Public Accounts Committee on Nov. 3rd, 2016

[Michael Ferguson]

Again, the government representatives who are in the job of preparing financial statements could also speak to this.

When you're dealing with something like pension plans or employee benefits, the first factor is whether the plan is funded, whether there's an asset base behind it. Once there's an asset base behind it, it depends on what the investment policy of that asset base is, which will result in what the assumed rate of return is for the assets for that particular pension plan. There are assets there, they are invested in certain types of investments, and there's an expectation that there will be a return.

That rate is what is used for the funded pension plan.

[Shaun Chen, Liberal, Scarborough North, ON]

What about unfunded pensions?

[Michael Ferguson]

For the unfunded pension plans, what happens is it's with reference to the government's borrowing rate. It's ow much it would cost the government to borrow if it wanted to fund a particular liability.

When you're comparing discount rates from organization to organization, particularly with pension plans and employee future benefits, you have to know whether you're talking about funded plans or unfunded plans, the length of the liability, and that type of thing. There are many factors that go into it.

What we're pointing out here is that it's important for you, as readers of these financial statements, to be aware of note 8 to the financial statements, which talks about the measurement—the sensitivity, I guess—around estimates, and to know that different numbers for discount rates can result in different estimates of the liabilities.

The liabilities that are in these financial statements are calculated using discount rates that are within an acceptable range, but when you're trying to put an amount on a particular day on the value of all of the future pension benefits, for example, that the government is going to have to pay over the next many, many years as people retire, you can understand that a lot of estimation that has to go into that, and the discount rate is one of those factors.

[Shaun Chen, Liberal, Scarborough North, ON]

For unfunded pensions, you stated that the government uses its borrowing rate. How does that differ from other public institutions and other governments?

[Michael Ferguson]

Any time there's an unfunded liability, particularly for things like employee future benefits, the way the discount rate is determined is by reference to the government's borrowing rate.

Now, different governments may end up with a different number. Some use what the borrowing rate is on that day, meaning how much it would cost the government to borrow on that year-end date. I think that the federal government uses more a blend of different borrowing rates, so there's a slight difference there, but in both cases it would be with reference to what the government's borrowing rate is.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

Before we go to Mr. Doherty, I have a quick question to our finance people.

I know that somewhere, I think in volume 1 in the first few pages, it states that in 2014-15, the rate of interest being paid on our national debt was 9.3%; then in 2015-16, it was down to 8.7%, or somewhere around there. My question is, how much time is actually spent in managing those debt charges? Could you explain quickly?

I know we have long-term debt and short-term debt and bonds and other things that keep debt down, but is there a lot of calculation? I'm asking because a significant amount of money, 9¢ on every dollar coming in, goes to service our debt. How much time is spent in managing the rate?

[Paul Rochon]

Both in the Department of Finance and at the Bank of Canada, we put a lot of time into debt management in doing an analysis of what we think is the right and optimal approach to debt management for the Government of Canada. The types of issues we debate and analyze are related to such things as whether in the current interest rate environment, where long-term rates are very low, we should actually structure the debt in such a way as to move more debt out to the longer end of the curve.

Considerations in those types of decisions involve things such as the natural trade-off between locking into long-term debt at a time when short-term interest rates are low. Probably more importantly, we know that there is what you could almost think of as a natural hedge between debt charges and revenues. That is to say, when revenues decline because the economy is weak, debt charges also tend to decline, so we balance those considerations in our analysis.

We've spent a lot of time internally at the bank, in the finance department, and with external consultants in developing models. We update those models every year, and in the budget we present a summary analysis of our conclusions.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

We'll move to Mr. Doherty, please.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Mr. Matthews, what are the main reasons that program expenses increased more rapidly than revenues in 2015-16?

[Bill Matthews]

There are a couple of factors on the expense side, and others may wish to weigh in on this question.

The first one is that the economy was weakened after the period of the budget, so you had increased EI expenses as number one. I mentioned already the transfer payments to the Provinces of Newfoundland and Alberta, which were not planned in the budget.

The other point I'll make, before I see if there are any additions, relates to the discount rate discussion we just had. The rate the government used during the year over the previous year actually went down, and that drove additional expenses as well. That was a pretty significant hit there. These were the big ones.

Diane, is there anything you want to add?

[Diane Peressini]

Also, some of the changes to veterans' benefits had a significant impact.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

I want to talk about the frozen allotments for Indigenous and Northern Affairs Canada. Could you go into the lapse of $904 million, please?

[Bill Matthews]

The big part of the lapse related to Indigenous and Northern Affairs Canada was that they are in the business of negotiating specific claims. It's really no different than what I had related to you for infrastructure programs, where you're dealing with other levels of government. To the extent that claim negotiations happened at a slower pace than anticipated, they lapsed money. They are frequently on the list of departments with the largest lapses for that exact reason. It's the same thing, and it's usually around specific claims. That's the basis for it.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Mr. Ferguson, with our aging population base, I'm wondering if you could share with us what the median age of our public service workers is. Does the aging population of our public service workers present a problem for the Government of Canada as we move forward, in terms of our public service sector?

[Michael Ferguson]

I'm going to have to defer that question to one of the other witnesses. Before I do that, though, Mr. Matthews mentioned lapsing due to specific claims. We will have an audit on the specific claims process to present to you with our fall report at the end of this month.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Okay.

[Michael Ferguson]

In terms of the demographics of the civil service, I'd have to turn to one of the other witnesses.

[Bill Matthews]

It's not my area of expertise, but in terms of what we've seen—and I'm relying on information I saw from my colleague, the chief human resources officer—there's an aging population, and there are two factors there. One is what to do to replace your workforce. The second is the impact on the long-term benefits. I think we talked already about the long-term benefits.

My recollection on that front is that the rate of retirement hasn't happened as quickly as we would have thought. There's been this projection of a wave coming. The wave hasn't really hit, but it still is an aging workforce. The chief human resources officer would be better placed to talk about the strategy to refresh the workforce.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Doherty.

Now we will move to Mr. Lefebvre.

[Paul Lefebvre, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

I am going to go back to one of the questions that was addressed at the start of the meeting.

This is for you, Mr. Rochon.

How many Canadians have holding companies or family trusts? What are the total amounts held in those holding companies and family trusts? I am trying to determine the wealth of Canadians and of Canada. I do not know whether you can give me an answer. If not, is there someone who could?

[Paul Rochon]

I think an estimate could be made based on data from the Canada Revenue Agency.

[Paul Lefebvre, Liberal, Sudbury, ON]

Where is that data?

[Paul Rochon]

It is in the databases of the Department of National Revenue.

[Paul Lefebvre, Liberal, Sudbury, ON]

Do we have access to that data?

[Paul Rochon]

There are definitely confidentiality issues. Perhaps I could get back to you and tell you whether it is possible to publish aggregate data on that.