PACC Committee Report

GOVERNMENT RESPONSE TO THE RECOMMENDATIONS OF
 THE EIGHTEENTH REPORT OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS, TABLED IN THE HOUSE OF COMMONS ON MARCH 12, 2002.

Mr. John Williams
Chair
Standing Committee on Public Accounts
Room 750, Confederation Building
House of Commons
Ottawa, Ontario
K1A 0A6

Dear Mr. Williams:

Pursuant to Standing Order 109 of the House of Commons, I am pleased to respond on behalf of the government to the recommendations of the Eighteenth Report of the Standing Committee on Public Accounts, tabled in the House of Commons on March 12, 2002.

We note your Committee’s interest in the Government’s review of the premium rate-setting process.  You should be aware that senior officials from both the Office of the Auditor General and the Office of the Comptroller General are active participants on the Public Sector Accounting Board’s Task Force on the Government Reporting Entity.  Accordingly, the Government is pleased to respond to the constructive recommendations of your Committee.  Finally, the Government is updating the guidelines used for recommending access to the contingencies votes.

I would like to personally thank you and the members of the committee for the efforts and interest shown in your review of the Public Accounts and the Financial Statements of the Government of Canada.

Yours very truly,

John Manley

Government response to the recommendations of the Eighteenth Report of the Standing Committee on Public Accounts, tabled in the House of Commons on March 12, 2002.

RESPONSES TO RECOMMENDATIONS

RECOMMENDATION 1 -- That the Government of Canada, in its review of the premium rate-setting process of the Employment Insurance Program, request input and recommendations from the Standing Committee on Finance and submit a copy of its findings and recommendations to Parliament, and in particular, to the Public Accounts Committee.

RESPONSE:

The consolidation of the Employment Insurance (EI) premium revenues and program costs in the Government’s financial statements and the setting of the premium rates has resulted in a confused debate about the role of the Commissioners and the effect of the EI program on the Government’s financial statements. 

It was for that reason that the Government asked the House of Commons Standing Committee on Finance to review the EI rate-setting process.  The Committee, in its December 1999 Report, recommended that the Government consider revising the accounting practices related to EI and the manner in which premiums are set.

Specifically, the Committee noted prior to Bill C2, the legislative provisions included both a “look forward” and “look back” process and that as long as the “look back” provision was in place, setting of EI premium rates would cause serious disruptions to the overall management of the federal government’s budget.  The Committee also noted that the EI account is a bookkeeping entry only to record activities for the purposes of the “look back” provision. 

The Committee, therefore, recommended that the federal government consider revising the accounting practices related to Employment Insurance and the manner in which premium are set by eliminating the “look back” provision.  It also noted that by doing so there would be no need to prepare separate EI financial statements on the cumulative balances in the EI Account subject to audit.  It also recommended that EI premiums should continue to be reduced so as to gradually reach the break-even rate. A copy of their review and recommendations are attached. 

The Government of Canada has announced that the Department of Finance, in co-operation with Human Resources Development Canada, will provide Canadians with an opportunity to present their views on the rate setting process.

RECOMMENDATION 2 -- That the Government of Canada, particularly the Department of Finance, disclose all relevant criteria used in determining the 2002 and 2003 premium rates for the Employment Insurance Program.

RESPONSE:

The key factor in setting the premium rates for 2002 was the outlook for economic growth in 2002.  For budget planning purposes, the Department of Finance uses the average of private sector economic forecasts for key economic variables, such as real gross domestic product, inflation, employment, unemployment rate and interest rates.  In addition, it meets with its private sector economic advisory group, consisting of the chief economists of Canada’s chartered banks, to obtain their advice on the appropriateness of these forecasts. 

Economic growth slowed dramatically in 2001, reflecting the impact of the global economic slowdown as well as the tragic events of September 11^th.  The consensus view was that these developments would also restrain the rate of economic growth in 2002.  Private sector economists forecast average annual growth of 1.3 per cent for 2001 and only 1.1 per cent for 2002.  These economic forecasts, as well as the uncertainty surrounding these forecasts, were key factors in setting the EI rates for 2002.

Consultations were also undertaken with Human Resources Development Canada.

The recommendations of the 1999 report from the House Standing Committee on Finance were also considered.  They recommended that rates continue to be reduced so as to gradually reach the break-even rate. 

The Ministers of Finance and Human Resources Development recommended to the Governor-in-council that a reduction in the EI premium rate from $2.25 to $2.20 was most appropriate.  This was also the planning rate used in the October 2000 Economic Statement and Budget Update.

The EI premium rate for 2003 will be set in the fall of 2002.

RECOMMENDATION 3 -- That relevant officials from both the Office of the Auditor General and the Office of the Comptroller General participate in the Public Sector Accounting Board (PSAB) project on clarifying the interpretation and application of the financial reporting requirements of government transfers to ensure a more consistent interpretation of the intent and requirement of the PSAB guidelines and complete the project by 2004.

RESPONSE:

A senior official from each office is a member of the PSAB Government Reporting Entity Task Force.  The project is expected to be completed by 2004.

RECOMMENDATION 4 -- That the government review the practice of making significant grants under temporary authority from contingency votes (Vote 5). That, once the review is completed, the government table a report of its finding and conclusions to Parliament no later than 31 March 2003.

RESPONSE:

The Treasury Board Secretariat will update the guidelines that are used for recommending access to TB Vote 5 and present them to Treasury Board Ministers for approval. The resulting guidelines will be communicated to all interested parties.