Government Operations Committee on June 14th, 2016

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Thank you, Mr. Chair.

I also would like to welcome you to committee. I guess in Ontario they're missing two key people now in the machinery, so we'll make the best use of your presence here.

I want to thank you also for your presentation, which was very well done, very well prepared. That will be very useful for our analysts. In a nutshell, I would say that if we had any doubt that this is an interesting way of aligning, your presentation was certainly a pleasure and a good pitch in that direction.

As I was discussing with my colleague, basically it took you almost 10 years from the time you were on a cash basis. There were the three reports, and then you moved.

One question we had is regarding amortization. When we spoke to our Australian colleagues, they said they had to make some adjustments.

Can you walk me through how you deal with the amortization of public assets, and what the impact is on the various reports?

[Greg Orencsak]

Sure. It's a great question, and maybe we'll tag-team on this one.

From look at the transcripts from your previous discussions, I understand that some of the concerns from the Australian experience have been on how funding or appropriations that were intended for amortization purposes were used.

From the perspective of our financial management framework, we have strict policy and legislative controls on how appropriations can be used. There is a statutory constraint around certain kinds of appropriations, such as amortization, and there are also policy constraints in our financial management directives that ensure that appropriations intended to be used for amortization purposes are indeed used for amortization purposes. We haven't had the experience of our Australian colleagues in this regard.

I will ask Chris to briefly mention how we budget for capital, and what that looks like in the estimates in terms of the capital asset and amortization experience.

[Chris Giannekos]

Just to follow on from the deputy's comments, the accrual basis for accounting for capital has important impacts on decision-makers, because it provides the full cost of the asset, and the full cost of the asset is important in terms of determining whether the particular investment should go forward.

As the committee already knows, the initial expenditure will be on a cash basis. It's the purchase of the asset. It will hit the surplus deficit line once you start amortizing it, which is once the asset comes into play and into service. That enables the government to take on more capital investments than if it did it on a cash basis. On a cash basis, it would be an immediate hit to the bottom line. Ontario's $12 billion to $13 billion annual investment in capital assets is a cash number in the budget. Behind the budget, where we talk about the financing of it, you will see the depreciation and the amortization cost.

The public will clearly be able to see how much the government is placing in terms of renewing the capital asset base as determined by the depreciation account, so right off the bat, there is transparency in terms of the adequacy of the investment. This assumes that you've made an adequate investment to begin with in terms of the overall stock in the provincial assets overall.

Assuming that investment has been made, it provides an annual check on whether those assets are being kept up in terms of renewal and recycling, which speaks to the efficient allocation of resources to the capital budget.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Thank you.

That's for assets, but what about assets that are non-tangible, or a liability such as a pension fund? Have you seen a change after implementing accrual accounting in the capability to better express those public liabilities regarding future engagement?

[Chris Giannekos]

I can start, and the deputy can fill in.

Yes, the pension fund is a good example, because accrual, as the committee well appreciates, is a long-term view, and a pension fund is a long-term item. If we did it on a cash basis, then you would be doing it year by year, and neither the government nor the parliamentarians would have a good idea of what the liability is in the long term.

In short, accrual accounting does provide the full picture of what that liability would be compared to operating on a cash basis.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

We had the privilege to have some of the people from Ontario tell us that there was almost a good.... It was like a human resource.

Is my time running out, Mr. Chair?

[The Chair, Conservative, Tom Lukiwski]

You have 30 seconds.

[Steven Blaney, Conservative, Bellechasse—Les Etchemins—Lévis, QC]

Okay.

In the implementation of accrual at the estimate level, from an Ontario perspective, do you see a challenge due to the fact that the federal structure is different and decentralized compared to the provincial one?

I know time is running out.

[Chris Giannekos]

I'm going to take two seconds, and then I'll pass it on to the deputy.

It provides a better ability to manage the total human resources cost, because we will know the full scale of the pension and the liability.

[The Chair, Conservative, Tom Lukiwski]

Thank you for that.

We'll go to Mr. Weir for seven minutes, please.

[Erin Weir, NDP, Regina—Lewvan, SK]

If you did have anything to add on Mr. Blaney's question, feel free.

[Greg Orencsak]

No. Chris answered it, so I will not take your time, Mr. Weir.

[Erin Weir, NDP, Regina—Lewvan, SK]

Excellent.

Going back to the question of how capital investments are treated, it sounds as though you have a relatively good system in terms of transparency in allowing the government to undertake major capital investments.

I suppose one question is whether parliamentarians should be approving capital investments under accrual accounting just for the given year or on a multi-year basis. It strikes me that one could approve a capital investment that might entail a small dollar amount in the current fiscal year, but it would be a relatively large undertaking over a series of years. I'm wondering if you have any thoughts on how the approval should work.

[Chris Giannekos]

Let me start that off again, and the deputy will jump in.

The province has a 10-year capital plan and 10-year capital numbers. We're one of the first provinces to actually go beyond the one- and three-year period because capital is a long-term proposition. As a matter of fact, the amortization trails on most of the assets are over 50 years to 60 years, if you think about it.

