Senator Marshall: Yes, please.

Hon. Percy E. Downe: Thank you colleagues, and thank you Senator Marshall for your presentation.

I’m wondering if you could advise us if there is an update regarding the Canada Revenue Agency’s continuous refusal to estimate the tax gap — the difference between what we should be collecting and what we are collecting; that is one measurement.

The second measurement tells you how efficient your national tax agency is. As you know, six years ago, the Conference Board of Canada, in a public document, indicated that the tax gap shortfall could be up to $47 billion. We all realize that it’s impossible for the agency to collect all of that, but if they collected half of that, it would solve a lot of problems in this country.

Do you have any update on how that’s going?

Senator Marshall: Yes.

Hon. Dennis Glen Patterson: Thank you very much, Senator Marshall.

I was interested in the alarming figures you gave about the sharp increase in per capita spending — the highest in history in recent years — and the steep increase in public debt. I think you said there was a 34% increase in the past two years. You said the trend seems to be going up.

We’re often told by the government representatives in the Senate — I remember hearing this from Senator Harder and probably from Senator Gold — to not worry and that the debt-to-GDP ratio is stellar among the G7. They tell us the debt-to-GDP ratio is okay. Would you have any comments on that formula — the debt-to-GDP ratio? Is it also worrisome?

Senator Marshall: No, the Finance Committee has not taken initiative on that, but, now that you have mentioned it, I can certainly refer that to the committee.

Everything I have read about the tax gap, and the collection of outstanding taxes, suggests that the focus of the Canada Revenue Agency — and this is also from the minister down — is that they are studying the issue. It sounds like they are studying it — probably internally — but there is no action being taken, or there is the appearance of no action being taken.

The Hon. the Speaker pro tempore: Senator Marshall, your time has expired, but we still have one senator who would like to ask a question. Are you asking for a few minutes to answer another question?

Senator Marshall: I actually checked on that number the other day. The number that you gave is the most current — that’s from a couple of years ago.

However, as I said in my speech, the underground economy was recently released. They actually take into consideration the number that they use for the tax gap. There is a number in there that includes the underground economy, but the numbers are a couple of years old; I have to admit that.

There was a recent report on the underground economy that was released earlier this year, and I think you would find it interesting to read the report, and read the strategy, because when I read the strategy — this is probably the nicest way to put it — I wasn’t impressed, as they are emphasizing education. You are going to educate people not to use the underground economy. There was no emphasis on enforcement, so I just, sort of, threw it in the garbage — but, I did think of you when I read it.

No, that hasn’t been updated — the numbers haven’t been updated for a couple of years. That’s the most recent one; I checked it on the website.

I did mention your legislation that you tabled today, and I will be supporting that. We’ll see what happens, but I think it’s great that, at least, it will be one step forward.

Hon. Elizabeth Marshall: Honourable senators, I would like to thank Senator Gagné for her remarks. Some of mine will be repetitive, but not all of them.

This bill that we are looking at today, Bill C-43, is requesting an additional $4.7 billion for this fiscal year, which ends this Friday, March 31. This will increase estimated spending to $472 billion for this fiscal year, which is $50 billion higher than the $422 billion outlined in Supplementary Estimates (C) last year.

The Senate Finance Committee has studied the government’s request for the $4.7 billion as detailed in the document Supplementary Estimates (C). One meeting was held on March 8, during which three departments appeared: National Defence, Global Affairs Canada and Indigenous Services Canada.

However, I would like to point out that not all of the government’s total spending is studied by the Senate Finance Committee. Of the $472 billion in spending this year, the Senate Finance Committee has studied $225 billion, which is less than half. The remaining amounts include, among other programs, Employment Insurance benefits, the Canada Child Benefit and statutory expenditures which have already been approved by existing legislation other than an appropriation bill. These statutory payments include Old Age Security, which is approved by the Old Age Security Act; interest on debt, which is approved by the Financial Administration Act; the Canada Health Transfer, which is approved by the Federal-Provincial Fiscal Arrangements Act; and payments approved by the Farm Income Protection Act.

Since these “statutory” and other expenses are significant, I cannot impress upon my colleagues the need to review all government spending, not just half of it.

One of the problems in reviewing the Main Estimates and supplementary estimates is the challenge of aligning them with the government’s budget and the government’s fall fiscal update. Parliamentarians, and indeed all Canadians, must find it very confusing to follow the government’s spending plan throughout the year because it keeps changing. Actually, the spending increases with some of the documents that are tabled subsequent to the Main Estimates. First, we get the Main Estimates, followed by the budget and Supplementary Estimates (A) and (B). Then we get the fall fiscal update that’s followed by Supplementary Estimates (C), which we’re studying here today.

