Welcome to meeting number 27 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of Tuesday, March 24, the committee is meeting on the government's response to the COVID-19 pandemic.
Today's meeting is taking place by video conference and the proceedings will be made available on the House of Commons website.
I'll not go through the technicalities. We've been through them a number of times. However, I would emphasize that the use of a headset with a boom microphone is highly recommended. It makes it an awful lot easier for those who are translating, and I'd ask people to speak as slowly and as clearly as they can.
Before I turn to our witness, the Parliamentary Budget Officer, I want to give MP Morantz a minute for an opening remark on the anniversary he casually mentioned just before I called the meeting to order.
Marty, the floor is yours.
Mr. Chair, thank you very much for giving me a moment.
Today, my home province of Manitoba celebrates its 150th anniversary. It was on May 12, 1870, that we officially became a province, the fifth to join Confederation. The resilience of our prairie spirit, of over 1.3 million Manitobans, has never been more on display than it is now as Manitobans from all walks of life come together as we fight against COVID-19.
Throughout these 150 years, Manitobans have persevered through tough times and celebrated the good times. Today and all days, I am truly proud to be a Manitoban.
Happy 150th anniversary, Manitoba.
Thank you, Mr. Chair.
Good afternoon, Mr. Chair, vice-chairs and members of the committee. Thank you for the invitation to appear before you today in our first virtual appearance before this committee.
We are pleased to be here today to discuss our recent COVID-19 economic and fiscal analysis.
With me today I have Dr. Xiaoyi Yan, who is the director of budgetary analysis in my office.
Our work to date has included the publication of three scenario analysis reports on the impact of the COVID-19 pandemic and oil price shocks. Our scenario analysis reports are designed to help parliamentarians gauge the potential implications of the COVID-19 pandemic and oil price shocks on the Canadian economy and the government's finances. The analysis provides a plausible illustrative scenario. It is not a forecast. This scenario analysis is updated regularly as more data and information become available.
Our latest scenario analysis update report, which was published on April 30, incorporates new federal measures announced up to and including April 24. Our updated economic scenario assumes real GDP in Canada to decline by 12% in 2020, which would be the worst on record since the series started in 1961.
Under this scenario, the budget deficit would increase to $252 billion in 2020-21, which would make it, relative to the size of the Canadian economy, 12.7% of GDP. The federal debt-to-GDP ratio would rise to 48.4% of GDP in 2020-21. These latest fiscal results include the $146 billion in federal budgetary measures that have been announced as of April 24, based on Finance Canada and PBO cost estimates. These numbers do not take into consideration measures announced after April 24. Their inclusion would increase the federal deficit by a few billion dollars.
My office has also produced independent cost estimates of a number of the components of the government's COVID-19 economic response plan, including the Canada emergency response benefit, the Canada emergency wage subsidy and the Canada emergency business account among others. Based on our analysis, the estimated cost of the Canada emergency response benefit is $35 billion, while the Canada emergency wage subsidy is expected to cost $75 billion and the Canada emergency business account just over $9 billion.
To date, budgetary measures announced by the government are intended to be temporary. Once the budgetary measures expire and the economy recovers, the federal debt-to-GDP ratio should stabilize. However, if some of the measures are extended or made permanent, the federal debt ratio could keep rising.
Xiaoyi and I would be pleased to respond to any questions you may have regarding our COVID-19 analysis or other PBO work.
Thank you, Mr. Chair.
We estimate that the economic downturn itself is responsible for about $70 billion in revenue decline.
Of the $252 billion, about $70 billion is due to reduced revenues, $146 billion is due to increased expenditures directly related to COVID-19, and we had already expected a deficit, the amount of which I'll go through my numbers and find for you here.
Before COVID-19, we expected the deficit to be $23 billion in 2020-21. We will very likely be going from $23 billion to well over $250 billion.
The various components are, as I mentioned, $23 billion of deficit, $146 billion in budgetary measures and about $70 billion in reduced revenue.
Do I have time for a final question, Mr. Chair? Excellent. Thank you.
One of the points that the former governor of the Bank of Canada made.... Actually, it was Kevin Milligan, an economist who joined our panel. One of the points that he made during his testimony was that it's not government expenditures that have created this debt, but in fact, the virus itself. We had a choice to make as to whether we would let private individuals, businesses and municipal, provincial and federal governments bear the costs of the response. I thought that was an interesting way of putting it because a choice to not respond, obviously, would have come at an enormous cost as well, and largely would have downloaded that cost onto private individuals, other levels of government and businesses.
I'm curious to know if you have the ability to analyze what the cost of a more limited intervention would have been across our economic system in Canada.
Hello, Mr. Giroux. I'd like to start by commending you and your team on the outstanding job you're doing during this crisis. Based on the number and quality of your publications, it's clear you're not slacking off. Far from it.
Let me start with a brief observation. You reminded us about the debt-to-GDP ratio from the mid-1990s. As we know, the solution that the federal government of the day came up with was to punt the problem to the provinces by cutting transfers, including health transfers. Obviously, we hope to see a near-term solution to the fiscal imbalance.
My first question is about accounting for loans and loan guarantees. The government has freed up nearly $200 billion for loans and loan guarantees. We don't know where it will end, because Canada seems to have unlimited money now. But Parliament only votes on spending. All those loans and guarantees won't become spending until they're written off in 10 years' time. By then, it will be too late to exert even a modicum of control.
Do you and your team think there's some way to get more control over what's being done? What would you suggest?
That's a good question. I was asked this question during the last Parliament with regard to the practice of all governments of granting loans and then writing some of them off if the borrower defaults. This leaves parliamentarians out of the picture, since they never vote on those loans.
To give parliamentarians some control over debt levels and over these loans, which can result in write-offs and significant costs to the Crown, it would probably be advisable to allow parliamentarians to vote on the maximum limits to which debt can be increased by Crown corporations and government entities.
As you mentioned, the Crown does stand to make a net profit, albeit a small one, if the loans are granted at commercial rates. However, as we saw two years ago with Chrysler, sometimes the debt has to be written off. That means significant losses for the treasury that have not been formally approved by parliamentarians.
A mechanism allowing MPs and senators to vote on increases to loan limits would probably be appropriate. But that's obviously up to parliamentarians.
As we know, Chrysler got $2.5 billion two years ago. It's troubling.
Your work involves calculating the overall cost of measures, but you don't do any detailed tracking of the spending. For instance, how much money is actually being spent? What type of companies are receiving the Canada emergency wage subsidy, or the large employer emergency financing facility that was announced yesterday? It's not the details that interest me so much as aggregate data that would show whether the money is going to small or medium-sized enterprises or large corporations, or which sectors of the economy are getting the most.
Do you think that's something that could be done? As things stand, parliamentarians lack the tools to exercise any real control over the massive spending that's happening right now and make sure the money is going to the right economic priorities.
It's a very relevant question about an issue that my team and I are concerned about. I've actually sent about 20 requests for information to various departments in the hope of tracking those measures.
We've asked for monthly, weekly or bi-weekly status updates, depending on the measures, to find out how fast the funds are being delivered and how much take-up the programs are getting from Canadians and businesses. We will then be able to do some follow-up that will be useful to us in the coming months. We've already thought about that.
So far, the departments seem to be pretty co-operative, although most of them have yet to respond. But I feel optimistic, and I think they're going to collaborate and provide us with the information, so that my office and I can inform parliamentarians about the progress of the government's efforts with regard to the support measures.
I would probably have two answers to that.
