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37th PARLIAMENT, 3rd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, April 1, 2004

0935

The Chair (Mr. Roy Cullen (Etobicoke North, Lib.))

Mr. Dennis Kam (Executive Director, Finance and Administration / Corporate Services Branch, Department of Finance)

The Chair

Mr. Monte Solberg (Medicine Hat, CPC)

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

0940

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

The Chair

Mr. Gilbert Barrette (Témiscamingue)

0945

Mr. Pierre Doucet (Chief, Program Payments and Estimates / Federal-Provincial Relations and Social Policy Branch, Department of Finance)

Mr. Gilbert Barrette

Mr. Pierre Doucet

Mr. Gilbert Barrette

Mr. Pierre Doucet

The Chair

Mr. Pierre Doucet

Mr. Gilbert Barrette

Mr. Pierre Doucet

Mr. Gilbert Barrette

Mr. Pierre Doucet

Mr. Gilbert Barrette

Mr. Pierre Doucet

Mr. Gilbert Barrette

Mr. Pierre Doucet

Mr. Gilbert Barrette

Mr. Pierre Doucet

Mr. Gilbert Barrette

The Chair

0950

Mr. Gilbert Barrette

The Chair

Mr. Gilbert Barrette

The Chair

Mr. Gilbert Barrette

Le président

Mr. Werner Schmidt (Kelowna, CPC)

Mrs. Lynn MacFarlane (Deputy Director, FINTRAC, Department of Finance)

Mr. Werner Schmidt

Mrs. Lynn MacFarlane

Mr. Werner Schmidt

Mrs. Lynn MacFarlane

Mr. Werner Schmidt

Mrs. Lynn MacFarlane

Mr. Werner Schmidt

Mrs. Lynn MacFarlane

Mr. Werner Schmidt

0955

Mrs. Lynn MacFarlane

Mr. Werner Schmidt

Mrs. Lynn MacFarlane

Mr. Werner Schmidt

Mr. Dennis Kam

Mr. Frank Swedlove (Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance)

Mr. Werner Schmidt

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Werner Schmidt

Mr. Monte Solberg

The Chair

Mr. Monte Solberg

Mr. Frank Swedlove

Mr. Monte Solberg

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

Mr. Frank Swedlove

Mr. Werner Schmidt

Mr. Frank Swedlove

1000

The Chair

Mr. Werner Schmidt

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, CPC)

The Chair

Mr. Rahim Jaffer

The Chair

Mr. Rahim Jaffer

Mrs. Sylvie Mercier (Chief Financial Services, Canadian International Trade Tribunal, Department of Finance)

The Chair

1005

Mrs. Lynn MacFarlane

The Chair

Mrs. Lynn MacFarlane

Ms. Lynn Hemmings (Policy Analyst, Financial Sector Review Group, Department of Finance)

The Chair

Ms. Lynn Hemmings

The Chair

Mr. Frank Swedlove

1010

The Chair

Mr. Frank Swedlove

The Chair

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

Mr. Monte Solberg

Mr. Dennis Kam

The Chair

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.) (Vaudreuil—Soulanges, Lib.)

Mr. Peter DeVries (Director, Fiscal Policy Division, Economic and Fiscal Policy Division, Department of Finance)

Mr. Nick Discepola

1015

Mr. Peter DeVries

Mr. Nick Discepola

Mrs. Lynn MacFarlane

Mr. Nick Discepola

Mrs. Lynn MacFarlane

Mr. Nick Discepola

Mrs. Lynn MacFarlane

Mr. Nick Discepola

Mr. Dennis Kam

Mr. Nick Discepola

Mr. Dennis Kam

Mr. Nick Discepola

Mr. Dennis Kam

Mr. Nick Discepola

Mr. Dennis Kam

Mr. Peter DeVries

Mr. Nick Discepola

The Chair

Mr. Rahim Jaffer

1020

Mr. Dennis Kam

Ms. Micheline Aucoin (Director, International Policy and Institutions Division, Department of Finance)

Mr. Rahim Jaffer

Ms. Micheline Aucoin

Mr. Rahim Jaffer

Ms. Micheline Aucoin

Mr. Rahim Jaffer

Ms. Micheline Aucoin

Mr. Rahim Jaffer

The Chair

Mr. Dennis Kam

The Chair

Mr. Werner Schmidt

Ms. Christine Walker (Senior Director, Office of the Superintendent of Financial Institutions Canada, Department of Finance)

Mr. Werner Schmidt

Ms. Christine Walker

1025

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

Mr. Frank Swedlove

1030

Mr. Werner Schmidt

Mr. Frank Swedlove

The Chair

Mr. Nick Discepola

Ms. Christine Walker

1035

Mr. Frank Swedlove

The Chair

Ms. Christine Walker

The Chair

Ms. Christine Walker

The Chair

Mr. Monte Solberg

Ms. Christine Walker

Mr. Monte Solberg

Ms. Christine Walker

The Chair

1040

Mr. Alister Smith (General Director, ITF, Department of Finance)

The Chair

Mr. Alister Smith

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

The Chair

Mr. Werner Schmidt

Ms. Christine Walker

Mr. Frank Swedlove

Mr. Werner Schmidt

Mr. Frank Swedlove

Mr. Werner Schmidt

1045

Mr. Frank Swedlove

Mr. Werner Schmidt

Mr. Frank Swedlove

The Chair

Mr. Pierre Doucet

Mr. Glenn Campbell (Chief, CHST and Policy Development, Federal-Provincial Relations and Social Policy Branch, Department of Finance)

1050

The Chair

Mr. Gilbert Barrette

Mr. Glenn Campbell

1055

The Chair

Mr. Rodger Cuzner (Bras d'Or—Cape Breton, Lib.)

Mr. Glenn Campbell

The Chair

Mr. Monte Solberg

Mr. Pierre Doucet

Mr. Monte Solberg

The Chair

M. Nick Discepola

The Chair

CANADA

Standing Committee on Finance

NUMBER 012

3rd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, April 1, 2004

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mr. Roy Cullen (Etobicoke North, Lib.)): Good morning. We will start the meeting now.

Pursuant to Standing Order 81(4), our order of the day is main estimates 2004-05, votes 1, 5, L10, 15, 25, 30, and 35 under Finance Canada.

With us today are Peter DeVries, director, fiscal policy division, economic and fiscal policy branch, Finance Canada; Dennis Kam, executive director, finance and administration, corporate services branch, Finance Canada; Pierre Doucet, chief, program payments and estimates, federal-provincial relations and social policy branch, Finance Canada; Lynn MacFarlane, deputy director, FINTRAC; Sylvie Mercier, chief, financial services, Canadian International Trade Tribunal; and Frank Swedlove, assistant deputy minister, financial sector policy branch, Finance Canada.

Thank you all very much for coming.

We'll ask you to give us somewhat of a presentation and take us through your estimates or some of the main issues, and then we'll turn it over to the members for questions and comments.

Please begin.

Mr. Dennis Kam (Executive Director, Finance and Administration / Corporate Services Branch, Department of Finance): Mr. Chair, I have a very brief opening comment, and then I leave it to you to pose the questions to us and take it where you want to go on this.

We are pleased to be here today to address the questions of the committee on the Ministry of Finance's main estimates for 2004-05.

You will note that the body of the text in the blue book, starting on page 8-2, page 16-2, en français, provides a summary of the main estimates for the department as well as the other members of the finance portfolio.

The Department of Finance itself has three programs: economic, social, and financial policies, where the main estimates are approximately $1.4 billion; the public debt program, where the main estimates are $36.2 billion; and the federal-provincial transfers program, where the main estimates are approximately $31.5 billion.

