Briefing binder created for the Deputy Minister of Finance on the occasion of his appearance before the Standing Committee on Public Accounts on November 23, 2023 on the Public Accounts of Canada 2023

Meeting Background and Scenario
House of Commons Standing Committee on Public Accounts (PACP)
Department of Finance Appearance on the Public Accounts of Canada 2023

November 23, 2023 (11 a.m. to 1 p.m.)

Committee Mandate and Study of the Public Accounts of Canada

• Studying and reporting to the House on the Public Accounts of Canada (the government's consolidated financial statements) is a core part of PACP's mandate as provided by the Standing Orders of the House of Commons. The other is studying and reporting on reports of the Auditor General of Canada, which the committee spends most of its time on over the course of a parliament.
• For its study on the Public Accounts the committee typically holds three meetings:
  1. An in-camera "training" session to educate members about the technical aspects of the Public Accounts including how they are prepared and presented. This year, that meeting took place on November 9, 2023, with the Canadian Audit and Accountability Foundation.

  2. Public meeting with the Auditor General, Comptroller General, and Deputy Minister of Finance. This will occur on November 23, 2023, to consider the 2023 Public Accounts.

     Typically, members use this meeting to ask questions about that year's public accounts. Many of the questions focus on any issues or areas for improvement noted in the Auditor General's independent auditor's opinion of the consolidated financial statements. Members may also take the opportunity to ask officials questions about other matters within their department's mandate.

  3. One or more meetings to develop a report to the House of Commons on their study.

     The committee's reports have typically provided on average of one to four recommendations for improvements to administrative and financial practices and controls of federal departments and agencies. Usually, the committee requests a Government Response to its report, which is approved via a memorandum to Cabinet, and must be tabled within 120 days.

• According to the committee's website, "Government policy, and the extent to which policy objectives are achieved, are generally not examined by PACP. Instead, the Committee focuses on government administration – the economy and efficiency of program delivery as well as the adherence to government policies, directives and standards. The Committee seeks to hold the government to account for effective public administration and due regard for public funds."

Role of Department and Deputy Minister of Finance in Preparing the Public Accounts

• As one of the four signatories of the government's consolidated financial statements in the Public Accounts, the Deputy Minister of Finance, along with the Comptroller General of Canada, the Secretary of the Treasury Board of Canada, and the Deputy Receiver General for Canada, are responsible for the preparation and fair presentation of the financial statements in accordance the government's accounting policies, which are based on Canadian Public Sector Accounting Standards.
• From a production perspective, the Department of Finance is responsible for the preparation of the financial statements discussion and analysis included in Section 1, Volume I, of the Public Accounts.
• The Deputy Minister of Finance is also responsible for the proper recording and reporting of financial information pertaining to the Department of Finance included in the Public Accounts (e.g., public debt charges, major transfers to other levels of government, unmatured debt, and foreign exchange accounts).

Meeting Day: Questions and Answers

• All questions and answers are addressed to the Chair.
• *Redacted*
• PACP members ask questions of any witnesses they choose in rotating rounds. The first round provides six minutes for questions and answers to each party (i.e., beginning with Conservatives). For all subsequent rounds, the Liberals and Conservatives receive five minutes, while the Bloc Québécois and New Democratic Party receive two and a half minutes, until the meeting time is exhausted.
• Generally, the Comptroller General is responsible for responding to questions related to accounting matters.
• Finance officials are often asked about the variance between forecast and actual results, as well as the economic and fiscal position of the government, including projections included in the Budget. The briefing binder provided to you focusses on these issues, and a select few others on Finance issues of importance to opposition members.
• Committee members may ask questions related to their Public Accounts 2022 report, which they presented on June 1, 2023, and for which a Government Response was requested and tabled on September 27, 2023, by the Treasury Board Secretariat (see Appendix 1 and 2 to this Annex for committee report and government response). The report's recommendations call for:
  • Improved accounting practices requiring federal organizations to present detailed reports on their environmental, social, and governance and sustainable development criteria; and,
  • Crown corporations to divulge all expenditures, including loan forgiveness value, in the same manner as federal departments and agencies.
• While the Committee Chair is normally expected to keep questions focused on the topic of the meeting, Public Accounts 2023, he may exercise considerable discretion in allowing a wider range of questions.
• Should Finance officials be unable to answer a question, they may commit to providing a written response following the meeting. Parliamentary Affairs will coordinate the preparation of any responses.
• Questions may also be posed about individual departmental line items. However, unless a general answer can be provided, officials will normally defer these detailed questions to the responsible department or agency.

Duties of Deputy Heads and Public Servants Appearing before Parliamentary Committees

• In Open and Accountable Government (2015) the Prime Minister set out expectations for appearances before parliamentary committees by deputy ministers, who are designated accounting officers for their organizations by the Financial Administration Act. It states, "Under the law, the responsibilities of accounting officers arise within the framework of ministerial responsibility and accountability to Parliament (i.e., deputy ministers are accountable to Ministers, while Ministers are accountable to Parliament). Thus, the legislation specifies that accounting officers are accountable before committees—that is, they are required to provide information and explanations to committees, and in so doing to assist Parliament in holding the government to account."
• Open and Accountable Government refers to separate, detailed guidance for accounting officers which sets out recognized practices. These include providing factual, non-partisan answers, protecting confidential information, and that "public servants do not engage in broad policy discussions, debate the merits of policies, options or actions (as opposed to explaining their rationale), [or] express personal opinions…".

Public Accounts 2023 – Key Figures

Key points

• The government posted an annual operating deficit of $35.3 billion for the fiscal year ended March 31, 2023, compared to a deficit of $90.3 billion in the previous fiscal year.
• The year-over-year improvement in the budgetary balance reflects the strong recovery of the Canadian economy from the effects of the pandemic along with the wind-down of temporary COVID-19 support measures.
• The annual operating deficit before net actuarial losses stood at $25.7 billion in 2022-23, compared to $80.1 billion in 2021-22. The annual operating deficit before net actuarial losses is intended to supplement the traditional budgetary balance and improve the transparency of the government's financial reporting by isolating the impact of the recognition of net actuarial losses arising from the government's public sector pensions and other future benefits of employees and veterans.
• Compared to projections in Budget 2023, the annual operating deficit was $7.7 billion lower than projected, mainly reflecting higher-than-expected tax revenues, partially offset by higher-than-expected program expenses and public debt charges.
• In 2022-23, the government recorded expenses totalling approximately $26 billion related to Indigenous claims, in advancing its commitment to resolve past injustices and renew its relationship with Indigenous Peoples.
• The federal debt (the difference between total liabilities and total assets) stood at $1,173.0 billion at March 31, 2023.
• The federal debt-to-GDP ratio was 42.2 per cent, down from 45.4 per cent in the previous year. As noted in Budget 2023, the government remains committed to its fiscal anchor of reducing the federal debt as a share of the economy over the medium term.
• For the 25th consecutive year, the government has received an unmodified audit opinion from the Auditor General of Canada on the consolidated financial statements.

G7 Comparisons

Issue

How Canada compares to its G7 peers on key macroeconomic and fiscal data.

Key points

• Canada's macroeconomic performance compares well against its G7 peers. 
  • Canada has had the strongest employment recovery since the pandemic.
  • Over the last year, Canada had one of the lowest rates of inflation among the G7.
  • Canada has had the second strongest real GDP recovery since the pandemic.
  • Canada is expected to see the fastest growth in the G7 next year, according to the IMF.
• Canada is also expected to maintain its fiscal advantage in the G7 with the lowest general government deficit and net debt ratios, according to IMF projections.

Background

Bank of Canada Negative Equity

Issue

Bank of Canada losses and negative equity may be raised during the Deputy Minister's appearance before the Standing Committee on Public Accounts.

Key points

• In March 2020 during COVID, the Bank of Canada (Bank) introduced the Government of Canada Bond Purchase Program (GBPP) to provide liquidity to the Canadian financial system.
• At the peak of the purchase program, the Bank had purchased over $300 billion in Government of Canada bonds. These bonds are now declining over time as they mature.
• As interest rates rise, the variable interest (based on the policy rate) the Bank pays on the settlement balances it created to purchase government securities under GBPP has exceeded the fixed interest it receives on the bonds it purchased, so the Bank is now incurring net interest losses.
• The accumulation of these losses has resulted in the Bank of Canada having a negative equity position.
• As stated in Table 9.4 on page 317 in the English version, the Bank of Canada had net losses of $3,141 million in 2022-2023, which resulted in negative equity of $1,632 million as of March 31, 2023.
• Going forward, the size and duration of these losses will depend on the path of interest rates.
• Such losses are not unique to the Bank. Many other central banks, including Australia, the U.K. and U.S., are also experiencing such losses.
• Negative equity is not expected to affect the Bank's ability to conduct monetary policy.
• In the Budget Implementation Act, 2023, No. 1 (BIA-1 2023), the government amended the Bank of Canada Act to allow the Bank to not pay the government dividends until such time as the Bank exits from its current negative equity situation.
• This BIA-1 2023 change should mean that going forward, dividends from the Bank ($520 million in year up to March 2023, Table 9.4) will be zero until the Bank is no longer in negative equity.

Canada Emergency Business Account (CEBA) Loans and Recoveries

Issue

There has been an increase in media coverage after the Government announced extensions and flexibilities for the Canada Emergency Business Account (CEBA) program on September 14, 2023; stakeholders continue to press for a further extension of the January 18, 2024, deadline for forgiveness.

Key points

• The CEBA program was available from April 2020 to June 2021, and provided $49 billion in interest-free, partially forgivable loans of up to $60,000 to nearly 900,000 small businesses and not-for-profit organizations to help cover their operating costs during the pandemic.
• As of March 2023, the CEBA program had a net carrying value of $24.6 billion in the Public Accounts. The net carrying value reflects the value of total outstanding loans ($40.2 billion) less valuation allowances for expected forgiveness and defaults ($15.6 billion).
• As of August 31, 2023, approximately 21 per cent of loan holders have fully repaid their CEBA loans. Approximately $8.1 billion has been repaid, including partial repayments, and approximately $2.8 billion has been forgiven in accordance with the CEBA program terms. While we are awaiting confirmation of more recent figures, we understand that there have been significant increases in repayments in September and October 2023 (over $1 billion in additional repayments). 
• We expect that most borrowers will repay the loan closer to the deadline of January 18, 2024, to take full advantage of the interest-free period.

Anticipated Questions and Answers

1. What percentage of CEBA loan holders will be able to take advantage of partial forgiveness?

   As of August 31, 2023, approximately 21 per cent of loan holders have repaid their CEBA loans. Approximately $8.1 billion has been repaid and approximately $2.8 billion has been forgiven in accordance with the CEBA program terms.

   We expect that most borrowers will repay the loan closer to the deadline to take full advantage of the interest-free period.

2. How much are the extensions and flexibilities expected to cost?

   We do not anticipate significant additional costs as a result of the recent announcements as we do not expect them to significantly affect loan holders behaviours in terms of CEBA loan repayment.

3. Why wasn't the repayment deadline to receive partial forgiveness extended further than January 18, 2024?

   CEBA was launched to support Canadian businesses that had been adversely affected by the COVID-19 pandemic. The Government already provided a one-year repayment extension to receive partial forgiveness from December 31, 2022, to December 31, 2023.

4. What will happen to businesses that cannot repay by the January 18 deadline?

   As of January 19, 2024, outstanding loans will convert to three-year term loans, subject to interest of five per cent per annum with the term loan repayment date extended by an additional year from December 31, 2025, to December 31, 2026. This will provide the hardest-hit businesses an additional year to continue repayment at a low borrowing cost.

5. Question: Is PBO's costing of $907 million for a one-year extension, till December 31, 2024, to repay CEBA loans and retain access to partial forgiveness accurate?

   Answer: The PBO analysis shows the significant costs that would be associated with a one-year extension of the CEBA partial forgiveness deadline. Finance Canada's assessment of the PBO costing however indicate that it may be underestimating the total cost of that hypothetical program change. Of note, the PBO does not calculate the additional Financial Institution fees that would be incurred as a result of holding outstanding loans for an additional year. Compared to current assumptions (as presented in the FES), the PBO also assumes significantly lower public debt charges in 2023-24 and 2024-25.

Background

• CEBA was launched to support Canadian businesses that had been adversely affected by the COVID-19 pandemic. CEBA provided interest-free loans of up to $60,000 to small businesses to help cover their operating costs. The deadline to apply to the program was June 30, 2021.
• For eligible borrowers, repayment of the loan on or before the deadline of January 18, 2024, will result in loan forgiveness of up to 33 per cent (up to $20,000). Additionally, the repayment deadline to qualify for partial loan forgiveness now includes a refinancing extension until March 28, 2024. As of January 19, 2024, outstanding loans, including those that are captured by the refinancing extension, will convert to three-year term loans, subject to interest of five per cent per annum, with the outstanding principal due on December 31, 2026.
• The CEBA program initially offered $40,000 loans with $10,000 in forgiveness (e.g., 25 per cent forgiveness). In December 2020, CEBA loan holders who had received the $40,000 CEBA loan were able to apply for the CEBA expansion, which offered eligible businesses an additional $20,000 of financing with another $10,000 in forgiveness (e.g., for a total of 33 per cent forgiveness).
  • Forgiveness is granted when the loan holder has repaid $40,000 for $60,000 CEBA loans or $30,000 for $40,000 CEBA loans. Although it is a zero-interest loan, some loan holders have elected to make partial repayments – but will not receive forgiveness until they have fully repaid.
  • See below table for additional statistics related to the CEBA program.

