Thank you very much for the invitation today. I hope I can make a dry topic like estimates somewhat more interesting at three o'clock in the afternoon.
I will make a brief presentation and some recommendations for your consideration. I will open the floor, as you suggest, Mr. Martin.
I recently published a report called “The Cuts Behind the Curtain”, presenting scenarios of government cuts and their impact on employment. In that report I made extensive use of government reports, particularly future-oriented government reports and the reports on plans and priorities, the RPPs; future-oriented financial statements; and the main and supplementary estimates. Hopefully, I can provide you with a non-parliamentarian examination of the use of these government documents in ways that I might find them to be more useful.
First of all, let me highlight the highs and lows of government documents and their transparencies and then proceed to the recommendations at the end.
Certainly this isn't the first time I've done budgetary analysis. In particular, right now I'm doing a study looking at spending at the big banks. I found it quite interesting that the Royal Bank of Canada, for instance, which is the largest publicly traded company in Canada, worth about $80 billion, releases quarterly about 50 pages of detailed financial analysis. This is quarterly. There is no editorialization whatever, just pure financial download. This is what the public sees, not what the board of directors sees, which I'm sure is substantially more.
In terms of expenditures, the Royal Bank of Canada is about half of the size of the largest federal department, which is DND, which spends about $20 billion. DND itself produces its reports on plans and priorities, which in some ways are equivalent to this kind of reporting. Each report is about 50 pages, and it does so annually. I would not argue that it actually contains significantly less financial information.
You could even look at, say, the City of Ottawa, the municipality we're in. It has overall expenditures of only $1 billion, with the federal government spending around $245 billion. You will find substantially more detail there than you would find throughout federal government documents. Even counsellors at the municipal level are frustrated by their difficulty in penetrating the budget; I can't imagine the difficulty for parliamentarians in trying to understand, with dramatically more funds, what they are spending money on. I encourage parliamentarians to take a look at, for instance, the City of Ottawa budget as an example of how other levels of government do budgeting.
In terms of the highs of government reporting, I think the future-oriented financial statements, which are a recent addition to the batch of future statements, are a huge improvement in terms of projected spending. They are quite new, as I'm sure you know, having been introduced in full in 2011, but there were some previous to that in a pilot program. They provide critical information on how department expenditures break down according to standard objects, those being salaries, contracting, rent, utilities, transfers, and the like. I think that's an important addition, and the government and Treasury Board should be lauded for making that addition.
The recent quarterly financial reports are also an important reporting tool that have been recently put in place. It's actually one of the only places in government reporting where you can see why changes in expenditures have happened—why budgeting versus actual numbers are different—and have those explanations actually reported on a quarterly basis. I certainly applaud the parliamentary budget office for making use of these quarterly reports and trying to provide parliamentarians with a better understanding of what's changing over time in terms of government spending.
The reports on plans and priorities could certainly see a lot of improvement when looking forward. One of their main benefits is that they do look three years down the road, which is often unusual in budgeting. They provide an important glimpse into the future spending plans of departments. They are also essentially the only place where parliamentarians can see what the employment impacts are and how those are changing over time.
Unfortunately, compared to what's available elsewhere, I think there are significant drawbacks to the way the government reports and estimates what it's going to do in the future. The main estimates, the main tool by which parliamentarians approve what's being spent, provide essentially no data on how that money will be spent. DND is a perfect example of this. Again, they are the biggest department.
Last year parliamentarians were asked to vote on essentially $20 billion in the main estimates—that's 8% of the total output of Canada—with essentially no detail on how that money would break down within the department, except if you wanted to refer to the RPPs. I can understand how parliamentarians would find that incredibly frustrating in trying to figure out how significant amounts of money are being spent.
The RPPs themselves provide more detail into program areas. That's an important point, since those data are missing from the main estimates. Unfortunately, they don't provide the history of employment or the history on spending programs that would make it easier for parliamentarians to see what's been happening over time, particularly at the program activities level.
More importantly, I think the RPPs don't provide a reconciliation between the differences of what was budgeted and what was spent, and why those numbers are different. That's not to say you couldn't put this together. I think you might be able to, using the supplementary estimates and some combination of the departmental quarterly reports, but it would be challenging, and I think parliamentarians deserve to have all that information in one place, reported on an annual basis.