We have officials here from the department, as well as other members of the portfolio--in particular, FINTRAC and CITT. They may wish to say something.

Lynn or Sylvie, do you have any opening comments? No.

I would leave it there, Mr. Chair, for your questions.

The Chair: Thank you, Mr. Kam.

With that, I'll turn it over to a ten-minute round, starting with Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, CPC): Thank you very much, Mr. Chairman.

Thank you for joining us this morning.

I have a question, first of all, about the estimates in general. I hope you can answer this for me.

These aren't going to be the final estimates, right? We're going to have some more estimates yet to come. I wonder why that is, why we don't have the estimates, why in fact we're being asked to scrutinize something that's going to change in the next couple of months.

Mr. Dennis Kam: The Secretary of the Treasury Board appeared at the Senate Standing Committee on National Finance and answered the same question yesterday morning.

I think with the press release for the main estimates it was announced that there may be further estimates tabled to allow the government some time to work through all the restructuring that was announced in December. The book had to be tabled before the end of February to meet the House rules, and there's an expectation that there will be either a supplementary estimate or new estimates tabled later this year to reflect the various restructuring changes. But as it stands, this book is the estimates until it's replaced.

Mr. Monte Solberg: I think there is some concern about the size of the interim supply. I don't know if you want to comment on that, but last year I think it was $17 billion; this year it's $50 billion. Of course, we don't have part IIIs with this either. So in some ways, I think people are a little frustrated with that. We're being asked to go ahead and approve the estimates, the government is asking for a very large amount for interim supply, and I think people feel as though they're flying a little blind.

Do you want to comment on that?

Mr. Dennis Kam: It's really not my place to comment on that. The Treasury Board Secretariat ought to respond to that.

Mr. Monte Solberg: I appreciate that. Anyway, I'll let you off the hook. I won't torture you over that.

One question I have is on vote 1, operating expenses. You have a $5 million increase in the budget, about 7%. Can you explain that? That seems to be a pretty big jump for operating expenses.

Mr. Dennis Kam: There are some very specific initiatives that are encompassed by the increase of $5 million. We have an additional $2 million pertaining to public safety and anti-terrorism initiatives that has been included in the estimates. In fact, there are two items within that category. There is an addition of $1.1 million to the financial sector policy branch related to the oversight on anti-terrorism financing and that sort of thing, and Mr. Swedlove can speak to that in a little more detail.

Second, there is $700,000 for the tax policy branch to monitor and report on the air travellers security charge.

Mr. Monte Solberg: Have you done any kind of reallocation? It is a big absolute increase, and I appreciate that these are important things, but are you doing reallocation so we don't have to see perpetual increases above inflation and population growth for things like operating expenses? Canadians appreciate money going to health care, but when it comes to operating expenses, I'm not sure they always appreciate that it's a good use of their money.

Mr. Dennis Kam: Yes, we continually do reallocations. We have some central funds we zero-base every year in terms of funding contract requirements in the department, and those are reassigned or reallocated each year to the highest priorities of the department. But there are certain initiatives that strain our capacity where the government agrees to allocate additional funds to allow us to carry out these initiatives. As I said, the public security requirement was an urgent requirement.

We also have a temporary provision of about half a million dollars within that $5 million for the technical advisory committee on tax measures for persons with disabilities. That's temporary and will disappear. Then we have $1.2 million of that $5 million increase that is just to reflect collective bargaining increases.

¿ (0940)

Mr. Monte Solberg: Are your staffing levels the same? Are they increasing?

Mr. Dennis Kam: Staffing levels are stable. It's just the result of collective bargaining.

Mr. Monte Solberg: In vote 2 you have an increase of $116 million, about 14%. What is that all about?

Mr. Dennis Kam: There are several elements in the adjustments to vote 5. Several of these items relate to our international development assistance, which is driven by agreements with the various international financial institutions. To a large extent it's the decisions of the international financial organizations that drive our expenditures. We enter into agreements, and these international organizations decide when they wish to draw down against our commitments. We basically give promissory notes and they cash them as they see their cash requirements arise.

So in this case we have some juggling within the votes. Within vote 5 we have an increase of $161 million in grants but a decrease of $45 million in contributions related to Canada's commitments to loan forgiveness under multilateral debt reduction and multilateral debt service reduction agreements. Again, we have somebody here from the international financial area who can give you more detailed information, if you wish, to see how those relate to individual agreements.

Mr. Monte Solberg: Along the same line--or maybe it's a different vote, vote L10--there's a reduction of money for the IMF poverty fund. I'm sure Bono will be upset to hear this, so maybe you could comment on what that's about.

Mr. Dennis Kam: There's a statutory reduction of $1.1 million in demand notes to the European bank. Are you referring to that? There is no change in vote L10.

Mr. Monte Solberg: There's a reduction of money to the IMF poverty fund. That's what we had, but....

Mr. Dennis Kam: Oh, sorry; it's the very last item.

Mr. Monte Solberg: Yes; it's $72 million.

Mr. Dennis Kam: Yes, it's a $72 million reduction. There are several changes here.

Again, we can have more detail, but this would be pursuant to the IMF's requirements. We have a commitment to the IMF, and they would determine when they require the cash to be transferred to them to carry out their projects.

This is a statutory requirement. We basically pay the bills as they come. Our forecast requirements in this coming year have lapsed. It's not that we've changed our commitment. We haven't adjusted our commitment to that organization; it's simply the flow of cash pursuant to commitments already in place.

Mr. Monte Solberg: We don't want to get into trouble with Bono, so....

I'll leave it at that. It must be at the end of my time anyway.

The Chair: Thank you, Mr. Solberg.

Monsieur Barrette.

[Translation]

Mr. Gilbert Barrette (Témiscamingue): Thank you, Mr. Chairman.

Under tax services, we note an increase of almost $72 million. Could you explain to me the nature of this cost increase for 2004-2005?

¿ (0945)

Mr. Pierre Doucet (Chief, Program Payments and Estimates / Federal-Provincial Relations and Social Policy Branch, Department of Finance): In point of fact, the biggest increase is associated with fiscal equalization, basically as a result of the economic update. The increase is due to changes in program tax bases established at the time. Therefore, the increase can be attributed to a number of factors.

The main reason, or part of the reason, for the $385 million increase is changes in fiscal disparities and the increase in provincial revenues subject to equalization.

With respect to health care reform, a total of $1.5 billion was earmarked for this purpose in the 2003 budget, and this is reflected in the Main Estimates. The funding is continuous over the next four or five years.

In addition, there will be a number of new transfers in 2004-2005. The CHST has been split into two separate transfers, one for health and one for social services. This split is reflected in the Main Estimates. That explains why large amounts are posted.

Mr. Gilbert Barrette: What exactly do you mean by split in two?

Mr. Pierre Doucet: I'm referring to the Canada Health and Social Transfer which has been split in two, that is into the Canada Health Transfer, and the Canada Social Transfer.

Mr. Gilbert Barrette: What percentage of the total amount does the Social Transfer represent, compared to the other component of the transfer?

Mr. Pierre Doucet: I can't answer that question, but I could get back to you with the information later.

[English]

The Chair: Would you send it, Mr. Doucet, to the clerk, please, and we'll distribute it to all the members. Thank you.

[Translation]

Mr. Pierre Doucet: Editor's note: inaudible compared to social transfer payments.

Mr. Gilbert Barrette: That's correct.

Mr. Pierre Doucet: Basically, it corresponds to the increase posted in the Main Estimates.

Mr. Gilbert Barrette: An increase of approximately 16.6% is noted under the heading “Benefit Programs and Other Services. Exactly what is this in reference to?

