Public Accounts Committee on May 3rd, 2022

[Michael Sabia]

Chair, I'm going to give you a double-barrelled answer.

First, I'll just comment on the numbers and then I'm going to turn to my colleague, Nick Keswick, who is—

[Kelly McCauley, Conservative, Edmonton West, AB]

Answer really briefly, though. I have a couple of other questions for Ms. Hogan.

[Michael Sabia]

All right. We'll suspend the tutorial from Nick on how these international adjustments are made.

Mr. Chair, even if you look at this on a gross basis, Canada ranks either second or third in the G7.

[Kelly McCauley, Conservative, Edmonton West, AB]

Yes, it's third.

[Michael Sabia]

Whether net or gross, the position of Canada is quite strong on a global basis.

[Kelly McCauley, Conservative, Edmonton West, AB]

I appreciate that.

The reason I bring it up is that when you look at net, we are first. When you look at gross, which is more apples to apples, we drop to third. In the OECD, we drop from eight to 29. It is quite significant.

I realize it's politics, but I find it a bit misleading to the public when we cherry-pick numbers to present to the public. I appreciate that you're saying it is not as easy as is being put forward.

Ms. Hogan, I just want to go back to you.

The funding issues for your office have been well publicized. I'm just wondering for how many years the Office of the Auditor General has requested budget increases and added resources. How many years have you been declined for that?

Do you know the reasons why those requests were declined?

[Karen Hogan]

To my knowledge, the first time we actually made a formal request was probably in 2017 following the deficit reduction action and the increase in our work. At that time, Mr. Ferguson requested funding. He only received a portion of the funding that he requested. We asked every year subsequent to that until we received funding in 2021.

The reason is that we are treated like every other department. Our funding request goes into the mix and is factored when decisions are made as to where funding is allocated.

[Kelly McCauley, Conservative, Edmonton West, AB]

It strikes me as a bit of a conflict of interest when the government is deciding how much to pay the auditors to audit them. Should Parliament be deciding this for the Auditor General's office, independent of the government?

[Karen Hogan]

Mr. Chair, many MPs might recall that when I was appointed, I resubmitted a request for funding. Even during my confirmation hearings, I made it clear that not only did we need funding to address the short and medium term, but in the long term, trying to have a mechanism that would be independent of the departments that we audit is one that would further enhance my office's independence.

It is one that we see in certain provinces and in other countries. I do believe that finding a solution to a stable, long-term, independent funding mechanism is the next logical step to making sure the office is adequately funded going forward.

[Kelly McCauley, Conservative, Edmonton West, AB]

So you'd support legislation stating September 30 for a drop-dead date for the public accounts and then the Parliament deciding your budget I assume.

I have one last question for you. It's on page 18 and maybe even the finance folks could explain it. Could you dumb it down for us? It's the accounting for the Bank of Canada's purchase of Government of Canada bonds, the $19-billion loss there. It's in volume I. Can you walk us through it on a real low-level basis?

[Karen Hogan]

I will do my best and then if a member from the Department of Finance would like to add, they are more than welcome to.

[Kelly McCauley, Conservative, Edmonton West, AB]

Repurchasing bonds.

[Karen Hogan]

This was a measure that the Bank of Canada did to inject liquidity into the market, so they purchased Government of Canada bonds off the market. Those Government of Canada bonds were not retired; they're still out there. So when you consolidate and pick up the Bank of Canada and put it into the government, you can't hold your own assets so you need to have an accounting treatment to eliminate those assets.

They purchased the bonds at a value that was higher than what they were issued at, to the tune of $19 billion, and that then is recorded as an expense in the government's financial statements. It's to recognize that the value of the bonds had increased since their issuance and in order to buy them back, you needed to pay a premium on them.

I invite the Department of Finance perhaps to add, or do you have a follow-up question?

[The Chair, Conservative, John Williamson]

No, I'm afraid Mr. McCauley's out of time here. There will be, I think, time for another round but we're going to move on to Mr. Fragiskatos.

