Government Operations Committee on April 23rd, 2012

[Mike Wallace, Conservative, Burlington, ON]

I'll be very quick, Mr. Chair. Thank you very much.

Thank you for the presentation. It was excellent.

I have a couple of quick questions.

First, when we're comparing mains to mains, it's estimates to estimates, but is there a reason that we cannot add last year's actuals as a column in there, so that I know when I'm reading that this is what you actually spent? The supplementaries aren't included until the next year.

Is there a reason that we can't put at least one year's actuals in there?

[Alex Lakroni]

You could. You could add a column about the actuals. Now, I doubt it's available at the time of the main estimates, because the main estimates are provided in the fall based on the ARLU. That's what is submitted to Treasury Board. At the same time, the public accounts, which reflect the actuals, have not been finished yet.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

I like your suggestion about using the interim supply period's additional time and then maybe later in the spring or early summer having the mains reflect maybe what was in the budget. That's one concept we haven't heard yet in terms of making a change.

I guess most of us haven't really looked at the RPPs or the DPRs. In actual fact, one of the things we're talking about is the deemed approved issue. Really, by having the DPR at committee and forcing the committee to look at the DPR, even though it's in the past, you'd at least be able to say, “Here's what you asked for, here's what you spent, and here's what it was spent on”. The DPR should be comparable to the RPP, then. We know that in the estimates, as you showed us, the numbers don't match up, because things can change in the interim through a cabinet decision or whatever, and money gets spent.

Based on your experience, would we be better off as members of Parliament if, as the estimates go through, each committee says that it wants to look at a particular program, what you're spending, and what your outcomes are? We'd give notice to the department—four weeks or whatever the number is—that on this day you'll come to see us and explain to us what we're doing on that, what it's costing, what it cost in the past, what we expect to spend in the future, and all those kinds of things.

In terms of our having better input, or at least understanding, is it possible that we change the process a little bit? The estimates might stay deemed, but there'd be a process whereby the committee could ask about a specific program, or would maybe even be required to ask for one every year, so that the members of the committee would be on top of at least one thing that was going on in the department. Is that possible?

[Alex Lakroni]

I think it's an option, a viable one. I don't think it's any different from today, because at any time you could call a department to speak and answer about a specific program that is of interest to you. You could, for instance, hear from our colleagues on real property or acquisitions or the parliamentary precinct. At any time you could call and say that you wanted to hear about this program.

It would better inform you, and the more you got to know the department, particularly a department as complex as Public Works, the better positioned you would be to judge the estimates at whatever point they are tabled before you.

[Mike Wallace, Conservative, Burlington, ON]

My experience is that this doesn't happen. We do studies on different things, let me just put it that way.

I'm just looking for a better way for us to be more informed. I'm one of the ones who tries to connect the dots. I spend a lot of time at it.

[The Chair, NDP, Pat Martin]

It's like pin the tail on the donkey.

[Mike Wallace, Conservative, Burlington, ON]

It's very difficult.

Anyway, we appreciate this. We have a number of things we'll be looking at.

Maybe, at the end of the day, Mr. Chairman, we'll be able to call them back and say that this is what we're recommending and get some feedback before we move forward.

[The Chair, NDP, Pat Martin]

That would be very useful. Your time is just up, Mike.

Thank you very much. That was very helpful.

And thank you again, sir, for a very interesting presentation. I can see that you have put a lot of time and energy into this on our behalf and we appreciate it very much, Mr. Lakroni, and Ms. Hall. Thank you for being here.

We're going to suspend the meeting for a moment because we have a next witness coming to us by teleconference, and we'll get that connection made. I apologize to those who didn't get time to ask questions. Our one hour has expired.

We are suspended for one moment.

[The Chair, NDP, Pat Martin]

We will reconvene the meeting of our Standing Committee on Government Operations and Estimates.

We're very pleased to welcome by teleconference our next witness, from the University of Victoria's school of public administration, Professor David Good.

Welcome, Dr. Good. We are very grateful that you've taken the time to join us today. I'm glad you were able to hear some of our previous witnesses' testimony. Our committee has been undertaking a comprehensive analysis and review of the supply and estimates process with an interest in trying to make it a little easier for us to give the proper oversight and scrutiny that is our obligation and duty as members of Parliament.

