Honourable senators, I was listening to Senator Plett, and I was thinking, thank goodness I’m not saying the same thing as Senator Plett. I have some new material, so bear with me.
I’m going to give you some numbers first — and I know you won’t be surprised to hear that — and talk about supplementary estimates, and relate it back to Minister Duclos and what he was saying when he was in the chamber on Tuesday.
The supplementary estimates include $87 billion in new spending, of which, $6 billion is voted and $81 billion is statutory. We focused on the $6 billion in the Finance Committee. We heard from six organizations that are responsible for about $2.7 billion of the $6 billion, so we looked at about 44% of the total voted amount requested.
We had one committee hearing of three hours. Of course, it was over Zoom, so it wasn’t as thorough as hearings in previous years. The time allotted to each senator for questions was significantly less than in previous years. The chair, since we were meeting by Zoom, kept us very tightly controlled. There are challenges that remain with the virtual meetings; not everybody has good internet access. The technology is not perfected yet, so there are challenges.
I also want to remind honourable senators that when we studied the $6 billion, this was the first money that we studied this year, because we didn’t study Main Estimates, and we didn’t study either of the interim supply bills, one of which we passed yesterday. We had limited information with which to study Supplementary Estimates (A). What I find when we study money bills is that we build a foundation. What we learn when we study the previous money bill helps us to study and to ask questions on the next one.
As I indicated, we met for three hours and we held hearings. We had six organizations testifying: Innovation, Science and Economic Development Canada; Indigenous Services Canada; Department of National Defence; Public Services and Procurement Canada; Public Health Agency of Canada; and Canadian Air Transport Security Authority.
Now, while we held one meeting on Supplementary Estimates (A), it was clearly insufficient. We didn’t have an opportunity to ask anything about the $80 billion in statutory funding, because we are sometimes given an opportunity to ask questions on statutory funding.
So this year we held one meeting with six organizations. Last year, when we did Supplementary Estimates (A), we had two meetings with eight organizations. The year before that we held three meetings with 10 organizations on Supplementary Estimates (A). I felt, by the time we finished, that we really hadn’t done what I considered to be a good, thorough job.
I know some people have put forward the argument that $81 billion of the funding in this year’s Supplementary Estimates (A) is statutory and therefore has been approved by other legislation. I’d like to say that these are new programs that were established a few months ago because they’re COVID-19 related and in response to the pandemic. I think parliamentarians should have been provided sufficient time to study their costs.
In fact, if you look at the full $87 billion in the supply bill, you will see that almost $80 billion was approved by the Public Health Events of National Concern Payments Act, which was enacted when we approved Bill C-13 in March. So we didn’t have an opportunity to discuss those items at all.
When I spoke last, I was talking about some arithmetic. I’ve got to go back to my little arithmetic lesson and just remind you that Main Estimates for this year is $308 billion, and supplementary estimates is $87 billion, so the government’s spending plan thus far is $395 billion. When Minister Duclos was here the other day, he said $26 billion of that amount remains to be approved by Parliament, and we may get a chance to look at that in the fall. We’re looking at $6 billion today.
After today, $369 billion will have been approved for the government to spend this year, and the Finance Committee has looked at $6 billion of it. Just think about that: $369 billion, we’ve studied $6 billion, and it was only for three hours. That’s not good parliamentary oversight.
A similar thing happened in the House of Commons. Normally the House of Commons, like the Senate, spends a significant amount of time studying and analyzing government spending plans in various committees and, like us, calling witnesses to testify, but not so for these Supplementary Estimates (A). The other place held a four-hour Committee of the Whole to discuss Supplementary Estimates (A). As the Parliamentary Budget Officer said in his report:
It will be difficult for parliamentarians to perform their critical role of properly scrutinising proposed Government spending in the four-hour window.
That applies to us. I don’t think we performed the critical role of properly scrutinizing proposed government spending this year. In fact, the money has been spent and we haven’t scrutinized it.
As I said, we heard from six organizations, but there were others that have substantial amounts of money in Supplementary Estimates (A) that I would have liked to have heard from, but time is short. That includes Crown-Indigenous Relations and Northern Affairs. They requested $879 million, which is a substantial amount.
