Conservative Dissenting Report

Preamble and Summary

The House of Commons Standing Committee on Government Operations and Estimates (the Committee) began its study of the Canada Post Corporation (CPC) in fall 2016, following the release of the Canada Post Task Force report. The purpose of the Committee’s study was to conduct a discussion, grounded in the Task Force Discussion Paper, to clearly lay out the facts and viable options for the future of Canada Post.[1] The mandate of the Committee’s study was to hear the views of Canadians and other stakeholders on the future of the CPC, and submit its recommendations to the Government of Canada by the end of 2016. The reason for this dissenting report is that it is the conviction of the Conservative members of the Committee that the majority report does not adequately reflect the testimony received by the Committee nor does it lay out viable options for the future success of the CPC; on the contrary, the majority report simply presents a wish-list of incoherent proposals, and ignores credible recommendations that would help the CPC create a sustainable business model, grounded in the evolving demand for the products they offer. The Committee has a responsibility to accurately report on what was heard in its consultations, and to recommend what it sees as the most effective ways to provide well as a fiduciary responsibility to fulfill the mandate of the study, and lay out facts and viable options for a sustainable future for the CPC.

The Committee heard clear testimony that Canadians value the CPC as a postal institution. Canadians believe that the CPC should both continue to deliver their mail and should work to ensure the sustainability of its future.[2] Canadians also clearly indicated, however, that they do not support government subsidies, underwritten by tax dollars or higher taxes, to support the CPC’s operations. Further, Canadians do not want the CPC to pursue avenues of revenue that do not fit within the mandate of a postal delivery corporation.[3] We are troubled by the fact that the majority report dismisses the practical solutions that the CPC had implemented or begun implementing, to secure its future simply because of poorly thought out campaign promises by the Liberal Party of Canada. The majority report is a fantasy example of political damage control that will not benefit the position of the CPC, nor secure its future. The Conservative Members of the Committee, therefore, feel compelled to offer the following reasonable, responsible recommendations to help ensure the future of an institution greatly valued by the vast majority of Canadians.  

Canada Post Consultations by the Numbers

Over the course of fall 2016, the Committee heard from 190 witnesses, of whom roughly one-quarter were women, fewer than 10 were Indigenous Canadians, and almost one-third were representatives from organized labour.[4] This summary does not mean that the testimony given by those who appeared before the Committee is not valid; rather, that it is neither a balanced representation of all stakeholders, nor proportional to the Canadians who have a vested interest in the CPC’s success. In comparison, the Task Force Discussion Paper’s public opinion research includes the following:

“The views of Canadians living in urban, suburban, rural, and remote communities were gathered through a national telephone survey conducted with 2,246 randomly selected Canadians with an over-sampling of autonomous seniors, cell phone only users, youth 18 to 34, people with mobility issues, rural Canadians, and Canadians living in the North. Overall survey results are considered accurate within a margin of error of plus/minus 2.0% at the 95% confidence interval.

“The views of Indigenous peoples living on- and off-reserve across Canada were gathered through a national telephone survey with a random sample of 401 Indigenous peoples. The margin of error for the total sample is plus/minus 4.9%, and for the on- and off-reserve samples is plus/minus 6.9%, both at the 95% confidence level.

“Finally, the views and opinions of small, medium, and large businesses in the private, public, and not-for-profit sectors across Canada were gathered through a national telephone survey conducted with 1,202 randomly selected businesses. Overall survey results are considered accurate within a margin of error of plus/minus 2.8% at the 95% confidence interval.”[5]

It is therefore important to contextualize the Committee’s recommendations within both the broad sampling of Canadians conducted by the Task Force, representing 35 million Canadians, as well as the more focused testimony of the witnesses who appeared before the Committee, to generate comprehensive recommendations regarding the future of the CPC.

General Overview

Canadians are highly satisfied with the performance of the CPC; however, most Canadians recognize that they use letter mail much less frequently than they used to, given increasingly easy access to electronic mail services. Canadians accept that the CPC faces significant financial pressures that threaten its long-term viability, and that operational changes to the CPC are necessary to increase its sustainability.[6] The Task Force’s survey on recommendations, as well as testimony provided by witnesses before the Committee, demonstrate that there was a clear consensus that the CPC should be open to adapting its services, hours, and costs, especially if this adaptability ensures that Canadians do not pay higher taxes or higher stamp prices for core CPC services.[7] This view is evident in the opinion that everyone in urban and suburban areas should switch to a community mailbox (agreed to by 67% of those surveyed by the Task Force); that the CPC could reduce delivery to every other day (agreed to by 73% of those surveyed); and that the CPC could add a day or two to the time it takes for a letter to get to its destination (agreed to by 65% of those surveyed).[8] These measures do not require taxpayer financing, and Canadians are supportive of more adaptability in place of higher taxes.

