PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

FIRST  REPORT

The Standing Committee on Public Accounts has considered the December 2001 Report of the Auditor General of Canada (Chapter 13 — Other Audit Observations: Parliamentary oversight weakened in poorly targeted relief for heating expenses (RHE)), and has agreed to table the following report.

INTRODUCTION

In its October 2000 Economic Statement and Budget Update,^[1] the federal government expressed concern about the impact of rising energy prices on home heating costs for low- and modest-income Canadians. Accordingly, the Government announced that it would provide one-time relief to those eligible for the January 2001 payment of the goods and services tax credit (GSTC). The relief provided for heating expenses was $125 to individuals or $250 to families. The total cost of the relief for the year ended March 31, 2001 was over $1.4 billion and reached 8.6 million recipients.^[2]

The Government proposed to amend the Income Tax Act to obtain the parliamentary authority it needed to make the payments. After the Notice of Ways and Means motion was approved, however, Parliament was dissolved for the November 2000 election. Legislation to amend the Income Tax Act was not introduced, debated or approved prior to Parliament being dissolved.

After Parliament’s dissolution, the Government proceeded with the initiative and chose to provide the relief in the form of ex gratia payments authorized by the Governor in Council. Ex gratia payments are made at the Government’s discretion as acts of benevolence in the public interest. Although the Government had acquired the authority to make ex gratia payments, Parliament still had to provide the funds. Since Parliament had been dissolved, the Government used special warrants. Parliament has approved the use of special warrants during dissolution when there is no appropriation for payments that are urgently needed for the public good.

In addition to the way in which the Government authorized and secured funding for the initiative, the targeting of the assistance could be improved. After evaluating a number of options, the Department of Finance determined that, given the policy objectives, the goods and services tax credit was found to be the best available mechanism to help target the Relief for Heating Expenditure (RHE) payments to low- and modest-income households. The Office of the Auditor General subsequently examined the RHE program and concluded that the Government did not possess enough information to target accurately those low- and modest-income households actually facing increasing heating costs. According to the Auditor General’s own analysis, at least 40% of the payments went either to higher-income households or to recipients who would not likely have had higher heating costs related to 2000-2001 energy market conditions. Furthermore, because the payments of the GSTC in January 2001 were based on 1999 income, at least 90,000 low- and modest-income Canadians with higher heating costs were ineligible to obtain financial assistance under the RHE program.

Ensuring and maintaining transparency and accountability of government to Parliament, and ultimately to the Canadian public, is of paramount importance to the Committee. The method in which the Government obtained authorization and funding for the RHE program effectively bypassed the normal parliamentary process of scrutiny, debate and approval. Parliamentary oversight of public spending is important to the Committee, which therefore convened on April 11, 2002 to consider the findings of the Auditor General’s report on the RHE program. Sheila Fraser (Auditor General of Canada), James Hood (Principal) and Richard Domingue (Director) were present for the Office of the Auditor General of Canada. The Department of Finance was represented by Stephen Richardson (Senior Assistant Deputy Minister, Tax Policy Branch) and by Serge Nadeau (Director, Personal Income Tax Division, Tax Policy Branch). Representing the Canada Customs and Revenue Agency were David W. Miller (Assistant Commissioner, Assessment and Collections Branch) and Kathy Turner (Director General, Benefits Programs Directorate, Assessment and Collections Branch).

OBSERVATIONS AND RECOMMENDATIONS

Members asked the witnesses what action could be considered to improve the identification and targeting of specific population groups. In his opening statements to the Committee, Mr. Richardson explained why the GSTC mechanism was selected to provide one-time assistance to segments of the Canadian population considered most vulnerable to rising energy costs. Once the Government of Canada had decided to go ahead with providing financial assistance, the Department of Finance considered several policy options to deliver the relief payments. These options were measured against three important objectives: targeting, speed of delivery and cost of administration. According to Mr. Richardson, the GSTC mechanism was selected because it was the only option available that could achieve all three policy criteria described above. It was the best available mechanism for targeting low- and modest-income Canadians because it was already designed as an income-tested benefit delivered by the tax system. Also, it was the only mechanism that could provide the financial assistance to many people quickly before the end of winter 2000-2001, and it was the most cost-efficient administrative method for delivering relief to the target groups.^[3]