Mr. Pierre Doucet: Do you have that particular heading handy?

Mr. Gilbert Barrette: I'm talking about the heading Benefit Programs and Other Services, where provision is made for an increase of approximately 16.6%.

Mr. Pierre Doucet: Could you give me the line reference, as I don't have the percentage in front of me.

Mr. Gilbert Barrette: It's on page 4-4 of the 2004-2005 Main Estimates.

Mr. Pierre Doucet: And what is the amount listed?

Mr. Gilbert Barrette: I don't have the exact figure, only the percentage increase.

Mr. Pierre Doucet: That would be in the Main Estimates, would it not?

Mr. Gilbert Barrette: Yes.

The Chair: Just to clarify matters, is this a budget entry for the Canada Customs and Revenue Agency?

¿ (0950)

Mr. Gilbert Barrette: Yes.

The Chair: Today's witnesses are Finance Department officials.

[English]

Mr. Gilbert Barrette: Oui.

Excuse me. Those were the wrong questions.

A voice: But you had a good answer for the other one.

[Translation]

The Chair: Do you have any further questions, Mr. Barrette?

Mr. Gilbert Barrette: No, thank you.

[English]

Le président: Thank you, then.

Mr. Schmidt, please.

Mr. Werner Schmidt (Kelowna, CPC): Thank you, Mr. Chairman.

It's good to have all you experts here. Even though you don't have all the answers today, there will come a time when you will have all the answers, I'm sure.

There are three areas I'd like to question. The first has to do with FINTRAC and the tremendous increase in the number of issues that have come to your attention—I believe from something like 3,700 to 2.2 million. What is it that has given rise to this tremendous increase in the number of issues you're investigating?

Mrs. Lynn MacFarlane (Deputy Director, FINTRAC, Department of Finance): Are you talking about the growth in the number of reports we're receiving?

Mr. Werner Schmidt: That's correct.

Mrs. Lynn MacFarlane: Concerning the creation of FINTRAC in our regulatory suite that was put in place, our regulatory suite for the full reporting was completed only on March 31 of last year. In last year's annual report we talked about a substantial growth in reporting at two million.

We're expecting over ten million reports. Basically that is because we have reached out. We are working with reporting entities and fully expect to receive more and more financial reports. International electronic funds transfers account for a significant growth. It simply means our regulatory regime and the reporting requirements of the regulatory regime are in fact working.

Mr. Werner Schmidt: What happens to these reports, and what are the consequences of people getting involved in these kinds of issues?

Mrs. Lynn MacFarlane: What it means for us in FINTRAC is.... Our job is to detect and deter money-laundering and terrorist activity financing. Basically, it is our job to analyze the information holdings we receive from reporting entities. When we have reasonable and probable grounds to suspect either money-laundering, terrorist activity financing, or threats to the security of Canada, at that point we disclose the information to police and security authorities.

It simply means that with the growth of reporting we have a much richer database in which to do our financial intelligence work.

Mr. Werner Schmidt: How many of these cases have actually gone to the police? Has there been an increase there?

Mrs. Lynn MacFarlane: Yes, there has. Last year, in our annual report to Parliament for fiscal year 2002-2003, we had a total of 103 cases. Right now the figures we have for the first nine months of this fiscal year, from April until December, indicate we're looking at about 140 cases. Obviously, we have to look at the statistics also for the last three months in the fiscal year. Definitely the number of our disclosures is increasing.

Mr. Werner Schmidt: How many of these have ended up in a conviction of some kind?

Mrs. Lynn MacFarlane: It's much too early for us to tell at this point. Basically, what we do is provide a new piece of information that police and security didn't have before the creation of FINTRAC, which is financial intelligence. We're providing a new tool to security and law enforcement.

Their money laundering and terrorist activity financing cases are complex and large, and they require.... We provide financial intelligence, but there is a whole criminal investigation that has to take place. Sometimes it takes years for that to unfold. We're really not in a position to describe what the actual conviction rate is, because it's a bit too early in the life of FINTRAC in relationship to our financial intelligence.

Mr. Werner Schmidt: Is there an association or connection between you and the deputy Prime Minister in terms of the national security of Canada and its relationship to money-laundering activities in Canada?

¿ (0955)

Mrs. Lynn MacFarlane: Obviously, the work that we do in FINTRAC in relationship to money laundering and the financing of terrorist activity supports the government as a whole, in terms of its national initiative to combat money laundering. Obviously, we play a role in supporting the national security agenda of the government.

Mr. Werner Schmidt: How much communication is there between the two departments?

Mrs. Lynn MacFarlane: We have excellent communication and collaboration with our colleagues there.

Mr. Werner Schmidt: Thank you.

Mr. Chairman, I want to go into another area, if I may.

The other area has to do with OSFI. I notice, according to your estimates on page 131, that there is an acquisition here of something like $4.8 million for equipment. What kind of equipment is being purchased for that? It seems to me that is a pretty drastic increase from the year before.

Mr. Dennis Kam: I don't believe we have an official from OSFI here.

Mr. Frank Swedlove (Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance): That relates, you say, to $4 million for—

Mr. Werner Schmidt: It is $4.8 million.

It tells us clearly that the Office of the Superintendent of Financial Institutions is going to be expending something like $4.86 million on the acquisition of machinery and equipment. I'm just wondering what kind of machinery is going to be acquired here, and what is it to be used for.

Mr. Dennis Kam: I'm sorry, but without an official here, we will have to provide that in writing.

Mr. Monte Solberg: Why isn't there an OSFI official here?

Mr. Werner Schmidt: Exactly.

This is a pretty significant issue. There is a $5 million expenditure for which there is no explanation.

Mr. Monte Solberg: There should be someone from OSFI to do the estimates.

The Chair: Is there any way you can get that information now, by phoning them?

A witness: Sure.

Mr. Monte Solberg: And could we get an explanation as to why they don't bother to send someone to explain the main estimates?

Mr. Frank Swedlove: If I could note, OSFI, of course, operates on a cost-recovery basis, so the vast majority or almost all of its expenses are covered by fees paid by the institutions. The amounts that are shown with respect to main estimates relate to actuarial and other services of government, which are about $4 million. Of that, $3.4 million is assessed against the various activities that the chief actuary does. But the vast majority of the costs are recovered by the institutions.

Mr. Monte Solberg: Fair enough, but they still are subject to parliamentary scrutiny. If there is no official, it's pretty difficult.

The Chair: I think Mr. Schmidt has something to say.

Mr. Werner Schmidt: Yes, the point has been made. I think it's pretty significant that somebody ought to be able to explain this.

I don't think the issue here is whether there is cost recovery or not; the issue here is that there is an expenditure of funds and an underwriting that has to take place, financed first of all by the Parliament of Canada and the Government of Canada. I think we really should have an explanation.

I would like to move on to another area, if I may, Mr. Chairman.

The Chair: In the meantime, we'll see if we can get that information soon.

A witness: Somebody is calling.

Mr. Werner Schmidt: I would like to go into the question of debt management, in particular, Mr. Chairman.

I would like to ask about the priority. When certain debts are repaid, the Government of Canada's debt is reduced and obviously some securities or some financial instruments are liquidated. What is the priority of the issues that are liquidated in order to pay back and reduce Canada's debt?

Mr. Frank Swedlove: Do you mean in terms of the surplus amounts, and how that is applied?

Mr. Werner Schmidt: Yes, how it's applied. Which debt is actually reduced, and what is the priority of the debt?