Also, within the RPPs there are no reasons stated for why spending is increasing or decreasing and what is driving that growth, no reasons why the estimates are changing over time. If a department reports it's going to spend $1 million three years from now, and it spends $900,000, why is that different and why is it changing? That information is not available in the RPPs.
One other concerning aspect of the RPPs is that it appears some departments are skating through the process. CIDA, for instance, in 2011-12 produced an RPP that they basically phoned in. It provided no future estimates in the 2012-13 and 2013-14 years for employment or for expenditures. CSIS, as well, does not provide RPPs. That may be due to security considerations, but I think DND would be under those same considerations, so it's unclear to me why CSIS should be excluded from this process.
One point that has been raised quite recently by The Globe and Mail is the potential for censorship of these documents in terms of excluding major policy changes and their implications from the reports on plans and priorities.
One final point that I think is concerning is that these documents don't necessarily agree. A broad array of documents look at future spending, but they don't necessarily agree, they don't necessarily come from the same place, and they aren't necessarily updated at the same time. While it's certainly true that the main estimates and supplementary estimates represent what the government has agreed to spend and the public accounts represent what the government has spent, from there it's not entirely clear how those documents relate to one another.
The FTE counts and the RPPs often don't agree with what the Treasury Board said the FTEs actually were that year, and FTE counts are often simply not updated.
There's an interesting point in the appendix of this report. It's a bit technical, but for this committee, I'm sure, it's relatively accessible. It looks at the FTEs probably not being updated in a timely fashion in the reports on plans and priorities.
It is my understanding that there is no necessary connection between a lot of these future-oriented estimates, and there should be, so in that sense it's very difficult to know what the right version is of the future estimates for government departments going forward.
I would like to conclude with three recommendations for the committee's review. I think there are important ways to reform the RPPs to make them much more useful for parliamentarians. I'd argue that both the past and the future expenditures—say, three years into the past and three years into the future—could be included in the RPPs, not only at the overall department level but also at the program level. It would certainly be useful to see what those numbers are on an FTE basis, as well, to see how employment is changing over time.
I think it's important to explain in the RPPs why expenditures have changed, why actuals differ from budgeted, and why expenditures over time, in terms of the projections, differ over time. You can take departments, for instance, and plot what they think is going to happen in three years; if you move one year forward and take that same RPP, they'll have a different estimate for that same year the following year, with no reconciliation as to why those projections are changing over time.
As well, I think the future-oriented financial statements that are currently being published separately from RPPs should be included in RPPs, and they should all agree, because currently it's not necessarily clear that they do.
Finally, I'd advocate for revenue changes being included in the RPPs—that is to say, an analysis of how revenue streams are changing over time and why they're changing. I'd also argue that exemptions to the tax code should be evaluated in the same way programs are evaluated in the RPPs—that is, to determine whether they're delivering what they were supposed to deliver for the money they cost.
Recently The Globe and Mail reported that it received information that 2012 RPPs would be censored to exclude the impact of the 2011 strategic and operating review, worth between $4 billion and $8 billion. Minister Clement rightly said that he would be “crushed by the irony” if this were his stance, given his other stance on transparency; I certainly take Mr. Clement at his word, but I think this committee needs to take a strong stance against whichever office decided that censoring the RPPs was appropriate. This type of tampering should not be allowed; parliamentarians should get a clear view of what the government is spending.
Finally, I think there should be a lot more transparency on major policy changes. This is certainly something I advocated in terms of the cuts coming up, but it's also something that could be advocated in other major legislative changes—for instance, the government's crime agenda.
The government, I would argue, should report which projects would be impacted by major policy changes and should report the reasoning behind those changes. What are the impacts on other levels of government and the private sector, if any? What are the FTE impacts, the regional impacts? As well, there should be some transparency on the methodology and calculations in a white paper as to why particular numbers come out as they do.
I'd argue that strategic reviews from 2007 to 2010 are an example of poor clarity on a major policy change. The impacts on individual programs, FTE impacts, and regional impacts were simply never published. I'm sure they exist and could be compiled and published, and I argue that they should be. I think this approach would allow everyone to have a debate on the substantive issues, as opposed to guessing at what is happening. For this reason, I encourage this committee to call for full disclosure of the 2007 through 2010 strategic review impacts, the 2010 operational budget freeze impacts, and the 2011 strategic and operating review impacts.
I would be pleased to take your questions.