The first is that it's very clear to me that it's past time for the government to table an economic update, or at the very least a budget update. Of course, it's hard to have an economic update at a time of tremendous uncertainty, but the government could do a budget update setting out all the revenue it expects to receive and, most importantly, its planned spending from the start of the crisis and over the coming months. That would be very important for parliamentarians, but also for all Canadians.
The second answer is kind of cynical. If the government doesn't want to do this, I would be happy to do it myself with the limited information at my disposal. It would be a way for me to keep parliamentarians and Canadians informed. The amount of information obviously wouldn't be the same because I don't have access to information that's discussed in cabinet, but I could still keep you reasonably informed. The lack of government figures means more visibility for my office's work. That's my opportunistic answer, if you will.
Thanks very much, Monsieur Giroux, for being here again with the finance committee, virtually this time. You've been very generous with your time with us. We certainly hope your family is safe and healthy, as well as the families of everybody working for the parliamentary budget office. You play an important role in our Parliament.
My first question to you is very simple.
You've talked about the debt-to-GDP ratio coming out of the pandemic, or what we hope will be the rebuilding phase out of the pandemic. How does that debt-to-GDP ratio compare with the level we had after the Second World War, which also was a period of intense spending and rebuilding our infrastructure and building a social safety net? How does it compare with other countries that have a strong social safety net in place?
Thank you for that because I think, obviously, there is going to be some pressure from Bay Street to push austerity models. We're seeing many people, of course, who are struggling to make ends meet, so the idea of austerity coming out of the pandemic does not make any sense.
You have traced, I think, a possible path coming out of the pandemic, and that's with your landmark report from last year, your call that came on the final day of our last Parliament. On June 21 you presented a landmark report, “Preliminary Findings on International Taxation”, talking about the impact of international tax havens on taxes in Canada. In the conclusion you said it would represent, if we include electronic funds transfers, “approximately $164 billion in taxable income and $25 billion of tax revenues lost.”
Since that time, have you been able to see additional figures? You said at the time, on June 21, that this was a relatively conservative estimate. Do you have an idea now of the upper threshold of those tax revenues, the monies that we have in common to make investments in programs and jobs, and how much of that is not part of what the federal government should be collecting?
I'm going to go to six minutes in the next round, because we have lots of time for this session. We'll start with Mr. Poilievre, and then go on to Mr. Fragiskatos.
However, before I go there, I've been thinking about, in the first round, under questions from Mr. Morantz, the concern that has been raised both in Parliament and with the of the bureaucracy or the government not going after those who maybe shouldn't be getting the CERB.
I really want to be strong on this point: Fraud will not be tolerated. It's that simple. In my view, the ministers weren't as clear as they should have been today. I have lots of people calling my office who were on EI and have gone back to work, but they automatically get transferred to CERB, so they get the $2,000 from it. They've called my office to find out what they should do. I tell them to set the money aside and not spend it. It will be sorted out at the end of the season at income tax time.
They know they shouldn't have received it, and there might be some people out there who are taking advantage of CERB. However, the fact of the matter is that at the end of the day these people are going to be picked up on by CRA or somebody else. Therefore, I want to emphasize that fraud will not be tolerated. I think parliamentarians will certainly push that. It will be addressed.
Pierre, we'll go on to you, for six minutes.
I took a look at the government's balance sheet today for the year 2018-19. It showed that the Government of Canada had a negative net worth of $685 billion. That was before the coronavirus.
Parliamentary Budget Officer, according to the updates you've provided, it's now $968 billion, by the end of the year. We call it the federal debt, but it is actually assets minus liabilities, which typically we would call the net worth. How is it possible for any entity to have a negative net worth of a trillion dollars, $968 billion? The answer is that the major asset of the federal government is not on its balance sheet. It is taxation power. Therefore, when we ask whether the government can afford to pay its bills, the major question we need to consider is whether the population can afford to pay the government.
That's why I find, frankly, your and other officials' reference to our debt-to-GDP ratio as being so deceptive. Our debt-to-GDP ratio for this year is not 48%. It is somewhere closer to 360%, because the federal government does not have a claim on the entire economy. That economy has to support the debt of federal, provincial and municipal governments, plus corporations, plus households. When you add all of that together, we were at 356% of GDP back in 2018, before the coronavirus struck.
You said that we have all this room to spend before we reach the 1995 levels of near bankruptcy, but what was the total economy-wide debt-to-GDP in 1995, as compared to today?
Thank you, Mr. Giroux, for your testimony today and for all the work you're doing.
I want to follow up on some of the questions that Mr. Poilievre posed. You've been asked today about Canada's debt-to-GDP ratio relative to other countries, and you said that we have a very good debt-to-GDP ratio when we compare ourselves with other G7 countries. That would include, also, federations that have within them municipalities that have states and/or provinces with debt levels as well.
When you make that comparison, you're not excluding federations, are you? You're also looking at countries that have a federal structure of government?
Yes, but when you look at other countries, you're not excluding federations. You're comparing Canada to other federations and other unitary states as well. You're not exclusive in that regard.
Mr. Yves Giroux: Yes.
Mr. Peter Fragiskatos: Perfect.
I want to ask you something that builds on a question that Mr. Fraser posed to you at the end of his line of questioning.
Suppose, for a moment, that Canada had followed a minimal approach and had not introduced the Canada emergency response benefit, the wage subsidy program, the rent support program that we've seen for businesses or the Canada emergency business account that have of course been introduced. What would be the economic impact of that? I know you haven't modelled that and your officials haven't worked on that. However, you did say that it's an interesting sort of thought experiment. You study the economy. This is your expertise. What would you say, if posed a question in those terms?
If Canada had not introduced these programs, what would the net effect be on the economy, taking into account the most obvious thing, which is that the economy is ultimately about people? If people are suffering, certainly our economy would suffer in ways that we've never seen before, I would assume. I'm not going to put words in your mouth, but could you build upon that?
In the absence of any government support—wage subsidies, income support measures, loans to businesses—we would have seen widespread bankruptcies, both at the individual level and the corporate level.
There would be even more restaurants that would say they're not coming back. We would already have seen a lot of bankruptcies. Not that many people have enough savings to sustain themselves for months at a time without an income, so there would be lots of defaults on mortgages, lots of repossessions of houses, and of cars, due to car loans not being paid. There would be businesses going under, as I mentioned, and credit card debts that would go unserviced. The cost of doing nothing would certainly be high. Instead of being borne by the government, it would have to be borne by businesses, banks, financial institutions or whoever is lending that money. They would absorb very high debt levels, and that would also mean very high levels of emotional distress and very high stress levels.
I think that it's possible to think in those terms, but I think the cost of doing nothing would just mean that the government would have ended up being forced to do something anyway, but probably something even more expensive or even more radical than what the government felt that it had to do.
For example, in the absence of any income support measures or loans, as I mentioned, there would be widespread economic distress, bankruptcies and so on. You can easily imagine financial institutions in this country going under one after the other in such a catastrophic scenario. The government would have had to bail out banks, which probably would not be much cheaper, certainly not cheaper than what we are currently doing as a country to support individuals and businesses.
As for the cost of doing nothing, I don't think you can really envisage that because the government would have been forced to do something anyway. Instead of doing it in March, it would have had to do it in late April or May, probably at a much higher price than the total. That we will never know for sure because we don't want to run such a bad social experiment.
In that scenario, we see physical distancing measures being gradually eased over the spring, and being lifted not before the end of the calendar year. Some measures would remain in place throughout the year—so provinces and the federal government would continue to have revenues—but the revenues would certainly not go back to the pre-pandemic level during the current fiscal year. We would probably have to wait past the end of the fiscal year for the government revenues to return to the same pre-pandemic level. It will be several months, if not a few years, until we see the same level of government revenues that we had in February, for example.