There are lots of financial instruments out there. Some of them are denominated in foreign currency and others in domestic currency. What is the order? Are they two-year bonds? Are they three-year paper, or are they ten-year paper? What's the order of priority?

Mr. Frank Swedlove: There is a debt program, whereby the government has various debt instruments that it uses—anything from retail debt, which is CSBs and CPBs, to treasury bills, to ten-year paper. They have various levels of debt, and those come due at different times. The program is managed as debt instruments come due.

What we attempt to do is have a proportion of fixed and floating debt. The previous level was 66% fixed and 34% floating. We would manage the debt program to those levels. The 66% fixed provided stability and essentially a hedge against possible increases in short-term interest rates.

What we have decided over the last two years is to reduce that 66% to 60% fixed, with 40% floating. Generally what we're doing as fixed instruments come due is move more of the debt to the floating rate in order to reduce the level from 66% to 60%. By doing so we are reducing the cost of the debt, because short-term debt is cheaper, of course, than longer-term debt.

À (1000)

The Chair: Thank you.

Thank you, Mr. Schmidt.

I should say that someone from OSFI is on their way over.

Mr. Werner Schmidt: We'll do the OSFI discussion at that point, then, so that they can get into the discussion. What's going to be the process?

The Chair: We'll just carry on with the questioning right now.

Is there anyone else? I had a couple of questions.

Mr. Jaffer, do you have any? Yes? Why don't you pose them?

Mr. Rahim Jaffer (Edmonton—Strathcona, CPC): One of the questions I had pertained to the Canadian International Trade Tribunal. I notice the estimates list an amount here. I know one of the responsibilities that is involved with the tribunal is an issue we were talking about here in committee, and we just passed a report that will be available....

Has that report on the textile industry been tabled in the House, Mr. Chairman, on the issue of the remissions?

The Chair: It was tabled yesterday.

Mr. Rahim Jaffer: Right.

I notice one of the things within this section is the responsibility for requests from domestic producers for tariff relief on imported textile inputs for production.

One of the recommendations we made just recently in our report was to explore whether or not the tariffs can be lifted on textiles that are not produced here in Canada and are imported, to give an equal footing to our textile manufacturers for those particular products. I'm curious whether someone can comment on whether there is any direction in the department to address that issue and to give remission on a permanent basis to some of those inputs that are not available here in Canada.

The Chair: In fairness, Mr. Jaffer, there might be officials here who could deal with that question, but this is a study of the main estimates, and that's a kind of technical policy question. If there's someone here who wants to have a bash at it, fine, but I think it's outside the scope of this meeting.

Mr. Rahim Jaffer: Maybe I could put it in the context of asking, for instance, how much that portion of the budget for dealing with issues concerning remissions would cost. That's an issue we'll have to be studying later anyway, because it's an issue we're going to study in the committee.

One of the concerns was how much in the operating budget would be allocated to evaluating all these various tariffs, and the percentage of costs that would come under the current budget estimates. It seems to me it's an issue that is obviously important to our own industries. I'm curious how much it would cost the department to do those regular evaluations on remissions.

[Translation]

Mrs. Sylvie Mercier (Chief Financial Services, Canadian International Trade Tribunal, Department of Finance): I can't answer as to the exact cost in so far as textiles are concerned. We work on the basis of the requests we receive. I know that in years past, we did not receive very many requests for tariff relief on textile inputs. I'd have to get back to you with an answer. I cannot give you a specific one at this time.

[English]

The Chair: As a general comment, we bring the department officials forward to get answers to questions, and we seem to struggle to get answers. Maybe in the future we could try to sharpen up our approach to this. We're all assembled here to review the main estimates, and while it's interesting to have paper that flows later, it's not quite as topical or as relevant. When you get that information, Ms. Mercier, please forward it to the clerk, and we'll circulate it to the members.

I have a couple of questions while we're waiting for OSFI. I know Mr. Solberg had a follow-on question.

Ms. MacFarlane, when FINTRAC was set up with the legislation, the idea, as I recollect, was to make the catchment area of the data as broad as possible, because you didn't want to leave out certain areas, but over time there would be a weeding out of a lot of data coming in that wouldn't actually be that useful. I can think of examples of big department stores with huge deposits every day. I know the data coming in have been increasing because of the wire transfers and so on. Has there, at the same time, been any move to weed out data that are superfluous or are not going to, in your judgment, add any value to the work you do?

À (1005)

Mrs. Lynn MacFarlane: At this point we do not have authority to weed out information. We must receive the information reporting entities provide to us. Obviously, with our analytical review and our information technology tools, there is data mining we do in relation to all the reports that do come in. But the fact is that what we're primarily interested in with all the reporting streams we have is finding trends, patterns, links that suggest to us patterns of money laundering and terrorism financing. Basically, our IT tools allow us to do a lot of data mining and sifting out of that information.

The Chair: Would that require legislation or regulatory change, whereby, for example, the daily deposit of Canadian Tire in Thetford Mines or wherever does not have to be sent in, or will we always be in a world where the data will be coming in and you will be applying your routines to all the data and mining out what you need?

Mrs. Lynn MacFarlane: At this point our legislation very carefully prescribes all the reporting streams, and in fact, those reporting streams are in place. They are quite substantial in nature, but they are very prescribed. There's a huge privacy impact associated with that.

I'd ask my colleague Lynn Hemmings on the policy or legislative side if there is anything she'd like to add to that.

Ms. Lynn Hemmings (Policy Analyst, Financial Sector Review Group, Department of Finance): I'm sorry, I've been out of the room for a little while, so I may not have got the full question, but under the regulations we have a requirement to report large cash transactions. We also have exemptions from reporting those large cash transactions. We recognized that there were many cash-intense businesses that were legitimate businesses, and we put in regulations some criteria that would exempt financial institutions from having to report on the large cash transactions of those businesses.

The Chair: So that's already effective.

Ms. Lynn Hemmings: Yes.

The Chair: Give me an update, if you would, on the lawyers. The problem was that the minute you create an opening, the laundered money goes to that opening. I know there has been an issue with the lawyers on solicitor-client privilege and there are negotiations under way to try to reach some conclusion to that. Could you give us a report on that, Mr. Swedlove?

Mr. Frank Swedlove: As you may know, we did include regulations that required lawyers to file like other possible intermediaries. However, there were a number of court challenges to that, so we have for the time being suspended those regulations. We are carrying out discussions with the legal community on how we can include the legal profession in the anti-money-laundering, anti-terrorism financing provisions and at the same time respect solicitor-client privilege. We've been meeting regularly with the Canadian Bar Association and the Federation of Law Societies, and those discussions are ongoing. We hope over the next number of months to come to an understanding with them.

À (1010)

The Chair: Do you think you're making progress?

Mr. Frank Swedlove: We think we are making progress. We're looking at a number of options that will allow us to meet our international obligations and still be respectful of solicitor-client privilege.

The Chair: Thank you.

Mr. Solberg, if you have a quick follow-up, and then Mr. Discepola.

Mr. Monte Solberg: I just want to go back to the issue of reallocation. Do you keep track of the amount of money you reallocate in a year?

Mr. Dennis Kam: Not in any formal way. There's a continual process that happens at various levels within the organization. Each manager will be reallocating throughout the year.

Mr. Monte Solberg: If the government has a target of reallocating a billion dollars a year and you don't really keep track in a formal way, how do you know if you're reallocating a billion dollars?

Mr. Dennis Kam: That is a different question. The Treasury Board has assigned targets to each minister for reallocation. In that case it's reallocation away from departments; the funds are reallocated to other priorities. At the Department of Finance we've been given a target of $4 million.

