Finance committee  I think so. I guess from a strict point of view, as Mr. Dancey said, the right thing is to have a tax system with low rates and a broad base and that is as neutral as possible, and probably years ago we should have recognized that we had a bias here that could lead to problems. But better late than never.

Finance committee  As I said in my opening remarks, we've done no highly specific work on this, and work on what affects productivity down the line is very difficult. So I must say that I'm speaking here on the basis of general principles and on our general knowledge of what affects productivity going forward.

Finance committee  Thank you. I tried to clear up that misleading headline after the hearing in front of the Senate. I did issue a press release, and I'll just very quickly read the critical line: We've looked at it from the point of view of the efficiency of capital markets. The work we have done in terms of capital markets per se is that probably, on balance, income trusts make markets somewhat more complete and hence somewhat more efficient, but that has nothing to do with the tax treatment and that it is appropriate that businesses face a level playing field in choosing the form of corporate organization that allows capital to be allocated to its most efficient use.

Finance committee  It is hard to give you an answer which would apply to businesses in each and every sector, because circumstances differ from one industry to another. A decision may benefit one given sector or company, and, yet hurt another. The problem to date is being that inappropriate business decisions have been made in an effort to save on taxes.

Finance committee  Good morning, Mr. Chairman, and members of the committee. I should start by making clear where the Bank of Canada's main interest in the income trust sector lies. Our interest in income trust relates to the efficient functioning and health of Canada's financial system. A safe and efficient financial system is essential to Canada's economic well-being.

Finance committee  To take your second question first, the link would be indirect. The link would be that with a collapse in the U.S. housing market, U.S. demand really slows down, our exports slow down, income growth in Canada slows down, and then that affects the housing market. I don't think there's a direct link at all.

Finance committee  Or at least not contribute to.

Finance committee  Yes, I think there are. There are actions that would certainly help to at least make public policy neutral. I talked about one of those in answering Judy's question. I really am worried about a system that jerks the valuation all over the place. Any prudent corporation doesn't want to have his earnings jerked all around by assumptions that accountants force him to make about an interest rate to value liabilities, for example.

Finance committee  The surplus occurs when your projected revenues exceed your projected spending, and it automatically goes to pay down debt. How much debt should one aim at paying down? The answer is that it depends on where you are in the business cycle. When you have unexpectedly strong revenues, you should aim to use that to pay down debt.

Finance committee  The short answer is a lot of judgment, and I'll let Paul give you the factors.

Finance committee  Well, the really difficult thing is that somehow we have to move real resources out of industries where the value added is lower and into industries where the value added is higher. That's how we'll become wealthier over time. That process of adjustment is not easy. It takes time, it takes investment, it takes retraining, and it takes mobility.

Finance committee  Thirty seconds. It's quite easy, or relatively easy, in very deep labour markets, like southern Ontario, the Montreal plain, the lower mainland in B.C., or the Edmonton-Calgary corridor, because people can move the costs of movement. You may have to drive further, but you can move around.

Finance committee  That's a question I'm not going to answer.

Finance committee  I'll tell you why. At the bank we are very privileged, in that we have direct access to the Government of Canada to give them advice privately and quietly. We are their banker. We serve the Government of Canada, and we'll serve the provincial governments, in terms of giving them advice on a confidential basis.

Finance committee  It's a good try.