The Honourable Elizabeth Marshall

Thank you, Senator LaBoucane-Benson, for your remarks.

Honourable senators, I rise as the critic of Bill C-74, the second appropriation bill for the 2024-25 fiscal year. This bill is based on the Main Estimates, which was tabled by the Minister of the Treasury Board on February 29 of this year. The Main Estimates outline spending of $192 billion which requires parliamentary approval. Of this $192 billion, $74 billion has already been approved by Bill C-68 in March of this year. As a result, this appropriation bill — Bill C-74 — is requesting the remainder of the $192 billion or about $118 billion.

In addition to the $192 billion requiring parliamentary approval through appropriation bills, government already has authority under other legislation to spend another $259 billion.

These two amounts — the $192 billion in the appropriation bills and the $259 billion in statutory spending — total $451 billion, and it is this $451 billion which is detailed in the Main Estimates document.

Last year, the Main Estimates outlined spending of $433 billion, or $18 billion less than the amount included in this year’s Main Estimates. However, it is premature to compare this year’s Main Estimates to last year’s Main Estimates because new spending will be approved in subsequent fiscal documents, including the budget, the fall economic statement and other appropriation bills.

While last year’s Main Estimates indicated spending of $433 billion, actual expenditures are expected to be $497 billion for the year just ended. That’s an extra $64 billion.

The government has yet to table its financial statements for last year, so even this $497-billion estimate may change.

It is a similar situation for this year. While this year’s Main Estimates indicate spending of $450 billion, the budget tabled in April estimates that expenditures this year will be $534 billion. That’s an increase of $85 billion, which is an additional 20%.

We are only three months into the fiscal year, so there will be additional spending in other legislation, including appropriation bills and the Fall Economic Statement.

Colleagues, Canada has reached three unenviable milestones this year: Expenditures will exceed more than half a trillion dollars, debt servicing costs will exceed $50 billion and the government will have authority to increase our debt to over $2 trillion.

The Department of Finance is requesting $145 million. In addition to this amount, the department already has the authority to spend $143 billion, which has been approved by legislation other than this appropriation bill.

Of all the organizations included in the Main Estimates, the Department of Finance has disclosed the highest expenditures so far this year, as well as the highest increase compared to the expenditures disclosed in the Main Estimates last year, at 11%.

The $143 billion in statutory funding includes $52 billion for the Canada Health Transfer, which is authorized by the Federal-Provincial Fiscal Arrangements Act, and $42 billion for interest on unmatured debt, which is authorized by the Financial Administration Act.

The Federal-Provincial Fiscal Arrangements Act is also authorizing the Department of Finance to pay $25 billion in equalization payments, $17 billion for the Canada Social Transfer and $5.1 billion in territorial financing payments.

The $52 billion for the Canada Health Transfer is the total amount expected to be paid this year to provinces and territories. It has increased from $49.4 billion last year, and from $47.1 billion the preceding year, which is 2022-23. The government has disclosed this information in its budget document.

The $42 billion in interest on unmatured debt, which is disclosed in the Main Estimates, is only part of the government’s public debt charges, which are expected to increase to $54 billion this year, compared to $47 billion last year and $35 billion the preceding year.

The Bank of Canada recently reduced its policy rate by a quarter of a percentage point. It is unknown at this time what the impact will be on this year’s estimated public debt charges of $54 billion.

It is worth noting that the total cost of the four programs I mentioned as being authorized by the Federal-Provincial Fiscal Arrangements Act for this year are disclosed in the Main Estimates and have increased only marginally compared to last year.

However, the $42 billion in interest on unmatured debt is only part of the government’s debt-servicing costs of $54 billion. When compared with last year’s debt-servicing costs, this year’s reflect an increase of 15%.

The Department of National Defence is requesting $28.8 billion in this bill, compared to the $24.8 billion requested last year. The department already has the authority to spend $1.8 billion, which has been authorized by other legislation.

While funding for the Department of National Defence has increased over the past several years, the funding in Main Estimates is significant in that it represents an increase of 15%.

One of the challenges faced by the department in the past was utilizing funding which had been approved, including the funding provided for capital acquisitions such as aircraft, ships, ammunition and other projects. The government’s 2017 defence policy laid out a capital expenditure plan of $164 billion over 20 years, from 2017 to 2037, for capital projects; that was a $164-billion plan, and it was subsequently increased to $215 billion.

However, the Parliamentary Budget Officer, in a report released earlier this year, indicated that between 2017 and 2023, there was a cumulative shortfall of almost $12 billion between what the government actually spent and what was originally planned in the government’s 2017 defence policy.

The government’s new defence policy, released in April of this year, indicates that the government will spend an additional $73 billion on capital projects up to 2044.

The new defence policy also projects defence spending to be 1.76% of GDP in 2029-30, compared to the NATO policy goal of annual defence spending of at least 2% of GDP.

