Evidence of meeting #91 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was know.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

November 7th, 2012 / 6:55 p.m.

Conservative

The Chair Conservative James Rajotte

I call this meeting to order.

Welcome to meeting number 91 of the Standing Committee on Finance. Our orders of the day are pursuant to the order of reference of Tuesday, October 30, 2012, our study of Bill C-45, A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.

We're very pleased to have the Hon. Jim Flaherty, Minister of Finance with us this evening. We also have officials from other departments to deal with certain parts of the bill as well.

Minister, thank you for being with us this evening. I understand you have an opening statement and then we'll have questions from members.

6:55 p.m.

Whitby—Oshawa Ontario

Conservative

Jim Flaherty ConservativeMinister of Finance

Thank you, Mr. Chair.

I am joined this evening by officials from various departments that are responsible for various aspects of the bill. As you know it's been referred to 10 different committees with respect to various areas of expertise.

I will begin with a few opening remarks in order to leave as much time as possible for the committee members' questions.

However, before I begin, I want to thank the chair and the members of the Standing Committee on Finance for the work they have done recently and all their work, in general.

I would like to thank the committee for its work on the annual pre-budget consultations that began earlier this fall. I know it's a great deal of work and some travel, although I understand you used conference methods more this year than before, which is laudable. I thank you for that and the savings that go with it.

Alongside my own consultations as finance minister, your committee's pre-budget outreach is a vital tool that helps ensure Canadians from coast to coast to coast that they have the opportunity to make their voices heard. Rest assured, as in previous years, that the recommendations from the finance committee's report will play a key role in informing and shaping the next federal budget.

Many of the measures included in the bill you are considering, Bill C-45, were indeed recommendations from last year's finance committee report; for example, reforms to public sector pensions, new tax incentives for renewable energy, revamping the Navigable Waters Protection Act, removing internal barriers to internal trade, and more. I encourage the committee's continued pre-budget consultation work, especially your eventual report and recommendations.

I would also like to congratulate the committee for its comprehensive work over the past year examining potential ways to increase charitable giving in Canada with new or improved tax incentives and other targeted action. I'm looking forward to receiving the committee's report and recommendations, which I understand are likely to be forthcoming in the near future. But first I urge the committee to consider and support Bill C-45, which is the bill before you, the jobs and growth act 2012, which proposes to enact many of the key measures from the budget, economic action plan 2012.

As we all know and are all too often reminded, the global recovery is fragile and global economic turbulence remains. Our largest trading partners, the United States and Europe, continue to wrestle with significant challenges and are struggling to find lasting effective solutions to their fiscal problems. While there are signs of recent progress, the problems they face have no painless solutions, no quick fixes, and as a result the global economic environment remains highly uncertain.

Not only is the global economy uncertain, it is also increasingly competitive, as Canada faces increasing competition as well as opportunities from emerging economies.

That is the reality of global economy today and the reason why our government is still completely focused on its number one priority—support and growth of the economy here, across the country.

Economic Action Plan 2012 is at the heart of that approach. This comprehensive and ambitious plan developed by our government will help Canada maintain a fairly strong position compared with the other G7 countries in the industrialized world. That strong position will enable Canada to capitalize on the current economic challenges and turn them into economic opportunities that will contribute to our long-term prosperity.

I submit to the committee that our plan is on the right track to grow our economy, something which the facts clearly demonstrate. They are facts like Canada's having the strongest record of employment growth in the entire G-7 since July 2009, with over 820,000 net new jobs created, over 90% of which are full-time and nearly 75% of which are in the private sector. They are facts like Canada's having the best fiscal position in the G-7, with the lowest debt-to-GDP ratio by far. They are facts like Canada's having the safest and soundest financial system in the world, as ranked by the World Economic Forum, for five years running. They are facts like Canada's being forecasted to be among the leaders of the industrialized world in economic growth by the OECD and the IMF in the years ahead. The list goes on and on.

Canada's economic policy stands out for all the right reasons, and the world is paying attention. As the president of the U.S. Chamber of Commerce, Tom Donohue, wrote: We’ve got a strong example of the positive effects of good policies even closer to home—Canada. Why has our northern neighbor recovered faster and more robustly from the global recession than nearly all other major economies? Due to a series of smart policy decisions.—Canada has transformed its economy while other nations continue to struggle.

Christine Lagarde, the head of the IMF, said recently that Canada is a bit of an anomaly, that Canada is doing a lot better than other advanced economies and has a path of its own.

