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EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, December 5, 1996

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[English]

The Chair: I will now call to order this meeting of the Sub-Committee on the Business of Supply.

If everybody's agreeable, we'll just continue with our recommendations and hope to get through most of them by the end of this morning. If we need to, we'll have one more meeting next week. Then Brian can bring the report into line with our recommendations over the break and we can come back at it in February.

To avoid the problems we've had this fall, what I'll probably do when we meet again next week is schedule the meetings for the first few weeks we're back so we can get at it right away since we'll have the draft report by then.

Does that mean, Brian, that you would potentially be able to get a draft report out to members before the House returns?

Mr. Brian O'Neal (Committee Researcher): Yes, I anticipate being able to do that.

The Chair: What I would suggest is that I schedule meetings for the first week in February.I understand there's some possibility we'll be coming back the last week in January, but I'll schedule two meetings, Tuesday and Thursday, for the first and second weeks in February. Then, hopefully, we'll be able to get the report finished in those first couple of weeks so we won't all have it hanging over our heads when we've got more important things on our minds.

[Translation]

Mr. Laurin (Joliette): Madam Chair, did you manage to get agreement to delay the tabling of the report?

The Chair: I am waiting for a recommendation from the steering committee for 11 this morning.

[English]

I think we're going to do it once when we're at the end of March. That will give us some leeway there.

Where were we?

Mr. Williams (St. Albert): I think we finished 5.a, Madam Chair.

The Chair: Okay. Item B, ``The Scope of Parliamentary Financial Review''; section 1, ``Statutory Spending''.

Mr. O'Neal: It's actually paragraph b, ``The Role of the Office of the Auditor General'', at the bottom of page 6.

The Chair: My apologies. Brian, do you want to speak on this?

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Mr. O'Neal: If I may, Madam Chair. During our hearings with witnesses, the subcommittee heard from the High Commissioner from New Zealand. He had mentioned that in his country the Auditor General plays a very active role in the process of examining the estimates. For example, he is the first witness to appear before each and every one of their standing committees when they begin their examination of the estimates. He is very active in giving them advice as to the approach they might take.

There was some consideration that our own Auditor General in Canada perform a similar role.

Our Auditor General told the subcommittee when he was here that he already speaks to standing committees and is available to provide them with advice if they wish, but he preferred not to have that role formalized.

Also, in the process of doing my research, I spoke to some people at the Auditor General's office and asked them how they would feel if the office were required to play a more formal role in the examination of the estimates. They felt that under current resource limitations, this would impose - or potentially impose - too much of a burden on the office.

Therefore, the suggestion I've drafted for this subcommittee's consideration is that the committees make use of the reports of the Auditor General in their work on the estimates, where that's appropriate, but that the Auditor General and his office not be given a formal role in the estimates process.

That suggestion is followed on the next page by a more formal recommendation. It simply states that when departments and agencies submit plans and performance documents, they make reference to those chapters of the Auditor General's report that have dealt with them or their activities and indicate how they have responded to the findings in the reports and the recommendations.

The Chair: Are there any comments?

Mr. Williams: I think Brian is on the mark. We do not want to have the Auditor General entrenched into passing judgment on things the government anticipates doing, which is what the estimates are. His role is to comment on what the government has or has not accomplished and give his views thereon. I wouldn't want to see him take an anticipatory role or a policy role. It would detract from the impartiality of the office he holds.

I certainly like Brian's suggestion, in a retrospective manner, that when we're talking about the performance reports, if the Auditor General has raised concerns in his reports, these not be blithely ignored or set aside by the department and that the department's performance is brought to committees alongside concerns that may have been raised by the Auditor General, with the department's reaction thereon so that members can in essence have the two arguments side by side, if I may say so, on the performance documents. Then it's up to parliamentarians to be governed accordingly.

The Chair: I'd just like to point out that it's also included that they be referred to in the plans. I also think that's a good idea, because when committees see the estimates, they also know areas of spending with which the Auditor General has had some concern in the past. Based on those concerns, they can question the department on their estimates. For example, they can ask if the department is still spending $8 million extra, more than it needs to, on...?

Mr. Williams: Inventory, for example.

The Chair: Yes. Are there any other comments?

Mr. Laurin.

[Translation]

Mr. Laurin: Madam Chair, that is one of the most important comments in this report. I totally agree with Mr. Williams.

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[English]

The Chair: Paragraph c, ``Information...''.

Mr. Williams.

Mr. Williams: Thank you, Madam Chair. This falls in line with the proposals coming from the Treasury Board under Mr. Duhamel's committee - a cascade of information. If someone wants a quick synopsis of what the department is doing, they can obtain that quick synopsis. If they want more detail, it is there, and if they want further detail, it's available on an ever-expanding basis.

I think the idea of a quick, concise synopsis at the beginning of part III in the estimates is an excellent piece of information for those who may want a quick overview but aren't in a position or do not want to get right into the nuts and bolts of the individual figures.

The Chair: Mr. Laurin.

[Translation]

Mr. Laurin: Fine.

[English]

The Chair: Is there any value in a suggestion in here - and you've all worked on different committees, and I'm just thinking of this as a suggestion rather than a recommendation - that the committees should consider that their first meeting on the estimates should be an overview briefing by the departmental staff?

Mr. Williams: I wouldn't want to get into that amount of minutiae in dictating how the committees do their own jobs.

The Chair: Agreed.

