Government Operations Committee on Oct. 24th, 2016

[The Chair, Conservative, Tom Lukiwski]

Colleagues, since we only have this room until one o'clock, the remainder of this meeting, questions and answers, will be somewhat truncated.

Mr. Pagan, I believe you have about five minutes more in your presentation. You have a few more slides.

Then, colleagues, we'll go into I think one round of seven-minute interventions so that we'll get every party involved. By then it should be close to one o'clock.

Mr. Pagan, without any further ado, I'll turn the floor over to you.

[Brian Pagan]

Thank you, Mr. Chair.

As presented, this is a four-pillar approach to estimates reform. We've just spent some time talking about the very critical element of timing. I'll quickly walk you through the three remaining pillars.

Once we can fix the timing of the estimates, there are other sources of incoherence and coordination that must be addressed. These include the scope and accounting, the nature of control, and reporting.

Pillar two is about scope and accounting, or what we refer to as the “universe” of the estimates. The problem is quite simple. The budget presents a complete and full picture of the totality of government spending, including crown corporations; consolidated accounts, such as employment insurance; and programs through the tax system, such as the Canada child benefit. In contrast, the estimates are simply a more narrow subset of government spending, and they're focused on the expenditures that must be authorized through an appropriation. That is the universe.

Then, of course, we have accounting differences. The budget is on an accrual basis; the estimates are on a cash basis. The problem has I think been oversimplified by talking about cash and accrual, and it's much broader than that.

What we see in slide 8 are the benefits of reconciling these accounting and universe challenges if we can table the main estimates after the budget. The president mentioned our interest in deepening the reconciliation between the two documents.

The federal budget last year presented an expense forecast of $317.1 billion. Supplementary estimates (A) provided authority to spend $251.4 billion. That's a $65.7-billion gap. The universe accounts for about $60 billion of that—that is to say, consolidated specified purpose accounts, such as employment insurance; expenditures through the tax system, such as the Canada child benefit; and then other expenses of government, such as consolidated crown corporations. That's about $60 billion. The actual accounting difference—the difference between accrual and cash—represents about $4.8 billion. This difference is explained by things like capital amortization, bad debt allowances, and interest on future obligations.

Finally, to complete the reconciliation, there would be items that are in the budget but have not yet been brought forward for approval. As we saw in supplementary estimates (A) last year, that was about $4.9 billion.

This is an example of how, if we can table the estimates after the budget, we would be able to provide a reconciliation to the budget and thus eliminate some of the confusion and frustration that parliamentarians and committees experience.

Quickly, in terms of vote structure—we did touch on this in the previous round—the objective here is to improve Parliament's line of sight on program costs and results. We are currently doing a pilot project with Transport Canada for their grants and contributions vote. The idea would be to expand that across all departmental operations and provide committees with a better line-of-sight relationship between resources and programs.

For example, as mentioned by the president, the Treasury Board Secretariat is the employer; we're the expenditure authority and we're the regulatory authority. Rather than having a single operating vote, perhaps we might want to experiment with votes related to each of those core responsibilities.

Mr. McCauley, that's what we mean by that high level related to our core responsibilities. We could do that for any other department.

Global Affairs, for instance, has a single operating vote, but we know that they have responsibilities for development, diplomacy, and trade. We can disaggregate that at almost any level, but of course there are costs and challenges. There are some jurisdictions that have as many as 12,000 votes. I would argue that they're not the best-run jurisdictions, but that's something we could study and work on with the committee.

Finally, we have our last pillar around results and reporting. As was mentioned in the introduction, we have a new Treasury Board results policy. It came into effect on July 1. We are working with a handful of departments now to operationalize this and present new departmental results frameworks and new reports to Parliament that we would see in the spring cycle. This policy will be fully operational by all departments by November 2017.

Before I conclude, I'll say a word—a plug, if you will—for TBS InfoBase. As was mentioned in the introduction, in 2012 the committee recommended the creation of an accessible online database. We've made great strides in making this a reality. If members are not familiar with InfoBase, I would commend this to them as a way of facilitating an awareness and study of departmental operations.

The graphic presented here is simply a snapshot of the types of information that are available through InfoBase that include all kinds of indicators around actual costs, projected costs, FTE utilization, the distribution of FTEs across the country, demographic information, etc. As the minister mentioned, we have plans moving forward to deepen this and enrich the information available to committees.

In conclusion, many complex issues must still be considered before we go ahead, particularly the accounting frameworks and the withdrawal of votes from the main estimates. Changes of that scope will require Parliament to change the way it operates and the way the departments publish their information.

We propose moving ahead by small steps in order to avoid large-scale failures. We recommend starting by changing the deadline for the main estimates and then working with the committee to develop options for the other aspects as that change is integrated into the process.

Mr. Chair, that concludes the presentation. Madam Santiago and I would be very happy to respond to additional questions.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We'll start that line of questioning with Mr. Grewal. You have seven minutes, please.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

Thank you, sir, for coming today to share your testimony. Coming from the private sector as a former corporate lawyer and a financial analyst, it's really surprising to me that the budget and the estimates process is done like this in government. It just basically makes no sense, in my humble opinion.

My concern is that we're looking at other models. We're looking at the Australian and the U.K. models. Are we prepared, once we implement the changes, for this not to fall apart in the interim period? Can you please give some colour as to how we're going to make sure that everything is accounted for in the transition period?

[Brian Pagan]

Thank you, Mr. Grewal. You're absolutely right that the current process does not make much sense. It's very difficult to explain in its present sense. It's easier to describe what we want to do than how we're currently doing business.

