Public Accounts Committee on Nov. 18th, 2022

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks. I think I finally got my mike working properly.

Mr. Leswick, I just want to get back to the issue of including CPP and QPP assets as part of our debt-to-GDP ratio. Where are we, when you take out those assets, in comparison to other countries in the G7 and the OECD? Are you aware of any other countries in the G7 that include their pension assets such as CPP in their debt-to-GDP ratio?

[Nicholas Leswick]

To be clear, this math, this methodology and this calculation are entirely an IMF calculation. This is what the IMF does to put all these countries on a comparable basis. That's because the reality is that a lot of G7 countries—this is actually quite shocking—take their social security contributions, like CPP premiums, and put them against general revenues. They don't have dedicated asset accounts.

[Kelly McCauley, Conservative, Edmonton West, AB]

Do they not quite often buy government bonds, municipal bonds and state bonds with those?

[Nicholas Leswick]

No. They don't fund the accounts whatsoever. They take the premiums and throw them against general revenue, and it's like a pay-as-you-go scheme.

In order to recognize that, the IMF takes our CPP and QPP accounts. I'll footnote this, because I don't love it, but they bring in—

[Kelly McCauley, Conservative, Edmonton West, AB]

It's because we're not matching. We're not listing the actual outstanding liabilities.

[The Chair, Conservative, John Williamson]

Mr. McCauley, could you let Mr. Leswick finish his thought?

[Nicholas Leswick]

It's a recognition that we don't take the premiums into general revenues. Again, I feel like I'm defending an IMF position—which I've pretty much fought my entire career—in trying to reconcile some of this craziness.

It's the same thing in terms of public sector pension schemes, such as employee pensions benefits for the public sector employees. You'll see a matter of adjustment in the same table on page 36, as well. This is what the IMF does to put all these G7 countries on some sort of level of comparability around their debt-to-GDP metrics.

That's my best explanation, but I principally have the same concerns. It is a showcase. It's their best effort at what the IMF can do in terms of apples to apples comparison.

[Kelly McCauley, Conservative, Edmonton West, AB]

That's fair.

Sticking to pensions—maybe this is for the Treasury Board—for the funded public sector pensions, we use a much higher discount rate than the unfunded.

Why do we do that? What would our unfunded liability be if we used the same discount rate?

[Roch Huppé]

You'll remember a few years back, based on the Auditor General's recommendation and observation, that we changed our discounting methodology for the unfunded portion of the pension.

For the funded portion, the member is absolutely correct. We use what we call the expected rate of return, which is in line with the current public sector standards. That said, there's a lot of work being done by the Public Sector Accounting Board and the international standard board on that perspective as we speak.

Again, we—

[Kelly McCauley, Conservative, Edmonton West, AB]

Can I interrupt you for two seconds?

Would you be able to provide us with what the added liability would be if the funded discount rate was similar to the unfunded?

The reason I ask that is I remember reading a report in which the Treasury Board justified using a higher discount rate because it had a higher rate of return. It has a higher rate of return because it's investing in higher-risk assets, and it can invest in higher-risk equities and assets because the taxpayers will cover any losses. It's a very circular logic, because the taxpayers will cover any losses on our investments.

I'm wondering, if we went back, as C.D. Howe and others have said, to using real returns or bonds like the unfunded, what the outstanding liability would be.

Obviously, you can get back to us, because I don't want an answer right now.

[Diane Peressini]

We don't compute what the differences are to bring it back to the same discount rate.

What is disclosed in the public accounts on page 85 in the pension plan note is the sensitivity analysis. An increase of 1% in discount rates on the funded has an impact of $27.9 billion on the liability and a decrease of $35 billion—

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm probably going to run out of time here.

Could I ask another question?

[The Chair, Conservative, John Williamson]

I'm afraid you are out of time, Mr. McCauley. You could speak to Mr. Kram about splitting time.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay. Thanks very much.

[The Chair, Conservative, John Williamson]

Turning now to Ms. Bradford again, I don't know if your question to the comptroller was complete last time, but the floor is yours again for five minutes.

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

Good. I'm glad to get back to this. Where was the train of thought here?

I know what I wanted to ask. You mentioned that when you write something off, it's not necessarily written off forever. If circumstances change, you can go after that entity again.

In the case of bankruptcy of a corporation or an individual, can you go back after they've come out of bankruptcy, or does bankruptcy absolve them?

[Roch Huppé]

In bankruptcy, you become discharged.

I want to make a point here. When I say you write something off, like I said, you need to meet certain criteria. Your collection action will basically stop. I'll give you an example.

On the tax write-offs—which are a few billion every year—the CRA will receive money from individuals who, although their account has been written off, will stay pay their amount due. There are monies that are still recovered, but not necessarily through active collection action a lot of the time.

However, if you're in a situation in which you cannot locate a debtor and then you have information that may allow you to resume collection action, you're entitled to do that in some of these cases.

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

What are the key reasons for which write-offs and forgiveness increased by 75% from the previous fiscal year?

[Roch Huppé]

It was mainly due to tax receivables and the work the Canada Revenue Agency is doing. During the pandemic, I would say there was a certain amount of relief, but more flexibility was provided to the taxpayers in times of crisis.

Somewhere in 2021, the more traditional collection actions slowly went back to normal. That's why we're seeing a bit of a spike this year compared to previous years. It's because there was a bit of an adjustment in the collection measures that were being done.

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

The next questions are for the Department of Finance.

In its “Commentary on the 2021-22 Financial Audits”, the OAG stated that in the 2022 federal budget:

the government projected that overall public debt charges will rise to $42.9 billion, making up 8.5% of the government's projected expenses, by the 2026-27 fiscal year, compared with 4.9% in the 2021-22 fiscal year.

What are the new projections at Finance Canada for public debt charges?

[Nicholas Leswick]

Again, our new forecast for public debt charges was outlined in our most recent fall economic statement.

Were you interested in just the nominal value of those debt charges?

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

Yes. That would be fine, as well as the percentage of government expenses.

[Nicholas Leswick]

The page reference is page 51 in the fall economic statement, if you want to refer to that at some point.

In the 2021-22 year, which is the year we're discussing in these public accounts, it was $24.5 billion. Over the forecast horizon, we would project those to increase to $44.8 billion over the seven-year horizon. As a percent of GDP, that would be from 1% to 1.3%.

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

How dependent are these projections on interest rates? For example, how would an additional 1% increase in interest rates impact these projections?

[Nicholas Leswick]

We included a sensitivity analysis in our most recent budget projections. Those are also on page 247 of budget 2022, if you are interested.

We show how interest rates impact both revenues and expenses. On the revenue side, you're probably wondering how that works. We have a lot of interest-bearing assets on the federal balance sheet, so higher interest rates means higher revenue. However, we also have—