Public Accounts Committee on Oct. 17th, 2017

[The Chair, Conservative, Kevin Sorenson]

I'm told that typically in volume I the pages are pretty well the same.

[Bill Matthews]

Pretty close.

[The Chair, Conservative, Kevin Sorenson]

There is quite a bit of difference in volume II. It's page 11.41 in volume I.

[Chandra Arya, Liberal, Nepean, ON]

It's quite big. Wherever it is, there is $258 billion.

[Paul Rochon]

That is the value of the insurance in force by the two private sector insurers that operate in Canada, that is to say, Canada Guaranty and Genworth.

[Chandra Arya, Liberal, Nepean, ON]

What have you done to ensure that this actually doesn't turn into a regular liability?

[Paul Rochon]

The $258 billion is the total insurance in force. The government has guaranteed, in the event that either of those companies would not be able to meet their obligations—so effectively go bankrupt—that after a 10% deductible was paid, the government would guarantee the mortgages in question.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Ferguson, this guarantee is issued by the Government of Canada for a couple of private sector companies. What have you done to check that it actually doesn't turn into a major liability for the government?

[Michael Ferguson]

Well, that's what the process is with all the contingent liabilities. The federal government guarantees a lot of things, whether it's those insurance programs, or loans, or other types of things. In all of those cases in the accounting—the departments involved—the comptroller general's office will assess what is the likelihood there would be a payout. They will manage it from the point of view of whether there is any possibility that the federal government will have to pay out. It will be different on every type of contingent liability because they are not all the same. We would go through it to determine whether they have done the due diligence to make an appropriate assessment of whether there is a likelihood that the government would have to pay out.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Arya. We're a minute over.

We'll now go to Mr. Liepert, please, for seven minutes.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thank you, Chair, and good morning, everyone. Thank you all for being here this morning.

I want to ask a couple of questions around net debt. Net debt of $714 billion is minus the asset value of $66 billion. How do you put a value on the assets? There's always a debate about whether bridges that are owned by government, or highways, or whatever the government might own, can be sold. Can you give us a quick overview on how you value the asset base?

[Bill Matthews]

Maybe I'll start, Mr. Chair.

The net debt figure number as referenced is on page 2.6, if you're looking at our financial statements.

It is on the same page in French.

The net debt is very much around liabilities less financial assets. That's the cash and things we can turn into cash, accounts receivable, for instance. That's what gets you to net debt. It is your liabilities less your financial assets, and the net debt is $714 billion.

Below that you'll see the non-financial assets. Those are the bridges, the buildings, the trucks. That's what gets you to accumulated deficits. In answer to the member's question on how we value those tangible assets, we start with what we paid for them and we depreciate them. If it's a bridge, it might be 50 years. If it's a truck, it might be 10 years. We do look at the assets to see if they're actually holding their value, because there are times when an asset is clearly not going to last as long as we had hoped, so we would write that down if that were the case. Those assets don't impact net debt. They do impact accumulated deficit.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Okay. Where would the $237 billion of pension liabilities come in?

[Bill Matthews]

That amount is up in the liabilities, and that would impact net debt, absolutely. All liabilities are factored into the calculation of net debt, so you are seeing those liabilities reflected in that number.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

That answers that.

I want to ask about the public debt charges. There's a comment that the public debt charges actually decreased because of the lowering of the interest rate, but in the last year, we've now had a couple of interest rate increases. Is that going to turn that around in future years?

[Bill Matthews]

I will start, but I'm going to turn to my friends in Finance.

That question is very much around what kind of debt instruments the government has basically availed itself of, fixed rates, long term, short term. What you're seeing in terms of the actual results is the interest the government has paid.

On the question on the impact of interest rates on future interest costs, which I believe is what you're after, I'll turn to Paul and Nick on that.

[Paul Rochon]

To the extent that interest rates rise, naturally the debt charges on our market debt will increase. There will be an offset, however, from the actuarial value of the pension obligations, because as the discount rate on those obligations rises, the current service costs will be reduced, but I would expect on net, the answer to your question is that, generally speaking, with an increase in interest rates, debt charges will increase.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I want to ask a couple of questions about the write-offs. There are write-offs of $4.3 billion. Can you give a couple of examples of what may have been written off in the past year that would account for the majority of the $4.3 billion?

[Bill Matthews]

Mr. Chair, I'm just wondering if there's a page reference we can get.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I'm looking at a document that you probably don't have, but it refers to volume III, page 2.7-2.11 of the Public Accounts of Canada. I don't have the public accounts document, but—

[An hon. member]

Here.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Well, I'm not going to start looking at that in my seven minutes, thank you.

[Voices]

Oh, oh!

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

This document from the library refers to page 2.7, and it provides information pertaining to debts, obligations, and claims written off or forgiven by the government in the amount of $4.3 billion, compared with $3.3 billion in the previous year. If you don't have anything handy on that, maybe you could provide it to the committee going forward.

I have one other question for the Auditor General, if I may.

[The Chair, Conservative, Kevin Sorenson]

Pose your question, and I'll come back to Mr. Matthews in regard to your question on the debt.