Finance Committee on Aug. 19th, 2011

[The Chair, Conservative, James Rajotte]

Minister, you have about 30 seconds for a response.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Of course we have a plan. We presented it in the budget this year. We discounted the prognostications, the forecasting, by private sector economists by about $10 billion.

You haven't asked me if we are on track with our budget plan for this year. Yes, broadly, we are on track with our budget plan this year; even given softer growth, which was likely in the second quarter, we're on track for this year, and as I said a moment ago, if we were to see a dramatic deterioration internationally--in the United States, Europe, or elsewhere--in economic growth, then of course we would act in a pragmatic way to protect Canadians, as we have done before.

[The Chair, Conservative, James Rajotte]

Thank you very much, and thank you, Mr. Brison.

We'll go to Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

I want to pick up on your opening comments regarding Canada as a trading nation in the global marketplace. Certainly our economy is heavily dependent on exporting Canadian goods and services to others around the world. We're especially dependent on trade with our largest partner, the United States, the consumer of the majority of Canadian goods and services. The benefits generated by strong international trade for the Canadian economy and individuals are clear to most, accounting for the majority of Canada's annual GDP and supporting millions of jobs. More trade means more businesses are able to hire more workers and increase wages and salaries, helping to improve the standard of living of Canadians.

In these recent years of economic turmoil in the United States, many Canadians have realized the need for Canada to diversify its trading relationships to other countries and markets. I know that our government, led by our Minister of International Trade, Ed Fast, has been quite active on that front recently. I also know that you personally have led many delegations around the world to build and increase Canadian ties with other markets. Your recent visits to China have been recognized as quite successful in opening doors to Canadian business and financial services.

I also want to note in regard to British Columbia that a recent report indicates that our trade in softwood lumber has gone up significantly and that Asia is now our biggest trading partner. Exports to Taiwan, South Korea, China, and Japan have increased quite dramatically, resulting in a $2 billion increase from the prior year. In British Columbia the softwood lumber industry is seeing significant results. In my riding, a local person sent his first crate off to China, so we are really delighted to see that partnership starting to work.

I'd like you to talk a little more about what we've been doing to diversify our trading relationships in recent years and why that's so important.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

There is good news here, as you know, not only in British Columbia but elsewhere. There was a lack of accomplishment with respect to free trade agreements before our government was elected in 2006. Since then, nine countries have signed free trade agreements with Canada—more agreements reached than by any previous government in Canadian history—including an agreement with Honduras last week, which the Prime Minister announced during his visit to Latin America.

We have very important free trade negotiations going on with the European Union and India, which are obviously very large economic blocs. We also have emerging growth in our trading relationship with China, including growth in access by our financial institutions to that market, which I have advocated for some years in my dealings with Chinese officials, who have been responsive to that idea.

It's not so much that we should trade less with the United States, as some would think. I'm all for trading more with the United States, but also for trading more with the rest of the world and seeing our trade grow around the world, which is a way of protecting Canada from economic weakness in some other parts of the world.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I'd also like to comment on the importance to the cattle industry of this growth, including in my riding. This industry has struggled verey much over the last few years as a result of the BSE crisis. It's been important to have had agreement after agreement signed to reopen markets for the cattle industry. British Columbia is certainly counting on the great work that we're doing in putting people back to work and making it reasonable to be in the business.

The piece that people often miss regarding our economic situation, which you mentioned briefly, is that we're in a good position regarding our debt and deficit ratios and have paid off significant dollars. Could you quickly share with us the position that Canada is in?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Canada looks good around the world. This is a great opportunity for business and for Canadians around the world to seize the day, quite frankly, and to build on what we have. The rest of the world looks at Canada as a safe haven, as a very good place to do business. As I said, we have the strongest financial system in the entire world, with strong financial institutions at a time when financial institutions in some other parts of the world are facing challenges, and we are fiscally sound at the federal level. That puts us in a good place.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

Go ahead, Monsieur Mai, for five minutes, please.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

Mr. Minister, thank you for being here.

In Canada's Economic Action Plan, the government has stated that investments in infrastructure provide stimulus to the economy. According to Quebec's premier, $14 billion invested in infrastructure are the equivalent of 100,000 direct jobs. Yet Canada has a striking infrastructure deficit.

