Government Operations Committee on June 14th, 2016

[The Chair, Conservative, Tom Lukiwski]

Ladies and gentlemen, I call the meeting to order. We are missing a couple of our colleagues, but I'm sure they will be here momentarily. We do have quorum, and it's a few minutes past our scheduled start time, so we will begin.

Welcome to the 22nd meeting of the Standing Committee on Government Operations and Estimates. We are studying estimates and budget.

Today we have officials from the Department of Finance here in Ottawa, as well as some of our friends and colleagues from across the sea, from the United Kingdom, who will be joining us via video conference.

I believe, Mr. Leswick, that you have a brief opening statement. We will have you begin, sir. Then once we have completed that, we'll go directly into questions and answers.

Go ahead, Mr. Leswick, please.

[Nicholas Leswick, Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance]

Thank you, Mr. Chair. Thanks for the opportunity to be here today.

My name is Nick Leswick. I am the assistant deputy minister of the economic and fiscal policy branch in Department of Finance Canada, with overall responsibility for economic and fiscal forecasting and the production of the federal budget.

I'm joined by Mr. Brad Recker, who is a senior chief in our fiscal policy division. His primary responsibilities are fiscal forecasting and the production of the federal budget as well. Hopefully, we can be useful in answering your questions over the next hour.

I do have a brief opening remark and I'll try to make it even more brief because I had some exposure to some of the considerations in the transcripts coming out of the committee, so I think you're well advanced in knowing the fundamentals and mechanics of the budget estimates and public accounts process.

It is a pleasure to speak with you today on the estimates process and specifically on opportunities to improve the functionality and transparency of the federal budgeting and reporting documents, which is a top priority for this new government.

As you know, the government's financial planning, approval, and reporting are carried out through three core documents: the budget, the estimates, and the public accounts. As you have been discussing, there are a few key issues with respect to the alignment and functionality of these documents.

First, the government system of financial planning and reporting uses two different accounting bases; that is, the accounting basis for the estimates is different from both the public accounts and the budget, with the former being prepared on a near-cash basis and the latter two being prepared on an accrual basis under public sector accounting standards.

Because of the accounting variations, items such as capital assets, pensions, and liabilities—for example, legal and environmental liabilities—are reflected differently in the estimates than they are in the budget and the public accounts, or are not reflected at all.

A second key issue is that the estimates have a more narrow scope than the budget; that is, the estimates do not include some government spending—for example, spending coming from the employment insurance account; tax expenditures—that is, refundable tax credits; expenses by consolidated crown corporations; and revenues credited to the vote.

Lastly, there is a timing lag between the budget and the estimates documents. For example, estimates up to supplementary estimates (A) will not include all of the planned spending as laid out in the most recent budget. Thus, readers have a difficult time establishing clear linkages between the budget and estimates documents.

To facilitate the transparency and functionality of these documents, the government has recently introduced a reconciliation table in the most recent supplementary estimates (A) that attempts to bridge the expense plan presented in the budget with the cash authorities presented in the estimates.

In addition, it is also worthwhile to note that a very detailed reconciliation of expenditure authorities on a near-cash basis and final expenses recorded by departments and agencies on an accrual basis is published each year in volume II of the public accounts.

That said, it is clear that these documents remain difficult to use and understand. This government is keen to move the yardsticks forward on making the system better, and I would be pleased to answer any questions you may have.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, Mr. Leswick.

Before we begin our questions, just for the benefit of our visitors from the U.K.—I'm sure our clerk has briefed you—we will be going into a seven-minute round of questions. We will have four questioners. There will be seven minutes for both the questions and the answers, please. We will then have a second round of five-minute questions and answers.

We'll begin with Madam Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you to the U.K. counterparts. I'm sure it's quite late for you, 10 p.m. maybe. Thank you for being here.

We have been struggling with the issue of cash versus accrual, and it's only in estimates that we do not have accrual accounting. Our public accounts are accrual based and our budget is accrual based. Then we have these supplementary estimates that we're talking about.

You talked about variations and liabilities that are not recorded in the estimates, so when we are approving things as parliamentarians, we generally don't know what we are approving. We don't have the full picture, and I think this is a key in the link of fiscal accountability.

The question will be to the U.K., but I would like to hear from you first, and then I have questions for the U.K. people.

How do you make this process more transparent, more accountable, and easy to read? I know you're trying to do reconciliations, but those are all within the technical field, so how do you make it easy?

[Michael Sunderland, Acting Deputy Director, Government Financial Reporting, Her Majesty's Treasury]

Is that a question to the U.K.?

[Yasmin Ratansi, Liberal, Don Valley East, ON]

No, this is a question to the Canadians.

Thank you. I'll ask you a question in a minute.

[Nicholas Leswick]

Thank you for the question, Mr. Chair.

How do you make it easy? Well....

[Yasmin Ratansi, Liberal, Don Valley East, ON]

And I am an accountant by trade, so I can see this reconciliation mishmash.

[Nicholas Leswick]

Right, yes.

I don't know that it will ever be easy, to be quite honest. I think, quite frankly, you need to come to grips to some extent, both as a bureaucracy and as a parliamentary committee, with what the estimates are.

The budget effectively lays out the spending, the expense plan of the government, in its $317 billion sum, while what the estimates do is to lay out an expenditure plan, on a cash basis, in the amount of $251 billion, so it's not just a cash and accrual thing: already estimates are omitting a large chunk of what is in the government's spending plans.