Item B, ``The Scope of Parliamentary Financial Review''; section 1, ``Statutory Spending''.

Monsieur Laurin.

[Translation]

Mr. Laurin: Concerning the last comment you made, Madam Chair, I would like to point out that on page 6 of the French version, a mention was made to a list of examples used by other committees to examine the budget. I would like to thank Mr. O'Neal for having provided that list. It could certainly aid in attaining the objective you mentioned.

[English]

The Chair: Comments?

Mr. Williams: The comments and suggestions by the research staff as here, I think, if I may use the term, have it somewhat backwards. The emphasis should be on the program evaluation in the first part. Program evaluation of large programs, especially, and even smaller programs, requires detailed analysis, and that can only be done by staff within the bureaucracy. It can't be done by parliamentarians.

Therefore, I would like to see, Madam Chair, a commitment to a professional or adequate or appropriate or proper evaluation of the program, that it be done on a cyclical basis, and that evaluation that has been prepared by the departmental staff or consultants - or by whomever it's prepared by - that covers a period of time.... Program evaluation, by its definition, is not a snapshot of what's happening today, but what this particular program has accomplished over a period of time. This analysis should be given to the appropriate standing committees in order for them to see whether or not the program is performing as it should.

I refer back to the private member's bill that I tabled on this particular situation or issue, which basically was asking for statutory program evaluation to ask four fundamental questions. Those are: what is the issue in society that the program is intended to address, and have that properly articulated; once that is properly articulated, the program is measured to see how effective it is in addressing the issue it's intended to address; how efficient is it being done; and is there a better way to accomplish the same results. Those are four fundamental issues.

.0955

I went on, Madam Chair, to say that large program evaluations - especially if they were done within a department - be referred to the Auditor General for his assessment of the quality of the evaluation before it's tabled to the committee. The committee can then hold hearings and go from there.

I think that is the way we should be going. At the conference in Victoria in September of the public accounts committees, where we had input from the United Kingdom, Australia, New Zealand and the United States, it seemed that the efficiencies and productivities to be gained largely lie in this particular way, of having an ongoing process to ensure that programs are focused and delivering what they are intended to deliver.

The Chair: We might want some of that covered in the text.

Mr. Culbert.

Mr. Culbert (Carleton - Charlotte): Madam Chair, in looking at the context and what has just been said, for a point of clarification, is it not the onus of the standing committee to request that information, or further information as they deem necessary, depending on the particular department or statute they're dealing with at a particular time, rather than making it a part of policy on an ongoing basis, where in many cases it may well not be necessary to go that route? In other cases it may be necessary, but I would think you'd want that to be at the discretion of the standing committee, or to be up to the committee to determine at the time, rather than making it unilateral that it must be done.

The Chair: Mr. Williams.

Mr. Williams: To do a proper evaluation of larger programs - and the big ones come to mind, such as the Canada Pension Plan, old age security, unemployment insurance, and there is a myriad of government programs - it costs a significant amount of money. The standing committees don't have the power to appropriate funds to perform that evaluation. Also, an evaluation has to collect data and information throughout the period in order to quantify and evaluate it at the end of the period, which is why a regular cycle is important, in my opinion.

The Auditor General has pointed out, in chapters where he addressed the issue of program evaluation, that where there may appear to be a significant investment of funds - and I use the words ``investment of funds'' advisedly because the return in savings has been very significant in relation to the actual cost.... I've documented many times a return on the actual cost of the evaluation.

I think of the Atlantic freight rate subsidization program - that isn't the proper name; it was something along that line. It was $108 million a year. If I can quote the assistant deputy minister at the time, she said that when they did the evaluation they found there was zero economic benefit. The program was killed by the current Minister of Finance in his 1993 budget, because that was the first evaluation in 70 years of the program.

So I certainly recommend that we build in to our parliamentary system an ongoing statutory review of programs, say once every...up to ten years for the large ones. You can't have a standing committee request a review such as in 1996 if they haven't collected the data over the last number of years. You have to collect the data.

The Chair: I think Mr. O'Neal may have some comments in terms of what we heard from our witnesses on this point.

Mr. O'Neal: Yes, Madam Chair, I have a few points of information for the subcommittee's consideration. The first has to do with the size of statutory expenditure. I'm just quoting from the text that I drafted. In 1992 the Auditor General reported that between 1962 and 1991, statutory programs grew from $3.1 billion to $93 billion, or from 46% to now 66% of total expenditures. This form of expenditure continues to grow. For the 1996-97 fiscal year, the government estimates that out of a total expenditure of $157 billion, $111.7 billion, approximately 71% of the total, will be statutory. Because these are statutory expenditures, they are listed in the estimates for information only. They are not voted on at the time, and they're not examined.

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Madam Chair, in writing these suggested recommendations and the draft report, I took some inspiration from a royal commission report that was published in 1979, the Royal Commission on Financial Management and Accountability, otherwise known as the Lambert commission report. In 1979 they said, and I quote:

These series of recommendations ask that there be a plan established so that parliamentary committees will begin to examine the statutes that underlie statutory expenditure. The time line that says over a ten-year period - again, that is taken from the royal commission's recommendation. Although they don't say why, I suspect that they recommended a ten-year period just because the scope of statutory expenditure is so huge that it will take some time to review them.

With respect to program evaluation, the latest report by the Auditor General on that particular issue, which appeared in May 1996, says that the coverage of evaluation for major expenditure programs - which would capture a lot of statutory expenditure - has improved. The problem is that they tend to focus on operational issues.