The Federation of Canadian Municipalities estimated that the municipal infrastructure deficit reached $123 billion in 2007. There are urgent infrastructure needs: water treatment on First Nations, affordable housing, public transportation, roads and bridges, including the Champlain Bridge, just to give a few examples.

We welcome the investment made in the Lower Churchill project, but we would like to have other provinces benefit from such investment.

Mr. Minister, you've been referring a lot to the European debt situation. As you know, this is not Europe. We have the lowest debt-to-GDP ratio in all of the G-7. We also believe in balancing the budget and lowering the deficit, but it's important to make a difference between investment and spending.

In the current economic climate, and since it knows that investing in infrastructure encourages greater productivity for businesses, job creation, economic growth, and, as a result, debt reduction, not to mention better quality of life for families and communities, why does the government not announce major additional investments to rebuild our infrastructure?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I thank the hon. member for his question.

We have to have a balanced budget in 2014-2015.

We have made very major expenditures in infrastructure. That's why we have a deficit of more than $30 billion right now.

We have to get back to balanced budgets. If we don't, quite frankly, we will be following the path that has been followed by certain European countries, and to a lesser extent by the United States, and that path leads to a bad place. That path leads to governments that cannot manage their fiscal situations and are put in positions where they have to make draconian cuts and have populations that are, not surprisingly, upset and alarmed by the draconian cuts that they must make in order to achieve fiscal balance again. We have avoided that situation in Canada by prudent fiscal management and we intend to continue to avoid it.

We will stay the course and we will balance the budget in 2014-15. We're making some modest expenditures as part of the second phase of Canada's economic action plan, particularly with respect to hiring and because of the concern with unemployment, but that's the plan, and we intend to stick to the plan.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

We believe that the best way to grow our economy and address our debt is by putting Canadians back to work. Cutting spending to attack the deficit at a time when the economy is performing so poorly hurts families and communities.

We know that there is a need for investment in infrastructure. In my riding, where we have the Champlain Bridge, there are problems with traffic. We lose $2.1 billion a year in loss of productivity. I think that investing in infrastructure would help the economy, both in the short and medium term, and it would also create jobs.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

There is some continuing infrastructure spending in Canada. It is not stopping. We funded it over a period of seven years, and there are some continuing expenditures in the infrastructure area, including, as you know, major expenditures with respect to repairs to the Champlain Bridge in Montreal. These are important initiatives.

As I said, the private sector needs to step up to the plate now that they are holders of strong balance sheets.

With respect to the reduction plan, realize that this plan does not affect transfers to provinces or territories, and it does not affect transfers to individuals in Canada. We're not doing what the Liberals did in the mid-1990s, when they damaged health care and education by freezing and cutting funding to the provinces. We're not going to do that, but we are looking to save 5% of the operating budget of the government.

I've had business people say to me that it's nothing more than a modest reduction of government spending. It is necessary, though, if we want to get back to a balanced budget by 2014.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Del Mastro, please.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chairman, and thank you, Minister Flaherty, for appearing here today and also for what I would call steady leadership during challenging economic times, especially recently.

I know that I speak for many Canadians of all political stripes when I say that sticking to a plan matters. This plan--Canada's economic action plan, a low-tax plan for jobs and economic growth--was forged against a backdrop of a potentially fragile global economy and a recovery that would be unbalanced. It was forged against this backdrop, and we're sticking to it.

Despite what Mr. Brison may say, I've got a note here.... I've written many prominent Liberals, but I would argue that we may see more unicorns here in the 41st Parliament. There may be more sightings of unicorns than of prominent Liberals.

That said, I did take note on the weekend that Warren Kinsella had written an article called “In grudging praise of Flaherty“. There's an editor's note that warns Conservatives they may want to immediately locate smelling salts and sit down on the couch before they read it, and another note at the end warning Conservatives not to operate heavy machinery after reading the column.

That said, Warren Kinsella said something I agree with wholeheartedly: “Flaherty has been a voice of calm and rationality. Through it all, the...finance minister has done what he should have done--he reminded everyone our economic fundamentals are rock-solid. Our banking system is secure. Our lending practices are sane.”

Mr. Kinsella went on to say, “We are in good shape...it can't be denied: Flaherty has been conducting our economic affairs with a certain degree of skill.”

Now I want to change gears a little bit.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Why? Continue.

