Public Accounts Committee on Dec. 5th, 2011

[Nancy Cheng]

One of the differences we highlighted is indeed in the format and the wording of the independent auditor's report.

If I can draw members' attention to page 2.4 of the public accounts in volume II, you see there is an audit opinion signed by Mr. John Wiersema as the interim Auditor General.

There are differences between this audit and audits from the past. In past audits, what you see are by and large three paragraphs. One paragraph talks about the scope, what it is we are commenting on with respect to our audit opinion. A second paragraph talks a little bit about what the audit comprises. The third paragraph contains any opinion, as far as that goes.

You'll notice here that it is longer. The first paragraph is not very different. Again, it tells you what the scope is--in other words, what we have audited and what the audit covers. Then it has a paragraph that deals with the government's responsibility for the financial statements, so it's specifically providing a heading to highlight the responsibility of management vis-à-vis that of the auditor. It's up to management to actually make sure they have internal control over financial reporting and that they take responsibility and ownership for the financial statements.

Then we go into the auditor's responsibility, and we have multiple paragraphs here. If you go back a year, you'll see only one paragraph. Here we actually emphasize quite distinctly that we are independent and that we follow ethical requirements. Those things are stated right up in the first paragraph under auditor's responsibility.

The paragraph that follows is a little more elaborate than before, but it speaks to the kinds of procedures we follow for an audit. We seek reasonable assurances, not absolute assurance. We have also a separate paragraph that indicates that we've received sufficient audit evidence to support the opinion. That is a specific assertion that is now inserted in the independent auditor's report.

Then finally the opinion paragraph has its own title, and it indicates what the opinion is. It's different from the report on other legal and regulatory requirements. If there are, for example, some other matters that we want to draw the readers' attention to that do not bear on the fair presentation opinion, they are very distinct and the readers can quickly tell that this is additional information the auditor would like them to pay attention to, or would like to draw attention to, but that it doesn't affect the fair presentation opinion.

That is just one difference. The other aspect is—

[The Chair, NDP, David Christopherson]

I'm sorry, Ms. Cheng, but I'm a minute over already, and I just can't let it go much longer. If there's more needed, I'm sure government members can pick up on the questioning. My apologies for interrupting.

Monsieur Dubé, you have the floor.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you very much, Mr. Chairman.

I would also like to thank our guests, who, as always, are utterly reliable.

I will concentrate on section 4 of the Public Accounts of Canada, volume II, which deals with the Economic Development Agency of Canada for the Regions of Quebec. What I find interesting is that there are amounts attached to several programs. The report gives an overview of the development of communities, special intervention measures, the competitiveness of companies, infrastructure, and so on.

If you look at the total, you will see that a certain amount was authorized. However, there is a $50-million gap between that amount and the amount spent. You will find this at point 4.5.

I have a question. Since I am a member from Quebec, I am sure that we could have found a way to spend that money. Our communities certainly need funding, be it for jobs or infrastructure.

Why was the money not used for... Did the government not find anything to spend it on? Was there an accounting mistake? Can you please shed some light on this matter?

[Jim Ralston]

Thank you for the question, but unfortunately we're basically prepared to speak about the summary level financial statements and the audit opinion thereon. As Ms. Cheng mentioned, that's the part that is audited. The remainder of the volumes have a great deal of information in them, which we compile, but unfortunately we don't have the ability to answer every detailed question about that.

The particular question you've asked I think would be better posed to the organization.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you.

I find that interesting, because it is a total amount. You are really not able to provide us with more detail on the matter. I am not necessarily talking about a specific point, but about the total budget for this government portfolio. So you really cannot give us any information on this subject? Do you really think that this question should be put to the agency in question?

[Jim Ralston]

Yes, I do.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you.

I also looked at section 15, at point 15.8, which concerns the Canadian securities regulation system. Without necessarily wanting to comment on the legitimacy of this bill, we know that the money was not necessarily completely spent. In fact, we are waiting for a ruling from the Supreme Court on this issue. About $13 million have been spent.

Is it possible for you to tell us how the money was spent, whether this program has not already been started, or whether it has even been authorized, in theory?

[Jim Ralston]

Once again, I think that's a detail that is better addressed to the organization.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Can the official from the Department of Finance answer the question?

[Doug Nevison, Director, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance]

No. I'm afraid the recommendation to go to the department itself is the right one in this case.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you very much.

I will now talk about corporate income taxes. If you read the Public Accounts of Canada, you will see that about 76% of all income tax, in 2011, was paid by individuals. Conversely, 20% of revenue comes from corporate taxes.

Since I am not an accountant, I was wondering whether, in your expert opinion, this was a reasonable ratio. Is there any reason to re-examine the revenues?

[Jim Ralston]

I'll invite my colleague from the Department of Finance to add something if he wishes, but essentially what we have determined is that the results you see are correctly accounted for. They reflect the administration of the income tax legislation by the Canada Revenue Agency; they presumably reflect the tax policies of the government. It's not an accounting question in terms of the relative balance. It is the outcome of the reality of the operations of the tax system.

