Last June, we wrote an article (“Mr. Flaherty’s Blank Cheques” iPolitics June 18, 2013), which supported Senator Wilfred Moore’s private member’s Bill S-217.  This proposed Act would amend the Financial Administration Act to once again require parliamentary approval for any new borrowing by the federal government in financial markets. 

This Act “died” on the Order Paper when the Government dissolved Parliament in September 2013.  Undaunted, Senator Moore has re-introduced the Bill.  It is presently being reviewed by the Senate Committee on National Finance.  This will be at least the third attempt to restore the requirement for Parliamentary approval for any new borrowing requirements by the government.

Buried deep in Budget Implementation Act 2007 – the first of many massive budget omnibus bills tabled by this Government – was a provision which eliminated the need for Parliamentary approval for any new borrowings by the government.  The amendment to the Financial Administration Act (FAA) now allows the Government to borrow whatever amount it wants, simply through a request from the Governor-in-Council. No longer does the Government need Parliamentary approval for any new borrowings – any amount over and above the refinancing of maturing market bonds and Treasury Bills plus an amount of $4 billion for prudence.

There are a number of issues raised by this change.  Nowhere in the 2007 Budget was there any indication that the Government was proposing changes to the FAA to eliminate the need for a Borrowing Authority Bill.  In Budget 2007, the Minister of Finance proposed “to amend the FAA to provide for greater transparency and accountability regarding the government’s borrowing activities and increase flexibility to meet future borrowing needs, especially with respect to the consolidation of Crown corporations”. 

Mr. Flaherty went on to say, “With this enhanced transparency and accountability, the Government proposes removing the statutory limit on borrowings”.  The same wording was repeated in Annex 3, “Debt Management Strategy 2007-08”, with no further details.

Few people understood what this implied and those who thought they did (us included) mistakenly believed that these changes related solely to the consolidation of borrowings for three Crown corporations – Business Development Bank, Canada Mortgage and Housing Corporation and the Farm Credit Corporation. At the time of Budget 2007, none of the opposition parties in the House of Commons and Senate realized what these proposed changes really entailed.
Only after the Budget Implementation Bank 2007 received Royal Assent, Senator Banks raised the issue with a number of his colleagues and the implications of the amendment were realized.  Since then, Senator Moore, among others, has attempted to restore Parliament’s control over new borrowing by the Government by introducing amendments to the FAA.
In Budget 2007, the Government argued that the changes were primarily made for greater transparency and accountability.  They did neither.  Instead, they removed an obstacle to the Government of having to obtain Parliamentary approval in the event of new borrowing requirements and an important instrument by which Parliament could hold the Government accountable.
As Senator Lowell Murray argued “whenever one hears the words transparency, flexibility, simplified, or streamlining from a government official, one knows they are arrogating themselves more authority and discretion and that they are cutting someone out of the action.  In most cases, the body they are cutting out of the action is Parliament and that is the case with this bill” (debate on Bill S-236, June 10, 2008).

In the Senate committee hearings, officials from the Department of Finance argued that greater flexibility to meet future borrowing requirements was needed to meet borrowing needs due to the consolidation of the borrowings for the three Crown corporations.  

However, governments have borrowed on behalf of these Crown corporations in the past and never felt that there was any need for increased flexibility.  The annual borrowing requirements of these three Crown corporations are relatively stable, unless there is a major government policy decision affecting their borrowing requirements. 
This did happen in 2009 when the Government promised to commit up to $75 billion in loans to CMHC to fund the Insured Mortgage Purchase Program.  However, no funds were advanced to CMHC until the Budget Implementation Bill for 2009 was passed. No additional flexibility was provided by not having a Borrowing Authority Bill.