Mr. Monte Solberg: I can see where there would be a tendency in any large organization to just keep funding things more and more every year and not close down things that are no longer necessary, that kind of thing. Can you give me some examples of any departmental programs you have shut down in the last year, moving the funds to another area?

Mr. Dennis Kam: Within the Department of Finance we did have a budget assigned by the government to support the G-20 involvement when the Prime Minister was the Minister of Finance. We had three-year funding for that. We had a secretariat set up to support that. That secretariat has been wound up. The people who worked on that have now been reassigned to other jobs, and the funds have disappeared. That's one example, a very large one.

As projects are taken on within the departments, some will be for two or three years. Mr. Swedlove was responsible for the project to set up FINTRAC, so we had an injection of funds to do that. Once that project was completed, those funds were wound down. There's an ongoing process there as projects come and go and as the priorities shift within the department.

Mr. Monte Solberg: Operating expenses overall have gone up $5 million this year, a pretty big jump. Do you happen to know or do you have the documents there to tell us how much they increased the previous year?

Mr. Dennis Kam: One of my officials can dig that up very quickly.

The Chair: Let's go to Mr. Discepola now, and we can come back.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.) (Vaudreuil—Soulanges, Lib.): Thank you.

My first question is on the public debt program, the interest and other costs. I notice there's a substantial reduction of almost $1.4 billion. I have a good idea, I think, what it's from, but could you explain if that's an active figure and realistic and what factors contribute to the reduction?

Mr. Peter DeVries (Director, Fiscal Policy Division, Economic and Fiscal Policy Division, Department of Finance): I'll take that one on.

That figure was accurate as of the November 2003 statement. The main estimates relate to the fiscal numbers the Minister of Finance presented at that time. Based on the interest rate outlook, that number was our best estimate of what it was going to cost with regard to public debt charges at that point. In the budget the minister just tabled that number was reduced. For 2004-2005, instead of the number being $36.2 billion, it is now $35.4 billion, a reduction of $800 million. That reflects the reduction in interest rates we've seen since November.

Mr. Nick Discepola: The slight slump in GDP in January won't affect this, it's essentially the interest rates?

À (1015)

Mr. Peter DeVries: No, it will not affect it. It's too early for that to have any impact on the numbers for the fiscal year that's just passed. It's largely the reductions in the short-term interest rates and the reductions in the bank rate that have occurred since the November update.

Mr. Nick Discepola: Thank you.

The financial transactions and reports analysis centre was created essentially to deter, prevent, and detect money laundering, and I notice that out of the $31.9 million budget there is almost 20% in professional services. It seems to me an astronomical figure for that need. Can you explain that for me, please?

Mrs. Lynn MacFarlane: In our organization there is a huge investment in the front end, building our organization on information technology. Information technology is one of the key enabling tools for us to conduct our business. To a large measure, as we were augmenting our organization, though we have a base of experts in our information technology area, we did need to contract some expertise to help us on some of the issues related to data mining, artificial intelligence, and data capture. That explains a large part of our professional services.

Mr. Nick Discepola: So it's mainly IT professional services. There's no acquisition of equipment in there, I presume.

Mrs. Lynn MacFarlane: I think you were talking about professional services, and that's services, not goods.

Mr. Nick Discepola: Is this a one-time thing, or do you think it will be recurring?

Mrs. Lynn MacFarlane: As a very small agency, we're trying to balance off whether we make or buy. To a large measure, with our IT areas and some other functions we have in the organization, when you have a $32 million budget, you basically need to have a combination of core functions that are provided for within your organization, but from time to time it is more economical and much more prudent to bring in expertise for specific tasks and to remove that expertise when the job is done. So we anticipate that the combination of core and some professional services will be a continuing feature in the way we do business.

Mr. Nick Discepola: Thank you.

I notice also that the Office of the Auditor General's budget has gone up 9%, and that was following a year with a 4% decline. Why is it going up 9%? My other question is, who audits the Auditor General?

Mr. Dennis Kam: I don't believe there's an official from the Auditor General here. We had this question when we appeared before you on supplementary estimates, and we pointed out that the Auditor General's office is included in the Ministry of Finance for convenience, but there's no program relationship between Finance or our minister and the Auditor General. The Auditor General reports to Parliament. I would expect the public accounts commitee to review the budget of the Auditor General's office.

Mr. Nick Discepola: Does Treasury Board have a role in her function?

Mr. Dennis Kam: Certainly. As with any other department or agency, budget proposals are submitted to Treasury Board annually for review.

Mr. Nick Discepola: But she's done so many audits and so much reporting in the past several weeks or months. Why does she need a 9% increase? Do you know?

Mr. Dennis Kam: No, I don't know.

Mr. Nick Discepola: She's also contributing, I think, $380,000 to the Canadian Comprehensive Audit Foundation--I hope that's going directly and not going through an ad agency. What's the purpose of the $380,000? Do you know?

Mr. Dennis Kam: No, but I'm aware of the foundation.

Mr. Peter DeVries: The public accounts committee was to examine the main estimates for the Auditor General yesterday, but because of other business, they didn't get around to doing it. But it is the public accounts committee that examines the spending estimates of the Auditor General. The office is included under the Department of Finance because she needs a minister to submit her spending plans to Treasury Board for approval, but we don't have any say over the spending instruments of the Auditor General.

Mr. Nick Discepola: As long as the opposition doesn't think that's a money-laundering type of scheme.

The Chair: Thank you, Mr. Discepola.

Mr. Jaffer.

Mr. Rahim Jaffer: I just wanted some clarification. Under L10 there are two categories, issuance of demand notes to the European Bank for reconstruction and development, over $10 million, and payments and encashment of notes issued to the European Bank for reconstruction and development, just over $17 million. I'm wondering if I can get some explanation of what that money goes for exactly, or what it does when it goes to the European Bank.

À (1020)

Mr. Dennis Kam: I think we have an official here who can answer that.

Ms. Micheline Aucoin (Director, International Policy and Institutions Division, Department of Finance): Essentially, it is to acquire assets. It's basically our capital shares of the European Bank for Reconstruction and Development. Part of it is paid by cash, part by note.

Mr. Rahim Jaffer: You acquire assets in that particular bank, or investments of the bank?

Ms. Micheline Aucoin: That's right. Canada is a member of the European Bank for Reconstruction and Development. We are a shareholder of that bank. There was an initial share allocation when the bank was created. In 1996 there was a general capital increase, so these payments are for the acquisition of the shares we subscribed to in 1996.

Mr. Rahim Jaffer: If I'm not mistaken, the European Bank for Reconstruction was established after World War II. I guess the mandate has changed since, but we're still involved with it, and I'm curious about where our investments are going through that bank.

Ms. Micheline Aucoin: Actually, the International Bank for Construction and Development was established after World War II, but the EBRD, the European Bank, was established in 1991, I believe, and was basically for the former communist bloc of eastern Europe.

Mr. Rahim Jaffer: And that's where the focus is now?

Ms. Micheline Aucoin: That's right.

Mr. Rahim Jaffer: Thank you.

The Chair: Thank you.

I believe now we have the official from OSFI.

Mr. Dennis Kam: She's just hanging her coat up.

Maybe I can come back to a question, Mr. Chair, to point out that in the main estimates for 2002-2003 the operating vote was $82.6 million. It dropped, as you see, to $72.7 million, a decrease of a little over 12%, in 2003-2004. Now it's moved up to $77.8 million for the forthcoming year. So two years ago our main estimates were higher, and that decrease of 12% largely reflects the winding up of the G-20 secretariat. The funds were there, as I said, temporarily, and then they were removed.

The Chair: Thank you.

