Hon. Joseph A. Day (Leader of the Senate Liberals):
Honourable senators, this is a matter that has been before us on a number of occasions. It will take a bit of time to explain the intricacies of what has happened in relation to this particular issue along the way.I hope you’ll bear with me because I believe it does deal with a very fundamental point, and that is parliamentarians’ control over the public purse. That is the issue in a nutshell.
Colleagues, often one begins a speech by saying that it’s a pleasure to rise and speak on a bill, particularly when one is introducing a new bill. That is not the case today. This is not a bill that I am pleased to be sponsoring. It is a bill that I had hoped would not be necessary, especially with this government.
The purpose of this bill can be stated very simply. It is to restore Parliament’s authority over borrowing by the government. Colleagues, this issue is a matter of such importance to Parliament as an institution that you will excuse me if I begin with a little bit of history.
Parliament’s authority over the public purse is, quite simply, fundamental to our democracy. It goes back to the very origins of Parliament itself. In 1215, King John signed the Magna Carta. With his signature, he agreed that he and his government would not raise revenues through taxes without the consent of Parliament. That constraint eventually came to cover all sources of government funds. As Alpheus Todd explained in his 1887 seminal work On Parliamentary Government in England:
When the annual revenue raised by taxes is found insufficient, as is the case of war, to meet the annual expenditure, Parliament grants authority to raise money by loan to cover the deficiency.
I would like to stress the words “annual revenue” in that quotation from 1887 because that would be done every year, if needed.
Whenever the government believed it needed to borrow money for the upcoming year, it would come to Parliament and ask for authority to borrow the necessary funds. For a long time, this was done as part of the estimates and supply process. That made sense, as the purpose of the borrowing was debated at the same time as the reasons for the spending, which were also being debated in the estimates. The borrowing request — how much — was also dealt with at the same time as the supply bill, otherwise known as the appropriation bill, was being approved.
However, over time parliamentarians felt they needed more time to debate the borrowing itself, so in 1975 the borrowing authority was broken out of the supply process and set out in its own dedicated statute. In fact, in 1975 the Speaker in the other place ordered a borrowing clause struck from a supply bill related to supplementary estimates. He said that under the rules its inclusion in a supply bill virtually precluded discussion of the borrowing provisions. He recognized that this was unacceptable — indeed, improper. That was how important the Speaker in the other place viewed the requirement of annual debate on the government’s borrowing plans.
Following that ruling, whenever it wished to borrow money, the government would come to Parliament with a borrowing authority bill seeking authority to borrow a stated amount of money for that particular year.
In 2001, the process was enshrined in the Financial Administration Act, in section 43, which reads as follows:
43(1) Notwithstanding any statement in any other Act of Parliament to the effect that this Act or any portion or provision of it does not apply, no money shall be borrowed by or on behalf of Her Majesty in right of Canada except as provided by or under
(a) this Act;
(b) any other Act of Parliament that expressly authorizes the borrowing of money; or
(c) any other Act of Parliament that provides for the borrowing of money from Her Majesty in right of Canada or of a province.
In other words, colleagues, if the government wanted to borrow money, it needed to pass a bill in Parliament. There had to be an act of Parliament that authorized the borrowing of the money.
And if you go back through the statute books, you will see that when governments were running deficits, there was at least one borrowing bill for each fiscal year. This allowed Parliament to scrutinize and debate the government’s fiscal and economic policy and to consider and debate the government’s debt management strategy. And as I have said, this is a fundamental role of Parliament — to hold the government to account for its management of the public purse.
Colleagues, I’m giving you this history because in 2007, centuries of tradition and practice were overturned. Slipped into the middle of a long omnibus budget bill was a small, one-sentence clause that gave away Parliament’s authority over borrowing by the government. The clause sounded so innocent that no one noticed it at first. It was an amendment to the Financial Administration Act. There would be a new clause that would come right after clause 43 of the Financial Administration Act, which I just read.
