MPs mistakenly gave up scrutiny over loans
Parliament used to annually review the billions of dollars the government borrowed until it unwittingly gave away that power in a clause buried in a budget bill that went unnoticed until it was too late.
Some parliamentarians admit they abdicated their responsibility when the legislative change slipped through unchallenged in the Conservatives’ 2007 omnibus budget bill, a time when no one expected Canada would be racking up deficits again.
Since then, the finance minister has had the authority to borrow and fund Canada’s debt without going to Parliament for permission.
At the same time, the government “consolidated” the borrowings of major Crown corporations with its overall debt.
Before 2007, its borrowing on behalf of the Crowns would have needed Parliament’s approval, but no longer.
Canada’s budget watchdog recently flagged the “prodigious” growth and magnitude of federal loans and other “non-budgetary spending” over the past six years.
On Tuesday, the Parliamentary Budget Office is following up with a report on the Main Estimates, the government’s spending plan for the year, which includes a closer look at loans, loan guarantees and other investments, largely through Crown corporations, made with little scrutiny.
These range from direct loans to students through the Canada Student Loans program to loans through Crown corporations to people or businesses.
The loan ceiling peaked at more than $306 billion in 2008-09 after the 2008 global financial crisis when governments were shoring up the economy with loans and intervening in the market with programs such as the Conservatives’ stimulus spending. Loans accounted for about $40 billion in 2002-03 compared with the $161 billion that year in budgetary funding approved by Parliament. By 2013-14, that ceiling was up to $211 billon, compared with the $239 billion in regular spending. The big players in such “nonbudgetary spending” are the big four Crown corporations: Canada Mortgage and Housing Corp., Export Development Canada, Farm Credit Corp. and the Business Development Bank of Canada.
The government has issued a cumulative total of $400 billion in loan guarantees, mostly to Crown corporations. A government guarantee reduces a lender’s risk, lowering the interest rate and sparking economic activity that might otherwise not happen. But in the event of a default, the government is on the hook for some or all of a loan.
CMHC, for example, receives government backing for the mortgage bonds issued by its Canada Housing Trust.
Mostafa Askari, the assistant parliamentary budget officer, said the PBO isn’t raising red flags about the loans or guarantees. For the PBO, the big issue is transparency and due diligence, and it wants MPs to be aware of the growth and magnitude of these transactions, which get little scrutiny.
Parliament approves and votes on them, but in delegating its authority — through legislation — to the government to then manage them as it sees fit, MPs have no ongoing scrutiny. This means MPs can approve the money in one year and, since the loans don’t expire as do programs run by departments, they might never review the transactions again unless the government wants to increase the ceiling on loans or borrowers default and the government faces writedowns.
MPs are responsible for overseeing public spending, but the big complaint is that the process has become perfunctory, with more than $250 billion spent every year approved with little scrutiny. Nonbudgetary spending gets even less.
“Overall Parliament is doing a very shoddy job in terms of scrutinizing government expenditures and borrowing,” said Liberal MP and economist John McCallum. “We are still at the point where we give only marginal scrutiny to the estimates of budgetary spending, let alone non-budgetary spending, which is largely ignored.”
McCallum said the government operations committee tried to tackle the issue when it issued a major report — supported by all parties — to reform the Estimates process, but the recommendations went nowhere. McCallum said Parliament “doesn’t have a clue what the government is doing with billions of dollars.”
Former senator Lowell Murray said Parliament’s loss of borrowing authority in the 2007 marked further erosion of its primary job as the “power of the purse.” He and former Liberal senator Tommy Banks spotted the change after the bill had passed. Murray appealed to the government to restore Parliament’s borrowing authority and introduced a private member’s bill to undo the changes, but the bill died several times on the order paper.
Murray said that previously, when government ran deficits, it had to bring a borrowing bill to Parliament to explain its fiscal and economic policies, along with its debt-management strategies.
Bureaucrats have insisted the change was an administrative one and never seen as an end run on Parliament. The government was awash in surpluses for more than a decade; the balance sheet was stable and debt was declining. No one foresaw the government racking up deficits again and that the outstanding debt would, in six years, balloon from $700 billion to more than $1 trillion.
The International Monetary Fund working paper noted that with budget cuts and restraint, politicians are attracted to loans and guarantees as “cheap” and “stealthy” ways to achieve policy goals; they aren’t upfront cash costs like direct program spending and bypass the regular budget process.
The Conservatives’ strategy to wipe out the deficit has been aimed at cutting direct program spending. McCallum said he has seen no evidence of borrowing used as “back door” programs, but Parliament gets so little information about them that it wouldn’t know.
Murray said Parliament’s decline in authority began in 1968 with the introduction of the “deeming rule;” the Estimates sent to committee for detailed study are “deemed” to have been adopted by certain deadlines whether they are examined or not. It continued with centralization of power to the point where the political Prime Minister’s Office and the non-partisan Privy Council Office are “indistinguishable.” Added to that: ministers are left out of the loop and omnibus budget bills are stuffed with items that have nothing to do with the budget.
Former PBO Kevin Page said the system is so broken that it will take a Royal Commission to fix it.
“Those who govern are supposed to do so by the consent of the people. Government and Parliament have become disconnected with our people. We have forgotten our history. There will be a price to pay,” Page said.