Now we have Ms. Christine Walker from OSFI. I think it was Mr. Schmidt who was pursuing that line of questioning, so I'll give the floor to him.

Mr. Werner Schmidt: Thank you very much, Mr. Chairman, and thank you for arriving.

This has to do with the request for $4.86 million for equipment. I was wondering what kind of equipment is being purchased, and what for?

Ms. Christine Walker (Senior Director, Office of the Superintendent of Financial Institutions Canada, Department of Finance): First of all, I want to apologize for not being here.

There are two reasons we need the equipment. First, we are doing an accommodations upgrade, downsizing our accommodation space, so we need to retrofit the office. The second part is for IMIT equipment. We are undergoing process re-engineering, and part of that is introducing enabling technology so that we can be more efficient. OSFI two years ago had capped its head count at 495 people. Part of this came from the fact that we would re-engineer our processes and then introduce technology so that we could continue to meet our mandate, continue to be effective and efficient by using technology. That's the reason for the increase.

Mr. Werner Schmidt: Is this a one-time expenditure, or will it be carried forward?

Ms. Christine Walker: It's really a three-year plan in upgrading. That's why you'll see it moving forward as well.

À (1025)

Mr. Werner Schmidt: So does that mean we'll have $5 million for the next three years?

Ms. Christine Walker: Yes, that's our anticipation, between those two projects.

Mr. Werner Schmidt: So we're looking at a $15 million expenditure?

Ms. Christine Walker: Yes.

Mr. Werner Schmidt: At the end of that program what happens?

Ms. Christine Walker: At the end of that program you should see a decrease in our capital investments.

Mr. Werner Schmidt: And what will happen to the actual functioning of the investigation of the various financial institutions as a result of this equipment?

Ms. Christine Walker: First, a lot of the investment is meant to improve our internal processes, so they will be more efficient internally, which means their assessments on the financial institutions will be lower. We have projected an increase of the assessments in the 5% range. The other thing we're looking at is data rationalization, which is really what the financial institutions would like. We will be able to enable them to send their financial information on line. Right now we still receive things by diskette.

Mr. Werner Schmidt: It should be a major improvement if it all works out that way.

Further, will this actually allow the OSFI office to be speedier in analysing difficulties of financial institutions? As you know, in the past there has been a tremendous lapse between the time OSFI was actually aware of financial difficulties and the need to do something, so the time was well past and there was really no practical impact in warning people affected by the collapse of financial institutions. OSFI was almost unable to do anything practical in protecting people, because the information was so slow in coming and there wasn't a capability for analysing it quickly enough to protect people.

Ms. Christine Walker: The purpose of this investment is to make us more effective, so I would expect it to improve that situation.

Mr. Werner Schmidt: Are you sure?

Ms. Christine Walker: I believe that would be the effect. We get an awful lot of information from the financial institutions, and our technology is outdated. The purpose of this is to put technology in that allows us to get at that information more quickly.

Mr. Werner Schmidt: I'm not sure this is the appropriate time to get into them, but there are a series of major questions I would like to pursue.

The Chair: With respect to OSFI?

Mr. Werner Schmidt: Yes.

The Chair: We have the meeting room until 11 o'clock. Mr. Discepola wants to get in, but carry on for a bit.

Mr. Werner Schmidt: All right.

The other question has to do with the confidentiality of the information given by the various financial institutions to OSFI and making that information available to investors and other members of the public who are very much affected by these financial institutions, insurance companies, trust companies, banks, or whatever. I would talk about life insurance companies in particular and the time required to identify a problem. There's a company that is actually doing things that it shouldn't do, and the action has been taken. What is the possibility of rectifying the situation, so that the negative impact is not felt by investors or policy-holders?

Mr. Frank Swedlove: OSFI's role is essentially to work with financial institutions to ensure that they're meeting their requirements with respect to capital and other measurements of solvency. They're very active in doing that. They actively monitor all institutions, but with institutions that are showing weakness, they apply extra supervision, extra requirements. The idea is to continue to work with those institutions to sort out their difficulties. The problem is that if this working out with an institution of the difficulties they have is made public more generally, it is essentially going to weaken that institution even further, because the institution is going to have more difficulty funding its operations. If it's a deposit-taking institution, the depositors may get nervous and leave the institution.

So there's a kind of balancing act that is required with respect to the issue of confidentiality. The idea is for OSFI to work with the institutions to try to find ways of getting them back to complete health, and they indeed do that.

À (1030)

Mr. Werner Schmidt: I fully appreciate that, and sensitivity is very much the case. I'm very much aware of that. The question is, does the information really come soon enough and in sufficient detail that OSFI is able to work with these institutions in time? That's really my concern. Very often it could be the case--I don't know if it is--that the financial institution is somewhat hesitant to provide certain information on time, so that things can happen, because they recognize the seriousness of the situation and, perhaps, the possible debilitating effect if such information becomes public.

Mr. Frank Swedlove: There are filing requirements, and they must meet them. If those filing requirements are not fulfilled in time, that sets out a red flag, and OSFI is quick to respond to that situation. At the same time, case officers for each financial institution have the responsibility on an ongoing basis to watch the activities to see if there are any signs of weakness and to respond. OSFI is very much focusing on finding at the earliest stage possible where there are problems. They look at the various kinds of risks that are associated with running financial institutions and have a sense as to where there may be weaknesses, depending on the asset mix of the institution. So what you're talking about is a very legitimate issue, and OSFI, through various processes, is focusing on responding to weaknesses in institutions at as early a stage as possible.

Having said that, I think if the superintendent were here he would point out quickly that there is no way one can guarantee that you will never have an institution that gets into financial difficulty and even fails. The role of the supervisor is not to ensure that no institution will fail, because from time to time institutiions do fail. Rather, it's to work with institutions and to respond to circumstances to minimize the number of institutions failing and minimize the loss to depositors or policy-holders.

The Chair: Maybe I'll go to Mr. Discepola.

Mr. Nick Discepola: Mine's a very short question, Werner.

I was a bit disturbed by your answer to Mr. Schmidt's question. You have a three-year acquisition program for high technology, and it's $5 million per year, $15 million in total. I get concerned when you say you're not sure if there are going to be savings or benefits over those three or four years, in view of the fact that probably by the time you implement the full scale of your measures, the technology you've spent three years installing is going to be obsolete again. So is it feasible? I presume that through the use of this new technology and systems, you will have a benefit not only for yourselves, but possibly for the financial institutions you serve. Is it feasible that some of this cost could be shared through user fees or recovered by charging the financial institutions, so that you can continue to maintain it? You weren't too convincing when you said that investment would pay off, so I'm a bit concerned.

Ms. Christine Walker: I apologize if I wasn't clear. In fact, we are making sure we do have a return on investment. Before we make any technology investments, we work on the business case to make sure there is a return on investment. No major decisions are made without that kind of analysis. Further, we are expected to achieve benefits by the year 2005-2006. We are currently undergoing major process re-engineering with a view to saving money in 2005-2006. With what we've submitted for the main estimates, we've already gone through a review process and cut $2 million off our planned spending for 2004-2005, and we've cut our planned spending for 2005-2006 and 2006-2007 since submitting the main estimates. So absolutely, that technology or whatever, all the investments we're making, will give us a return on investment, and that return on investment goes right back to the financial institutions we serve.

On sharing costs, we already have a joint initiative under way with CDIC. We were talking about being able to do online filing. That's a very expensive initiative, and we knew that going alone was not going to be an option. We are working very closely with CDIC on a joint initiative in that area, because both of us receive information from the financial institutions. We are also talking with the Bank of Canada on that initiative.

