Government Operations Committee on March 20th, 2023

[Yves Giroux]

Interest costs have continued to rise for two main reasons. The first is the increase in interest rates and the effective rate the government has to pay on its stock of debt. The other reason is the increase in the size of the debt itself. Whenever there is a deficit incurred in a fiscal year, it generally adds to the debt.

To the extent that the deficit is lower than it used to be during the pandemic, one could say that the government has taken steps to reduce not the debt but the speed at which it increases. Conversely, one could say that, given there are still deficits, the government is not reducing the size of the debt.

There's no clear answer to your question without getting into a political debate.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much.

Do you have any recommendations for the government on how to reduce costs by lowering the debt and interest payments?

[Yves Giroux]

There are two main ways to do that.

One would be to reduce the debt, which is imminently a political decision that will have to be made, and when the Minister of Finance tables her budget next week, we may have indications as to whether there is a plan to reduce the overall level of debt.

The other way to minimize or to try to control as much as possible the debt-servicing costs is by having sound debt management, which is, to my knowledge and to my best capacity, to my judgment, something that the government does a reasonably good job of doing. It manages the debt as effectively as it can to minimize the interest costs, given the stock of debt.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you.

In your report, you also noted that the supplementary estimates are for spending announcements on which the government needs more time to figure out how it is going to implement its plans.

Given that the supplementary estimates continue to increase, are you concerned that the government is making spending announcements without the plans developed for how to implement them?

[Yves Giroux]

The concern I have with the number of supplementary estimates that we see, and the fact that you, as parliamentarians, have to debate and vote on supplementary estimates (C) on March 20, is that it leaves you with very little time to scrutinize billions of dollars of spending.

It's understandable that the government in any given year will need to have supplementary estimates, but the fact that you are asked to vote on billons of dollars that late in the fiscal year when there is virtually no time left is a bit concerning, because I think it affects your capacity as parliamentarians to scrutinize this proposed government spending.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

I agree with you. Thank you very much.

[The Chair, Conservative, Kelly McCauley]

Thank you, Mrs. Block.

We'll now have Mr. Bains for five minutes, please.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Thank you, Mr. Chair.

Thank you, Mr. Giroux, for joining us again today.

The supplementary estimates include a significant portion of funding for professional services. Do you believe that IT professionals are essential to ensuring legacy IT systems are functioning properly for Canadians?

[Yves Giroux]

I'm not an IT specialist—some would say fortunately, but I would say unfortunately—but I certainly believe that IT is an essential component of any organization these days. Whether or not it's essential to use IT outsourcing to the extent that the government is doing is not for me to say. I don't have that expertise.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Okay. While outsourcing has grown, it has kept pace with the growth of the federal public service, with the public service at the same size as it was in 2010 comparative to total population. Does this not indicate a normal level of growth?

[Yves Giroux]

It could. That's one way of seeing it, that the public service is growing commensurately with the size of the Canadian population.

Alternatively, one could say that, given that more services are being automated, there could be an expectation that the size of the public service could be growing at a slightly slower pace than the average growth in the population, but I think this boils down to policy choices, especially when the government decides to make interventions, investments or spending in specific areas.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Okay.

The Auditor General, the procurement ombudsman and the government are conducting a review of McKinsey, which we've heard.

Do you believe that these studies will provide useful insight into government outsourcing and procurement practices?

[Yves Giroux]

I'm confident that my colleague, the Auditor General, will provide insight, full information, to this committee and to all parliamentarians on McKinsey.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Okay. Thank you.

You previously stated in committee that departmental targets are too easy to hit, but then your report on the estimates said that too few targets are met.

Can you clarify what your position is on these targets? Are they too easy or too ambitious?

[Yves Giroux]

I'd say it's probably that they tend to be too easy, and I speak from my own experience, having been in the public service for more than two decades.

Generally speaking, targets are set so that they seem to be reasonably ambitious, but they are always deemed to be attainable, barring unforeseen events, so they generally tend to be not overly ambitious, which leads to a surprise when you see that close to half are either not met or have no target date for meeting them.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

In 2022-23, the Government of Canada requested $443.3 billion in authorities. It was an increase of 6.8% over the previous period but a decrease of 6.6% compared with 2020-21.

In your view, is this level of spending consistent with Canada's fiscal anchor to reduce the debt-to-gross-domestic-product ratio?

[Yves Giroux]

It is. It seems to be. If you compare main estimates with main estimates, it is consistent. However, in our March economic and fiscal outlook, we expect the debt-to-GDP ratio to increase next year rather than decrease, due to a slowing economy and increases in expenditures.

There is expected to be a one-year anomaly in the fiscal anchor, which instead of going down consistently is expected to go up for a year. However, the budget to be tabled next week could introduce measures to ensure that the debt-to-GDP ratio continues to go down year after year. Based on what we know so far, it is slated for an increase in the next fiscal year, the one that will start in April.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Thank you.

[The Chair, Conservative, Kelly McCauley]

Next, we have Mrs. Vignola, for five minutes, please.

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

Thank you very much, Mr. Chair.

Thank you for being here today, Mr. Giroux and Ms. Vanderwees.

Mr. Giroux, in your analysis, you say that the government expects additional expenditures of $10.3 billion. Time flies, but I remember, not so long ago, that you had told the committee that the Department of National defence was having trouble spending the funds allocated to it, even those included in the supplementary estimates.

We are 11 days away from the deadline by which all authorities are to have been spent. To your knowledge, will they be spent?

[Yves Giroux]

We won't know for sure until the Public Accounts of Canada have been published, which is usually in the fall, sometimes the very late fall.

However, we can get a few hints from the administratively frozen allotments that I mentioned in my address. For the time being, these allotments that have been frozen for all kinds of reasons by the Treasury Board have reached a rarely seen level. This would appear to indicate that unspent funds by the end of the fiscal year, in 11 days, will be at least as high as in the previous years.

Unfortunately, we can't say with certainty which departments will fall into this category. However, given the size of the Department of National Defence, we can reasonably assume that it will once again this year not spend all funds allocated to it. But we will only know for sure once the fiscal year has ended.

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

I also recall committee discussions about National Defence inventories, which were rather low, and about how difficult it was to properly equip our Canadian Armed Forces.

And yet we are sending $500 million to Ukraine, in addition to equipment. I'm not against that, but my question is what impact this assistance might have on Canada's inventories?

Are we robbing Peter to pay Paul? Will this increase defence-related costs in future estimates?

[Yves Giroux]

That's a good question, but unfortunately, those who testified before me have a lot more information than I do about National Defence inventories and the impact of assistance to Ukraine on the department's ability to fulfill its core mandate.

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

On page 6 of your report, which I won't read out word for word, because I only took down some brief notes, it says that you were worried that the funds allocated for the Strong, Secure, Engaged policy would be inadequate.

Are these concerns proving to be correct? Are you even more worried? What are your misgivings about this?

[Yves Giroux]

I'm worried because the budget for the national defence policy includes capital expenditures established over a period of several years, while the costs involved in national defence procurement projects, including warships, are continually increasing. I am therefore worried that the funds will be inadequate to allow the government to fulfill the mission set out in this policy. If so, then either the budget would have to be increased, or some projects would have to be abandoned, which will probably be inevitable if we don't want to exceed the total established for the budget and for financing projects whose costs are increasing, like the warships project I just mentioned.

We are also going to carry out a study on the acquisition of F‑35 fighter aircraft. This would give us a better idea of the estimated cost for this acquisition project. If it turns out that costs of the fighter aircraft acquisition are also increasing, as is the case for the warships, then that will restrict what can be done and something will have to be set aside.