With respect to the confidence level that I have in the $252-billion deficit figure, I'd say that it depends on a number of things. It depends on physical distancing measures being lifted gradually throughout the remainder of 2020. It assumes that oil prices will remain low for the rest of the year. However, we also stopped taking into consideration measures as of April 24 because we had to go to print at some point.
In my view, the $252-billion figure is probably on the optimistic side. If I had to bet on that number, I'd say that it's more likely to be worse than that than it is to be better than that. I think that $252 billion is probably on the very optimistic side as things stand now, but as I said before, we could be pleasantly surprised. A genius could come up with a vaccine tomorrow, and we could go back to living a normal life by September, but that doesn't look likely for now. In all likelihood, the deficit will be higher than $252 billion.
Because you did some analysis prior to COVID on the debt that's been taken on, as my honourable colleague has suggested—provincial debt, municipal debt, all of those—I think it's a safe assumption, then, that the level of this could be quite a bit higher.
That leads to our having two options here when we get into this scenario. One is having tax capacity, which Canada, from a competitive standpoint, was getting pretty close to.... If I remember in some of your reports, there was concern about our competitiveness. The other option was generating revenue.
How important would it be, as we look forward to any initiatives by government, whether it be on infrastructure funding or tax planning, to encourage investment in revenue-producing assets versus those assets that actually incur additional cost, as we try to work our way out of the COVID pandemic?
In my humble opinion, the sooner the better.
However, it's a bit difficult to ask the government to come up with such a plan right now, as governments—and not just the federal government, but provincial and territorial governments as well—are all struggling to keep up with the pandemic and to protect Canadians.
However, the public service is capable of coming up with proposals and options with respect to an economic recovery plan. I am sure, having worked at finance and PCO, that there are very bright minds working on providing advice to ministers and cabinet on a potential economic recovery plan. In my opinion, the sooner this plan is made available and is disclosed publicly, the better it is to instill that sense of confidence you mentioned in Canadians and in businesses so that once the pandemic is over there will be an economy to go back to, there will be investment opportunities and there will be jobs for people who have lost their jobs, There will be another side to that pandemic.
In my opinion the sooner it is out there, the better it is for all of us collectively.
Thank you to the Parliamentary Budget Officer. It's a very interesting discussion we have going on today.
My question is to the Parliamentary Budget Officer. When you were before committee in early March, I had asked you about the worrying fiscal sustainability issues with the northern territorial governments and the situations they were facing.
I can only imagine your next fiscal sustainability report will show that the pandemic has made the situation far worse. Given our small tax base, high service and infrastructure gaps, and the very limited fiscal levers the territories have relative to the larger orders of government, would you agree that the north is in a particularly precarious situation now?
When we released the fiscal sustainability report the last time, in January, and the report before that in 2018, they showed clearly that the federal government was on a sustainable track over the next 75 years and that provinces and territories, in aggregate, were not. I expected, maybe naively, that the discussion in the country would probably evolve towards different responsibilities or different sharing of revenues between the federal and provincial governments. That has not happened. The current crisis probably underlines that.
There will still be a need for that discussion, because in the end there is only one taxpayer. If one level of government is sustainable and the others are not, it's about time to have a discussion about the sharing of the fiscal pie and how we can generate revenues and allocate them differently, as well as responsibilities and who is responsible for what.
All that is to say that the suggestions you made all seem to be valid to me to ensure a better financial sustainability for the territories, but it's a policy decision as to which ones are the preferred ones for any particular situation. Nothing you mentioned strikes me as inappropriate or going against that, except maybe increasing the debt limit. If the territory or jurisdiction is unsustainable over the long term, allowing it to borrow even more might not be the solution. It might be a temporary solution, but it's probably not a long-term solution.
I apologize. I was teasing Pierre.
Oh, you are sitting down, Pierre, that's very good.
I want to start by thanking Stephen Harper for creating the parliamentary budget office. We've begun to take it for granted.
Your work is excellent, Mr. Giroux and Dr. Yan. We're in your debt. I'm extraordinarily grateful, because I have questions from constituents all the time about what it means for our future—how much deficit, how much debt can we handle. I find the clarity of your reports in this pandemic enormously helpful.
I want to drill down on something you just said. You said you hoped that the stimulus spending, when we see it post-pandemic, will be “productivity enhancing”. I wonder if you have some specific suggestions of what you think, by category obviously. What kind of spending would meet your goals of seeing something that actually takes advantage of a crisis to improve our economic indicators, particularly productivity?
That's a very broad question, Madam May. You're putting me to the test right now.
There's a long list of potentially productivity-enhancing stimulus measures. One can think of investing in technology or investing in health research, for example, which these days is what we clearly are begging for. Infrastructure spending is also very useful when it comes to facilitating transport, communications and trade. So, there's a long list of potential investments and it's up to people like you—members of Parliament—with the support of public servants and stakeholders, to decide on the best mix.
This is far from what my role is, and I don't pretend to have all the answers, but there are several types of investments that could be made that are productivity enhancing and that could also stimulate the return to a more normal economy.
Thank you for taking a stab at something that was quite broad.
I'll change gears. Taking part in this committee is an extraordinary privilege, and I thank my colleagues that I'm able to participate at all. We've had the great privilege of hearing people like you, of course. The Governor of the Bank of Canada, Stephen Poloz, has testified and he expressed the orthodoxy of global central banks, which is that in times like this, you have to do whatever you can to fight deflation, and that our policies, such as cutting interest rates to near zero or having quantitative easing, can be inflationary.
We had one witness who was quite an iconoclast. I don't know if it's fair to ask your opinion on this question of whether we should actually rethink this, but a witness named Jeffrey Booth, who wrote a book called The Price of Tomorrow, said that we can't keep fighting deflation. The marginal cost of many things is going to start approaching zero. If it's renewable energy, the marginal cost of energy approaches zero, and then consumer goods and artificial intelligence....
I don't know if it's fair to ask you an opinion, but I found this contrast rather startling. It certainly is an iconoclastic view, and I wonder if you would offer an opinion.
Sure. I don't believe that the marginal cost of anything can be close to zero without there being an infinite demand for it. You mentioned that if the marginal cost of energy gets close to zero, then there'll be no incentive to save energy if energy costs virtually nothing. Demand will meet supply and there'll be a cost to it, so its cost won't go back to zero.
You may think that streaming costs zero, that the marginal cost is zero, but eventually when everybody is on the Internet, as we are finding out these days in our neighbourhoods, Internet starts to be a bit slow and Internet service providers start thinking about increasing their prices because they'll have to increase the bandwidth.
So I don't think that it's pointless to fight deflation, because if the marginal cost of something goes down to zero there will be an infinite demand for it and it will mean that its marginal cost will not go down to zero. There are, of course, exceptions, but generally speaking, I don't think you can have deflation that's unbeatable or “unfightable”.
Hello, Mr. Giroux.
First of all, like my colleague from , I salute you for staying so busy lately. Well done.
You recently talked about measures for stimulating the economy when the time comes for a reboot. Last week, a question was asked by Mr. Littler, who was appearing before the committee as a representative of the Retail Council of Canada. Mr. Littler has been advocating a certain measure for years, over a number of Parliaments. We asked Mr. Morneau the same question, but we didn't get an answer. It's about the interchange fees that retailers have to pay for every transaction. As we know, because of COVID-19, people are mostly using credit cards. The use of cash is way down.