À (1035)

Mr. Frank Swedlove: You were speaking about cost-sharing with financial institutions, and it should be noted that all these costs will be covered by the financial institutions through their assessments. So in a sense they do share costs, as they are ultimately responsible for covering the costs of OSFI with respect to prudential regulations. They essentially are paying for this equipment, and there will be a return to those institutions through lower assessments in future.

The Chair: Just as a follow-up to that, presumably you would do a cost-benefit business case for an investment of $15 million. When those costs are being transferred to the institutions, do you involve them in the cost-benefit business case? Presumably they're the ones who'd help to judge whether the benefits are going to be there, or are going to be realized.

Ms. Christine Walker: On an annual basis, in about April-May, we present our business plan to the financial institutions. We have been very clear that this has been an ongoing plan of ours. As Mr. Swedlove mentioned, our costs are recovered through assessments and user fees to the financial institutions. They are very concerned about what their assessments are going to be, so they are well aware that we are making these investments.

The Chair: But presumably, then, they would be convinced that there is a cost benefit to these types of investment.

Ms. Christine Walker: Yes, because they're seeing that we are lowering our planned spending as a result of this.

The Chair: Thank you.

Mr. Solberg.

Mr. Monte Solberg: Thank you.

I'm going to ask an impolite question, I guess. I'd like to know if you could explain why you weren't here in the first place.

Ms. Christine Walker: We weren't here in the first place because OSFI typically hasn't had these kinds of questions in the past, in fairness. As I said, I apologize for not being here. We'll make sure that we're here in future.

Mr. Monte Solberg: I just want to make the point that I think there's renewed concern about how government spends money. The estimates make up a very small window that committees have to try to address the $150 billion or so that Parliament spends. I just think it is important that officials from every agency and department make an effort to be at these things. So it just struck me as odd that OSFI didn't send anyone.

Ms. Christine Walker: I want to make it very clear that we are extremely conscious of our spending and how much money we do spend. We have financial institutions who we bill directly, and we have a lot of controls in place to make sure that we do spend effectively. I don't know whether you're aware, but we do have audited financial statements by the Auditor General on an annual basis. We are very cognizant of that fact.

As I said, it was an oversight on our part, and it will not happen again.

The Chair: Perhaps I could add something in terms of the general tone.

You're probably picking up that the committees of the House of Commons are getting more interested in the estimates. In fact, I've recalled meetings on estimates where it was just kind of a political smorgasbord. We never really got into any detail. So I'm really delighted that we're focusing more on the actual estimates. What that means, though, is that we're going to need more help from the officials in the future. It's difficult, because one can never anticipate what kind of questions will come up. Today, for instance, I think OSFI was a good example of where we needed someone.

Now, do the duty remission programs come under the estimates of the Department of Finance? Would they be funded by Finance Canada, or would they come under your estimates? Where do they come up?

À (1040)

Mr. Alister Smith (General Director, ITF, Department of Finance): Duties and tariffs are part of our revenue, so duty remissions would be revenue foregone. In that sense, they're very much part of our estimates.

The Chair: Do they show up in these documents?

Mr. Alister Smith: On the revenue side.

The Chair: Oh, it's revenue forgone. So they're not actually part of these....

Irrespective of the policy issues, there's also just knowing what those numbers are. In fact, it might be that in future we need to know, because tax expenditures are a big item, and they kind of get glossed over in the process.

I think what you're going to find, bottom line, is that the committees of the House of Commons are going to get more interested in these items. We're going to ask you to have officials here to answer some questions that perhaps will be more detailed than in the past. In fact, there is a move afoot that committees will have access to people with a lot of knowledge of STOBs and program budgets and estimates to help guide our discussion. We're going to try to stay focused on the estimates and not on all the blue sky stuff. We can do that in other venues, where the minister might come and talk about policy, but when we talk about the estimates, we really are going to try to focus on the nuts and bolts of the estimates and the dollars and cents that are in departmental budgets. I just ask you to keep that in mind for future meetings.

Is there anything else in terms of substantive questioning?

Mr. Schmidt.

Mr. Werner Schmidt: Do you want to continue on OSFI?

The Chair: Well, as I say, we have the room until 11 o'clock.

Mr. Werner Schmidt: Because I have a question on Canada Post.

The Chair: Canada Post?

A voice: Wrong agency. They were here last week.

The Chair: No, that was the Canada Customs and Revenue Agency. They were here last.... We did them another time.

Mr. Werner Schmidt: Oh, you've already finished that--

The Chair: We've done the Canada Customs and Revenue Agency.

Mr. Werner Schmidt: --so you know why they're getting $497 million.

The Chair: Off the top of my head, no, but we did have a full discussion around that.

Mr. Werner Schmidt: Okay, then, we'll carry on with OSFI.

The Chair: You can go to the transcripts.

Mr. Werner Schmidt: No problem. I apologize for raising that. I didn't realize you'd done it.

My question with regard to OSFI has to do with the removal of the pillars now, where the banks in particular are now very much involved in the investment--what used to be the Investment Dealers Association--and the business there. Do you find that the jurisdiction of OSFI, dealing with the various investment dealers and the debt management they do in the subscription for various debt instruments, comes into your new acquisition of this equipment you're going to buy? Are you going to be able to manage all that very well?

Ms. Christine Walker: I have to apologize, because I'm not well equipped to answer that question. I'm the senior financial officer.

I don't know if Frank can answer that question on my behalf.

Mr. Frank Swedlove: Is that in terms of the responsibility of OSFI with respect to the investment activity--

Mr. Werner Schmidt: Well, you do have responsibility there, because the banks now own this.

Mr. Frank Swedlove: OSFI regulates on a consolidated basis, so it's interested in all of the subsidiaries of the banks, and as such would be interested in the financial situation of the individual investment dealers. They seek information on the subsidiaries and also the information that's provided on both a company-by-company basis and consolidated basis.

So both of those types of information would be provided and would be part of any improvement in procedures that would take place. The actual regulation of an investment dealer for purposes of market conduct is still done at the provincial level, of course, by the individual securities commissions of the provinces.

Mr. Werner Schmidt: I certainly appreciate that, but by the same token, if there is malfeasance going on somewhere, it's going to affect the mother institution in a very major way, and that's where you get involved. There seems to be one regulatory function, and that is provincial, which has to do with the investment dealers, and then you turn around over here and you have a chartered bank like the Royal Bank, for example. Now what do you do when those two are in conflict?

À (1045)

Mr. Frank Swedlove: Right now there certainly is a lot of cooperation and coordination between the securities commissions and OSFI. However, as you know, there is discussion now about the possibility of changing the structure of securities regulation in Canada. In the budget that was tabled, the minister expressed his desire to have discussions with his provincial colleagues who are responsible for securities regulation about the possibility of establishing a single regulator.

Mr. Werner Schmidt: That isn't really my question. My real question is, how do you handle it now? Because that's all future stuff--maybe. Alberta has already said it's not going to do that.

Mr. Frank Swedlove: It is handled through cooperation amongst the regulators.

The Chair: If I may, I have a question on the federal-provincial transfers program. Perhaps Mr. Doucet can help me with this.

The Canada health transfer has been sort of carved out. The objective, as I understand it, is to look to greater accountability on the health care expenditure. A health council has been set up to provide that sort of accountability. That leaves, then, on the balance, the Canada social transfer, where the funding is designed for post-secondary education and other social programs.

There have been presentations to this committee by people who have argued that on the post-secondary education side, we need to make the same moves with respect to the accountability and the segregation on post-secondary education to achieve the same kind of accountability and transparency. Now, presumably that's possible, and feasible, but how does one come up with the numbers on, for example, the social transfer, or post-secondary education, and contributions to provincial social programs? And perhaps you could tell me the kinds of programs the latter would cover. Presumably it would be welfare programs, etc.

