Finance Committee on Sept. 29th, 2014

[Gary Oberg]

Here you have to take a look at perhaps a different terminology with an investment, Mr. Chair. This is an investment in people. This is an investment in the people who have perhaps gone to foreign lands or fought within Canada. They have suffered injuries, sometimes mental illness. They have come back so that at the end of this day, you and I can walk out of this historic building, to the top of the front of the stairs overlooking the front lawn, and breathe that thing we call freedom. That freedom did not come without a cost. We have to ensure that those people who have done that on our behalf are looked after at a cost to the people of Canada, who are the beneficiaries of all that that has taken place by these people. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you. We'll go to Mr. Saxton, please.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thanks to our witnesses for being here. My first questions will be for Philip Cross, of the Macdonald-Laurier Institute.

Now Mr. Cross, in your opening statement, you mentioned that you're concerned about provincial deficits. I'm glad you did because this was something that Jim Flaherty frequently talked to me about. He frequently encouraged the provinces to use the same fiscal discipline at their level to rein in their deficits as we've done at the federal level to rein in ours. Our government has committed to finding efficiencies and restraining spending within government to help balance the budget by 2015. We're on track to do just that.

Likewise, Canadian families know they cannot prosper by continually spending more than they earn. Our priority at the federal level has been eliminating deficits, and it will be paying down the debt as well. Do you agree that this should be a top priority of any government?

[Philip Cross]

Very much so. I gave projections, for example, of what the aging of the population by itself is going to add to the federal debt. The federal government isn't even the one that's primarily responsible for delivering health care, so you can imagine what the effect of this is going to be on provincial finances. Before the aging has really begun in force, provincial finances are already in extremely poor circumstances, and have shown almost no improvement coming out of the recession. That should be a major concern of every policy-maker. It's going to require substantial reform.

In the 1990s, this country undertook major reforms of the CPP and QPP, and of welfare. This country showed then that when we have to, we can undertake major reforms of programs that the public sector delivers. We're going to need that kind of fundamental rethinking of how we deliver programs for health care and education moving forward, because those are the two biggest sources of provincial spending. We're not going to be able to fix provincial deficit if we don't fundamentally address spending in these areas.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

[Philip Cross]

It's not going to work by making cuts of 2% across the board for a couple of years.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Our government also recently highlighted that we're on track to have a comfortable budget surplus in 2015. Furthermore, the government has signalled it will take steps to enshrine into law our prudent fiscal management strategies, through the implementation of a balanced budget legislation.

What are your thoughts on the proposed balanced budget legislation?

[Philip Cross]

A lot of people would be surprised to hear that Ontario adopted a balanced budget legislation in the 1990s. The first thing the next government did was basically throw it out, and say it's no longer binding. You can pass laws saying well, we'll do this and that, but I don't think they're worth much. I think what counts is that all governments have to face the reality of these deficits, and have a determination to eliminate them. Governments can always find a way around something. I don't think writing something into law, and then expecting that future governments will be held by that, is realistic.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

My next question is for Gregory Thomas. Taxes today, as a percentage of GDP, are at their lowest level in almost 55 years. The PBO also said that our government has provided nearly $30 billion worth of tax relief. Could you elaborate on how our government's important tax relief measures will help support the Canadian economy?

[Gregory Thomas]

I think there's no question about the most compelling example. You can look back and see it in the teeth of the financial meltdown of 2008, when the American economy was reeling and when consumer spending was heavily depressed. There's no question that the reduction in the GST by 29% had a tremendous stimulative effect. It had a direct stimulative effect for Canadian households, for moms and dads who were trying to balance their household budgets.

Economists debate the effectiveness of the GST reduction compared to income tax reductions and things of that nature, but when it was needed, when the world economy was staggering, the GST reduction was 9-1-1 income relief to Canadian families. That should not be forgotten. It's not discussed very often, but it was of tremendous assistance.

With regard to the balanced budget act, we strongly supported the balanced budget legislation in Ontario, in British Columbia, and in Manitoba. It remains the fact that when governments like Manitoba's have done tax grabs and have gone back on balanced budget legislation, they've had to go back to the legislatures of those provinces and gut that legislation over the vocal objections of legislators in those provinces.

We'd like to see balanced budget legislation incorporated in the Constitution of Canada, but until that day comes, a law is a law and it makes a statement. We strongly endorse the government's legislative initiative to put balanced budget legislation on the books in Canada for the first time.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you. I'm glad you highlighted that the reduction in the GST was in fact 29%, because most people look at it as a 2% reduction, but it is actually a 29% reduction. I'm glad you highlighted that.

My next question is for Sean Speer at the Fraser Institute.

Mr. Speer, economic action plan 2013 introduced the new Building Canada plan to build roads, bridges, subways, commuter rail, and other public infrastructure in cooperation with provinces, territories, and municipalities. Our government provided over $53 billion in predictable infrastructure funding for the next 10 years. This is the largest and the longest federal investment in job-creating infrastructure in Canadian history.

As these funds now start to flow, how will they help create jobs and economic growth and provide a high quality of life for Canadian families in communities across the country?

[The Chair, Conservative, James Rajotte]

You have about 30 seconds for your response, please.

