Government Operations Committee on Oct. 31st, 2016

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

To go back to the topic of postal banking, the case has been made that Canada has a very strong private banking sector, and hence there is maybe not as much need or demand for postal banking. But is it also not the case that in part because of restrictions on foreign ownership of banks, the Canadian banking sector could be characterized as an oligopoly, with five big banks dominating the market earning very good profits, and doesn't that open the opportunity for other Canadian-owned competitors such as, potentially, Canada Post?

[Bruce Spear]

It's certainly a fair challenge to ask is Canada the lowest cost to consumers market for banking services? The answer is it is not the lowest cost. It is a very heavily banked country. It isn't the lowest cost, but it's far from the highest.

That said, there's little to say that the banks wouldn't respond to the entry by Canada Post in the market with more aggressive pricing—

[Erin Weir, NDP, Regina—Lewvan, SK]

Wouldn't that be a good outcome?

[Bruce Spear]

—or they could do that today. I guess the question is, is that the necessary catalyst? If that's what's deemed good policy, then that is a basis.

[Erin Weir, NDP, Regina—Lewvan, SK]

I take your point that the banks might respond with lower pricing, which might reduce the opportunity for Canada Post to make money off postal banking, but I think, as you also suggest, there's a really strong public policy argument for provoking the banks to lower their fees. To me, that would be one of the strong points for postal banking.

Perhaps it's beyond the scope of the study you did.

[Bruce Spear]

It's a very fair question and a challenge to the observations of the report, as opposed to the recommendations.

I would simply point out that doing so would require significant investment on the part of Canada Post and the government in building skills and capabilities that clearly are not present today and in taking a significant amount of risk. If the goal is to lower the cost of banking services to Canadians, then there are other policy measures one might explore.

[Erin Weir, NDP, Regina—Lewvan, SK]

Fair enough. We could let American banks into the Canadian market, but there are other policy reasons we might not choose to do that.

It's true that getting Canada Post into banking would require some big investments and some capabilities that aren't there now. I guess that's one of the reasons that I think it would be very interesting to look a bit more closely at examples like Swiss Post, where you have post offices that have done so, seemingly, with a great deal of success.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much

We're now going to Monsieur Ayoub.

Monsieur Ayoub, do you wish to be in public or in camera?

In public. You have seven minutes, please.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

Thank you for joining us.

I have seven minutes. In that amount of time, it is not always easy to ask questions and get complete answers. I am going to try to make my questions short and more direct, without too much preamble.

Different approaches are possible. Depending on the studies conducted or the vision used to reach a result, Canada Post can be seen as a service or as a commercial enterprise that provides a service using the user-pay principle. You can see it like that.

Would your study have produced a different vision or different recommendations if you had used a different philosophy or approach—an approach not strictly focused on the business aspects, the profitability, the lack of subsidies, the overall viability? Canada Post could instead have been seen as a service like health care, meaning that there are always costs, but there is no deficit because it is an essential service.

Would the approach substantially change the results?

[Pierre Lanctôt]

Thank you for the question.

We conducted a relatively independent study. We considered Canada Post's financial situation without looking at its funding formula or at it being a public service. In that sense, our study has no impact on the model chosen. The principle that the review panel used was that Canada Post had to continue to be self-sufficient. In terms of the financial projections and financial analysis, it had very little impact. I am talking about future projections.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

We talk about economic impacts, but there are also social impacts. We were able to see that when we toured the whole country. We visited urban areas, but also rural ones. Yes, there are immediate financial impacts, but there are also social impacts.

Have you considered those in your analysis?

[Pierre Lanctôt]

That was not part of our mandate. We looked strictly at the financial aspect.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

I'm looking at my notes. You talk about cost centres compared to service centres. There's a difference there. Those are two different visions, philosophies.

Later, when the time comes to make political decisions, we look at the various service options to create new sources of revenue. As I see it, we look at ways to downsize, to streamline processes, and we look for new revenue, whether through marketing strategies or advertising revenue. The idea is to go beyond Canada Post's main activity, which is first and foremost a mail and parcel delivery company. We are even looking at telecommunications possibilities, a postal banking service, and all sorts of other approaches.

Do we not weaken the corporation when your mandate is very focused on finance and we are trying to break out of the main activity?

[Pierre Lanctôt]

We studied the financial side.

I'm not sure whether Mr. Spear has any comments on revenue.

[Bruce Spear]

On the revenue side, what we found by and large, on any of the incremental...what's called the new lines of business, was that potential game-changers like postal banking were evaluated on the merits of the capabilities of the company and the needs of Canadians and whether or not the competitive environment would be conducive to Canada Post as a market participant.

On other potential new lines of business that were more built around asset leverage or leveraging the existing personnel, we were unable to come up with new activities or new lines of business that generated higher returns than managing the business to its proper scale and its proper network structure to meet the needs of the future, which is declining mail volumes and increasing parcel volumes.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Should a second phase be added to the study? It is certain that, as consultants, you are happy to hear that, but that's not the goal. The second phase would look at merging some government services. We heard about the prospect of merging services and taking advantage of Canada Post's establishment to save elsewhere.

I see a lot of work is being done in silos. Canada Post is seen vertically, whereas there are government services across Canada.

Have you looked at that in your study? Can you shed a bit more light on that for me?

[Pierre Lanctôt]

Yes. Mr. Spear can talk about the study that was done.

[Bruce Spear]

It's a fair question. We were focused principally on Canada Post, but we did look at the Service Canada centres, particularly in the more rural areas, as an opportunity to potentially both increase service to Canadians in those areas as well as to reduce costs.

The typical staffing level of a Service Canada centre, given the amount of traffic, was fairly modest, so we were looking to consolidate different government services into one physical entity and with the necessary staff requirement. That, in fact, was one of the savings initiatives that we identified.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

If we want to go a bit further, the socio-economic aspect is still missing. What is the impact of cuts or changes to the services? For instance, we talked about mail being delivered once or twice a week. Your study needs the socio-economic side to know what impact those new options would have. It is a financial report, but the socio-economic side is missing.

At any rate, that answers my questions. Thank you.

[The Chair, Conservative, Tom Lukiwski]

You have virtually no time left, Mr. Ayoub.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Maybe 15 seconds, but it's okay.

[The Chair, Conservative, Tom Lukiwski]

We'll go to Mr. McCauley, for five minutes, please.

[Kelly McCauley, Conservative, Edmonton West, AB]

Gentlemen, I want to bounce back to the pension solvency.

You mentioned that if we just extended the holiday, forever changed the legislation....

How do you view that from competition like the private sector? Would that not be an unfair advantage for Canada Post over FedEx, or other companies that have to follow the solvency rules?

[Uros Karadzic]

Thank you for that question. I think it's a fair question and a fair perspective.

Again, it would depend on where the different plans are registered. I talked about, for example, the difference in the level of solvency. If you're a federally registered plan, that might include indexing; whereas, for example, if you were registered in Ontario, indexing would not be included in that solvency deficit. There would be jurisdictional differences as well. It's not all absolutely equal.

I think the other perspective to take is that Canada Post.... Certainly, this plan is a legacy public sector plan, and the private sector competitors do not have plans like this. There is that dimension to it as well. Canada Post has a legacy plan that the private sector competitors did not originate with.

[Kelly McCauley, Conservative, Edmonton West, AB]

This is where we're in a current surplus, but I understand that is because Canada Post has poured in a present value of about an added $2.5 billion, or along those lines, for the solvency payments they're required to do. Is that correct?