Of course, here in Canada we cannot be complacent. We can't allow political gridlock and instability, which all too often threaten and delay vital economic and fiscal reforms in the United States and Europe, to throw Canada off course for long-term economic growth. Post the U.S. election, I'm hopeful that further political stability in the United States will enable the administration and Congress to take the required steps needed to deal with their fiscal and economic challenges swiftly.

Similarly, Canada must move ahead and stay focused on the economy. The jobs and growth act, 2012 does exactly that. It moves ahead with important steps to build a strong economy and create jobs, steps such as extending the job-creating hiring credit for small business, promoting interprovincial trade, improving oversight of Canada's financial system, removing barriers to cross-border trade, supporting Canada's commercial aviation sector, expanding tax relief for investment in clean energy generation, and much more.

The act also introduces important measures to support families and communities by improving the registered disability savings plans, by helping Canadians save for retirement, by implementing the tax framework for pooled registered pension plans, and more.

The jobs and growth act, 2012 also builds on our government's already strong record of better respecting taxpayers' dollars by closing tax loopholes, by taking landmark action to ensure that the pension plans for federal public sector employees are sustainable, financially responsible, and fair compared to those offered in the private sector, and much more.

With that, I want to take a moment to highlight our landmark action to reform federal public sector pension plans, and as a result, to better respect Canadian taxpayers while helping to ensure that Canada's fiscal position remains sustainable in the long term. As we all know, public sector pension plans represent a significant element of the federal government's total compensation expenses, expenses which, as recent international events have shown, can weigh heavily on the long-term fiscal sustainability of a government if affordability is not the guiding principle.

As I mentioned earlier, this committee recognized that very fact in last year's pre-budget consultation report, which urged the government to take action to ensure the sustainability of public sector pensions. Unlike previous governments, which were content to ignore questions of long-term affordability for the sake of political expediency, we are taking the fiscally responsible position and putting the long-term state of Canada's finances first, even introducing landmark reforms for members of Parliament and senators pensions. Indeed, that's why the jobs and growth act, 2012 is taking necessary steps to make public sector pension plans sustainable, responsible, and fair.

We're doing this in two important ways. First, we are moving the public service pension plan to a 50-50 contribution arrangement, finally making public sector employee contributions equal to what the government contributes. Second, for employees who join the federal public service starting next year, the normal age of retirement will be raised from age 60 to age 65. These two important changes will go a long way to promoting the long-term sustainability of public sector pension plans while ensuring they are fair to Canadian taxpayers. Long overdue, these reforms to public sector pensions were necessary and part of our Conservative government's commitment to responsible financial management.

In the words of TD chief economist Craig Alexander:

The government is taking action to pursue fiscally sound policies for the long run. The increase in the qualifying age for Old Age Security, the new normal age for retirement among public sector workers and reforms to public pensions are good examples of this.

Because of such long-term responsible reforms, I urge the committee to support Bill C-45, the jobs and growth act, 2012, to help create a long-term stronger future for Canada.

With that, Mr. Chair, I invite questions from the committee.

Thank you.

7 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you very much for your presentation, Minister Flaherty.

We will begin members' questions with Ms. Nash. I will just point out to members that if they have a certain part of the bill they wish the minister and/or officials to address, they should state that in their question.

Ms. Nash.

7 p.m.

NDP

Peggy Nash NDP Parkdale—High Park, ON

Thank you, Mr. Chair, and welcome, Minister Flaherty.

It's good to see you back in the country. You're here tonight with a small army of officials. I think there are close to 50 of them here. That's a lot of horsepower you're bringing with you. We are dealing with a 450-page omnibus bill that amends over 60 laws and we've been pressed to look at these changes within a limited time.

You started off talking broadly about the economic context, and I wanted to ask you about that. The labour force survey for October showed that it was public sector jobs that kept employment up, even when the private sector shed 35,000 jobs. The Parliamentary Budget Officer estimates that the government's cutbacks will result in a 1% decrease in GDP by 2014.

I'm wondering if you can clarify why you're implementing more cutbacks when it seems to be the public sector that's keeping the job market afloat, and when we know that more cutbacks will be a drag on economic growth.

7:05 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

First of all, just as a general caution, I'm always wary of one month's figures, or figures for two months, or even for one quarter. I think we have to look at the trend over the full year.

Over the course of the year, we'll have moderate economic growth in Canada and some significant job creation during the full fiscal year. Since the end of the recession in July 2009, Canada has led the way among the industrialized countries in job creation, and 90% of those jobs are in the private sector. This is very important. It shows the economic growth that we've been able to sustain over that time, economic growth that the European zone and the United States have not been able to maintain.