The new clause read as follows:
43.1 The Governor-in-Council may authorize the Minister to borrow money on behalf of Her Majesty in right of Canada.
Twenty words, easy to miss in an omnibus bill that had tempers fraying and hot debate raging on a completely different issue — in that case, on changes being made at the time to the Atlantic accord and their effect on equalization payments.
But this one short sentence undid hundreds of years of parliamentary history. With it, Parliament gave up its authority — its responsibility, more accurately — to authorize all borrowing by the government. This 20-word clause swept away the government’s need to come to Parliament and said instead that the Governor-in-Council — that is, the cabinet — had the power to authorize the borrowing of money. In other words, the government could now authorize itself to borrow money.
When I spoke about this last June, I said this was like a blank cheque for the government. It could borrow however much money it wanted, whenever it wanted.
Our former colleague Senator Tommy Banks was the first to realize what had happened in that omnibus bill. This was a few days after the omnibus bill had passed into law. He discussed it with Senator Willie Moore and with me, and the three of us then raised the matter with one of our other colleagues, Senator Lowell Murray. Senator Murray, for those of you not familiar with him, was one of the most knowledgeable and respected individuals to sit in the chamber. He had a deep knowledge of Parliament and of the Senate in particular, and he served on and indeed chaired our National Finance Committee for many years.
By the way, this was not a partisan matter. Senator Banks, Senator Moore and I were all members of the Liberal Senate caucus, and Senator Murray had been a long-serving minister in Prime Minister Brian Mulroney’s government.
But what united the four of us was our deep concern at what Parliament, and what we as senators, had unwittingly done. In 2008, the next year, Senator Murray introduced a private member’s bill to repeal the new section 43.1 and thereby restore Parliament’s oversight over government borrowing. He reintroduced his bill several times because the bill died on the Order Paper because of prorogation and elections, et cetera. Then, upon Senator Murray’s retirement from the Senate, Senator Moore took up the cause. All of these were strongly opposed by the government of the day and all died on the Order Paper.
That brings us to 2015 and the election that took place in that year. The Liberal Party ran with a strong commitment to restore and reinvigorate Parliament. And this issue, restoring Parliament’s borrowing authority, was explicitly recognized as part of that commitment. The Liberal Party platform for the last election included the following promise in a chapter entitled, “Giving Canadians a Voice in Ottawa.”
We will . . . require the government to receive Parliament’s approval on borrowing plans.
As you can imagine, Senators Murray, Banks, Moore and I were delighted. To be safe, when Parliament returned following the general election in 2015, Senator Moore re-tabled his private member’s bill. It was at that time Bill S-204. However, we were all reassured in early 2016, when we saw the following clause in Bill C-15, Budget Implementation Act, No. 1. This was the first Budget Implementation Act of the new Liberal government at that time. It reads as follows:
182. Section 43.1 of the Financial Administration Act is repealed.
To make this even clearer, on May 3, 2016, when the Minister of Finance, Bill Morneau, came to the Senate for Question Period, Senator Moore asked him directly to confirm that the government’s bill did what his private member’s bill sought to do, that it would repeal the dreaded section 43.1 and restore the requirement of the government to obtain the approval of Parliament to borrow money.
Minister Morneau began by thanking Senator Moore effusively and saying that the inclusion in his government’s budget bill of the provision to repeal section 43.1 was because of the efforts of the four of us, and he named us individually. He confirmed that the clause did what it appeared to do, and that is to remove section 43.1. So the budget bill passed, received Royal Assent, and we were all understandably very pleased. On September 27, 2016, Senator Moore removed his bill from the Order Paper believing that he had achieved the result he was looking for.
Colleagues, you are likely thinking this is a good news story and all is fine. So why the fuss? Well, honourable senators, we discovered early last June that this critical clause 182 — and the minister indicated that he had intended to remove 43.1 with that particular clause — had never been declared into force by the government. After it had been passed by Parliament, it had never been declared into force. It was never proclaimed.
