Finance Committee on April 7th, 2008

[Garth Turner, Liberal, Halton, ON]

That's the question, because now we're looking very carefully at whether contribution in kind.... Obviously this could be a major point of avoiding taxation for a lot of people who have maxed out their RRSPs and have high pension income. This becomes a real third leg of tax avoidance for people who are wealthy. Is that correct? It has all the earmarks of that. If we allow contributions in kind, it seems to exacerbate that.

I just wanted to get your point of view.

[Prof. David Duff]

It's an interesting point, at least as far as I understand it so far. The tax-free savings plans aren't in any way integrated with the limits that exist on RRSP contributions or registered pension plans. It's just an additional amount. So it really opens up an additional massive vehicle of tax-free savings for high-income people. At the very least, one would think that if one were to do it, one should integrate it. I'm not a fan of it to begin with, because the super returns that one can earn in one of these tax-free savings plans never get taxed. With an RRSP, at least in theory, the ordinary rate of return on capital is exempt from tax, but super returns are taxable. That's not the case with these.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Wallace, you have five minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

We've been criticized, and we have discussed the GST cuts we've had over the last couple of years, but in 1993 part of the platform of the Liberal Party of Canada was to get rid of the GST completely. And they seem to forget that point. By the way, they promised that and never did it. Oh yes, we promised to do something and we did it. There's a complete difference there.

There was a reduction of a couple of points, but it would have been even worse if we had committed to Canadians that we were getting rid of the consumption tax, the GST, completely. Would you agree with that?

[Prof. Robin Boadway]

Yes, I think I said in my remarks that we shouldn't have reduced the GST. We should maintain the GST where it is, partly because it's a good tax on economic grounds, but also partly because it's going to make it more difficult to get harmonization with the provinces if the federal government reduces the GST and has less at stake.

[Mike Wallace, Conservative, Burlington, ON]

I just wanted to make that point. Thank you very much.

The next question I have is more of a general question. You gentlemen and the previous people we had before us live in academia. My question is, in your modelling do you take into account the political ramifications or political acceptability of some of the changes you're recommending? Is that among the criteria of your examination at all, or is that left up to us and your modelling based on pure economic theory?

[Prof. David Duff]

First of all, I'm at a law faculty. I don't do any modelling; I talk. You may have noticed that.

As I responded to the question about carbon taxes, I think the practical implications of these things are important. You guys have to take them into account. When I write, I try to take them into account too. We'll have a conversation about gift and inheritance taxes at some point. I know that's a difficult tax to introduce, but I think it's a right one and that there are ways to introduce it.

[Prof. Robin Boadway]

I feel very strongly that I'm not paid to make political judgments and wouldn't be able to make them anyway. I'm paid to come up with what I think are the best forms of taxation, or policies more generally, from a normative and efficiency point of view.

If one starts compromising one's advice by what one thinks is politically feasible, we wouldn't, for example, have signed the free trade agreement with the U.S. and we wouldn't have a GST, among other things. I can honestly say that I don't think that's my job. I think it's your job.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.

Mr. Godbout, do you have anything?

[Prof. Luc Godbout]

You are the decision-makers, so the final decision is up to you. We make recommendations to the best of our knowledge. Theoretically, we have fewer constraints with respect to difficulties. We consider things in an ideal world, on occasion, but the fact remains that we put forth the best ways of doing things, beyond partisanship. Then you must also look beyond partisanship and take into account the difficulties involved in implementing certain measures.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Godbout, I have a question for you. I appreciate the charts you provided. We hear a lot about productivity, of course, around this table, and not just this table but throughout the government. We are way behind in terms of average annual labour productivity growth rates, based on your charts here.

Can you tell me what other countries are doing that we're not, and why they're ahead of us on this?

[Prof. Luc Godbout]

No, because we are doing the same thing as other countries, even if we are not perhaps doing it as well. I emphasized investment and equipment, because that is where we are not doing as well. However, if we wanted to pat ourselves on the back today, we could talk about research and development, which also contributes to productivity and to technological progress.

