-- CTF Demands 180 degree Turnaround on Millennium Fund Accounting, Credibility of Government's Books Hangs in the Balance --

OTTAWA: Canadian Taxpayers Federation (CTF) federal director Walter Robinson appeared before the House of Commons Finance Committee today as it studies Bill C-36, the "Budget Implementation Act." In his 45-minute session with the committee, Mr. Robinson outlined the CTF's "vehement opposition" to the accounting treatment of the Millennium Scholarship Fund.

"The government is playing 'fast and loose' with established accounting standards and it is undermining the credibility of its own books," stated Robinson. "They booked the Millennium Fund and its $2.5 billion price tag in fiscal year 97/98 but will not spend it until the year 2000. This slush fund approach to government is wrong and the money should be returned to Canadian taxpayers."

Robinson also reiterated the CTF's support for Auditor General Denis Desautels and his continuing battle with the federal government as it flouts commonly accepted public sector accounting principles.

"The Auditor General is the most independent fiscal watchdog in this country and if Mr. Martin and his officials continue to ignore him, we should all be very concerned," stressed Robinson.

During his appearance, Mr. Robinson stressed that if he were to claim a $2,500 RRSP deduction on his 1997 tax return but not actually make the contribution until the year 2000, Revenue Canada would be up in arms. "Yet this same fiscal sleight-of-hand is how the federal government has recorded the proposed Millennium Fund," added Robinson.

Robinson concluded by stating, "We urge this committee to take a principled and non-partisan stand and tell the Finance Minister that established accounting standards must be respected and adhered to by the Government of Canada. To do anything else risks a crisis of confidence in the books of the nation."

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Address by Federal Director Walter Robinson to the House of Commons Finance Committee:

Thank you, Mr. Chairman. As Federal Director of the Canadian Taxpayers Federation, it is indeed a great pleasure to appear before your committee this morning.

Mr. Chairman, before I begin my remarks with respect to Section One of Bill C-36, I have one housekeeping matter to clear up with this committee. During my appearance last fall before you, I spoke extensively on the subject of Corporate Welfare and where this government should end direct financial assistance to business. Last week we released a 16-year study of Industry Canada financial assistance to business and I am pleased to provide a copy of this report today to your committee in response to the requests, last fall, of Mr. Solberg and Mr. Riis.

Turning to the budget implementation act, Bill C-36, allow me to preface my remarks with the following observations. We applaud the fact that Mr. Martin has indeed balanced our books for the first time in 28 years. Yet the road taken to arrive at this destination is not the route that was laid out before taxpayers five years ago. In 1994, Canadians were promised that each dollar in tax increases would be accompanied by five dollars in spending cuts. Unfortunately, the reverse has been the case - each dollar of spending cuts has, in fact, been accompanied by four dollars of tax increases.

Furthermore, some of the most fundamental and constructive recommendations that were forwarded by this committee in Keeping the Balance were not implemented. Specifically, I speak of your recommendations concerning a substantive increase in the basic personal exemption, killing bracket creep and achievable debt-to-GDP ratios. I hope to explore these issues further with you following my formal presentation.

Turning to Bill C-36 and the Millennium Scholarship Fund, we believe some fundamental issues must be discussed.

First, allow me to express our support for the principle of directed assistance to Canadian students as envisaged in the Millennium Fund. We have long advocated that if the government is going to deliver program or entitlement payments, this delivery should be through the most direct route possible. In the vernacular of commerce, "Cut out the middleman" would be the most apt phrase to describe our support for "source to recipient" direct delivery of government funding. Indeed, such an approach is the most cost-effective, transparent and accountable way of delivering government funding. We only wish the Government would employ this approach in its delivery of funding for our aboriginal peoples, but I digress, as this is a subject for another day and another standing committee.

Although we support the principle of directed assistance, we can not support the Millennium Fund as currently proposed. Our opposition is rooted first, in the inappropriate accounting treatment of the fund as enunciated during the budget speech on February 24th and second, in the question of constitutional encroachment into an area of exclusive provincial jurisdiction.