It has also been argued by the government that increased borrowing flexibility was required to respond to the turmoil in financial markets in 2008-2009 and the requirement for billions of new funding under the Government’s 2009 Economic Action Plan.  Yet nowhere in Budget 2007 was this mentioned as a reason for changing the FAA. 
Moreover, the situation in 2008-2009 was a great deal less critical than the situation in the mid-1990s, when the government was facing the “debt wall”. At that time, the federal debt-to-GDP reached a post-war high of 67 per cent.  The Wall Street Journal wrote a highly critical editorial in January 1995; “Check out Canada, which has now become an honorary member of the Third World in the unmanageability of its debt problem. If dramatic action isn’t taken in next month’s federal budget, it is not inconceivable that Canada could hit the debt wall … (and) have to call in the International Monetary Fund to stabilize its currency.  It has lost its triple-A credit rating and can’t assume that lenders will be willing to refinance its growing debt forever.”
Notwithstanding the seriousness of the situation, the Government was able to manage the debt crisis at that time and get Parliamentary approval of its Borrowing Authority Bill. If a government could do it under those circumstances, there is no reason why a government couldn’t have done it in 2008-09

In 2008-09, the federal debt-to-GDP was under 30% and there was no fiscal crisis.  There was no possibility of being unable to borrow in financial markets.   In November 2008, the Prime Minister and the Minister of Finance claimed the country was in good fiscal and economic shape.  They quickly changed their minds and undertook an excessive stimulus program – far beyond what the OECD and IMF had been recommending. 

The requirement for a Borrowing Authority Bill, approved by Parliament, would not have prevented the government from acting quickly.  Parliament can be recalled on a 24-hour notice to deal with emergency situations.  Furthermore, under the FAA, no spending can occur without Parliamentary approval – such approval was not secured until months after the tabling of Budget 2009.  Parliament could easily have reviewed and approved a Borrowing Authority Bill in that time frame.
Government officials have also claimed that the increased transparency on borrowings and the planned uses of funds are now included in the Debt Management Strategy and Debt Management Report.  However, these reports have been published since the mid-1990s.  They are not new. Although they include somewhat more information, that information was normally provided to Committee Members examining the Borrowing Authority Bill.  The only real change is the amended FAA requirement that the Debt Management Strategy be published as part of the Budget Plan.  Prior to 2007, it was standalone document. These reports are background material for a Borrowing Authority Bill, but they are definitely not a substitute for such a bill.
The federal government government’s market debt reached an all-time high of $667 billion in 2012-13.  For 2014-15, the government was provided with an aggregate borrowing request from the Governor-in-Council of $270 billion. Yet, there is no longer any scrutiny by Parliament of these amounts. Furthermore, the government can request through the Governor-in-Council an increase in the “upper limit” throughout the course of the fiscal year. They do not have to go Parliament to increase that limit.
Budget 2007 and the accompanying budget omnibus bill were a turning point in accountability and transparency.  As we have witnessed since 2007, the Government has made increasing use of Budget Omnibus Bills. Vagueness and obtuseness have continued in successive budgets.  The relationship between the initiatives contained in the Budget Omnibus Bill and those proposed in the Budget has become like the game “Where’s Waldo”. 

This came to a head with the inclusion in the Budget Implementation Act of 2013 which included provisions to change the Supreme Court Act to allow the Government to nominate its candidate to the Supreme Court.  There was no mention of these changes in Budget 2013, as this only became an issue six months after the tabling of the Budget.  We would strongly recommend that opposition members of the House and Senate committees examining future Budget Implementation Bills ask departmental officials to clearly point out where the initiatives are referenced in the budget.  Those initiatives that cannot be properly referenced should be referred to the Speaker for a ruling as to whether or not they should be included in the Budget Implementation Bill.

A Borrowing Authority Bill provided Parliament with increased financial oversight and scrutiny as it was considered a money bill and, therefore, a vote of confidence.  The Budget, the Borrowing Authority Bill, the related budget bills and the Main Spending Estimates were all considered important instruments of parliamentary accountability and control.  With the Budget Implementation Act of 2007, one of these key instruments is now gone. At the same time, the other instruments of accountability and control have been weakened.

The elimination of the need for a Borrowing Authority Act results in a restraint on the scrutiny function of the legislative branch in Parliament. It swings the balance of power to the executive branch.  As noted by Ms. Lori Turnbull, Associate Professor at Dalhousie University in her appearance before the Senate Finance Committee, “in a responsible government system that balance of power is supposed to rest with the legislative branch and at the federal level, it currently does not”.

It will be up to the Conservative government to decide whether this important role of financial control is restored to Parliament. Given this government’s disdain for Parliament, this is not likely to happen.

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