Evidence of meeting #17 for National Defence in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was chair.
A recording is available from Parliament.
NDP
Conservative
Chris Alexander Conservative Ajax—Pickering, ON
I have a point of order.
For the record, Mr. Chair, I think we all need to be clear that there is no mention of any lapse in these supplementary (B) estimates, which are the subject of today's hearing.
Deputy Minister, Department of National Defence
One point the member just mentioned, Mr. Chair, was the work of the public accounts committee to encourage our friends in the central agencies to carry forward more than 1%. As the CFO said, there is nobody in this country running any kind of an organization anywhere near the size and complexity of ours that could ever get to within these numbers. It's not possible.
At 2.5%.... It's similar to what the CFO is doing, and I'm sure he will come back at some point. But it is extremely difficult. Private sector companies do not actually operate that way. We have tracked this stuff. This is one of the adjustments we have actually made as a result of that Auditor General's report. It's one of a number of internal adjustments to track...much more carefully. And I can tell you, especially after last year and some of the work that we did with some forecasting companies and others, that we expect to have virtually no unintended lapse this year. We take account of what's happened in the past and we get better year after year after year.
Conservative
The Chair Conservative James Bezan
Thank you. I have one comment to make before we vote on the estimates.
The earlier comment by Mr. Lindsey about trying to manage foreign exchange rate risk actually tweaked my interest because, as a former exporter and someone who always had to deal with exchange rate risk, it was something I was always cognizant of and was locking in dollars and forward contracting dollars.
So how does the Department of National Defence and the Government of Canada deal with the exchange rate risk when they're buying most of our equipment in U.S. dollars? If you could address that, I'd be interested in hearing the response.
Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence
As you might expect Mr. Chair, because of our capital acquisitions and the sources of those acquisitions, many of them are foreign. Moreover, because of foreign military arrangements, when we collaborate with allies we have a significant number of transactions every year denominated in U.S. dollars. In 2010-11, those transactions amounted to approximately $2 billion. The amount fluctuates—sometimes it's higher, sometimes it's lower. So in 2011 it was about $2 billion.
Between June and August of this year, you may recall, the Canadian dollar appreciated about 13% against the U.S. dollar. To the extent that we had closed sales and taken delivery of assets, hypothetically, in that period, we would have had a currency gain. Just using $2 billion as an example, we would have had a currency gain of about $260 million. That would have shown up in the public accounts as a lapse, when actually it should be a good news story. We would be held to account for the fact that we had lapsed that $260 million, yet it should be a good news story.
I'll give you a real-life example. We bought strategic lift aircraft, the C-17s, I believe in 2007-08. Between the time we actually made the decision to buy those aircraft and took delivery, the Canadian dollar appreciated. At the end of the day, those aircraft cost us $200 million less than we had anticipated simply as a result of foreign exchange.
Again, we have to manage that surplus and are held to account for those fluctuations when it comes time to talk about public accounts. Those are hundreds of millions of dollars in fluctuations that are unpredictable, utterly beyond our control, and show up in the public accounts.
December 1st, 2011 / 10:15 a.m.
Deputy Minister, Department of National Defence
Can I add one point, Mr. Chairman?
When the Department of Finance put their budget forecasts together, they have an overall view on what the exchange rate will be for the forecast year. But only the Department of Finance can hedge on behalf of all of us through the Bank of Canada. So we have no ability to hedge. I'm sure that as an exporter, you would have been all over this issue in managing your risk down.
The Department of Finance will have a view on how much we're planning to acquire from abroad in any given year. They will have a view on the exchange rate. They take all of that into account in their hedging activities and how they set their budget.
The CFO is right that it is a good news story when the value of the dollar goes up but becomes a bad news story when we go to public accounts or get criticized for a lapse. It is often explainable by these kinds of factors.
Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence
I would add there is a downside, because sometimes the dollar depreciates against the U.S. dollar. So we bear the downside risk as well.
Conservative
The Chair Conservative James Bezan
Thank you.
As you know we have a responsibility, now that we've dealt with the supplementary estimates (B), to report them back to the House before the end of this allocated supply period, which we anticipate will be some time next week. So I'm going to call the votes.
NATIONAL DEFENCE Department Vote 1b--Operating expenditures..........$5,350,225
Military Police Complaints Commission Vote 20b--Program expenditures..........$2,299,803
(Votes 1b and 20b agreed to)
Shall the I report the supplementary estimates (B) 2011-2012 to the House?
Deputy Minister, Department of National Defence
Mr. Chairman, do you need us for these votes?
Conservative
Conservative
The Chair Conservative James Bezan
I will report this back to the House probably tomorrow morning. We've carried out our responsibility.
I want to compliment all members for being relevant with their questions, for the most part, and for being respectful to our witnesses. In all the years that I've chaired committees and dealt with estimates and supplementary estimates, it often gets very political. But I thought that today's questioning was really dead-on and dealt with the issues at hand in the financial administration of the government.
The meeting is adjourned