Collections and Enforcement

• EDC, in collaboration with the Canada Revenue Agency (CRA), is currently in the process of implementing a collections approach that aligns with the strategies utilized for other COVID-19 relief programs. The CRA's approach to collecting funds will emphasize fairness, empathy and putting people first.  Practically speaking, the CRA will work with loan holders to help them resolve their debts based on their ability to pay in order to avoid financial hardship. This may include expanded and flexible payment arrangements, or deferred repayment, to allow more time for loan holders to repay their debts.
• *Redacted*

Administration

• CEBA is administered by EDC via the Canada Account and is delivered in partnership with over 230 financial institutions. While the Canada Account, as managed by EDC, is typically limited to supporting Canadian exporters as per EDC's legislative mandate, the Government temporarily expanded EDC's mandate to include domestic supports as part of the Government's economic response to the COVID-19 pandemic.

*Redacted*

COVID-19 Benefit Recoveries

Issue

The Public Accounts of Canada 2023 reported a net receivable of $4.7 billion for overpayments related to all COVID-19 benefit programs.

Key points

• The $4.7-billion balance of COVID-19 benefit overpayments reflects gross receivables of $7.0 billion based on redeterminations to date, net of an estimated allowance for credit risk of $2.3 billion.
• The receivable balance increased by $0.8 billion over the prior year. This reflects new redeterminations made during 2022-23, offset in part by collections and changes in the allowance for doubtful accounts.
• The CRA employs a risk-based approach to assist in identifying claims that are at the highest risk of being ineligible or overstated. Post-payment audits are ongoing to further examine the level of compliance of claimants who, based upon risk assessment, warrant further review.
• CRA auditors contact claimants with a request to submit the documentation needed to support their subsidy claims.
• For claims determined to be ineligible, claimants are required to repay the full amount of payments received.
• The CRA works to provide flexible repayment options for those in difficult circumstances – only seeking what individuals attest to being able to pay. These overpayments are not subject to interest or penalties.
• Claimants who intentionally made fraudulent claims may face additional consequences. 

Background

Debt Management Strategy

Issue

The Deputy Minister will appear before the Standing Committee on Public Accounts to discuss the recent tabling of the Public Accounts for 2022-23.

Key points

• Borrowings needs in 2022-23 were lower than expected reflecting improved fiscal position.
  • In 2022-23, the total domestic borrowing program was $387 billion, including both bonds and treasury bills.
• Despite higher interest rates, debt charges as a percent of GDP remain near historic lows.
  • Debt charges accounted for 1.3 per cent of GDP, which is below the historical average of 3.5 per cent since 1981 and below that of G7 peers.
• As updated in the Fall Economic Statement (FES) 2023, the domestic borrowing program for 2023-24 is now estimated to be $485 billion, including both bonds and treasury bills.
  • Public debt charges are now expected to reach $46.5 billion for 2023-24, or 1.6 per cent of GDP.
  • The government also announced it will purchase up to an annual maximum of $30 billion of Canada Mortgage Bonds, as early as February 2024, in order to generate net revenues to fund initiatives such as affordable housing.
  • The government has included nuclear energy in its Green Bond Framework, reflecting the importance of nuclear in Canada's Emissions Reduction Plan, and updated taxonomies and investor preferences more open to nuclear.
  • The government is also considering issuing 1-month treasury bills to help the market transition from Bankers' Acceptances, as requested by market participants.

Anticipated Questions and Answers

1. Why did the government reduce borrowing in the 2022 Fall Economic Statement?

   In 2022-23, borrowing needs were $40 billion lower than projected in Budget 2022, reflecting an improved fiscal position, specifically a lower budget deficit (down $23 billion from Budget 2022's projections).

2. What effect do higher interest rates have on debt service costs?

   Reflecting higher interest rates, public debt charges increased by
   $10.5 billion in 2022-23. Despite this, debt charges accounted for 1.2 per cent of GDP. By historical standards, public debt charges remain low. For comparison, public debt charges peaked at 6.5 per cent of GDP in the early 1990s and were 2.1 per cent of GDP in 2007-08 before the financial crisis.

3. What is the government's average term to maturity?

   The average term to maturity was 6.9 years in 2022-23, up from 6.6 years in 2021-22. This reflected the government's decision to maximize issuance in the long-term sectors during the COVID-19 pandemic and lock in low interest rates.

4. In an era of increasing inflation, why did the government remove real return bonds?

   Consistent with comments received during the Fall 2022 DMS consultations, the government concluded that demand for this sector was too low to justify maintaining it. This decision allowed the government to promote liquidity by consolidating funding within our core funding sectors.

5. Why did the government discontinue the ultra-long bonds?

   The ultra-long bond saw poor auction coverage and it was prudent management to discontinue ultra-long bonds.

6. What happened to COVID related debt?

   The extraordinary borrowing period ended on May 6, 2021. Borrowings raised under the extraordinary borrowing authority are now counted as regular debt against the maximum borrowing limit consistent with an amendment to the BAA (Borrowing Authority Act) in June 2022.

7. What is the current Parliamentary maximum borrowing limit under the Borrowing Authority Act?

   The aggregate maximum borrowing amount is $1,831 billion. As of March 2023, total market debt was estimated at $1,574 billion.

   The legislation requires that government report to Parliament on this limit by May 2024 as part of a regular reporting process.

   The annual borrowing limit for 2023-24 is $444 billion.

8. Why didn't the government issue another green bond in 2022-23?

   Since the inaugural issuance, there have been a number of developments in the sustainable finance market, such as the coming into force of the European Union Taxonomy for Sustainable Activities. The government is taking time to assess these developments.
   The government remains committed to regular green bond issuances.

9. Why did the government cancel the 3-year sector?

   The decision reflects input we received during previous consultations in which market participants indicated there was low support for the sector.

   The decision to cancel the 3-year sector was made in Budget 2023.

FES 2023 Related

10. Why does the government need to increase borrowing? Has the deficit increased?

    The deficit for 2023-24 has remained in line with Budget 2023. Rather, the government's cash needs, have increased reflecting increased financial requirements, a potential mismatch between large outgoing payments and incoming receipts and for participation in the Canada Mortgage Bond market as early as February 2024.

11. Will this impact Canada's AAA credit rating?

    The higher borrowing requirements are not expected to significantly increase Canada's net debt to GDP ratio. While rising interest rates since Budget 2023 have increased the service cost of our debt, at 1.6 per cent of GDP, it remains near historic lows.

12. *Redacted*

    *Redacted*.

13. Will this increase cause Canada to breach the Parliamentary Borrowing Authority?

    The increase in the 2023-24 borrowing limit is consistent with the legislated maximum borrowing limit of $1,831 billion set out in the Borrowing Authority Act. As of March 2023, the amount of debt outstanding was $1,573.8 billion. The incremental borrowing needs will bring the amount outstanding to $1,684.8 billion by the end of 2023-24, well below the statutory limit.

14. What is the government doing regarding Canada Mortgage Bonds?

    The federal government announced in FES 2023 that it would buy up to an annual maximum of $30 billion in CMBs, as early as February 2024. This is intended to generate net revenues to fund initiatives such as affordable housing. Finance is working with CMHC and Bank of Canada on an operational plan that will be released to the market.

15. What is the rationale for including nuclear energy in Canada's Green Bond Framework?
    • The Green Bond Framework is being updated to better align with Canada's Emissions Reduction plan, which recognizes the role of nuclear energy in achieving net zero.
    • This recognizes that nuclear energy will remain an important part of Canada's energy mix in a low carbon future and will facilitate investments to meet Canada's climate commitments.
    • The Green Bond Framework is also being updated to reflect international trends and updated market expectations with respect to including nuclear energy as an eligible use of green bond proceeds.

16. What is a 1-month t-bill and why is the Government of Canada considering issuing it?

    The Government of Canada will explore the option of issuing a 1-month t-bill with a view to support well-functioning Canadian financial markets in light of the IBOR transition. The cessation of the Canadian Dollar Offered Rate (CDOR) in June 2024 will lead Bankers Acceptance's (BAs) to no longer be issued. BAs are important for certain segments of the Canadian money market investment universe and there have not been any replacements with broad market adoption so far.

Projected Deficits

Key points

• The government recorded a $35.3 billion deficit in 2022-23, $7.7 billion lower than the $43.0 billion projected for the year in Budget 2023.
• The Fall Economic Statement 2023 projects a $40 billion deficit for this year, or 1.4 per cent of GDP, below that projected in Budget 2023.
• Deficits are then expected to decline over the forecast horizon, reaching $18.4 billion, or 0.5 per cent of GDP, by 2028-29.
• As a result, the government continues to deliver on its on its fiscal anchor, enabling Canada's federal debt-to-GDP ratio to decline in 2025-26 and future years, reaching 39.1 per cent in 2028-29 – about 8 per cent lower than its recent peak of 47.5 per cent in 2020-21. 

Anticipated Questions and Answers

1. What explains the better-than-expected result relative to Budget 2023

   Overall, the economy remained stronger than expected and revenues were $10.6 billion higher than forecast. This was primarily due to higher tax revenues driven by higher-than-expected corporate income tax revenues.

   Program expenses, excluding net actuarial losses, were $2.6 billion higher than expected, largely a result of higher-than-anticipated provisions for claims and contingent liabilities.

   Public debt charges were $0.5 billion higher than projected resulting from higher-than-expected interest charges on unmatured debt due to higher-than-anticipated borrowing requirements toward the end of the fiscal year, offset in part by lower-than-expected interest expenses on future benefit obligations.

   Net actuarial losses were $0.2 billion lower than projected.

2. What explains the deterioration in the budgetary balance from $35.3 billion in 2022-23 to $40 billion in 2023-24 as shown in the Fall Economic Statement?

   The deficit is projected to rise $4.7 billion 2023-24 due to higher expenses and slow revenue growth this fiscal year. The slow expected revenue growth (up only 1.9 per cent) results from the expected slowdown in economic growth, as nominal GDP, the broadest measure of the tax base, is expected to grow by only 2.0 per cent in 2023 (versus 11 per cent in 2022).

   Expenses in 2023-24 are expected to be higher than in 2022-23, due to higher major transfers to persons, due in part to the indexation of benefits to inflation, higher transfers to other orders of government due to legislated arrangements and other agreements, and higher public debt charges resulting largely from the rise in interest rates.

Exchange Fund Account

Issue

The Deputy Minister will be appearing before the Standing Committee on Public Accounts to discuss the recent tabling of the Public Accounts for 2022-23, which includes the Exchange Fund Account (details at Section 8 of Vol.1)

Key points

• The legislative purposes of the EFA – set out in the Currency Act – is to help support the Canadian dollar and provide a source of liquidity for the government, if required.
• The government has committed to maintain liquid reserves (a subset of the EFA comprising foreign currency securities and deposits) equal to or above 3 per cent of GDP.
• As of March 31, 2023, liquid reserves were above this commitment, at more than 3.5 per cent of GDP.
• Canada's reserves are positively viewed by rating agencies, with EFA assets largely composed of highly-liquid, safe investments.
• In 2022-23, the EFA reported a total return of US$173 million (23 basis points) – as reported in the Report on the Management of Canada's Official International Reserves for 2022-23. 

Anticipated Questions and Answers

In general, the Exchange Fund Account is not a major source of questions to the government, with the statutory release of the annual report not typically gathering public attention.

1. In the Public Accounts, foreign exchange accounts assets ($169.4 billion) vastly exceed foreign exchange liabilities ($44.2 billion) in 2022-23. Does this mean the government is running a very large net asset position with its international reserves?

   No. The EFA is managed under an Asset-Liability Matching framework to mitigate interest rate and currency risks.  This means that liabilities to fund the EFA broadly match its assets.

   However, given that the bulk of the funding of the EFA originates from the Consolidated Revenue Fund, the difference between foreign exchange accounts assets and liabilities is accounted as part of the total interest-bearing debt (general market debt).

   Note:  For more details on this difference, see section 2 – Note 10 (Payable in Foreign Currency) amount of $16.0 billion and Note 21 Contractual or notional principal amounts of the swap and foreign exchange for an amount of $115.4 billion.

2. Why foreign exchange account assets have increased by $23.1 billion (to $169.4 billion) in 2022-23?

   The bulk of the $23.1 billion (15.8 per cent) increase in foreign exchange account assets reflects an increase in the value of EFA assets of $21.8 billion due to a combination of:

   • The acquisition of foreign currency assets to ensure liquid reserves remain safely above the 3 per cent of GDP commitment.
   • Favorable exchange rate movements versus the Canadian dollar (notably USD and EUR), which pushed up the value of our foreign currency holdings when converted in Canadian dollars.

3. Why foreign exchange accounts liabilities have increased by $1.9 billion (to $44.2 billion) in 2022-23?

   The 4.5 per cent increase in foreign exchange account liabilities reflects in most part the impact of exchange rate movements on the value of SDR obligations.

4. *Redacted*

   *Redacted*

5. How come the EFA registered a loss on the sale of marketable securities in 2022-23?

   In the statement of operations (in section 8), the EFA registered a loss on the sale of marketable securities in 2022-23 (there was a gain of $11 million in 2021-22).