The Senate Finance Committee is presently studying the government’s spending plan in the Main Estimates for the 2023-24 fiscal year, which were tabled in February. However, this spending plan is already outdated because Budget 2023 was tabled yesterday, and it outlines additional spending not included in the Main Estimates.

Of the departments requesting additional funding in Bill C-43, the Department of National Defence is requesting the highest amount. My comments are directed primarily to this department.

The Department of National Defence is requesting $898 million, which is 20% of the $8.7 billion being requested in this bill. The $898 million includes an additional $500 million for military aid to Ukraine — specifically, a loan — as well as $56 million for Operation UNIFIER, which is Canada’s military mission in Ukraine. The $56 million was included in last year’s budget. There is also $170 million being requested by Immigration, Refugees and Citizenship Canada for Ukrainian immigration. And $115 million is requested by the Department of Finance for payments to the World Bank relating to the Ukraine multi-donor trust fund. And $18 million is being requested by the Department of Foreign Affairs, Trade and Development for the provision of non-lethal military equipment to Ukraine. Canada’s support to Ukraine as of March 15, 2023, is $5.4 billion.

This bill will increase funding to the Department of National Defence for this fiscal year to $28 billion. The bill is not requesting any additional funding for capital projects, so capital funding for this year remains at $5.9 billion.

When the government announced its defence policy in 2017, it estimated that total defence spending over the next 20 years would be $553 billion, of which $164 billion was earmarked for capital projects. Actual spending on capital projects during the first five years — up to 2022 — has been significantly less than the commitment in the defence policy and, as a result, the department’s spending profile for capital projects shows a significant increase in spending in future years. In other words, capital spending which did not occur over the past six years, according to the 2017 defence policy, has now been pushed forward to future years.

The updated profile shows greater capital spending beginning in 2025-26. Given that the department has been unable to deliver on capital projects in the past, it will be challenged to deliver on the more ambitious future capital plan.

Honourable senators may recall that I asked Senator Gold last week what changes the government has made to successfully implement Canada’s defence policy and, specifically, their capital plan.

In addition to budgetary allocations being less than the 2017 defence policy, actual spending has also been less than the amount budgeted. In last year’s budget, the government made a commitment to update its 2017 defence policy, including its investment plan for capital projects. That was one year ago, and we are still waiting.

Given that the Department of National Defence has already published its departmental plan for the new fiscal year, the Main Estimates for next year are being studied by the Senate Finance Committee, and a new budget was released yesterday, the new defence policy, when it is released, should be aligned with these financial documents.

The war in Ukraine, as well as Canada’s changing relationship with China and Russia, has led to a shifting in priorities. Priority capital projects in 2017 are not the same as projects which would be considered priorities now, and cost estimates have most certainly increased.

Officials testifying at our Finance Committee assured us that the new defence policy and investment plan will be released “pretty soon.” However, given recent announcements of increased funding for the Department of National Defence, such as the recent commitment to purchase 88 F-35 fighter jets, it is important to realize there are significant expenditures not identified in the government’s fiscal framework, and therefore we do not know the impact on the deficit. When I say it’s not identified, it may be there, but I haven’t been able to find it. I do want to point out that there is funding in the government’s fiscal framework in the amount of billions of dollars that just shows up as a line item, and there is no description what the money will be used for. That was the problem when we reviewed the fiscal update in December.

Now, Canada has been part of the North Atlantic Treaty Organization, or NATO, as we call it, since 1949. Its objective is to guarantee the freedom and security of its members through political and military means. In 2006, NATO members agreed with the goal of setting their annual defence spending to at least 2% of GDP. Since making this commitment, Canada has never achieved the goal.

While this bill will increase funding to the Department of National Defence to over $18 billion this year, the additional monies, along with other expenses which NATO allows, such as veterans’ benefits, will not reach the 2% NATO target.

During President Biden’s visit to Canada last week, several issues related to the Department of National Defence were discussed, including the modernization of NORAD, the purchase of the F-35 aircraft and a possible military intervention in Haiti. We do not know the details surrounding these initiatives, but they will have a significant impact on the department and the additional funding that would be required to support these initiatives.

There has been much discussion around the amount of money being spent on professional and special services. In 2017-18, the government spent $13 billion on professional and special services, and this bill will increase the budget significantly from that $13 billion in 2017-18 to $21.4 billion this year.

