Public Accounts Committee on Nov. 6th, 2014

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chair.

Let me return to the question about tax avoidance that I was asking earlier.

Mr. Matthews, you mentioned, of course, that the pension board is arm's length from government, but of course in the budget this year, the government talked about correcting this problem of tax avoidance, so I guess the question is whether what the board's doing is really in the spirit of what the government, in particular CRA, is trying to achieve.

[Bill Matthews]

The CRA's focus—and you're quite right that it was the focus in the budget—was on taking a strong stance against international tax evasion. If I recall correctly, the 2013 economic action plan, which was the budget, focused on three things. One was the offshore tax information program. Another was strengthened reporting requirements around international electronic funds transfers. And the third was expanded reporting for taxpayers with foreign income.

What's interesting to note on that front—and I'm speculating here—is that in terms of our income tax receipts from foreign recipients, there was a bit of a spike this year. It's not a huge number in terms of the overall global revenue, but it was up by about 23%. I'm speculating that has to do with those measures, but I don't know that for a fact. However, there was an increase.

In terms of your question about whether what the board is doing is consistent with what CRA is doing, we'll have to wait and see the board's response. This is a media story. I'm not aware of any charges of wrongdoing, but they are arm's length from government, so I suspect they will come out with a statement fairly soon. I would assume they would be respecting the international tax laws. It would seem very odd if they weren't, but I'm not part of that board, and they're not part of government. So we'll let them respond.

[Geoff Regan, Liberal, Halifax West, NS]

As all of you know, of course, the winter of 2013-14 was a very tough one in eastern Canada, particularly in Atlantic Canada. Icebreakers and their crews that are run by the coast guard were stretched to the limit, and ferries and other ships were stuck because they couldn't be moved. Now we see that in fact there was a lapse, and yet I have a memorandum from the Atlantic regional director of the coast guard to the commanding officers of all the Atlantic region fleet outlining the fact that funds were running out and they could not afford to bring on additional employees to assist with the demanding winter that they were experiencing. Yet this department lapsed $172 million that it didn't spend. I've had some past familiarity with the Department of Fisheries and Oceans and I enjoyed my time there, but I'm at a loss to comprehend how you can run out of money on the one hand and then lapse money on the other hand.

[Bill Matthews]

I have a couple of comments when you're looking at the lapses.

Parliament votes money in three different votes. It's an antiquated system, but it's operating, capital, and grants and contributions.

If I recall correctly, the lapse at Fisheries and Oceans was around capital. They had delays in projects, and so the money is sliding and is re-profiled.

I haven't seen this memo so I'm speculating here, Mr. Chair, but when you're looking at bringing on additional staff, that's operating dollars. So we hold departments to account. They cannot exceed any one of those votes.

If they want to move money between a capital vote and an operating vote, they have to come to Parliament.

So it's not a global total. You can't just say the Department of Fisheries lapsed x. You have to understand the lapse. If I recall correctly, their operating lapse was fairly small. I think the lapse is capital money.

[Geoff Regan, Liberal, Halifax West, NS]

One hundred and seventy-two million dollars.

[Bill Matthews]

Is it operating or capital?

[Geoff Regan, Liberal, Halifax West, NS]

I'm sorry, I don't.... I have it in front of me. It says $172 million in lapsed funding.

The point is the memo was dated January 14, 2014, leaving the government two and a half months before the fiscal year end to make the adjustment. Parliament sat during that period obviously. It could have dealt with this. Instead $172 million was lapsed, and during that winter you had ships tied up that couldn't move.

I'd be interested to hear from the Office of the Auditor General if that is value for money. Is that considered proper management?

[Nancy Cheng]

Thank you, Mr. Chair.

The questions posed to us are not falling within the scope of the public accounts audit.

I should use this opportunity to once again clarify that our audit work is strictly on the consolidated financial statements, and that's only in section 2 of volume 1.

Many of the questions of interest to members are in section 1. This is primarily the government's own explanation as to what's happening with its finances and the financial performance of the government over the fiscal year.

The member is now posing questions on volume 2, and we would not have touched any of the tables or data in volume 2.

We are looking at these numbers for the first time just as you are when you're referring to them. We know where to find the numbers, but, again, it's not based on audit work, and I would be very reluctant to speak to them.

As you know we do performance audits, and from time to time we'll be selecting some of these subjects, and that gives us a much more in-depth opportunity to study the issue and then be able to come back with reports.

We will note your interest, Mr. Chair, in what the member's asking, but at this point it wouldn't be right for me to try to speculate and provide a response.

[The Chair, NDP, David Christopherson]

Thank you. The time has expired.

Moving along, back over to Mr. Hayes. You have the floor, sir.

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

Thank you, Mr. Chair.

I will stick to public accounts questions. I think the honourable member has strayed considerably from public accounts.

We recall in public accounts we discuss the difference between tax evasion and tax avoidance. In his statement he mentioned tax evasion, and none of us know whether there's been tax evasion or not.

I look forward to studying our chapter on aggressive tax planning, and I'm sure we'll give the member some more feedback after we study that chapter.

That being said I want to pick up a little to get some clarity on EI. I understand, Mr. Matthews, that there's a specific section on EI. I'm not looking at that right now. This is just a general statement, an observation, that we paid out $17.3 billion in EI benefits as an expense yet we generated revenues of $21.7 billion. I think, Mr. Leswick, you mentioned that the balance of the account is still in a deficit position.

So is it fair to state the surplus that occurred in EI this year would go to the balance to offset that particular deficit, resulting in our being in less of a liability than before.

