Evidence of meeting #15 for Public Accounts in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was billion.
A video is available from Parliament.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
I don't have the the debt management strategy in front of me, but if you're reading it from the debt management strategy, yes, it is accurate.
Conservative
Pierre Poilievre Conservative Carleton, ON
It's not 100% clear, but basically in February they were to have an auction of $12 to $18 billion and another similar auction in May, August, and November. If you add up those totals, it would be as much as $72 billion worth of two-year bonds. I guess what interests me here is that they're only issuing $12 to $18 billion worth of 10-year bonds and $16 billion worth of 30-year bonds. In other words, they're issuing more than twice as much debt through two-year bonds as they are through 10- and 30-year bonds combined. This probably sounds a little bit arcane to the listener, but what strikes me is that now that we have such low interest rates, doesn't it stand to reason that we would want to lock in longer-term borrowing rather than shorter-term borrowing?
The debt we are auctioning now will come to terms in two years. If interest rates go up in, say, five years, then the record low rates that we enjoy right now will be of no value, because we will have extracted all of the benefit of it in simply 24 months. If we were to lock in on a 10- or a 30-year bond for a larger share of the debt offerings, then we would be able to take advantage of these lower interest rates for a generation.
Can you explain why it is? I know you don't speak for Finance Canada's debt strategy, but can you perhaps give us some idea why they might have done that?
Conservative
The Chair Conservative Kevin Sorenson
Mr. Leswick, I think you do speak for Canada's debt strategy. I know that these are discussions that have been held at Finance Canada.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Absolutely.
I don't author the debt strategy, so I'm not super-intimate with the numbers you're referencing, but some principle is in play. I think the member is right: with, effectively, a yield curve that is flatter than at any time in history, why aren't we locking in at lower rates?
To some extent we are increasing our volumes at the far end of the yield curve with the introduction of some of our ultra bonds, 50- and 60-year bonds, and borrowing more at the longer end. However, I talked about cost and risk dynamics; it's still cheaper to borrow at the shorter end of the curve.
Likewise I have to introduce to you that there are financial market considerations as well. If you issued all your debt at the far end, what would happen is that global pension funds would just buy it all up and hold on to it until maturity. We have to be somewhat conscious about liquidity—repo operations, swaps in financial markets, which really need some of the shorter-term maturities to be able to ensure liquidity of what is AAA paper. I'm on the same track; it's just that there is a multidimensional consideration here.
Conservative
Pierre Poilievre Conservative Carleton, ON
But is it really our job to protect liquidity of the lender? Isn't it really our job to get the best deal for the taxpayer, in this case the borrower?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
We have to work with the Bank of Canada to ensure that.... Liquidity is important for us too, because there's a need for some price discovery. We need to know what creditors there are and what the price is for shorter-term yields. We need, then, to ensure the right kind of liquidity. We need liquidity in Canadian financial markets. Part of our financial sector policy in working with the Bank of Canada is to ensure that liquidity.
We also engage in bond buyback operations, for example, so that when we don't feel there is enough liquidity in the market, we'll buy our bonds back at a premium and reissue them to ensure the appropriate churn. Again, it's to make sure that we have that price discovery on Canadian paper.
I don't disagree with you, in the sense that we are in the context of the new government's infrastructure program and of long-term liabilities. Should we be borrowing more at the far end of the curve? It's like your purchasing of a mortgage. You're tempted to buy the five- and even ten-year mortgage right now, because it's cheap. We're going through the same considerations.
Conservative
Pierre Poilievre Conservative Carleton, ON
We're told that now is the best time for governments to borrow because we have record low interest rates. That would presume that this money will be paid back before rates rise. A two-year bond guarantees us low interest rates for two years. Based on your understanding of Finance Canada's projections, are the fiscal deficits that the government is assuming this year and next going to be paid back within two years?
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
It's difficult to answer that question. It's a $650-billion borrowing program, of which this current year deficit, projected to be in and around $30 billion, is just one part. It's difficult to say whether that deficit in particular is bought or paid for in any one particular period, as we manage that cash requirement within a larger debt management program. I appreciate what the member is saying, absolutely. It's just difficult to answer the question directly.
Conservative
The Chair Conservative Kevin Sorenson
We'll move to Mr. Harvey. We can come back to Mr. Poilievre's good line of questioning.
Mr. Harvey.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
My questions are surrounding the liability in contaminated sites, and they're mainly around the assumptions that have been made with regard to the debt. You previously stated that the ongoing liability is estimated for the future at around $5.8 billion, of which $3.5 billion is attributed to the four major sites. We don't need to get into whether or not we should have ever acquired those sites as a government, because ultimately, number one, it's in the past; number two, we probably didn't have any reasonable alternative.
