Government Operations Committee on Feb. 1st, 2011

[Ed Holder, Conservative, London West, ON]

Thank you very much.

If I might, Chair, just to allow more representation from our side, I'm going to ask Mr. Calandra to make a few comments and ask a few questions, if I don't overspeak my time.

[The Chair, Liberal, John McKay]

I have you and Mr. Calandra then.

[Ed Holder, Conservative, London West, ON]

Thank you very kindly. We'll do our very best.

Mr. Page and all our guests, thank you very much for attending our meeting today.

As I said at the outset, I was surprised to see you here, Mr. Page, and your colleagues, as it relates to departmental freezes, because where we are in this process, honestly, is that the study has been wrapped up; the report has been written. As I said earlier, it's been sent to translation. This whole process of having you back feels a little bit like ready, fire, aim, in the sense that we're there and now you're coming in after the fact.

From the comments I've heard you make in your report, which I appreciate you giving to us, it feels that same way, that with more information there might be more predictability, from your standpoint, and I think that's a fairly standard comment. But this just feels as if it's after the fact that you're here. As I said, you'd be welcome any time, but I'm confused by your being here today on this specific issue when I thought we, as a committee, had dealt with it. So unless there is some other intention of other parties to bring you in, for whatever reason I can't say, but it is what it is.....

I need to make this comment. We all know, and Canadians know, that we have gone through the worst recession in our lifetimes. Honest to God, we have. Since my parents lived through the thirties, this is the worst. So Parliament made the decision that we would invest all Canadians' tax dollars to make a commitment, and at some point we have to pay it back. I don't think any of us would broadly, or even specifically, disagree that this is very necessary.

The question then is how long it is going to take to pay that back. One part of the process is departmental freezes. It's one part. It's not the whole plan; obviously not. Growth in the economy is part of it. You made the reference to cyclical, and I would appreciate that that's always an impact. I've been in business more than 30 years, so I understand how cyclical economies have an impact on the life of a business or the life of a country.

It's rather interesting. In December I listened to the chief economist of the TD Bank, Mr. Craig Alexander. He made the comment, rather interestingly, that because of the corporate tax commitments that have been made, being fulfilled this past January 1 and being finalized next January 1, we are going to have, with the support of the various provinces, the most competitive tax regime, literally, in the G-7. Are you aware of that? I would think you might well be--maybe not specifically--but are you aware, in terms of our corporate tax regime, how competitive Canada is going to be as a result of that?

[Kevin Page]

Yes, sir, I think over the last 10 years we've made major progress to become more competitive within the G-7 and G-20, so we are aware of that.

[Ed Holder, Conservative, London West, ON]

I'm curious. Just out of interest, do you agree with the approach the government has taken to lower corporate tax rates? I call them job-creators, frankly, for businesses. Do you think that's an appropriate strategy?

[Kevin Page]

Well, sir, as a legislative budget office, we look at fiscal balances and we project forward. In terms of reducing taxes, I don't think you're going to find any economist who wouldn't want to see lower taxes, including lower taxes for corporations. I think the question then becomes this, in the context, again, as a legislative budget officer: what does this mean for our fiscal framework now and going forward? Again, the reason we started and made reference to the other study with respect to the IMF is that we're seeing that there is a structural deficit right now, so even when the economy gets back to its potential, we're still going to be running these deficits.

What we're saying, and I think others have said it, is that our biggest problem, really, is just the longer term. It's not that long a term. It's like the second half of this decade and the decade after when we're going to have to deal with major issues with respect to aging demographics, which will slow our budgetary revenue track down.

So our fiscal gap is a significant issue. The question is whether we should be cutting taxes now. Well, from a legislative budget officer's point of view, we are generating structural deficits and we do not have a sustainable fiscal framework. That's kind of a legislative budget officer's perspective.

Could lowering corporate taxes increase capital investment? Do we want to see it? Absolutely, we all want to see it, but I think we want to see it in the context of sustainable fiscal balances.

[Ed Holder, Conservative, London West, ON]

Do you think those corporate tax reductions for the job-creators will help the economy from that perspective?

[Kevin Page]

Again, you have to balance it off with respect to a fiscal framework that we're saying is not sustainable. I think we all know, as we go to 2014, that we need to renew these transfers—transfers to health, equalization, social transfers—which are growing much faster than Canada's economy, and that creates an unsustainable kind of fiscal framework for Canada.