   Such loss reflects the "switch" from lower coupon assets to higher-yielding assets. In cases where the market value of the asset being sold is lower than its book value, there could be an accounting loss incurred in the first year of the transaction but over time, it is more than offset by the annual revenues collected from higher coupons on the new asset.

   Part of the benefit of such transactions is apparent in the interest earned on marketable securities which increased from $851 million in 2021-22 to $1,643 million in 2022-23 and is expected to continue to grow in coming years.

6. How do you determine what kind of assets (e.g., which countries, currencies) are purchased in the EFA?

   The Statement of Investment Policy for the Government of Canada (SIP), established by the Minister under the Currency Act, sets out the policy governing the acquisition, management and divestiture of assets held in the EFA.

   The SIP stipulates that the EFA shall hold a diversified portfolio of fixed-income assets of high credit quality issued by sovereigns, sovereign-supported issuers, sub-sovereign entities, supranational institutions, as well as deposits with commercial banks, central banks, and the Bank for International Settlements, repurchase agreements, commercial paper and certificates of deposit issued by private sector entities, gold and IMF special drawing rights.

   EFA investments can be denominated in four currencies including US dollar, euros, Yen and British pound, as well as IMF's Special Drawing Rights (SDRs).

7. Why do Canada's reserves not include gold holdings unlike many other countries and central banks?

   Canada does not invest in gold.  In the early 1980s, the Government of Canada decided to convert the bulk of its gold holdings into high credit quality, marketable fixed income securities that earn interest income and are denominated in foreign currencies.

   Compared to gold, investments in liquid fixed-income securities are more clearly aligned with the purpose of the EFA.

   The vast majority of Canada's foreign exchange reserves is invested in high quality financial assets from G7 and other advanced economies. These financial assets are composed primarily of debt securities of highly rated sovereigns, sub-sovereigns, agencies and supranational organizations.

Background

The Exchange Fund Account (EFA), which is held in the name of the Minister of Finance, represents the largest component of Canada's official international reserves (OIR). It is a portfolio that is primarily made up of liquid foreign currency securities, deposits, and special drawing rights (SDRs).

In addition to the EFA, Canada's official international reserves include Canada's reserve position at the IMF. This position, which represents Canada's investment in the activities of the IMF, fluctuates according to drawdowns by and repayments from the IMF.

The legislative purposes of the EFA, as specified in the Currency Act, are to aid in the control and protection of the external value of the Canadian dollar and to provide a source of liquidity for the Government, if required.

The Department of Finance Canada and the Bank of Canada jointly develop and implement the funding and investment policy of the EFA. As fiscal agent of the Government, the Bank of Canada executes funding and investment transactions and manages EFA cash flows. 

The management of the EFA is also guided by key strategic objectives to help achieve its legislative purposes, including:

• Maintaining an adequate level of liquidity;
• Preserve capital value, and,
• subject to the achievement of the two primary objectives, optimize returns (i.e., maintaining the cost/benefit of the EFA at an acceptable level for the Government).
• In the Government of Canada's Public Accounts, the "foreign exchange accounts" items (assets and liabilities) in the Consolidated Statement of Financial Position represent the financial assets and liabilities related to Canada's international official reserves (OIR).

The OIR comprises the Exchange Fund Account, of which the largest portion is liquid reserves (foreign currency securities and deposits), and IMF Special Drawing Rights holdings. The second part of the OIR includes the assets and liabilities related to Canada's membership in the IMF.

Indigenous Claims

Issue

Expenses related to Indigenous claims contributed $26 billion to the deficit in 2022-23.

Key points

• The government is committed to advancing reconciliation, supporting Indigenous Peoples' right to self-determination, and addressing historical wrongs and systemic racism. Acknowledging and resolving past injustices through the resolution of Indigenous claims is an important part of renewing the relationship between the Government of Canada and Indigenous Peoples.
• In 2023, the government recorded expenses totaling approximately $26 billion related to Indigenous claims.
• The recorded expenses reflect the government's efforts to work with Indigenous partners to collaboratively address past injustices and to accelerate the resolution of litigation and the implementation of negotiated settlements to support reconciliation in Canada.

Background

Indigenous claims can be grouped into four main categories, as follows:

• General litigation claims being pursued through the courts, which include compensation related to the First Nations Child and Family Services program, Jordan's Principle, and residential schools.
• Specific claims, deal with the past grievances of First Nations related to Canada's obligations under historic treaties or the way it managed First Nations' funds or other assets. There are currently 698 specific claims under negotiation, accepted for negotiation or under review.
• Comprehensive land claims, which arise in areas of the country where Aboriginal rights and title have not been resolved by treaty or by other legal means. There are currently 83 comprehensive land claims under negotiation, accepted for negotiation or under review.
• Special claims, which represent claims that are not being pursued through the courts and that do not fit within the parameters of existing policies for Comprehensive Land Claims or Specific Claims.

The following is from Note 8. Provision for Contingent Liabilities on page 84 of Volume 1 of the 2023 Public Accounts:

• Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events not wholly within the government's control occur or fail to occur.

International Monetary Fund

Issue

Canada's contributions to the International Monetary Fund (IMF) new Resilience and Sustainability Trust and loans to Ukraine through the IMF Administered Account are reflected in the 2023 Public Accounts.

Key points

• In 2022-23, Canada provided a $2.44 billion contribution to the IMF's Resilience and Sustainability Trust (RST). This was in the context of the G7 and G20 Leaders' commitments to channel more resources to low-income and vulnerable countries.
• Canada disbursed $4.35 billion in loan support to Ukraine through the IMF Administered Account in 2022-23, including the proceeds from the $500 million Ukraine Sovereignty Bond issued in November 2022.

Anticipated Questions and Answers

1. What is the RST and how much has Canada provided?

   The RST provides financing to vulnerable low- and middle-income IMF members to enhance their resilience, including to climate and pandemic-related shocks. In 2022-23, Canada provided $2.44 billion in total support to the RST: a $40 million grant to the reserve account (which helps manage financial risks and covers operational costs), a $400 million loan to the deposit account (invested to build up the reserve account) and a $2 billion commitment to the loan account (to be drawn down as needed).

2. What is the IMF Administered Account for Ukraine and how much has Canada provided?

   The IMF Administered Account for Ukraine provides bilateral loans and grants to the Ukrainian government to help meet Ukraine's urgent balance of payments and budgetary needs. In 2022-23, Canada provided $4.35 billion in loan support to Ukraine through the Account.

   Export Development Canada (EDC) acted as agent for these transactions and was compensated for its services as agent.

Background

IMF's Resilience and Sustainability Trust (RST)

• The RST is a new tool at the IMF that provides longer-term, affordable financing to address longer-term challenges, including climate change and pandemic preparedness, and became operational in 2022.
• Canada was a strong supporter of the creation of the RST and finalized its $2.44 billion contribution in October 2022, placing Canada among the first countries to complete its pledge.
• Canada's contribution was made to the three separate RST accounts: a $2 billion commitment to the loan account (the bulk of resources representing the lendable amounts), a $40 million grant to the reserve account (the principal buffer to manage financial risks and cover operational costs) and a $400 million loan to the deposit account (invested to build up the reserve account).

IMF Administered Account for Ukraine and payments to Export Development Canada (EDC)

• Canada championed the creation of the Multi-donor IMF Administered Account for Ukraine and was the first country to announce and provide a contribution. In 2022-23, Canada disbursed $4.35 billion in loan support to Ukraine through the Account, including the proceeds from the $500 million Ukraine Sovereignty Bond issued in November 2022. Germany, Belgium, and the Netherlands have also contributed through this account.
• Consistent with the terms of Canada's financial assistance to Ukraine to date, the amounts disbursed through this Account cannot be used for lethal activities or purchases and must be consistent with relevant sanctions laws and regulations.
• Canada's loans to Ukraine were provided pursuant to Section 8.3 of the Bretton Woods and Related Agreements Act. Pursuant to this act, the Minister of Finance may ask EDC to serve as agent for the purpose of providing financial assistance to a foreign state and pay out of the Consolidated Revenue Fund any amount that is required to compensate EDC for its services as agent.

Impact of Inflation on Financial Statements

Issue

• Price inflation affects both sides of the budgetary balance. Higher prices for Canadian-produced goods and services lead to higher incomes and in turn higher tax revenue. On the other hand, various government benefits and transfers are indexed to inflation/CPI, resulting in higher expenses.
• Based on Department of Finance sensitivity analysis, a one percentage point increase in nominal GDP inflation would result in approximately $2 billion additional net revenue annually, on average, all else equal (i.e., not accounting for higher debt charges due to higher interest rates and/or rising costs for the government to provide services and benefits to Canadians).

Background

• GDP inflation is reflected in business (corporate) and personal income (i.e., national income), while CPI has a more direct tie to consumption. Although GDP inflation lags behind CPI early on, the two indicators align over the medium term.
• The personal income tax system is indexed to inflation: income tax brackets and credits rise with CPI inflation. This indexation is meant to ensure that Canadians only pay additional taxes on real income gains.
• The government's expenses also rise with inflation as many benefits are indexed to CPI, including elderly benefits and the Canada Child Benefit. In addition, the Canada Health Transfer and Equalization are indexed to nominal GDP growth, which is also affected by GDP inflation.

Technical details

• GDP inflation refers to an increase in the price of all goods and services that are produced in Canada (net of import price increases). When the price of goods and services Canada produces rises, after accounting for import prices, Canada's national income rises – and the federal government will see an increase in its income tax revenues. National income is composed of business income (i.e., corporate profits) and personal income (i.e., wages and salaries and investment and other income).
• The federal government derives about 70 per cent of its revenues from income taxes – so boosts to national income have a significant impact on federal revenues – the same can be said for provinces. The largest sources of revenue for the federal government are those stemming from personal income taxes (46 per cent) and corporate income taxes (21 per cent).
• Consumer Price Index (CPI) inflation refers to an increase in the price of goods and services consumed by Canadians. An increase in the CPI erodes the purchasing power of Canadians, in particular if their incomes are not growing as fast as CPI.
• In addition, many of the government's transfer programs are indexed, in order to protect Canadians from the negative consequences from inflation. Notably:
  • Elderly benefits: Payments are indexed quarterly to CPI increases. Payments do not decrease if CPI decreases.
  • Canada Health Transfer: Legislated to grow in line with a three-year moving average of nominal GDP (the projection for that fiscal year as determined by the Minister of Finance no later than three months before the start of the fiscal year, and the previous two years). As part of recently negotiated health agreements with provinces and territories, funding is guaranteed to increase by a minimum of 5 per cent per year from 2023-24 until 2027-28,
  • Equalization: Grows in line with a three-year moving average of nominal GDP (current year forecast, and previous two years).
  • Personal income tax refundable tax credits, e.g., Canada Child Benefit and Canada Workers Benefit: Inflation protected with a one-year lag. Payments are calculated based on CPI inflation adjusted net family incomes from the previous year. For example, payments for benefit year 2023-24, which began in July, are based on incomes and inflation between October 2021 and September 2022. With respect to the indexation of the income tax system, the continued impact of inflation will be reflected July 2024, when benefits will rise by 4.7 per cent. Income tax brackets will also be indexed by 4.7 per cent for 2024.

Major Federal Transfers to Provinces and Territories in 2022-23

Issue

In 2022-23, major transfers to other levels of government were $90.8 billion as reported in the 2022-23 Public Accounts of Canada.

Key points

• Major transfers to provinces and territories increased by $2.4 billion in 2023, primarily reflecting:
  • $3.7 billion in legislated growth:
    • $2.1 billion in legislated growth under the Canada Health Transfer;
    • $464 million in legislated growth under the Canada Social Transfer;
    • $1.0 billion in legislated growth under Equalization;
    • $173 million in legislated growth under Territorial Formula Financing;
  • $1.5 billion increase in the Canada-wide early learning and child care transfers; and,

  • $577 million Fiscal Stabilization payment to Alberta in respect of its claim for 2020-21;

    offset by

  • One-time transfers in 2022 (i.e., $1.0 billion under the Safe Long-term Care Fund); and,
  • $1.2 billion increase in the Quebec Abatement recovery in 2023, which primarily reflects a higher estimate of the tax points transferred to Quebec in the 1960s and 1970s.

Anticipated Areas of Questioning

1. How was the envelope of the 2022-23 Canada Health Transfer (CHT) determined?

   • CHT is distributed on an equal per capita basis and grows in line with a three-year moving average of nominal gross domestic product (GDP) growth, with funding guaranteed to increase by at least 3 per cent per year in 2022-23.
   • The 2022-23 CHT amount is comprised of two components:
     1. Program payout of $45.2 billion, which is based on the 2021-22 CHT program payout multiplied by a three-year average of growth in nominal GDP (as it is higher than the 3 per cent legislated guaranteed rate). 
        • Annual growth (4.83 per cent) is based on the three-year average of GDP growth in 2020 (-4.52 per cent), 2021 (12.45 per cent) and 2022 (6.55 per cent).
     2. $2 billion for a one-time top-up to the CHT.

2. What were the main drivers of the legislated growth in determining the 2022-23 major transfer payments?

   • CHT and Equalization were indexed to growth to the three-year average of nominal GDP growth. In the case of the CHT, there was also a legislated guaranteed rate of 3 per cent growth in 2022-23.
   • The Canada Social Transfer is legislated to grow at 3 per cent per year.
   • Territorial Formula Financing increases are mainly due to growth in provincial/local expenditures, which are major components of the formula.