That's very much the reason we propose a four-pillar approach: get the timing right, and in getting the timing right, bring greater clarity on some of the other interests and needs of committees, including accounting and universe and the control structure through the vote framework.

If we can proceed in an orderly fashion in that way, then yes, I do believe we are lined up to succeed. The change of Standing Orders is the prerogative of the House, but we understand it to be a fairly simple and straightforward question of simply changing on or before “March 1” to on or before “May 1”.

We are working very closely with the Department of Finance to deepen the coordination of the budget and TB approvals. Last year's success in bringing forward almost 70% of the budget in our supplementary estimates (A), tabled on May 10, suggests that we can succeed here in bringing forward budget items into the main estimates tabled on or before May 1.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you.

My next question is from a planning perspective. How much will the government and MPs benefit from the changes that we're about to implement?

[Brian Pagan]

It's really a question of coherence and comprehension. Tabling main estimates last year in advance of the budget—everyone knew there was an important budget coming because of the platform commitments around infrastructure, environment, and aboriginals—made absolutely no sense. We put in front of Parliament a document that was of very little utility to committees. Then we had to race, to work very, very hard, to bring forward those budget items in the supplementary estimates.

By changing the process so that the estimates are presented after the budget, we are presenting a much more coherent picture to parliamentarians and rendering their study of the estimates, I believe, much more fruitful and useful. I make the point that we would also be simplifying processes so that in that June supply period, you would have a single supply bill for main estimates, as opposed to now where we have full supply for main estimates and supplementary estimates. It's somewhat confusing to have two appropriation acts presented on the same day. Then we would focus the supply periods in December and March on what would then become supplementaries (A) and (B).

Committees would be thereby engaged throughout the year in a continuous study of estimates. As the minister said, there is a commitment that if departments table estimates, ministers will appear and speak to and explain their estimate requirements.

[Raj Grewal, Liberal, Brampton East, ON]

How much is this transition going to cost internally?

[Brian Pagan]

In terms of timing, we believe costs are negligible. It's simply a question of better sequencing the work in departments. In fact, by not having to produce spring supplementaries, which basically duplicate the main estimates, there would be very minor savings of some efforts.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you.

I think my colleague has a question to ask.

[The Chair, Conservative, Tom Lukiwski]

Monsieur Poissant.

[Jean-Claude Poissant, Liberal, La Prairie, QC]

Thank you, Mr. Chair. Good morning, everyone.

Mr. Pagan, I would like to hear you say a little more about transparency.

On June 14 last, representatives of Her Majesty's Treasury, in London, told the committee that harmonizing the budget and main estimates had helped improve transparency and facilitate monitoring of their spending plan.

What is the federal government doing to maximize the transparency of its finances? I would like us to discuss transparency at greater length.

[Brian Pagan]

Thank you for your question.

First of all, the process has to be simplified and made easier for the committees to understand. Overlaps between the estimates and supplementary estimates currently make the process more complicated than it ideally should be.

Minister Brison mentioned it is important to adopt a better, results-based approach and to present figures more clearly so that resources are aligned with results. Of course, we can move ahead with a new policy, but we can also look at votes based on program objectives.

So these are two measures that would make the process more comprehensible. The timing has to be clarified and votes aligned with program objectives.

[Jean-Claude Poissant, Liberal, La Prairie, QC]

I have a brief question for you.

What should the role of the Parliamentary Budget Officer be in ensuring transparency and accountability in the federal government's finances?

[Brian Pagan]

I think the PBO's role is very clear. He must work with MPs and the committee to make the process more comprehensible in order to answer the questions identified by members. Since last year, we have worked closely with the PBO to identify parliamentarians' problems and needs and to move ahead with our programs.

As I also mentioned, the PBO noted that we had made an improvement. We included an annex in the supplementary estimates (C) providing for the identification of lapsed funds. He mentioned that the presentation of that information put MPs on the same level as the executive branch.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Clarke, you have the floor for seven minutes.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you, Mr. Chair. Thanks to the witnesses for being with us today.

Mr. Pagan, how long has Australia had its current budgetary cycle? It is in fact the one that Canada wants to adopt, according to this report on the adoption of a reform. Is that still the case in Australia or is it something recent?

[Brian Pagan]

Thank you for your question.

You are right in saying that we view the Australian system as a model, but Quebec and Ontario also have processes comparable to Australia's. I think the Australian system was adopted in 2006. It is more or less the same in Ontario.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Do you know whether there were adjustment periods in Quebec, Ontario, and Australia, as we anticipate here?

[Brian Pagan]

Yes, that was the case, particularly with regard to the accounting system, that is cash-basis accounting instead of accruals-basis accounting.

There are no major complications involved in presenting the budget and tabling the main estimates at the same time. We will have a certain amount of time, as the minister mentioned, but there is no problem as regards training.

Accounting is another matter altogether. The accruals-basis accounting system is complex and much more difficult than the cash-basis accounting system. We will have to train public service managers and parliamentarians so that they can have a clear understanding of the differences involved in the cash-basis accounting system.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

I would like to clarify—

[Brian Pagan]

After adopting the cash-basis accounting system, Ontario and Australia experienced some problems in monitoring the allocation of votes within departments.

They exceeded their parliamentary authorities, or in common parlance, they blew their votes.

That was related to training problems and to the complex nature of that accounting system.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you for everything you are saying, but I would like to get a precise answer.

Were Australia's budget and main estimates presented on the same date starting in the first year?

[Brian Pagan]

Yes.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

All right.

I also read the following in the report:

“...a program-based vote structure would reduce departmental flexibility to reallocate funding....”

Based on that logic, do you expect we will establish a maximum for these inter-program transfers?