From a financial perspective, without a comprehensive overhaul of its existing structure, the CPC faces serious fiscal pressures in the years ahead. In public testimony heard by the Committee in late-October, representatives from Ernst & Young, the firm retained by the Task Force to conduct an audit and provide a 10-year financial projection of the CPC, said the following:

“Looking ahead, the financial position’s projection to 2026 paints an unsustainable future, with over $700 million per year of ground-rate loss. Drivers for these negative results are multiple, but include the continuing mail erosion driven by electronic communication; inflationary cost pressures; the network growth linked to the Canadian population increase; competition, including new service providers, lower cost service providers, and disruptive technologies; and the funding requirements of the pension plan. Our analysis leads us to believe that Canada Post’s projected loss is at the optimistic end of the acceptable range of estimates; it could be higher.”[9] (emphasis added)

This financial outlook grounded the Task Force’s report, and is shared by the CPC’s own fiscal projections.[10] This negative financial view was not, however, shared by the Canadian Union of Postal Workers who noted that the CPC generated profits in 17 of the last 20 years, and must not, therefore, be facing serious financial challenges. However, the Committee in general, and its Conservative members specifically, agree that unless operational costs are contained, severe financial shortfalls are inevitable. With declining demand for high-profit letter mail, the CPC’s current model is not sustainable in the short- or long-term.

The Majority Report

The Conservative Members of the Committee cannot in good conscience endorse the opinion put forward by the majority of the Committee, as it does not seriously address the financial shortfall that the CPC faces. The majority opinion rejects several initiatives that would tangibly improve Canada Post’s financial position, and includes many value statements that are inconsistent with meaningful recommendations, mostly redundant, and, in some cases, completely unrelated to the ensuing recommendation. Conservative Members of the Committee do not reject every recommendation of the majority opinion; however, it would be irresponsible to endorse a document so out of touch with the harsh realities facing the CPC.

That said, Conservative Members of the Committee agree with and fully endorse the following majority opinion recommendations:

Recommendation 1:    Canada Post be maintained as a universal public service for all Canadians and conduct its operations on a self-sustaining financial basis while ensuring that profits generated are reinvested within the Corporation.

Recommendation 2:    Canada Post prioritize and concentrate efforts in protecting its core mandate to provide high-quality, affordable letter and parcel delivery services to all Canadians in an innovative manner befitting the 21^st century. 

The Task Force evaluated options using three criteria: potential to increase operating income, market dynamics, and fit within the CPC’s existing capabilities.[11] Two more important criteria were included when drafting this dissenting report: potential to increase savings, and whether or not the option is desired by Canadians. The two recommendations noted above are the only ones contained within the majority opinion that fit within this evaluative structure. There are several value statements throughout the majority opinion that are reasonable, but they are already existing practice within the CPC and not substantive recommendations worthy of including in this report. Unfortunately, most of the recommendations in the majority opinion ignore the costed financial projections for the future of the CPC, and, therefore, do not have a meaningful chance of helping improve (let alone stabilize) the CPC’s fiscal fortunes. The analysis of the Task Force report, Ernst & Young, and public opinion suggests that the CPC should end the moratorium on conversion from door-to-door mail delivery to community mailboxes (CMB). This directly contradicts the majority report, which unreasonably and irresponsibly assumes that the majority’s other recommendations will more than make up the significant savings shortfall that CMB installations would have realized. The majority report justifies continuing the CMB moratorium through flawed analysis in the preambles to recommendations 19 and 23, which assumes that the future of the CPC may actually reside in a restoration of door-to-door delivery to preserve market share and recoup lost revenue. The Committee heard no credible evidence that the CPC has lost revenue because of ending door-to-door delivery, and the majority’s assertions otherwise indicates a blind disregard for the financial facts.  

The majority opinion then advocates utilizing the CPC’s network of post offices to provide broadband and wireless cellular services to rural and remote locations. On the face of the recommendation, using the CPC’s broad network of post offices is not objectively irresponsible. However, the Committee did not hear substantive testimony to indicate that there is a widely-held desire for, or financially sustainable means of providing such services. The technical possibility of this proposal is also questionable. This is another example of a recommendation that is untested, uncosted, and lacks clear supporting information to make the case for such services.

