Public Accounts Committee on Nov. 18th, 2022

[Nicholas Leswick]

As the interest rate goes higher, we pay more interest on our debt that we turn over. What the impact on the ratio itself would be depends at what pace the economy is growing. We expect the public debt charges-to-GDP ratio to tick up slightly because of the higher interest rate environment.

[Michael Kram, Conservative, Regina—Wascana, SK]

Okay, but if all other variables stay the same, higher interest rates would lead to a higher debt-to-GDP ratio. Is that correct?

[Nicholas Leswick]

If every other variable in the economy stayed the same, if you had higher interest rates and those interest rates fed through to debt charges, that GDP ratio would go up. There are lots of constant variables, but yes.

[Michael Kram, Conservative, Regina—Wascana, SK]

Okay, that's fair enough.

Interest rates are going up in all the G7 countries. Is that correct?

[Nicholas Leswick]

I believe so.

[Michael Kram, Conservative, Regina—Wascana, SK]

It could very well be the case that in the next few years Canada's debt-to-GDP ratio could go up, and the debt-to-GDP ratios of all G7 countries could go up. We could continue to have the best debt-to-GDP ratio in the G7, not because our debt-to-GDP ratio is getting any better, but because we're all getting worse. Is that a reasonable assessment?

[Nicholas Leswick]

You hear the expression the “cleanest dirty shirt” in the world of debt-to-GDP ratios, because nobody likes public debt. But yes, you're right. We publish these in our budgets and fall updates in terms of Canada's G7 and G20 comparison around these types of debt metrics.

[Michael Kram, Conservative, Regina—Wascana, SK]

Okay, we have the cleanest of the dirty shirts. I may have to use that line once or twice in the future.

If we turn now to page 40 of the summary report, it talks about changing economic conditions and how changes in some economic conditions can significantly affect our country's deficit. For example, “[a] one-percentage-point decrease in...GDP growth would lower the budgetary balance by $5.0 billion”, and there are similar figures for GDP inflation.

Can any of the witnesses speak about the importance of the changing economic conditions outlined on page 40 and why this is something important for public policy-makers to consider?

[Nicholas Leswick]

This is a very generic way just to kind of stress test the financial statements. Obviously, if the economy grows or contracts, that's going to have direct impacts on tax collection and consumption, feeding through to personal and corporate income taxes, GST and other excise taxes. As inflation goes up or down, it feeds through to one side of the income statement, whether it be inflation-adjusted benefits...or a different side of the income statement, whether it be public debt charges and, as you talked about, interest rates feeding through into higher debt charges....

Therefore, this was just a very generic way to demonstrate that in the public accounts. We do a more comprehensive type of sensitivity analysis in our budget and fall update, but it's the same sort of thing.

[Michael Kram, Conservative, Regina—Wascana, SK]

Back on page 35, with regard to the graph with all the other G7 countries, it says that “Canada's total government net debt-to-GDP ratio stood at 33.2%”. What would that ratio be if we did not factor in CPP assets?

[Nicholas Leswick]

This is what I was trying to touch on before.

On the next page, page 36, you see the sum-total value of the assets in CPP and QPP as a percentage of GDP, which you see in parentheses as 15.9%, so roughly 16% of GDP. That's the raw magnitude, but it also gets at the kind of gymnastics that we go through with the IMF and other G7 countries to put these metrics on an internationally comparable basis. You always have to be very considerate about what's involved. This is how we try to at least demonstrate that and be transparent with these types of arithmetic.

[The Chair, Conservative, John Williamson]

Thank you, Mr. Kram. That is your time. I appreciate it and your understanding.

Ms. Bradford, you have the floor for five minutes, please.

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

Thank you, Mr. Chair.

Continuing on that line of questioning, Mr. Leswick, with the accumulated deficit of $1.1 billion, slightly lower than the projection of $1.28 billion, do you feel that the government is on track with deficit reduction?

[Nicholas Leswick]

The government released its most recent fiscal plan in the context of the fall economic statement and how it intends to manage its budgetary balance and that accumulation over the medium term.

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

I'll turn, then, to the Treasury Board.

Looking now at the procurement of professional and special services, which is in volume 3, section 3, what are the three most common and/or costly types of services procured by the federal government?

[Roch Huppé]

Well, in this year's public accounts—I don't remember the exact page—you would see that engineering and architectural services are number one, standing at about just over $3 billion, $3.6 billion or something of that nature. Then you have business services—which basically include auditing, financial management services—and then you also have in there health and welfare services. The other one is informatics services. Those basically form your top four spends as part of the $17-billion overall spend on professional and special services.

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

Pertaining to the past five years, what trends have emerged about the types and costs of the services procured?

[Roch Huppé]

Definitely, over the last couple of years with the pandemic, we've seen an increase.

The largest increase is in health and welfare services. You would understand the reason for that, obviously. The pandemic is the main reason. Then you would see an increase in engineering and architectural services and what we call “business services”.

Again, it's very hard to point out trends. In health care services, obviously we understand the trend from the last few years, but in a lot of other cases it's based on when and why you need these services. That will vary. For example, engineering, architectural and shipbuilding are the types of services you will require, as well as services for a lot of our major real property. We talked about the renovations of the parliamentary precinct, for example. As we're seeing some of these large projects evolve, the need for these professional services will line up with that.

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

What are some examples of “special fees” in relation to special services?

[Roch Huppé]

Some of the examples in there are basically conference fees, hospitality-related fees and membership fees. Those are examples of that.

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

Earlier on, a couple of hours ago, we were talking about writing off or forgiving debts pertaining to the Financial Administration Act. Why did Export Development Canada write off or forgive $193,410,472 in 2021-22?

[Roch Huppé]

My understanding is that this writeoff pertains to a previous loan dating back to the economic crisis. You'll remember there was an injection of funding through loans to the automotive industries. This is basically the writeoff of the last portion of the loan from one of these companies. At least that's my understanding of it.

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

Can you explain for us the difference between writeoffs, forgiveness, remissions and waivers?

[Roch Huppé]

Yes. A writeoff is basically a situation in which you have active collection and you've reached a point at which, for different reasons.... I have the Auditor General looking at me here. We have set criteria in what we call our debt writeoff regulations, under which, if you cannot locate the debtor or there are bankruptcy issues, you can do a writeoff. That does not extinguish the debt. It means that if the conditions change, then the collection can be restarted. We write them off and we provide a clear picture in our books of what we deem to be collectable.

When you get into the zone of forgiveness and remissions, the difference is that you extinguish the debt. That means you're no longer able to legally collect any of that debt. That could be in an area in which there's an unfair situation happening or there could be compassionate reasons, for example. If you have an immigration loan to a family, then for compassionate and humane reasons you may decide to forgive the debt. The idea is not that you've exhausted all of your collection, but really that you're making a decision to completely extinguish the debt for—as I said—other reasons.

[The Chair, Conservative, John Williamson]

Thank you. That is the time.

We turn now to Mr. McCauley. The floor is yours.

You are on mute.