We're very glad to have you here today. The normal practice is to allow you 10 or 15 minutes to make an initial presentation, and then committee members from all parties will be looking very much forward to asking you questions for the duration of the hour.

Having said that, Dr. Good, welcome and you have the floor.

[Dr. David Good, Professor, School of Public Administration, University of Victoria]

Thank you very much, Mr. Chairman.

I greatly appreciate the opportunity to appear before the Standing Committee on Government Operations and Estimates, and I do applaud members of the committee for undertaking this study of the estimates and the supply process.

As a former public servant, I spent a good number of years dealing with budgets and the estimates in Ottawa, and I'm happy to report that I now have the time in a university to actually think and to write about these important matters of the management of public money.

I know you've heard much testimony from witnesses over the last number of weeks and months, and it's not surprising that everyone who has come before the committee has really made suggestions for improvement. I think it's a telling point, given our deep and important traditions of parliamentary government, that no one has recommended the status quo.

It's not my intention to quarrel or argue with what other witnesses have said, but I do want to set out what I think are some of the important issues that the committee is grappling with and suggest some improvements that I think might be made. In a way, it will be my small way of maybe helping you connect some of the dots.

A central principle of responsible parliamentary government is that the House of Commons holds the power of the purse. This means that the government has no money. It has no money except for that granted by Parliament, and the government can make no expenditures except those that are approved by Parliament. The House, of course, must be satisfied as a matter of confidence that all spending and taxation is consistent with legislation, with Parliament's intentions and the principles of parliamentary control.

The fundamental principles of parliamentary cabinet government limit the role of Parliament in the estimates process. It's the responsibility of the government to govern, in other words to establish the priorities, to put together a budget and the pending proposals, and then to present the estimates. Parliament approves the estimates and authorizes the government to spend the money. Government, not Parliament, spends the money.

In the estimates process, the role of Parliament is limited. It can only make one of three decisions on specific expenditure items. It can lower the amount proposed by government, it can reject the proposed expenditure in its entirety, or it can approve it unchanged. Reduction or elimination of an expenditure item is normally viewed as a want of confidence.

I'll spare the committee any history of the supply process, but I do want to make one important point, that the problems of supply and Parliament's frustrations with the estimates are not new. They are not new at all. In fact, they are very longstanding.

Shortly after the turn of the 19th century, in 1908, a royal commission observed that supplies were duly voted in the customary course in the small hours of the night by jaded members in a tired House. The resulting royal commission concluded dismally that parliamentary control over the government's expenditures was negligible. By mid-century it was no better. And in 1962, a leading student of Parliament, W.F. Dawson, observed that “...there is no part of the procedure in the House of Commons which is so universally acknowledged to be inadequate to modern needs as the control of the House over public expenditure.”

The substantial amendments to the supply procedures in 1968 did not really improve the process, and in fact by 1995 J.R. Mallory observed that from all sides, the view was the same: the review of the estimates was often meaningless.

By 2003, some parliamentarians were admitting that they were simply overwhelmed. The traditional notion of holding government to account was no longer feasible. There were just too many expenditures, too many reports, and too many programs to review.

If the criticisms have been many over a long and sustained period of time, the studies, the reviews and the suggestions for improvement have been very numerous. Since 1968, there has been three studies by committees and MPs: “The Business of Supply”, “Meaningful Scrutiny”, and “The Parliament We Want”. These have resulted in some 113 recommendations, but, unfortunately, there has been little change.

I find this most regrettable, but I think it's also telling. It suggests that there is really no silver bullet here; there is no magic wand. I don't think there's a universal solution that we can somehow import best practices from somewhere else in the world and bring them to Canada. As in all matters of public money, particularly in democratic government, there are many competing interests at stake and there's a need to balance and rebalance things. This does not mean that nothing can be done; however, it does suggest that if we're to do something more than studies and reports, then the feasibility of things will be almost as important as their desirability.

Let me touch briefly on some of the issues and then suggest some areas where I think improvements could be made. These are in no order of priority.

First, I would make the Parliamentary Budget Officer a full agent of Parliament to assist parliamentarians and committees. I think the role and mandate of the Parliamentary Budget Officer needs to be clarified and strengthened by making the office legislatively separate and independent of the Library of Parliament, thereby operating as a full agent of Parliament. A confused mandate, which I think we've had since its creation, only serves to increase partisanship and the scoring of political points rather than channelling substantive information to elevate the level of debate to assist parliamentarians in the scrutiny of the budget and the estimates. As a full agent of parliament, the Parliamentary Budget Officer would have authority to have greater access to documentation.