[The Chair, NDP, David Christopherson]

Thank you very much.

Next is Mr. Hayes. You have the floor, sir.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Thank you, Mr. Chair.

This question will be directed to Mr. Ralston.

At Ontario Lottery, which was a provincial agency, we were always measured against how we did against budget. When I look at this in terms of bottom line here, I see that there was a fairly significant discrepancy--or I would say it's significant, but maybe it isn't substantive--between the budgeted deficit of $49.2 billion versus the actual deficit of $33.4 billion, so I have a couple of questions. I'm going to ask all of them now and hopefully you'll capture all of them.

First, is that substantive? In my mind, this could be classified as good-news story because the deficit was less, but it could also perhaps be classified as a poor budgeting story. I want to get an explanation and understanding of the budgeting exercise and some sense of how difficult it is to be accurate. Obviously budgets are based on assumptions, so I'm kind of curious as to some of the assumptions and what assumptions might have changed such that this projected deficit was so much less than what was budgeted.

[Jim Ralston]

I'll ask my colleague from the Department of Finance to respond.

[Doug Nevison]

Thank you. I would be happy to respond to that.

I think I'll just first take a step back and remind members of the economic situation we've been in for the last couple of years. It has been a time of very high economic uncertainty. To be honest, that has made forecasting, both economic and fiscal forecasting, a bit challenging over the last two years.

You're right: there's a significant difference between the budgetary balance forecast for 2010-11, at $49 billion, versus the actual outcome, which was $33.4 billion. That reflected a number of factors. Some of it had to do with economics, and some of it had more to do with the fiscal and the accounting side.

To start, we saw stronger economic growth in 2010 than we expected when we did the March 2010 budget. I'll remind members that when we do our economic forecasts, they're based on an average of private sector forecasts. At that time, the private sector average was forecasting nominal GDP growth; nominal GDP is sort of the broadest single measure of the tax base in the Canadian economy. They were forecasting growth of just under 5% in 2010-11 and the actual number came out closer to 6.3%. So we saw growth on that front that was quite a bit stronger and that helped contribute to some of the results. I think I would agree that it was a good-news story.

We also saw, related to the economic downturn, that unemployment or EI benefits came in lower than we had projected, in part because of that strength of the recovery. We also saw a couple of one-off measures in 2009-10. For example, there was the HST transition assistance to B.C. and Ontario in the March 2010 budget. That was allocated as an expense consistent with the payment schedule, and subsequent to finalizing the public accounts it was determined that this should be expensed all in one year. So that's another factor.

So a number of factors led to the result, but all in all, I would tend to agree that it was a good-news story.

Thank you.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Thank you.

To Mr. Ralston again, I'm just looking at interest-bearing debt. It stood at 49.4% of GDP in 2010-11. That's down over 26 percentage points from a high of 76.1% in 1995-96. Again, this sounds like a good-news story. I'm wondering if you can explain the reasons for the lower interest-bearing debt and the implications of having lower interest-bearing debt.

That said, what are the risks we would look at if there were an increase in interest-bearing debt? Are there any risk-mitigating factors in place for that?

[Jim Ralston]

Once again, perhaps I could ask Mr. Nevison to comment on that.

[Doug Nevison]

I'm not sure I got all the questions, but I'll start with the interest-bearing debt. Yes, we've seen a few things on that front in terms of the results. We've seen a higher stock of debt in the last year, and that's a result of the deficits the government has been running during the recession. That led to an increase in the interest-bearing debt.

One thing we've seen, though, in terms of servicing that debt, is that the interest rates have come down quite considerably in our forecasts. As a result, it hasn't been as significant as perhaps it could have been.

I'm sorry, but I missed the other two questions.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Just on the 26%....

We're done?

[The Chair, NDP, David Christopherson]

Yes. You're actually well over right now. Sorry. The time has expired.

Madame Blanchette-Lamothe, you have the floor now.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you, Mr. Chairman.

Thank you for being with us today.

My first question is for Ms. Cheng.

On page 2.37 of volume I, it says that the Office of the Auditor General has concerns regarding the way departments and organizations apply their capital expenditures to their operational vote. According to the Office of the Auditor General, this decreases Parliament's oversight with regard to public spending.

Can you explain this process to me and tell me how it affects Parliament's oversight with regard to public spending?

[Nancy Cheng]

The question relates to the use of the capital vote and the operating vote. In the first instance, some departments only have one vote, and it's called a program expenditure vote. In that case you won't actually have this scenario coming to service in the way we describe it.

What happens is that often departments have a capital vote as well as an operating vote. Then when an expenditure occurs, where would you charge that?

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Mr. Chair, we've lost the translation.

[The Chair, NDP, David Christopherson]

Could we have some help from the...? Where are we, please?

All right?