Finance Committee on Nov. 2nd, 2011

[Kevin Wark]

That's correct.

[The Chair, Conservative, James Rajotte]

In your presentation you talked about RRIF minimum rules. If RRIF minimum rules were changed at a future time, would that address the concerns that you're raising here today?

[Kevin Wark]

Sorry, just to clarify, if the RRIF minimum rules are changed in the future, will it address our concerns? Is that the question?

[The Chair, Conservative, James Rajotte]

Yes, you talked about RRIF minimum rules being outdated. Is that something that in future can be addressed?

[Kevin Wark]

Yes, I think probably this committee has heard submissions, if not this year, in prior years, about updating the RRIF minimum rules. It's a concern for RRSP holders and in respect to these rules. We have more general concerns, but if the RRIF minimum rules are updated, that will be an improvement over the current impact of these rules on IPPs.

[The Chair, Conservative, James Rajotte]

So your proposed amendment to this committee would be what?

[Kevin Wark]

There would be two proposals. One is to create a de minimis rule where if the surplus is less than a certain percentage of the actuarial liabilities, this rule does not apply. The federal government recently implemented a rule where they allow up to 25% of pension surplus to cover economic downturn cycles. Another approach would be to measure the value of the benefits in the plan versus a life annuity, which is really what an IPP or defined benefit pension plan is supposed to provide, i.e., lifetime benefits. So at age 72, an actuarial evaluation could be done based on what income can be derived from a life annuity from the value of the benefit in the pension plan. This could be compared with the benefit that is actually being provided. If it's greater, then that becomes the benefit and has to come out of the plan.

[The Chair, Conservative, James Rajotte]

I appreciate your putting that on the table.

Colleagues, I'm out of time, but I don't have any further MPs on the question list.

Okay, Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thanks, Mr. Chair.

You can see that we want to make sure we get all the information from you. It has been a very interesting discussion, both the questions from the chair and the comments from Mr. Giguère.

Mr. Macdonald, I don't think you had a chance to respond to Mr. Jean. He was being a little over-eager when he was asking questions. I wanted to give you the opportunity to respond a little bit more, because I think this is important. This is where the bubble that Ottawa lives under bursts—when we start talking about Bill C-13, what's missing, and what the reality is out there. There will be 100,000 more breadwinners put out in the streets in the coming months.

You referenced rising inequality. I'd like you to talk about that. I think your institute has done some studies on this. Some people have talked about the late 1920s, saying that the clock has been turned back on inequality, back to those times. Could you confirm to what extent we've turned the clock back, because of the policies of the last few years?

You've talked about the lower-paying jobs and the fact that we have more people without work than in May 2008. That's important. You also talked about the debt load of the average Canadian family. The middle class is living a debt crisis. There's no other way to put it. They have debt loads of 150% of their annual income. Families have been struggling with lower and lower wages by indebting themselves more and more. If you could have this committee revise Bill C-13 so that it actually dealt with some of these realities, what changes would you bring in to address these problems that don't normally penetrate the Ottawa bubble?

[David Macdonald]

Thank you.

In terms of looking at some of the overall costs that were not necessarily included in this bill, if we take a look at corporate income tax cuts worth about $15 billion a year, the departmental freezes worth about $2 billion by 2013, and the $4 billion proposed cuts in the 2012 federal budget, we're now totalling over $20 billion in changes that primarily benefit corporations or put people out of work.

If we take that and compare it to increases in GIS and OAS, which are certainly beneficial and we look forward to, those numbers are in the range of $300 million. There's a question of scale.

Generally in Canada, as you say, we have seen increasing inequalities now reaching the level that we saw in the 1930s, with the richest 1% or 10% taking home much larger portions of the national income than they used to, and the result of that is stagnating incomes for the middle class and for lower-income Canadians.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Could you just repeat that so we all understand? The clock has been turned back to the 1930s, the Great Depression, in terms of income inequality now in the country.

[David Macdonald]

That's right, and in terms of personal taxation, interestingly. The personal tax rate for someone living in Ontario, for instance, is now about the same as it was in the 1930s. The downside of having this concentration of wealth at the top is that everybody doesn't participate in economic growth. So we see GDP go up, and that should be good for everyone, but the problem is that it's not necessarily good for everyone. It's definitely good for wealthier Canadians, but it's not necessarily good for middle-class Canadians, who haven't seen their incomes go up in about three decades.

Of course it also drags down economic growth, because you don't see middle-class Canadians buying cars, buying TVs, and so on.

In terms of the budget bill, small steps can be taken. One of the things I suggested was a new income tax bracket at the higher end that would put us part of the way back away from the low rates of the 1930s and today. That's part of it.

The growing debt load on Canadians, which has likely reached somewhere around its peak, is stable in the short term as long as interest rates don't go up, but once they do we have a very serious problem in terms of economic growth, because consumers are debt-poor.

In that instance, I'm not sure this budget can address that in particular, but I think that better expenditures on social programs, for instance, do support middle-class and lower-income Canadians. They're more likely to take advantage of those services.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Julian.

Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I have a short question.

Mr. Macdonald, you mention that the gap is spreading from the rich, and I guess you said the middle class. What salary would you say is the cut-off point?

[David Macdonald]

It's a gradient. It gets worse as you get higher up. The top 0.1% or 1% is gaining a larger portion of the income than they did 10 or 20 years ago. So the cut-off point is probably around the top 30%. They have seen incomes increase over the past 30 years. Once you get below that point, you see real income stagnate.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

What about $150,000, $155,000. Would you consider that...?

[David Macdonald]

That would be in the top 10%, definitely. The cut-off for the top 10% of income earners is about $110,000.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I wanted that clarified, because in the House today Jean Crowder said that she included herself in that group that was being cut off. So you don't really agree with that analysis.

[David Macdonald]

Can you say that again?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

An MP wouldn't be considered in that analysis.

[David Macdonald]

An MP would definitely be in the top 10% of income earners in Canada, yes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

You just needed to get that straightened out with your colleague.

That's the only question I had, Mr. Chair. Thank you.

[The Chair, Conservative, James Rajotte]

Okay.

I think we've exhausted our questions tonight. I want to thank our witnesses again for coming in, especially on short notice and at night. We appreciate your information. If any of you have any information you want us to consider tomorrow, please provide that to us, and we will do so.

Thank you so much.

The meeting is adjourned.