Public Accounts Committee on Nov. 6th, 2014

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I do have a few other questions I want to try to get in.

The next one relates to a graph on page 1.5 of the English version. It's the revenue ratio—revenues as a percentage of GDP. What I understand from that is that our current ratio of revenue to GDP is down significantly in the 1996 to 2001 period, yet our actual revenues are greater. Could you explain how it is that the government is taking in more money, even though there has been a reduction in the revenue to GDP ratio—at least since that earlier period I mentioned?

[Nicholas Leswick]

It is just the mathematics of it, the numerator over the denominator. While the numerator is just the nominal level of our tax collection, which can go up, the fact is that our economy is growing faster than that trajectory, so that the overall metric is decreasing. While we continue to collect more tax revenues because our economy is growing—we collect more income taxes, consumption taxes in the form of the GST, and corporate taxes even though we had a corporate rate reduction—the fact is that our economy is growing faster than the pace of tax collection. So we often use this metric as a touchstone to reflect the total tax burden on the Canadian economy.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

Could I rephrase that? Tell me if I'm correct. Has the increase in taxes been kept more restrained and more modest than the growth in GDP?

Would that be a fair restatement?

[Nicholas Leswick]

I would agree with that.

[The Chair, NDP, David Christopherson]

The time has expired, sir.

Now over to Monsieur Giguère.

You have the floor again, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

The table on page 1.24 sets out the liabilities and assets. For pensions, the debt prior to 2000 is indicated. As of 2000, our pension funds have been funded.

However, the Supreme Court of Canada ruled that, regardless of the pension plan, the federal government had the responsibility to pay. Following the setbacks Europe experienced, the European Council has decided that all public service debts would be reported in financial statements.

Would it not be a good idea to provide the debt level before 2000 and after 2000, even if it meant adding funded dollars to the financial assets? That would help up see what the situation is and whether there are unfunded liabilities in either fund.

Wouldn't indicating debts and obligations related to pension plans constitute an addition in line with international recommendations?

[Bill Matthews]

Thank you for the question.

I have a couple of thoughts on that. The table, which in the English version is on page 1.24 if you're trying to follow along, presents a 10-year history. That's the reason we stopped at 2005 in this case. We gave a 10-year history, which is a nice comparator.

The importance of the year 2000, which the member has mentioned, is that is the point when the government decided to fund part of its pension plan. In the pre-2000 period, the government used to track the pension obligation on its books, but there was no separate asset to match the liability as you would have in the private sector. From the year 2000 on, the government decided to fund that liability, and that is why the investment board that we were talking about earlier was created. It was to manage those investments.

Regarding the Supreme Court decision that was mentioned—I should close the loop on that—there was a surplus in the government's bookkeeping account pre-2000, and there was a court challenge launched by the unions about who should have access to that. It was in effect a bookkeeping account, but it was a surplus, and the government had basically used it against the bottom line on general revenues. The Supreme Court concluded that the Government of Canada was the risk holder, and therefore if the pension was in deficit, it had the risk; if it was in surplus, that was the government's money. The court challenge was denied and there was no money required to go back to the unions.

If you look at the government's financial statements, we have substantial disclosure around the pension plans, both funded and unfunded. From my own perspective, it's too much; it's an awful lot to get through.

If I could take you to the notes on the pension plans, which start on note 7, on page 220 in the English version, and page 221,

that will go through the benefits and the plans for both funded and unfunded. You have a description of both. There are different discount rates in play. That's disclosed.

The other thing you will see here for your information, on page 225, which is likely page 226 en français, is a sensitivity analysis. You will not see this type of analysis in all pension plans if you compare us to other countries...assumptions like the discount rates, both for funded and unfunded. If you get a 1% change in the discount rate up or down, we disclose what that does to our liability. If you get a 1% change up or down in the inflation rate, you see what it does to the liability. It the same with wages. All the major assumptions that affect the pension plan, whether funded or unfunded, also have this disclosure here.

If I can go further, there's a whole additional section later on in volume 1 with additional information on pension.

in the French version,

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

That's not the information I was asking for.

I was saying that, pursuant to a Supreme Court ruling, as a state, you were responsible not only for unfunded liabilities prior to 2000, but also those after 2000. According to certain international conventions, all debts related to pension funds should appear in financial statements. That's what happened in Greece, where huge deficits were discovered. I do not see those international standards and the court's ruling reflected in the table on page 1.24. It may be a good idea to add this information. I would also like to point out that, if liabilities after 2000 were added, financial assets would be added, too. As for the net debt, we hope there will be no changes. If there were any changes, they would be noted immediately, and corrections could quickly be made.

Here is my question. Would it be possible for you to integrate that international standard and the Supreme Court ruling in this table to ensure that the liabilities are subdivided better and that the assets take into account funded dollars?