To date the Parliamentary Budget Officer has primarily focused on economic and fiscal forecasts and costing analysis of selective government expenditures. However, the office has an important mandate with respect to the estimates, and it's a mandate that I think has received too little attention to date. As a full agent of parliament the Parliamentary Budget Officer could and should provide significantly greater support to parliamentary committees in their review of the estimates and in dealing with the business of supply.

My second suggestion is to obligate the government to include budget items in the estimates. The estimates have increasingly become unaligned with the budget. This year is especially glaring and troublesome, with the result that the main estimates is almost meaningless as a document to actively reflect the government's spending plans. In addition, the decision not to include the budget initiatives in the departmental reports on plans and priorities, the RPPs, to be tabled next month, is most regrettable and adds to this misalignment. It clearly reduces significantly the incentive for committees to thoroughly review the estimates.

In my view there is an urgent need for closer alignment between the budget and the estimates. I'm not particularly worried about the budget's economic forecast being done on a full accrual basis and the estimates being done on a cash basis. This is and can be reconciled. The real problem, to my way of thinking, is the lack of inclusion of budget items in the main estimates. The key challenge here is to ensure, to the extent possible, that budget items are included in the main estimates.

While the budget and the estimates have never been fully aligned, my experience was that there was greater alignment in the past between the budget and the main estimates. I recognize that it's not always possible to include budget items in the main estimates, particularly when we have budgets that deal with major economic difficulties, such as the program review budget of 1995, and more recently the major economic stimulus budget of 2009. These, I suspect, will be treated as exceptions; but the expectation and the norm should be to include the budget items in the main estimates.

To make this happen I think that two things need to be done: one is that there needs to be very close cooperation between the Treasury Board Secretariat and the Department of Finance; and secondly, I think we need to look at either an earlier date for the budget or a later start to the fiscal year. Those are two options to provide sufficient time to ensure that the main estimates are aligned with the budget.

My third suggestion is that we make committee membership permanent. I don't need to remind anyone how complicated and difficult the estimates are to review and how limited your time as members of Parliament is. I would suggest making committee membership permanent for the duration of the parliamentary session and restricting the number of associate members. I think this might help to foster greater continuity within committees and encourage more specialization and expertise, in particular in policy, program, and expenditure areas.

My next suggestion is to review tax expenditures and include them in departmental reports. By tax expenditures, I mean tax exemptions—deductions, rebates, deferrals, and credits—used to advance a whole wide range of economic, social, and other public policy purposes. These are a significant amount of public money. They amount to over $100 billion annually. They've been variously described as backdoor spending, dark holes in the budget, and giving with both hands.

Despite the large amount of money and their increasing use, tax expenditures are not subject to a system of review and scrutiny as other expenditures. Tax expenditures are forgone revenues. In fact they are not budgeted the same way as direct expenditures—in fact are not budgeted at all.

Since the first tax expenditure account was published in 1979 in the John Crosbie budget, little has changed with respect to the scrutiny of tax expenditures. They are not included in budgets and the estimates of departments. They are not part of the public accounts of government. They are not reviewed by Parliament and its committees. They do not come to the attention of financial watchdogs. They are not regularly audited by the internal auditors or by the Office of the Auditor General nor evaluated by program evaluators.

At a minimum, as part of the estimates documents, departments should provide parliamentary committees with a report on the tax expenditures relating to their areas of responsibility.

My next suggestion is to better align the vote structure and the program activity structure.

As you know, the vote structure is the essential element for parliamentary control of the budget. Parliament grants money on the basis of votes. The estimates are broken down by votes, and the government cannot spend more than Parliament grants without coming back to Parliament. The government must then come back with supplementary estimates. The vote structure is a fundamental balance between adequate control by Parliament to hold government to account and sufficient flexibility for government to ensure efficiency in government expenditures. Over the last decades, the vote structure has been adjusted, and in some cases loosened, to increase the flexibility of the government to organize the financing of its activities.