3. Why not implement the changes Alberta requested to the Fiscal Stabilization program (remove cap, lower eligibility thresholds, make changes retroactive)?

   • The government nearly tripled the cap on Stabilization to $169 per person in 2020-21, and this will grow in line with Canadian economic growth per person in the future. 
   • This higher cap meant that Alberta received $312 million in additional support for its 2020-21 claim.
   • Current eligibility thresholds were maintained because the program is only meant to be triggered in catastrophic economic circumstances. Provinces have the ability and the responsibility to manage their finances in such a way that they can withstand normal economic fluctuations. 

Background

Major Transfers to Other Levels of Government in 2022-23:

Canada Health Transfer ($45.2 billion): The CHT is the largest federal transfer program, providing long-term, predictable funding for health care.

One-time Top-up to the CHT ($2 billion): Immediate top-up to help address urgent pressures in emergency rooms, operating rooms, and pediatric hospitals. This $2 billion CHT top-up, which was paid on June 30, 2023, is part of the government's ten-year federal health plan to work with provinces and territories.

Canada Social Transfer (CST) ($15.9 billion): The CST is a federal transfer that is provided in support of social assistance and social services, post-secondary education, and programs for children.

Equalization ($21.9 billion): Equalization ensures that less prosperous provinces have sufficient revenue to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

Territorial Formula Financing (TFF) ($4.6 billion): TFF funding enables territorial governments to provide their residents with programs and services comparable to those provided in the rest of Canada.

Early learning and childcare transfer ($4.5 billion): Support to the provinces and territories for implementation of the Canada-Wide Early Learning and Child Care Agreements, which fund reduced child care costs for regulated child care spaces, the creation of new child care spaces and support for the early childhood workforce.

Canada Community-Building Fund ($2.3 billion): Permanent and flexible infrastructure funding that is provided to provinces and territories, and then flowed to municipalities to support local infrastructure priorities.

Health agreements with provinces and territories ($1.2 billion): Budget 2017 announced targeted funding for bilateral agreements to improve home care and mental health services including improved home and community care, shortened wait times for mental health services and improved accountability on home care and mental health investments.

Fiscal Stabilization Payment to Alberta for 2020-21 ($577 million): The federal government provides financial assistance through the Fiscal Stabilization program to provinces that are facing significant year-over-year declines in their revenues resulting from extraordinary economic downturns. The Government of Canada assessed Alberta's claim for the 2020-21 fiscal year and determined that the province was eligible to receive $577 million.  The payment was made on April 6, 2023.

Quebec Abatement (-$7.4 billion): Offsetting amounts to reflect the reduction in federal tax collected for the Youth Allowances Recovery and Alternative Payments for Standing Programs in the 1960s and 1970s.

Pollution Pricing Framework and Climate Action Incentive

Issue

The federal government must return all direct proceeds from the federal pollution pricing system within the jurisdiction where they were collected.

Key points

• The fuel charge proceeds collected and returned within a given fiscal year are usually not equal in the Public Accounts due to timing considerations. For example:
  • Climate Action Incentive (CAI) payment amounts are based on estimated total fuel charge proceeds.  Any discrepancies in projected versus actual fuel charge receipts and CAI payments is made up by adjusting CAI payments in subsequent years.
  • Most significantly, fuel charge amounts in respect of a given fuel charge year to be returned through federal programming are expected to be returned over multiple years due to program administration considerations.
• ECCC is co-developing solutions to return 1% of fuel charge proceeds to Indigenous groups, and developing a separate program to return the remaining 9% of proceeds to emissions-intensive, trade-exposed SMEs.
• The government also reports the source and disposition of carbon pricing proceeds in the annual Greenhouse Gas Pollution Pricing Act (GGPPA) Report.
• The GGPPA Annual Report in respect of the 2022-23 fuel charge year is expected to be tabled in the coming months.

Anticipated Questions and Answers

1. Why are the proceeds returned lower than the proceeds collected in the 2022-23 Public Accounts?

   • Generally, we would not expect all proceeds collected in a fiscal year to be returned in the same fiscal year.
   • Climate Action Incentive (CAI) payment amounts, through which the government returns about 90 per cent of proceeds to individuals and families in jurisdictions where the federal fuel charge applies, are specified in advance of the fuel charge year based on estimates.
   • As actual proceeds and the total amount of proceeds returned in a specific jurisdiction through CAI payments may differ from estimated levels, adjustments are made through changes in future CAI payment amounts.
   • This ensures that direct proceeds are fully returned to the jurisdiction of origin over time.
   • In 2022-23, total pollution pricing proceeds collected were $8.041 billion, of which $7.74 billion were from the fuel charge and $0.3 billion from excess emissions charges (from the Output-Based Pricing System or OBPS). By comparison, a total of $6.995 billion pollution pricing proceeds were returned in 2022-23 (see table at the end of this note).
   • With respect to proceeds that have been collected but have yet to be disbursed (roughly $1 billion in 2022-23), the vast majority will be returned to small and medium sized enterprises, and to Indigenous groups, once programming in these areas has been finalized by ECCC.

2. Why is the difference between the proceeds collected and returned so different between 2021-22 and 2022-23?

   • For 2022-23, the amount of fuel charge proceeds returned shown in the Public Accounts reflect a significant increase when compared to 2021-22.
   • This almost entirely reflects the change in the delivery of CAI payments from an annual refundable credit on personal income tax returns, to a quarterly benefit, starting in July 2022. 
   • CAI payments are now made entirely within the fuel charge year to which they pertain.
   • In contrast, fuel charge proceeds returned in 2021-22 reflected only about 70% of CAI payments for the 2021-22 fuel charge year (delivered through 2020 tax returns filed on/after April 1, 2021). The other 30% of CAI payments for the 2021-22 fuel charge year (delivered through 2020 tax returns filed before April 1, 2021) were reflected in the 2020-21 fuel charge year.

3. Why are the aggregate amounts in the Public Accounts always different from the aggregate amounts in the Greenhouse Gas Pollution Pricing Act (GGPPA) Annual Report (the "Report")? 

   • The bases of reporting fuel charge proceeds collected and returned (e.g., via CAI payments) are different in these two documents.
   • The GGPPA Annual Report attributes these amounts to the fuel charge year (i.e., April 1 to March 31) to which they relate.
   • The Public Accounts attribute these amounts to the fiscal year in which they were assessed.
   • If for example, a fuel distributor's fuel charge amount in respect of March 2021 was reassessed in fiscal year 2022-23, it would be reflected in the total amount of fuel charge collected in the Public Accounts for 2022-23. In contrast, it would be reflected in the 'net carry-forward from prior years' shown in the forthcoming 2022 GGPPA Annual Report.

4. The government recently announced a temporary removal of the fuel charge on heating oil. Why is the fuel charge not also being temporarily removed from all heating fuels, including natural gas or propane?

   • Carbon pricing is recognized as one of the most effective ways to fight climate change while making life more affordable for Canadians.
   • The carbon price is intended to apply to a broad set of emission sources.
   • The proposed removal of the fuel charge for light fuel oil used as heating is temporary. This will provide additional support for households to switch to cleaner technologies, such as heat pumps.

5. When does the fuel charge apply again to heating oil?

   • The fuel charge will be removed from deliveries for the next three full fiscal years up to March 31, 2027.
   • As of April 1, 2027, deliveries of light fuel oil for use as heating oil will once again be subject to the applicable fuel charge at that time – 33.42 cents per litre.

6. What will be the impact on CAI payments of suspending the carbon price on heating oil for three years?

   • CAI payment amounts for 2023-24, which are already being paid out, will not be impacted by the announcement to suspend the carbon price on heating oil for three years.
   • As this temporary suspension will impact the amount of proceeds collected, it will reduce future CAI payment amounts as there will be fewer proceeds to return.
   • The impact will vary by province depending on the prevalence of light fuel oil that is used to heat a home or building. It is nonetheless estimated that with the temporary suspension, in combination with the proposed increase in the rural supplement for the CAI payment from 10 per cent to 20 per cent, eight out of ten Canadians in provinces where the federal system applies will continue to get more money back through the CAI payments than they pay as a result of the carbon price.
   • CAI payment amounts for 2024-25 will be announced by the Deputy Prime Minister and Minister of Finance in the coming months.

7. The government recently announced its intention to double the rate of the CAI payment rural supplement, increasing it from 10 per cent to 20 per cent of the basic amount starting in April 2024. Where do the funds for the increased rural supplement come from?

   • CAI payments, including the rural supplement, are fully sourced from carbon pricing proceeds. This will continue to be the case in 2024-25, when the rural supplement rate is proposed to increase to 20 per cent.
   • While final decisions about fuel charge proceeds allocations are yet to be made, as noted by the Prime Minister on October 26, at least part of the increase in the rural supplement is expected to be financed by an offset to the fuel charge proceeds envelope for small and medium-sized enterprises.
   • More information on the 2024-25 CAI payment amounts by province will be provided when the Deputy Prime Minister and Minister of Finance announces the amounts in the coming months.

8. When will the 2023-24 payment rate for the Return of Fuel Charge Proceeds to Farmers Tax Credit be announced?

   • Payment rates for the Farmers Tax Credit are specified by the Deputy Prime Minister and Minister of Finance. There is currently no payment rate in respect of the 2023-24 fuel charge year.

Background

In jurisdictions that request the federal system and its proceeds, and commit to not negating the carbon price signal – Prince Edward Island (OBPS only), Yukon and Nunavut – proceeds are returned directly to the government.

In other jurisdictions where the backstop was imposed in 2022-23 (this included Ontario, Manitoba, Saskatchewan, and Alberta), about 90 per cent of fuel charge proceeds is returned directly to households through CAI payments. The remaining fuel charge proceeds (about 10 per cent) are returned to certain sectors in these provinces through other federal mechanisms, including programming. Proceeds from the federal OBPS in these jurisdictions are returned via federal programing. Note that for the 2023-24 fuel charge year, the proportions returned have been fixed specifically (90 per cent for CAI payments, 9 per cent for federal programming and 1 per cent for Indigenous groups; these percentages are applied to total proceeds *redacted*.

Public Debt Charges

Issue

Public debt charges continue to increase due to higher interest rates, with $35 billion recorded in the 2023 Public Accounts, or 1.2 per cent of GDP.

Key points

• Based on the most recent private sector survey as noted in the Fall Economic Statement 2023 outlook, public debt charges are expected to reach $46.5 billion in 2023‑24, or 1.6 per cent of GDP, primarily reflecting the impact of higher interest rates.
• By the end of the forecast horizon in 2028-29, public debt charges are projected to reach $60.7 billion, or 1.7 per cent of GDP. 
• By historical standards, public debt charges remain low. For comparison, public debt charges peaked at 6.5 per cent of GDP in the early 1990s and were 2.1 per cent of GDP in 2007-08 before the financial crisis.

Background

• Public debt charge forecasts have been revised upwards since Budget 2023, owing primarily to higher short- and long-term interest rates as forecasted by private sector economists, as well as higher inflation impacts on Real Return Bonds in 2023-24 and 2024-25. 

• According to the September Fiscal Monitor, public debt charges for the first half of fiscal year 2023-24 were $23 billion.

Department of Finance Significant Balances and Sensitive Transactions

Issue

The information outlined below is disclosed in the 2023 Public Accounts of Canada as a balance and/or transaction for the Department of Finance.

Significant balances: the Department of Finance's Foreign Exchange Account balances are significant for the Government of Canada. A high level variance analysis and summary of recent accounting policy changes is enclosed.

Sensitive transactions: highlighting topical information disclosed in the Public Accounts of Canada, specifically related to the Department of Finance.

Background

Some Department of Finance transactions in the Public Accounts are sensitive due to public interest (procurement of professional and special services, losses, an ex gratia payment, and Minister's travel expenditures), or the potential dollar value impact to the department (contingent liabilities). The department has controls in place to reduce the risks associated with these transactions. The best estimate of the potential liability related to the department's contingent liabilities had been assessed as nil by legal counsel.

Impact of Changes in Accounting Policy and Adoption of PS 3450 Financial Instruments (Volume I p. 70-72)

• Public Sector Accounting Board Standard PS 3450 Financial Instruments became effective on April 1, 2022, with no prior period restatements. The total impact of adoption on April 1, 2022, for the Department of Finance, after removing the impact of the Bank of Canada Indemnity agreement, which gets eliminated at the consolidated level, was $1.9 billion of accumulated net remeasurement losses related to cross-currency swaps.
• Derivatives, specifically cross-currency swaps and foreign exchange forward contracts, are now measured at fair value (previously measured at cost).
• Interest revenue and expenses are determined using the effective interest method (EIM). The EIM allocates interest revenue and expenses over the life of the related instrument.
• A new statement is required in the Public Accounts, the Consolidated Statement of Remeasurement Gains and Losses (SORGL), which records the remeasurement gains and losses for derivatives. Accumulated remeasurement gains and losses, along with the accumulated operating deficit, form the accumulated deficit reported in the Statement of Financial Position.

Foreign Exchange Accounts (Volume I p. 102-104, 293-305)

The Department of Finance has foreign exchange account assets and liabilities on the Department's Statement of Financial Position, presented separately on a gross basis. In prior fiscal years, assets and liabilities were presented net. The change in presentation was made to enhance comparability in the Statement of Financial Position. The presentation change resulted in a reclassification adjustment of $42 billion. No change to the accumulated deficit resulted from the reclassification.