I was wondering if we should imitate Europe or Australia and cap the fee at 0.3% per transaction, instead of the current rate of 1.5%. In reality, the rate is around 2% and sometimes even goes up to 2.5% in certain situations. That eats directly into retailers' bottom line. Wouldn't capping these rates at 0.3%, as is being done elsewhere, stimulate an economic recovery, among other things? It would mean a lot more money in these retailers' pockets, but also more tax to pay because they would be making higher profits.
Has this measure previously been studied by your office? This is a long-standing request. Would it be advisable to implement such a measure here in Quebec and Canada?
Thank you, Mr. Brunelle-Duceppe.
That is not an issue that we have looked at, at least not since I have been the Parliamentary Budget Officer. That being said, it probably should be considered. Service providers hold a virtual monopoly over interchange fees. Merchants don't really have any other choice but to offer this method of payment. It has become very common over the past two months. It is the preferred method of payment of many employees who work in the retail and food industries. Merchants therefore have practically no other choice than to use these payment methods. They also have very little choice about service providers. If it is not a monopoly, it is an oligopoly.
With regard to public policy, the logical response when faced with a monopoly is to regulate to ensure that prices are reasonable. I am not a payment system expert. Are interchange fees reasonable or not?
As an ordinary consumer, I find it a bit troubling to know that, when I go to the local pizza joint and pay with my credit card, 2% or 3% of the amount of the sale or possibly even more goes to various financial intermediaries. It would likely be a good idea to examine the issue and to establish regulations if the fees seem excessive. As I said, this is not my area of expertise, but, as a consumer, I find the situation worrisome.
Thank you very much, Mr. Chair.
Mr. Giroux, thank you for being here today.
We just talked about the cuts that will have to be made or the austerity measures that will have to be taken as a result of COVID-19. Of course, there are other solutions.
We just talked about the money that is going into tax havens rather than flowing into our collective investments. Once the crisis is behind us, we could take measures in that regard. That could be part of the solution and could improve the quality of life of Canadians.
As Mr. Poilievre said, and I do not often agree with him, given that the debt households will be racking up because of all the cuts to federal public services, after the pandemic, we will have to allocate the resources necessary to improve people's quality of life.
I have two questions to ask about that.
First, there is one sector that benefited from this crisis, and that is the web giants. Has your office looked into how much money Canada is losing from the fact that these web giants often do not pay taxes or even employment insurance premiums for their employees and do not contribute to the Quebec pension plan or the Canada pension plan? Have you ever looked into that? If not, would you be prepared to do so?
Second, other countries already have a wealth tax. I know that you analyzed the positive impact of such a tax during the election campaign. Could you tell us the findings of that study? What level of investment must be made for the good of all Canadians?
To my knowledge, we have not looked into exactly how much money the government is losing as a result of web giants. However, we have considered a tax on revenue above a certain threshold for technology firms, namely, the web giants. We don't really need to name names; we know who they are.
For example, we considered the effect that a 3% tax on companies earning revenue over a certain threshold would have. I do not remember exactly how much revenue that tax would generate, but Ms. Yan might be able to tell you after I answer the second part of your question.
We also considered how much money could be generated by a wealth tax. Unfortunately, I do not remember those amounts either. Once again, Ms. Yan might have a better memory than I do. However, the important thing is to have control measures. When people see a wealth tax coming, we know that they will quickly do what it takes to avoid paying that tax. The important thing to consider when imposing a wealth tax is the way it is designed and the way we go about it. We need to think carefully about the exemptions we have in mind and we need to have a proper structure in place for applying the tax.
Perhaps Ms. Yan could round out my answer by talking about the amounts that could be generated by imposing a tax on web giants and a wealth tax.
As the PBO correctly put it, during the electoral platform costing, we looked into the web giants—the potential sales in Canada—and if we were to tax that part of the revenue, what potential income tax would come into this country. I don't have that number offhand.
We looked into several issues, but like the PBO said, we didn't look at it systematically, as a total amount that would escape the country through these web giants.
Regarding the taxation on wealth, during the electoral platform costing, we also looked into the taxation on net wealth of high-net-worth individuals. We were limited by time. We knew for sure that the top end of the net worth of individuals was underestimated, because we didn't have very good data to represent the top end of the high-wealth individuals.
The recent report that Monsieur Giroux mentioned is going to address this issue much more methodically and systematically. We are very confident now that we have come up with a modelling approach that can more accurately estimate the high-end net worth concentrated in a small percentage of individual families. That's also brought in line with the national balance sheet accounts. If I were to say what the number would be after all these refinements are done, it's going to be in that report.
Thank you to Mr. Giroux for being here.
Before I ask some questions to Mr. Giroux, I do want to correct for the record. My friend Mr. Fragiskatos suggested that advocated cutting CERB or taking Canadians off it. That is simply not the case.
Mr. Giroux, you noted in answer to a question posed by Mr. Cumming that the current projected deficit of $252 billion is a very optimistic projection. It's certainly understandable that you would say that. On April 9 in your fiscal scenario, your office estimated a budget deficit for fiscal year 2021 to be $184.2 billion. Three weeks later, that is now up to $252.1 billion, $70 billion more in the span of three weeks. In other words, it's more than three times the estimated deficit pre-COVID for fiscal year 2021. They're really staggering numbers when you put it in that context.
Now your figure of $252.1 billion, as you note, is up to federal measures taken to April 24, so presumably that excludes the Canada emergency commercial rent assistance program as well as the student package, among other measures.
In your testimony, you stated that, taking into consideration federal measures after April 24, the budget deficit would be a few billion dollars more. I was wondering if perhaps you could elaborate on just how much more, if you're in a position to be able to comment.
Thank you for that, Mr. Giroux.
I want to ask a question about the federal debt-to-GDP ratio, but certainly I would underscore the point made by Mr. Poilievre that when you look at public and private debt, the debt-to-GDP ratio was over 350% before COVID and where that puts Canada relative to other G7 countries is second after Japan in terms of the highest debt-to-GDP ratio.
Nonetheless, in your report you do make reference on page 13 to the debt-to-GDP ratio stabilizing, but you note that this would not necessarily be the case if measures were made permanent or extended.
Would it be fair to say, much as your $252-billion deficit projection for fiscal year 2021 is very optimistic, so too is your projection of debt-to-GDP ratio stabilizing?
We finished drafting the report on April 24.
These days, a week can feel like a month. Sometimes it can feel like a year depending on who you are living with, because we're spending most of our time at home.
Lots of things change. I would say that on the debt-to-GDP ratio stabilizing once the economy recovers, again, it depends a lot on government action, for example, whether it will return to deficit levels that we saw before the pandemic, which seems very unlikely, at least in the short term, and maybe even in the medium term, given the state of the economy. On debt-to-GDP ratio stabilizing, that's only once the economy returns to its pre-pandemic growth rate and we see deficits at the federal level returning to the $20-billion range that we had before the pandemic, or even better, which is not for next year. I'd be very, very surprised.
Thank you, Mr. Giroux and Dr. Yan, for your testimony today.
Your testimony is staggering to me when I hear all the numbers, as I'm sure it is for all my colleagues on the committee here today. What I heard with interest and more importantly is what Canadians would be going through had the government not stepped in and had not taken these drastic measures and continued to address this. If we had not done it, I shudder to think of where our economy would be headed and where Canadians would be at this point.