In this bill, the government is requesting an additional $817 million for professional and special services, which will increase the annual budget for the program to the $21.4 billion. Of the $817 million being requested for professional and special services, $373 million is being requested by the Department of National Defence. This will increase that department’s budget for professional and special services to $4.9 billion of the $21.4 billion budgeted for this year for all organizations. So the Department of National Defence has the biggest budget for professional and special services for the year, and they are also asking for the most in the Supplementary Estimates (C) document.

Revenues estimated to be collected by the government this year are not sufficient to pay for the expenditures outlined in this bill, along with other expenditures approved in this fiscal year. As a result, the government borrows the shortfall. The government has a legislated debt ceiling, which is $1.831 trillion. The government cannot exceed this ceiling except in very exceptional circumstances, as permitted by legislation.

The debt ceiling applies to two components of debt: the debt of Crown corporations and the debt of government. Crown corporation debt increased from $253 billion in 2015 to $305 billion in 2022, and these numbers are taken from the audited public accounts. However, the government’s borrowings have doubled since 2015. In 2015, government debt was $650 billion, which has now increased to $1,233 billion as of March 31, 2022. Yesterday’s budget is forecasting additional new borrowings of $63 billion in the new fiscal year.

A comparison of government revenues and expenditures in 2019-20, the last year before the pandemic, to the estimated revenues and expenditures in 2022-23 indicates the following: Revenues are expected to increase 31%, from $334 billion to $437 billion, with corporate taxes experiencing the biggest increase. Program expenses are expected to increase 30%, from $363 billion to $470 billion. So the numbers are only going one way: up. They are getting bigger. Public debt charges are expected to increase 42% — that’s using the 2019-20 as a base — from $24.4 billion to $34.5 billion. And yesterday’s budget is forecasting public debt charges next year to be $43.9 billion. So our public debt interest program is now one of the government’s largest programs.

A recent study by the Fraser Institute indicates that in 2020, at the height of COVID-19, federal government spending reached just over $19,000 per person. That $19,000 per person represents the highest per-person spending level, adjusted for inflation, in Canadian history, but we have to remember the COVID expenditures are in there. If you take out the COVID expenditures, the non-COVID-related spending per person was $12,752 in 2020, and it still represents the highest level of per‑person spending in Canadian history.

The analysis for 2021, the following year, shows that federal per-person spending was $13,576, which is the second-highest per-person spending level in Canadian history, adjusted for inflation, but we have to remember that also includes COVID expenditures.

If we excluded the COVID-related spending in 2021, per‑person spending was still $11,750, which is the second-highest level of per-person spending in Canadian history. In other words, the highest level of federal per-person spending occurred in 2020 and 2021, and it was not the COVID-related spending that caused it.

We still have to do the calculations on the 2022 per-person spending levels. I don’t know what that will show, but I am sure I will be reporting that later.

I want to go back to interest costs. Two years ago, government estimated that interest costs for this year would be $22.4 billion. Yesterday’s budget indicates that it’s actually going to be $34.5 billion, which is a 54% increase over the estimate of two years ago. Public debt charges as a share of total government expenses has now increased from 3.2% in 2020-21 to 4.9% in 2021-22. This year, according to yesterday’s budget, public debt charges are expected to be 7.3% of total government expenses. Next year, it’s expected to be 9% of total government expenses. Again, the numbers are going one way: They’re getting bigger.

While government debt has increased significantly in recent years, there is an opportunity to decrease borrowing via the enforcement of tax policy and the repayment of amounts owed to the government. Last December, Auditor General Karen Hogan released a report on the COVID-19 emergency programs. She indicated that expenditures totalling $210 billion were paid for six COVID-19 programs. Her audit took into consideration the issuance of payments based on personal attestation, with the intent of reviewing eligibility after payments were issued and recovering the amounts paid to ineligible recipients.

Given the limited prepayment controls and the decision to focus on post-payment verifications, the Auditor General expected the department and the agency to carry out extensive post-payment verifications to identify payments made to ineligible recipients. However, the Auditor General reported that the Canada Revenue Agency and Employment and Social Development Canada did not develop rigorous and comprehensive plans to verify the eligibility of recipients. The audit identified $4.6 billion in overpayments to ineligible recipients, but it also identified just over $27 billion that was paid to recipients who have an indicator of ineligibility and should be investigated further. Of this $27 billion, $12 billion are related to individual benefit programs while $15 billion are related to the wage subsidy program.

The Canada Revenue Agency has pushed back on the Auditor General’s conclusions about the $27 billion. During hearings by the House of Commons Public Accounts Committee, a Canada Revenue Agency document provided additional information on pandemic benefits. The Canada Revenue Agency reviewed just over $5 billion in benefits and determined that over $3 billion were deemed ineligible, which means about 65% of those benefits were deemed ineligible.