Again, to quote from him:

That's why this series of recommendations also contains the recommendation that asked that government improve the quality of the evaluations that it is conducting to make them relevant to the needs of parliamentary committees, and to provide them in a timely manner so that committees have this information at hand when they conduct their review of statutory expenditure.

Mr. Williams: I think the most important point is that as parliamentarians who approve spending for the government, we only vote on 30% of spending, as Brian has pointed out. The rest is basically not debatable, because the ongoing authorization of funds is passed when the legislation is passed initially, and it could be 30, 40, 50 years. The Atlantic region freight assistance program - it was 70 years before we went back and revisited and found out it was a useless expenditure.

This is why I'm saying today, when we are wrestling with deficits and value for money and ensuring that taxpayers' money is well spent, that program evaluation, as has been pointed out by the Lambert commission, is a tool that modern management really can't do without. If we have no idea why we're spending the money, how well we're accomplishing what we think we're trying to do - unless we ask these questions and measure and find out if we are achieving what we think we are, we'll never know if our money is being well spent or not.

The Chair: Yes, Peter.

Mr. Thalheimer (Timmins - Chapleau): I think this review is an excellent idea, but who would do it? Would the Auditor General do it? Obviously it's going to need manpower, and there's an expenditure there, because this is going to be a massive piece of work. I agree with it, but let's find out who's going to be doing that.

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Mr. O'Neal: I think, Madam Chair, that it would be Treasury Board Secretariat who could coordinate. Mr. Williams, who is familiar with program evaluation, could probably confirm that departments have evaluation units within them.

The other point to make is that the government already has been engaging in program review, so a lot of these kinds of evaluations are taking place already. It's simply a matter of making sure that this information is provided to committees in conjunction with a review of statutory expenditure.

Mr. Williams: First, the Treasury Board has guidelines in place requiring departments to have reviews. It requires, of course, the allocation of funds. As you mentioned, it is quite expensive, but it has proven to be an investment of funds rather than an expenditure of funds, because reviews have always returned much more back through savings than the actual cost of the review.

These large programs that we're talking about - examination of the estimates on an annual basis.... I can't see how it would be inappropriate for any parliamentarian to think that he is going to analyse a large program and make effective changes other than perhaps political, superficial changes in the spending of a large program on an annual basis. To evaluate these programs on an annual basis would never be justifiable, which is why we're talking about an in-depth review perhaps once every ten years.

The concept is not so much whether the program is working efficiently - as Brian has pointed out, that has tended to be the focus. Right now it's primarily an intradepartment initiative, to ensure that the bureaucracy is trying to do the best it can.

But what happens if the program is going down the wrong road or going in the wrong direction? They're just going to go down there more efficiently. What we need to do is to articulate what exactly the program is trying to achieve and how well it is achieving that mandate.

These are the fundamental things that parliamentarians want to know, because to go in the wrong direction faster just isn't really the mandate we should be fulfilling. We want to know: can we focus this program better? Is it really achieving what we intend to do? That's what program evaluation, when it's working properly, does do.

The Chair: Harold.

Mr. Culbert: I won't prolong it, Madam Chair, and I appreciate what's being said in this regard. However I'm in a bit of a quandary as to what is happening now within the departments as to statutory expenditures and those various things that were outlined.

Is there not a report coming from departments on a regular basis, whether that be annual or biannual or whatever, of those particular areas of statutory expenditures and what they cover - whether in the opinion, and it may not be a neutral opinion, of the department that it is sufficient to the criteria that were originally established that it was supposed to accomplish? Is that not coming forward on any type of regular basis currently?

Mr. O'Neal: Not that I'm aware of, at least not for the use of Parliament. These kinds of reports may be done, but done internally. But I would have to be cautious about this and tell you that I would check more carefully and make sure that -

The Chair: Let me give you a good example, Harold. For a while I was sitting on the government operations committee, and one of the issues we dealt with was an Auditor General's report that said that we were paying out something like $8 billion a year in overpayments on old age security. That report was done ten years ago, and as of two years ago that overexpenditure still had not been corrected - things like paying out to dead people because we didn't have a system in place to find out when people had died.

Mr. Thalheimer: Did you say $8 billion?

The Chair: Yes, $8 billion.

Mr. Thalheimer: A year?

The Chair: Well, I'm pretty sure. Anyway, it was a large amount. But it had not been corrected.

I'm probably wrong on the figure.

.1010

Mr. Thalheimer: It scared me, because I could see a job for me.

The Chair: That's one example. The cyclical review is one thing. I'm not sure we're getting totally to what we discussed during our hearings on this. Nobody ever checks the accountability mechanisms on these programs because often they're transfer programs. We transfer the money to somebody and trust they've spent it the way they're supposed to spend it. As far as I know, it's well over ten years since those accountability mechanisms were reviewed and updated. Although I don't think that specifically came out in our testimony, it might be something we want to comment on.

The other point is it bothers me that you can see the estimates of the health department, for instance, and 90% of what you're dealing with in the estimate is for information only, not for you to review. I wonder if we couldn't do something about coming at that in terms of not putting it beyond the reach of members of Parliament except every ten years, or whenever they decide to do a cyclical review, at least in terms of how the program is administered. When they say that amount is for information only, does that also include the cost of administering that program, Brian?

Mr. O'Neal: I would have to check, but I imagine so.

The Chair: If that's the case, we probably should insist that at least the cost of administering the program be there for the consideration and action of the parliamentary committee.

Mr. O'Neal: If it's folded into the normal annual operating cost of the department, in that case it would be separate. But I can check.

The Chair: You should still pull it out and have a look at it separately.

Mr. Culbert: That's my point exactly, Madam Chair. While I concur with what's being said, if there's something wrong, I quite frankly don't want to wait ten years to find out that it's wrong.

Going back to my previous life in a municipal experience, I can recall that on an annual basis I wanted an interim report from my auditor of all accounts and all departments. I wanted to look at that because I didn't want to wait until the end of the year. If there was something going wrong, I wanted to know halfway through the year so it could be corrected.

What I'm looking at here is some mechanism where, on a regular basis, the standing committee could receive a report from the respective departments on those particular statutes and their development. Then it could be followed up at the discretion of that committee to take it a step further, if there was reason to do so.

The Chair: Let me hear from Mr. Williams, and I think Brian has a comment to make.

Mr. Williams: The concept, Madam Chair, is to move forward from today's situation, where as we know we are provided with the information regarding statutory programs for information only. We have no say in it. We have no vote on it. We can't change it. Basically we don't even have a formal opportunity to comment on it. We want to move that forward to provide a situation where we have a proper, formal, professional, intelligent analysis of programs on a cyclical basis so they don't get forgotten.

Perhaps that could cause ministers to contemplate the legislative changes based on a report followed by committee hearings and a report back to the House with recommendations to the minister. That would certainly not preclude on an annual basis or at any time a committee being seized with the issue of what is happening within a department and what is happening regarding a particular program, asking questions and ensuring they are satisfied with what is going on.

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I have no intention whatsoever of saying you can only visit this at a particular time. As it is today, theoretically any committee can be seized with the issue of, let's say, the Canada Pension Plan, which is a huge program.

Think about it yourselves. If you're sitting in a committee and you have no in-depth analysis or report to study, how credible would your comments be when you have a large number of professionals whose whole careers are dedicated to managing a program and they know it intimately? We as parliamentarians have to decide the philosophy of the program, and we're entitled to know how efficiently it's being administered. We need to know if the program is meeting what we deem to be the needs of society that we wish to address through that particular program.

We would like to have these questions answered professionally, but never deny a committee the right to investigate at any time they so desire. Right now all we have are superficialities. Committees are never given the detailed analyses on which to have an in-depth evaluation of the program because these in-depth analyses are not being done.

We want to move the process forward from having no input today to having an opportunity once every so often to do a detailed analysis, which could very well result in legislation if the minister was motivated to follow through on these reports. If they found the program was working satisfactorily, that's fine too. All programs need to be updated as society changes, and this appears to be the best methodology of bringing the information to the table: letting the interest groups that are affected have their say and moving forward on that basis. It would be a formal review on a periodic basis to allow us to do our job better and to allow us to tell the taxpayer that we're doing the best we can to ensure the money they're forking up is focused on being spent appropriately and well.

Mr. O'Neal: Madam Chair, I want to bring subcommittee members' attention to the last recommendation in that series, that all legislation for new statutory programs contain a provision for parliamentary review at a minimum of five years following their introduction. This would in fact trigger the kinds of cyclical reviews that members have been talking about and make sure they occur.

I'm told that the Bank Act already has such a provision and it would be simply a matter of putting this kind of provision into new legislation that is coming up.

Mr. Williams: It's a little bit different from what is in the Bank Act and I think also the Insurance Act. In essence, they have a sunset clause in the fact that they expire on a certain date.I think the Bank Act expires on March 31, 1997.

As far as I'm aware, the finance committee hasn't been able to do its in-depth study, so we're going to be looking at an automatic extension of the deadline. Sunset clauses can be so easily extended, because we haven't had the opportunity to do the fundamental work. Rather than building in a sunset clause by which time it has to be reviewed, if we build in the concept that it has to be evaluated, I think it is much more appropriate.

One more thing I would add, Brian, is that in the event of a short-term program, a review be done at the termination of the program.

Mr. Thalheimer: Madam Chair, the last recommendation is fine for new statutory expenditures, but you're telling us there are $111 billion presently, which is 70% of our budget. How do you review that? Do you get the point I'm saying? What about a program that's been in place for 15 to 20 years? One was mentioned that had never been reviewed in 70 years. What's the program to review those?

Mr. O'Neal: Madam Chair, if subcommittee members wish, in the recommendation that calls for the review over the next ten years of all existing and underlying statutes that affect the size of statutory expenditures, we could add the words ``and for regular review at five-year intervals thereafter''.

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I could look into this a little bit more carefully if you wish, but I think the problem is that you're dealing with this huge mass of statutory expenditure programs, and to ask that they be reviewed within a shorter timeframe than ten years might be just impossible. The idea is to get this massive program review devaluated and then call for a regular review of each and every one of those programs within five years on a regular basis thereafter.

Mr. Thalheimer: Would that be in addition to the new ones?

Mr. O'Neal: Yes.

Mr. Thalheimer: That's taking on a massive amount of work.

Mr. Williams: I don't think we would want to lock ourselves into such a short period as a five-year turnover.

Mr. Thalheimer: That's what concerns me with this legislation. It's the first five years, but after it would be -

Mr. Williams: It would then fall within ten years thereafter. I like the timeframe of within ten years. I don't think it's within the purview of this committee to set specific timetables for each piece of legislation or each program as it currently exists. I would hope the Treasury Board would give directives to take what appear to be the programs perhaps most in need of review and do them first, and then go from there and allow them to set out the schedule. But I like the idea of a ten-year review, or not exceeding ten years.

It costs a tremendous amount of money to review these huge programs, such as the Canada Pension Plan. I don't think we'd want to change the legislation every five years anyway. I would hope the department would be focused on efficiencies on an ongoing basis and would be held accountable to the committees on an ongoing basis. I'm not sure these huge social programs need to be reviewed that often. Right now the Canada Pension Plan is under a major revision. If it is revised, I don't think five years from now we'd want to go back and revise the whole thing again and get into the actuarial statistics, life expectancies, and funding.

The Chair: We have to do it every five years now.

Mr. Williams: Yes, but I'm talking here about the fact that we're now into a crisis of funding and the whole thing really has to be revamped. We've had changes in the UI program announced by the ministers over the last two or three years, which have been fairly significant. The minister, as we know, is phasing out the old age security and bringing in the seniors' benefit. These are the three major programs that spend about $50 billion between the three of them. There are smaller programs. I mentioned the $100 million one for the Atlantic region freight assistance program.

The Chair: Let me hear from our researcher for a moment, who may bring some clarity to this situation.

Mr. O'Neil: Hopefully so, Madam Chair. The reason five years at a minimum was mentioned was to enhance the likelihood that the programs would be reviewed within the life of a parliament. That's the reason why the five-year period was suggested.

Mr. Thalheimer: I can see the need for that, because they should be assessed within five years or so.

Mr. Williams: A new program every five years, but then stay within a ten-year cycle to be assessed - not every five years, but within the first five years for a new program. I have no problem with that.

The Chair: One problem I see, frankly, is that our major statutory programs, such as health, social services, old age security, CPP and QPP, are all joint agreements with the provinces, and we cannot unilaterally revamp them in any case. I see a major problem with that.

Mr. Williams: The point we're making is that you do the evaluation and you refer it to committee, with its warts and accomplishments brought out into the public domain. There's no actual requirement that the minister then introduce legislation, but at least we know the warts and the accomplishments.

The Chair: Mr. Laurin.

[Translation]

Mr. Laurin: Madam Chair, I do like the idea of providing for an examination of programs at least five years after they have been passed, but I would wish that kind of examination to be cyclical. I would like us to be able to engage in a cyclical assessment of the relevancy of the programs and their objectives at least every five years after they have been set up

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As it is worded here, one could believe that they only have to be examined once and that it's all over after that, that everything is fine and that no more questions will ever be asked. That's the problem with our programs.

When the economy is healthy, we don't even wonder whether we should still be putting money into whatever program. We've got the money so we just hand it over. It's not necessarily appropriate to continue funding some programs. My wish would be that each one of the programs be part of a reexamination cycle of at least five years to see if the objectives have been attained instead of waiting for the economic situation to force us to ask how much money we could take out of any program to settle our financial problems. That's not a healthy way of doing things.

Otherwise, in other contexts, we would never ask any questions at all and we'd hand over money without even asking if it's still necessary. We'd simply figure that since how we have the money, we'll just hand it out. I think there should be a review, madam Chair, not just five years after the program is set up but at least once every five years. I don't know if I'm simply repeating what others have said before me. If that's the case, I apologize, Madam Chair.

[English]

The Chair: I don't have any comments. I think we're coming to an agreement that what's here, with some minor modifications, is probably pretty good.

I would ask, Brian, though, as he's redrafting, to go back to paragraph 2.d, where we already have a fair discussion about assessing new program proposals, and make sure we integrate what we say there with what we're saying here and that we're not simply repeating ourselves. Okay?

Section 2, ``Tax Expenditures''.

Mr. Williams: Madam Chair, I have somewhat the same comment as on the previous issue, that areas of major tax expenditure should require an in-depth analysis on a periodic basis. If we ask for the department to table on an annual basis an assessment of these tax expenditures, I think we'll end up in a relatively repetitious superficial assessment of these tax expenditures.

I'm not saying we shouldn't have the annual tabling of a report by the minister, but I think we should also ask for a periodic in-depth review of these tax expenditures, which are just as expensive as program expenditures. They're program expenditures delivered in a different way. That's all they are. Therefore, they should have an in-depth periodic review on the same basis as the program spending.

The Chair: As an example, subsidies to RRSPs through the tax system and to employer pension plan contributions cost as much as the entire old age security system.

Mr. Williams: There you go.

The Chair: Are we getting equal value for the money out of both of those programs?

Let me make a comment - I'm sorry, Mr. Laurin.

[Translation]

Mr. Laurin: Madam Chair, I'd like us to be more specific on what is meant by preparing a report on tax expenditures. It could be a very general report not giving much detail. If we want a report on the amount of the tax expenditures, I think we should say that.

Personally, I am interested in finding out the cost of tax expenditures for each period. I wouldn't want the government or the Minister of Finance telling us that Department, this year, is looking at tax expenditures for such or such an area to provide incentive for this or that measure without us knowing what kind of amounts are involved. If the amounts are mentioned, I think they should be indicated and a report prepared on the amount of tax expenditures for each period.

[English]

Mr. O'Neal: Madam Chairman, just for the information of subcommittee members, the Department of Finance has, for the last two years, been tabling a document entitled ``Government of Canada: Tax Expenditures''. The problem is they did this once before, but the practice was halted, I believe, under a previous government.

The Chair: Absolutely under a previous government. Some of your colleagues might be familiar -

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Mr. O'Neal: There's no requirement that they do this, nor indeed is there a requirement anywhere that they present this information at a given time of year. That's why I've suggested the subcommittee may wish to have this written into statute, perhaps into the Financial Administration Act, which is the act that by and large governs the activities of the Department of Finance. I would take into account the comments Mr. Laurin and Mr. Williams have made, and maybe we can rework the recommendations a little bit to reflect those comments.

The Chair: Let me make a comment of my own. I like the idea of including a requirement or a recommendation that there be a cyclical review of tax expenditure programs, unless they would already be considered statutory programs, but I don't think so. I can't remember your draft text on this, Brian, but what I think we need to make very clear is the need to link these expenditures to their policy objectives so that they can also be evaluated as to whether they're achieving those policy objectives. Maybe we need to repeat some of what we said about statutory spending here as well. What I'm not clear about, and I hate to admit this after eight years in Parliament, is where tax expenditures are accounted for, or are they just not accounted for at all in the estimates?

Mr. Williams: They are not accounted for. It is lost revenue.

The Chair: It's just revenue that isn't there.

Mr. Culbert: It's just revenue that doesn't come in.

Mr. Williams: That's right, and that's why a periodic evaluation.... The Auditor General has had some chapters on tax expenditures. You mentioned RRSPs. He had a chapter on that particular program. It gets back to the four fundamental criteria that I think Parliament needs to know, which are: What is the social policy that we wish to provide? What is it we're trying to do for society?

The Chair: The public policy.

Mr. Williams: The public policy - and how well is this program achieving that public policy? Be it a statutory program expenditure or a tax expenditure, the questions are still exactly the same. The third one, which is efficiency, may not be that appropriate, but the fourth one is. Can it be achieved a better way is always a question we should be asking.

The Chair: I don't know if it's possible to find some way of linking the tax expenditures more closely to departmental objectives. For instance, if the tax expenditure is intended to achieve an industrial benefit, should that tax expenditure be reported under the Department of Industry's estimates? One of the problems, as Treasury Board has pointed out, is it's not always that neat. You may have a transportation subsidy that's intended to assist agriculture. The subsidy will be under transportation, but the benefit is supposed to be an agricultural benefit. Maybe a report needs to address some of those inconsistencies. Was there anything in any of our testimonies that would allow us to come to grips with that? I think it has certainly been part of our discussion.

Mr. O'Neal: No. Again, just for subcommittee members' information, the way the tables are divided up in the Department of Finance's report on these issues is they fall under, first of all, personal income tax expenditures and, second, corporate income tax expenditures. I don't think there's any reference to a department as such. However, I would point out that the second recommendation here does, in some ways, reflect some of your concerns, in that it says ``should include specific references to the policy goals that these expenditures are intended to achieve''.

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Mr. Williams: Why don't we include in our recommendation that the Department of Finance and the Treasury Board make some recommendations as to how they think this particular issue could be addressed and how the information would be communicated to Parliament? Your point is very valid.

The Chair: This is certainly one of the overall issues that I think a strong estimates committee could look at. For example, what use are we making of tax expenditures globally as a government? I'd certainly like to see some discussion about the problem and move towards attaching accountability to the departments for the tax expenditure programs that relate to their policy objectives. How do people feel about asking for a cyclical review of tax expenditure programs as well?

Harold.

Mr. Culbert: Madam Chair, I think it would be excellent. It is something that not only should we be looking at today, but it probably should have been looked at in the past. If it's just been put there without review, I have to concur with Mr. Williams that it may not be addressing the issue it was originally put there for.

If it were me looking at it, I would also be very interested - and I know they would have it in their technology system in Finance - in their estimate of cost for each one of these tax expenditures -

The Chair: It's what's in that report.

Mr. Culbert: - what the dollar value actually is in comparison. As you said, if it's agriculture or forestry, or wherever it is, you have to go back to that department in order to get the rationale or the benefit. Is it still doing the same thing it was when it was put in place 20, 25, 30 years ago?

The Chair: Does that department still feel that $25 million in tax breaks is a better way to achieve its policy objectives than $10 million in expenditures, for instance?

Mr. Culbert: Exactly.

The Chair: Section 3, ``Loan Guarantees''. Do you want to remind us what this is about, Brian?

Mr. O'Neal: Again, a lot of these come out of concerns expressed by the Auditor General that Parliament wasn't getting a full reporting of the full range of financial activities engaged in by departments.

On loan guarantees, I understand the problem here is that.... Let me back up a little bit. In 1991 the Auditor General estimated that potential liabilities stemming from loan guarantees amounted to approximately $8 billion. So this is worth quite a bit. The problem arises when or if any of these loan guarantees are defaulted on. As I understand it, although these guarantees are voted on by Parliament - and if loans are defaulted on the government has to get Parliament's approval to cover the loss through supplementary estimates - the real problem is that Parliament isn't given a full accounting of the kinds of risks involved. So what this recommendation asks is that all legislation laid before Parliament authorizing government to provide loan guarantees be accompanied by a thorough assessment of the risks involved and explicit statements of the policy goals that such loans are meant to achieve.

I would point out that the risks involved are actually probably quite high, because we're talking about government underwriting something that obviously wasn't able to, in many cases, get private sector financing and usually because the risks involved are too high.

