Thank you very much.
The aspect of Bill C-52 that I'd like to speak to today is the tax-back guarantee proposed in budget 2007. The view I'd like to present is that, at best, this measure is a gimmick, and at worst, it places an inappropriate constraint on future federal budgets.
One could start from the premise that the federal government would have reduced income taxes by a given amount in any case, in which case it's really meaningless to say that the income tax reductions are being funded by interest savings from debt repayment rather than from general revenues. If a dollar of interest savings is used to finance tax cuts, that simply frees up a dollar of general revenues for something else. Conversely, if a dollar of general revenues were used to finance the tax cuts, that would leave a dollar of interest savings to finance something else.
So if one assumes that the tax reductions were going to be made in any case, this supposed connection between debt repayment interest savings and the finance into those tax cuts wouldn't have any practical effect. However, when this tax-back guarantee is understood in conjunction with the commitment to repay at least $3 billion of debt annually, the tax-back guarantee effectively mandates a corresponding minimum level of tax reductions in every budget, regardless of changing fiscal circumstances.
Now, it's conceivable that if future revenues ended up being less than projected, this tax-back guarantee would in fact force the federal government to cut spending in order to fulfill its guarantee. We see this as quite problematic, given the pressing needs for investment in public services, public infrastructure, and other priorities.
I suppose that I should just clarify that if this current government were to say that it would have a policy of using interest savings from debt repayment to finance income tax reductions, there wouldn't necessarily be anything wrong with that. What I find really problematic about Bill C-52 is that it purports to enshrine that policy in legislation forever and for always. If we regard the budget-making process as an optimization problem, speaking mathematically, the best possible solution would come about by giving democratically elected representatives maximum latitude to evaluate the resources available, the needs that are out there, and to allocate funds accordingly. The tax-back guarantee places an artificial constraint on that process and reduces the latitude that our elected representatives will have to allocate resources among various priorities.
Essentially, I would suggest that even if the federal government is committed to this notion of using interest savings to finance tax cuts, it's a bad idea to enshrine that policy in Bill C-52, and I would definitely recommend against it.
The other issue I would like to suggest is around this whole notion of the fiscal imbalance and increased federal government transfers to the provinces. That was definitely a major aspect of budget 2007 and Bill C-52.
I suppose the notion of the fiscal imbalance really speaks to the insufficiency of funds to finance public services at the provincial level. Yet what we've seen since the budget is that the Government of Quebec has used a substantial amount of increased transfers to finance tax cuts instead. And if that's what happens in other provinces, then we really won't have made any headway in solving the fiscal imbalance.
My plea today is that in increasing these transfer payments to provincial governments, the federal government consider attaching some conditions to those transfers to ensure they're actually put into the public services that the people of these provinces need and that provincial governments said they needed the money to fund in bringing forth this notion of the fiscal imbalance. In particular, I think it's important, in light of increased Canada health transfers, for the federal government to take a much more active role in trying to enforce the key principles of the Canada Health Act.
With that, thanks very much for allowing me to appear before this committee. I very much appreciate the opportunity.