Public Accounts Committee on May 19th, 2016

[Diane Peressini]

It's $27 billion.

[Bill Matthews]

Thank you.

It's $27 billion, so it's in the nine cents ballpark, as the member mentioned, Mr. Chair.

Interest expense in general has been going down because, as we are aware, there are low interest rates right now. Government holds a mix of shorter-term and longer-term debt arrangements, so it's not all just short-term rates, but the interest rate itself is going down, and that has been driving down public debt charges.

Is there anything you wish to add?

[Nicholas Leswick]

No, but I will reference page 1.9 in volume 1, which shows you the interest ratio on public debt charges since 1990. It shows the downward trajectory that the comptroller general was speaking to.

[Pierre Poilievre, Conservative, Carleton, ON]

Given the terms and timeframes of Government of Canada debt issuance, how long would it take for an increase in interest rates to translate into an increase in debt service charges?

[The Chair, Conservative, Kevin Sorenson]

Mr. Leswick.

[Nicholas Leswick]

It's immediate, and there are two reasons for this. One is that, as the comptroller general was saying, we borrow across the yield curve. We have our debt management strategy, which tries to manage its cost and risk dynamics.

One is cost. Shorter-term borrowing is less costly, because we're borrowing at lower interest rates on the far left-hand side of the yield curve. But we want to manage our risk dynamics, in the sense that we don't want to roll over the stuff every three months, because we don't want to subject ourselves to the interest rate roll-over risk. Effectively, we borrow steadily across the yield curve.

To answer the member's question directly, if short-term rates went up tomorrow, our short-term borrowing costs would go up tomorrow, so there would be a direct impact almost immediately. However, you have to manage that in context of the entire $600-billion borrowing program, which is the entire value of our interest-bearing debt.

[The Chair, Conservative, Kevin Sorenson]

We will now move over to Mr. Arya, please, for five minutes.

[Chandra Arya, Liberal, Nepean, ON]

My question is for Ms. Hogan. The Auditor General made a statement on DND: “Strong internal controls reduce the risks of misstating the consolidated financial statements and making decisions without accurate information.” In your opinion, do they have strong internal controls today?

[Karen Hogan]

We do not do an internal control audit over their inventory. We audit it substantively. As Mr. Matthews mentioned, there is room for improvement in the systems to ensure that inventory is more accurate.

[Chandra Arya, Liberal, Nepean, ON]

Maybe I will ask Mr. Ferguson. In your opinion, do they have this?

[Michael Ferguson]

As Ms. Hogan mentioned, when we audit something—a balance sheet item or transactions in a set of financial statements—the first thing we will do is assess the internal controls to determine whether they're sufficient for us to rely on when we are expressing our opinion.

In the case of the DND inventory, we do not rely on the internal controls. They have some, and as I've said, they've been doing a better job in terms of some of their quantity pricing, but their level of internal controls is not sufficient for us to be able to say that we can rely on those controls to be able to do what they are supposed to do. They definitely need to improve on their controls as well.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

[Bill Matthews]

Just to further explain that, the Government of Canada has a policy on internal control that every department aspires to comply with, because it is fairly new in policy terms—meaning several years old. DND is targeting compliance by 2018-19. They would admit themselves that they have a distance to go on internal controls. As the Auditor General just underlined, the audit does not rely on that control environment, so it is a work in progress.

[Chandra Arya, Liberal, Nepean, ON]

My next question is on volume 2, section 9. I was trying to find out the amount of money that was allocated or spent under one of the programs called Canada summer jobs. I couldn't find it. In the last committee meeting I was told that maybe we can find it on the website of the department. I went back and tried to find out, and I didn't find it there. The same volume 2, section 9 goes on to give details about a $2,000 item, but major program information is not available either in this report or on the website of the department.

How and where can I find it?

[Bill Matthews]

This drifts into an interesting area. The way that Parliament actually votes money, there are three buckets for most big departments: capital, operating, and grants and contributions. That's the vote structure.

But associated with that, every department has multiple programs—many programs, and the member has highlighted one here for Canada summer jobs. I'm going out on a limb here, but the way you can find that information is that every department produces what's called the departmental performance report, which is their actual results as compared to their planning information. You will see information by program there. It should be in the departmental performance report on the department's website.

We will look and provide that information.

[Chandra Arya, Liberal, Nepean, ON]

Concerning budget projections, what in your opinion is the general trend of budget projections during the last 10 years, as to whether governments underestimate or overestimate in their projections?

[Bill Matthews]

Maybe I will start. I like to get the first word in and then give my colleague the chance to clean up.

When you look at budget projections, understand that there is a revenue and expense base of roughly $280 billion, depending on the year. Plus or minus $10 billion is a lot of money, but as a percentage it's pretty small stuff. Understand, then, that this is in context, because in the assumptions that we have to make, it's quite possible that you'll see that.

If you go back over history, the government has had a better track record in estimating expenses. Revenue is more problematic. The revenue estimates are tougher to do, but the reason varies by year. Some years it's the exchange rate; some years it's corporate taxes.

The budget is done typically two months or so before the year starts. In an environment in which the economy is changing rapidly, it is tough to estimate.

I'll let Mr. Leswick see whether he has anything to add.

[Nicholas Leswick]

I'll just say that the C.D. Howe Institute does a report card for all federal and provincial governments, and they grade us in terms of transparency and just general results—results in terms of bias and accuracy—and the federal government is at number two. We got an A-minus in the most recent report card, so we do all right.

[Chandra Arya, Liberal, Nepean, ON]

Good.

Last, I have a couple of quick questions, if I have some time. Just to reconfirm, does the $671-billion debt on the balance sheet include guarantees, and does it include the consolidated debt of all crown corporations, including CMHC but excluding Canada Post?

[Bill Matthews]

My colleague Diane may have to help me on this, Mr. Chair.

In terms of the debt, it is all government debt, wherever we have a legitimate debt that we think we will have to pay. It is loans, it's pensions, it's accounts payable. We consolidate our crowns in it, but we have a different method of accounting for some crowns from the method used for others.

I'll have her weigh in on CMHC versus Canada Post Corporation.

Concerning the second piece, on loan guarantees, these guarantees don't necessarily result in payments, so the actual debt number would not include loan guarantees. Loan guarantees are disclosed in the notes to the financial statements so that you get a sense of the size, but they're actually not part of the debt unless we think we would have a call on them.

[Chandra Arya, Liberal, Nepean, ON]

Are they not all government liability?

[Bill Matthews]

They would fall into that category, and some we think might be realized and some we think won't be. You'll see in the notes to the financial statements some detail on that.

Diane, do you want to weigh in on debt for CMHC and Canada Post?

[Diane Peressini]

Both CMHC and Canada Post are accounted for in the same manner, as Bill mentioned earlier, in terms that we bring them in rather as an investment. Their individual debt balances are not part of the government's debt line, because they're reflected as an investment on the asset side.

That being said, there are a number of crown corporations that borrow from the federal government. I believe CMHC is one of them. I could be wrong. Therefore, because they borrow from the federal government their debt is part of our government debt.

We can confirm to you, if needed, whether CMHC is one of the five.

[The Chair, Conservative, Kevin Sorenson]

We will now go back to the official opposition and to Mr. Poilievre, please.

[Pierre Poilievre, Conservative, Carleton, ON]

I'm just looking at the maturity dates and benchmark bond target range sizes that are published in the debt management strategy of the budget, and I gather that this year we're doing a lot of bond options to raise money for not only this year's deficit but for previous accumulated debt that has come to term.

By my calculation, we will raise as much as $72 billion in two-year bonds. Is that roughly accurate, Mr. Leswick?