It had been passed by Parliament with great acclaim by the government and then brushed under the rug by that same government. It was ignored as if it had never been passed at all.
So a year after we passed Bill C-15, the 2016 Budget Implementation Act No. 1, we discovered that section 43.1 was still in force. It took the government until December 2017 — last year — to finally declare the coming into force of section 182 of the 2016 Budget Bill. This finally repealed section 43.1 of the Financial Administration Act, which had given cabinet a blank cheque to borrow however much money it wanted, whenever it wanted. But unfortunately this is still not the end of the story because even though section 43.1 had finally been repealed, it had already been replaced in the interim by another law that did virtually the same thing. Let me explain.
When the 2017 Budget Implementation Act, that is Bill C-44, came to us in mid-June of last year, it contained a new Borrowing Authority Act. That was the title for all statutes used over the years by governments of all political stripes. When they came to Parliament asking for authority to borrow money. These had always been separate stand-alone bills, but this time, instead of a separate stand-alone bill, the 2017 Budget Bill had buried inside it a Borrowing Authority Act. So there is a borrowing authority act inside a budget implementation bill.
That gave the government permission to borrow money, but it was very different from any Borrowing Authority Act that Canada’s Parliament had ever seen previously.
Unlike past legislation, it did not ask Parliament for permission to borrow a specific amount of money for the year. Instead, it anticipated the repeal of section 43.1, which everybody was looking for, and introduced another clause that virtually incorporated the same thing as section 43.1.
The new clause reads as follows:
3. The Minister, with the authorization of the Governor in Council under subsection 44(1) of the Financial Administration Act and in accordance with that Act, may borrow money on behalf of Her Majesty in right of Canada, by way of the issue and sale of securities, as defined in section 2 of that Act, or otherwise.
Colleagues, as you can see, that is very similar to the now repealed section 43.1, which read:
The Governor-in-Council may authorize the Minister to borrow money on behalf of Her Majesty in right of Canada.
The new clause 3 provides that the minister with the authorization of the Governor-in-Council may borrow money. It is just moving a couple of players.
Instead of “the Governor-in-Council may authorize the Minister to borrow money,” the new clause 3 says, “The Minister, with the authorization of the Governor-in-Council . . . may borrow money.”
There were two other differences with this new clause 3. First, the new section begins by apparently restricting this power to borrow to “by way of issue and sale of securities.” But then the provision goes on to say “or otherwise.” In other words, this covers all kinds of borrowing by the government. It is a very sweeping provision.
Does this go further than the original section 43.1 provision, which simply gave the minister power to borrow without specifying how he or she could do so? I don’t have an answer to that at this time, but perhaps this is a question our committee can examine when it receives the bill.
The other difference between this new section 3 and old section 43.1 is trickier to work through, but bear with me. The new clause 3 says that this borrowing may happen “with the authorization of the Governor-in-Council under subsection 44(1) of the Financial Administration Act and in accordance with that Act.”
So you go to the Financial Administration Act, and we look at 44(1).
It reads as follows:
When by this Act or any other Act of Parliament authority is given to raise money by Her Majesty, the Governor-in-Council may, subject to the Act authorizing the raising of the money, authorize the Minister to borrow the money by any means that the Minister considers appropriate.
This simply says that when an act of Parliament — and the new Borrowing Authority Act would, of course, be an act of Parliament — gives authority to raise money, the Governor-in-Council may, subject to that act, authorize the minister to borrow the money by any means that the minister considers appropriate.
In other words, honourable senators, all this is a tight circle giving cabinet and the minister full authority to borrow money in any amount and any way they consider appropriate and, most notably, without any need to go for Parliament’s approval.
Colleagues, unless we take action to change the provision, don’t expect to see any future borrowing bills here in the short term. The government will already have all the authority it needs to borrow very large sums of money for many years to come.
Our colleague Senator Woo was the sponsor of Bill C-44 here in the Senate at this time last year, and he did an excellent job arguing for the adoption of the bill.