I would have liked to have heard from the Department of Finance officials. They requested $1.7 billion. Probably at the top of my list was CMHC, because they requested $3 billion for the Canada Emergency Commercial Rent Assistance for small businesses. I think that Senator Plett mentioned that this morning. CMHC is requesting the second-largest amount after Employment and Social Development Canada. And Employment and Social Development Canada is the one that received the budgets for almost all of the COVID-19 programs, like CERB and those types of programs. So CMHC was the second largest, I would have been interested in hearing from them. I guess we’ll hear from them when we do our COVID study.
For me, CMHC is of particular interest, not only because of the $3 billion included in Supplementary Estimates (A) but because of their involvement in the housing market. CMHC insures mortgages and are involved in other significant financial activities that are not reflected in Supplementary Estimates (A).
For example, the mortgage market in Canada is $1.6 trillion, and it appears that CMHC’s insurance threshold is approaching 46% of the mortgage market, so there is the ongoing question as to the exposure of CMHC and the impact it could have on the government’s debt and deficit. The issue of CMHC and its involvement in mortgages and risk assessment has been raised at previous meetings of the Finance Committee, mostly in anticipation of a potential recession, but the pandemic is something we never envisioned. I don’t know what impact CMHC will have on the government’s debt and deficit.
As I’m sure everybody knows, CMHC is a large Crown corporation with a mandate to promote the construction of new houses, the modernization and repair of existing houses and the improvement of housing and living conditions.
Because CMHC is a Crown corporation, it borrows under what we call the Crown Borrowing Program. It also insures mortgages, holds mortgages and it carries out a number of programs. Although they did not testify before our Senate Finance Committee, they did testify before the House of Commons Finance Committee since the beginning of the pandemic and provided some insightful testimony.
I usually look at the Finance meetings over at the House of Commons. Initially just the transcripts were available, but you can get on and watch the actual hearing. For anyone who’s interested, it’s a good source of information.
So at that meeting over at the House of Commons Finance Committee, Evan Siddall, President and CEO of CMHC, had some interesting testimony. He told committee members, “Canadian consumers will face previously unheard-of levels of debt as households confront shrinking incomes and mounting bills in the months to come.”
So his testimony was a while back: it was last month, or might have been even six weeks. What he said is coming true.
He said at the time, “One in eight households with a mortgage has deferred their payments.” He said this “could increase to one in five if the economy does not recover.” He added that:
. . . higher mortgage debt, declining house prices and increased unemployment is cause for concern for Canada’s longer-term financial stability.
Governor Poloz appeared before our Finance Committee at the Senate after I had read that testimony that Evan Siddall had provided. So I asked him about that statement, the cause for concern for Canada’s long-term financial stability. I don’t know if I misread him or not, but I felt like he downplayed it. Maybe it’s not a concern, but it seems to me it should be.
Since CMHC is the underwriter, and this is Evan Siddall speaking again, of the majority of insured mortgages in Canada, “CMHC will be on the hook for paying off banks’ bad mortgages,” which he estimates could cost $9 billion. If that’s the case, I expect to see those numbers roll into the government’s deficit.
In any event, CMHC will testify as part of our COVID-19 study in the fall, but a review of CMHC’s annual report and the Bank of Canada’s balance sheet will give you some idea of CMHC’s activities during COVID-19.
I’ve always been interested in CMHC. Their year-end is December 31 and they usually release their annual report the first week in May, so I was looking for it. They did release it. I thought it would be delayed. I thought there might be something in there on the COVID-19 programs, but there was very little. They did have what you call a “subsequent event” note, and it says:
As part of Canada’s COVID-19 Economic Response Plan, on 16 March 2020, the Government of Canada announced it is launching an Insured Mortgage Purchase Program (IMPP), whereby, the Government will purchase up to $50 billion of insured mortgage pools through CMHC.
Then it says:
The purchase of insured mortgage pools under the IMPP will be financed through the Crown Borrowing Program.
That links back to the question I’m always raising. The Crown borrowing program — there’s so much borrowing in that, and we seem to forget about it when we talk about the government’s debt.