What happens is that when an approval goes forward on a particular capital asset, it will be the total cost. It will be the total cost going out the full 10 years of the particular asset. That will be approved at Treasury Board and then, at the time of the budget, it will be included in the total capital plan.

The capital plan is a 10-year rolling number. It's $160-odd billion each year, and each year we add an extra year to it, because, if you think about it, you're talking about thousands of assets. Think about it as thousands of mortgages on those assets, and those assets are rolling over each year.

It's transparent in the sense that parliamentarians will know what the total number is, and when they approve the numbers in the estimates, they will know that is part of a bigger number.

[Greg Orencsak]

The only thing I'll add is that you'll see it's really important that all of the government's planning processes align and that the various approval processes, whether it comes to how a budget is put together or how estimates are reviewed and approved by legislatures....

Getting it right involves a high degree of integration in terms of governments thinking far enough ahead in terms of the 10-year capital plan, in terms of multi-year fiscal plans, so that we bring as much transparency as possible to the decisions facing decision-makers and the public, ultimately, from the perspective of public servants. Hopefully, that leads to better public policy outcomes.

[Erin Weir, NDP, Regina—Lewvan, SK]

I'm wondering if you could share some thoughts on whether tax expenditures should be included in the estimates, either provincially or federally.

[Greg Orencsak]

Sure, and this is less of an opinion than a statement of fact.

In Ontario in our estimates, when a tax expenditure uses a tax system to deliver benefits to taxpayers, they are included in the expenditure estimates on an accrual basis. Ontario follows the standards established by PSAB for tax revenues, which require the disclosure of transfers through the tax system to be represented as an expense instead of being netted against revenue. We estimate these expenses every year, and then they're voted on by the legislature during appropriations approval.

[Erin Weir, NDP, Regina—Lewvan, SK]

Do you want to say anything about how it's different at the federal level and maybe how it could be done better federally?

[Greg Orencsak]

I'm not an expert on the federal finances and estimates, so I would rather not express an opinion on something that I don't think I'm qualified to do.

I can speak to the Ontario experience. I think requiring tax expenditures to be disclosed that way leads to greater transparency and, frankly, better budgeting in terms of trade-offs. It allows us at Treasury Board to examine the effectiveness of a program delivered through the tax system just as much as we look at the effectiveness of a program delivered through the grant system. Ultimately, again from a public policy perspective, what our ministers ask us—and certainly my minister asks me—to opine on is how we can ensure that programs are delivering on intended outcomes. I think it's the same question whether a program is delivered through a grant or a tax expenditure.

[Erin Weir, NDP, Regina—Lewvan, SK]

Sticking with the Ontario experience, I'm wondering if you could tell us a bit about how the introduction of a financial accountability officer has affected the provincial budgeting process.

[Chris Giannekos]

It has added to the transparency. As soon as there is a provincial financing document—whether that's a budget, the quarterly finances, or any of the ones I mentioned previously—there will be a commentary by the financial accountability officer.

He provides his own critique of the assumptions in the forecasting, and that provides parliamentarians of all stripes with the ability to gain a better understanding of all the documents. He's also available to all the parliamentary committees if they have questions around it, and acts as an objective third party evaluator of the government's finances.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Grewal, you have seven minutes, please.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair, and thank you to our witnesses for coming today.

In a previous life, I was a financial analyst for a Fortune 500 company. When I came to the government and sat on this committee, I was blown away that everything wasn't consistent. It seems basic, so I'm excited to see that all your numbers balanced here. My grade 11 accounting teacher would be very proud.

On a more serious note, consistency is extremely important for the budgetary process.

You guys transitioned slowly. Our budget is already done on an accrual basis, and now it just leaves the estimates to be done on an accrual basis.

Did it take 10 years for you guys to get this all lined up? In your humble opinion, what could we do to make sure it doesn't take that long a time span to get everything on the same page?

[Greg Orencsak]

You mentioned that Ontario transitioned slowly, which is true. I would also add, and I would hope that this holds true, that Ontario transitioned wisely.

You have to look at the wisdom of the choices that are to be made at the federal level. Our transition was informed by the requirement and the opportunity to build an integrated financial information system.

Could we have done that more quickly? Probably, in retrospect. Do you want to take a lot of chances with that? Probably not. Do you want to build that much more quickly than necessary? Depending on what financial systems you're running at the moment, you have to make a smart and wise business decision about that in terms of value for money as well. All those things have to inform that choice.

The accounting standards and the standard setters are also helping to lead the way. With the federal budget and public accounts already being presented on an accrual basis, obviously there's an opportunity to make the jump if the Government of Canada decides to make that jump more quickly than we did, but the circumstances back then were also different.

[Raj Grewal, Liberal, Brampton East, ON]

The budget has a contingency, and that lines up exactly with the contingency in the estimates. They are broken down by program area, I'm assuming.

We have a $6 billion contingency in the federal budget this year, but it's to hedge against the price of oil and stuff. In the province, that type of contingency would be broken down by department in the estimates process, and you could roll it up right to the $6 billion, for example?