As well, how would you carve out from the social transfer those elements that one would consider as being designated for post-secondary education? How did you do it on the health side? Where are those discussions, and where are we headed? Is all of this feasible, or possible?

Mr. Pierre Doucet: I have an expert with me, Mr. Chair, in Mr. Campbell. He can answer those questions.

Mr. Glenn Campbell (Chief, CHST and Policy Development, Federal-Provincial Relations and Social Policy Branch, Department of Finance): As members may recall, we've been to this committee several times in the last few years when we were legislating increases to the Canada health and social transfer out to five years. Then in last year's budget the government decided, following consultation with the provinces--effectively first ministers--to divide the CHST into two components, the Canada health transfer and the Canada social transfer, and that began on April 1.

The government, after some consultation with the provinces, agreed to divide the CHST's current track as legislated according to how provinces were themselves allocating all of the resources that were supported by the Canada health and social transfer, that being health care, post-secondary education, and social services. As you may know, that split has been in a ratio of 62% for health and 38% for social services. You'll see this before you in the main estimates for 2004-05. Effectively, that represents for the CHT 62% of the whole, the social transfer is 38% of the whole, and on top of that was the early learning and child care money of $150 million that was agreed to after the 2003 health accord.

Now, with respect to accountability, there is the Health Council of Canada, which now exists. Following a 2003 health accord, it has been given a specific mandate to report and to work with provinces on reporting. The Health Council was not designed to report specifically on all the Canada health transfer or on how all provinces were spending it. I think there's a lot of discussion still to be had with provinces and territories on how the Health Council is going to work. Needless to say, under the social union framework agreement there are parameters in place where all provinces have been asked and have agreed to report on all of their health spending, particularly to report publicly on the targeted funds that were provided in that package.

Now, if I may draw the analogy, on the Canada social transfer side it was agreed to continue that as a block transfer. There was not a similar pressure to divide for transparency; clearly, the government, provinces, and territories agreed, and the provinces were receptive to continue to have the flexibility on the Canada social transfer side.

There is no notional share allocated to post-secondary education, social services and welfare, and early childhood development, as you mentioned, Mr. Chair. I think even to estimate how much of the Canada social transfer would be allocated to those areas would be much more difficult on health given the different.... Particularly for post-secondary education, provinces clearly make policy choices to spend different amounts on post-secondary education. Nova Scotia and Alberta, just to name two, make their own policy choices with respect to how much they spend on post-secondary education. At the end of the day, provinces are responsible for reporting on how they spend their money on post-secondary education and on social services through their own legislatures.

I'm not sure, Mr. Chair, whether that answers all of your questions, but clearly that is the situation today.

À (1050)

The Chair: That's very helpful.

I think, though, that the pressures are mounting to look at post-secondary education more discretely with respect to student debt and what investment provinces are making in post-secondary education. I think ultimately it's a political decision, but I just wondered if there were any discussions on the ways and means to do it. I imagine if there's a political will, there are ways, but it would limit the flexibility for the provinces, so that might a bit of a stumbling block.

Monsieur Barrette, you had a question on this.

[Translation]

Mr. Gilbert Barrette: Thank you, Mr. Chairman.

I have two questions. We hear the figure of 16% mentioned in the press. Could you find out and let me know whether or not the social transfer component is included in that figure?

Furthermore, unless I'm mistaken, Quebec is not part of the new, recently formed committee.

What measures do you intend to put in place to follow up on how the money is spent, just as you intend to do in the case of the other provinces?

Mr. Glenn Campbell: The Government of Quebec decided recently to participate in the Health Council of Canada. An accord has been reached with the other provinces and with Quebec. Parameters were of course set for participating in the Health Council. Quebec would like to report only to Quebecers in so far as health and other expenditures are concerned.

As for you other question concerning the 16%, as you know, the federal government has a different figure. It has come up with a figure of about 40%. It's clear that we have some documentation and that in the 2004 budget tabled in the House of Commons, the figure of 40% is quoted.

[English]

In the view of the government, the 16% is it is not an accurate reflection of the contribution the federal government is making to health care in this country. I think the Minister of Finance has been on record as indicating this does not account for all the federal government support. Provinces are using only cash support provided under the Canada health and social transfer divided into all provincial and territorial health and social programs, including a significant amount for primary K to 12 education, to which the federal government has never provided direct support.

This also excludes the value of the tax transfer, which is an ongoing value dating back to 1977, and also does not count around $9 billion in equalization, which many provinces indicate is very important for supporting health care. As well, it does not reflect the $5 billion in federal spending as well as $1 billion in tax credits.

All that in total should show to Canadians the federal contribution to health in Canada on the public side is more in the order of 40%, so clearly there is a strong difference of opinion between the provinces and the federal government.

À (1055)

The Chair: Thank you very much.

Mr. Cuzner, you had a quick question.

Mr. Rodger Cuzner (Bras d'Or—Cape Breton, Lib.): So you believe, Mr. Campbell, as Mr. Barrette was saying, that the newly appointed Health Council will be able to glean those or that the tracking system will improve as we go forward here.

Mr. Glenn Campbell: I think that's a very good question, but perhaps one more appropriately directed to officials from Health Canada. I can say that the Health Council is one piece of a larger puzzle. I think provinces and territories made it clear that the Health Council has to encourage cooperation. All the ministers of health participate in that committee. I think all provinces and territories, however, have made it clear they will continue to report directly to their own citizens on how they spend health care dollars. But they will work in cooperation with the Canadian Institute for Health Information, which all ministers sit on and which provides the information.

There's clearly a spirit of collaboration, and we should anticipate that public reporting will improve as we move forward, year over year. We have certainly seen progress in the last few years, so there are good prospects that will continue.

The Chair: We'll have very short interventions from Mr. Solberg and Mr. Discepola, and then we're going to adjourn.

Mr. Monte Solberg: Thank you, Mr. Chairman.

I'm just wondering what youth allowance recovery and alternative payments for standing programs are. Can you just explain that?

Mr. Pierre Doucet: The youth allowance recovery program existed in the past and was terminated in 1974. It took the form of 3% tax points to Quebec. In other words, Quebec levied 3% on its own income tax, and we adjusted their payments towards this program called youth allowances for the difference. So when the program was terminated in 1974, there was an agreement that the Quebec government would keep the three tax points, but we would annually recover the value of the abatement to make sure that Quebec was treated the same way as the other provinces.

It's the same also for the alternative standing programs, which represent an abatement of 16.5 points, but that's for existing programs. They were formerly, I believe, shared cost programs with the federal government, and they took the form of a transfer of tax points so the provinces could levy their own. But by the same token, when we were transferring money to them, an amount equivalent to the tax abatement was deducted, again, so Quebec would be treated the same way as the other provinces.

Mr. Monte Solberg: Thank you.

The Chair: Thank you.

Mr. Discepola.

M. Nick Discepola: I just wanted to ask if the clerk, through the assistance of Mr. Campbell, could put his explanation on the 40% on a one-page document for us. I found it very refreshing the way you clarified it, and I think we should get that in writing. There's still a bit more detail you could go into that you didn't have time to go into, but I would like that explanation. I don't know if the rest of the members would like it.

The Chair: Could you do that, Mr. Campbell? You could send it to the clerk and then we'll pass it around. Thank you.

Thank you very much for coming, all of you, and thank you, colleagues, for focusing largely on the estimates, and we'll see you next time. Thank you.

The meeting is adjourned.