I mean, stable fiscal balances also make sure that you have a healthy capital stock, and your capital stock is growing. But yes, if we can get corporate tax rates down, other taxes down, I think it would be good for investment. I think all economists want to see more investment, not less.

[Ed Holder, Conservative, London West, ON]

I appreciate the comment, because it's rather interesting; Mr. Alexander went on to give his prediction that with Canada having the most competitive tax position of the G-7, he believes that over the next several years—he said within five years, but over the next two, three, four, and five years—it will be unprecedented the amount of corporations that will seek Canada to invest simply because of our incredibly competitive tax rate, as compared to, for example, the United States. So I appreciate your comment on that.

There's another question I have for you as we go through this. You made the comment in response to one of our colleagues—I want to quote you as specifically as I can—that until we see the plan, we can't predict the success...that the freeze will be achievable.

Sometime over this next four to six weeks--I don't know exactly when, but whenever the budget gets announced--I would anticipate that the details of that plan would be outlined, which I think would give us all additional information. I earlier had suggested that you being here was after the fact in terms of our budget freeze study. It just seems to me that you being here perhaps after the budget may have more value, so that you can then help us with your opinion of the analysis.

Does that make sense?

[Kevin Page]

Well, sir, I'm here because I was asked to be here. I didn't request to be at the committee. When the committee requests, I'm here. So it's only in that context.

In the context of the measure, the fiscal restraint measure, we are talking today about a 2010 budget measure--again, only $300 million savings in 2010-11, rising to $900 million, rising to $1.8 billion the year after. We're not talking about a 2011 budget measure that's prospective; we're talking about—

[Ed Holder, Conservative, London West, ON]

But I would offer to you that it's all part of the process, frankly, to get us to being at a point where we don't have a deficit, which is going to be over whatever number of years, as will be outlined by the finance minister in the upcoming budget. Again, departmental freezes are simply one piece of that whole process.

[Kevin Page]

Sir, it's no comment whatsoever on the government's...certainly no value judgment with respect to the government trying to restrain spending. We take that as a given that the government has made that an objective.

We're here today--and it's what we've done with our reports--to kind of ask, is there a risk in terms of achieving that? Are there risks in terms of fiscal risks? Are there risks in terms of service-level risks for departments?

As I think I've said before, I think at this committee as well, if you're talking about reducing the size of the public service by perhaps as much as 11,000 per year, we're talking about a core public service of about 220,000, where the Treasury Board is the collective bargaining agent for...we're talking about places like the coast guard, and food inspection, and Human Resources Canada. To lose that kind of...and I've worked in all those departments, which is why I'm comfortable talking about them. To lose significant amounts of people and to assume that there won't be reductions in service levels, or health and safety risks, would be a mistake.

[The Chair, Liberal, John McKay]

Thank you, Mr. Holder.

Mr. Martin, eight minutes.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Mr. Chair.

Thank you, Mr. Page, for being here. I think it's very fitting and timely that you're here with us today. I can't imagine a more important witness. Prior to Canadians going to the polls once again, they have a right to know what their government's real action plan is to slay this deficit. And in the absence of any information being volunteered by the government.... We've had deputy ministers here; it's like pulling teeth to get any information out of them regarding their real plan.

My first question to you, from these very useful papers that you've written for us, deals with the fiscal outlook comparison. When you compare the PBO's fiscal outlook, the IMF's fiscal outlook, and Finance Canada's fiscal outlook, you know, the Minister of Finance is either being wildly optimistic or deliberately fraudulent.

How can anybody be so far out, and then, in the absence of any information, defend his fiscal outlook? All we have to go by, the one single measurable action plan, is cutting and hacking and slashing the public service, which is exactly where we started when we had Minister Day at this committee.

It's funny.... Well, my question to you, I suppose, is can this fiscal outlook by Finance Canada be taken seriously, or is it chimera? Is it hokum, bunk?

[Kevin Page]

No. Again, I think all three organizations, Finance Canada, the International Monetary Fund, and my office are all saying these deficits will be reduced, as Madam Coady said. Actually, we think the deficit, even for 2010-11, will be quite a bit lower than what the government is suggesting for their current fiscal year.

