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Second Reading of Appropriation Bill, 2016-2017 [Supplementary Estimates (C)]


I rise to speak to Supplementary Estimates (C). The Standing Senate Committee on National Finance held two meetings on Supplementary Estimates (C) and met with officials from eight departments as well as the RCMP.

These are the last supplementary estimates for this fiscal year. These estimates must be approved before Friday, March 31, being the end of 2016-17 fiscal year. As senators are aware, the Main Estimates for 2016-17 were approved last June before the summer recess, as were Supplementary Estimates (A). Supplementary Estimates (B) were approved in December, so these Supplementary Estimates (C) are the end of supply cycle for 2016-17.

One of the major challenges we faced as a committee is reviewing the Main Estimates, which are tabled before the budget and which do not include budget initiatives. For example, the 2017-18 Main Estimates were tabled on February 28 and indicate total expenses of $258 billion, while Budget 2017, which was tabled last week, indicate expenses totalling $330 billion, a difference of $72 billion.

Similarly, the 2016-17 Main Estimates indicated total expenses of $251 billion, while Budget 2016 indicated expenses totalling $317 billion, a difference of $66 billion.

Funding for budget initiatives are usually presented in Supplementary Estimates (A), Supplementary Estimates (B) and, to a lesser extent, Supplementary Estimates (C). The President of the Treasury Board has proposed changes to better align the Main Estimates and the budget. These proposed changes have been discussed with the House of Commons Standing Committee on Government Operations and Estimates as well as the Standing Senate Committee on National Finance.

Within Supplementary Estimates (C), an additional $29 million is being requested by the Department of National Defence for NATO's Operation REASSURANCE in Central and Eastern Europe, which the department estimates will bring the total cost of that program to $92 million in 2016-17.

A particular interest to me is the action plan to address the concerns outlined by the Auditor General of Canada last year in his report on the Canadian Army reserve. The Auditor General was quite critical of the department. For example he found there was a lack of clear guidance on preparing for major international missions; the army reserve was not fully prepared for domestic missions; they did not have the soldiers they needed, and army units did not have the equipment they needed. Department officials have indicated that no additional funding has been provided to address the problems identified with regard to the Canadian Army reserve as any corrective action would be funded within existing funding allocations. Departmental officials indicated that they are finalizing their response and developing an action plan, and as part of that plan will identify whether additional resources are required.

Officials indicated that under the defence renewal initiative, the department has already reinvested between $400 and $500 million internally to date with a further ambitious objective of reinvesting between $750 million and $1.2 billion annually starting in 2017- 18. In addition, the defence policy review is ongoing, and officials informed us that it was before the government so we will have to wait and see whether the review addresses the problems identified last year by the Auditor General.

Last year the government also announced plans to allocate $186 billion for infrastructure investment. This program is the subject of much debate as well as study by the Parliamentary Budget Officer and the Standing Senate Committee on National Finance. One of the major issues identified with the infrastructure program relates to the pace of delivery of the program. The first phase of the program included $13.6 billion over two years, and that would be for the year just ending and next year. As of last month, departments have identified only $4.6 billion worth of projects, indicating a significant gap of $9 billion between what was planned and what is actually happening. This concern was heightened by Supplementary Estimates (C), indicating that $3 billion of the 2016-17 funding was frozen, and that $2.1 billion of this would be deferred to 2017-18. A significant amount of this funding relates to the infrastructure program.

Another issue identified by the Parliamentary Budget Officer relates to the lack of performance reporting by the government on the infrastructure program. There is no performance measurement framework with which to determine the success of the program. This is especially disappointing as the government has previously disclosed that it would provide an increased focus on results. In addition, there is limited reporting on how the money is being spent. As of last month, only Infrastructure Canada had published a list of funded projects, while the remaining 32 departments and agencies had not published their list of approved projects.

I've spoken previously of my concerns regarding deficit financing, the cost of servicing our increasing public debt and the impact it will have on all Canadians, especially our children and grandchildren. Interest payments on the debt are statutory expenditures that do not require annual approval by the estimates process. Quite often estimates will indicate a reduction in the estimated interest costs of the public debt. This reduction affects the government's bottom line as it reduces the deficit. The government tables an annual debt management report each year, and the latest report for the 2015-16 fiscal year indicates that the outstanding market debt as of March 31, 2016, was $670 billion. The recently released budget document indicates outstanding market debt as of March 31, 2017, is $691 billion, while the outstanding market debt as of March 31, 2018, is projected to be $729 billion.

Most interesting was the cost of servicing this debt compared to previous years. The report states that the weighted average rate of interest on outstanding market debt was 2.03 per cent in 2015-16, down from 2.27 per cent in 2014-15. As such, the interest costs of market debt decreased from $14.7 billion in 2015-16 to a new 10- year low of $13.6 billion in 2015-16, a reduction of a full $1 billion.

While lower and decreasing interest rates and interest costs on market debt over the past number of years has been positive, it also demonstrates the vulnerability of the government's bottom line should interest rates increase. Interest rates have risen in the U.S. and the expectation is that interest rates will rise in Canada, probably next year if not sooner, and this could have a major negative effect on the government's bottom line.

Supplementary Estimates (C) also include funding requests of $178 million to write off approximately 32,000 unrecoverable student loans. As indicated by Employment and Social Development Canada, defaulted loans are written off on a regular basis, which is accurate because, as a member of the committee, writeoff of student loans has appeared in previous supplementary estimates.

This year, as in other years, members of the committee requested additional information on student loans, including defaulted loans, loans to be written off. Departmental officials provided the following information. First, student loans are non- budgetary as they have to be repaid. However, when they are written off they become budgetary items, are recorded as expenditures and accordingly increase the government's deficit. Second, the Canada Student Loans program provides over $2.7 billion in student loans each year. And student loans, as of March 31, 2016, totalled $18 billion. Given that questions regarding student loan writeoffs have been asked in the past, departmental officials committed to providing copies of any reviews, audits or evaluations conducted. This information was recently provided to the committee members and we are presently reviewing it.

The committee also discussed the salary for ministers of state who do not preside over a ministry as these are included in Supplementary Estimates (C). However, the Salaries Act stipulates the salaries of certain public officials, including the salary of the Prime Minister, the ministers, the Leader of the Government in the Senate as well as ministers of state who preside over ministries of state. Of specific importance is that the Salaries Act sets the salary specifically of a minister of state "who presides over a ministry of State."

There is no provision in the act to pay the salary of a minister of state who does not preside over a ministry of state. Hence it appears that an amendment to the Salaries Act, Bill C-24, which received first reading in the other place last September, was intended to authorize the payment of salaries for eight new ministerial positions. However, Bill C-24 remains in the other place and was never enacted. As a result, the salaries of ministers of state who do not preside over a ministry of state are included in Supplementary Estimates (C) as voted expenditure rather than as a statutory expenditure like the salaries of all other ministers under the Salaries Act.

In its report on Supplementary Estimates (C), the committee expresses its concern over the recurring practice of using supplementary estimates to pay certain ministers' salaries prior to enactment of the Salaries Act and raises the question in the context of Bill C-24.

Those are my concluding remarks, but I would add that I thank my honourable colleagues for a thorough review of the Supplementary Estimates (C).