Government Operations Committee on May 10th, 2016

[Erin Weir, NDP, Regina—Lewvan, SK]

It does. I know, for a long time, there's been this question of timing in the federal cycle, about maybe moving the budget around to allow its initiatives to be incorporated into the main estimates. It does strike me that the provincial governments seem to have figured out how to do this, and I wonder if there are lessons that could be directly applied from that level.

[Stephenie Fox]

Yes. It is my understanding that some of the structures in the provincial government may be a little different. For example—and, again, this is just my understanding—in the provincial governments, the budget and the estimates are prepared by the same department; whereas in the federal government it's a bit more unique, where both the Department of Finance and Treasury Board, I guess it is, are involved. Maybe that makes it a little easier to overcome in the provincial jurisdictions because they're within the same department, but I wouldn't think that would have to be an obstacle that would prevent it.

Having said that, I recognize it would be important to be able to plan for it.

[Erin Weir, NDP, Regina—Lewvan, SK]

I want to change gears and ask about the whole area of tax expenditures.

I know it's not the main focus of your presentation, but I am struck by the fact that we have this very involved process to examine and scrutinize spending by the government, and you've described much of that process. I'm also struck by the fact that the government could effectively deploy the same money for the same purposes through the tax system, and while the Department of Finance might put forward a report that covers some of those tax expenditures, they're not subject to the same sort of scrutiny. There isn't a whole committee like this one devoted to studying them.

I wonder if you could comment on whether there's an appropriate way of incorporating tax expenditures into this system of budgets and estimates, or whether you think they should be. Maybe there's a case that they shouldn't.

[Martha Denning]

Arguably, all expenditures of government, whether they're done through the tax system or done directly, should receive parliamentary scrutiny. If tax expenditures receive less, and it's a way to get around the process by which Parliament provides scrutiny of spending, then there's an issue.

Unfortunately, I haven't seen examples of where they've been incorporated into the estimates, but I wasn't looking for that in my research. The whole idea of tax expenditures is a tax policy question, and the simplifying of the tax act, and that's beyond what we look at. Certainly, if you're going to be looking at the estimates process, it would be an appropriate question to ask, because why wouldn't you have the same level of scrutiny?

[Erin Weir, NDP, Regina—Lewvan, SK]

That is my thought. There are certainly people who would propose that we should have fewer tax expenditures, and I think that is what you mean by simplifying the tax system—

[Martha Denning]

Yes.

[Erin Weir, NDP, Regina—Lewvan, SK]

—but even if we just take as a given that we have all these tax expenditures, it does seem to me that there is a question, especially if we are trying to envision a new estimates process, that they would somehow be included in that and subject to the same sort of evaluation and oversight.

[Martha Denning]

Yes, that makes sense in a democracy that takes the management of public resources seriously.

[Erin Weir, NDP, Regina—Lewvan, SK]

Would the choice between modified cash and accrual accounting have any effect on the feasibility of incorporating tax expenditures into the main estimates?

[Martha Denning]

There are so many different types, that I am not sure I can easily answer that question.

The idea that you're providing money one way or the other way, it deserves the same level of scrutiny. I think what is important with the accrual basis is that it is a more fulsome look at the resources of government that are being used than the cash basis.

Whatever form the tax expenditure takes, it should receive the same level of scrutiny under either estimates approach, but I would think you would get a fuller picture under an accrual-based estimate system.

[Erin Weir, NDP, Regina—Lewvan, SK]

How are we doing on time?

[The Chair, Conservative, Tom Lukiwski]

You are basically out of time, Mr. Weir.

[Erin Weir, NDP, Regina—Lewvan, SK]

No problem.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Drouin, you have seven minutes, please.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair, and thank you to the witnesses for being here. We really appreciate it. We have been talking about this issue for quite a while. I am sure your organization has been in front of this committee previously, to talk about the main estimates process and accrual accounting versus cash accounting.

I want to make sure I understand correctly. You said that under accrual accounting we would be able to see a fulsome picture. Let's say the government makes new program spending, but you can actually see the different.... There isn't enough to replace our capital, because you would see that with the depreciation. Then, these guys would be able to say to the government, “You are not watching. You don't have enough money to fulfill your capital commitments.”

Would that give a clearer picture with accrual accounting?

[Stephenie Fox]

I believe so. Accrual accounting looks at all the resources, assets, liabilities, revenues, and expenses of the government.

It is important to get that fulsome picture to be able to manage all of those resources, not just focus on the cash resource.

[Martha Denning]

I think it is important to note that the jurisdictions that have gone to accrual-based estimates look at capital spending as well. They all have appropriations for operations, which will include depreciation expenses, but they also have capital spending that they look at.

Those are big amounts, as Stephenie said in her testimony, and they still deserve parliamentary scrutiny, but you also want the departments and agencies to manage the full costs of using public resources, and depreciation is one of those costs. You are using up service potential of an asset.

That cost should be among the costs that a department manages and that you allocate...or give authority to them to use those resources, but you also want Parliament to look at those big dollar amounts for capital spending.

Having a separate appropriation for capital spending is part of an accrual-based estimates process.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

In previous committees, there were some discussions about moving towards a program approval approach. I think that would involve about 2,500 votes in Parliament.

Do you have an opinion on that? I understand the worry that moving away from a cash accounting perspective in Parliament means that we may not be able to vote...well, the way we would vote would be different.

[Martha Denning]

Yes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I understand capital spending. What would be the impact on operational spending?

[Martha Denning]

I am not sure I have the expertise to answer that question satisfactorily for you.

With the international ones we looked at, it was just one piece of a whole process that was outcome oriented. You establish what outcomes you want, and then you work back and decide what use of resources is needed to get to those outcomes.

I think that is one of the reasons previous witness testimony we have seen, before the 2012 report this committee did, indicated that it would take a long time to do because, as Stephenie said in her remarks, it is a whole culture change.

This government is partway there already. The budget is already on an accrual basis. The financial statements are on an accrual basis. They compare actuals to budget. They have a feel for that.

The last piece is what we have authorized you to do in Parliament, in terms of the use of cash, in this case. How do we link, “We have authorized you to use this amount of cash” to this outcome? As MPs, you don't have that information. Taxpayers can't evaluate and hold the government to account on that basis.

They have all done it in different ways, but they have tried to make it outcome oriented rather than just output oriented. It is a culture change, as well. As I said, though, this government is partway there with that. It is just that last link to the appropriations that is missing.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

We've had discussions about potentially moving toward the Australian model in aligning the budget with the main estimates, by having the main estimates after the budget. The CPA would be in support of this.

[Stephenie Fox]

I think as a general statement, it makes sense in terms of the financial cycle and the accountability cycle without knowing all of the details.

From our perspective as accountants, it's more intuitive because there's a more logical link. You would be able to see the policy decisions of the budget reflected in the estimates more directly. I think in terms of the cycle, it makes sense. It's quite intuitive for us.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Great.

[Martha Denning]

It must have a lag.