I’m going to move on to the fiscal update. Many economists; politicians; think tanks; and others, including the Parliamentary Budget Officer, the former Parliamentary Budget Officer, parliamentarians and the general population have discussed a need for a fiscal update. The Prime Minister has finally made a commitment to provide a “fiscal snapshot” — that’s what he called it — on July 8.
The past three months have been very difficult for all Canadians. For those of us tracking the unprecedented level of spending; the unprecedented level of borrowing; the activities of the Bank of Canada; the activities of the government; and the government’s Crown corporations, including CMHC, EDC and Farm Credit Canada, it’s almost been impossible to get a handle on what is happening financially within government. Financial information has always been limited or, as Senator Harder said the other day, there’s reams of it, but you have to bring it together. It’s always a challenge to figure out what is actually happening, more so in the past three months.
So we do need a fiscal update to understand where we are financially.
The government says it has been transparent about its spending, but it hasn’t. We can’t even tell what overall spending has been so far, let alone projections for the future, or what revenues the government has received so far, what guarantees have been honoured and what is happening in the Crown corporations.
The June 17 media advisory from the Department of Finance indicated that the minister will present an economic and fiscal snapshot on July 8. The advisory continues on to indicate that the snapshot will provide information on the current state of the economy and the Government of Canada’s response to support Canadians during the COVID pandemic.
I’ve never heard of a fiscal snapshot. I’m a professional accountant. Maybe it’s a new term and I’m dated in my terminology, but I’ve never heard of a fiscal snapshot.
Minister Morneau was asked about this at Question Period on Tuesday, and he said that while some assurances were given, we will have to wait until July 8 to see if people receive the information they are looking for.
The information definitely wasn’t received on Tuesday.
While the government has committed to an update, or a fiscal snapshot, next month, those of us interested in this information are left to try and, as I put it, figure it out on our own.
One of the areas I’m interested in is our market debt. This unprecedented level of spending is being financed by debt. It is not just the Department of Finance looking for debt financing; the Crown corporations are busy financing their COVID-19 spending programs with debt. These Crown corporations include the Business Development Bank of Canada, CMHC, the Export Development Corporation and Farm Credit Canada.
So I become quite frustrated when I hear or read articles that the government’s debt is approaching $1 trillion. Government exceeded this threshold a number of years ago. Consider this information in the government’s 2019 budget document last year — and this is taken right from the budget document. The Borrowing Authority Act approved:
. . . a maximum stock of outstanding government and Crown corporation market debt of $1,168 billion . . .
And that same budget document, which was released a year ago, projected that the outstanding government and Crown corporation market debt would reach $1,070 billion by March 31, 2020. So we’re already over a trillion dollars. That’s our market debt before the pandemic spending started. This $1,070 billion includes $754 billion in the Department of Finance and $316 billion in the Crown corporations.
For those who think that the $360 billion in debt in the Crown corporations is not government debt, let me assure you it most definitely is government debt.
According to Treasury Board — and it’s disclosed on the Government of Canada website — here’s what it says:
The Crown is ultimately fully liable and financially exposed for all actions and decisions by its agent corporation while the corporation is operating within its mandate. In other words, the corporation’s assets and liabilities are the assets and liabilities of the government.
So we know that outstanding debt was projected to be $1,070 billion at the end of March 2020. To determine what the government’s market debt is of today, I don’t know. You’d have to start going to various reference documents and try to put it together yourself.
One is the bi-weekly report on Canada’s COVID-19 emergency response. Every two weeks, they send out a report — usually early in the week — so we wait to see what’s in it. The sixth report indicates borrowings of $350 billion during the pandemic, but that includes not only new debt but the refinancing of existing debt.
I was trying to get it broken out, but we weren’t successful. We tried to contact the Department of Finance, but they were busy with the pandemic programs. I don’t know if that $350 billion includes the borrowing of the Crown corporations, so they left out their question.
Another source of information on the borrowings is the Bank of Canada’s weekly balance sheet. If you go on their website, you can track what’s happening with their balance sheet, and you can see that they are buying debt. Last week, the bank’s balance sheet shows, under the heading of the Government of Canada, treasury bills of $118 billion, Government of Canada bonds worth $152 billion and Canada Mortgage Bonds amounting to $7 billion.