I'm going to be sticking to the analogy of World War II, because it's the first time we've faced a crisis such as this since World War II. At the time, we mobilized the entire nation and the economy and we won, but we ran deficits of approximately 20% of GDP for about five years. When the war ended, the economy kept growing and we were into surpluses two years later. Is there any reason for you to think that if we continue in the short term with deficits of 15% to 20% of GDP we cannot come out of this stronger post-COVID-19?
That's a very interesting question. I think the fundamental reason why we are not in the same position coming out of COVID-19 as we were coming out of World War II is the demographic structure.
Coming out of World War II, the population was much younger and the baby boom was about to start, leading to a long period of growth. Coming out of COVID-19, we have a much older population, with fewer working-age individuals. I'm not sure that we'll see a baby boom. Maybe we'll see a divorce boom, depending who you are confined with, but I certainly don't see a baby boom to the same extent that we had in World War II. For that reason, I'm not sure that we should expect the same level of government surpluses that we had at the end of World War II.
That being said, will we be coming out of this stronger? I certainly hope so. I am optimistic that we will be coming out of this stronger. It's outside of the mandate of the PBO, but there will be more social cohesion, I think. It will have bound people together. Spending months together with your kids and spouse certainly strengthens these bonds. It sometimes cuts them for good, but in many cases it will have strengthened them. Some businesses will go under, which is very sad, but, like a wildfire, there are things that bloom after a fire. New businesses will emerge out of that economically and socially very sad period.
I am optimistic overall that in a few months—maybe years—we will have a very strong country, but it will come at a price that some of our colleagues and citizens will pay, and it will be dear.
Madam Koutrakis talked about the deficits that ran in the World War II period, but your report points out that in the years following, the government actually ran a 5% of GDP annual surplus. Those would be, in today's terms, $115-billion surpluses. If we were running huge deficits before this crisis even began, which the government was, it's hard to imagine that it's going to be returning Canada to a $115-billion surplus in the next fiscal year or even the one after that, or ever, for that matter.
I want to ask you, though, about the 1990s. You pointed out that in the mid-nineties, we basically went bankrupt and governments brought in massive spending cuts. The Liberal government in Ottawa cut spending by 10% in absolute terms; governments across the country did likewise. In the aftermath of that, the economy experienced massive economic growth. Unemployment fell, basically by a third.
Do you find that interesting, given that we're told now that the only way to precipitate growth is through more and more deficit spending?
I just want to say thanks so much, Mr. Giroux, for being here today, for your hard work and for your extraordinary service to Canadians.
Hearing the conversation today, I was wondering what residents of my riding—Davenport is my riding, in downtown west Toronto—would think. If they were listening and they were hearing about the fact that our deficit might go past $252 billion and that our collective debt levels in Canada would go beyond $900 billion, there would be a lot of concern. I think, though, if the average Canadian thinks about what the cost of our doing nothing would be or of our being frozen with fear because of these debt levels, the costs to our economy and to our banks, in terms of bankruptcy, and to our health, as was mentioned in our discussion, would have been even worse than where we're at today.
I also would probably take some comfort knowing that Canada is doing relatively well in the G7. In comparison, we were doing well before this pandemic, and we continue to line up fairly well right now. Then I think I'd also take some comfort in what Governor Poloz mentioned the last time he was with us when, in response to a question on whether he thought Canada would be able to recoup or re-establish growth of the anticipated 4% to 6% GDP loss from this pandemic, he said that there was no reason to believe that we couldn't recover that growth or that we wouldn't actually be able to make positive structural changes.
Then last week, the , when asked by the media what he thought about moving forward in terms of the economy and how to support the Canadian economy, said that the Canadian government is very much focused on building back better. So that is where we're focused. I really take to heart your encouragement to our government to make sure that any type of economic recovery plan is actually put forward to Canadians as soon as possible.
My question to you, Mr. Giroux, is this. To build back better, we have a lot of opportunities. There's a generational opportunity to actually rebuild better both our economy and our society. I wonder if you might have any ideas or any contributions about how we “build back better”.
Thank you for the compliment, and thanks to all of you who have complimented the work of the office.
With regard to building back or having a stimulus package, I've already responded, I think, to Madam May, who had a similar question. As long as these are productivity-enhancing measures, I think they have prospects for longer-term growth or for inducing longer-term growth. I've already talked about investments that facilitate transportation, trade or communications. Research is also an area that is productivity enhancing. It can be hit and miss, but once you hit a gold mine, that rewards that investment in research.
It's not my area of expertise. I'm not in the business of providing policy advice, but you get the general gist of what I said and what I mean. As long as these are productivity-enhancing investments, those are the things that would have the most benefit while also providing economic stimulus.
On the question of whether or not there is a need for economic stimulus, it is also a bit premature to answer. It depends on what type of recovery we have. Assuming there is a need for economic stimulus, these would be the types of investments that would make the most sense from an economic perspective.
I see the absence of information that is credible and non-partisan—well, let me rephrase that. I see the role of the office being enhanced as a result of the pandemic. There is clearly an appetite for non-partisan and objective information and analysis when it comes to the state of the nation's economy and national finances.
The electoral period last year showed that we could provide credible and needed analysis and information costings in that case. In the current pandemic, while the government is busy coming up with economic measures and support measures, it hasn't paid that much attention to providing a fiscal picture, so the role of the office, I think, is appreciated by many stakeholders, including parliamentarians and Canadians, when it comes to providing a sense of the magnitude of expenditures so far.
I clearly see a need for the office, both in times of economic growth and in dire economic circumstances like this.
You do excellent work there, Mr. Giroux.
I have just a quick question before I go to Mr. Julian for one question, Mr. Morantz for one and then Ms. May.
To support business and the economy and the jobs that businesses create, the government has come in with a lot of measures to basically provide liquidity. How do you expect to measure, I guess, the cost as you go down the line and study and do reports on what we're doing as the government? How do you factor in those liquidity measures and the risks and the costs that might be there?
We do that and we did that for the delay in remitting taxes that the government has offered to individuals and businesses. You look at the cost of borrowing. The government provides funding to businesses, so the government itself has to borrow that money or borrow more than it otherwise would. There is one cost there. It gets revenues in the form of interest income from these corporations and businesses, so these are usually offsetting or more than offsetting.
In looking at previous economic crises and difficult circumstances such as the 2008-09 crisis, there is a default rate that we can look at based on previous experiences. A number of businesses will not be able to repay the assistance and some will not repay it in full, so we look at previous experience to determine what proportion of these loans will never be repaid. That's how we can estimate the cost of these measures.
In some instances, there is no net cost because experience has shown that all these amounts get paid or that a small amount never gets repaid, but it's more than offset by the interest income the government makes. In some other cases, there is a small cost relative to the size of the overall loans, because there is a proportion of businesses that can't repay, and this is not offset by the income generated through interest revenues.
In a nutshell, that's how we estimate these costs or, sometimes, revenues.
Mr. Giroux and Dr. Yan, thank you very much for being here. You're rock stars, because you protect the public interest. You're very credible when you talk about issues during the pandemic, and in terms of coming out of the pandemic, you've identified a number of ways in which the government can ensure that we stop handing out money to Canada's wealthiest corporations and actually invest it to make a difference for people.
Another aspect of the recovery is making sure that every dollar counts, and we're actually making investments that help people, so I have to ask the question. You've explored the issue of the Trans Mountain pipeline. We spent a billion dollars more than we should have to purchase it, and recent construction costs have been evaluated at anywhere from $15 billion to $20 billion. It's the biggest boondoggle in Canadian history.
I'm wondering if you have a revised construction cost or whether the PBO has been looking into the escalating construction costs of Trans Mountain, and also whether you're looking into the escalating costs of climate change and its impacts on government operations, of course, and the Canadian economy.
