Finance Committee on June 1st, 2012

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Coming from the labour side for many years, we hear the talk of best practices, and this is one of those areas where we should be looking around the world for the best practices and applying them.

I'd like to go to Mr. Nikias. You also well brought forward something that we have gone to many times. It's the fact that people who are on a disability pension at 65 will pay a penalty with this change, because in most cases they'll remain in that pension for two extra years at a much lower rate than with OAS and GIS combined. As well, you mentioned people who are on social assistance suffering the same thing.

We had a briefing on Bill C-38 and were told that in the full costing of the changes to the OAS, the social policy simulation database or other types of econometrics were not used. I'm really not directing that question to you so much as Mr. Wolfson, perhaps.

If you've worked for the civil service, Mr. Wolfson, have you ever seen the application of that database?

[Dr. Michael Wolfson]

Indeed, I've used it. I paid StatsCan $600 a couple of months ago and ran my own analysis.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Can you imagine, sir, the government of the day not using that and not providing MPs with the outcomes from that process to allow us to do the due diligence necessary to look at these changes and give them proper consideration?

[Dr. Michael Wolfson]

I used to work in the tax policy branch of the Department of Finance, and when we were writing a budget, we would put in tables with exactly the kinds of numbers you're talking about.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Have you used the survey of labour and income dynamics as well?

[Dr. Michael Wolfson]

Not directly or recently.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Not directly, but would that be something that is normally taken into account when this type of work is done?

[Dr. Michael Wolfson]

Yes. It forms one of the foundations of the social policy model to which you just referred.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Again, to anyone who would like to respond, how can we possibly do due diligence in the area of EI reform and OAS changes so that we can know those kinds of impacts on Canadians without having those models put to use to give us the benefit of that information?

[The Chair, Conservative, James Rajotte]

Do you want to direct that, Mr. Marston? You have about one minute left.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Anybody who would like to take a shot at that would be fine.

[The Chair, Conservative, James Rajotte]

Who would like to answer that?

[Prof. Keith Ambachtsheer]

I would just add that it's not just research within the federal government. When you take academia into account, a great deal of research has been done on pension reform in Canada in the last three years.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

That's exactly my point, sir.

[Prof. Keith Ambachtsheer]

The International Centre for Pension Management is based in Toronto. We see everything from around the world. We're not short on information and knowledge. It's about how we put the pieces together—or don't.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

We have the option of using a lot of material out there, but it's not being used. We need that comprehensive view.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Marston.

We'll go to Mr. Van Kesteren, please.

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

Thank you all for appearing before us this morning, getting up early, flying in by plane. We've worked some long hours too, but I don't think any of us had to get up as early as you did, so we really appreciate that.

Mr. Zinatelli, I think we've met before at the industry committee. There was an issue at that time, and still today, that banks were offering financial products that functioned like life annuities. There are federal laws that prohibit that; however, there was some way of getting around it, and that was a real concern to you. One of the things we've learned, especially in the finance committee, is fortunately that one of the great things about this country is that we have strong financial institutions—banks, and life insurance companies. And they don't just service Canada, but they're throughout the world. So it's important that the companies you represent remain viable.

Why is it important to ensure the continued separation of banking and insurance in our economy? I want you to address it, because this budget does address that issue. Could you maybe tell the committee if we're on the right track, or if that is going to work for you?

[Frank Zinatelli]

Thank you for the question.

I think the budget and the subsequent bill address that in a very technical manner. I believe that if one were to look at the existing legislation, I would certainly interpret it as having established that separation, I believe, way back at the beginning of the universe in 1992, when there was a total reform of the financial sector, and when the legislation for the insurance industry was updated for the first time in 60 years. That was a major update. The separation was created at that time.

What I understand from the evidence the minister has given before one of the other committees is that there may have been products introduced in the market about which there may have been uncertainty in terms of where they fitted, and the government wanted to reinforce the separation that is in place.

As I said in my remarks, I see that as very much a technical amendment to reinforce the rules already in place.

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

Good.

The other thing I wanted to talk about is that there was a bill—Mr. Marston will correct me if I'm wrong, but I think it was Bill C-393—that appeared before industry committee and dealt with private pensions. One of the heartbreaking things about pensions is that when a company collapses, as Mr. Nikias has pointed out, they can be eliminated, and those people can subsequently be left without a pension.

This bill addresses that too. That issue has surrounded companies like Nortel. Nortel, of course, is administered through the province.

I wonder if you could tell us why that is important. One of the things that came out in the testimony is that if we enact laws that put those claims ahead of the bank's notes, it's quite possible that very healthy companies would be challenged by the bank and could have to go into bankruptcy because they have that obligation to meet. So insuring these products spreads it around.

I wonder if you could just comment on why that's important and why that piece of legislation will be helpful for us.

[Frank Zinatelli]

Bill C-38 addresses very much a specific subset of that issue. It doesn't address the pension issue, for example, in terms of creating new priorities, etc. What it addresses is long-term disability benefits that are effectively being paid in situations where an employer self-insures, or determines that they will be able to make those payments to long-term recipients in the long run.

Of course, what can happen is that the employer unfortunately can go bankrupt. We have had three instances in the last three decades. One was Massey Combines in the late 1980s, I believe. You will recall there was the example of Eaton's, and most recently, Nortel. In all three cases there were individuals on LTD who found themselves with no income conceivably coming in.

I recall historically that in those first two situations there were some interventions, and ultimately, there was some income at least, but it does create a real problem that we don't want to see happening going forward.

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

This bill does this.

[Frank Zinatelli]

It addresses this for private sector federal companies.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

Mr. McKay, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair, and thank you to the witnesses for getting up as early as we did.

I wanted to get a conversation going between Professor Wolfson and Mr. Ambachtsheer about your article. You've written several interesting articles, but I wanted to focus on the article in the Toronto Star that OAS savings could turn out to be costly. Your argument is essentially that the government will save “$4 billion”, but by the time you take out taxes, etc., you are down to $3.5 billion, ignoring the effect on provincial revenues. What are poor people supposed to do? They are going to have to dip into their savings, or move in with relatives, or they either have to go on welfare, or the GIS program gets enhanced.

Have I summarized it correctly? Is this announcement much to do about nothing? By the time you shuffle all these chairs on the deck you're essentially, not only not saving anything, you're just creating a downloading effect either on the ability of poor seniors to look after themselves or on to provincial revenues.