In a report, the consultancy says "there is currently no valid economic rationale for the Retail Debt Program," better known to Canadians as Canada Savings Bonds and Canada Premium Bonds, which allows citizens to loan money to the government with interest, for small time periods.
The program, formed in 1946 and born out of a precursor that was designed as a way to raise funds for the war effort, has shrunk to a shadow of its former self. The total value of all funds in the program was as high as $55 billion in 1987, but that has shrink to about $7.7 billion in 2013. That's less than one per cent of all the insured retail savings instruments in Canada that year.
Indeed, the program has shrunk so much that far from being a source of funds, it now costs Ottawa more money to run than it takes in. "It is no longer a net source of funds for the government, since it has been necessary since 1987 to borrow on the wholesale market to fund the net yearly redemptions," KPMG said.
Despite the recommendations of the report, the Department of Finance said Thursday it has no plans to shutter the program.
"While noting KPMG's recommendations, the government recognizes that approximately 2.5 million Canadians continue to hold over $6 billion of government of Canada retail debt products and over a million Canadians today still purchase Canada Savings Bonds and Canada Premium Bonds, demonstrating Canadians' continuing interest in the program," Stephanie Rubec, a spokeswoman for the Finance Department, said in a statement.
Low risk, low return
It's no coincidence that the program peaked during a time when interest rates were in double-digits in the 1980s, when the prospect of loaning money to something as safe as government while getting a guaranteed return of more than 10 per cent for 10 or more years was intuitively attractive.
In 1981, for example, one could buy a Canada Savings Bond and get 19.5 per cent back on your money, guaranteed.
Today, however, in the face of microscopic interest rates that have dragged down both the cost of borrowing and the return on savings, the appeal has diminished. The return on the batch of Canada Savings Bonds offered in April is a comparatively meager one per cent — which means an investment of $1,000 on April 1 of this year would net someone a profit of $10 in a year's time.
That's below the current inflation rate, and less than what's offered at most high-interest savings accounts at banks, which as just as safe in terms of investments because they are 100 per cent backed by the Canada Deposit Insurance Corporation for up to $100,000.
Some versions of the bonds didn't even lock in the same returns over time. A Canada Savings Bond series 547, issued in 1992 saw its annual return drop from six per cent when it was first offered, all the way down to 0.50 per cent in 2013 when it matured.
Ottawa says the vast majority — 88 per cent — of Canada Savings Bonds sales now come through payroll deductions, where employees automatically save money by putting money into them at their place of work.
Unfortunately from the government's perspective, that's also one of the most expensive ways of managing the program, as it incurs costs for things like call centres and other administrative costs. The KPMG report says as many as 220 people are employed to run that program. By that math, it takes one employee to run every $35 million worth of CSB debt under management. In other countries with similar programs, that ratio is closer to $100 to $300 million per employee, KPMG notes.
All in all, the program costs Ottawa $58 million a year to run, not including the cost of interest payments, KPMG said.
If the government doesn't want to cancel the program, at the very least they could eliminate the payroll sales channel to make the program more efficient and start "no-frills version" that would eliminate the ability of Canadians to buy bonds through deductions from their paycheque, KPMG suggests.
That would allow the government to continue to provide Canadians with access to government bonds while reducing costs related to the program.
"The only channels maintained would be cash sales channels," the report said. Among other things, this would allow "a gradual downsizing of the call centres as the payroll sales channel gradually winds down."
Rubec said the government is assessing potential efficiencies to reduce program costs, but that it planned to maintain its existing distribution channels.