Proposals for changing the vote structure have come from government, the Treasury Board, and not from Parliament. The government's program activity structure, on the other hand, is a structure that the government uses to report on programs against its objectives. It is a program structure that's used in the reports on plans and priorities, tabled in the spring, and the departmental performance reports, tabled in the fall.

I would simply encourage parliamentarians to examine the vote structure and to ensure that you're comfortable with it. I would also encourage you to examine the government's program activity structure and to ensure there's sufficient alignment between the vote structure and the program activity structure.

My next suggestion is to keep budgeting on a cash basis; I would not move to accrual budgeting.

As you know, in the private sector accrual budgeting is the norm, and in government budgeting is done on a cash basis. Also in government, the financial statements are done on an accrual basis. I don't think that because financial reporting in government is done on an accrual basis, budgeting should also be done on an accrual basis.

Cash budgeting is not only simple and straightforward, but it's also easier to understand than accrual budgeting. Accrual budgeting requires relating future expenditures to present expenditures through discount rates, social rates of return, and requires judgments and discretion. As a result, it is more open to interpretation and I would worry that accrual budgeting could be more prone to fudging of numbers, budgets, and allocations.

Forward-looking budgeting and after-the-fact accounting and reporting are not the same thing. Accounting, while important and essential, should not drive budgeting and the estimates. Financial reports can and are reconciled with budgets.

In considering the estimates, it seems to me that what's important for parliamentarians is to receive accurate and up-to-date information on how much the government has to spend and where it has to spend it. All things considered, I would stick with cash as a basis for budgeting.

Let me make one final suggestion before I conclude: I would suggest that committees need to develop a strategy for reviewing the estimates. From my experience as a public servant, the committees that have been most effective in reviewing the estimates have used a simple strategy. This strategy usually includes elements of the following. The members have been thoroughly briefed by government officials on the department, its programs, and expenditures; and the committee decides on a very simple and clear work plan for investigation, and its questioning of witnesses is disciplined and coordinated. The focus consists of one or two areas of expenditure where the committee feels the department is at risk, and the committee continues to seek additional information and analysis so that it can back up its focused investigation.

I know that some people, perhaps including academics, will not think this is very comprehensive, fulsome, thorough or complete. But from my own experience it can and does work for committees when they function as committees. I think that a clear and focused strategy would allow the committee to effectively draw upon the expert advice of the Parliamentary Budget Officer. It could also assist the committee in fulfilling its obligation to report on the estimates within the very limited timeframe it has available.

Mr. Chairman, that concludes my statement. I want to thank you very much for the opportunity to appear before the committee.

[The Chair, NDP, Pat Martin]

Thank you very much, Dr. Good, for your very focused comments on a number of the issues we're wrestling with.

I should note for the benefit of committee members that you had 15 years' experience as an assistant deputy minister in the Treasury Board Secretariat and the PCO. So your comments are very valuable to us. I am sure there are many questions from committee members.

First for the NDP will be Denis Blanchette.

Is there a point of order?

[Mike Wallace, Conservative, Burlington, ON]

I wonder if the witness can email us his presentation.

[The Chair, NDP, Pat Martin]

Mr. Wallace is asking if it would be possible to send in a written version or email copy of your presentation, Dr. Good. You obviously made a deep impression on the Conservative members.

[Dr. David Good]

I would be delighted to do that, Mr. Chairman.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you, Mr. Chair.

Thank you, Mr. Good, for a wonderful presentation that oozed experience. It would be very helpful to work from those starting points.

At the beginning of your presentation, you said a balance has to be achieved between what is desirable and what is feasible. I wonder about the corporate culture of departments, about the ability to change certain practices, as you suggested. You said you would like to see more cooperation between the Treasury Board Secretariat and the Department of Finance. Obviously, we must change how we do things. Is it feasible to change practices given the corporate cultures that exist within the federal public administration?

[Dr. David Good]

That's a very good question and a very difficult one to answer. Culture is a function of history, traditions, and organizations, and with proper leadership there is a desire to change culture and make adjustments. But I remind my students that changing culture isn't like changing your underwear; it takes a long and sustained time period to do it.

On the Department of Finance and the Treasury Board, if you go back in history you'll see that at one point they were a single agency working together. They were part of the same organization, and then they were separated. Over the years they have worked more or less in close cooperation—sometimes more and sometimes less.