The final contentious recommendation in the majority opinion worth mentioning is regarding the CPC’s pension plan, which faces a significant funding shortfall in order to fulfill its solvency requirement. The majority opinion recommends both ending the solvency requirement, as well as incorporating the CPC pension plan into the Public Service Pension Plan. Notwithstanding the fact that it would be an unfair competitive advantage for the CPC to be exempt from solvency requirements, where its direct private competitors are not, neither of these recommendations provides for any sustainability for the fund as a whole.

The majority opinion seems intent on providing recommendations to advise the Minister of Public Services and Procurement Canada, who oversees the CPC, to use the opportunity of this consultation to restructure the administration and mandate of the CPC. However, it was not the purpose of the study to direct or advise the Minister to make structural changes, and if the Minister or the Government wishes to pursue a restructuring of the CPC or redefine its mandate, they should simply do so. Providing a recommendation to legitimize a decision that is not otherwise supported by Canadians as a whole is not part of the Committee’s mandate.

Recommendations

Background to Recommendations 1 and 2: Traditional Services

Canadians have clearly voiced their opinion that there is a continued need for a public letter-mail and parcel delivery provider in Canada, and that the CPC should specifically ensure the financial sustainability of its core services prior to engaging in anything that exceeds its mandate. The CPC should focus its efforts on protecting its traditional services, and recognize the importance of rural post offices for small-towns and communities. During rural consultations, the message from the witnesses who testified was consistent with a desire to maintain traditional postal services. There is a divide between the desires of urban and rural Canadians on the future of the CPC; while urban Canadians have access to hundreds of postal outlets and franchises within a short distance, rural Canadians regularly travel a substantial distance to the single post office in the region. This dissenting report therefore reiterates the need for the CPC to protect and maintain its position in rural and remote areas of Canada. Given that the CPC provides, in some cases, the only link between these communities and the rest of the country, it is important that initiatives implemented regarding the CPC’s future focus on protecting postal delivery in rural Canada.

It is also important to note that the CPC is an independent Crown corporation. It was separated in 1981, after previously operating as a department within the Government of Canada. One of the primary motivations underpinning Crown corporations is to ensure the corporation is free to make decisions that are in the best interest of the corporation itself and not at the direction of the political interests of the Government of the day. As previously pointed out, it is troubling that the current Government is attempting to impose a specific, politically-motivated direction on the CPC It is very important that the CPC remain independent.

Recommendation 1:  Canada Post is an independent crown corporation, and the Government of Canada ought to refrain from limiting the autonomy of a crown corporation in its affairs and the direction it chooses for conducting its business.

Recommendation 2: That Canada Post focus on its traditional purpose, to provide high-quality, affordable postal delivery services to all Canadians.

Background to Recommendation 3: Innovation and Sustainability

The Committee heard an extensive amount of testimony from the CPC regarding its initiatives to raise revenues. Many of these initiatives were generated by employees of the CPC, which is why a recommendation to simplify communication between employees and employers regarding innovation is reasonable. However, witnesses that testified before the Committee demonstrated a disconnect in ideas of innovation, with postal banking repeatedly mentioned as something worth exploring given that countries similar to Canada with national postal services have postal banking regimes. Conversely, other witnesses, including those from the Canadian Federation of Independent Business, national banking associations, and various credit unions expressed skepticism toward the idea of postal banking, and recommended that the CPC focus on its core business model.[12]

The CPC provided postal banking services from 1869 to 1968, which were ended under then Prime Minister Pierre Trudeau. Legislation enacted in 1968 prevents the re-establishment of a postal bank, as it would contravene the Bank Act, the Trust and Loan Companies Act, and the Financial Administration Act. The CPC examined postal banking options that would not contravene these Acts, which include partnering with either one financial institution exclusively, or as a service provider for a plurality of financial institutions. The Committee saw evidence of a push to form relationships between the CPC and financial institutions in 2010, but this was not met with enthusiasm by the banking sector. This sentiment was expressed clearly by the banking representatives when they testified before the Committee. The studies conducted by the CPC regarding postal banking contain commercially sensitive information, and cannot be reproduced in this report. However, it is worth noting that documented public support for postal banking is weak, as those surveyed were uncomfortable with the CPC making a foray into an industry wholly separate from mail. After reviewing extensive research conducted by the CPC in the late 2000s, including several pilot programs, as well as consulting research conducted by Oliver Wyman regarding postal banking, it is clear that Canada Post has all the relevant information regarding the potential benefits of it pursuing postal banking. This dissenting report agrees with the findings of the CPC and the Task Force, in that postal banking is not a silver bullet idea that will save Canada Post and put it on secure footing for decades to come; rather, it is a flawed utopian idea that, at best, might be revenue neutral if structured correctly. Most likely, however, postal banking would be financially risky for taxpayers.