Mr. Giroux, I want to respectfully circle back to a couple of the statements you made earlier.
One is with respect to this increased debt, $252 billion, not affecting the draw on the operating budget. My understanding is that pre-COVID debt is locked in for a long period of time and that those interest rates are set. Certainly adding more debt, and you said it was counterintuitive, must add more interest costs to be drawn against the operating budget.
In addition to that you also said—and I think I heard you correctly a moment ago—that you thought it was unlikely that interest rates would rise.
A few weeks ago, I had the opportunity to question the governor of the Bank of Canada, Mr. Poloz, on this very question. It's on the record that he said interest rates will most certainly rise once we come out of this. He thought that would be a good problem to have, from a Bank of Canada perspective, if there's inflation. Increasing interest rates would be a tool for him to use. He did say that, so I think we can't assume interest rates are going to stay low after we come out of this. Trillions of dollars in quantitative easing are going on across the world.
Assuming we're in that position, will the Liberals have to adopt a program of austerity and start cutting their budgets, as they did in 1990, or are they going to have to start increasing taxes, or a combination of those things?
I'll address the second part of your question: interest rates rising.
When I say I don't anticipate interest rates to rise, it's in the context of the scenario we released, which only looks as far as the end of 2020, the current calendar or fiscal year. In that short period of time, we don't anticipate interest rates to rise, at least not significantly.
I agree with the governor that interest rates will probably start rising gradually as we get out of this difficult period of COVID-19, because once the economy starts to recover, I don't see any way for interest rates to go but up. They can't go much lower. They are close to a historical low, so they will probably rise. The question is when. Is it next year, early next year, late next year, middle of next year? I don't know.
As to the first part of your question, we have debt locked in, but we have a debt stock of $600 billion. A proportion of that debt always needs to be refinanced.
The Bank of Canada issues new debt instruments on an ongoing basis, because it's not all 50-year or 100-year bonds. There are some 90-day treasury bills, six months, nine months, a year, and these have to be constantly rolled over. That's why lower interest rates can result in slightly lower or stable interest debt charges, even though the debt goes up.
Thank you, Mr. Chair, quickly then.
I know people will feel a natural impulse, when so much money has been spent, that when the pandemic begins to end and we begin to reopen the economy, there will be a call to put the brakes on; we've spent enough. I'm looking at that post-war analogy and the Marshall plan and the various things that continue to be spent.
I have a bias here. I think the federal government and government spending will be, in a lot of ways for governments around the world, the only game in town.
What would be the impact on our economy if we stopped the government stimulus spending as we recover?
Thanks, Madam May. That's a very interesting question, and the answer is not straightforward.
The impact of stopping the stimulus will depend on the strength of the recovery and the speed of the recovery. If the recovery is strong and the engine is full speed ahead, then the impact of withdrawing economic support or stimulus would probably be minimal. In fact, it would be beneficial. It would avoid crowding out private sector investment and economic activity.
On the other hand, if the economic recovery does not materialize, then one could envisage economic support by the government to be needed. It may be at a lower level, because the economy will be reopened, but there might be scope or need for some level of support for more than right after the pandemic is over.
We will call the meeting back to order.
Welcome, folks, to panel number two of meeting number 27 of the House of Commons Standing Committee on Finance. We're meeting pursuant to the order of reference of Tuesday, March 24, that the government meet on the government's response to the COVID-19 pandemic. As everyone knows, the meeting is taking place by video conference, and the proceedings will be made available by the House of Commons website.
For the second panel, we're pleased to have with us, from the Office of the Auditor General, Sylvain Ricard, interim Auditor General of Canada, and Andrew Hayes, deputy auditor general and interim commissioner of the environment and sustainable development.
Welcome, folks. I believe we have about 90 minutes, in that range. If you want to start with an opening statement, then we'll go to rounds of questions.
Just for committee members, we will start the rounds of questions with Mr. Poilievre, then Ms. Dzerowicz, Mr. Ste-Marie and Mr. Julian.
The floor is yours, Mr. Ricard.
Mr. Chair, thank you for inviting us to discuss the role of the Auditor General in examining the government’s response to the COVID-19 pandemic.
With me today is Andrew Hayes, Deputy Auditor General and Interim Commissioner of the Environment and Sustainable Development.
We appreciate the opportunity to be here today, and I would like to thank members of Parliament, their staff, and all the staff of the House administration who have been working to ensure that standing committees can continue to operate.
In these challenging times, I want to acknowledge the commitment and engagement of Canadians as they deal with this pandemic, including members of the federal public service and my office’s staff.
The Office of the Auditor General of Canada has received three requests for audits from the House of Commons since Parliament resumed in January. We have informed the that we will do these three audits
First, on January 29, the House of Commons adopted a motion calling on my office to conduct an audit of the government’s investing in Canada plan and to report our findings no later than one year following the adoption of the motion.
Then, on March 13, an order made by the House of Commons called on my office to conduct an audit of special warrants that could be issued under the Financial Administration Act and to report our findings no later than June 1, 2021. We understand that no special warrants have been issued to date.
Lastly, on April 11, the House of Commons adopted a motion requesting that we conduct an audit of the COVID-19 emergency response taken by the government and report our findings no later than June 1, 2021.
On April 28, we informed the Speaker of the House that we are prioritizing COVID-19 audit work and the audit of the investing in Canada plan. We also said that we will submit our findings to Parliament as soon as we can complete the audit work.
With respect to the COVID-19 audit, we have analyzed the specific elements of the audit that the House of Commons requested, including the spending undertaken pursuant to the Public Health Events of National Concern Payments Act and the exercise of the provisions of the Financial Administration Act and the Borrowing Authority Act. The leaders of our performance audit and financial audit practices have been working together to identify the areas that should be covered in our COVID-19 audit work.
Of course, we have been monitoring the initiatives that the government has been introducing to respond to the pandemic. As part of our planning work, we have been analyzing spending related to protecting health and safety, support to individuals and businesses, and other liquidity support and capital relief.
We also believe that it is important to consider elements of emergency preparedness and early response actions. This may allow us to identify good practices and areas for improvement in case there is a future wave to this pandemic or to be ready for a future pandemic that may arise.
We welcome any input that the committee may have on areas we could examine as part of our COVID-19 audit work.
Since the beginning of the COVID-19 pandemic, we have recognized that many departments and agencies are on the front line and they are devoting a tremendous amount of time and resources in responding to the pandemic. We are mindful of their operational realities, and we want to make sure that our audit work will not divert their attention away from the support and services they need to provide to Canadians. We will exercise judgment and will strive to be as accommodating as possible when we ask for interviews and documents that are needed for our audit. We have started to engage with senior public servants to explore ways to conduct our audit work while minimizing the impact on the operations of departments and agencies. We are also mindful of the challenges that come with physical distancing measures.
Going back to the April 11 order, I will make a few comments about my office's resources. The order called on the government to take measures that are necessary to ensure my office has sufficient resources to conduct the work we have been asked by the House of Commons to do, including the COVID-19 audit and the audit of the investing in Canada plan.
As members may know, our office has faced resourcing pressures in recent years. In 2017, the former auditor general, Michael Ferguson, sought permanent additional funding through the government's budget process. We received some of the funding that we requested in the 2018 federal budget. We continued to pursue additional resources in the 2019 budget cycle but did not get any new funding at that time. When we appeared before the Standing Committee on Public Accounts in May and June 2019, and again in February 2020, we told the committee that our limited resources meant we had no choice but to decrease the number of performance audits that we conduct. Ten years ago, we were completing about 27 performance audits every year. With our current resources, we expect to be able to deliver 14 performance audits each year.
