Finance Committee on Sept. 28th, 2006

[Amanda Aziz]

Absolutely. I guess I have to say they're both important and we need to prioritize for both. You need both the federal funding to increase quality and you need assistance to students and Canadian families who need it the most.

I certainly appreciate that there's this jurisdictional issue with regard to provinces and how to negotiate from the federal level, but certainly it has been done with health care. I know it was not an easy initiative. It's our position that it's not outrageous to suggest that the federal government could work with provinces and with premiers to create such a dedicated transfer that would also ensure affordability. At the same time as increasing funding to institutions, also ensure affordability.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Aziz.

We have Monsieur Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

My question is for Mr. Vanneste, the chair of the Canadian Bankers Association's Financial Affairs Committee.

In your brief, you ask for reductions in the income tax rate from 21 to 19 per cent and the elimination of the corporate surtax. You also ask for the introduction of further cuts to the federal corporate income tax. Then, you recommend that the federal government show leadership by encouraging the provinces to eliminate all provincial capital taxes, and so on.

If all these things were done, do you believe that Canadian banks would resort less to using tax havens? That is because we find out that the Canadian taxman failed to collect between $2 and $3 billion in taxes because of the systemic use by Canadian banks, and of the Bank of Nova Scotia in particular, I must say, of tax havens located in Barbados, Bermuda and other locations.

Do you think lowering tax rates would guarantee that banks would assume their responsibilities as corporate citizens and pay their taxes in Canada?

[Luc Vanneste]

Thank you, Mr. Paquette.

We certainly believe we are good corporate citizens. We operate as a group of institutions in Canada and around the world, and let me assure you we adhere to the laws of the land, both domestically and around the world, and that includes from a fiscal tax perspective.

We believe if there were a reduction in corporate tax rates in surtax, in capital taxes, that would encourage investment in Canada. Investment in Canada leads to additional employment; additional employment increases the tax base, increases productivity, and is good for all Canadians.

[Pierre Paquette, Bloc, Joliette, QC]

You have in no way managed to convince me that this will encourage the banks to be more diligent when it comes to paying taxes. But we can come back to this another time.

The Canadian Institute of Actuaries expressed concerns about long-term defined-benefit programs—and they were not the only ones to do so—and asked that the government introduce income tax changes to permit accumulations of appropriate surplus levels in defined-benefit pension plans.

A Quebec task force is currently contemplating requiring that long-term defined-benefit programs hold a 10 per cent surplus to prevent employers and employees from taking contribution holidays, as often happened during the stock market boom at the end of the late 1990s.

Is that what is behind your proposal?

[Michael Hale]

I think the 10% number bandied around is one possible approach to this problem. Perhaps more importantly, the level of surplus that a pension plan should properly hold should be related to the risks assumed by the plan. Depending on the nature of its asset mix, depending on the nature of its promises to plan participants, the riskier they are, the higher level of surplus it makes sense for the plan to target, either as a minimum prudential level of surplus or as a target surplus that the employer or the plan sponsor may choose to maintain.

I think the tax system certainly should not discourage the accumulation of those levels of surplus. The other issue of surplus ownership needs to...as well, it has been discouraging from companies--

[Pierre Paquette, Bloc, Joliette, QC]

You could perhaps just explain to us how the current taxation regime discourages the accumulation of surpluses.

[Michael Hale]

Well, there's a limit in the federal tax code; a contribution holiday needs to be taken whenever the accumulated surplus is more than twice the normal annual cost of providing the pension benefits. In the nineties, certainly with high proportions of the assets in equities and good results in the equities, surpluses were being developed and contribution holidays were taken that, in retrospect, might have been better not to take.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you.

Mr. Morrison, regarding the Canada Strategic Infrastructure Fund, could you sum up for us in two words why you think the government has opted to delay allocation of the big ticket funding that you have been calling for since the beginning? What do you think underpins the government's decision to follow such a course of action?

[Jeff Morrison]

The Canada Strategic Infrastructure Fund has been a very important program. It supports not only urban areas, but all highways in Canada. It is one of the most important sources of funding for the programs and projects not covered by other infrastructure programs.

It is worth $2 billion, in addition to what has already been allocated. It is a very important source of funding for projects which are not covered by other funds.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Paquette.

We'll try to have as many speakers as we can. We have Mr. Del Mastro, and then Ms. Wasylycia-Leis, Mr. Savage, and Monsieur St-Cyr.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chairman.

Mr. Vanneste, I have a couple of questions.

I'm pretty excited this week. I think a number of things have been done that are really positive for the Canadian economy. Indeed that's backed up by people like Don Drummond, chief economist at the TD Bank.

In The Globe and Mail, it said that “Canadians should be celebrating another significant payment against the public debt”. It further said that “critics charge the choice of spending cuts was 'political'. This is utter silliness.”