The Committee also heard testimony regarding the possibility of incorporating other types of Government services into the CPC’s operations to generate revenue by capitalizing on the CPC’s extensive retail network. Indeed, this large-scale network is what is often cited as the CPC’s primary advantage as a Corporation (after name recognition), and much of the innovation-related testimony focused exploiting the CPC’s significant retail footprint. However, there was not widespread interest on part of Canadians to conduct more Government business out of a CPC location, as it detracts from the CPC’s traditional business framework.[13]

It is also relevant to note a few findings regarding leveraging the CPC’s retail network to conduct Government services out of Canada Post locations in rural and remote areas. Conservative Members on the Committee are not opposed to the CPC providing basic capabilities, such as a computer and printer, at rural and remote locations to facilitate access to online Government services. However, it is important to note that the Committee surveyed every Government Ministry, of whom many expressed no interest whatsoever in conducting Government business out of a CPC outlet, save for one. The CPC ran a pilot program providing passport services, but decided to abandon the program due to lack of demand; Canadians had easier and less expensive online access to fulfill the same function. Further, workers told the Committee that providing additional services on behalf of the Government would require more staffing and training at a cost to the CPC, despite the relative sporadic use of such services. It makes little sense for the majority to expect that new services offered by the CPC on behalf of the Government would be used any more than they have been in the past, to expect that these services would generate meaningful revenue without cost, or to expect that Government ministries would pay the CPC for the ability to use CPC real estate. This idea would not generate revenue. Therefore, given the innovation already shown by the CPC, as well as the hesitation demonstrated by Canadians toward initiatives that fundamentally redefine or, in some cases, are entirely inconsistent with, the CPC’s traditional business activities, this report reaches its third recommendation:

Recommendation 3: That Canada Post find innovative, yet reliable, ways to remain sustainable, while staying true to its traditional, core mandate.

Background to Recommendation 4: Sustainable Operations

The Committee heard testimony from several individuals who spoke about the cascading fiscal shortfall that the CPC faces over the next decade. These individuals are experts from inside and outside of the CPC, including the witnesses from Ernst & Young. In addition to the Committee’s testimony, the Task Force report enumerated several proposals that have received serious study, offer tangible solutions, and are properly costed, audited, and verified. The Task Force is clear, however, in admitting that these proposals do not address the entire projected shortfall, but constitute a meaningful start. The Task Force report notes that continuing CMB conversions will have a revised annual savings target of $400 to $450 million by the time the CPC reaches a steady state after door-to-door delivery has ended.[14] This number has been revised, because of unanticipated reactions to the initial CMB installations, which forced the CPC to adjust its savings target. Ernst & Young assessed the revised target to be reasonable. The Task Force report is clear that ending the CMB conversions would necessitate that the CPC find an additional $370 million in projected savings per year, given that CMB conversions to date have already saved $90 million over 2014-2015.[15]

However, some of the testimony the Committee heard noted that CMBs were not a welcome addition to the CPC delivery model, and some witnesses expressed a preference to return to door-to-door delivery. In contrast to the testimony from these witnesses, public opinion and the Task Force demonstrate that two-thirds of Canadians are in favour of continuing CMB conversions, particularly if it positively impacts the CPC’s fiscal future.[16] Considering the fiscal opportunity created by the CMBs, as demonstrated through the analysis heard by the Committee, it is difficult to reconcile the majority’s recommendation to continue the moratorium on CMB conversion. It is important to recognize, however, that there are Canadians who cannot access CMBs, and the CPC ought to continue its door-to-door accommodation programs for elderly and disabled Canadians, and for those who are otherwise unable to access CMBs. The CPC should also better communicate accommodation options, as the Committee heard testimony that suggests the CPC did not adequately communicate the options available to seniors or persons with disabilities, who cannot easily access a CMB.

In addition to analysis regarding CMB conversions, the Task Force report reviewed converting corporate post offices into franchise post offices in recommended regions. Financial analysis provided to the Committee showed that corporate outlets are needlessly expensive, particularly when the same services can be provided in franchised outlets. [17] Canadians surveyed indicated that they were marginally less satisfied with service from a franchise outlet than a corporate outlet, though the difference is not substantially meaningful to warrant outright disregard of the idea. In fact, CPC customer satisfaction surveys demonstrated that urban franchised post offices have equal satisfaction to corporate stores, and get higher praise for their longer operating hours. In addition to corporate office conversions, the Task Force report and witnesses from the CPC proposed streamlining the CPC’s processing centres, to make its business more efficient, and to account for continued, and necessary, growth in parcel delivery. The Task Force’s recommendations are reasonable, and should therefore be considered. Most importantly, however, the Task Force report conducted widespread consultations representing the diversity of Canadians, while the committee only surveyed a narrower subsection of individuals highly interested in the CPC. Because the Task Force’s recommendations more accurately represent the views of Canadians, their analysis is more consistent with what Canadians want. This leads to the fourth recommendation:

Recommendation 4: That Canada Post considers implementing the sustainable operation measures proposed in the Task Force report.

