Public Accounts Committee on Nov. 23rd, 2009

[The Chair, Liberal, Shawn Murphy]

Mr. Lee, you have time for one question.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

I have one question, a very short one.

Under the finance department, there was an amount planned to be spent for Public-Private Partnerships Canada—the P3 initiative. It looks as though it never got off the ground, and there was about $92.6 million allocated but unspent. I don't think any of it was spent.

Oh, 95% of it was spent.

Why didn't it get off the ground, particularly in a year when we were trying to get infrastructure built? That is what this initiative was targeted at.

[Paul Rochon]

The office is up and running now, and that, I would submit, is related to.... Infrastructure will be longer-term in nature. It's not the kind of infrastructure that would be necessarily amenable to stimulus spending.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

There is nothing like the present to get the thing going. If we're looking at the long run, why wait a year? What was the obstacle? Was it the crush of the need to get shorter-term investments out the front door?

[Paul Rochon]

I can't speak to that specific file, other than to tell you that the office is up and running now. I could provide the chair with a note as to what the nature of the delay was, if that would be helpful.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Lee.

Thank you, Ms. Crombie.

Mr. Young, you have five minutes.

[Terence Young, Conservative, Oakville, ON]

Thank you, Chair.

Mr. Ralston, despite the worldwide recession and our economic action plan, we're spending really an unprecedented amount of money in a short period of time, but the ratio of deficit to GDP still went down 0.9% last year. What does that reflect?

[James Ralston]

Mr. Rochon spoke to this a little earlier. Obviously, against a trend of growing GDP and in the long term a growing economy, we have been successful in keeping a tight grip on government spending, and the manner in which it has been financed has been prudent.

[Paul Rochon]

I think what you will find is that the full impact of the recession will be felt in the current and the upcoming year, and that in part, the fact that the deficit was reasonably small in 2008-09 is a reflection of the timing of the recession--that it took place in the latter part of the year.

Having said that, the deficit-to-GDP ratios that the federal government and Canada writ large will incur are much smaller than those occurring in other countries.

[Terence Young, Conservative, Oakville, ON]

Do you want to go ahead?

[Jeff Watson, Conservative, Essex, ON]

Sure.

Again, we thank all of you for being here today. It's been an extremely interesting session, and you have given us some hopeful news in terms of our jobs in working with our international counterparts.

I'd like to return to that international theme. Consider us your advertisers for our fellow countrymen and countrywomen. In the next 100 days we're going to have people from all over the world coming to our country, certainly to British Columbia and to Vancouver/Whistler. If you are sitting with them—imagine counterparts from other countries, business people—what would be some best practices that we could talk about, in terms of our accounting and financial system, that create this transparency?

Maybe we can start with you, Mr. Rochon and Madam Fraser, and then anyone else who wants to can chip in on this.

Someone famous once said that the 20th century was going to belong to Canada. Someone famous said that; had it been a Conservative, he would have said the 21st century—he would have been right up to date.

Please go ahead.

[Paul Rochon]

Maybe what I could simply review is the Government of Canada's reporting practices in financial matters. We normally table a budget in the early spring, in the February-March period. Over the course of the year, the Department of Finance issues monthly fiscal monitors, such that each month the government reports on revenues and expenses in the month that ended roughly six weeks prior. In the fall of each year, the government provides a medium-term view of the fiscal situation, normally over the next five years. That is preceded normally by the public accounts and the annual financial report, which report on the outcome for the year that had ended March 31.

[James Ralston]

What I'd like to point out is that the purpose of this meeting, of course, has been to review the government's financial statements. It kind of points us to the pinnacle, the end of the road, one of the most visible outputs perhaps of the government's financial management system. But one thing I think deserves mention—and one thing my office is particularly responsible for—is nurturing a strong community of strong financial professionals, strong internal audit professionals, who work around the year in all of the departments and agencies, applying sound policies, sound principles, and a lot of due diligence. It's really a lot of the efforts of those kinds of professionals that produce this. To support them, my office has, through the Treasury Board, issued some important policies on financial management governance, on internal control, and on internal audit. I believe that framework is fundamental to the continued health and the continued good results we see, not just clean opinions but also actually sound spending.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Weston.

I just have a question perhaps to Ms. Fraser and perhaps to Mr. Ralston, and that's regarding the changes you found in the CRA methodology in projecting corporate and personal income taxes. It seems to me—and this goes back 10 years—that we've had difficulties in projecting the actual end-of-year surplus or deficit. If you went back seven or eight years, the surplus seemed to be becoming higher than what the Department of Finance was thinking at the time, right up until year-end. Now, I'm not so sure that we might be into the opposite regime, that they're coming in perhaps lower than what Finance is projecting. When you analyze it and you talk to people, a lot of the blame is put on the projections that come from CRA. The government probably has a pretty good idea what the expenses are going to be, especially at year-end and on March 31, but when they publish the financial statements in September, the surplus is higher. It may not be substantial, but when you're talking $8 million or $9 million, it's a lot of money in my circles.

Ms. Fraser, do you think the new methodology will correct this problem, or do you still have a concern as to the numbers that are being projected by Finance?