Members asked whether the Department of Finance, with all the expertise and sophisticated tools at its disposal, could have found a better instrument to target the RHE assistance. Mr. Richardson told the Committee that the Department was constantly “looking for ways to do better targeting,”^[4] and that identifying low- and modest-income households experiencing a sudden and substantial increase in heating costs was one of the many challenges in developing tax policy.^[5] Some Committee members enquired whether the Department of Finance was currently looking into alternative methods of targeting. Mr. Richardson responded that Finance was not currently examining alternative methods of targeting because no other measures or policy initiatives were being contemplated at the moment. He reiterated that, given the program objectives, the GSTC was a fairly precise mechanism to target low- and modest-income Canadians and was the best such mechanism among the available alternatives. He did state however, that if the timing of the payments had not been a crucial policy objective, then other options could have been considered.^[6]

Given the volatility of international energy markets, sudden and large increases in energy prices due to temporary shortages can and do occur. Moreover, Canada’s population is more vulnerable to sudden surges in energy prices owing to its northerly location. Thus, some members reasoned, it would make more sense before a crisis emerges, for the Department of Finance to develop a number of policy instruments that could be made available when emergency situations occur, instead of merely responding in an ad hoc fashion through improvised measures. As a result, the Committee makes the following recommendation:

RECOMMENDATION 1

That the Department of Finance, in collaboration with other relevant departments and agencies develop a public assistance plan, in the event of excessive energy price volatility, incorporating policy instruments that allows the identification of segments of the population most vulnerable to sudden and large surges in energy prices; and that the Department of Finance prepare and table a document summarizing this plan to Parliament and the Public Accounts Committee no later than March 31, 2003.

In its October 2000 Economic Statement, the Government announced its intention to provide financial assistance to Canadian households for increased heating expenses, and proposed to amend the Income Tax Act to obtain parliamentary authority needed to make the payments. While acknowledging the process of using ex gratia payments and issuing special warrants was perfectly legal, the Auditor General is concerned that the Government, in providing the heating rebate payments to eligible recipients, did not allow Parliament the opportunity to scrutinize, debate and approve the initiative.

The Government’s position is that securing a decree from the Governor in Council was crucial in ensuring that RHE recipients would receive their payments before the end of winter 2000-2001. If the Government had waited until Parliament resumed to introduce the legislation, and even if the legislation had been passed almost immediately, relief would have been delayed until mid-March 2001 at the earliest. The delay would have been unavoidable because administrative procedures such as the printing of cheques require at least six weeks once payments have been authorized. According to Mr. Richardson, such a delay would have jeopardized the government’s goal of providing relief to the target population before the end of winter.^[7]

The Committee believes it is important to uphold Parliament’s role in overseeing public spending. Regardless of the merits of government initiatives, if large sums of public funds are to be used, then the Government should use due diligence in seeking clear and explicit approval from Parliament. Furthermore, proposed legislation or amendments to existing legislation can benefit from parliamentary review as the resulting scrutiny and debate may identify opportunities to improve on the proposed initiatives. The Committee recognizes that sometimes the government may have to act rapidly to respond to emergencies but it trusts that in the future, when considering initiatives involving substantial sums of public monies, that the government take all reasonable steps to ensure that Parliament has the opportunity to properly scrutinize, debate and approve these initiatives. Thus the Committee recommends:

RECOMMENDATION 2

When the government decides to implement special initiatives involving substantial sums of public monies, that it take all reasonable steps to ensure an initiative is referred to Parliament in order to obtain clear and explicit authority.

CONCLUSION

The Committee believes it is important to uphold the role of Parliament to review and control public spending initiatives. The process under which the Rebate for Heating Expenditures (RHE) initiative was authorized and funded did not allow Parliament to scrutinize, debate and approve the initiative. Hence, if public monies are to fund government programs then, in the interest of transparency and accountability, it is preferable that the Government seek formal parliamentary approval.

Pursuant to Standing Order 109, the Committee requests that the government table a comprehensive response to this report.

A copy of the relevant Minutes of Proceedings (Meetings No. 47, 56 and 62 of the 1st Session of the 37th Parliament and Meeting No. 3 of the 2nd Session of the 37th Parliament) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair