Thank you, Senator Marshall. You would be a great Deputy Minister of Finance, because I think that’s exactly what can happen if a government wants to hit its deficit target.

One way of doing it is to reduce the pace of the implementation of specific measures — that can reduce a bigger lapse, reducing the deficit that would otherwise have to be registered. That is a trend that we have seen recently, where the percentage of authorities that do lapse at the end of the fiscal year is increasing.

It’s traditionally been around 10%, but it’s increased to close to 24% in 2022-23. That’s for voted budgetary authorities.

According to the numbers you provided — and I know that tracking the budget initiatives into the estimates and the supplementary estimates is not a science; the numbers don’t match up exactly — what other reason could there be for why the government is so slow in introducing those new budget measures? The number of employees within the public service has gone up quite significantly, so it can’t be shortage of manpower.

Can you think of any other reason as to why they’re slowly bringing the money in? By the numbers you’ve given, it looks like it’s about $6 billion that is still waiting to be brought in. Could you offer some other suggestions?

I don’t know exactly what’s happening in the current case for Budget 2023 measures, but, generally speaking, a couple of things can happen: It could be that budget measures were developed but not fully developed, so there still needs to be work after the budget, which may slow down implementation. It could be that when the inclusion of measures in the budget was done, there were unforeseen events that subsequently delayed the implementation of budget measures. It could also be the decisions made by the executive that, in order to meet certain targets, there’s an implicit decision to take it easy on the pace of implementation.

I will ask a question on professional services. I was looking at your comments on the reduction. I know that the $500 million is not a significant amount of money. It’s split into $350 million for professional services and $150 million for travel.

When I looked at the actual numbers for the reduction of $350 million, I wasn’t really impressed. The government has taken the $20 billion that they had last year up to this point in time, and they gave the departments an extra $1 billion. Then, they said that out of that extra $1 billion, they’re going to ask the departments to save $350 million. So really, the departments have $750 million more than what they had this time last year.

I couldn’t find the numbers for the travel. It’s $150 million for the travel. I was talking to some of your people about how you go about finding that.

First of all, do you have any commentary on the $350-million reduction? Also, is there any way to see if they treated the $150-million reduction the same way — giving the departments more money and telling them to take their $150 million out of that extra money?

That’s an interesting question. If you look at voted authorities in 2016-17, it was about $103 billion. Last year — in 2022-23 — it was $225 billion. It has more than doubled over a span of seven years. The lapse rate has gone from 10% to 24%. It’s money that departments cannot spend. It went from $10 billion to $54 billion. Identifying $350 million or $500 million when departments have lapsed — without being forced — they’ve lapsed $38 billion in 2021-22, and $54 billion. It’s a statement of good intentions, but they are lapses that would have taken place anyway.

That’s right; it’s not inflicting any pain on the departments.

I would be hard pressed to find any pain on anyone at that rate. For example, CBC/Radio-Canada suffered a reduction of $127,000 out of a budget of $1.4 billion. It’s not something that is likely to be felt harshly. That is one example that comes to mind.

Mr. Giroux, welcome, and thank you for joining us on such short notice. We always appreciate it. I must take advantage of your presence here the day after the Fall Economic Statement was presented to ask you my first question on that subject. I will come back to the subject of our meeting, the Supplementary Estimates (B), when I ask my second question.

Were you surprised by the deficit figures yesterday? The economists were all expecting something on the order of $45 billion to $46 billion, which is the magnitude you had predicted; yet here we are with $40 billion. I’ve covered public finance for years, if not decades. Sometimes there are accounting entries or things that are somewhat unusual. Have you noticed anything out of the ordinary, or is it just that we’re working with different economic assumptions?

That’s an interesting point. The deficit for the current year surprised us. In the absence of new measures, we were expecting a deficit of around $46 billion, but the government is forecasting a deficit of $40 billion instead. This is due in part to a slower pace of spending. Spending is happening at a slightly slower pace, but revenue is also coming in a little better than expected. The combination of those two factors means that the deficit for the current year is lower.

On the other hand, what didn’t surprise us was an upward revision of the deficits for subsequent years. We’re talking about approximately $10 billion per year for each subsequent year. We were somewhat expecting that. However, the fact that deficits are rising before major measures are announced, such as a national pharmacare program or Bill C-22 to establish a Canada Disability Benefit, suggest that if those two measures go ahead, either deficits will rise further or taxes will have to be raised.

I was thinking about one thing in particular: I’m talking about the $5.2 billion reduction in expenditures attributable to accelerated recovery by the Canada Revenue Agency. That’s $5 billion more than forecast in the spring. Until your next meeting or release, I’d like to know more about the Canada Revenue Agency, which is suddenly going to collect $5 billion more than forecast five months ago.

My next question is about Supplementary Estimates (B). You can see that 40% of the proposed spending in Supplementary Estimates (B) is for the Crown-Indigenous Relations and Northern Affairs portfolio. That’s really quite significant.

However, in all the economic statements that we have looked at, this is the first time I’ve seen what last year’s deficit would have been if we hadn’t made all these investments. I’m not questioning the merits of this portfolio, but I read in the appendix that the deficit for 2022-23 would have been $9 billion rather than $35 billion. That’s quite considerable.