When we’re looking at the debt, the Crown corporations and the government debt, we’re trying to match up the numbers, but they don’t really align. I guess we’ll have to wait till the Minister of Finance gets back to us.
This question remains unanswered: What is the total market debt of the government as of today? Like I said, I don’t know. But I do know that the government should be providing us with this financial information. We have no idea what the deficit is. We don’t know what the borrowings are. We’re looking to the Parliamentary Budget Officer, and he’s providing us numbers, but the numbers should come from the Minister of Finance.
I know that when officials from Department of Finance testified before our committee — this was a while back, and I had asked when we were getting a fiscal update — I did say, “We have this deficit number of $252 billion from the Parliamentary Budget Officer,” and the witness from the Department of Finance said something — I can’t remember the exact wording — but it was something that would indicate that’s the number from the Parliamentary Budget Officer, but the Department of Finance has access to more information.
It left me wondering whether the Parliamentary Budget Officer had gotten all the information he should have had when he projected his deficit.
As I said, we have to seek out information from various sources and try to put it together ourselves.
It’s not just the government that’s got a problem with debt; household debt is an issue too. We’ve been tracking household debt over the past three years, especially so since the pandemic, because household debt is very high to start with. Statistics Canada, on June 12, reported that household debt as a proportion of household disposable income rose during the first quarter of 2020. I’d expect it to rise further in the second quarter, as it was in the second quarter that the pandemic really took hold.
Prior to the pandemic, economists were saying that household debt was a key vulnerability to the Canadian economy. The International Monetary Fund has also expressed that same opinion in its reports. We met with representatives of the IMF a couple of years ago, and that was their big concern — the high household debt of Canadian consumers. It seems like Canadian consumers love debt.
Statistics Canada also told us that Canadians — and this is not the government — owe $2 trillion in debt. Of that, $1.5 trillion is mortgage debt, while the remaining $800 billion is consumer debt and non-mortgage loans.
One of the issues being tracked by the Bank of Canada is the number of people having trouble staying on top of their mortgages. Currently — this is the Bank of Canada saying this — the mortgage arrears rate is at slightly more than 0.2% and it is expected to increase once the payment deferral plans expire and people are required to start paying on their mortgages again.
The Bank of Canada says one out of every five home-owning households in Canada currently doesn’t have enough money to cover two months of expenses and almost one third doesn’t have enough to cover four months. Given the high level of debt held by Canadians, the deferral of mortgage payments and the high rate of unemployment, many Canadians will be facing a difficult and stressful summer and fall.
Before I move away from debt and start talking about funding for individual organizations, I wanted to read out something that the Parliamentary Budget Officer said when he testified before our committee. Senator Boehm had asked him a question on trust. Somewhere in the answer, the word “debt” was said. So, of course, when the Parliamentary Budget Officer responded to Senator Boehm, he got into borrowing and he said, “. . . I’m very, very concerned . . . providing . . . power together with all the other powers that you mentioned — borrowing almost without . . . limit . . . .”
What he’s talking about is Bill C-13. Part 8 sort of removes the current obligations from the minister for the current requirements to report on borrowing. It sort of lightens the load for him.
Mr. Giroux continued:
. . . borrowing almost without any limit, without any immediate oversight — in one person, it’s something that, in my opinion, is unprecedented in the current regime and in Canadian history. Even though speed is at a premium right now, it doesn’t mean that the minister should be allowed to act by himself or alone to create trusts by corporations and borrow billions of dollars, which is what Bill C-13 has given in terms of powers to either one minister or cabinet without oversight from Parliament.
That pretty well sums it up. We don’t know what the borrowing is. Ordinarily, when the budget comes down in March or February, whenever it comes down, right at the back of the budget book there is a section on borrowing. It provides all sorts of information on borrowing; it’s really quite interesting. But because we didn’t have a budget this year, we don’t have that information. So I’m using the budget book from a year ago. Bill C-13 removes a lot of obligation from the minister for reporting on the debt. We’re just in limbo now, waiting for the fiscal snapshot to see if we can get something out of that.
I have to remain hopeful July 8 will provide more information, but we’ll see. We only have to wait a couple more weeks.
I want to talk about some individual organizations. When we study supplementary supply, we look at what is included in the bill, but sometimes we give some thought as to funding we thought would be included. We’re looking for it, but it’s not there.