So we're saying the deficit is going to come down. I think, again, the difference between the International Monetary Fund and the Parliamentary Budget Office is that these deficits persist, that there's a structural element to them. Even when the economy gets back to its potential and it recovers from this recession that Mr. Holder talked about, which is certainly very deep, there still is a deficit element to it, and I think we don't see that in the Finance numbers.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Page, there's a good likelihood that the government is going to fall on the budget in March, and they want to go to the people saying that if you give us a four-year majority, by 2015--no coincidence--four years from when this election will take place, we will be in a surplus position of $2.6 billion. That's essentially the promise they're making to Canadians by posting those numbers.

There's no plan to get us there. There's no plausible course of action that would lead us there. In fact, they're being contradicted by your office and by the International Monetary Fund, which they can't accuse of being biased. Surely, the IMF's numbers are accepted. I think Canadians would be shocked to know, frankly, that this information is being withheld under the guise of cabinet confidence. That's perhaps the most worrisome information you've brought to us today.

Another piece of information that I thank you for very much is when you answered a question that we've been asking for a year now, and that is that Corrections Canada is going to have to hire 4,100 new prison guards to take care of the anticipated increase in prisoners. Secondly, the RCMP is scheduled to lose 1,140 RCMP officers. The law and order party is promising Canadians there'll be more cops on the street and not fewer.

The only action plan I can see here is cutting and hacking and slashing the public service, and hiring more prison guards for all the prisoners they're going to have stacked up like cordwood after their tough on crime agenda. Where else are they going to save money, other than growth in the economy? Have you unearthed any other realistic methodology to bring us down to the numbers they're promising Canadians?

[Kevin Page]

Well, sir, again, we are still talking about a deficit track that is declining and probably a deficit track that most other countries would love to have over the medium term. Again, as I said in my remarks, I think Canada's biggest fiscal challenge is more of a long-term nature.

Once you get through the medium term and we start dealing with aging demographics and even productivity.... Again, we talked about corporate taxes today; both recent governments over the past 10 years have reduced corporate taxes in Canada, but we've still seen very weak productivity growth over the past decade relative to historical trends.

These are bigger issues, hopefully, that we'll need to address in a future budget as well.

[Pat Martin, NDP, Winnipeg Centre, MB]

If there is a realistic action plan, they're very proud of their first economic action plan. They put billboards all over the country. Now when we're asking, “What is your action plan to get us to this promise you've made to Canadians of a $2.6 billion surplus”, we're told, “I'm sorry, that's a cabinet confidence”, which is code for “Secret, we're not going to tell you.”

If they have a plan, I can't imagine for the life of me why it's considered a cabinet confidence. They should be bragging about it. They should be promoting it, and, frankly, they'd win votes. If they could actually show us how they would get us to a $2.6 billion surplus, Canadians would like that. But given the difficulty you've had and the difficulty we've had trying to pry this information out of them, we can only conclude there is no such plan.

Another fact that you've brought to our attention, which I appreciate, is that personnel costs are 67% of their total budget. So it is a logical place to look if you're trying to reduce the budget. But again, they're not even meeting their own projections.

Did I read this correctly, that in year one they anticipated they would save $300 million?

[Kevin Page]

Correct.

[Pat Martin, NDP, Winnipeg Centre, MB]

But in year one you're only able to measure $180 million.

[Kevin Page]

Well, that's what we've seen come through supplementary estimates (B), sir, and again, presumably, the rest of the $300 million will come in supplementary estimates (C). We've seen $181,051,000 in some departments come in supplementary estimates (B), so we're still waiting for the rest.

But I think for the question of $300 million for this year, sir, from a fiscal materiality point of view, it's not a huge issue. In terms of operational restraint, when you're trying to freeze operational spending in a federal government for three years, and again, this ramps up to $900 million in 2011-12 and $1.8 billion a year in 2012-13, that's a significant enterprise.

[Pat Martin, NDP, Winnipeg Centre, MB]

Is it feasible to make those cuts without affecting service to Canadians, especially in those key departments that you--

[Kevin Page]

Sir, I don't think it is feasible over a three-year period of time to actually freeze and not affect service levels. Even if you do it through attrition, you will be affecting service levels.

I think what our report looked at.... When we look at it, we don't see the evidence of a plan yet, as we stand. Maybe the plan will come, as Mr. Holder said, in the 2011 budget.

[Pat Martin, NDP, Winnipeg Centre, MB]

Maybe we're being asked to buy a pig in a poke, and it's chimera, hokum, and bunk.

[The Chair, Liberal, John McKay]

I'm sure that's where you would like to end your time of questioning, Mr. Martin.

Mr. Regan, for five minutes, please.