Given the challenges faced by the department in the past to obtain approval of the funding laid out in the 2017 defence policy, the difficulty in spending the funds provided and the delay in meeting timelines, it is difficult to determine whether the department will be able to meet its new targets. The government’s commitment to reducing departmental spending in certain areas may also impact the department’s ability to meet its targets.

The department’s $30 billion reflected in the Main Estimates includes funding of $7.2 billion for several major projects, the largest being $1.3 billion for the Canadian Surface Combatants. This project will deliver 15 ships for the Royal Canadian Navy and is said to be the largest shipbuilding project in Canada since the Second World War.

The new defence policy says that construction of these new ships will begin this year. This project has been the subject of much attention and its cost has been the subject of several reports by the Parliamentary Budget Officer.

Also included in the $7.2 billion is $553 million for the joint support ships, $250 million for the 88 new F-35 fighter jets and $240 million for the Arctic and offshore patrol vessels.

Colleagues, you may recall that Supplementary Estimates (C) in March included $590 million for the Canadian Multi-Mission Aircraft and $509 million for the Strategic Tanker Transport Capability project.

The department is also experiencing a shortfall of personnel in the ranks of the Canadian Armed Forces. Canada’s Chief of the Defence Staff recently indicated there are currently 16,500 vacant positions in the Canadian Armed Forces combined regular and reserve authorized strength of 101,000 positions, a combination of a failure to attract new recruits and a failure to retain trained personnel.

The vacant positions are of concern. While the department and government address the issue of capital equipment, such as the purchase of aircraft and construction of ships, they still need personnel to fly and service those new planes and operate the new ships. It is imperative that the government address the shortage of personnel.

The Department of Innovation, Science and Economic Development is requesting $5.9 billion in this appropriation bill, in addition to the $196 million which has already been approved by other legislation. Almost 90% of the money requested by the department is for grants and contributions, with almost half of that, or $2.4 billion, allocated to the Strategic Innovation Fund.

Funding provided to the Department of Innovation, Science and Economic Development through Main Estimates has increased more than fourfold over the past nine years, from just over $1 billion in 2015-16 to $6 billion this year.

In addition to the Strategic Innovation Fund, there are a number of other funds within the department, including the Canada Foundation for Innovation, the Universal Broadband Fund and the Global Innovation Clusters.

During testimony at our National Finance Committee last month, departmental officials told us these programs were subject to audit by departmental auditors as well as the Auditor General of Canada.

However, there was only one internal audit of the Strategic Innovation Fund, and that was in 2021, and no recent audits by the Office of the Auditor General until the report released last month by the Commissioner of the Environment and Sustainable Development on the Strategic Innovation Fund.

The Strategic Innovation Fund was established in 2017. A 2023 impact report on the fund indicated that total grants and contributions up to 2023 were $18.5 billion, of which $8 billion was for the Net Zero Accelerator fund.

The objective of the $8 billion fund is to reduce greenhouse gas emissions and contribute to meeting Canada’s 2030 and 2050 climate goals by incentivizing manufacturing companies to reduce their emissions. In April of this year, the Commissioner of the Environment and Sustainable Development released a very critical report on the government’s management of the $8 billion Net Zero Accelerator fund.

The commissioner said that the department was unable to attract the largest-emitting manufacturing industries to decarbonize their operations through its Net Zero Accelerator initiative. In addition, it did not always follow international and government standards to estimate emission reductions, and it did not consistently apply its assessment methodology across all projects. As a result, the Commissioner of the Environment and Sustainable Development said that the department did not always know the reductions that could be achieved through the funding received by each company, which was the primary objective of the fund.

Since almost 90% of the department’s funding is disbursed as grants or contributions in the billions of dollars, these programs should be vigorously audited and evaluated regularly to ensure they are meeting the objectives of the government.

The Parliamentary Budget Officer testified at our National Finance Committee to discuss his report on the Main Estimates, and during his testimony he raised several issues. He discussed the government’s commitment to refocus and reduce government spending as announced in Budget 2023 and in the 2023 Fall Economic Statement.

In its 2023 budget, the government announced the refocusing of government expenditures of $14.1 billion over five years from 2023 to 2028, and $4.1 billion annually thereafter. In its Fall Economic Statement, the government announced further reductions of $345 million next fiscal year, and $691 million annually thereafter. It is interesting to note that the larger reductions are in future years, and after the election in 2025.

The $14.1 billion announced in Budget 2023 included $500 million last year and includes reductions of $2.3 billion this year. Commencing next year, in 2025-26, the reductions increase to $3 billion in 2025-26 and to $4 billion in subsequent years. Similarly, the reductions announced in the Fall Economic Statement will not commence this year, but rather next year in 2025-26.