Mr. Culbert: Madam Chair, would student loans be a perfect example of this, and those that, as we all know in this business, for a multitude of reasons are unable to meet their obligations at the financial institution? Of course, what happens is the financial institutions are very keen to zap it out of their department over to the collection agencies so they can get their money up front, immediately.

Mr. Thalheimer: We're not talking about expenditures; this is loan guarantees.

The Chair: Yes.

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Mr. Culbert: That's what they are, loan guarantees.

Mr. Thalheimer: You mentioned student loans. Those are actual expenditures.

Mr. Culbert: No, those are loan guarantees.

Mr. Thalheimer: Do they come under loan guarantees?

The Chair: Similarly, small business loans, export financing - it's big stuff.

Mr. Thalheimer: Canadian Airlines is developing into a guarantee, or it could potentially be one, and we'd obviously like to know what the exposures are.

Mr. Williams: The points raised here by Brian are excellent, but when legislation is laid before Parliament there's no question that the government presumably has assessed the risk and found the risk to be acceptable, hence the legislation. As Brian has pointed out, at a later date, if the risk is higher than anticipated, we have to have a supplementary estimate to accept the loss.

I'm trying to balance in my mind somewhere between a risk assessment at the front end that obviously is within the parameters of acceptable risk, hence the legislation being tabled, and subsequent knowledge, whereby we know that this assessment obviously was wrong because now we have a loss, and how Parliamentarians should be apprised of that situation and what authority they should have to call for an accounting. There's no point in having a reassessment of the risk now that the risk is known and it's expensive.

But the question is, are there lessons to be learned? If we take student loans, for example, that's an ongoing piece of legislation and ongoing new risks are being assumed as we lend to new students and previous students are repaying, or not repaying, their loans. Again, we get back into some kind of a periodic evaluation of the situation.

Sometimes you get loan guarantees that are accepted for political purposes. I think of guarantees of loans to other nations that are buying Canadian products, for example. Sometimes they're based on political assessment rather than economic assessments. To have all that laid before Parliament and say, here's the issue...what is it really going to accomplish if it's a political judgment decision anyway?

But I think -

The Chair: You wouldn't get that under this recommendation.

Mr. Williams: This is where the intent is good, but I'm not sure this recommendation is going to enhance the capacity of parliamentarians to make the best judgment based on.... It's hard to make a decision based on what you anticipate will happen. Anybody can say, I think this is what's going to be and there we go. Are there lessons to be learned in hindsight?

The Chair: That's the job of the public accounts committee and the Auditor General, not committees reviewing the estimates. What I think is perhaps the job of committees reviewing the estimates - let me try this on you - is to know for their department what loan guarantees have been made. I'm not even sure if in the estimates those are counted as part of the accounting of that department.

Mr. Williams: Loan guarantees are mentioned with a single dollar figure attached.

The Chair: Yes.

Mr. Williams: They're assigned a $1 cost.

The Chair: But does it make sense? If I'm looking at my own financial situation, a loan guarantee is a debt you have. Whether that's the way the Auditor General accounts for it or not, it's a potential obligation you have, and it seems to me that I want to look at what guarantees I have given here. If I went to my bank and wanted to borrow money, they'd want to know if I'd co-signed loans for anybody else and what other obligations I had. It seems to me if I were doing the estimates of Foreign Affairs, for instance, I'd want to know what loan guarantees we had and what was the department's current assessment of the likelihood of those loan guarantees being called. If Foreign Affairs has $3 billion in loan guarantees and they're sure of getting $2 billion back and they're not so sure about the other billion dollars, I'd like to know that. I think I'd like to know that in the estimates of that department.

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Mr. Thalheimer: Some of the loan guarantees are fixed amounts; others are sort of open-ended. The Lloydminster Upgrader, for example, was an open-ended one. We were just pumping money in there, and I think after two years we finally bailed out.

So, as you say, the banker would want to know what your loan guarantees are, and the committee, the people here, should know what the loan guarantees are, how much they are, and whether they're open-ended or not.

Mr. Williams: Why don't we, if I may - I'm sorry, Mr. Laurin.

The Chair: Mr. Laurin. I'm sorry. I'm allowing this to be fairly free-wheeling.

[Translation]

Mr. Laurin: Madam Chair, there are things there that might be interesting to know and that can be evaluated empirically based on past experience. Student loans were mentioned. Based on past experience, we know how much of these student loans will be paid back or not, on average. So the department can make provision in its budget for that liability.

In the matter of loans abroad, I don't think the objective is to evaluate risk because the decision is purely political. Whether the risk is greater or smaller, the government can decide to lend anyway for considerations more important than simple financial ones.

On the other hand, there are other risks than can be calculated. I am thinking of guaranteed loans made to some big businesses that set themselves up in Canada, for example. The risk can be evaluated, perhaps with more difficulty based on past experience. After all, whether the big companies establishing themselves up here succeed or fail does not allow us to draw any conclusions concerning the success or failure of other major companies. Based on the Hyundai example, that didn't manage to succeed here in Canada and had to shutdown five years later, we can't automatically assume that another company would fail the same way. We cannot, based on the experience of one, evaluate the risks for another. Once again, it's a very difficult evaluation to make.

What's interesting for us to know for that kind of expenditure isn't so much the degree of risk - in a case like that one, the evaluation of the risk level of the guaranteed loans should be 100 per cent - but rather the objectives set out when the government makes its decision. I think the considerations behind that kind of decision are political rather than financial in nature, although they do impact one on the other.

