really need to know about this as we step into it, not after the fact. I mean, that's what the Auditor General can help us with.

I also wonder if you have any comment on the fact that operational spending was going at a fairly good clip—I understand the Conference Board number was around 6.1% per year—and the implications of putting the brakes on in such a sudden way. Again, what protections could there be to make sure the public isn't hurt, that important public services don't become part of some very diffuse thing?

The impression I got from the last hour is that this is being handed off to deputies. No one is checking. There are no benchmarks. Whatever is going to happen is going to happen. All we know is that they are not going to get any more money and they'll have to manage within that. We know something about the compounded effect of that, of course, but we don't know entirely because we don't know the cost pressures of previous contractual arrangements and anticipation of other costs.

What can you tell us about the scope of the challenge that this policy represents even at this point? What do you need to be able to take us further in the anticipation of some of the choices that deputy ministers are going to be forced to make? And part of that is how we have protections for very important public services from a very broad directive like this.

[Kevin Page]

Thank you very much.

First off, we do need help from this committee to do a proper analysis. That is probably the most important point I could make today. To get the committee's support to do this analysis going forward would be fundamental for us to do our job so we can come forward in the fall to provide a kind of risk and impact assessment on the spending freeze, both for 2010 and in future years. In addition to the operational freeze of this year, we have freezes in the following two years, plus we have the government looking for administrative savings.

As I said, I don't think there is fiscal consolidation without some pain. That is true not only in Canada but in other countries. In our own case, it is probably true that we have seen a lot of spending. We've seen direct program spending growth over the past 10 years--well over 6%. With the big stimulus package we have in place for 2009-10 and 2010-11, we know there is a lot of money in the system, and it wouldn't be surprising if some of that money does lapse. We probably will see a lapse in 2009-10. We'll probably also see not an insignificant lapse in 2010-11. That's why we've chosen to look at the infrastructure program in more detail, where we think there is a higher risk of a lapse of moneys.

More focused on the operational side, given that there is a lot of money in the system for 2010-11, it might be possible that there will not be significant pain in 2011 in terms of employment or other operational impacts.

Still, we cannot do a proper assessment unless we get access to information. We've outlined in the PowerPoint presentation the types of information we could look at. We need reference levels that are planned, not only for this year but for the next five years, including all the policy approvals that were in Budget 2010. We need that broken down by operating and non-operating on a departmental basis as well.

With that information we could start, at a high level, to look at what the impact of an operational freeze would be. Also, we need the FTEs, the full-time equivalents, for those departments so we can do that assessment.

Again, we need help from this committee to do the work.

[Gerard Kennedy, Liberal, Parkdale—High Park, ON]

I appreciate that.

There are two other questions I want to ask you. I think it's really important that the committee hear clearly that you don't have the information, because in the last hour we heard it was all there somewhere in the estimates, that we just had to look harder for it. It turned out to be “no” to two of the questions I asked, and it sounds like it's “no” to quite a few things.

The two questions I have are very particular. One is on the infrastructure. You've provided an information update showing that only a certain percentage of projects got completed last year--about 17%--by December 31. In terms of the possibility of lapsing, there are some qualifications to what you've been able to do with the data. I guess there's a general question I'd like to ask. I'm going to give you both of my questions so that you can allocate the couple of minutes we have.

Are we able, as a committee, as a Parliament, to really know the value of our infrastructure spending based on the information you have? We're now halfway through. You gave us some cautions last spring and you asked for certain things, so I'm asking for an opinion, whether you can render it today or it would be qualified by what you would need.

How well has the government done? How well have we done as a Parliament in being able to make sure that we're delivering value for Canadians and against the objectives the government has set for itself with this business of being timely, targeted to need, and temporary? I think we're in jeopardy of losing any sense of control over this when I see that the only information you can give us is partial and fragmented.

Second, I'm interested in the functioning of your office: whether you have the budget now that you need, whether you have access to it in the right fashion, and whether there's anything else we need to know about your ability to operate in these times. We have extra expenditures in the government's requisition, and we're trying to understand how that is going to work in the public interest, and now we have freezes that could be harmful. Can you and are you able to use the dollars in a way that will give us part of what we need as parliamentarians to oversee this?

[Kevin Page]

Thank you very much. Actually, I think there are almost three questions there.

If I could just go back to the information baseline, when we go to page 180 in the budget and we see the way operational spending has been broken out between the amount that's going to be frozen plus other operational spending, we're not familiar with that baseline. In my office, we do not know what's included or what's excluded in terms of the freeze operational amount, and we certainly do not have access to information on how that baseline is broken out by department. If you take the fundamental component that's been set aside in the planning framework on page 180 in the budget, operational freezing, how is it broken out in the estimates by major department? We need that information so we can do our assessment.

Again, I'll go back: we think the measure, the baseline, is ill-defined. Again, it goes back to the strategy. We don't know if it's broadly based or if it's going to be targeted.

Your second point was on the numbers. Yes, based on the data that we do have, the December 31 progress database, the value of work completed was $674 million. That represents about 6.8% of the total program value, which we think could be upwards of $9.8 billion right now, and roughly 33% of the program timeframe has elapsed as of December 31.

Again, we've provided tables for you that show what the planned spending looks like through the course of the year. Certainly for this summer, the summer of 2010, you're looking at outputs of moneys of more than $700 million per month over the summer. That's a lot of spending and that's a lot of infrastructure in this program that needs to go. We will get back to you, sir, in the summertime, with an assessment.

We've already started working on a survey so that we can look at the impact. We think we missed an opportunity to look at the employment and output impact of this program, so we're going to survey municipalities to see what their sense is of the employment and output impact. We'll get back to you in the fall to give you a sense before this program is terminated.

On the last thing, just a point on the office, yes, thanks to this committee and other committees and your support, our budget has been returned, but we're still dealing with some significant HR issues, including people on this panel who have not been put on a permanent basis. For some of these projects we get asked to do, like big policy costing projects, if we can't secure this talent, we won't be able to do these projects.

[The Chair, Liberal, Yasmin Ratansi]

Thank you.

We'll go to Madam Bourgeois.

You have eight minutes.

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

Thank you, Madam Chair.

First of, I would like to thank Mr. Page and his assistants for appearing here today.

I would like to say that I am quite pleased with the document that you provided us, and I am referring to your opening remarks. Everything is so decentralized. Before your appearance, we heard from officials with the Treasury Board Secretariat. We asked them questions. But each time we tried to question people who watch over all departments, we can never get any answers. We could not find out any more about the specific goals and approaches with respect to the stimulus plan. Answers were hard to come by.

That is also true in this case: we are always told that the answers lie with the deputy ministers. Basically, our committee would have to meet with the deputy ministers from all departments in order to get the answers we are looking for. In particular, how will the freeze on expenditures be implemented, and what will be the impact of that freeze on departments' internal services and staff as well as services to the public?

You have made a very specific request this afternoon—I was not quite able to write it down because things have gone so quickly in the past 10 or 15 minutes. If I am not mistaken, on page 3 of your remarks, you ask for “access to planned (and approved) fiscal framework and departmental annual spending reference levels.” You also say that “we need departmental strategies for savings,” and so on. That is in these two paragraphs.

Madam Chair, I would immediately like to propose that our committee...—I hope that is sufficiently clear.

Since you cannot have that information, perhaps our committee could come through for you.

Could we forward that information to the Parliamentary Budget Officer so that he has the tools to do his work?

[The Chair, Liberal, Yasmin Ratansi]

The last time we did it through a motion, and we will see what the process is.

You can continue with your question.

Are you asking a question?

I answered you.

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

I would like to move the motion today so that he can have the tools to do his work.

[The Chair, Liberal, Yasmin Ratansi]

It will be done afterwards.

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

It will be done afterwards. Very well.

Mr. Page, when we consider the system as it now stands, every time we are about to address a work plan or planning process, whether at Treasury Board Secretariat or Treasury Board¸ we find out that there is not any.

Today, out of the blue, we hear about a freeze on expenditures, but without any framework, as was the case with the stimulus package. Am I correct in saying that?

[Kevin Page]

I would agree with you.

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

Aside from the tools we should be providing you with, is there an approach committee members should take to ask the pointed questions in order to get to the bottom of all this and avoid having Treasury Board Secretariat officials pull the wool over our eyes?

What are we to do? Are there questions we should be asking or a strategy we should be implementing?

[Kevin Page]

Thank you, Madam, for the question.

The PowerPoint presentation that we gave the committee today contains an overview of the situation, which we can explain in greater detail. However, it is important to examine the risks to the government finances and service delivery.

Furthermore, you have to set out the major issues for each type of risk, for example, the issues related to the government's finances. What are the risks to achieving the financial objectives? Are there ways to produce savings? Are there financial pressures going forward, such as cost ratios? The same can be said of service delivery: are there risks and consequences in terms of service levels such as speed, quality and costs? Finally, are there risks and consequences in terms of service capability, including employees, work methods and real property?

I believe it is possible to use such an analysis framework and examine the effects on such departments as Treasury Board or the coast guard. As well, with such a framework, you need to have key information in order to do proper analyses. In my presentation, I also mentioned the kind of information that my office requires.

That was only a PowerPoint presentation. My office and I can provide much more detailed information and draft information requests for Treasury Board deputy secretaries.

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

That to me means two things. Earlier, Ms. d'Auray, from Treasury Board Secretariat, told us that all the deputy ministers have the same guidelines, the same approaches, but of which we have no knowledge.

Furthermore, how can we be sure that the employees of a department or, for example, of a Correctional Service Canada institution and the public living in its vicinity can be made to feel truly safe, and that cuts will not be made to the security, food and services that must be provided to inmates?

You will recall that there was an uprising in Kingston in 1995 because the deputy ministers had decided to cut back on services to the inmates. They were female inmates.

I would like to come back to Correctional Service Canada. I have CSC institutions in my riding. There are people there who are currently on loan to Haiti as part of the Government of Canada's efforts to put that country's correctional system back on track. Those people are not doing anything at the moment, because Haiti is under reconstruction. But there they are, getting a tan on the beach.

What can we do? How can we be sure that all departments will be treated fairly? There you have it!

[Kevin Page]

I will be brief. Our office could draw up a risk and impact analysis framework and use it for all departments and agencies, whether to review financial risks, service delivery, strategy, service levels, etc. Your committee should perhaps take that strategy into account.

[The Chair, Liberal, Yasmin Ratansi]

Merci.

We now go to Mr. Warkentin for eight minutes.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Madam Chair.

Thank you, Mr. Page and gentlemen, for coming. We appreciate your testimony and we appreciate the role you undertake in helping to provide clarity for our committee.

In terms of the current conditions we find ourselves in, I don't think this is unique. We've seen it in other times that the Canadian government has had to restrain spending to try to address budgetary concerns. I'm wondering if you've undertaken any analysis, kind of a “lessons learned” approach, of some of the most recent budget cuts or even freezes. If so, would there be any advice to give to us from your analysis of those? I'd include analyses of other jurisdictions as well, possibly other countries and quite possibly provincial governments.

Are there things that you would advise us to be cautious of, or things that you'd encourage us to do as a committee, in terms of recommending to the government places where money could be saved or efficiencies could be found?