The Canada Revenue Agency has a responsibility to investigate the $27 billion identified by the Auditor General and determine whether the recipients were entitled to the benefits. If so, it has a responsibility to collect the amounts owing from ineligible recipients.

In other cases, significant amounts of tax revenues are not being collected. Last month, Statistics Canada released its annual estimate of the underground economy in Canada in 2021. It estimated that the gross domestic product at market prices for underground economic activity in Canada in 2021 was $68 billion. Even if we assume a tax rate of 30%, the federal, provincial and territorial governments are losing about $23 billion in tax revenues.

Last year, the Canada Revenue Agency estimated that the federal tax gap was $40 billion. If the Canada Revenue Agency could collect even a portion of that tax gap, it would significantly reduce government’s deficit.

It’s not fair to the taxpayers who comply with the tax system while others can evade paying taxes.

At this point, I want to acknowledge that Senator Downe just tabled a bill relating to the Canada Revenue Agency. It’s going to require the Canada Revenue Agency to list all convictions for tax evasion, including international tax evasion, and also sets out that the Minister of National Revenue has to include statistics on the tax gap once every three years in the annual report. The enactment specifies that the minister is to provide data on the tax gap to the Parliamentary Budget Officer.

I must say, I will support that bill. That is an excellent idea.

While the government has approved billions of dollars in additional funding for the Canada Revenue Agency, there is little progress in collecting taxes from tax evaders. Instead, the perception left is that the Canada Revenue Agency is simply increasing its audits of honest taxpayers.

A poll from Leger, commissioned by the Fraser Institute in early 2023, surveyed 1,554 Canadians about their opinions on the tax burden imposed on families. I found this very interesting. Here are some of the findings: 74% of those surveyed said that the average family is being overtaxed by all three levels of government — federal, provincial and municipal; and 80% of those surveyed support the average family paying 40% or less of their income in total taxes to all levels of government. That is interesting because the average Canadian family paid 45.2% of its income to the three levels of government in 2022. You can compare this to 1981, the earliest year tracked in the study, when that number was 40.8% of its income.

So 44% of the people who participated in the survey — or almost half — feel they receive poor or very poor value from their governments in health care, education, police, roads and national defence. I’m sure many of us have spoken to Canadians who have expressed those points of view.

Supplementary Estimates (C), which supports Bill C-43, discloses budgetary expenditures of $1.1 billion for the one-time rental housing benefit authorized by the Rental Housing Benefit Act, which was approved by Parliament last November. This benefit was intended to assist renters who met certain criteria. Vacancy rates in Canada dropped to their lowest level since 2001. According to the Canada Mortgage and Housing Corporation, rents in purpose-built rental buildings rose by an average of 5.6%, which includes renters who stayed in the same apartment. However, the price of rent for new tenants increased 18.2%, and in Toronto, the increase was 29%.

Renters are not the only ones being challenged to pay for the cost of shelter. This is an issue I’ve brought up several times. Mortgage holders are also feeling the impacts of inflation and higher interest rates. Last month, the Canadian Imperial Bank of Commerce disclosed that 20% of their $263 billion residential loan portfolio, or $52 billion of mortgages, were in a position where the borrower’s monthly payment was not enough to cover the interest portion of their mortgage. In some cases, banks allow the borrower to add the unpaid interest to the principal of the loan balance, and the amortization period is often extended.

I read somewhere recently that another 20% of mortgage holders will renew their mortgages this year. I must say it’s really a concern and vulnerability for the Canadian economy.

You may recall that both the Minister of Finance and the Governor of the Bank of Canada assured homeowners that interest rates would remain low well into the future. As more and more borrowers renew their mortgages at higher interest rates, we can expect a higher number of borrowers being unable to pay the interest on their mortgages.

My final comments are on the Early Learning and Child Care Plan because this program interests me very much. I do support an early learning and child care plan, but not necessarily this one.

Two years ago, in its 2021 budget, the government announced a Canada-wide early learning and child care plan at an estimated cost of $30 billion. It committed to three objectives, which are actually outlined in the minister’s mandate letter.

The first is a 50% reduction in average fees by the end of 2022. The government has said it has already met that commitment. Then there is an average of $10-a-day child care by 2025-26 for all regulated child care spaces. The third objective is ongoing annual growth in spaces: Agreements with the provinces and territories have committed to 250,000 new child care spaces and 40,000 new early childhood educators by the end of 2025-26.