You have the floor now for five minutes, please.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Chair. Thank you to the witnesses.

Before I get into questions, and I'm sure this is just a simple error, Chair, but I do think that we need to follow our routine proceedings that we've passed collectively as a committee. Today, Chair, Mr. McCauley in the first round was given a total of eight minutes. He was allotted six but given a total of eight. He's very happy about that but, again, paying attention to the routine proceedings....

Even with the point of order he was at seven minutes, 30 seconds, so a minute and a half over. In his second round he was allotted five. It was clearly close to six minutes. Liberal members along with the Bloc and the NDP have been kept very close to time. I would just urge, Chair, that we pay attention to routine proceedings and give members allotted time and allow them to ask questions without going very overboard in terms of time.

[The Chair, Conservative, John Williamson]

Of course. As soon as I heard “point of order” I hit the pause on his clock. There was some back and forth there. In this meeting in particular I've been trying to keep it as close to time as possible. In fact, I believe I also cut him off at 15 seconds near the end as well.

Having said that, point taken. I'm going to give you time from the top because I don't want to take away from your time so go ahead for five minutes, please.

[Peter Fragiskatos, Liberal, London North Centre, ON]

As I said, Chair, it's important for me to say and I'm sure it was a simple mistake.

Mr. Sabia, thank you for the work that you've done during the pandemic, and to your colleagues as well and to the whole department.

You've wanted to put on the record today, and haven't had a chance to, the adjustments that you've referred to with respect to the IMF. I wonder if you did want to note that for the record and it would benefit the committee for us to know as well.

[Michael Sabia]

There's no one I know who has mastered that better than Nick Keswick, so over to you, Nick.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Okay.

[Nicholas Leswick]

If it needs to be a matter of record to the committee, you can see the comparison between G7 countries on page 37. We outline the mechanics of going from the accumulated deficit basis, which is the debt metric you see in the public accounts and what the federal government reports on in its updates and budgets: how you get from there to this definition of “total government net debt”, which is what the IMF uses to compare on an internationally comparable basis.

I admit that there are a lot of gymnastics here, to be quite honest, because of the diversity in terms of how governments operate at the sovereign level and the sub-sovereign levels, how they fund their social security schemes and how they fund their internal public service pension and benefits schemes.

The IMF has to do a series of mechanical adjustments to level-set all these G7 countries. You can see those mechanics on page 38. The big elements here, though, are accounting for public sector pensions and benefits, so again, internal to government pensions and benefits, and also, as the member opposite spoke to, the inclusion of the CPP/QPP assets.

A fundamental issue there is that most other G7 countries don't fund their social security schemes, so they take the equivalent of what is the CPP premium and they bring it into their income statement, effectively managing these social security schemes on a pay-as-you-go basis. To establish this level of comparability, the IMF, in a kind of distorted way, takes that into consideration and brings the assets of the CPP/QPP into the accounts of Canada in order to compare these across G7 countries.

Understand that your target of criticism, because you have to ask yourself whether the assets of the CPP/QPP would be available to the government in a time of distress, and I think clearly they.... Well, I'll leave it for some future government to decide—

[Voices]

Oh, oh!

[Nicholas Leswick]

—but just on the algorithmic mathematical principle here, I think we could probably appreciate that we're trying to establish this comparability, which is why they're taken into consideration to achieve this bottom line. I understand where others come out to in terms of the commentary, but that's just the mechanical explanation of what's going on there.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you.

I notice that in terms of the composition of expenses, there's a big difference.

You touched on this, Mr. Sabia, in an earlier answer, but I want to ask it again. For public debt charges in terms of composition of expenses for 2021, it's 3.2%, and you look at 2020 in the public accounts, and it's 6.5%. What accounts for the wide difference between the two?

[Michael Sabia]

Chair, I would ask the member to give me those numbers again, please.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Sure.

The composition of expenses in 2021 as far as public debt charges are concerned was 3.2%. In 2020, the number was 6.5%. That is a very significant difference. I just wonder what accounts for that.