Finance Committee on Sept. 29th, 2014

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Rankin.

Mr. Van Kesteren, please.

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

Thank you, Chair.

I'd like to thank you all for coming here. This is our first meeting, as you know. We're laying the groundwork for what are hoped to be great consultations for some advice to the finance minister.

Before I lead with my question, I want to make one thing perfectly clear that I think we'll agree with: that 2009 created an enormous challenge. I remember our former minister, the late Mr. Flaherty, speaking about the crisis and the talks that were ongoing behind the scenes. Essentially the position was, guys, we have to do something very drastic. The world was at a tipping point at that point. Unless we made some significant, bold moves—again, the free world in general—we looked at a total collapse.

So we're in a new chapter. We have begun what we hope will be, and it appears to be the case, balanced budgets.

Now, I don't want to put you on the spot, but I know that Mr. Page probably can think about this and has a little bit more information at the tip of his finger. I'm going to mandate you as the finance minister for the next five years, and I want you to lay out the groundwork for what you would think are essential steps or positions that the government must take. We can build around those things, so I'm not asking for that. I'm asking for one, two, or three principles that you feel are essential for the next five years, with a balanced budget; where we go next.

I'll start with Mr. Page, and then I'll go to Mr. Speer, Mr. Cross, and Mr. Oberg—I'll give you a break, Mr. Oberg, because this is probably a little out of your...so you'll be the last one asked.

Mr. Page.

[Kevin Page]

That's a very tough question, Mr. Chair.

With regard to the challenges for our current finance minister, looking at this pivotal point where we're now back to budget balance with a federal structure that is sustainable, I think there are these opportunities. I think you start filling that framework with what you think some of the major challenges are that we're going to face. I think those challenges are mostly long term in nature.

In terms of over the next few years, I think the recovery's taking place. I think we'll be back to potential output in a few years. Our unemployment will continue to come down. Then the issue becomes, how do we deal with aging demographics? How do we deal with the fact that our productivity rates, certainly business multifactor productivity rates, have effectively been flat? How do we address this issue?

I think the major challenge for the next finance minister will be how we stimulate productivity growth. I think budget constraints will be essential. I think with more transparency around...should we find ourselves in some type of fiscal role, whether it be legal or otherwise, what are those constraints, short, medium, and long term?

I think, again, the productivity challenge would be the number one task. How do we restructure our spending frameworks, our tax system, in order to promote productivity?

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

Thank you, sir.

Mr. Speer.

[Sean Speer]

Thank you, Mr. Chair.

I would say that the first order of business is, as Mr. Page says, to maintain spending discipline, as the type of spending growth that we saw from about 2003 to 2011-12, I think, is something that we want to avoid returning to.

Secondly, I think there is a multi-party consensus in favour of making Canada's business tax competitiveness a priority. We saw a multi-year commitment to reductions to get us to our current levels of general business taxation. I think that's something that can be done on the personal income tax side, where we remain decidedly uncompetitive relative to the U.S. in particular and to other major industrialized countries.

I understand that fiscal restraints will prevent you from moving quickly, but setting out a medium-term plan to make Canada's personal income taxes more competitive I think would be a useful way to spend the fiscal dividend of the coming year.

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

Mr. Cross?

[Philip Cross]

I think I'll elaborate a little on what I mentioned earlier in my introduction, which is that we need to fundamentally reform how we deliver health care as the population ages. That's already the biggest source of public sector spending that's going to have to undergo fundamental reform.

I think we also have to fundamentally rethink public sector compensation, including pensions. That's part of general spending restraint.

Another major priority may just reflect what I've worked on a lot on this year. I haven't worked on other problems. If I had worked on other problems, maybe I'd boost them up, but I've been quite struck by the difficulty in getting the Canadian labour market to behave more efficiently. I alluded to it earlier. We're having a great deal of trouble getting people with the right skills in the right place.

I'm particularly concerned that we've never before seen the current gulf we're seeing now between adult and youth unemployment. I don't know what that says. It's very puzzling. I don't know if it's a matter of youth being in the wrong place or whether youth don't have the right skills, but it's a very obvious problem that you can see when you look at our labour market. I think that's a big challenge going forward.

[The Chair, Conservative, James Rajotte]

You have one minute, Mr. Van Kesteren.

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

Thank you, Mr. Chair.

Mr. Oberg.

[Gary Oberg]

Thank you, Mr. Chair.

I have to tell you that I think I'm feeling the love here by being put in a group like this, with me being the policeman and these guys being the people with all the financial capability. If it were the other way around, with one individual who knew finance and the rest being policemen, they'd probably feel as I do. I really can't answer your question. I am prepared to go back—

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

Thank you, Mr. Cross. That's understandable.

Really quickly, first of all, I hope you checked out our report on youth unemployment. It's excellent. It has some of those questions.