I need a little bit of context around those assumptions: what term the $5.8 billion is assumed as having, and what's included in it. I'm looking at this. You've basically said there are 2,400 sites in total that have been evaluated at some level, and there are 6,200 sites that haven't been evaluated basically at all.
This is just my own personal thought. If I were to say that $3.5 billion is attributed to the four major sites, that would leave $2.3 billion to be distributed over the other 2,400; is that correct?
Comptroller General of Canada, Treasury Board Secretariat
In terms of what we've assessed so far, that is correct.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
Okay. If I were to use that and to divide it on average by the 2,396 other sites, that would leave an estimated cost of around $960,000 per site. If I were to multiply that by 6,200 sites, it would mean that we have about $5.6 billion of unaccounted debt that we haven't allocated. I know that's a broad assumption.
Comptroller General of Canada, Treasury Board Secretariat
Well, the member has touched on an excellent point, Mr. Chair, and my colleagues from the Auditor General may want to weigh in on this.
Number one, the way we classify sites is not random. We look at the sites where we suspect there might be significant contamination or environmental risk. The big ones are assessed first. What's left is those we're less worried about. Understand that there is a hierarchy there. You can't just take the numbers we have so far and extrapolate them over the unassessed sites.
That being said, of the sites that are left, 6,600 or so, if they haven't been assessed, we have not booked anything for them.
One of the interesting questions around the new contaminated site standard is that it forces you to extrapolate more than we have in the past. If you have two sites that are identical or similar and you know what one costs, you should estimate the other one based on that. That's the discussion we've had with the Auditor General going forward: how much do we have to extrapolate? If we haven't actually assessed a site yet, there's really not much we can do there.
The other bit I should say in terms of the sites that are coming is that there's a program called the federal contaminated site action plan. I would commend to you to read about it, because it describes high-priority, low-priority, zero-priority sites as well as the unassessed to get a sense of what's coming. There's actually a database on contaminated sites of the government, so you can see what's out there.
There was money in the last budget to continue to clean up existing sites, but equally important, to continue to assess the ones we haven't yet gotten to.
As a final point, Mr. Chair, the parliamentary budget officer did some work around what the total package is here. The estimation that was done wouldn't meet accounting standards in terms of booking a liability, but it's interesting information to read so that you have a sense of what else is out there.
My colleague has just flagged to me that I should mention I can't talk about contaminated sites without talking about AECL. Atomic Energy is a big part of this as well.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
Okay, that's fair enough. Can you just elaborate a little bit, on the $5.8 billion that we have booked, what the criteria are around that number? I mean, for example, is it length of time? What's included in that $5.8 billion?
Comptroller General of Canada, Treasury Board Secretariat
It's the cost to actually clean it up. If it's a multi-year project that goes 20 years into the future.... To clean up AECL is a long-term game, as is Giant Mine. You would take the long-term expenses and actually discount them back to present value. There are discount rates involved, there are interest rates involved, but it is the present value estimate of the cost to clean up that site to meet current environmental standards.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
Then it would vary by site. In a former life I bought a bunch of contaminated sites before—
Comptroller General of Canada, Treasury Board Secretariat
We have some more we could sell you.
Liberal
TJ Harvey Liberal Tobique—Mactaquac, NB
—from the private sector, but my understanding from that is that the length of time for which we could be committed to these sites could vary from 5 years to 10 to 30 to 100 years, depending what environmental impacts are assessed around it.
What I'm asking is, when you book the cost, are you booking it based on a set amount of time, with plans to renew it and revisit it at another time? Are you booking it on what the projected total lifetime expectancy is going to be to clean up that site?
Comptroller General of Canada, Treasury Board Secretariat
The projected total cost to actually clean it up is what is booked.
Comptroller General of Canada, Treasury Board Secretariat
That being said—there's always a caveat—if the decision is that “we don't need to clean it up; we're just going to put a fence around it and put a security guard there; it's not that contaminated”—I'm making up an example here—that is an operational cost, not really a liability. If, however, it's actually a cleanup that is involved, we are estimating what it's going to cost to clean it up. If it's 100 years of work, we will take the 100-year projection of expenses, discount them back to present value, and that's what we book.
Conservative
The Chair Conservative Kevin Sorenson
A couple of weeks ago, when we were talking about accrual accounting, Mr. Christopherson mentioned that this was one of Daryl Kramp's areas. When we start talking about mine cleanup and contamination and mines like Giant Mine, I expect former minister Fletcher to come rolling in here and go on a rant about this, because this certainly was one of his big areas of concern.
We'll go back to Mr. Christopherson, please, for five minutes.