While provincial representatives best elaborate the constitutional question and provincial concerns, allow me to state the obvious. Section 92 of the BNA Act (1867) and the Constitution Act of 1982 clearly delineates that education is a matter of sole and exclusive provincial jurisdiction. Most notably, the Government of Quebec has clearly denounced the Millennium Fund as an encroachment into its sphere of provincial jurisdiction. We believe that the devil of this initiative is in the details, and that provincial calls for opting-out with compensatory increases to CHST provincial funding floors will be forthcoming. This eventuality may derail the Millennium Fund initiative.

Honourable Members, the aforementioned issues of direct funding and the constitutional question, pale in comparison to our vehement opposition to the accounting treatment of the proposed Fund. Let me cut right to the chase, by recording the Millennium Fund as an expenditure as opposed to an appropriately footnoted liability, only serves to, and I quote from the Auditor General, "weaken credibility of the federal government's reported results."

This is a scathing indictment of the federal government's desire to play "fast and loose" with objective accounting standards as recommended by the Canadian Institute of Chartered Accountants Public Sector Accounting and Auditing Board (PSAAB). For two decades, the PSAAB guidelines have been developed to ensure that the books of the Government of Canada are viewed with the utmost of integrity and respect. Three successive Auditors General have worked hard to make this a reality.

Yet, this reality has now been perverted. The Finance Minister, his Deputy and the Secretary of Treasury Board fail to realize the serious problem of discarding two decades of work and progress between public sector audit professionals and the accounting profession. While some may view this as an argument for accountants, allow me to frame it another way.

If I were to follow the government's example, then I should be able to claim a $2,500 RRSP deduction on my 1997 tax return even though I have no intention of actually making this investment until the year 2000. Revenue Canada would immediately put the kibosh on this and flag me for an audit so quickly it would make my head spin. Yet this same fiscal sleight-of-hand is how the federal government has recorded the proposed Millennium Fund.

What is even more troubling is that the federal government has demonstrated a willing and repeated contempt for PSAAB standards.

Whether it be the Millennium Fund this year, the Innovation Fund last year, or the GST/PST harmonization payment to the Atlantic provinces the year before, the Auditor General has been very correct to sound the alarm. As the Auditor General has noted, such accounting policies, and again I quote, "open the door for governments to influence reported results by simply announcing intentions in their Budgets and then deciding what to include in the deficit or surplus after the end of the year once preliminary numbers are known."

Honourable members, this is precisely what has happened. By booking the Millennium Fund in fiscal year 97/98, Canadian taxpayers were effectively denied $2.5 billion of tax relief and/or debt reduction. This is patently wrong and seriously undermines the legitimacy of the Office of the Minister of Finance.

I cannot overstate the seriousness of this situation. Expenditures that are booked in a given fiscal year must be actual expenditures for that same fiscal year. To build slush funds with hard-earned taxpayer dollars violates an explicit contract between Canada's 22 million taxpayers and the Government of Canada. In essence, it is taxation without representation or results.

In closing let me raise a political concern. Above and beyond the cogent and fundamental accounting arguments that I have put forward, you should also consider the following political argument.

By booking the Millennium Fund in fiscal 97/98, the government has effectively recorded an expenditure -- which we know is not really an expenditure, instead it is an accounting shell game -- this expenditure has been recorded in the budget of a government whose legitimacy and mandate stemmed from the general election of 1993 and the 35th parliament.

Yet the Millennium Fund is an initiative of the new and tenuous mandate given to Liberals on June 2nd, 1997 and a product of the 1998 budget speech, the first budget speech of the government for the 36th parliament. In other words, this amounts to fiscal revisionism, attributing an initiative of this parliament to a previous one. Where does this irresponsibility end Are we going to allow the government to rewrite the public accounts for the last five, ten or fifty years Of course we wouldn't, but this is precisely the precedent we set if we allow the government to walk down this very dangerous road!

Again this is a serious matter. We urge this committee to take a principled and non-partisan stand and tell the Finance Minister that established accounting standards must be respected and adhered to by the Government of Canada. To do anything else risks a crisis of confidence in the books of the nation.

With that closing point as food for thought, I look forward to your questions.