Background to Recommendation 5: Protecting Taxpayers

The Committee heard that the CPC’s primary area of growth is in parcel delivery; however, competition within this industry is fierce and growing, and the margins are much slimmer than with letter mail.[18] To remain competitive in the parcel delivery sector, the CPC must continuously focus on eliminating waste and pursuing efficiencies, and would be unwise to expect or rely on Government subsidies. The Committee heard repeated testimony demonstrating that Canadians are not interested in paying higher taxes or substantially higher stamp prices to subsidize the CPC’s operations. Excess profit should be reinvested within the CPC itself for needed capital improvements and efficiencies, and to keep stamp prices at a reasonable rate, as those who are still required to mail a letter should not be gouged when doing so if the CPC is profitable.

The CPC must also take steps to address its looming pension problem, in a manner that does not make taxpayers ultimately responsible. The Committee heard testimony from financial experts external to the CPC, as well as experts from within the CPC, that the pension solvency deficit continues to hamper the CPC’s financial position.[19] Steps need to be taken to mitigate this risk. Conservative Committee members do not accept the testimony from some individuals who argue that the CPC ought to disregard this solvency gap, given that it only becomes pertinent if the CPC must pay out its pension obligations at once. This financial leniency is not consistently applied in the private sector, meaning the CPC would have an unfair advantage in labour costs when compared to its competitors should it be exempt from pension solvency requirement. As well, the majority report’s recommendation 13 states that the CPC pension plan should be incorporated into the Public Service Pension Plan. This recommendation is unwise, given that there are roughly 50 existing federal Crown corporations, with dozens of subsidiaries, each with its own unique pension plans. It would set a dangerous and expensive precedent to include the CPC pension plan in the Public Service Pension Plan, and open the possibility that every Crown corporation should be incorporated into the Public Service plan. Given that Crown corporations are fundamentally supposed to operate independent of the Federal Government, the majority’s recommendation is poorly chosen. In light of the existing pension shortfall, however, the CPC could look at stabilizing its pension plan by considering a shared-risk model, or a defined contribution plan for new employees.

Recommendation 5: That Canada Post ensure that any steps it takes to modernize its operations remain revenue neutral for the sake of taxpayers.

Conclusion

The Committee heard from fewer than two hundred individuals, over the course of several weeks of consultations. The Committee visited fifteen Liberal ridings, five Conservative ridings, and two NDP ridings. It had one stop in British Columbia, and one stop in Alberta, representing a constituent base of nearly nine million Canadians, compared to two in Nova Scotia, two in Newfoundland, and one in Prince Edward Island representing a constituent base of less than two million Canadians. The testimony received is valuable, and we appreciate the work of the Committee and witnesses; however, as already mentioned, the testimony should not be viewed as entirely representative of what Canadians truly think and want from the CPC. The Committee’s findings must be taken in concert with the findings within the Task Force report, which contacted and surveyed a much broader and more representative section of Canadians. There is a large disconnect between what witnesses of the Committee gave in testimony for what they believe the future holds for the CPC, as well as the surveyed views of Canadians, and the fiscal reality that faces the CPC. After hearing significant and studied testimony, the Conservative Members, are secure in the financial analysis completed for the Task Force, as well as analysis completed for the CPC itself in its ongoing studies of its own future. This analysis does not predict a stable, fiscally sound future for the CPC if no significant changes are undertaken.

The sensible recommendations listed in this report, the recommendations from the majority opinion of the Committee study highlighted in this report, and the extensive consultative analysis prepared by the Task Force report provide an acceptable beginning for the CPC to continue to seek innovative new ways to strengthen its finances. It is not evident that a strong subsection of Canadians desire that the CPC should reinvent itself, change its traditional mandate, or provide services unrelated to postal delivery. As well, it is not the mandate of the Committee (or our right) to dictate what courses the CPC pursue. It is the Committee’s mandate to provide feedback to the Government as to the desires of Canadians, and the Conservative Members of the committee are confident that this dissenting report encompasses the most commonly heard opinions of all Canadians. It cannot be stressed enough that evidence-based decisions are what will ultimately provide fiscal strength to the CPC and ensure that it will continue providing Canadians from coast-to-coast with the ability to send and receive mail.