Boy, if we had more time, I'd want you to elaborate, because we've heard some talk about how to reform CPP and about some of the challenges in the public sector. In a broad scope—we don't have much time—where do you think we need to go? Pensions?

[The Chair, Conservative, James Rajotte]

There are 20 seconds.

[Philip Cross]

I'd just like to clarify. I don't think there's a pension crisis in this country. I've written extensively about how I think the number one way to address pension problems is to cut back on early retirement and get people working longer in their lives, as Kevin and I are doing.

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Van Kesteren.

Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you very much, Chair.

Thanks to all of you for being here today. I really do appreciate your input.

Mr. Cross, you brought up the whole issue of the albatross of provincial debt and our ability for ongoing fiscal sustainability in our country. Mr. Speer wrote a paper recently comparing Ontario to California and showing the abysmal situation that Ontario is in. Here at the federal level we're going to be discussing how to use the fiscal dividend. For the most part, the provinces, perhaps barring Saskatchewan, don't have that luxury, but we here at the federal level do.

Mr. Speer, I'm wondering if you could just initially comment on, one, the best uses for the fiscal dividend, and two, that light that's coming down the tunnel, that locomotive that's coming towards us in terms of the provincial debts that we are facing as a nation and the burden that's going to place on fiscal sustainability going forward. Could you comment on those two initially?

[Sean Speer]

Thank you.

Very briefly, Mr. Chair, what the highest priority ought to be is obviously going to govern the committee's work throughout the hearings.

I spoke today about capital gains tax relief, because I really do think that in terms of a bang for your buck, this could be a low-cost, high-impact measure. It's really something that the committee ought to look at, if the goal is to set the foundation for economic growth going forward.

With respect to the issue of provincial deficits and debt, it's obviously something that we've written and talked a lot about at the institute, including in the work by Mr. Cross. I would just say that we've seen some positive steps in recent weeks and months in the Province of Quebec, which has the highest debt-to-GDP ratio. We seem to have a government that's saying the right things about getting it under control and a populace, a citizenry, that has elected a government that's been honest about what steps need to be taken. The truth is that I think the more worrying jurisdiction at present in the Province of Ontario, because we are not seeing a government or citizenry that seems prepared to take the steps necessary to turn the province around.

[Mark Adler, Conservative, York Centre, ON]

[Inaudible--Editor]...government laid out a plan, a framework, which they've completely abandoned. And Mr. Page talked a couple of years ago about health care, for example, being the Pacman, the way it eats up provincial dollars in terms of budgetary expenditures.

I also want to follow up on interprovincial trade barriers. Mr. Speer, I'll probably go back to you on this one. How much of a burden does that place on our productivity? How important is it that we dismantle those trade barriers as quickly as possible?

[Sean Speer]

Mr. Chair, I may not be the best placed person to answer a question on this. I know that we've seen some progress, particularly with the TILMA in Western Canada, which is really getting at problems around occupational licensing, for instance. But I will defer to one of my other colleagues on the panel who is more familiar with the subject.

[Mark Adler, Conservative, York Centre, ON]

Mr. Page, maybe you could comment on trade barriers.

[Kevin Page]

Actually, I think Mr. Cross would probably be in the best position to talk about the productivity impacts and potential output—

[Mark Adler, Conservative, York Centre, ON]

Mr. Cross, if you wouldn't mind.

[Philip Cross]

The managing director of MLI, Brian Lee Crowley, has written some material on the cost of interprovincial trade barriers. He addressed a conference recently here in Ottawa on the matter. It's hard to put a number on it, partly because it's multifaceted. For example, a big concern of mine is labour markets. What are the costs? How much of this problem of unemployed people being trapped in central Canada while jobs go unfilled in western Canada is due to the fact that it's difficult to get your credentials recognized out there? We really don't have a good handle on this, but anything that inhibits the mobility of labour is certainly going to reduce the productivity of this country.

[Mark Adler, Conservative, York Centre, ON]

We have a labour shortage right now, and once the baby boomers start to exit the workforce, what in your estimation is that going to do to the level of productivity in our economy?

[Philip Cross]

It's not as simple a question as thinking that because older workers are the most productive, if they leave the workforce, productivity is going to decline. It doesn't work like that any more than the least productive companies exiting the market via bankruptcy increasing productivity. Productivity reflects some fundamental forces about the capital tools that are available to workers and the training they have. These are the real determinants. The fact that a certain cohort with relatively low human capital leaves actually creates opportunity for youth.

As we talked about, youth today have never had more training. More youth than ever before have university skills. We've always had a great deal of post-secondary training in this country, but that shifted a great deal in the last decade. Community colleges have fallen into disfavour and we have more and more university-trained youth. Our immigrants are selected for their economic qualifications, so we have a lot of skilled people coming into replace these people.The question is how to facilitate that transition. But obviously we're having some problems in the short term. As we've mentioned, youth unemployment is surprisingly high, and we don't fully understand why.