Is that a fair statement?

[Nicholas Leswick]

Yes.

[Voices]

Oh, oh!

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

Very good.

[Nicholas Leswick]

We accumulated significant....

Fair enough.

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

Now, I don't know....

Ms. Cheng, do you want to comment as well.

[Nancy Cheng]

Thank you.

If you go back to volume 1, go to page 4.19, which is where you will see the complete set of the statements on the EI operating account. You have a fair bit of information there, Mr. Chair.

If you look at 2014 actual numbers column, you will see the revenues stated in terms of premiums, penalties, and interest. You will see the expenses in terms of payouts, whether it was a support measure, whether it was other labour market payments. Then you see the funding from Canada. You will see a line that says net surplus for the year. It would appear there was a surplus of $3.2 billion, which was offset against the balance from last year. Now the new balance is a smaller deficit of $2.7 billion.

This also speaks to the point our colleague from Finance Canada spoke about, which is a budgetary projection that there would be a surplus this year, and in fact your surplus exceeded the budgeted surplus.

Hopefully, that helps.

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

Yes, it does help. Thank you very much.

Now, again for Mr. Matthews or Mr. Leswick—I'm really not sure—I want to talk a little bit about expenses as opposed to revenues. I want to get an understanding of this.

In the English version on pages 1.10 and 1.11, we have two charts: one on page 1.10, which is called “Comparison of 2013-2014 Outcomes to 2014 Budget”, and then one on page 1.11 called “Comparison of 2013-2014 Outcomes to March 2013 Budget”. Why are we looking at two comparisons? Which comparison should I be looking at? I find it confusing that we have two reference points there.

[Bill Matthews]

It's amazing, but Mr. Leswick and I were discussing this by email last night.

Our financial statements are driven by externally set accounting standards. It's important to compare results against budgets. That just makes them meaningful. In the way the accounting standards are written, basically the comparator is the initial budget. For the year 2013-14, which ended on March 31, 2014, the first budget was Budget 2013. That's where we first set out the plan for that year.

For Budget 2013, I don't remember the exact date, but it was probably February 2013. A lot happened between that and the year in question: things like the changes we made to the retiree health care plan, the pension plan changes, and the Alberta floods, which I mentioned earlier. As for what Finance will do, they have things like the fall economic update, and then they also have Budget 2014, so for any chance they have to update the economic forecast before the financial results, they'll take that opportunity to say, “Here's our updated forecast.”

In the analysis here, they quite rightly compare it to Budget 2013, which is our starting point, but when they did Budget 2014 they came along and said that some things had changed, and they factored those into their forecast. That's why you get both reference points.

Mr. Leswick can add to this, but Finance always has an amount they set aside for risk. I think it was $3 billion in Budget 2013. I think that by the time Budget 2014 came along, that amount had been reduced, because things were on the upswing and things were looking better.

They make those types of changes.

Do you want to add to that, Nick?

[Nicholas Leswick]

Yes, that's fair. We set out an adjustment for risk, based on potential risks to the economy, in the order of magnitude of $20 billion of nominal GDP. Then, as the year progresses, we unwind it, based on what the actual impacts were on the Canadian economy, on upswings or downturns in actual economic data.

By the time you hit February Budget 2014, we have at least two quarters of economic data and we have eight periods of fiscal data—or what the government has actually spent for eight months of the year—so it's obviously a more robust forecast when we're only a couple of months from the finish line.

[The Chair, NDP, David Christopherson]

Thank you.

Your time has expired.

We're moving over now to you, Mr. Allen. You have the floor again, sir.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair.

Mr. Matthews, I'm going to take you back to the deck you provided me. Maybe it's because it's Thursday and many of us are leaving this evening, but it's cloudy today, perhaps, inside one part of my hemisphere. You talked about restatements. You were talking about bond buybacks. I believe there was one other piece as well, the valuation for social housing. It looks like you took it back over the last two years, 2013-14 and 2012-13, and restated the position based on how you changed the accounting procedure. I get that piece.

Here's what the issue becomes. It looks as if it's somewhere in the neighbourhood, for 2013-14, of about $7 billion, with $5.4 billion for bonds and $1.6 billion for social housing. Does that seem about right to you?

[Bill Matthews]

That's $5.7 billion for bonds on the accumulated deficit, I think, and $1.6 billion—

[Malcolm Allen, NDP, Welland, ON]

Yes, and a $0.2 billion decrease. I didn't get down to the bottom line. I got ahead of myself. That would take it down to $5.2 billion, say, of an increase in the deficit for that particular year. Is that correct?

[Bill Matthews]

It depends on which year you're looking at. If you're looking at the 2013-14 year, there was an increase in the opening balance accumulated deficit of 2013-14 and a $0.3 billion decrease in the annual deficit of 2012-13. If you're looking for the annual deficit impact, it's $0.3 billion in 2012-13 for bond buybacks and then in 2012-13 it's $0.2 billion in the annual deficit related to the social housing program.

The big numbers are on the balance sheet, the statement of financial position, the opening accumulated deficit. That's where you see the larger numbers.

[Malcolm Allen, NDP, Welland, ON]

Okay.

The question that's like an earworm burrowing in there is that without the changes....

And I'm not questioning the validity of this in the sense of our deciding to do this in a certain way. That happens. We've seen this before at this committee. Accounting practices get changed from one to another. That's just the way it is.

But what difference would that have made to the specific deficits of those two years if you hadn't had to make this change? Is that a cumulative piece—in other words, you just simply make a straight subtraction? If you hadn't had to do that, it would obviously be less.