Public Accounts Committee on May 3rd, 2022

[Michael Sabia]

Mr. Chair, I'm not sure what the question is.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

If the government is spending $98 million, is that truly revenue-neutral?

[Michael Sabia]

You go ahead, Nick, because my answer is yes, it is.

[Nicholas Leswick]

Thank you for the question, because I think it establishes some clarification.

There are two elements. The bulk of the revenues are repaid, for lack of a better term, 90% plus through the climate action incentive payment. The remainder, which is the $98 million you're referencing, is through federal programming, where you're trying to target the not-for-profit sector, schools, hospitals, or small and medium-sized enterprises.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Yes, but would you agree with me that support for federal programming is akin to government spending?

[Nicholas Leswick]

I can't deny that it is delivered through a government program.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

That $98 million is not returned, so it is not revenue-neutral. We can say “bulk”. We can use [Inaudible—Editor] terms, and you will apologize. It's just that, when the government starts to leak, those leaks tend to get bigger, historically. The Income Tax Act was only going to be a temporary measure, right? It starts with $98 million, and that million turns to billion.

[Michael Sabia]

All I can say is that I think we disagree on that point.

I will just make two points.

First, it is the law of the land that it has to be revenue-neutral and, therefore, it is handled and treated that way. We certainly do not think about any income we get as something that's comparable in any way to a tax revenue. It's not for us to spend in different ways. It has to be returned.

Second—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

[Michael Sabia]

I will really quickly—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Okay.

[Michael Sabia]

We do have a bit of work to do. You're right on that. We have a bit of work to do on small and medium businesses, and in other areas where we need to get some payments out that are not yet out. When they are, it will be completely revenue-neutral.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I think the $98 million means it's not revenue-neutral, but we can agree to disagree.

I have one final question for the Department of Finance.

The bringing in of $10 billion from the tribunal into these returns.... By bringing in extra money and not pushing it out, that would in fact help the government's narrative that they are actually declining the amount—the debt-to-GDP ratio—as opposed to that money being realized later. Is that not correct?

[Michael Sabia]

Mr. Chair, my answer to that is no, not necessarily. It would depend on.... It's very counterfactual. We're in the realm of the counterfactual here—how that money is profiled over time. It wouldn't necessarily particularly change the slope of the line on, say, deficit-to-GDP or the deficit numbers themselves.

That being said, from our perspective—and again, ultimately, the clean audit opinion speaks volumes about the validity of the decision that was made.... The point here is that, by booking those revenues when they were booked, we believe that the public accounts are a more accurate reflection.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I understand that, Mr. Sabia. My belief, though, is that if you have the $10 billion earlier in the timeline as opposed to later, it creates an artificial decline in the amount of debt or deficit, as opposed to realizing it later. If we have a higher number earlier, does that not mean we'll have a lower number later? Like, it's only common sense there, with respect.

[Michael Sabia]

Well, again, I don't want to debate geometry here.

[The Chair, Conservative, John Williamson]

Can you give just a quick answer, please?

[Michael Sabia]

What to say...? If that money were distributed differently, I think you could probably configure a line with a very similar slope. I'm not sure that the point the member is making about how booking it in a particular period was helpful to an argument about declining deficits to GDP.

[The Chair, Conservative, John Williamson]

Thank you. I appreciate that. I'm just under the gun here, and I know that you are as well.

Ms. Bradford, you have the floor for five minutes, please. It's over to you.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Thank you.

Shifting gears here, Auditor General, could you describe the weaknesses with respect to the management and accounting of National Defence inventory and “asset pooled items”? Do you believe they're on track to resolve these problems, and why?

[Karen Hogan]

Our concerns around National Defence's management of its inventory and asset pooled items has been ongoing for many years—for 18 years, to be exact. The department submitted to this committee a detailed 10-year action plan to try to address the concerns with inventory management back in 2016. They are on track for the items in that plan.

We do monitor it every year. However, there are some really significant items that are yet to come, including the implementation of a new system and some bar-coding of inventory, which will help with inventory movement and management. Every year we do attend inventory counts. We do detailed testing of inventory. We continue to see an error in at least one in every four items that we sample, from a quantity perspective, a valuation perspective or a classification perspective.

It is our belief that until the internal controls around inventory management as well as the implementation of all the elements in the 10-year action plan are done, these errors are likely to continue. Hence, we will continue to monitor it.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Thank you.

Turning back to the Department of Finance, 2020 had unprecedented volatility in revenue due to the pandemic. Which revenue sources were the most stable and dependable in those extreme circumstances?

[Nicholas Leswick]

Indeed it was an unprecedented year. The best representation of our revenue streams are outlined on page 17. Quite honestly, notwithstanding the fact that we had the largest economic shock since the Great Depression, our income tax streams held up pretty well. The economy bounced back pretty strongly. The recovery path exceeded expectations.

You can see that in terms of income tax revenues, principally personal and corporate income tax revenue streams held up over the course of the pandemic, or at least the 2021 fiscal year. Other revenue streams took a little bit more of a hit. As contact-sensitive sectors closed, our retail sector and associated GST revenues took a hit as well. Likewise, in terms of tradables and other elements that are subject to some of our excise taxes, those declined as well.

That's the basic narrative. You can see the detail in the table that I outlined.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

In the public accounts, the one-time GST credit payment was reported as one of the reasons for the decreased revenues. Do you think it's appropriate to classify this as lower revenue or as an expense?

[Nicholas Leswick]

Historically, our tax transfer programs that are refundable are categorized as a negative revenue. That speaks to the point that you were trying to make. I could ask the Auditor General to speak in terms of the accounting principles behind that, but traditionally our GST credit, which I believe is one of our largest refundable tax credits at the household level, has always been treated as a negative revenue.