If we are to include the budget items in the main estimates, the Department of Finance and Treasury Board will have to work very closely together, given the limited timeframe, to ensure that those items are included in the main estimates. I think that's very important. It has been done on certain occasions in the past, and I believe it can be done in the future.

I've also indicated that there may well be exceptions when it cannot be done, in cases where the expenditure reductions are too large and vast, as in the 1995 budget, where it was not feasible to include those items in the main estimates. The more recent example is the 2009 budget, which was done in a very short period of time, as members will recall. There were huge expenditure increases, albeit for a very limited time, as should be the case with stimulus budgets. There wasn't time to include all of those in the main estimates.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you very much.

I have another question about something else. One of your recommendations is to better align the budget and the main estimates. My question has two parts. First of all, if we were to do that, are we not better off simply getting rid of one of them? Second, is it really so difficult for departments to produce the information we would need on a specific date, so as to make the study cycle shorter than it is now?

[Dr. David Good]

I don't think it's feasible or desirable to eliminate either the budget or the estimates.

The budget is a major policy document of intention and action on the part of the government, dealing with its fiscal policy, its expenditures and revenues. It's a comprehensive document that sets out what the government is going to do against the backdrop of its Speech from the Throne and, indeed, its campaign commitments.

The estimates, of course, are the transformation of the government's budget into expenditure programs and into votes for the approval of Parliament.

I think those two documents need and ought to be separate and distinct. My case has been for a greater alignment between the two.

[Denis Blanchette, NDP, Louis-Hébert, QC]

In that case, Mr. Good, should the estimates and the RPP be more similar? I am trying to see whether there is any duplication that we could eliminate, any efforts of the public administration that are not really necessary, at the end of the day.

[Dr. David Good]

There are a lot of documents that Parliament receives, over a thousand documents a year. I know there's frustration with so many documents and that one might feel overloaded with too much information.

I know that if I had a thousand students and had to examine a thousand papers each term, I would not be a very good professor. But professors look at things differently from parliamentarians.

I don't think there are too many documents. I think the departmental report on plans and priorities is an important document, a forward-looking document of what the department plans to do over the course of the fiscal year and the upcoming years, and that's done in the spring. The departmental performance report done in the fall, I think, is a good document that then examines what's been accomplished against the objectives that have been set.

I think what is important is to be able to align those back some way into the vote structure, which is what Parliament votes on, as those other two documents are set out by activity structures.

[The Chair, NDP, Pat Martin]

Thank you, Dr. Good.

Thank you, Denis. That concludes your time.

Next, for the Conservatives, Ron Cannan will fire a few questions.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much, Mr. Chair. I'll give him a pat on the back for that one.

[The Chair, NDP, Pat Martin]

He was talking about “martinizing” earlier, so I got him back.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much, and as the member of Parliament for Kelowna—Lake Country, it's good to have the western wisdom bestowed upon our committee here, so I thank you, Mr. Good.

A couple of the comments you made alluded to our trying to control the public purse, and all of us are still trying to find that. So I want to take a couple of your comments a little further.

Making the PBO a full agent of Parliament was one of the thoughts you mentioned in your opening comments. In no particular order, here are my comments on that.

The PBO's role right now is broader, but what do you think of the idea of having the PBO report to the government operations committee and having a more focused scope for the PBO, so we could almost work in a parallel process? That would provide this committee with more resources to have a more thorough, in-depth view and, as you said, permanent committee oversight of the budget process.

[Dr. David Good]

I think the most important thing is to establish the Parliamentary Budget Officer as a full agent of Parliament and not for that officer to be shrouded into the library. I think that has caused a great deal of confusion as to the reporting and whom the Parliamentary Budget Officer reports to.

My view is that he should be an agent of Parliament and, as a consequence, be a real agent of Parliament and not the principal. Parliament is the principal, the budget officer is the agent. He would work then in supporting the principal, that is, Parliament and Parliament's committee.

I would also think he would have a particular relationship with this committee, given two things. One, it's a government operations committee handling government operations. It has responsibility overall for the estimates, or it's taken on that responsibility, and for its horizontal aspects. But I would not want to see it strictly focusing on this committee and no others. I would like to see the Parliamentary Budget Officer having some resources and some capacity to support the other committees in the actual examination of the estimates, something that has not been done to date.