The government has provided on its website the refocusing allocations by department and organization. The Main Estimates state that the reallocations of $2.3 billion for this year have been reflected in the Main Estimates. However, these reallocations are not separately disclosed or discernable in the Main Estimates document; therefore, we cannot determine which expenditures have been affected.

During testimony, the Parliamentary Budget Officer acknowledged that the government has committed to refocusing spending. However, he said:

. . . they’re not really spending reductions; they’re very targeted reductions in certain programs to better fund certain other spending. . . .

He concluded by saying that, “there are no government-wide spending cuts.”

Throughout his testimony, the Parliamentary Budget Officer reminded us that the Main Estimates paint a very partial picture of government spending. He went on to say that:

. . . the Main Estimates were drafted well before the content of the budget was known. When we tallied the totality of estimates spending, mains and supplementary estimates, we will probably find that the government spending increased at a solid pace.

He also commented on the cost and sustainability of benefits to the elderly, estimated to surpass $80 billion this year, and according to his estimates, will cost almost $100 billion by 2029.

In responding to the increase in debt servicing costs, the Parliamentary Budget Officer expressed concerns about the debt-to-GDP ratio, which determines the capacity of a country to ultimately assume the cost of its debt. He said that the government made a commitment to maintain a declining debt-to-GDP ratio. His concern, he said, is not with the level of the debt-to-GDP ratio:

. . . rather, it’s the tendency of successive budgets and Fall economic statements to postpone a decline. . . . the government, rather than having a steady decline, seems to be content with having a humble decline year after year, rather than a straight slope. . . .

When you look at the budget documents this year, you will see that in the first year that they are reporting, it goes up a little bit and then it comes down a little bit. They are very small declines.

He continued to say:

We see that with the government using the room to maneuver that is generated by better-than-expected economic growth; it tends to spend it, rather than use it to reduce the deficit . . . .

The concern with debt-servicing costs is . . . if there were to be economic shocks that push interest rates up . . . debt charges would go up significantly. . . .

And he said:

That’s the concern that many have expressed with a stock of debt that has grown significantly and the debt-servicing costs that are growing significantly as well.

Honourable senators, one of the challenges in reviewing Main Estimates, Supplementary Estimates (A), (B) and (C), along with Bill C-59, which we just voted on and which will implement the Fall Economic Statement — and now Bill C-69, which we are debating and which will implement the budget — is the impossible task of tracking government spending.

The Hill Times recently included a three-part series on the estimates process and the federal budget. The Fall Economic Statement and Bill C-59, as well as the 2024 Budget and Bill C-69, are an integral part of this process. Part one of the series maintains that it is difficult to follow the money.

Actually, it is impossible to follow the money. I know because I have been trying to track government’s spending for years. A contributing factor is the government’s spending plan, which changes throughout the year, and the insufficient information it provides on these changes.

The Main Estimates, which proposes to be the government’s spending plan for each fiscal year, are tabled in March, along with departmental plans, just prior to the beginning of the new fiscal year. Before we finish reviewing the Main Estimates, which I’m discussing now, the government tables its budget — we’ll talk about that tomorrow — which details new spending and a new spending plan. So begins the challenge of matching the new budget initiatives with the spending outlined in subsequent estimates documents.

The budget is followed by Supplementary Estimates (A), which I will discuss later tonight, and outlines new spending and the implementation some budget initiatives, but not all. This is followed by Supplementary Estimates (B), which includes some new spending, and the implementation of more budget initiatives, but again, not all. Supplementary Estimates (B) is followed by the Fall Economic Statement, which includes another spending plan. The Fall Economic Statement is followed by Supplementary Estimates (C), which includes more new spending, some budget initiatives, but not all, and some initiatives of the Fall Economic Statement, but not all.

Many difficulties arise as we track spending from one document to the next. One of the challenges is to identify where the funding is for budget initiatives. It could be in Supplementary Estimates (A), (B) or (C) or maybe not. The government may or may not identify budget initiatives in the three supplementary estimates documents. The Parliamentary Budget Officer, two years ago, began to provide a reconciliation of budget initiatives to the supplementary estimates document, but this is still a challenge for parliamentarians and for the Parliamentary Budget Officer.

Intertwined with these problems is the government’s reluctance — or sometimes I say refusal — to provide details as to what is included in some of these transactions. For example, a $500 million expenditure announced in the Fall Economic Statement is for non-announced measures. No further information could be provided. The government also states that a $300 million reduction in the cost of new initiatives is already included in the fiscal framework, but no one can tell us where exactly it is in the fiscal framework.

The Parliamentary Budget Officer, in a podcast with The Hill Times, summed up the estimates process. He said, “It’s a complete mess.”

I will leave my comments there and not discuss the challenges of reviewing the Public Accounts of Canada, which includes the audited financial statements of the government. Suffice to say, there are challenges trying to compare the budget and the estimates documents to the actual financial results.

These conclude my comments on Bill C-74. Thank you.