[Dean Del Mastro, Conservative, Peterborough, ON]

I could keep going.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I thought he was excellent.

[Dean Del Mastro, Conservative, Peterborough, ON]

One of the great accomplishments that really wasn't written a lot about last summer was the G-20. You specifically went in with an agenda to oppose a global bank tax, and we're starting to hear calls for this financial transaction tax again. Indeed, NDP member Peter Julian talked about introducing a bill to impose financial transaction taxes on Canadians. We've heard rumblings of it again out of Europe.

I find these types of conversations troubling, especially when we see instability and markets looking to gain confidence. Can you confirm that Canada will continue to oppose any form of a global financial transaction tax?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Yes, Canada will continue to oppose any sort of tax like that, for several reasons. One, it's punitive. Two, it's counterproductive, in fact, because it reduces the lending power of financial institutions, which we need at a time of relatively moderate economic growth. It is, in part, scapegoating. It doesn't address the issue.

The issue in Europe is the need for fiscal consolidation, which is a fancy way of saying getting back to surplus and paying down public debt. That's the issue. The issue isn't taxing banks or taxing financial institutions.

Wwhen we led the charge against the global financial tax, it's interesting who our allies were. Our allies were not most of the Europeans. Our allies were the emerging economies of the world in the G-20, who stood with Canada and said that it was self-defeating, that it was not something we ought to do. As I say, that alliance was between Canada, Mexico, Argentina, and other emerging economies in Asia.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much.

I want to come back to Canada's economic action plan. You talked about the economic action plan and how we are on track to balance the budget by 2014-15. What do you think it says when we contrast Canada to our G-7 partners or our G-20 partners? What do you think it says to global investors when we can confidently say that Canada has a plan to bring us back to balance by 2014-15?

[The Chair, Conservative, James Rajotte]

Again, please give a brief response, Minister.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

As a government we're credible in saying that we can get to fiscal balance. We're a majority government now, as you know. We didn't make a plan that said we'd balance in 10 years or 8 years. We made a plan that will get us to balance within the term the Canadian people have seen fit to give us, and that adds to our credibility globally. As I say, our financial institutions are sound and our fiscal situation is sound. Our deficit reduction plan is modest in what it is seeking to do and is certainly capable of being accomplished.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Marston, please.

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

Thank you, Mr. Chair, and thank you, Minister. I wish to thank the other gentlemen for coming here today. It's a very important day for Canadians.

My critic area is pensions. I'd like to talk for a moment about the lesson that these wild market swings and their unpredictability has given Canadians. It's a lesson they can't ignore. It's very clear that retirement savings outside of public or defined benefit plans have once again vanished into thin air.

Minister, I'm sure you understand the government's new pooled pension plan does little to address the particular event risk. In fact, I would suggest it puts more of Canadians' savings into risky play than ever before.

I want to take you back to the end of the session in 2009. I asked you a question about the Canada Pension Plan. You stated at that time that you were looking at increasing the Canada Pension Plan, and it's my understanding that prior to your Kananaskis meetings, as many as six provincial finance ministers wrote to you asking you to do what Canadians clearly wanted, which was to increase their public plan. Stress on private plans due to international market turmoil has happened twice in just three years, and that has underlined for prospective pensioners and those saving for retirement what a roulette game contribution plans are.

Minister, will you remove the barriers to increasing the Canada Pension Plan? The defined benefit plan has lowest cost, it's the best saving vehicle, and it's owned by Canadians. Will you do that, sir?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Let me say first of all that there is no consensus among the provinces and the Government of Canada on increases to the Canada Pension Plan at this time. We've had lots of discussion about it, and I'm not saying it will not happen in the future if there is a consensus among the provinces. As you know, the provinces and the federal government together govern the Canada Pension Plan, but right now there is no consensus.

There is a consensus to proceed with the pooled registered pension plan, which will help people who work for smaller businesses to have the same advantage as people who work for larger businesses, which have their own pension plans. People who work for smaller businesses will have a pooled pension plan that will give them the strength and investment advice obtainable in larger pension plans.

This isn't the time, in our view, to impose new financial burdens on employers. As your colleague was saying earlier, we have an unemployment problem and we want businesses to hire more people. We don't want to take funds away from businesses through mandatory contributions to an increased Canada Pension Plan because that would reduce their ability to hire people.