I think your question is really about balance. This is something the eurozone is struggling to achieve.

We are reducing some government expenditures and trying to focus on economic stimulus expenditures that foster job creation and economic growth. At the same time, we also have to have some measures to make sure that we continue to have at least modest economic growth. This is not easy. That's why in this bill we propose to extend the hiring credit for small business. We know it will create hundreds of thousands of jobs, because that's what it did before. That's the balance we try to achieve.

7:05 p.m.

NDP

Peggy Nash NDP Parkdale—High Park, ON

You were just in Mexico at the G-20 meeting. According to reports, there was discussion about the importance of moving away from austerity measures because they were limiting growth.

I appreciate your comments about balance, but are you concerned that you're taking Canada in a direction opposite to what's now being recommended by the G-20?

7:05 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

No, as some leaders of international organizations have said, Canada is actually a model. If some of the European countries could achieve the balance that Canada has, that would be ideal for those countries. We have some economic growth, even if it's only 2% real GDP. We have controlled government expenditures and reduced deficits, and we are working on the public debt. We have reduced the size of our deficit by more than half since the large deficit that we ran during the great recession. We ran a deficit of about $58 billion, and we're now down to less than half of that. Shortly, within the medium term, we'll be balanced again while fostering economic growth. It's a difficult balancing act that other countries would like to achieve.

7:05 p.m.

NDP

Peggy Nash NDP Parkdale—High Park, ON

My concern is that over aggressiveness, in terms of balancing the budget which we're on track to have surpluses in by 2015, can stifle growth. We're concerned that the cuts may be too severe and that they are limiting the growth that we could be enjoying here in Canada.

7:05 p.m.

Conservative

The Chair Conservative James Rajotte

A brief response, Minister.

7:05 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

As you'd expect, there are some who would go further in terms of spending reductions. We listened during the pre-budget consultations, the ones you did, the ones we did, and so on, and tried to hit the right balance.

We certainly don't want to reduce government spending in any sort of dramatic way because it could have the consequence you describe of dampening economic growth. That's why, in our view, we didn't do that. We made relatively modest expenditure control reductions.

7:10 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you. Thank you, Ms. Nash.

We'll go to Ms. McLeod, please.

7:10 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

Thank you, Mr. Chair. Thank you, Minister. It's always great to have you here at committee.

I was elected in 2008, so I came here during challenging times. I've seen you steer the ship through very challenging times. It's been my observation that the opposition members have been more focused on counting pages than reading pages in this particular budget.

I'll use a short example. The changes to MP pensions was one line in the budget, but it was actually 22 pages in the budget implementation act. Perhaps you could make a general comment. Sometimes taking a plan and putting it into legalese, in terms of the legislation, is a bit of a comprehensive thing, but really what matters is the outcome.

7:10 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

Your point is well taken.

Tax legislation tends to be lengthy and dense. A lot of people in Canada make a lot of money reading it and being expert at it, but it does have to be detailed, necessarily, because it is tax legislation. It's the government. It's Parliament exercising its jurisdiction to take money from taxpayers and use it for the government's priorities. It necessarily has to have a lot of detail.

I agree with you. The number of pages in a tax bill doesn't mean very much. We had a lot more pages a couple of years ago in a bill because there were a bunch of schedules attached to the bill that went on for hundreds of pages. It doesn't mean very much, except to tax practitioners who need to interpret it for their clients.

On the other hand, there's a lot of expertise in the Department of Finance in Ottawa. It has a very good reputation, excellent public servants. They try to get it right. It's very important they get it right in the legislation because their colleagues at the Canada Revenue Agency have to administer it. Indeed, the people at the Canada Revenue Agency have to work with Canadians and businesses. We want to be as specific and clear as we can be in dealing with tax matters, so that people understand what the rules are and what their obligations are.

7:10 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

To take it a little further, I would like to give an example that I think is probably near and dear to many of our hearts, the changes to the RDSP. Again, I'm not sure how many pages it took. It probably took a whole number of pages.

I'd like to share a story from the Fredericton Daily Gleaner about Francine St. Amand, who's coping with limited resources and who never dreamed of having enough to put away for her disabled son's future needs. After hearing about the RDSP, she committed to contributing $25 a month and any extra she could pull together. Two years later, to her amazement, the fund has reached almost $8,000, the majority made up of federal contributions. I will quote from the article:

Today she shakes her head in amazement at the savings accumulating for her son's future, and her anxiety over his future has been replaced by peace of mind.

That's a great story. I don't care how many pages it takes to get that RDSP, which we're proud of, and to make improvements. Could you talk about the changes and why we had to go that way?