I would like to comment on one organization for which I thought funding would have been included but was not. That’s the additional funding that the Auditor General had requested. My colleague across the way asked a question of the Minister of Finance on that the other day. That dovetails nicely into my comments.
Over the past six months, as a bit of background, the House of Commons has approved three motions requiring additional audits to be undertaken by the Auditor General. The first is an audit of the $180 billion infrastructure program which is being delivered by 32 federal departments and agencies over a 12-year period. That’s going to be a big audit — $180 billion, 32 departments and organizations and over 12 years.
The second is an audit of the COVID-19 programs. The magnitude of this audit can be seen by reading the government’s bi-weekly reports on COVID-19. It includes all of those programs like CERB and the wage subsidy program — all the COVID-19 programs designed to help individuals and businesses. Of course, it includes government’s borrowing during the pandemic and all government programs associated with CMHC and other Crown corporations. That’s a massive undertaking for the new Auditor General.
The third is an audit of special warrants. I’m not so familiar. I would have thought that would not be a big audit, but it might turn into a big audit. The first two are definitely massive audits.
The interim Auditor General — before Ms. Hogan was appointed — testified before the House of Commons Finance Committee last month. He told the committee that audit work has been significantly reduced because of funding constraints. They were looking for additional funding. I thought it was $10.8 million, but I saw another figure later of $11.8 million. Anyway, it’s in the vicinity of $11 million.
Two weeks ago, the House of Commons Finance Committee unanimously passed a motion, including the MPs from the Liberal caucus, to provide the Auditor General with all the funding she needs to carry out her audits. The supplementary supply bill provided an opportunity to include the funding for the Auditor General, but I don’t see any funding in that supply bill.
From recent media reports, I understand she’s looking at the numbers now. It seems the government might give some funding. The problem I have with it is that, on the one hand, the government is giving the impression that it is being accountable and transparent by asking that the programs be audited or at least supporting that the programs be audited. On the other hand, they’re refusing to provide the resources to enable the Auditor General to do so.
Testimony was given by six organizations. I will comment on three of them. First, the Canadian Air Transport Security Authority, CATSA, is requesting $309 million for aviation security screening services. I have said before when I have spoken about the budget that you see an organization requesting funding, you can’t just look at it by itself. You have to see what has happened in the past and also take a look into the future.
For this particular request, I was looking back because I remembered something in last year’s budget implementation bill. Division 12 of Part 4 of the budget bill, Bill C-97, would dissolve CATSA and transfer all airport screening to a non-profit agency. This part of the Budget Implementation Act was carved out and referred to the Standing Senate Committee on Transport and Communications for study at that time. Their report dated June 6, 2019, expressed serious concerns about the changes proposed in the Budget Implementation Act. Those concerns are outlined in their report.
At our Finance Committee meeting last Thursday, the CEO of CATSA informed our committee that the federal privatization of airport security is delayed indefinitely due to the pandemic. Although this part of the Budget Implementation Act was referred last year to the Transport and Communications Committee for study, it does have financial implications for Canadian taxpayers and travellers. I suggest our Finance Committee consider studying the matter.
The Department of Indigenous Services was another one of the six departments testifying at our committee meeting last week. They had the largest voted item, $468 million to strengthen the safety and well-being of First Nations children and their families. That $468 million would increase the program funding to $1.7 billion.
You have to go back and look at last year’s numbers, and those are comparable to last year’s numbers when the main supply provided $1.2 billion and supplemental supply provided another $600 million for a total allocation of $1.8 billion. That looks to be the range.
Therefore, if government is providing $1.7 billion or $1.8 billion each year to Indigenous children and their families, how will this impact the children and their families, and how will the department measure the impact? So we’re going back to the departmental results reports again.
A question on departmental documents was posed to departmental officials. Their departmental documents indicate that the department intends to measure the percentage of First Nation children on reserve in care, with the objective of decreasing these numbers. They will also determine the First Nation communities that run their own family and community well-being programs. Then they listed other performance indicators for other aspects of the program.
When you look at the performance indicators, they appear reasonable, but the targeted achievements have yet to be determined and won’t be determined until March 2021, which is almost in a year’s time, and the date to achieve the targets has yet to be determined, so that brings us way out.