The foreign exchange accounts represent the largest component of the official international reserves of the government. In 2023: 

• Foreign exchange account assets increased by $23.1 billion (+15.8%; 2023 - $169.4B; 2022 -  $146.3B).
• Foreign exchange account liabilities increased by $1.9 billion (+4.5%; 2023 - $44.2B; 2022 - $42.3B).

Contingent Liabilities (Volume I p. 416-422)

Guarantees (Volume I p. 416-420)

The Department of Finance has two loan guarantees and one insurance program guarantee. As at March 31, 2023, there were no provisions for loss made and all guarantees remained in good standing.

• The loan guarantee to the International Bank for Reconstruction and Development (re: Republic of Iraq) balance increased by $11 million (+7.4%; 2023 - $159M; 2022 - $148M) due to changes in the CAD-USD foreign exchange rates.
• The loan guarantee to the European Bank for Reconstruction and Development (re: Naftogaz) was new in Q3 2023 (202 - $53M; 2022 - nil)
• The Mortgage or Hypothecary Insurance Protection Program's exposure increased by $3.5 billion (+1.4%; 2023 - $261.2B; 2022 - $257.7B) based on changes in the outstanding mortgage balances held by insurers under the program.
• International Organizations – Callable Share Capital (Volume I p. 421)
• No new callable share capital was subscribed to during 2023. The balance increased from 2022 by $951 million (+7.9%; 2023 - $12,972M; 2022 - $12,021M) entirely due to foreign exchange fluctuations as share capital for Multilateral Development Banks are denominated in foreign currencies (USD and EUR).

International Organizations – Callable Share Capital (Volume I p. 421)

No new callable share capital was subscribed to during 2023. The balance increased from 2022 by $951 million (+7.9%; 2023 - $12,972M; 2022 - $12,021M) entirely due to foreign exchange fluctuations as share capital for Multilateral Development Banks are denominated in foreign currencies (USD and EUR).

Losses of Public Money and Property (Volume III p. 142-166)

• The Department of Finance had losses of public money totalling $7,753 (2022 – nil) due to unauthorized use of corporate acquisition cards. The entire amount was recovered. Unauthorized use was either due to compromised cards (amounts fully recovered by the credit card company), or accidental use by employees (recovered from employees via cheque). Consequently, the Department has implemented enhanced controls, training, and oversight.
• Two cell phones, five computers, and one other electronic device was stolen totaling $7,367 (2022 -  one computer valued at $1,655). For stolen phones, the Department securely wipes data. For stolen computers, the Department remotely changes all passwords and monitors to ensure that no unauthorized logins are detected.
• The Deputy Minister's vehicle was stolen ($51,969) while on travel status (2022 – nil). The entire value of the loss was recovered by insurance. Security measures are being considered internally to mitigate the risk of future loss.
• In the normal course of business, there were accidental losses, destruction or damage to cell phones (2023 - 36 valued at $34,295; 2022 - 40 valued at $33,995), computers (2023 - 43 valued at $49,531; 2022 - 20 valued at $32,448) and other electronics (2023 - 85 valued at $9,365, 2022 - 135 valued at $16,060).

Ex gratia Payments (Volume III p. 221-223)

• Total Government of Canada ex gratia payments were $244 million in 2023. Of this, the Department of Finance issued a payment of $191.6 million (2022 - nil), 78.5% of total Government of Canad balance, to the Province of Newfoundland and Labrador for the 2021 Net Profit Interest and Incidental Net Profits Interest Net Revenues from the Hibernia offshore oil project (Volume III p. 222). 

Professional and Special Services (Volume III p. 168-175)

Professional and special services operating expenditures for the Department of Finance increased by 53% ($5.5 million) from $10.4 million in 2022 to $15.9 million in 2023. The most significant variances are as follows:

• The increase attributable to services from Other Government Departments (OGD's) is $3  million (2023 - $9.4M; 2022 - $6.4M), including a $1.7 million increase in legal services charges from the Department of Justice required for the Public Order Emergency Commission of Inquiry file (final report is published publicly), $0.7 million increase in internal support services from the Treasury Board Secretariat pursuant to section 29.2 of the Financial Administration Act, and a $0.4 million increase in informatics services from Shared Services Canada.
• The largest external vendor for professional and special services in 2023 is related to a contract to improve the Department's Electronic Documents and Records Management Solutions (EDRMS) (2023 - $0.7 million, 2022 - nil).

An error was identified in the number of payees (vendors) with expenditures under $100K (Volume III, section 3, p. 25-26). The count of payees was overstated. This error was communicated to the Receiver General and Office of the Comptroller General on November 20, 2023. The error had no impact on the dollar value of professional services expenses reported.

Minister's Office Expenditures (Volume III p. 266-275)

• The office expenditures for the Minister of Finance increased by $0.7 million (28%; 2023 - $2.5 million; 2022 - $1.8 million) primarily due to an increase in costs related to personnel and as a result of all pandemic-related travel restrictions being lifted and government operations returning to normal.

• The Associate Minister of Finance's office expenditures in 2023 ($0.45 million) were mostly allocated to personnel costs of $0.4 million. Office expenditures were minimal in 2022 ($15,478) due to the fact he was appointed Associate Minister in December 2021.
• Only expenditures charged to the Department of Finance budget are reported in the Department's Public Accounts. Since the Minister's have dual roles, additional expenditures for the Deputy Prime Minister and Minister of Finance were charged to the Privy Council Office (PCO) budget and reported separately. Similarly, additional expenditures for the Minister of Tourism and Associate Minister of Finance were charged to the Innovation, Science and Economic Development Canada (ISED) budget and reported separately.

Travel Expenses of Ministers and Parliamentary Secretaries and International Travel Expenditures of Ministers, Parliamentary Secretaries, and Ministers' Staff (Volume III p. 278-282)

• Travel expenditures returned to normal (pre-pandemic levels) in 2022-23, after an abnormally low amount of travel in 2021-22 as a result of the COVID-19 pandemic.

Asian Infrastructure Investment Bank

Issue

On June 14, 2023, the Deputy Prime Minister and Minister of Finance asked the Department of Finance to review allegations made against the Asian Infrastructure Investment Bank (AIIB) by a former Canadian senior manager at the bank. The Deputy Prime Minister also announced that Canada was halting all activities with the AIIB, pending the outcome of this review.

Key points

• On June 14, 2023, the Deputy Prime Minister asked the Department of Finance to undertake an extensive review of the allegations raised and of Canada's involvement in the AIIB.
• This review is ongoing.
• At the same time, the Deputy Prime Minister announced that the Government of Canada was halting all government-led activity at the AIIB.
• With the review work ongoing, Canada will maintain its pause on engagement at the AIIB until further notice.

Background

• On June 14, 2023, the Deputy Prime Minister and Minister of Finance tasked the Department of Finance to lead an expeditious review of allegations raised by Bob Pickard, a former Canadian senior manager at the AIIB, and of Canada's involvement in the AIIB. At the same time, she immediately requested that Canada pause all its activity at the bank, pending the outcome of this review.
• The allegations, which were made publicly on Mr. Pickard's social media accounts, as well as in television/radio interviews and opinion pieces in various print media, argued that: 1) "the AIIB is dominated by Communist Party Members"; 2) "the AIIB has one of the most toxic cultures imaginable"; 3) "Canadian interests are not served by its AIIB membership".
• The Department of Finance, working with partners across the federal government, including Canada's national security agencies, has undertaken a review of both the allegations raised and Canada's involvement in the AIIB. To date, this internal review has included consultations with many of Canada's closest partners, which are also members of the Bank. This internal review is ongoing.
• The House of Commons' Special Committee on the Canada–People's Republic of China Relationship is expected to invite the Deputy Prime Minister and Minister of Finance, Mr. Pickard and Finance officials to appear before the committee to provide an update on the review in the first half of December 2023.

Budget 2023 Spending Reductions – RGS and RPAS

Issue

Budget 2023 identified $15.4 billion in savings over the next five years, starting in 2023-24, from Refocusing Government Spending (RGS), and savings of $6.4 billion over six years, starting in 2022-23, by "realigning previously announced spending."

The Fall Economic Statement (FES) 2023 announced that the government will extend and expand its Budget 2023 RGS efforts through Responsible Government Spending, with additional savings of $346 million in 2025-26, and $691 million ongoing (total of $2.4 billion over the FES 2023 forecast horizon).

The President of the Treasury Board is overseeing the implementation of RGS in respect of appropriated entities. On November 9, 2023, the President tabled the Supplementary Estimates (B), 2023-24, which included details on $500 million in travel and professional services reductions by organization for 2023-24. These are the only reductions required for 2023-24.

As outlined on Treasury Board Secretariat's (TBS) website, the 2024–25 Main Estimates, which will be tabled in Parliament by March 1, 2024, will list reductions related to RGS for all organizations subject to the exercise. Departments will report on their specific reduction plans and progress through their Departmental Plans and Departmental Results Reports.

Separately, FES 2023 also proposes targeted reductions to previously announced spending where funds remain unallocated or are no longer required, or to delay where the pace of implementation is slower than originally envisioned. This will result in savings of $480 million over six years, starting in 2023-24. These savings are in addition to the $6.4 billion over six years announced in Budget 2023. 

Further updates on the government's efforts in Budget 2023 and FES 2023 to realign previously announced funding will be available in the Estimates and Departmental Plans over the course of the 2023-24 fiscal year.

Key points

Budget 2023 announced a Refocusing Government Spending measure to achieve savings of $15.4  billion over 5 years beginning in 2023-24, and $4.5 billion ongoing. This includes three areas:

• spending on consulting, professional services and travel ($7.1 billion over 5 years, $1.7 billion ongoing);
• reducing eligible spending by federal departments and agencies by 3 per cent ($7.0 billion over 5 years, $2.4 billion ongoing); and,
• working with enterprise Crown corporations so that they refocus their spending by a comparable amount to departments and agencies ($1.3 billion over 5 years, $450 million ongoing).

When combined with the actions announced in the 2023 FES, the government will be saving $4.8 billion per year in 2026-27 and ongoing from public service efficiencies. The $4.8 billion figure referenced in FES text does not include the $450 million ongoing for Crowns as this is focused on the federal public service.

For the Budget 2023 exercise, Ministers, who know their organizations best, have submitted assessments of where reductions can be implemented within their portfolio to the President of the Treasury Board. These proposals are now under consideration by Treasury Board (TB), and more information will be available in the 2024-25 Main Estimates by March 1, 2024. Departments will detail progress and plans in their Departmental Plans and Departmental Results Reports.

For the expansion of the Budget 2023 exercise, announced in FES 2023, further details will be provided at a later date, as the reductions will only start two years from now (in 2025-26). Delivering on the remaining Budget 2023 savings (savings in 2024-25 and beyond) is the current priority.

In addition to the broad-based measures, Budget 2023 and FES 2023 announced that targeted realignments would be made to ensure that resources are allocated to their best possible purpose. This includes, for example, where program roll-out or take-up was slower than planned. These adjustments will be reflected in the Estimates process.

Anticipated Questions and Answers

1. How are the reductions being implemented at enterprise Crown corporations and when will further information on reductions to these organizations be provided?

   (Finance lead on questions) The government continues to work with enterprise Crown corporations so that they too do their part to refocus their spending by a comparable amount to departments and agencies and deliver annual savings of $450 million by 2026-27. Details on how Crown corporations are implementing reductions will be communicated in their corporate plan summaries. Notably, the Business Development Bank of Canada recently released its Corporate Plan summary detailing efficiencies of $31 million by 2027.

2. FES 2023 announced that the government's additional savings targets will return the public service closer to its pre-pandemic growth track. What is this track? Will there be any reductions to the public service from the Budget 2023 or FES 2023 broad-based savings measures?

   There will continue to be growth in the government. It is expected that natural attrition and internal redeployments will offer flexibility to manage possible reductions to employment.

   Spending reductions introduced in the FES phase start in 2025-26. This was deliberate to give departments and agencies time for human resources planning.  

   New initiatives, including those that were announced in Budget 2023 and in the FES 2023 tabled on Tuesday November 21, will provide opportunities for the redeployment of employees to deliver on priorities for Canadians.

   Responsive on growth rates

   With respect to the pre-pandemic growth track, for illustration, between 2015 and 2020, the compounded annual growth rate of the federal public service was 3.0 per cent. Between 2020 and 2023, this was closer to 6.0 per cent.

   Departments are not funded for specific positions and can find efficiencies within their broader funding base.

Background

Professional Services and Travel

For the reduction to spending on consulting, other professional services, and travel, TBS is overseeing reductions at the organizational level. Further information on the 2023-24 reduction, totalling $500 million, was communicated in Supplementary Estimates (B) 2023-24, which was released on November 9, 2023.

Reducing Government Spending

In applying the 3 per cent reduction to eligible spending by government departments and agencies by 2026-27, departments will be guided by the principles of not impacting: direct benefits and services to Canadians; direct transfers to other orders of government and Indigenous communities; and the Canadian Armed Forces. The initiative excludes Agents of Parliament and small organizations.