On the Borrowing Authority Act, he pointed to the fact that it introduced, for the first time, a limit on total outstanding federal debt, specifically, $1.168 trillion.
Colleagues, that is certainly a valuable addition to Parliament’s oversight of the federal finances, but it is a much broader-brush oversight than what Parliament had before, which required the government to come to Parliament whenever it wished to borrow money and opened up an opportunity to question the borrowing proposal, why that amount was necessary and what the government intended to spend it on.
The fundamental problem under the new Borrowing Authority Act is that the government can continue to borrow money every year without the authorization of Parliament so long as the total outstanding federal debt does not exceed $1.168 trillion.
The 2018 Budget document explained, at page 359, that:
. . . Parliament authorized a maximum stock of outstanding government and Crown corporation market debt of $1,168 billion. The Government does not expect to exceed this limit in 2018–19 and therefore is not required to seek renewed Parliamentary approval. Outstanding government and Crown corporation market debt is projected to reach $1,066 billion in 2018–19 . . . .
Honourable senators, this means that at the end of March 2019, next year, when the total federal debt reaches $1.066 trillion, there would be room for more than $100 billion of additional borrowing before the $1.168 trillion ceiling would be reached. More than $100 billion of government borrowing in future years, after March of next year, without any parliamentary approval or oversight.
As a point of reference, there is a table at page 25 of the 2018 Budget which estimates budget deficits in the four years following the 2018-19 fiscal year, when the total accumulated stock of outstanding debt is projected to be $1.066 trillion. The table shows that in the 2019-20 fiscal year, a deficit of $17.5 billion is projected. In the 2020-21 fiscal year, there will be a $16.9 billion deficit; in 2021-22, a $13.8 billion deficit; and in 2022-23, a $12.3 billion deficit.
So in those four years after next year, the government is projecting accumulated deficits of $60.5 billion. But as we have seen, the government can borrow more than $100 billion before it reaches the new debt ceiling of $1.168 trillion, which means that they will not have to come back to Parliament while borrowing funds to cover these deficits.
So unless there are large borrowings by Crown corporations, the government can run large deficits over the next five years without hitting the new debt ceiling and consequently, without needing to come to Parliament for any authority to borrow.
To make matters even worse, under the new Borrowing Authority Act, the government need only report to Parliament every three years as to what it’s been doing with the money it has borrowed. This means there will not be any more reporting until after the next federal election. Once every three years is simply not good enough, honourable senators. We have had governments that haven’t lasted more than three years. How are we as parliamentarians to hold them to account when they can wait three years before telling Parliament anything about their borrowing activities?
So, honourable senators, I think there are improvements to be made to the 2017 Borrowing Authority Act, which was tucked inside the Budget Implementation Act of 2017. And that is what my bill is attempting to do — bring improvements to the Borrowing Authority Act.
As you see — or as you will see when you refer to the bill — it is quite short.
First, it would amend section 3 of the new Borrowing Authority Act to make it clear that the government must come to Parliament for authorization to borrow money. In other words, we will ensure that, having finally repealed section 43.1, we have not turned around and done the same thing with another law, and that’s section 3 that I referred you to.
The next amendment, in clause 2 of my bill, is to section 4 of the Borrowing Authority Act. That is the section that provides what Senator Woo praised as the upper limit on outstanding federal debt. I take Senator Woo’s point that this represents a positive step, and my bill only amends this section to bring it into accord with the amendment I just explained in section 3 of that law. So this is really a consequential amendment to the first, critical amendment.
The third and final clause of my bill changes the new three-year reporting requirement to annual reporting on the government’s borrowing activities.
Basically, my bill requires that the government must come to Parliament annually to explain what they wish to borrow, if they need to borrow. We will keep the upper limit that has been proposed by the government, but they won’t be able to wait for three years to tell us how they spent the money.