This raises the question that the impact of these programs will not be known for several years, so it’s not possible to know whether these billion-dollar programs are achieving what the government wants them to achieve, and whether Indigenous families and their children are receiving the maximum benefit from that money.
The third department I’m going to comment on — and this is the last comment on a department — is National Defence, because this is a department in which I’ve always been interested. The largest voted item for the Department of National Defence is for the Joint Support Ship project in the amount of $585 million, and it’s for the first of two ships being constructed at the Seaspan Shipyards in Vancouver.
We were interested in knowing the total cost of the project and when it would be delivered, because this project is one of 333 projects in the government’s defence policy that was issued in 2017. That Defence policy spans 20 years and it references funding for Defence capital projects totalling $108 billion over the 20 years, so we usually ask questions on that program.
Officials told us that the estimated cost of the Joint Support Ship project is now $4.1 billion and this first ship is expected to be delivered in 2023. There is some concern about the cost of the project rising, and it’s in the Finance Committee’s report on Supplementary Estimates (A).
The committee has had an ongoing interest in capital projects of the Defence Department and last June we issued a report on defence procurement. Of particular interest was the management of the 333 projects. Since the release of the policy in 2017, the Finance Committee has been requesting financial and other information from the department in order to track the progress of the projects. Despite requests at every Finance Committee meeting attended by Defence officials since the release of the policy in 2017, the information has never been provided.
Similar information has been requested by the Parliamentary Budget Officer and he has yet to receive the information. He has indicated to the Finance Committee that he intends to issue a report on this matter once he receives the requested information, and we are awaiting that report.
Last week, there were several media reports about an internal audit recently posted to the department’s website that indicated lax oversight on military spending plans. The audit was critical of the department, indicating that the lack of monitoring within the department meant senior Defence officials were not receiving clear and accurate information about the state of the plan, and that there is no formal department-wide process to validate the policy initiatives and project performance information.
We don’t know if the department has a project management system or what other means they have to track its 333 capital projects. Suffice it to say that it appears the Defence Department may have a major problem in tracking its projects, and financial and other information requested by the Finance Committee has never been provided. The committee will be addressing this issue when we resume sitting in the fall. The issue is also addressed in our committee report on Supplementary Estimates (A).
My last comment on Supplementary Estimates (A) is more of a matter of interest. I should probably ask questions on it the next time the Finance Committee meets, but when you look at the supplementary estimates, down through the departments, some departments and organizations have the same description of a line item. I noticed that 25 departments and agencies had an item called “Contributions to employee benefits plans,” totalling $100 million. We have never studied this item, but the amounts budgeted ranged from $25,000 for the Department of Indigenous Services to $41 million for the Department of Public Works and Government Services. I can’t offer any explanation for the variations in dollar amounts among the departments and agencies. Suffice it to say that we should earmark that for study in our Finance Committee when we meet in the fall.
Before I sit down, I’d like to say a few words of thanks; first of all to Senator Gold, who is the sponsor of the bill. Thank you very much, Senator Gold, for your comments.
I would also like to thank my colleagues on the National Finance Committee for their excellent questions and also for their enthusiasm, which is very much appreciated.
And a special thank you to our chair, Senator Mockler, deputy chair, Senator Forest, and our third steering committee member, Senator Richards.
To our clerk, Ms. Fortin, and to our analysts, Mr. Smith and Mr. Pu, thank you.
And thank you to all the staff who worked very hard during this pandemic: translators and ISD staff under the direction of Mr. Vatcher. It takes a lot to have those Zoom hearings. And if I missed anyone, I apologize. A big thank you to everyone who worked on that.
I would like to add a thank you to my two staff: Ms. Valérie Wolfe, who has been working under very difficult conditions from home, with a very demanding boss; and also Ms. Julieta Uribe. Julieta has been with me for seven years. She’s my policy adviser and she’s leaving on July 3. She has seized another opportunity, and I think the fact that she’s been with me seven years speaks volumes. I wish her all the best.
Thank you again to my honourable colleagues for making the Finance Committee so successful. My last words are that we do not have parliamentary oversight. It is a big problem. Thank you.