[Sheila Fraser]

Chair, we had concerns over the revenue numbers in two aspects. One was that the estimates were actually underestimating the revenue. When we would go and look at actual assessments and collections later, we would find they were higher. There have been a number of modifications that have been made in the last year, but quite frankly, only time will tell—when we actually get the assessments—how much closer that assessment is.

I would say, though, from year to year the difference, sort of, in the opening and closing balances was never really a lot different, so the revenues within the year were fairly close. It's when we compared it to the assessments; there was always this difference that seemed to be going on. So we are hopeful that some of the adjustments that have been made in the current year will make it better.

The other area where we had expressed some concerns in the past was the methodology for determining the allowance for doubtful accounts on the taxes receivable. Again, there have been a number of improvements made this year. You can understand that with the recession, we were quite concerned that maybe the methodology, because it's based on past experience, may not reflect all of the potential losses. We went in and looked actually at specific sectors and did much more rigorous testing and are comfortable with the allowance now. We have indicated, though, to the revenue agency that we think it important that they continue to track this through the recession to see if the methodology in the model that has been developed will stand up going forward.

[The Chair, Liberal, Shawn Murphy]

Mr. Ralston, do you want to comment on the methodology? Are you satisfied that we will be getting accurate numbers going forward?

[James Ralston]

I've had an intimate relationship with those numbers for the past decade. Let me just say that on the estimate of the revenues themselves, what we're experiencing is a growth in understanding that comes with experience. When we first embarked on the estimation process with accrual accounting for tax revenues about six years ago, we actually placed a high value on being able to tie the estimates to actual transactions. Effectively, what we tried to do was look at experience subsequent to the year-end to get a good fix on what the reality had been as of the financial statement date. That was a deliberate choice, and I think, frankly, it was a choice that was welcomed by the Office of the Auditor General at the time.

But as we began to understand our methodology and understand some of its systematic biases, we've corrected those over time. We're always willing to make the corrections. However, we make the corrections once we're in a position where we're confident that any change we make will be a change for the better. That process will continue, so I expect we will continue to improve.

With respect to the accounts receivable, the allowance for doubtful account methodology, it took a strong act of will last year to change the methodology from what was happening in the past to what we're going to be doing going forward. We certainly believed at the time that the change was fundamental and very valuable. I think it's obviously early days to declare it a success, but I think so far it's holding up. Frankly, we will follow the same process that I just described, which is to continue to monitor. We will not hesitate in making changes that are required to improve it, if it becomes evident that it's necessary.

[The Chair, Liberal, Shawn Murphy]

On that issue, Mr. Rochon, we seem to be a moving target on the deficit. It wasn't that long ago your department was announcing the surplus, and it went to a $32 billion deficit. Now it's $56 billion in October, and the fiscal year ends March 31, 2010. Again, I think you have a pretty good grasp on expenses, although there is some fluctuation, especially with employment insurance and other variables that have to do with the recession. The big variable would come down to the methodology, and of course a lot of the information comes from CRA.

Are you satisfied with the information you're getting? Are you satisfied with the methodology? Most importantly, are you satisfied with the $56 billion figure that's being published now?

[Paul Rochon]

We're definitely satisfied with the information we're getting from CRA. I think there's been a tremendous improvement over the last several years. One should not stop making improvements; however, both the methodological changes that have been put in place and the frequency and quality of the data we get from the agency have improved tremendously.

In terms of the projections of the department, I think what one needs to bear in mind is the underlying volatility out there in the economy. Going to your point on the revision in the deficit for the year that's under way, half—not quite half, almost half—of that revision was due to greater expenses related to the auto sector, and the other half, roughly, was due to the further deterioration in the economy vis-à-vis what we expected at the time of the 2009 budget.

I'd give you just one number by way of example. In 2007-08 corporate income tax revenues were $40.6 billion, and we're projecting them to be $23.8 billion in 2009-10. That's tremendous volatility, and it's something we have to deal with. Yes, we'll forecast as best we can, as do others, but the amount of uncertainty that's out there is still tremendously high. It's not going away. We provide the best projections we can, but I don't think one should underestimate just how difficult it is to come down on a point estimate when one has roughly $500 billion in combined expenses and revenues. For me, that's the biggest issue.

[The Chair, Liberal, Shawn Murphy]

Before I ask for closing remarks, I want to repeat some of the comments that were made earlier. Canada is blessed with a sound financial accounting system. Our level of transparency, openness, timeliness, and adherence to public sector accounting principles is second to none. On behalf of the members of Parliament, I want to thank you for all the effort that goes into preparing these financial statements. You do a great job for us all.

Before we conclude, I want to ask the witnesses for final remarks. Once we've received the concluding remarks, I will adjourn the meeting.

Ms. Fraser, we'll start with you.

[Sheila Fraser]

I would like to thank the committee for their interest in the public accounts. It is a critical accountability document, and I appreciate that there was this hearing on the accounts and on our audit of the accounts.

[The Chair, Liberal, Shawn Murphy]

Mr. Ralston, we weren't too hard on you on your first appearance. Any concluding comments?

[James Ralston]

You weren't too easy on me, either.

[Voices]

Oh, oh!