[Sean Speer]

We'll see how the program rolls out. I think an important part of the renewed Building Canada fund was the recapitalization of Public-Private Partnerships Canada. Delivering infrastructure spending through the P3 model I think has some real value, and I think that was an important part of the renewed program.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Saxton.

Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair. I'd like to begin with Mr. Oberg.

I thank all of you for joining us today.

Mr. Oberg, your brief touches on the key financial deficiencies of the new Veterans Charter, particularly in areas of inequality. You've highlighted the disability awards for veterans compared to what injured civilian workers would get in a court of law, as well as some of the issues with regard to the earnings loss benefit for class A and class B reservists.

Many of the soldiers who went to Afghanistan were reservists. What's the government's rationale for or defence of a policy of treating reservists differently when they become injured?

[Gary Oberg]

That's a very good question, Chair. Thank you.

No matter if he's a regular armed forces member or a reservist, a human being is still a human being. That person who goes to Afghanistan and comes back without body parts is still a human being without body parts. Because he may be a reservist as opposed to a member of the regular armed forces, he's being treated differently. I honestly cannot tell you the rationale for that. It is a conundrum to me and, in my mind, it has no rational basis. I believe it's something that the people who are looking at the new Veterans Charter have to really delve into to deal with it appropriately.

[Scott Brison, Liberal, Kings—Hants, NS]

Your brief also highlights differences between how much a veteran might receive in a disability award compared to what a civilian worker typically would receive in damages in a court of law. Could you provide some examples of those differences? What do you think is the principle behind this inequality in disability benefits for veterans versus civilian workers in similar situations?

[Gary Oberg]

I can't give you an example as to what one or the other may be. What I can probably say is that in civilian law in Canada, courts provide certain information, certain judgments, with reference to those kinds of issues, but they haven't gotten into that realm whereby that's what a person should get when they are in the military, in the service of their country.

I don't think those equalities, those links, have been made to be able to bring that together so that everybody is treated equally. That is an issue that needs to be looked at.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much.

The issue of infrastructure has been discussed. Mr. Page, you've spoken of slow growth in Canada, income growth being non-existent, and the need for a growth agenda. The U.K., U.S., and Australian economies are outpacing Canada's in terms of economic growth and jobs growth at this point. At the same time, we're hearing from people like David Dodge and others that now would be a very good time to invest in long-term infrastructure. In fact, I believe in Australia this year they've put $13 billion of federal money in their infrastructure plan, but they've leveraged with public-private partnerships and with their states to invest about $60 billion in infrastructure. The U.K. is very robust.

Given that Canada has probably the greatest concentration of expertise in the world in the design, construction, and financing of infrastructure through our pension funds, is there an opportunity for us in Canada to have a very robust infrastructure plan, led by the federal government but working with provinces and our pension funds, to revitalize the infrastructure in the long term and to create growth in the short and medium term?

[Kevin Page]

Thank you, Mr. Chair.

I think there is an enormous opportunity right now in an expanded program, in infrastructure spending. I think Mr. Saxton's points were well made. I think we are talking about historic expenditures over the next ten years. But I think given the environment, given the weakness of the Canadian economy, the global economy, and I think given the incredibly low effective interest rates, treasury bill rates under a percentage point, ten-year government bond rates with a 2.5% range, what a great opportunity to invest in infrastructure.

I think there would be short- and long-term positive impacts. I think the work done on stimulus in 2009-10 showed that infrastructure had a relatively big impact. If we go to balanced budget legislation, I think it would be a good idea to separate out current budget from capital budget so that we don't limit our opportunities to invest for the future.

[Scott Brison, Liberal, Kings—Hants, NS]

That's a good point, because not all spending is created equally in terms of the type of spending, in terms of program spending, short-term versus this kind of investment.

Do you have any thoughts from the Fraser Institute or the Macdonald-Laurier Institute in terms of long-term infrastructure investment?

[Sean Speer]

Mr. Chair, the only thing I would say to Mr. Page's comments is that we're seeing at the provincial level the separation of the operating and capital budgets. I understand the case for separating them for the purposes of these types of spending decisions. But we've seen in the case of some provinces that it's created a real lack of transparency, making it very difficult to evaluate the true finances of the government.

So to the extent that we move in that direction, there would have to be a careful eye towards increasing rather than reducing transparency.

[The Chair, Conservative, James Rajotte]

Did you want Mr. Cross to...? No.

You have one minute, Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Thomas, you recently referred to the income splitting, saying that the pledge was “written on the back of an envelope as the campaign bus pulled out of Ottawa”, and that it's “been denounced by every credible economic think tank, representing every shade of the political spectrum.” You also said that even the Department of Finance has weighed in, with an analysis that was “so damning that nearly everything but the commas was redacted before it was released to the public.” You go further: “What's worse, writing income splitting” into the tax act, topping off the Harper government’s inventory of boutique tax credits, “could collapse the book shelf”.

We haven't had a serious analysis or reform of our personal tax system since 1971, with the Carter commission. Is now the time to actually do a thorough study, with the objective being a fairer, simpler, and potentially more competitive tax system?

[The Chair, Conservative, James Rajotte]

Just give us a very brief response, please.