Needless to say, my bill would come into force upon Royal Assent. There is no special coming-into-force clause in this bill as we have seen that trick — once burned, twice shy. We have certainly learned our lesson on that one.
So that is what this bill is all about and that’s what it would do, honourable senators.
Last year, many of us stood in this chamber to pay tribute to one of the truly great former senators, the Honourable Allan J. MacEachen. He worked with equal passion to advance social justice and to uphold the principles of our parliamentary democracy. He understood that there is no social justice without strong democratic institutions.
The Hon. the Speaker pro tempore: Senator Day, excuse me.
Honourable senators, it is now 6 o’clock, and pursuant to rule 3-3, I’m obliged to leave the chair until 8 o’clock, when we will resume, unless it is your wish not to see the clock.
Is it agreed not to see the clock?
Hon. Senators: Agreed.
The Hon. the Speaker pro tempore: So ordered.
Continue, Senator Day.
Senator Day: I was talking about Allan J. MacEachen. He understood that there is no social justice without strong democratic institutions. That is something Prime Minister Justin Trudeau highlighted in his address at the celebration of Allan J.’s life.
Colleagues, one of Senator MacEachen’s first battles here in the Senate after he was appointed was to defend Parliament’s right to scrutinize the government’s borrowing plans.
Borrowing authority may seem dry and technical. It is not an easy or flashy issue, but it is deeply important, one that goes to the heart of our parliamentary democracy, namely Parliament’s control over the public purse.
This is not a partisan issue. Allan J. MacEachen, the great Liberal, understood this. Lowell Murray, one of the great Progressive Conservatives, understood it as well. It’s an issue of the right of Parliament as an institution.
I hope that we can all support the principle of this bill at second reading and allow the question of Parliament’s control over government borrowing to be fully explored in committee.
The Hon. the Speaker pro tempore: Senator Day, will you answer a question from Senator Bellemare?
Senator Day: Yes.
Hon. Diane Bellemare (Legislative Deputy to the Government Representative in the Senate): I want to start by thanking you for your continuing interest in this subject.
This issue was debated several times in committee in the context of the bill sponsored by Senator Moore. You will recall that the discussions got fairly lively. During these debates, it emerged that the act had been amended in 2017 in response to the crisis affecting public finances. Due to the urgency of the situation, the government struck down or repealed previous legislation. This was quite a radical step to take, I admit, given that democracy has to be our focus and our duty.
As part of the reform introduced by the government, the Borrowing Authority Act was renewed. As for the maximum amount provided for, the existing act covers not only amounts borrowed by the government, but also amounts borrowed by Crown corporations. In this broader context, it is estimated that by 2019, the debt level will be $1.066 trillion. It is projected to reach $1.068 trillion in 2019-20. If the debt level reaches $1.200 trillion, and exceeds the maximum, the government will have to report to Parliament. In other words, I think the way that you presented —
The Hon. the Speaker pro tempore: Senator, is there a question coming? We are in debate.
Senator Bellemare: I do not want to join the debate just now.
Are you aware of the Parliamentary Budget Officer’s analysis of this government bill?
Senator Day: Thank you for the question. I am aware of the study that was done. It sought to include pensions in the formula. However, that is not the matter we are discussing now. Pensions are not included in this amount. It is possible that the amount will reach that point in two or three years. It is also possible that in five years, if the deficit is not too big, the government may be able to continue without having to explain to Parliament how much money it is spending over a three-year period, the three-year period referred to in the act. I have asked that the three-year reporting be changed to annual reporting. However, I am satisfied with the limit that is there.
Senator Bellemare: I have a follow-up question about the Parliamentary Budget Officer’s report.
Senator Day, have you looked at the previous act that was repealed in 2007? Did you know that it was never applied between 1996 and 2007?
Senator Day: No, I didn’t know that.
Senator Bellemare: Are you aware that the previous act was much more restrictive than this one?
Senator Day: I wouldn’t call it more restrictive. That’s a matter of interpretation.