Public Accounts Committee on Nov. 20th, 2007

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I'm not sure I understood that. What you're telling me is that there was some sort of a clawback that came into effect when someone reached 65 and began collecting CPP. Their public service pension plan was reduced prior to this change. Do I understand you correctly?

[Paul Rochon]

That's correct. The public sector pension plan and the CPP plan are integrated. Therefore, when a public servant receives this CPP contribution, there is actually only one cheque, but the way that's effected is that the public sector portion is reduced to reflect the CPP benefit. Previously the legislation--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

That's how it used to work.

[Paul Rochon]

That's how it used to work, and that is the way it works now. The change was put in place to correct for the fact that under the previous legislation the reduction in the public sector benefits was more than warranted by the CPP benefit that the employee received. Just to use a very simple example, if one were to receive a $10 CPP benefit, the previous legislation had the effect of reducing the public sector benefit by $11, so we corrected that.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

What portion of this 14% increase can be attributed to those changes?

[Paul Rochon]

It's the large bulk of it.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

That's good enough for now.

[Paul Rochon]

It's about $3 billion, as I recall. I'd have to get an exact number, but it's significant.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Some of these other changes you've described, though, will increase the employee contribution, will they not?

[Paul Rochon]

Over time--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

But not immediately. Fair enough.

On my next question, I note that with regard to CRA there was an acceptance of loss, a rather large one. I want to know if it was a one-time loss. On page 2.13, under “other program expenses by ministry excluding national defence and crown corporation expenses”, Canada Revenue Agency is the second item on the table you'll find on the top right of the page. It says Canada Revenue Agency increased from $3.99 billion to $6.76 billion. That's a massive increase. It says it includes a provision for bad debts of $3.5 billion, which is up from $809 million in 2006. What is that? Can you explain that?

[Bill Matthews, Acting Executive Director, Financial Management and Analysis Sector, Office of the Comptroller General, Treasury Board Secretariat]

As part of the revenue estimation process that has been discussed a little bit already, we include two things: an estimate of the revenue itself and a second estimate of what percentage of that is likely to be collectible based on an assessment of accounts receivable. That process is rather complex. It involves--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Are these accounts receivable?

[Bill Matthews]

These are accounts receivable, and the amount is based on two things. It's a percentage of the amounts we think may be uncollectible based on assessments of accounts. It really comprises two things. One is the receivable balance itself. If you're taking 20%, for example, as being uncollectible, as the receivable balance itself grows, that 20% grows. Then there are variables in the rate itself that get changed each year based on an assessment of individual accounts.

This number does not mean these amounts are not collectible. This is based on an extrapolation by looking at a series of accounts and pooling those assessments over the population of the receivable balance itself.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Are we calculating that they will likely not be received?

[Bill Matthews]

We are extrapolating based on a percentage of assessments of individual accounts. We then extrapolate that over the entire population and say, if that estimate holds true, this is the amount that will not be collectible.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

This increase is quite large, though. It's from $4 billion up to $7 billion. That's why it jumped out at me. Why is it such a large change?

[Bill Matthews]

There are two components. The actual accounts receivable balance itself related to taxes went up by about $4 billion last year, over the two fiscal years, so that's a big chunk right there. Then you have to look at the rate itself, which increased by about 4% based on the assessments. It is the two components. The base receivable we're talking about here is $25 billion to $30 billion in the 2006-07 year.

[The Chair, Liberal, Shawn Murphy]

Mr. Christopherson.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair.

Thank you all again for your professionalism.

The first question is to the Auditor General.

You raised in your report the concern about the Canada Revenue Agency continually understating the tax revenue, in particular in the area of corporate tax, and nothing has been done. If I'm reading this correctly, you're not seeing any changes to correct that. Given that the government made a big deal about making sure the numbers were more reflective of actuals in terms of estimates, I'm just questioning this dearth of any action. Maybe you can explain to me a little about what's going on here.

[Sheila Fraser]

If I could just clarify, there are two estimates.

One estimate is done for budget purposes; we do not look at that one. As well, there is an estimate to produce the financial statements. Because the government records revenue based on the year of the revenue, it is related to a year; it is not on a cash basis anymore. That's been in place now for four years.

To estimate the revenues that are receivable is a very complex and very difficult exercise. It involves a great deal of estimation based on cash payments received and on actual assessments. The method of estimation has been used now for about four years.

We have noted that when there's a comparison to the actual revenues received over time, the model seems to produce an estimate of revenues that is lower than the actual revenues. We're saying to the Canada Revenue Agency and to government that they should go back and try to adjust or refine the modelling because there may be certain percentages, for example, that would be too low. But the error, if I can explain it, is repetitive from year to year, so the revenues in any one year are reasonably correct.

At the end of the year there may be some revenues that haven't been recorded; they will get recorded next year, and then at the end of the next year there will be the same error. It's simply a question that it's time now, after four years of experience, to look at this modelling and try to refine it to get a better estimate of revenues.

[David Christopherson, NDP, Hamilton Centre, ON]

Okay, I think I got most of that. Thank you.

The next question is just for my own edification. I don't have any particular knowledge in this area, but I find it curious.

Page 8 of the slide presentation is on foreign exchange. Could you help me understand what's going on here? In 2005-06 it appears to me that we generated revenue of $2 billion in the last fiscal period, and now we're looking at a loss of $300 million. Given the fact the Canadian dollar is going through the roof, I'm sure there's a good reason. Can somebody explain to me how this is working? Maybe I'm not even reading it correctly, but it looks to me as though we're getting $300 million less.

That's page 8 of the slide presentation, on the last line.

[Rodney Monette]

Mr. Christopherson, you're absolutely right. The figure from 2005-06 to 2006-07 has gone from $2.0 billion on foreign exchange down to $1.7 billion, so it's gone down $300 million.

[David Christopherson, NDP, Hamilton Centre, ON]

Right. I don't know how we lost money with the dollar going up.

[Rodney Monette]

I'll ask one of my colleagues here if they can answer that.