Is it a five-year time frame? Would we have a balanced budget if we did this exercise? Now they’re saying that the liability is about $76 billion for investments in truth and reconciliation. In your future analyses, could you shed some light on the impact of all this? I’m trying to see what’s recurring and what’s not. That would help us understand the underlying deficit.

When we saw the public accounts, we saw an additional provision for contingencies or lawsuits. I think we’re talking about an additional $20 billion, even though several tens of billions of dollars were identified as spending for contingencies and lawsuits in the previous public accounts. That came as a big surprise to us.

We made an inquiry with Crown-Indigenous Relations and Northern Affairs Canada and Indigenous Services Canada. We have received the information and are in the process of analyzing it. This will enable us to determine whether these are mainly new claims or an upward revision of existing claims. It may be a combination of both. We’re in the process of analyzing these issues and will be able to get back to you on the makeup of these claims, these liabilities.

Would this bring us closer to a balanced budget? This suggests that it would, but it depends on what the government would have done if it hadn’t set aside so much money to address Indigenous issues. With a return to balanced budgets, would the government have more willingly brought in programs that have yet to be introduced? We can’t know for sure.

Thank you for being here.

[English]

In your analysis, you found that, to date, total government spending is $37.2 billion more compared to this point in 2022. You highlighted that the supplementary estimates do not suggest there are any spending restraints by the government. In addition to that, the Fall Economic Statement includes an additional $20 billion in new spending. Canada’s debt servicing is at record levels.

Are you concerned the government is running out of room to manœuvre fiscally? In general, what are your concerns about the lack of fiscal restraint by the federal government given the economic environment we’re in today?

When we released our Fiscal Sustainability Report last summer, we indicated that there was still some fiscal room available at the federal level. However, with the debt servicing costs that are increasing and with the remaining commitments that have not yet been implemented or factored into the fiscal framework, that severely diminishes the fiscal flexibility available for the government to withstand another economic shock.

It’s not a worrying factor yet, but it depends on what the government will do, if anything, with respect to Bill C-22, or the Canada Disability Benefit, as well as national pharmacare, investments or spending on national defence or any other spending areas that the government may wish to target, especially in light of the debt servicing costs that have risen sharply over the last few years.

Minister Freeland discussed the concept of guardrails, and I guess that started probably about a year ago and is now being revisited.

What type of room does she have for guardrails? What could they possibly be, if you had to make an educated suggestion or a guess?

Well, a good guardrail that is widely used is a declining debt-to-GDP ratio with a specific target at a point in time.

The issue that we have — and we’ve raised it before — is that fiscal guardrails have evolved over time. It used to be debt servicing costs representing a low share of revenues. It has evolved to a declining debt-to-GDP ratio, which is not happening because it’s on the upward, so it’s increasing. Then, in the Fall Economic Statement, the government introduced three new measures — one of which is a deficit of 1% of the GDP or less.

What is a bit concerning when you have a fiscal anchor is changing it over time. Usually, an anchor is meant to be an anchor, so it’s something that guides your decisions over time. It’s not meant to change — otherwise it’s not an anchor.

[Translation]

Good evening, Mr. Giroux. The supplementary estimates call for an additional $10 billion for Indigenous affairs. Are these new measures that were impossible to include in the government’s main estimates? Is this new spending the result of new and unforeseeable events? In other words, is this a political strategy through accounting entries or a lack of foresight or vision?

It’s hard to answer that question. We’re dealing with two separate phenomena here. On the one hand, the government records a deficit amount for one year, which is intended to recognize its liability in the face of claims. For example, specific or global claims affect the deficit for the year in which the government determines that it has a 70% or greater risk of losing in court. There, we see the funds or money the government is asking for to pay the negotiated claims and settlements it has reached.

I don’t believe the numbers are being played with. It’s simply accrual accounting. There’s an impact on the deficit when the government acknowledges that it has a liability that it stands to lose, or a claim that’s been recognized in previous years. Once negotiations are complete, of the $10 billion, $5 billion is earmarked for a specific claim and $1.6 billion is for other claims. So there are a few details, but this settles claims that had been recognized in the deficit for previous years.

The problem is — I discussed this briefly with Ms. Giswold — we can’t pinpoint exactly which year this claim was included in the deficit or debt. Was it this year, last year or five years ago? We don’t have that information yet.

On another note, is the bad news about the cost of debt alarming? To what extent will government debt have an impact on future generations? People are saying that the interest rate may come down, but it’s still high for now and the cost of the debt isn’t the same.

I wouldn’t say it’s alarming if you look at it in a historical context. Debt service costs range from 10% to 11% of federal revenue right now. That’s far from low, but historically it’s much lower than it’s been in the past. When I finished university, costs were between 35% and 40%, which gave genuine cause for concern. However, if we look at right now or the years to come, we may spend more on interest than the federal government will transfer to the provinces and territories for health care. So this is a very, very significant expense item. Is it so big that it will choke public finances? No, but it’s obviously a weight we carry year after year that slows us down.