[Bill Matthews]

This is an interesting question. I know that we are following the accounting standards established in Canada by the Public Sector Accounting Board.

It doesn't require any such recognition of liabilities for all pension plans. That doesn't fit our accounting standard model.

I do appreciate there's an international norm out there. That sort of thinking has not found its way into Canadian accounting standards. If it ever does we would certainly have to follow it or we would be in trouble from our friends here to our left, but I would be surprised if any Canadian accounting standard would say the government is responsible for all pension deficits. For the government's own pension plans, absolutely, but I'm not aware of any kind of discussion that would take us down that track. I'm not sure if you are either?

No?

[The Chair, NDP, David Christopherson]

The time has expired. Thank you.

Over now to Mr. Albas.

You now have the floor, sir.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you very much, Mr. Chair.

Thank you to all our witnesses for your presence today.

I am going to start with Mr. Leswick. I believe page 1.6 discusses a little bit about the employment insurance regime. Could you just give me a brief outline of where we're at in the public accounts this year and maybe where we were the previous year as far as the EI fund is concerned.

[Nicholas Leswick]

When you say “where we're at”—

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Pardon me, that's not today, but as the public accounts closed out on March 31 of this year, could you just give us an idea? It does show that the revenues increased by $1.4 billion. Where is the fund at ? Is it in surplus? Is it in deficit? It's just for the people at home. I know many people rely on this program and would certainly like an update on that.

[Nicholas Leswick]

If you'd just allow me a moment, that would be very helpful.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Sure.

[Nicholas Leswick]

Thank you for the question. Just to provide some background, the composition of the employment insurance account is driven by revenues collected from EI premiums. Those revenues are driven by total employment in the Canadian economy and also insurable earnings, so as insurable earnings go up people will pay more based on the EI premium rate. If more people are working, obviously there will be more revenues flowing into the employment insurance account.

Then also there's the actual EI premium rate setting. In the current setting the rate is $1.88. Then there are EI benefits, which is the entire suite of employment insurance benefits from regular benefits, sickness benefits, and then special benefits like maternity benefits and fishing benefits, for example, plus any administration costs from Employment and Social Development Canada and the Canadian Revenue Agency, which are the two biggest players on that.

In terms of the EI operating account balance, our most recent projection was in Budget 2014, where we projected the cumulative balance in a deficit position for 2014-15 of approximately $1.5 billion, leading to successive surpluses in future years—gradually going to the surplus position as the economy strengthens.

I'll leave it at that.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

It says that EI premiums revenues increased by $1.4 billion, and you made the connection that obviously if you have high revenues, that's because there are more people working. Is that the case?

[Nicholas Leswick]

That's it in part. In fact, it's those three things I mentioned: employment; how much people are making, so insurable earnings; and the premium rate setting itself. Those three factors drive the revenues.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Great.

And this next question may—

[Bill Matthews]

Sorry, can I just interject one thing, if you don't mind?

If you're interested, in section 4 of volume I, the EI account actually has its own financial statements, so if you want to follow up on those and actually track against projections, they get their own audit opinion.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Great. Thank you very much.

This question might be either for you, Mr. Matthews, or for Mr. Leswick.

Obviously in Okanagan—Coquihalla we have a lot of people who retire to British Columbia. It's a wonderful place to be. I've had a lot of people ask questions about benefits for the elderly, and obviously the changes in demographics always make me ask these kinds of questions. I understand there was an increase year over year in actual dedicated funding for benefits for the elderly. Could someone just give a little bit more detail as to what the increases were and the rationale behind them?

[Bill Matthews]

I'll start and if others want to join in, please do. The important thing about the benefits for the elderly is that they are statutory votes. So they're actually protected in legislation as opposed to being voted on by Parliament each year.

The benefits themselves are a function of the number of recipients who are of the appropriate age, and the payments that they receive on a biweekly basis. Those benefits are fully indexed to the consumer price index, so they will go up based on the consumer price index.

The only thing I should add to that in terms of forecasting is that they did go up, but they didn't go up quite as much as we had forecasted simply because the CPI was lower than anticipated. So when we actually did the math, it worked out to be a little less than anticipated. They are fully indexed to the consumer price index, and that's why they're protected, and that's what drives the increase. Those numbers will continue to go up based on our population trends.

[The Chair, NDP, David Christopherson]

Sorry, time has expired. Thank you.

We will move over, back again to Mr. Regan.

You have the floor, sir.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chair.

Mr. Matthews, as you noted earlier, I'm not a regular member of this committee. I'm normally a member of the natural resources committee. I don't want to offend the analysts at that committee—who are excellent, by the way—when I say how impressed I was with the quality of the research material provided by the analysts at this committee, and I want to thank them for that.

[The Chair, NDP, David Christopherson]

Thank you. We do take great pride in the work they do, and, quite frankly, without them, we couldn't do our work. So that's well noted and supported by this committee.

Thank you.