[English]

The Chair: Okay. John.

Mr. Williams: I just have a final comment, Madam Chair. I like the points you were raising that perhaps in the estimates we ask for the information on a summary basis, that is, an assessment of the quality of the guarantees or whether or not we're going to be called to honour our guarantee.

I'm thinking, for example, of large financial institutions, which are assessed on the quality of the loans based on whether they're being paid up, whether they're being paid properly and whether the institution is still sound enough to continue a repayment program. Then there are those arrears they continue to hope to collect or at least hope to collect a certain amount of and some that it's time to realize have just gone plain bad.

Now I don't think there's any reason why departments couldn't on a summary basis include an assessment of the quality of the underlying agreement they have guaranteed, of whether or not it's starting to look shaky or otherwise and whether or not we may have to start to be prepared to honour our commitments.

The Chair: Harold.

Then, so we're not getting kicked out of here in an undignified way, I think I'll try to wrap up this part of the meeting.

Mr. Culbert: I have one point, Madam Chair, I'd like to very quickly indicate to you and to the members here. It would seem to me that if you're looking at loan guarantees from an accounting perspective, they would be much similar to the one we just spoke about, which was the tax expenditures. If there was going to be a request for reporting on the tax expenditures, it would seem consistent to me to ask for some type of reporting as well on the loan guarantees.

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Again, a review of the program. Is it doing what it was intended to do? Is the risk 50% higher than we anticipated? I think there should be some reporting system so that recommendations and advice can be made of it.

[Translation]

Mr. Laurin: Madam Chair, I believe that all we can demand to know and the only interesting thing to know is the amount of the guaranteed loans on a total of $10 billion, for example, set aside for contingent liabilities. Student loans can be evaluated. We could always say that it's possible to get back a part of a business loan by seizing inventory, for example. So part of the loan is recoverable and another part is a contingent liability.

These figures have an impact on the country's total debt so it's important to know them. There is a great difference between a $25 million deficit and a $35 billion deficit. If the government ignores those figures and does not take into account the contingent liability represented by guaranteed loans, then the figures become misleading.

I think we should ask the government for each of these acts to be accompanied by a complete evaluation not of the risk entailed but of the contingent liabilities. The risk entailed may not mean a thing. We can agree to accept the risk. But what kind of contingent liability can we expect? It's important to have an evaluation of that. I would use the expression ``contingent liability'' rather than ``risk entailed''.

[English]

The Chair: I wonder if we could leave the discussion here and adjourn our meeting before the procedure and House affairs committee has to start. I'd ask that we have some further discussion about that at our next meeting, because I'm concerned that when - I'm trying to think of a good example and I can't. Maybe Brian can have one or two for us for our next meeting. I'm not sure what legislation authorizes loans to China for CANDU reactors, for instance. I'm not sure it is legislation and I'm not sure that when the legislation is tabled, it's a reasonable time to even - when you don't know what loans you're going to make, it's pretty hard to assess the kinds of risks. So I wonder if we could have a bit more discussion about that, maybe a bit more information, before we come to some conclusions.

The Clerk of the Committee: When will we meet again?

The Chair: We talked earlier about meeting again next Tuesday. No, from Mr. Williams.

Mr. Williams: I'm not here next week, Madam Chair.

The Chair: You're not here next week at all, John. I know next week is really bad.

We have two options or two choices then. We can ask Brian over the break to begin preparing the report on the basis of the work we've done so far, which is a little difficult if we haven't finished with the recommendations.

[Translation]

Mr. Laurin: There is not much left, Madam Chair. Only a page.

The Chair: There is not a lot left, but it's Thursday and I am sure you won't be here Friday.

Mr. Laurin: No, because my convention will be hold on the week-end. But on December 23 or 24th -

The Chair: I'm a mother, don't forget. It's always the mother who does the Christmas preparations, you know.

[English]

John, let me try this on you. I know you've been with this report from the beginning. May I suggest, because we do have a fair bit of consensus around here and I think a fair bit of trust that we're not trying to pull fast ones on each other, that in the interests of moving this report a little further along, if you have no objection, we would meet on this next week, just to finish the recommendations. Brian could send to you in your riding what we concluded and then we would all get the draft report sometime over the break.

Mr. O'Neal: Sometime in January, certainly. Look at it as a late Christmas present.

Mr. Williams: Perhaps also, Madam Chair, we could have a discussion among ourselves so I can appraise you of my opinions and you can bring them to the table next week.

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The Chair: Yes. I'd be happy to do that.

Let me think forward to February then. Would you want a week back with the reports in your hands before we have a committee meeting? Shall we go ahead and schedule committee meetings to deal with the draft report the first week back or the second week back? What's your preference?

Mr. Williams: Why don't you schedule for the week of February 3, which is when the House is expected to return?

The Chair: Knowing that it may be coming back earlier.

Mr. Williams: If it comes back a week earlier, then it will stay on that week of February 3.

The Chair: If it doesn't, we'll move it to the following week. Is that what you're suggesting?

Mr. Williams: No, I'm saying we'll do it on that week of February 3. If the House comes back a week earlier, it will stay on that week of February 3.

The Chair: We will schedule for the Tuesday and Thursday of that week. If the procedure and House affairs committee is not meeting, we'll go all morning. If it is meeting, we'll go until 11 a.m. Is that agreeable?

Thank you.

The meeting is adjourned.

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