The Early Learning and Child Care Plan is being implemented jointly by the federal, provincial and territorial governments, and agreements have been reached with all 13 provinces and territories. The government has put those agreements on its website.

The federal government has already announced that the child care fees across Canada for regulated spaces have, on average, been reduced by 50%. However, many provinces are reporting a shortage of child care spaces and long waiting lists. For example, in Prince Edward Island, an estimated 2,000 families are waiting for a child care space.

In my home province of Newfoundland and Labrador, media reports refer to the shortage of child care spaces as a “crisis.” In Newfoundland, CBC carried an article over a few days about the shortage of child care spaces and interviewed some parents. It was very interesting. They spoke to one parent who didn’t have a child care space. She was a doctor, and there is a shortage of doctors in Newfoundland and Labrador. If you read what’s in the media, there are 140,000 Newfoundlanders — there are only 500,000 of us in total — who have no family doctor. Here was a doctor who wanted to return to work but couldn’t because she couldn’t get a child care space for her child.

In Saskatchewan, $10-a-day child care is appreciated by those who have a space, but the wait-lists for child care spaces are long, and the issue needs to be addressed.

In Ontario, reports are that thousands more child care educators are needed.

Other provinces across Canada are experiencing the same problem. Even in talking to parents in Alberta, B.C. and Ontario, there is a serious shortage of child care spaces.

The objective of the child care plan was to reduce the cost of child care and improve the accessibility of spaces so parents could participate in the workforce. However, many parents are unable to return to or join the workforce because child care spaces are just not available. This was the overarching objective of the $30‑billion program, and without access to child care, parents cannot fully participate in the economy.

The 2021 announcement of the $30-billion Early Learning and Child Care Plan was announced and received with much optimism and enthusiasm. However, in its second year, it is encountering serious problems in the availability of spaces and child care professionals.

The federal government must meet with its provincial and territorial partners to resolve these problems. If these problems are not resolved, the entire $30-billion child care program is in jeopardy.

That concludes my comments. I would like to close by saying thank you to my colleagues on the National Finance Committee for your great questions; to Senator Mockler, our chair; Senator Forest, our vice-chair, and all the staff who worked so hard to make our meetings successful. Thank you.

Senator Marshall: My first response is I wish I knew as much as everyone thinks I know, but by all means, I have offered. I have actually met with one of my colleagues who is still sitting in the Senate — not from our side, from the other side — to explain the process. Of course, I’m always available to tell what I know, but I can tell you, Senator Lankin, I don’t know everything. It’s a multitude of financial documents, and you’re just going from document to document. If anybody is interested, I am definitely available.

Hon. Elizabeth Marshall: Honourable senators, my remarks will also be brief. I rise to speak to Bill C-44, the first appropriation bill for the new fiscal year, which begins on April 1.

The government’s fiscal year runs from April 1 to March 31, so the old year ends at midnight on Friday, March 31. If we don’t approve this bill, the government will not have the money it needs to continue operating the following day, on April 1.

This bill will approve some funding for the new fiscal year — just under $90 billion. It is called the interim supply bill. The Main Estimates have yet to be approved by the House of Commons and the Senate, so the government needs money to continue operating until the Main Estimates are approved. The $89 billion in this bill represents what we call an advance on the money requested in Main Estimates. That will be achieved by Bill C-44, which details the sums of money that the government requires to operate until June 30, when they expect the Main Estimates will be approved.

If you look at the bill itself, it’s quite lengthy. You’ll see that the funding is requested in twelfths of the amount requested in the Main Estimates because there are 12 months in the year. There are schedules in the bill, and it starts off by saying that all departments and organizations are requesting three months of funding, or three twelfths, which will bring them to the end of June.

Then there are exceptions: Certain votes are requesting four twelfths, some are requesting five twelfths and so on up to twelve twelfths. On average, in this bill, the government is requesting just over 45%. Last year, the government requested just around 40%, and in the year previous to that, they requested 42% of the Main Estimates. So the government is a little on the high side but in the ballpark.

Our Senate Finance Committee does not study the interim estimates, but the Main Estimates upon which interim estimates are based are currently being studied in committee.

As I indicated in my previous speech, it’s important to realize that the funding being approved in appropriation bills, including this bill, is actually less than half of the money being spent by government. Government also has approval in many pieces of government legislation to spend money. As I have said earlier, those other bills include the Financial Administration Act, the social security act, the budget implementation acts and so on.

This bill is requesting just over $89 billion of the $198 billion outlined in the Main Estimates for 2023-24. That concludes my comments.