The employment insurance account is the biggest one, but refundable tax credits such as the Canada child benefit, which is a flagship measure of this new government, are also not included in the estimates, so already it's not just a budget-estimates-timing alignment thing. The universes of these documents are much different.

Then for that $251 billion expenditure plan in the estimates, the vast majority of that is also statutory in authority. There are already preceding legal authorities that authorize the spending for those items, so you're left with the $90 billion in cash authorities that are ultimately presented in the estimates, which seek approval of parliamentarians to go and spend that money.

The reconciliation is an attempt to explain that story, but the idea that there's a budget and then there are these estimates that approve the spending plans as laid out in the budget is an oversimplification, because only a fraction of those spending plans require cash authorities that haven't already been previously authorized. I don't think it's just a cash and accrual issue. I think it's also the universe of both documents.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Then how does a place like Australia, or Alberta, which we'll be listening to.... The U.K. does that. Its estimates are on an accrual basis and its budgets are on an accrual basis, and then it has a very short time lag. How does it manage that? Perhaps once you hear the answer, then you will be able to help with understanding how we can make the system a little more transparent and accountable, because the C.D. Howe Institute, in grading our systems, doesn't give such a great grade to the federal government, but it gives different grades to the provincial governments.

To the U.K., our question to our colleagues here in the Department of Finance in Canada was about how you make your system more transparent. You have a full accrual accounting in both your budget and main estimates, and your supplementary estimates are on an accrual basis as well. How has that facilitated an ease of accountability and transparency?

[The Chair, Conservative, Tom Lukiwski]

If I can interject to our friends from the U.K., I'm sorry, but you'll have probably just a little less than two minutes for your response.

[Michael Sunderland]

I shall try to be brief.

Essentially, how we try to square the circle that a Canadian colleague just mentioned there, I suppose, is in the presentation. Ultimately, when we present the estimates, not only do we present the totals on which Parliament is voting, but we also present what we call non-voted totals, which have existing authority, and it's on that basis that you can clearly see a linkage and an alignment between the budgetary totals that the treasury is using to control public expenditure and the totals that the Parliament is voting on.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Do I have time?

[The Chair, Conservative, Tom Lukiwski]

You have 30 seconds.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

I'll give it to Mr. Blaney.

[The Chair, Conservative, Tom Lukiwski]

Do you have a quick answer, Mr. Leswick?

[Nicholas Leswick]

Just to promote the same idea, that was the reconciliation table I was speaking to. We have tried to establish the same reconciliation in our estimates. We take the expense plan as presented in the budget and reconcile it to the ultimate spending plan cash authorities as presented in estimates. We try to establish these control totals between the two documents.

I don't know that it goes far enough, to the point you're making, but I would also say that the accounting differences between the two documents are quite fractional, in the sense.... Accrual accounting only explains around $5 billion of the difference between the budget and the estimates, but the universe of the budget versus the estimates is a much larger gap.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We have a new member with our committee today.

Welcome, Monsieur Godin. I understand that you will take the questions.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Yes. Thank you, Mr. Chair.

Thank you for participating in this exercise, gentlemen. My colleague, who has a background in accounting, has a much better understanding of these issues than I do. As the chair mentioned, I am new to this file, and I am here on a temporary basis. However, I will try to rise to the challenge and play my role as a parliamentarian well.

My question is for the representatives of the Department of Finance.

You seem to be rethinking things, with the intention of consolidating everything and doing everything simultaneously to facilitate the exercise. What is the advantage of consolidating everything? What kind of time frames would we be talking about in terms of implementation?

[Nicholas Leswick]

I would like to answer in English.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Yes, no problem.

[Nicholas Leswick]

Thank you.

I think it's clear that there are definitely advantages in terms of establishing the coherence of the budget and estimates documents. Without a doubt, this lag time between the budget and estimates and how budget initiatives, whether cash or accrual, eventually find their way into the ultimate authorities document, which is the estimates, needs to be truncated.

We can't have budget initiatives that don't find their way into estimates for multiple estimates periods, so clear coherence with parliamentarians is a clear advantage. I think that means as part of the executive approvals process, we have to get much more of the budget initiatives to this substantive costing basis so that they're able to be included in the next available estimates, whether that's the main estimates or supplementary estimates, so that the spending plans is aligned, again whether it's cash or accrual, and there's clear coherence between the two documents. Absolutely.

I think that we're seeing paradigms like this in British Columbia and Ontario, where they have this clear coherence.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

That can't be done at a snap of the fingers. So the implementation has a time frame.

I would like to get a realistic idea of how much time will be needed for everything to be harmonized. Are we talking about a year and a half, two years or five years?

[Nicholas Leswick]

It's difficult to answer that directly, because I think we'd actually seriously have to consider what machinery changes we're talking about.

I know that the President of the Treasury Board will bring forward options to potentially delay the tabling of the main estimates, which frankly will buy us a little time, if we have an early budget, to get budget items through the Treasury Board and into estimates so that they can be included in the main estimates.

I think there are other ways to go about it. We, as a bureaucracy, should probably be looking at more substantively engaging with departments to establish a substantive costing of their proposals before they even get into the budget process. In that context, we could eliminate some of this lag time between a budget approval and a Treasury Board approval, if I'm being clear.

In summary, I think getting this more substantive costing of initiatives into the budget queue so that they're then ready and able to be included in the next available estimates is where I think we should be focused. It would create a much shorter turnaround time between the budget and the estimates.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

Given the staff at your disposal, can the machinery of government ensure that harmonization effectively? My estimate of the time frame would be three years, but it may be one and a half years or two years.