Public Accounts Committee on Nov. 20th, 2007

[Paul Rochon]

I think probably the most straightforward or simplest way to express the flexibility would be to think of an average effective interest rate on debt charges, with one proviso of about 5%. So, more or less, with debt reduction in the order of $100 billion, if the debt had been higher by $100 billion currently, the government would be paying about $5 billion more in debt charges.

As the Auditor General alluded to in the answer to an earlier question, some of that debt reduction has taken the form of an increase in assets. Most of those assets, however, do earn interest, so the net effect is the same, simply speaking. So, more or less, $5 billion would be a general rule of thumb if one wanted to get a sense of the flexibility.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Then you talk about the average rate of interest. As we move forward, I imagine that for each dollar we have in surplus, we pay off the highest-interest debts first. I'm curious, as we move forward, are we moving into an area where there is a sort of decreasing benefit to the surpluses we get in terms of what we're paying off? Are we left then with only our lowest-interest debts in a sense, recognizing this benefit?

[Paul Rochon]

It is true that over the same period the debt has been reduced, interest rates have come down. To throw out a number to put that in context, in 1996 debt charges represented roughly 30% of revenues; they're down to something like 14%. Now that we're in an era of lower interest rates, it would be natural that the reduction in that ratio would taper off somewhat.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

In terms of the surplus, there's been a lot of talk about surpluses over the last several years, from all sides.

I'm curious, is there an international standard in terms of what kind of cushion we would want in terms of budgeting for our revenues? Obviously, we want some cushion built in there.

[Paul Rochon]

There's no international standard that I'm aware of. In fact, I think it would depend on the country-specific circumstances.

Tim O'Neill did a review of the Department of Finance's forecasting practices about two years ago. In that report there was an estimate done for Mr. O'Neill by the University of Toronto that to provide an assurance of staying out of deficit, in each and every year one would need to target a surplus in the order of $6 billion to $10 billion.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

To the Auditor General, you made reference to the difference between the accumulated deficit and debt. I was struck by that wording difference as I'm looking through this.

Can you elaborate a little bit on the financial difference between the two numbers that you were talking about? And perhaps you could speak a little bit to what accounts for the difference.

[Sheila Fraser]

Perhaps the easiest, Chair, would be to turn to page 10 of the presentation, the balance sheet.

The accumulated deficit is really the difference between the assets and liabilities. It's the same thing in the private sector, which generally accumulates a surplus. When the government has a surplus each year, it's simply an addition to that accumulation. The accumulated deficit is just the profits and the losses, if you will, since Confederation. But the balance sheet is more complex than that. There is the debt less all of the assets.

Theoretically, your accumulated deficit could go down by a surplus in the year, but if you took that surplus and used that money and increased your assets--for example, if you invested more in crown corporations, bought more land, did whatever--your debt might stay at the same level. That's why we're saying there's a difference between accumulated deficit and debt. When you look at this page, you'll see that while the accumulated deficit went down by $14 billion, total interest-bearing debt went down by $1.8 billion. Now, in that interest-bearing debt there is a portion that is pension liabilities, so the actual market debt was more than that. But the financial assets went up $16 billion.

It's the same thing as when an individual earns a certain salary in the year and has a mortgage on the house. You can pay it down faster or you can go out and buy something else. You can keep your debt at the same level. You are richer overall, but your debt hasn't necessarily decreased.

[The Chair, Liberal, Shawn Murphy]

Thank you, Ms. Fraser.

That, colleagues, concludes the questioning.

[John Williams, Conservative, Edmonton—St. Albert, AB]

I'll just ask a simple question.

I noticed on the deck that the GST revenues are $31 billion, but when I look at the public accounts, volume III, page 2.3, there's a remission order of $1.1 billion for GST paid by the government.

Now, the $31 billion collected, is that net of the remission order, or is it a remission order subtracted from that?

[Bill Matthews]

My understanding is that it should be netted, but I will confirm that. If I'm wrong, we'll get back to you.

[The Chair, Liberal, Shawn Murphy]

I want to thank the witnesses on behalf of the committee.

Ms. Fraser, do you have any closing comments?

[Sheila Fraser]

I would just like to thank the committee for their interest in the public accounts. As you mentioned, this is a very important accountability tool, and there is a lot of work that goes into preparing the financial statements and auditing them.

I'd also like to thank the Comptroller General and his staff for their assistance given to us during the audit.

[The Chair, Liberal, Shawn Murphy]

Mr. Monette, do you have any closing comments?

[Rodney Monette]

Thank you, Mr. Chair.

Thank you very much to the committee for a very good, solid set of questions and observations. Thanks as well to the Auditor General and her staff.

[The Chair, Liberal, Shawn Murphy]

Mr. Rochon, is there anything you want to add?

Just before we adjourn, I want one more minute. We have two very brief motions that should take about 15 seconds each, colleagues, and then we'll adjourn.

The first is a motion that's been circulated by Mr. Sweet. This motion was presented, debated, and passed unanimously at a previous meeting before the prorogation. If the committee consents, I would suggest the committee provide its unanimous consent and agree to the motion.

Is everyone in agreement with that?

(Motion agreed to [See Minutes of Proceedings])

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Chair, there was also another motion that was voted on in the past at that same meeting, if you check the record. We'd appreciate the same sort of process and consideration on that one.

[The Chair, Liberal, Shawn Murphy]

Okay. You're going to have to re-present that, as Mr. Sweet did.

All in favour of that? That's fine.

[John Williams, Conservative, Edmonton—St. Albert, AB]

What was the motion, Mr. Chairman?

[The Chair, Liberal, Shawn Murphy]

I'm going to deal with yours next.

[John Williams, Conservative, Edmonton—St. Albert, AB]

I know, but I mean the one we're voting on. You had better read it out, because I understand it's “That the Standing Committee on Public Accounts...do commend...”. Is that the motion we're on?

[The Chair, Liberal, Shawn Murphy]

That's right.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Okay. Well, why don't you read it in and tell the people whom we're commending that we're commending them?

[The Chair, Liberal, Shawn Murphy]

I can, Mr. Williams, but we've done this before. I will if you want.

That the Standing Committee on Public Accounts of the Second session of the 39th Parliament do commend, in alphabetical order, Staff Sergeant Mike Frizzell, Staff Sergeant Ron Lewis, Chief Superintendent Fraser Macaulay, Miss Denise Revine, Assistant Commissioner Bruce Rogerson, and, Staff Sergeant Steve Walker,

For their continued efforts to expose the management of the Royal Canadian Mounted Police pension and insurance plan administration in the face of great personal and professional hardship,

For their unwavering commitment to justice and accountability,

For their dedication to ensure the Royal Canadian Mounted Police remain a cherished national symbol, with the full confidence of both its members and the Canadian public,

And for their embodiment of the core values of the Royal Canadian Mounted Police: integrity, honesty, professionalism, compassion, respect and accountability.

And that this motion be reported to the House.

Mr. Sweet, this is exactly the same wording as before.

[Charles Hubbard, Liberal, Miramichi, NB]

Mr. Chair, I don't feel comfortable voting on this, and I'll abstain because I was not a member of the committee before. I didn't hear their testimony, and really I think we're thinking about a previous committee and not this one.

So I would just like to record that I have abstained.

[The Chair, Liberal, Shawn Murphy]

But you're going to give unanimous consent to have the motion brought forward and then abstain?

I'll deal with it formally.

All in favour of providing unanimous consent to deal with the motion now, please raise your hands. This requires unanimous consent.

The clerk has indicated that we have unanimous consent. I'm going to now move to the motion.

All in favour of the motion as I read it?

(Motion agreed to)