Departments and agencies were only reviewing discretionary spending. Anything where there was a legal or quasi-legal obligation to pay was removed. For example, statutory spending and other payments that the government is obligated to make were removed from the eligible review base. Reductions when fully phased in are roughly 3 per cent, and will result in $2.4 billion in ongoing savings.

The reduction to departmental budgets will be implemented by TBS in collaboration with federal departments and agencies. Ministers and organizations' deputy heads, who know their organizations best, will implement the reductions. Each department was directed to look across their budget to see where savings could be found (*redacted*). Ministers were to submit proposals to the President of the Treasury Board by October 2, 2023, for consideration by Treasury Board. Further information will be communicated in the 2024-25 Main Estimates by March 1, 2024.

Crown Corporation Spending Reductions

The government will work with enterprise Crown corporations so that they too do their part to refocus their spending by a comparable amount to departments and agencies. Results will be communicated in corporate plan summaries by affected Crown corporations.

Targeted Funding Reductions - Realigning Previously Announced Spending (Budget 2023) and Responsible Investments to Meet the Current Needs of Canadians (FES 2023)

Through adjustments to previously announced spending, Budget 2023 and FES 2023 further the government's commitment to responsibly manage Canadians' tax dollars and helps to ensure that resources remain allocated to their best possible purpose.

For example, if a program is taking longer to stand up than originally anticipated (e.g., because of unforeseen delays), delaying funding to meet the pace of implementation means that resources in the near-term can be directed toward other priorities. Similarly, if demand is lower than expected, funding that is no longer needed can instead be put towards programs that are more important to Canadians.

The government will report on the realization of these savings through the Estimates process.

Canada Growth Fund

Issue

The Government of Canada has established the Canada Growth Fund (CGF), a $15 billion arm's length public investment vehicle that will help attract private capital to invest in low carbon projects, technologies, businesses, and supply chains.

Key points

• CGF is using financial instruments to absorb certain risks, like concessional equity or debt, contracts for difference, anchor equity and offtake contracts, in order to encourage private investment in low carbon projects, technologies, businesses, and supply chains.
• CGF and PSP Investments are negotiating an investment management agreement (IMA) and statement of investment principles (SIP) that will govern PSP Investments' management of CGF investments.
• In the interim, PSP Investments has seconded a team to CGF. This team has begun meeting with companies and project proponents to develop a project pipeline and negotiating initial transactions.
• On October 25, 2023, CGF announced its first investment, a $90 million equity investment in Calgary-based Eavor Technologies Inc., a Canadian geothermal energy company that has developed an innovative technology solution to produce clean, reliable baseload heat and power using a proprietary closed loop geothermal system.

Anticipated Questions and Answers

1. How will the CGF contribute to Canada's clean energy plans in the context of the North American Energy Transformation?

   CGF's strategic objectives include (i) to capitalize on Canada's resource endowment and strengthen critical supply chains; and (ii) to accelerate the deployment of key technologies, such as low-carbon hydrogen, which may be used as a source of clean energy.

   As such, CGF's investments will contribute to Canada's clean energy plans by, for example, enabling the domestic production of clean energy, critical materials (e.g., minerals) or components (e.g., batteries).

2. How will the CGF help Canada respond to the U.S. Inflation Reduction Act?

   CGF can use financial instruments to mitigate the risks that hinder private investment in less mature technologies needed for a lower-carbon economy. As such, CGF is an important part of Canada's tools to respond to the Inflation Reduction Act, ensuring that we keep attracting private capital to grow Canada's low-carbon economy. CGF is intended to complement other government initiatives such as the Net Zero Accelerator or tax policies that incent investment by offering distinctive financing solutions. More specifically, CGF aims to: (i) invest at the scale-up stage; (ii) offer innovative forms of concessional financing; (iii) be managed by a team of experienced investment professionals; and (iv) focus on private projects and companies.

3. What is the status of the consultation on the development of a broad-based approach to carbon contracts for difference announced by the government?

   One of the financial tools the CGF is providing to support clean growth projects is contracts for difference—including contracts on the future price of carbon credits. Carbon contracts for difference will strengthen Canadian carbon markets and will provide predictability to businesses in order to de-risk important emission-reducing projects.

   Since Budget 2023, the federal government has been consulting on a broad-based approach to carbon contracts for difference complementary to the offerings of the Canada Growth Fund. Federal accounting authorities have undertaken work on the accounting recognition of broad-based carbon contracts for difference. Contracts of these types, with a high strike price, could expose the government to significant fiscal risks and require upfront recognition of potential costs.

   The 2023 Fall Economic Statement announced that the Canada Growth Fund will be the sole federal entity issuing carbon contracts for difference. *Redacted*.

Canada Pension Plan and Alberta

Key points

• Any province may withdraw from the CPP with three years written notice, passage of provincial legislation enacting the transfer of liabilities and provision of benefits, and a federal regulation recognizing comparability with the CPP.
• The CPP legislation sets out the formula under which the federal Minister of Finance is to transfer assets to the exiting province. The asset transfer amount is not subject to negotiations or approval by provinces.
• The calculation and transfer of existing pension liabilities, and pension assets related to those liabilities, is not clearly laid out in the legislation. These provisions were designed for a "pay-as-you-go" pension plan, with the reforms of the 1990s significantly altering the financing of the CPP by allowing a significant portion of benefits to be prefunded.
• A separate provincial pension plan would mean that Albertans would no longer enjoy the same economies of scale, pooling of risk, and investment advantage that is currently available through the CPP.
  • Risk pooling allows for lower premiums over time. For example, one of the risks pooled in the CPP are demographic (i.e., younger populations subsidizing older populations). Migration patterns within Canada can quickly alter the demographics of a particular region but that risk is mitigated in a national plan. That sort of protection would be lost if Alberta left the CPP to establish its own provincial pension plan.
• If Alberta were to set up its own pension plan, it would have to staff and set up systems to collect contributions, deliver pension benefits and manage investments.
• The CPP Investment Board has a legislated mandate and changing it (e.g., to also act as investment manager for an Alberta pension plan) would require the approval of the Parliament of Canada and seven out of ten provinces representing at least two-thirds of the population.

Background

• On September 21, 2023, Premier Danielle Smith and Minister Nate Horner released the findings of an actuarial report by Lifeworks that suggests Alberta would be entitled to around 53 per cent of Canada Pension Plan (CPP) assets ($334 billion in 2027), which would allow an Alberta pension plan to have a lower contribution rate while providing similar benefits as the CPP.
  • An engagement panel, chaired by former Alberta Finance Minister Jim Dinning, will report back to the Alberta government in May 2024.
  • Alberta will also introduce legislation this fall dictating that Alberta would only withdraw from the CPP if it was supported in a referendum and that an Alberta Pension Plan would need to provide the same or better benefits as the CPP for the same or lower contributions.
  • Alberta has invited the federal government to provide their own actuarial analysis and interpretation of the withdrawal formula in the CPP legislation.
• A meeting between the federal, provincial, and territorial Ministers of Finance took place on November 3 to discuss Alberta's potential exit from the CPP. Most Ministers expressed support for the CPP *redacted*.

Legislative Framework for a Provincial Exit

• Under Section 3 of the CPP legislation, any province may withdraw from the CPP as long as three conditions are met, consistent with constitutional provisions:
  • a 3-year notice in writing stating its intent to transfer liabilities of the CPP to a provincial pension plan;
  • provincial legislation enacting the transfer and provision of benefits, including assumption of liabilities; and
  • a federal regulation recognizing comparability with the CPP.
• Section 113 of the CPP legislation sets out the formula under which the Minister of Finance is to transfer assets to the exiting province. The Minister of Labour and Seniors would issue the Order in Council recognizing comparability and negotiate the agreement with the departing province on behalf of the CPP.

Basic Information on the Canada Pension Plan

• As of 2019, the Canada Pension Plan consists of two parts:
  • The base (or original) CPP, which began in 1966 and is partially funded; and
  • The CPP enhancement, which began in 2019 and acts as a top-up to the base.

Box: CPP Facts

Total CPP contributions (2022): $64.6 billion

Number of contributors (2022): 15.2 million

Total CPP benefits (2022): $52.9 billion

Number of beneficiaries (2022): 6.4 million

Operating expenses (2022): $2.3 billion (4.36% of benefits)

Current assets (CPPIB – March 31, 2023): $570 billion

Clean Economy Investment Tax Credits

Issue

As part of Canada's plan to build a clean economy, the federal government has announced five new investment tax credits (ITCs) aimed at spurring the transition to a low-carbon economy. These include: the Carbon Capture, Utilization, and Storage (CCUS), Clean Technology, Clean Hydrogen, Clean Technology Manufacturing and Clean Electricity ITCs.

Key points

• The 2023 Fall Economic Statement announced the delivery timeline for the Clean Economy ITCs.
• The 2023 Fall Economic Statement also announced that certain electricity and heat generating systems using waste biomass would be eligible for the Clean Technology and Clean Electricity ITCs, as well as additional design details for the Clean Hydrogen ITC.
• The development of the ITCs is proceeding along different timelines, which partially reflects the staggered coming into force dates.
• Enabling legislation and regulations need to receive royal assent before the ITCs can be claimed by investors.
• ITCs will then be available retroactively based on their coming into force dates.
• The government recognizes the importance of finalizing remaining design details and enacting legislation as soon as possible.

Anticipated Questions and Answers

1. Have the costs of the Clean Economy ITCs been accounted for in the recent 2023 Public Accounts?

   The Clean Economy ITCs have not been accounted for in the 2023 Public Accounts, which was tabled on October 24, 2023, and account for the 2022-23 fiscal year. The Clean Economy ITCs will be accounted for in the Public Accounts once they receive Royal Assent and start being claimed.

2. Is Canada providing enough support, considering the IRA in the U.S.?

   Analyses show that Canada's clean economy jobs plan is competitive with both the U.S. and the EU.

   Investment decisions by project proponents will account for the full range of policies, including to tax support, credits, programs, and market advantages specific to Canada.

   Overall, it is estimated that public investments in the clean economy represented 4.6 per cent of 2022 GDP in Canada, compared to 4.7 per cent in the US for the IRA and 3.7 per cent in the European Union.

Background

Since 2015, the federal government has committed over $120 billion to clean growth and emissions reduction measures, including over $80 billion in respect of five new investment tax credits.

The Carbon Capture, Utilization and Storage Investment Tax Credit was announced in Budget 2021 with design details being proposed in Budget 2022.

• From 2022 through 2030, the credit rate would be set at 60 per cent for investment in equipment to capture CO2 in direct air capture projects; 50 per cent for investment in equipment to capture CO2 in all other CCUS projects; and 37.5 per cent for investment in equipment for transportation, storage, and use equipment.
• Budget 2023 introduced further enhancements to the tax credit, including an expansion of eligible equipment and the addition of B.C. as an eligible jurisdiction.
• The tax credit would be available to businesses that incur eligible CCUS expenses on or after January 1, 2022, with credit rates reduced by 50 per cent over the period from 2031 through 2040. The tax credit is no longer available after 2040.
• A legislative proposal was released for public consultation in August 2023, and the government is reviewing submissions received which will inform the finalization of the legislation.
• Once legislated, the tax credit will be retroactively available to businesses that have incurred eligible expenses, as of January 1, 2022.

The Clean Technology Investment Tax Credit was announced in the 2022 Fall Economic Statement.

• Represents a 30-per-cent refundable ITCs for business investments in certain electricity generation equipment, stationary electricity storage, low-carbon heating, and non-road zero-emission vehicles and related charging and refueling infrastructure.
• Budget 2023 further announced the expansion of eligibility to include certain geothermal energy equipment.
• Legislative proposals were released for public consultation in August 2023. The government is reviewing the submissions received, which will inform the finalization of the legislation.
• Once legislated, the tax credit will be retroactively available to businesses that have incurred eligible expenses, as of March 28, 2023.
• The 2023 Fall Economic Statement announced another expansion of eligibility to include certain systems that produce electricity, heat, or both from waste biomass.

The Clean Hydrogen Investment Tax Credit was first proposed in the 2022 Fall Economic Statement, with key design features announced in Budget 2023.

• This includes varying levels of support between 15 and 40 per cent of eligible projects costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support, and a 15 per cent tax credit for equipment needed to convert hydrogen into ammonia in order to transport the hydrogen.
• On June 6, the government launched consultations on Budget 2023 measures to grow the clean economy to help develop their design details, including for the Clean Hydrogen ITC.
• The 2023 Fall Economic Statement provided design details related to clean ammonia equipment, the use of Power Purchase Agreements and other instruments, and details on compliance (including clarification of administrative roles).
• *Reacted*.

The Clean Technology Manufacturing Investment Tax Credit was announced in Budget 2023.

• Represents a refundable credit equal to 30 per cent of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals.
• On June 6, the government launched consultations on Budget 2023 measures to grow the clean economy to help develop their design details, including for the Clean Technology Manufacturing ITC.
• The government is working to finalize design details for the Clean Technology Manufacturing ITC and intends to release draft legislative proposals for the Clean Technology Manufacturing ITC later this year, with a view to introduce legislative proposals in Parliament in 2024.
• Once legislated, the tax credit will be retroactively available to businesses that have incurred eligible expenses, as of January 1, 2024.

The Clean Electricity Investment Tax Credit was announced in Budget 2023.