7:10 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

Yes. There were a few administrative issues that needed to be corrected. Again, it comes out of pre-budget consultations, some done by this committee, some done by the Department of Finance, by me and by Minister Menzies and by Shelley Glover, the parliamentary secretary, and so on.

We had a three-year review, which was mandated in the original RDSP legislation, to look at how it could be improved. That's generally a good idea. I think most members would agree that with new statutes we go back and have a look at how effective they are every few years. We did that with the RDSP. A number of recommendations came forward. They are in this bill, Bill C-45. It'll help, for example, replace the 10-year repayment rule applying to withdrawals with a proportional repayment.

That sounds like it's complicated, but it just lets more people put money back into an RDSP over a 10-year period so they don't lose some of the benefits they had. We want persons with significant disabilities or severe disabilities to be able to use money in an RDSP if they have a special need at one point, a financial need, to use it but then to replenish the fund during that period of time. That's why these amendments are here.

The RDSP initiative has done well. It has tens of thousands of plans. A number of our banks showed leadership in setting up the computer programs. They did so at a loss originally, but they did it, and other financial institutions have caught up. This is very good and I encourage people who can benefit from the plan to talk to their financial institution, their local bank branch.

7:15 p.m.

Conservative

The Chair Conservative James Rajotte

Great. Thank you very much, Ms. McLeod.

We'll go to Mr. Brison, please.

7:15 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Thank you.

Welcome, Minister.

Minister, we heard from the Canadian Manufacturers and Exporters when they appeared before the committee. They said, “In terms of taxation of large companies, the negative impact of the 5% reduction in SR and ED exceeds by far all of the benefits that resulted from the corporate income tax cuts...since 2008”.

Given that Governor Carney with the Bank of Canada seems very concerned about our poor export performance and that Canada has lost 370,000 manufacturing jobs in the last seven years, is it wise to hike their effective tax rates so much at this tenuous time, as you said, in the fragile economy?

7:15 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

First of all, the SR and ED program is a tax benefit to successful businesses in Canada that are doing R and D. That's what it is. We have one of the most generous R and D programs in the entire world. Our results are not among the better results in the world in terms of innovation, so we have a problem in Canada in this area, which has been fairly well known for some years. I imagine when you were in government it was known then that this was a challenge, so we asked Tom Jenkins and others as a panel to study the issue for us and make recommendations.

What we're proposing in the bill follows on Mr. Jenkins' and his panel's recommendations and that is to reduce the rate. It mainly affects large manufacturers in Canada that do a great deal of R and D. It assists some of the smaller ones. We're looking at contingency fees on SR and ED because that's an issue. We have now a savings of $400 million that we're going to use for a new venture capital fund, about which more later, but that is not—

7:15 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Certainly, but it is important, Minister, to recognize that the people affected by this, the people actually running these companies, are saying that these changes to SR and ED are going to have a negative impact on their capacity to invest in the kind of innovation that creates the jobs of tomorrow.

On the EI credit issue for small business, would you agree that raising EI rates for small businesses has a negative effect on job creation?

7:15 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

Yes.

7:15 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Yesterday the CFIB admitted that, in fact, small businesses that qualify for the 2012 hiring credit will still see their EI rates go up by a full 7¢ in 2012 over what they paid last year. Would you agree with the Canadian Federation of Independent Business and support an amendment that would effectively freeze EI rates for small businesses at the 2010 level? Notwithstanding the credit, EI rates are still going up even for small businesses that qualify.

7:15 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

There are two things going on here. One is we want to move EI to balance, which we will be able to do in the longer medium term and which will happen. The other thing is we want to create jobs to the extent we can through the EI system. That is why the hiring credit, which is an EI measure, is in this bill.

7:15 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Yes, but rates are still going up for small businesses.

7:15 p.m.

Conservative

Jim Flaherty Conservative Whitby—Oshawa, ON

Yes, but the job creation by small business continues to be quite a bright light in the Canadian economy. I don't know what you're hearing, but what I'm hearing from small businesses is that the hiring credit really matters to them, because they can actually get one more employee. That makes a big difference to them. It's cash.

7:15 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

With the limit being at $10,000, would you agree that it can create a perverse disincentive, in fact, for small business to perhaps hire one more employee and perhaps break that threshold, or increase pay slightly and potentially break that threshold and not qualify at all? Would you agree with the CFIB that in fact the limit ought to be increased to $15,000, so that it would broaden it to a larger catchment group within the small business employers? Do you believe in the principle of that?