Given the nature and extent of the work we believe is required to conduct the audits of the investing in Canada plan and the COVID-19 response, and in light of our limited resources, we had to revisit the timing for completing and reporting on our current and future performance audit work. On that basis, we informed the Speaker of the House that we have had to delay all other performance audit work that is not related to the motions adopted by the House of Commons.
Let me be clear: Decisions to postpone planned audit work are difficult to make. The topics we select for our audits are important to parliamentarians and Canadians. Given our limited resources, we did not have the capacity to salvage some of the important audit work that we have now had to postpone. We don't know when we will be able to get to that work.
We are ready to answer any questions that the committee may have.
I'm going to say two things.
First, that is a process that belongs to the Privy Council Office. I don't know where the staff are and the status of all that, so I can't comment on that part.
What I can say—and this is something that I've said in other committee hearings—is that I want to reassure the committee and Canadians who are watching, that interim or not, I will do everything I have to do. I'm going to say whatever I have to say to do the job. I am representing an important institution, which is the Office of the Auditor General, so again, interim or not, that is not changing how I'm approaching the work.
Thank you so much, Mr. Chair.
I want to thank our Auditor General. I want to thank you and your team for your wonderful work and for being here today, and I want to thank you for your extraordinary service to our country. Interim or not, we're so grateful to have you.
First, very quickly, I want to address resources. According to my notes, the Harper Conservatives cut $6.5 million and 60 employees from the Auditor General's budget. I know that our Liberal government, since we've come into office, has tried to commit some additional spending. In budget 2018, I know that we committed more than $41 million in additional funding to the Office of the Auditor General, which is a 16% increase relative to the 2015-16 fiscal year. Have you not received any of that yet?
Yes. Thank you very much.
We have started our audit work. In the normal course, audit planning can take a number of months, and we're accelerating that right now. We are dealing with the senior public servants responsible for the departments that we will have to audit. We are recognizing, of course, that many of them are on the front line, and we don't want to distract from the services and support they're providing to Canadians right now. We're working with them to make sure we are able to conduct our audit work in a way that doesn't interfere.
That said, we are very keen on getting our work going, recognizing that we're going to manage logistical challenges as we go.
Welcome, Mr. Ricard and Mr. Hayes.
I will begin with a comment for the chair, and for everyone.
Mr. Ricard, in your introduction, you made it clear that your office does not have sufficient funding to do its job properly. That is extremely troubling.
Mr. Chair, I think Mr. Poilievre's very pointed questions relate directly to COVID-19. We realize that the Office of the Auditor General of Canada does not have the resources needed to thoroughly analyze this crisis. With all due respect, I think his comments were entirely justified. We can only hope that this might spur the government to grant Mr. Ricard permanent status as Auditor General immediately.
My first question, Mr. Ricard, has to do with the Canada Development Investment Corporation, which will manage the large employer emergency financing facility. Normally this corporation would not manage government programs because it owns assets. Consider for example Trans Mountain, or General Motors Canada when they were nationalized, and so on. The Auditor General audited the corporation in 2018 and concluded that there were serious deficiencies in its governance regarding possible conflicts of interest within its board. The Auditor General also noted weaknesses with respect to board independence; risk identification, assessment and mitigation; and risk monitoring and reporting.
Do you think the Canada Development Investment Corporation is the appropriate vehicle to manage a government program, to decide who will have access to this assistance and to set conditions for ensuring that society as a whole benefits?
Do you think this is consistent with its mandate?
To the committee, I want to say that I find this very troubling. This Crown corporation has been proven to have many problems, and now it's going to manage a huge assistance program. I think we need to keep a very close eye on this.
Mr. Ricard, the government has made roughly $200 billion available in loans and loan guarantees. We're not really sure where this is going to end. The Canada account now has no upper limit. Parliament is voting only on spending, and those loans and loan guarantees will become expenditures once they are discharged after a few years. At that point it'll be too late to exercise even the slightest control.
Is there any way to have greater control over what's being done?
Thanks very much, Mr. Chair.
Monsieur Ricard and Mr. Hayes, thank you very much for being here today. We hope that your families as well as the entire team at the Auditor General's Office are safe and healthy.
I must say that what I think is very clear to the Canadian public and what I'm seeing is a lot of finger-pointing, the Conservatives pointing a finger at the Liberals and the Liberals pointing a finger at the Conservatives, for what has been dramatic underfinancing of the functions of the Auditor General. These are extremely important, and the fact that you've actually had to cut your performance audits in half is indicative of a real problem. Both governments, the previous Conservative government and the current Liberal government, share the blame on this. Instead of finger-pointing, they should just be acknowledging the errors that have been made in not providing the supports that are so important for your office. Canadians are definitely on your side. You perform an extremely important function, and you need to be financed adequately in order to do that. That's in the interests of all Canadians.
My first question will be around the issue of bailouts. We went through the economic crisis in 2008. Money was being given out. We've seen, subsequent to that, that a lot of loans were basically written off. At the beginning of this year, we had $200 million that was written off, a loan to a Canadian company that the government refused to disclose. The Liberals said that in the interests of commercial confidentiality they couldn't disclose it, but that all decisions made by cabinet are in the best interests of Canada. So $200 million just disappeared in a moment. We saw previously under the Conservative government similar monies just disappearing.
How do we make sure that we are not seeing corporate bailouts, corporate gifts, just disappearing when that happening is not in the public interest? When your office flags these very legitimate concerns about bailouts that are loans that become gifts, how do we ensure that we simply don't see this abuse of the Canadian taxpayer and that every dollar that's invested is actually used for its intended purposes, and that loans given to Canada's most profitable corporations are actually paid back?
This is something that you're asking government to do. I think it would be important for us to follow the reports that have come out over the years from very respected people such as yourself who actually tell Canadians how government should be structured. Instead of the secrecy and these special closed-door agreements, often with lobbyists involved, we need to make sure that we're protecting the public purse and that every dollar actually counts.
Seniors who are struggling to put food on the tables, families who are struggling to keep a roof over their heads and Canadians who are struggling to keep their jobs should receive the best possible disclosure and transparency around every dollar that's spent. That wasn't the case under the previous government; it hasn't been the case under the current government; and it definitely needs to change.
I want to come to the issue of the use of the Canada account. Particularly, we've been told at the finance committee that coming out of COVID-19, coming out of the pandemic, that there will be a massive splurging of somewhere around $15 billion to $20 billion in construction for the Trans Mountain pipeline. That's in addition to the purchase of all of the assets, which was done, basically, with no due regard to the public purse.
I'm wondering to what extent you're concerned about the use of the Canada account in such an an egregious way, basically bypassing Parliament to spend tens of billions of dollars, potentially, in this case, for a project that the private sector walked away from because it's simply not a project that has any economic foundation.
Are you concerned about the use of the Canada account in this secretive way?
Thank you, Mr. Ricard, for being here.
Let me say that in terms of funding for the Auditor General, my questions and comments are in the spirit of seeing that the Auditor General has the full resources that are required, especially in light of the fact that we have a government that in the last two months has spent more than Canada spent during the Second World War, adjusted for inflation. When we speak about a $10.8-million increase, that is a rounding error in terms of the federal budget.
Mr. Ricard, you talked about $10.8 million. The context in which that request was made was after your office had its mandate expanded. In other words, you were pre-COVID, doing more work yet had no additional resources. Isn't that correct?
Mr. Ricard, thank you for the work that you do.