In fact, we were lagging far behind in research and development 20 years ago. We are doing much better now. I do not have the figures for all of Canada, but I know that in comparison with OECD countries, Quebec has gone from the back of the pack into the lead. Of course, the idea here is not to emphasize what is going well, but to look at what can be improved. That is why I was talking about the importance of investing in machinery.

[Mike Wallace, Conservative, Burlington, ON]

Based on the analysis you've done for us today, which we have in front of us, it's the investment, private or public, in production equipment that can make the most significant change to the productivity levels in comparison with GDP in this country. Is that where you would, from our perspective, focus our emphasis?

[Prof. Luc Godbout]

That is a change that can be made much more quickly than in areas of research and development and human capital, like education. Changes in those areas take about 20 years. We cannot expect our people to be better trained and more productive overnight. That is accomplished in the long term. However, investing in equipment can be done much more quickly. That is why I emphasize that, also because that is an area where, in comparison with others, they are not doing as well.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on. We have some motions that the committee has to take care of before the end of the meeting.

I want to thank you for coming in. It's been very interesting; I appreciate the work you've done in this area. I'm sure I speak on behalf of all the committee in saying thank you very much for contributing to the study we are doing.

We will take a two-minute break as we have our witnesses back away from the table, and we will reset for the motions.

[The Chair, Conservative, Rob Merrifield]

We'll call the meeting back to order.

We now have three orders of business. We'll start with the easy one first. It's one you don't have in front of you. It's a motion that the committee authorize the printing of 100 additional copies of the report on the pre-budget consultation.

(Motion agreed to)

[An hon. member]

I didn't hear a cost.

[The Chair, Conservative, Rob Merrifield]

No, we don't have a cost. It's not part of this.

Now, if the other two go as simply as that, we'll have it made.

We'll now move on to the notices of motion. Mr. Dykstra has presented a notice of motion.

Mr. Dykstra, are you in a position to move this?

[Rick Dykstra, Conservative, St. Catharines, ON]

Yes, I would like to move it and perhaps speak to it very briefly.

[The Chair, Conservative, Rob Merrifield]

Go ahead.

[Rick Dykstra, Conservative, St. Catharines, ON]

Mr. Chair, there's been a bit of inspiration, actually, from Mr. Martin on this one in terms of the private member's bill that he moved last week. We all know the difficulties we face with a private member's bill if we're not at the top of the list. It's very difficult to know when it may come up. Even if the bill were to carry, it would come to this committee for further study, which we would be doing over that period of time. That could be next September, Mr. Chair; it could be a lot further on than that.

The time has come for us to take a little bit of time to study this. We spend millions of dollars producing the penny. The question of whether or not it is of value anymore has come up. It may have been 20, 30, 40, or 80 years ago.

Certainly Mr. Martin's private member's bill and the motion I put forward got all kinds of air time. I heard that on the weekend folks were talking about this issue. So I certainly think it's a relevant one. Whether there are cost savings involved in not having the penny anymore or whether there is an absolute need to continue producing this product certainly, at the very least, bears a study, albeit probably a brief one. But bringing some experts in to give us some thoughts on that and being able to produce a report at the end and make a recommendation to the Minister of Finance on that issue certainly is within the mandate of the committee.

I'm not suggesting we put all of our current business aside to study it. But when the time does come over the next while when you see fit to work in some of those meetings, Mr. Chair, I hope the finance committee would see fit to take a look at this issue.

[The Chair, Conservative, Rob Merrifield]

We have a motion before us.

For discussion on the motion, Mr. McCallum, you had your hand up first, so go ahead.

Then it will be Mr. Crête.

[John McCallum, Liberal, Markham—Unionville, ON]

This is not an unworthy issue, but it's hardly at the top of our list of concerns, economically speaking. No doubt the government will want the budget implementation bill to come at the appropriate time.

This resolution we've agreed upon, in terms of the whole credit crunch and asset-backed commercial paper crisis.... I think after the vote we're going to want to see a lot of people, Purdy Crawford and many others. It seems to me this is a pressing issue and it's time-sensitive.

I'd just as soon defer this, at least until after we've covered the other items.

[The Chair, Conservative, Rob Merrifield]

Just to clarify, what I heard the mover say is that this not take priority over either our study on taxation or the bills, which take priority automatically.

Is that what you're saying?