• Represents a refundable 15-per-cent ITCs to accelerate the investments needed to expand the capacity of our clean electricity grid.
• On June 6, the government launched consultations with Canadians on Budget 2023 measures to grow the clean economy to help develop their design details, including for the Clean Electricity ITC.
• The 2023 Fall Economic Statement announced an expansion of eligibility to include certain systems that produce electricity or electricity and heat from waste biomass.
• The government is working to finalize implementation details with a view to introduce legislative proposals in Parliament by the end of 2024. 

Budget 2023 announced that labour requirements would be attached to the following four ITCs: Clean Electricity; Clean Hydrogen; Clean Technology; and Carbon Capture, Utilization and Storage.

• To be eligible for the highest tax credit rates, businesses would need to pay covered workers prevailing wages and create apprenticeship opportunities.
• If the labour requirements are not met, then the credit rate would generally be 10 percentage points lower. Legislative proposals were released for consultation in August 2023.
• *Redacted*.

Housing Affordability

Issue

Federal investments in housing supply and affordability supports.

Key points

• No single measure will solve Canada's housing challenge. Building the homes that Canada needs will require a great national effort—and it is an effort that the federal government is leading.
• This includes through the National Housing Strategy—an $82 billion+ plan first launched in 2017 to create a new generation of housing in Canada, giving more Canadians a place to call home.
• Federal investments are already jumpstarting housing construction across the country. This year, federal investment in housing is $9 billion higher than it was in 2013-14. 
• The Fall Economic Statement builds on this foundation by proposing additional support to incentivize construction and protect renters and homeowners.

Anticipated Questions and Answers

1. How does the Fall Economic Statement get Canada closer to housing affordability?

   Among other actions, the Fall Economic Statement 2023 proposes:

   • $15 billion in loan funding for purpose-built rentals under the Apartment Construction Loan Program. This brings total program funding to over $40 billion, with the goal of supporting over 100,000 homes.
   • $1 billion in loan and contribution funding to help build affordable housing units under the Affordable Housing Fund. This brings total program funding to approximately $14 billion, with the goal of supporting 60,000 new housing units and renewing / repairing another 240,000.

   These actions build on recently announced measures, such as removing the Goods and Services Tax (GST) from new purpose-built rental housing projects and unlocking up to $20 billion in additional low-cost financing available for rental projects.

   This year, the government also launched the $4 billion Housing Accelerator Fund. To date, 10 agreements have been signed worth over $1.6 billion. Through these agreements, municipalities are breaking down local zoning barriers and creating the conditions that will help to rapidly increase Canada's housing supply.

Background

The National Housing Strategy includes the programs below. Amounts have been updated to reflect funding proposed in the Fall Economic Statement 2023. With these amounts, the Strategy would represent $98+ billion with goals including the creation of nearly 200,000 new housing units and repairing 300,000 housing units (not characterized as such in FES 2023).

The CMHC's Mortgage Insurance Fund

Issue

CMHC administers the government's mortgage insurance fund, providing insurance for a fee to private institutions involved in mortgage lending for Canadian housing.

Key points

• Government-backed mortgage insurance provides first-time homebuyers and other Canadians access to mortgage credit.
• The Minister of Finance sets the minimum standards for mortgage insurance, and various adjustments have been made to support the stability of the housing market.
• Mortgage insurance is provided on a commercial basis by CMHC and two private mortgage insurers, Sagen and Canada Guaranty.
• The Office of the Superintendent of Financial Institutions oversees the risk management practices of these financial institutions.
• Legislated limits exist for both CMHC-insured and privately insured mortgage loans, and these limits are in place to enable Parliament oversight of taxpayer exposure.
•  As of March 31, 2023, CMHC's insurance in force stood at $400 billion, well below the legislative limit of $750 billion.

Anticipated Questions and Answers

1. Why does the government guarantee the contracts of private mortgage insurers?

   • The Government guarantees the contracts of private mortgage insurers to help provide choice to lenders and facilitate competition in the housing market.
   • Private mortgage insurers provide an important buffer of private capital to draw from in the event of mortgage defaults before the Government steps in. 
   • Private mortgage insurers pay the Government of Canada for the guarantee they receive. These funds go into the Consolidated Revenue Fund and help to fund government programs. Private mortgage insurers pay the government for their guarantee ($33 million in respect of 2022).

Background

• The government has implemented several measures aimed at mitigating risks in the housing market and promoting long-term affordability and financial stability.
• In recent years, the government has introduced changes to the regulations for government-backed insured mortgages such as the mortgage stress test, debt serviceability limits, loan-to-value ratios, and maximum amortization periods. These changes are aimed at ensuring that Canadians only take on mortgages they can afford, and government-backed programs promote safer lending practices.
• The Office of the Superintendent of Financial Institutions (OSFI) also plays an important role. The mortgage insurers, including CMHC, follow OSFI's capital adequacy guidance, ensuring they maintain capital required to withstand economic and housing market downturns.
• The government aims to manage its exposure to the housing market, fostering competition and ensuring adequate access to housing finance for Canadians.
• The 'Mortgage Insurance Fund' properly refers to the government's public mortgage insurance, provided through CMHC. A separate legislation authorizes the Minister of Finance to guarantee mortgage loan contracts written by the two private mortgage insurers – Sagen and Canada Guaranty.
• CMHC administers two funds: The Mortgage Insurance Fund and the Mortgage-Backed Securities Guarantee Fund.

Major Battery Manufacturing Projects (Volkswagen, Stellantis-LGES, Northvolt)

Issue

In recent months, three high-profile electric vehicle battery manufacturing projects have been announced in Ontario and Quebec, which will be supported by federal-provincial cost-shared production incentives along with capital investment supports.

Key points

• The government is supporting these projects to establish a foothold in the rapidly growing electric vehicle battery supply chain.
• Canada and its partners in Ontario and Quebec have committed to providing production support for these three projects to match the Inflation Reduction Act's Advanced Manufacturing Production Credit in the United States.
  • Production incentives will apply only to the batteries that these companies produce and sell and will phase out by 25 percentage points every year beginning in 2030 (after 2032, the credit would be eliminated).
  • The agreements also have the flexibility to be adjusted if the terms of battery production incentives change in the U.S.
• These incentives are cost-shared, with the federal government paying for two-thirds of the cost of production incentives, and Ontario and Quebec each responsible for one-third the cost of production incentives in their provinces.

Anticipated Questions and Answers

1. What is the total cost to the government of matching U.S. production incentives?

   The final cost of production incentives will depend on actual production by the companies. Based on current estimates, the estimated federal cost of matching production incentives is $21.9 billion.

   *Redacted*.

   In addition, capital investment supports are estimated at up to $2.5 billion, which is accounted for through Strategic Innovation Fund programming administered by the Department of Innovation, Science and Economic Development.

2. What is the rationale for supporting such large levels of investment in electric vehicle battery manufacturing?

   These projects will help to position Canada at the forefront of rapid changes to the automotive sector, which supports over 500,000 workers, including nearly 100,000 auto plant workers, and contributes $16 billion annually to Canada's gross domestic product, and is one of the country's largest export industries.

   These actions are a direct response to the risk that investment will be drawn into the U.S. that would otherwise benefit Canada as a result of the generous incentives in the Inflation Reduction Act.

Background

Volkswagen (PowerCo)

On March 13, 2023, Volkswagen announced that it selected St. Thomas, Ontario, Canada, as the location to build the company's first overseas battery cell plant. The plant is a $7 billion project with employment expected to reach 3,000 jobs. The plant is forecast to be operational by 2027. Construction is set to begin in 2024.

The terms of production support for this facility were announced on April 21, 2023, which is comparable to what such a facility would receive in the U.S. under the Inflation Reduction Act (i.e., US$35 per kWh for battery cells). Volkswagen could receive an estimated $13.2 billion in performance incentives, of which one-third is to be paid by the Ontario government. The federal government is providing $700 million to support the capital costs of the facility through the Strategic Innovation Fund.

Stellantis-LGES (NextStar)

The NextStar facility, expected to be operational in 2025, is intended to supply Stellantis electric vehicle production across North America.

The NextStar project was agreed to prior to the introduction of the U.S. Inflation Reduction Act. However, given the generosity of production-based subsidies for sure projects in the U.S. under that legislation, production support was subsequently negotiated with the Government of Canada and Ontario government.

As confirmed on July 6, 2023, the federal government has agreed to provide the project with an incentive on a per unit production basis of up to US$45 per kWh (US$35 per kWh for battery cells and US$10 per kWh for battery modules). Production incentives are subject to an overall cap of C$15 billion, of which one-third is to be paid by the Ontario government. The federal government is providing $500 million to support the capital costs of the facility through the Strategic Innovation Fund.

Northvolt

On September 28, 2023, Northvolt Batteries North America confirmed its plans to build a new electric vehicle battery manufacturing facility in Saint-Basile-le-Grand and McMasterville, Quebec. The Northvolt project will have an annual battery cell manufacturing capacity of up to 60 GWh. The first 30-GWh phase of the project, valued at $7 billion in total investment, with employment expected to reach 3,000 jobs in the region as the plant reaches its full production potential. This first phase will also include facilities for cathode active material production and battery recycling.

As with previous battery manufacturing agreements in Ontario (PowerCo and NextStar) the Government of Canada and the Quebec government have committed to providing production incentives on a per unit basis of up to US$35 per kWh for battery cells. Production incentives are subject to an overall cap of C$4.6 billion, of which one-third is to be paid by the Quebec government. *Redacted*.

Public Information on the RBC/HSBC Transaction

Issue

• RBC is seeking the Minister of Finance's approval for the acquisition and amalgamation of HSBC Canada (HBCA). The transaction is subject to reviews by the Competition Bureau of Canada and the Office of the Superintendent of Financial Institutions (OSFI), with the final decision on the transaction resting with the Minister of Finance. The agreement between RBC and HSBC Global envisions the deal closing in the first quarter of 2024.

Key points

• From June 6 to July 21, 2023, the Department invited public comments on RBC's proposed acquisition of HBCA.
• On September 1, 2023, the Competition Bureau released a report to the Minister of Finance that concluded that RBC's proposed acquisition of HBCA would not raise concerns under the Competition Act.
• Ultimate approval of the transaction rests with the Minister of Finance, who has broad authority to assess the acquisition, including considering the best interest of the financial system in Canada. As part of an approval, the Minister may impose terms, conditions, or undertakings.
• The Minister will make a decision on the transaction in due course.

Anticipated Questions and Answers

• The Deputy Minister should not comment on any decision being made or contemplated by the Minister at this time.

Background

• On November 29, 2022, RBC entered into a share purchase agreement with HSBC Global for the acquisition of 100 per cent of the shares of HBCA for $13.5 billion.
• RBC is the largest bank in Canada and a global systemically important bank (GSIB) with extensive financial services activities and operations. As of July 31, 2023, RBC reported $1,958 billion in total assets, $112 billion in shareholders' equity and $1,178 billion in deposits.
• Headquartered in British Colombia, HBCA is Canada's seventh largest bank and the largest foreign-owned bank. As of July 31, 2023, HBCA reported assets of $121 billion, shareholders' equity of $6.3 billion, deposits of $88.5 billion and a 2023 Q2 profit of $218 million. It is a wholly owned subsidiary of HSBC Global, a British multinational GSIB whose strategy is now focussing on Asia.
• HSBC Global's decision to exit the Canadian market is part of their goal of focusing capital on the higher growth Asian market. As part of this strategy, HSBC Global has or is in the process of exiting from four other markets and is considering up to 12 additional exits in Europe and America.
• From June 6 to July 21, 2023, the Department invited public comments on RBC's proposed acquisition of HBCA.
• On September 1, 2023, the Competition Bureau released a report to the Minister of Finance that concluded that RBC's proposed acquisition of HBCA would not raise concerns under the Competition Act. The Bureau found that HBCA's competitive impact is limited, due its modest market penetration in most markets. However, the Bureau also notes that barriers to entry and expansion in the financial sector were found to be high because of regulatory requirements, reputation and trust, brand presence, significant customer switching costs and costs for branch and IT networks.
• The Bureau found that relevant banking markets have features that may facilitate coordinated behaviour among firms, however, HBCA does not act as a constraint on potential coordinated behaviour and therefore the transaction is unlikely to impact this risk.
• On November 1, 2023, the Standing Committee on Finance issued a report calling on the Minister of Finance to reject the merger or RBC and HSBC due to competition concerns. This report was introduced and endorsed by the committee's Conservative members and supported by the Bloc Québécois and NDP. Additionally, the Standing Committee on Industry and Technology passed a motion in May to study the acquisition in fall 2023; however, this study has not yet begun.

Trans Mountain Expansion

Issue

The Government of Canada has provided financing in support of the Trans Mountain Expansion Project (the Project). On March 10, 2023, TMC publicly announced a revised cost estimate for the Project of $30.9 billion. The Project is now more than 95 per cent complete, with less than 10 km of pipeline remaining to be built.

Key points

• The federal government acquired TMC and the Trans Mountain Expansion Project (the Project) in 2018 because we knew it was a serious and necessary investment—one that is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient.
• On March 10, 2023, TMC publicly announced a revised cost estimate of $30.9 billion and in-service date in the first quarter of 2024.
• As committed in February 2022, the Government will spend no additional public money on the Project going forward.
• TMC is responsible for securing the funding necessary to complete the Project with third-party financing or through capital markets. In July 2023, it upsized its loan facility with a syndicate of lenders, backed by a government guarantee, to $16 billion.
• The government will announce the next step toward Indigenous economic participation in the coming months.