The National Post editorial said that “Mr. Harper's belt-tightening will be good for the overall economy. The Prime Minister deserves credit for doing the right thing.”

In your brief, you made a contention that lower taxes will lead to increased competitiveness. I agree with this on a couple of different levels. In the context of a minority government, I think it's quite novel that this government is not trying to buy votes with tax dollars. Maybe you can just talk about the overall benefit to the Canadian economy over the long term.

[Luc Vanneste]

Thank you, Mr. Del Mastro. I'd be happy to do that.

I would like to clarify that we're talking about tax cuts across the board for all businesses; we are not just talking about financial institutions. That's where one gets the leverage. As a country, if we are competitive on the tax side, Canada will be looked at favourably for those capital decisions that people make about where they invest their money. Rather than going south of the border or potentially going to third world countries, Canada will be a much more desirable place to invest those dollars.

When they invest those dollars, they build manufacturing plants and get involved with infrastructure projects, etc. That leads to employment. Employment leads to tax dollars. It works, and it mushrooms.

There are examples of other developed countries--I'm not going to mention names--that 20 years ago were in dire financial straits. One of the things they did as a government was to make very, very significant tax cuts to attract that foreign direct investment. The tax dollars they receive today, 20 years later, are phenomenal.

It has a very dramatic impact. It increases employment. It increases investment. It increases the tax base and gives the governments more dollars to invest in other very worthwhile projects that we hear about on the health side, the student side, and on infrastructure.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, sir. I never get tired of hearing sound economic advice and sensible fiscal planning.

Mr. Morrison, with respect to your recommendation number 3, that the federal government insert conditions so that all federal infrastructure programs forbid preferential procurement policies, one of the things in the Accountability Act is that corporations or trade unions can no longer donate to political parties. We're going to knock down the total amount that anybody can contribute to a political party. Obviously this is going to go a long way toward helping to achieve this goal.

[Jeff Morrison]

We've looked through the Accountability Act to see if in fact there are any provisions that would meet this requirement for ending preferential procurement. There is a section--and we're waiting for a legal opinion from Infrastructure Canada on this--that suggests that the Auditor General of Canada be given investigative authority to look at matched funding programs that the federal government gives to the provinces, where the provinces use that money in an “uneconomical way”. We're hoping this does in fact allow the federal government to ask the Auditor General of Canada to investigate when provinces introduce such policies that offer union or non-union or regional, or whatever type of preference it may be....

I just want to repeat that this is not about having any problem with unions--in the case of the Manitoba floodway or anything; this is really that it adds significant cost to a project, which is inherently unfair.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, sir.

Ms. Aziz, I quite enjoyed your presentation, and I agree with the notion of a dedicated transfer. Ultimately, I think the notion of a dedicated transfer would help us, and certainly student groups, put pressure on the provinces to not pull back their funding. John mentioned this as well.

We heard from the Millennium Scholarship Foundation and they talked about having very, very low administrative costs. You talked about there being an increase of 500%. Could you just reiterate that?

[Amanda Aziz]

Yes, certainly. I wasn't here for their presentation, unfortunately, but if you look through their annual reports, it's very clear. You can see the increase in administrative costs.

Certainly we've had a concern for a number of years with regard to the money being wasted and not being spent on direct student financial assistance, but our largest concern, I would say, in the last couple of years, surprisingly enough, has to do with contracts or no-bid contracts, particularly last year, when a $4 million contract was awarded to the Educational Policy Institute. An employee of the foundation who was involved with that contract procurement process moved over to the institute that was awarded the contract. Certainly we've not had any answers on that, and we just encourage the committee to—

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Aziz.

Okay, Ms. Wasylycia-Leis, for five minutes, then Mr. Savage and Mr. St-Cyr.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you, Mr. Chairperson.

Thank you all. I'm sorry I wasn't here for your presentations. I was in the House letting some steam out. I was speaking on—

[John McKay, Liberal, Scarborough—Guildwood, ON]

This is therapy.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I was speaking on the motion on cuts to women's programs. So, yes, I'm much more relaxed now, Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank, God.

[John McKay, Liberal, Scarborough—Guildwood, ON]

We're all feeling better about that.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Good.

But I've read all of your briefs; I've skimmed them all. The question I have for all of you—and it really gets at Dean's question, in a way—is that we have a very tough decision before us as a committee. First of all, we've known in the last couple of days that the government will take last year's surplus and put it all against the debt. We know from some folks, especially people like John McCallum, who I don't always respect, but I think he has some good financial background from the banks, that—

[Dean Del Mastro, Conservative, Peterborough, ON]

Do you mean “agree with”? I hope you always respect him.