I'm new to Parliament and spent my career in the private sector. I think the role of auditor is misunderstood, particularly with performance audits. We would welcome performance audits as a source of improving operations and trying to get better as a company, and I think the same thing should happen with government.
My concern here, and it's head-scratching to me, is that we're undertaking this volume of program spending and we haven't included sufficient capital for the auditors to do their jobs and make sure taxpayers' dollars have been well spent. This is a concern particularly to your comments about ensuring that, if we got into a situation like this again, we would understand better whether these programs work or not.
For you, as a career auditor, it must strike you that.... As someone said, it's a rounding error. For the life of me, I can't understand it. Forget about the past; we're in it today. With $200-billion worth of spending, surely we should have more comprehensive audits at this time.
Thank you very much, Mr. Chair, and thank you to the Auditor General and Mr. Hayes for appearing today.
Mr. Chair, it could come as a shock to you, but the new-found interest that Conservative colleagues have in the work of the Auditor General could be questioned for its sincerity. The Harper government, after all, cut $6.5 million from the budget of the AG and 60 employees from the AG's budget.
This federal Liberal government restored that funding, but I think it's important to put on the record, because if we're going to be consistent in recognizing the respect of the work that is completed by the Auditor General—and I think it is very important work, to be clear—then we have to be certain about what past governments have done. From there, we can judge the sincerity of particular questions, but I don't want to digress too much.
Mr. Ricard, could you give us an idea of the work that was done by the Auditor General's office during the time of the post-2008 financial crisis and the sorts of questions that the office examined at that time?
Indeed, the economic action plan work that we did in 2009 and 2010 is probably the most instructive, at this point.
To give you a brief history, in March 2009 then auditor general Sheila Fraser wrote to the secretary of the Treasury Board to discuss what expectations we would have as an office, including coordination and integration both within the federal government and with provincial governments' effective management and control over spending. Ms. Fraser noted the importance of establishing a high-level oversight committee that could help to steer programs and adapt to situations that could come up.
We delivered our first report on the economic action plan in fall 2010. I suppose it was similar to the situation we're in now, which is auditing in real time. At the time, we looked at whether the programs and processes were designed and streamlined in a way that would allow the government to act quickly to get funds out where they needed to be. We looked at eligibility criteria and whether early funding was based on eligibility criteria, whether central agencies paid attention to risk and mitigated those risks, and whether the government met its quarterly reporting requirements.
In the second economic action plan audit report, which we delivered in the fall of 2011, we talked about the government's monitoring of progress and spending. We identified some opportunities for better performance measurement and reporting. I think looking back at those audits would probably be the most instructive for this current—
My question is for Mr. Hayes.
In the context of COVID-19, of course the government is loosening the purse strings to bring in a number of measures, but I see a bit of a paradox here. I'd like to get your opinion on this.
In 2009, Canada joined other G20 countries in committing to gradually eliminate the ineffective investments and subsidies being injected into the fossil fuel sector, including dirty oil in Alberta. It appears that not very much has been done since, and in fact, the federal government has invested billions of dollars in the industry. Consider for example its purchase of Trans Mountain and oil tanker cars and its subsidies to businesses. We understand that the oil industry is having serious difficulties. That much is obvious. Should this not actually be taken as a sign that the government should stop investing public money in this sector, and invest instead in areas that will foster the emergence of a non-oil economy, especially in Alberta?
Thank you very much, Mr. Chair.
My question is for Mr. Ricard.
When I look at the reports presented by the Office of the Auditor General of Canada over the years, I see references to a lack of transparency on the part of web giants. You also touched on the subject of tax havens.
As we know, Canada is missing out on tens of billions of dollars that should be part of the common good of Canadians.
What can you suggest to help us create a fair tax system?
Ultra rich web giants and large corporations that make huge profits invest in tax havens. They take their profits out of the country to avoid paying taxes.
In the context of COVID-19, how can we stop this from happening? We could use those financial resources to get out of the pandemic and the resulting economic crisis that goes with it.
I'm inclined to first say that there's a very important audit to be done just on that topic.
As part of the audits we need to do right now in the context of COVID-19 and infrastructure, I'm not sure how much we'll be able to look at that aspect. Those are obviously areas where we would expect the Canada Revenue Agency, for example, to play its part in ensuring that everything is being done properly.
Obviously, this must be done in accordance with the existing tax laws. I'm sure you understand that I can't comment on that, as those are policy decisions. However, since a legislative framework regarding taxation exists in Canada, it's absolutely crucial that the comprehensiveness of the tax base be protected and that the players involved play their parts.
Considering the scope and complexity of the matter, right now I can't commit to auditing that thoroughly in the present context, but obviously, it's important.
This is a very interesting discussion. Not just for me as an MP but as a Canadian citizen, Mr. Ricard, I am alarmed by what you've told the committee today. It's very sad, and the government should be ashamed that you have to come to committee to make your case just to do your job. The function of the auditor is a fundamental check-and-balance in our system, particularly when we're embarking on massive programs like this to deal with the crisis.
I think my preamble informs the question. Just yesterday, a news report in the National Post said, if this story is true, that public servants are being directed to ignore claims of fraud, and that 200,000 files have been red-flagged.
I wonder if you could comment on whether you have concerns about the accountability in these programs. I know one of the checks and balances in the program was supposed to be you, but apparently you may not have the funds to be in that role. Therefore, I wonder if you could comment on whether you think the checks and balances in the current emergency programs are sufficient or not.
Data has been a constant theme for our audit work over the last number of years. The importance of good data to support decision-making is paramount and critical to having the best results for Canadians, from our perspective anyway.
Obviously, we recognize—and the secretary of the Treasury Board has been clear with departments—that it's important to move quickly but to ensure that decisions and rationales are documented. We would start there, and we would hope that data is captured.
I would note, of course, that there may be other kinds of data that are being collected, and the Privacy Commissioner may have views on that collection, use and disclosure. I think particularly about health information that might be collected and that sort of thing. We would hope that personal information that should be protected is being protected to the degree possible.
The other thing I will mention is that obviously secret information, cabinet confidence information, is a challenge in the current environment. The security protocols are always important in terms of handling that data.
I thank you for providing us the valuable information that you have today and also for appearing before this committee; I know that it's more traditionally the public accounts committee.
I will say this from a personal point of view. Not just the audits that you do as Auditor General and that a number of Auditors General have done, what I find to be an education, really, is that when you do an audit, you sum up what happens within the area that you're doing the audit on. For me, personally—and I've been an MP for quite a while—I find that very valuable in understanding the various tasks that a department takes on and the services that they provide or don't quite provide as well as they're supposed to, according to the Auditor General.
I want to thank both of you very much for appearing before the committee today. I think you have provided us with some valuable insight. We appreciate your constructive analysis.
For committee members, we have the meeting with the minister and officials on Thursday. We've now been informed by the whips' offices that we will be meeting on Tuesday and Thursday of next week. We will have a general panel on Tuesday, as well as the CEO of the Canada Mortgage and Housing Corporation. has agreed to appear for an hour on the Thursday. That was your request, I believe, Marty. We'll also have a general panel there as well.
I would remind members that there are about 74 witnesses left on the list of requests to appear. Could the various parties have their witness lists to the clerk no later than six o'clock Wednesday? That's tomorrow night. You can go through that list or add to it if you decide to. Have your witnesses to the clerk by tomorrow at 6 p.m. so that he and his staff can get on the phones to get that job done and give witnesses plenty of time.
With that, I want to again thank the witnesses and thank the committee members for their efforts today.
The meeting is adjourned.