If pressed:

• With more than 95 per cent of the Project built and significantly de-risked, there is no longer a need for the government to be financing the Project going forward.
• The Government loan guarantee is a common practice which puts in place an insurance policy for the institutions that have invested in the project. Loan guarantees for third-party financing do not increase the risk to Canadian taxpayers and do not represent new public money being spent on the project.
• The Government continues to work with TMC to progress its financing plans to complete the Project. More information will be made available through the usual reporting mechanisms. TMC's third quarter financials will also be posted on or around November 30. 

Anticipated Questions and Answers

1. Why did the federal government believe it was necessary to purchase TMC and TMEP in the first place?

   The federal government acquired Trans Mountain Corporation (TMC) and the Trans Mountain Expansion Project (TMEP) in 2018 because it is a serious and necessary investment that is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient.

   The key to creating prosperity is finding new markets for our businesses to sell their products and services. Nowhere is the need to diversify greater than for our energy sector, with nearly all of Canada's crude oil exports being sent to the United States—and often at large discounts.

   When complete, TMEP will ensure that Canada receives fair market value for its resources as we work to achieve net-zero by 2050. By creating thousands of well-paying Canadian jobs, the project today continues to be an important investment in Canada's economy.

2. Does the government agree the purchase was not a wise investment in hindsight, given the opportunity cost of spending dollars instead on clean energy infrastructure?

   BMO Capital Markets and TD Securities have been engaged by the government to provide advice on certain financial aspects of the project. Based on their analysis, they believe that, as of March 2023:

   • There is currently strong interest in high quality, operational infrastructure assets such as TMEP.
   • Both strategic and financial investors would participate in a divestment process to acquire the company once the project becomes operational.
   • TMC will be commercially viable upon project completion.

   Independent economic impact assessments have highlighted the additional benefits of TMEP in terms of gross domestic product (GDP), tax revenue, and job creation. For example, Ernst and Young's March 2023 assessment stated that:

   • During construction between 2018-2023, TMEP is estimated to contribute $52.8 billion in gross output, $26.3 billion in gross domestic product (GDP), including $11 billion in wages and more than 67,423 full-time equivalents (FTEs), and $2.9 billion in tax revenue.
   • After completion, EY expects that TMC's expanded operations will contribute $17.3 billion in gross output, $9.2 billion in GDP, including $3.7 billion in wages and more than 36,066 FTEs, and $2.8 billion in tax revenue over the next 20 years.
   • As announced by Minister Freeland in February 2022, the Government of Canada announced that it would spend no additional public money on the Project going forward, and we remain committed to this principle. Instead, TMC has secured third-party financing to fund the project's construction costs.

   (Responsive on loan guarantees): The Government has provided loan guarantees for the project, which do not represent new public money being spent on the project. TMC is paying a fee to the government for the loan guarantee.

3. How is TMC mitigating the project's environmental and cultural impacts?

   TMC is building the TMEP to the highest standards with respect to the protection of culturally and environmentally sensitive areas, with enhancements including: (i) a substantial increase in trenchless construction activity; (ii) significantly more mutual benefit agreements with Indigenous communities that provide enduring economic benefits; (iii) the installation of advanced leak detection systems; and (iv) new unplanned scope and route changes that avoid culturally and environmentally sensitive areas.

4. What are the benefits of TMEP for Indigenous communities?

   The TMEP is creating economic benefits for many Indigenous communities through contracting, financial compensation, and employment and training opportunities. TMC has (i) engaged with over 140 Indigenous groups; (ii) signed 81 agreements with Indigenous groups on the project corridor worth over $690 million to those communities; and (iii) generated over $4.8 billion in Indigenous-based contract awards.

5. How can the government justify the purchase given past and recent headlines on cost or scheduling overruns?

   During the construction of the TMEP, TMC has encountered a range of external events, some of which were beyond its control, and which have contributed significantly to cost escalation, including:

   • The COVID-19 pandemic.
   • Extreme weather events such as wildfires and catastrophic floods, including an extensive redeployment of resources into urgent community safety and recovery operations during the B.C floods
   • Global inflationary pressures and supply chain challenges.
   • Labour shortages and an increase in inexperienced labourers as markets tightened for skilled workers. 
   • Cultural preservation activities following significant archaeological discoveries through sacred spaces in the Lower Mainland that resulted in over 83,000 artifacts rightfully being returned to Indigenous communities for cultural protection.

   This cost escalation is not unique to the TMEP. TC Energy recently announced that similar factors have helped to drive up the costs of the Coastal GasLink pipeline project by 30 per cent to $14.5 billion.

   (If asked on total cost): The total project cost estimate continues to be $30.9 billion.

6. Can you comment on the ongoing process with the Canada Energy Regulator (CER) with respect to interim commencement date tolls?

   On June 1, TMC filed its application with the CER for interim tolls on the expanded Trans Mountain pipeline system. These tolls need to be in place before the pipeline begins operations.

   The Commission has laid out a two-step process whereby they will first issue a Preliminary Decision on whether the interim tolls are just and reasonable later this Fall. A decision on final interim tolls will follow sometime after oral hearings in September 2024

7. Can you comment on TMC's deviation application, to the CER, for Mountain 3?

   On October 31, TMC filed an application with the CER for a variance in construction for the horizontal directional drilling (HDD) through Mountain 3, in the Fraser Valley between Hope and Chilliwack, BC, citing technical challenges.

   To reduce the risk of delays in the completion of the HDD and overall Project, Trans Mountain developed a contingency option that would, if implemented, involve the installation of 30" pipe instead of 36" pipe.

   The variance for this segment remains an HDD with the same profile, with no change to safety or third party risk. The variance is strictly technical in nature and relates only to a change in the pipe size, wall thickness and coating of the pipe to be installed. It does not involve any change to factors that could affect Indigenous rights or title.

Committee Member Bios

Standing Committee on Public Accounts (PACP)

About the Committee

The Standing Committee on Public Accounts is Parliament's standing audit committee, as it reviews the work of the federal government's external auditor, the Auditor General of Canada.

When the Speaker tables a report by the Auditor General in the House of Commons, it is automatically referred to the Public Accounts Committee. The committee selects the chapters of the report it wants to study and calls the Auditor General and senior public servants from the audited organizations to appear before it to respond to the Office of the Auditor General's findings. The committee also reviews the federal government's consolidated financial statements – the Public Accounts of Canada – and examines financial and/or accounting shortcomings raised by the Auditor General. At the conclusion of a study, the committee may present a report to the House that includes recommendations to the government for improvements in administrative and financial practices and controls of federal departments and agencies.

Government policy, and the extent to which policy objectives are achieved, are generally not examined by the committee. Instead, the committee focuses on government administration – the economy and efficiency of program delivery as well as the adherence to government policies, directives, and standards. The committee seeks to hold the government to account for effective public administration and due regard for public funds.

The committee also reviews the federal government's consolidated financial statement and estimates of the Office of the Auditor General as well as makes recommendations to the government for improvements in spending practices.

Other responsibilities include the economy, efficiency and effectiveness of government administration, the quality of administrative practices in the delivery of federal programs, and the government's accountability to Parliament regarding federal spending.

Liberal Party

Conservative Party

Bloc Québécois

New Democratic Party

Parliamentary Environment Analysis

Standing Committee on Public Accounts
Study of Public Accounts of Canada 2023

Purpose

While the discussion is expected to focus primarily on the 2023 Public Accounts, committee members will also take the opportunity to question officials more broadly on issues that may or may not be directly related to the Public Accounts themselves. For instance, members may take the opportunity to ask questions on currently trending issues such as housing affordability, Budget 2023 spending reductions, clean energy investment tax credits, the Asian Infrastructure Investment Bank, and the proposed RBC-HSBC merger.

Below is an overview of potential areas of interest by party that could be the subject of discussion during the meetings based on recent statements in Parliament.

Conservative Party (CPC)

• The CPC is expected to focus on areas of high government spending. The party holds the view that government spending has resulted in high inflation and rising costs of living for Canadians. This view is coupled with arguments that Canada's debt-to-GDP ratio has risen significantly under the current government. As a result, members may use their rounds of questioning to highlight concerns with government programs, service delivery, and debt management strategy.
• The party has been critical of the Bank of Canada's use of quantitative easing during the pandemic. During meetings on last year's Public Accounts, members focused on the amount of money lost by the government because of the Bank's negative equity position as well as its impact on Canada's fiscal position. Recently, members have raised concerns that the government's fiscal policy is working at cross-purposes with the Bank's monetary policy.
• CPC MP Kelly McCauley (Edmonton West) has been vocal in his dissatisfaction with the government's administration of COVID support programs and has questioned the department on ineligible payments and the lack of support for taxpayers for the Canada Emergency Response Benefit and Canadian Emergency Business Account. Similarly, he has also asked for the reason behind policy changes to "write-off" ineligible payments of the Canada Workers Benefit. CPC members have also been critical of the government's proposal to refocus spending, arguing that reductions should not be lapsed into COVID benefits not being paid out.
• A key concern for the CPC is low productivity and business investment in Canada. Members have argued that Canada is facing a "competition crisis" and have pointed to an October 2023 Competition Bureau report finding a decline in Canada's competitive intensity over the last two decades. In that regard, members have spoken against the use of the Canada Growth Fund and Canada Innovation Corporation as vehicles for fostering innovation and attracting investment. Members have drawn comparisons between these initiatives and the Canada Infrastructure Bank, which they believe has failed to deliver on its mandate.
• CPC MPs have also expressed strong criticism of the government's pollution pricing policy, promising to repeal the "carbon tax" should they form government in future. This issue has been a regular topic of debate during Question Period, especially since the government's announcement to pause pollution pricing on home heating oil. The CPC have called on the government to repeal the "carbon tax" on all forms of heat before winter. While not as prominent of late, the committee's CPC MPs have regularly asked questions of Finance officials on whether the GST/HST was applied on top of the "carbon tax", and questioned government figures on pollution pricing refunds to Canadians.  

Potential CPC Areas of Questioning

• What are the government's thoughts on the deficit roughly equalling amounts allocated to the Canada Health Transfer?
• How much were the Bank of Canada losses this year? Has the Bank been able to offset its negative equity because of measures in Budget 2023?
• Regarding the backstop provinces, how much of the carbon tax collected went to federal program spending as opposed to direct rebates to taxpayers?

Bloc Québécois (BQ)

• Bloc members are expected to focus on enhancing the reporting practices of Crown corporations. MP Nathalie Sinclair-Desgagné (Terrebonne) has repeatedly sought information on how to hold Crown corporations to the same transparency standards as federal departments. She has also been critical of the Canada Growth Fund and argued against using Crown corporations to fund government activities because it is not subject to the "same level of transparency and disclosure standards as the rest of government." Moreover, she has sought explanations on how Crown corporations are selected to run certain programs.
• MP Sinclair-Desgagné has advocated for a permanent extension for CEBA loan repayment, arguing that many small and medium sized businesses risk bankruptcy. As a result, she may ask officials about the status of repayments and the amount of bankruptcies stemming from that repayment.
• The Bloc strongly supports the transition to a net-zero economy and has often criticized government initiatives for not going far enough. In that regard, members may seek guarantees that Trans Mountain Corporation will pay back its debt to the government. They may also ask officials for an update on the planned sale of the pipeline.
• Recently, the Bloc has also expressed concern with record demand facing Quebec and Canadian food banks and called on the government to "deliver on its promise to allocate $1 billion over five years to Quebec and the provinces so that food support organizations can meet the demand in schools".

Potential BQ Areas of Questioning

• What is the projected vs. actual revenue of Crown corporations?
• How can the government ensure Crown corporations disclose the same information as federal departments?

New Democratic Party (NDP)

• The NDP is expected to focus on enhancing reporting and transparency around the Public Accounts. In past meetings NDP members have generally focused their questions to the Treasury Board Secretariat and Auditor General.
• The party is a vocal proponent for unions and protecting workers' rights. MP Blake Desjarlais (Edmonton-Greisbach) has asked several questions on the Phoenix pay system issues and its impacts on public service during past meetings on the Public Accounts. In addition, MP Desjarlais has spoken to the impact of climate change and asked how to share environmental information in the Public Accounts.
• In light of the government's announcement regarding a temporary pause on pollution pricing for home heating oil, the NDP has called for the government to remove the GST on all home heating fuels and impose a windfall tax on oil and gas companies making "record profits" to provide more money to Canadians to help them switch to cost effective solutions like heat pumps and better insulation.
• The NDP may also use debate to advocate for a CERB repayment amnesty and ask for information on why the government accepted debt from the CWB and CEWS.

Potential NDP Areas of Questioning

• How will the government ensure that the reporting around the direct cost of climate change is relevant and complete in the future?
• How can the government advance and more easily share environmental information such as total losses from natural disasters?

Liberal Party (LPC)

• LPC members are expected to reinforce the need to improve transparency and reporting timelines of the Public Accounts while still maintaining accuracy. They may ask officials for reasons behind reporting delays and how the process can be improved in the future.
• During past meetings on the Public Accounts, members have questioned officials on the government's debt management strategy and public debt charges.

Anticipated Areas of Questioning:

• What are the current projections for public debt charges? How do interest rates impact these projections?
• Why is the debt-to-GDP ratio an effective way to measure debt? How does Canada compare to its G7/peer countries?