Government Operations Committee on May 13th, 2022

[Yves Giroux]

I assume, Mr. Chair, that I don't have 30 minutes, so I'll try to summarize that pretty quickly.

It looks at the future path of debt and deficits in assuming a variety of scenarios. We run a couple of shocks to key economic variables and we look at what those would do to the debt path over the next several years.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Basically you're throwing different scenarios at the algorithm or whatnot and trying to see a range of outcomes that may come out of that.

[Yves Giroux]

Exactly. We run thousands of simulations and see what the likely path is, what the more likely paths are between 25% and 75% of chances, and then the very unlikely scenarios of exceptional circumstances.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Giroux.

I will now go to Ms. Vignola for six minutes.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

Thanks again to the witnesses for being with us.

I'm going back to the $15 billion that Mr. Paul-Hus discussed earlier.

Here on the committee, we've had a lot of trouble figuring out what this amount was for. We ultimately learned that it was related to capital spending not yet approved by the Treasury Board, although no further information was provided.

Do you have any more information on that than we do?

[Christopher Penney]

We unfortunately don't have any further information on that.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

All right.

In your report entitled, Budget 2022: Issues for parliamentarians, you state, "…the private sector forecast of nominal GDP…has been revised up by $41 billion per year, on average, over 2021 to 2026, due almost entirely to higher GDP inflation in the near term."

I have two questions here.

What's your opinion on this upward revision? Is it optimistic, realistic or pessimistic?

In the medium term, if inflation lasts longer than anyone can predict, how will that affect the budget? What should we expect?

[Yves Giroux]

I think those forecasts were realistic when they were made. Inflation has clearly been stable since they were established and published. If private sector forecasters redid them today, the $41 billion amount would very likely be revised upward since there's no indication inflation will abate.

As for the other question on the impact of sustained inflation, prices are obviously rising, but I imagine you're mainly referring to the effect that would have on public finances. Since the federal government charges roughly 14% or 15% of GDP in direct and indirect taxes, its spending will also rise slightly under higher inflation to offset the increasing cost of certain benefits and the goods and services it purchases. Its operating expenses will grow too, but its revenues will also rise comparably with inflation.

It's hard to determine the exact impact on public finances because that depends on the source of inflation. Is it mainly oil and energy or imported goods? Right now, it's mainly energy and fossil fuels, and that has a positive effect on public finances.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

In the same report, you stated that, "Expanding the audits of CRA will likely trigger an increase in the number of objections and appeals from taxpayers" and that no funding has been announced in Budget 2022.

Have you also had an opportunity to mention this to the government authorities? If so, how did they react?

[Yves Giroux]

We did not directly contact the Canada revenue agency, the CRA, or the Department of Finance, or even the government in general. We publish our reports, and people in the departments and the government are free to read them or not. I assume they have been read, but we haven't had any reaction from the Canada Revenue Agency or the Department of Finance about this conclusion.

To my knowledge, we haven't received any comments either. No one has told us that we were wrong or that we had made a mess of things. We haven't had any feedback on it.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

The surprise, then, might well appear in the supplementary estimates (A), for which there was an internal briefing on April 28.

[Yves Giroux]

It's possible. But the CRC may reassign internal resources to increase the amounts allocated to these sectors. This could be done within a few months or years, when the impact of appeals and objections begins to be felt on operations. There could also be a change in CRA internal operations to deal with the expected inflow of objections.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

In the same paragraph, you also mentioned that, "CRA’s performance on the collection of arrears is below the average of comparable countries."

I have two questions on that.

Firstly, what are the repercussions of delays in collecting arrears, where applicable?

Secondly, which countries are most successful and could we improve what we do to be as effective as they are?

[Yves Giroux]

The repercussions of an increase in arrears are at two levels. First of all, interest on arrears accumulates because the Canada Revenue Agency collects interest on unpaid amounts owing, which is altogether justified. Unfortunately, it also means that the longer it takes to collect the amounts owing to the Crown or the Canada Revenue Agency, the more the risk of default increases. For example, taxpayers may have declared bankruptcy and left Canada.

I don't have the information about the most successful countries with me at the moment, but we could certainly supply it to you in writing following this meeting.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you, Mr. Giroux.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Giroux.

We'll now go to Mr. Johns for six minutes.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you very much for being here, and thank you for the important work you're doing.

Can you speak about COVID and how it has impacted both the work you're doing and the government in terms of budgeting? I can't imagine the challenges you're facing. Maybe you can speak to some of those challenges.

[Yves Giroux]

The challenge it has represented for the office, and still continues to represent, is that the workload has increased because of government expenditures.

At the early outset of the pandemic, there was not a lot of information being made available to Canadians on the budgetary situation, so we had to step up and provide that information. It also meant a lot of work for the employees, the staff in the office, to try to independently estimate the cost of the multiple measures that were put in place. That was one impact.

As with millions of Canadians, our employees have had to work from home for a significant period over the last two years. Some continue to work from home, at least part time. It has presented challenges, but in that sense we're no different from others.

What it meant for the fiscal situation, as we have seen, is a dramatic increase in government expenditures and the deficit, which the government is still recovering from by lowering the extraordinary expenditures under COVID and returning to a more normal level of deficit that is closer to what we saw before the pandemic.

[Gord Johns, NDP, Courtenay—Alberni, BC]

In your report on the main estimates 2022-23, you noted that the Canada health transfer, which is obviously the largest transfer between the provinces and territories, is set to increase by $2.1 billion, or 4.8%, to $45.2 billion in this fiscal year.

You projected that by 2026-27, transfers will reach about $56.1 billion to cover rising health care costs. As you know, the provincial and territorial premiers have asked the federal government to increase its share of health care costs through the health transfer.

Should the formula used to calculate the health transfer be revised?

[Yves Giroux]

That's an excellent question, but I don't think I'm the best person to answer that question, given that it's a matter of policy and that it's up to the government to decide how quickly or not it wants to increase the Canada health transfer.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Given that, have you analyzed what it would cost to increase Canada's share significantly in terms of working towards the former arrangement back when Tommy Douglas worked on bringing health care to fifty-fifty, which was the agreement initially?

In terms of each percent towards 50%, have you costed out what that looks like?

[Yves Giroux]

I don't remember having costed that, not since I was appointed. Maybe we did, and I forget. If that's the case, my apologies, but I don't think so.

[Gord Johns, NDP, Courtenay—Alberni, BC]

We have over 235,000 homeless people in Canada. Have you costed out what it costs overall for the health care system and the criminal justice system? We know that many people end up in the criminal justice system or mental health care, and all of that. Have you costed out what it costs our overall society?

[Yves Giroux]

Again, it's probably a disappointing answer, but we haven't costed that. It would be a tremendous undertaking, because the costs are multiple, as you pointed out. It would be challenging, and we have not costed that.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Given that it's such an enormous cost, do you think that it should be costed out and that the government should provide resources so that you can do that, if we're going to get to the root of these problems and save taxpayers money in the end by providing solutions?