Finance Committee on May 10th, 2006

[Paul-Henri Lapointe]

I would say that when proposals are brought to cabinet for discussion on a new program, the department would normally include in their cost estimate the cost of administering the program.

[Rick Dykstra, Conservative, St. Catharines, ON]

So there is obviously a cost to administer a program. If it's an infrastructure program, if it's a cut in the GST, if it's an increase in a budget that has to do with the Minister of Natural Resources, there are always going to be costs incurred by the government to make those changes.

[Barbara Anderson]

I would say that is true if the policy changes need big implementation machines behind them. From our side, the department administering the transfer programs, we don't have an increased cost with an increase in transfers. I'm not bragging that we're so efficient, it's just that there are some programs that see increased costs.

[Rick Dykstra, Conservative, St. Catharines, ON]

Whether you're going to transfer...and I was actually leading into the transfer of funds and the fiscal balance strategy. When you simply change a number, and you're cutting a cheque, it doesn't take a whole lot of work to just change the number versus change the program.

In terms of fiscal balance with provinces, I wasn't quite sure, although I know a colleague has already asked a question on it, what the total transfer payments were to the Province of Ontario in the last budget. I don't have the document in front of me that would indicate this.

[Barbara Anderson]

For 2006-07?

[Rick Dykstra, Conservative, St. Catharines, ON]

For 2005-06.

[Barbara Anderson]

I have my handy little cheat sheet here. In 2005-06, transfers to the Province of Ontario totalled $18.9 billion.

[Rick Dykstra, Conservative, St. Catharines, ON]

What will they be in 2006-07?

[Barbara Anderson]

They will be almost $19 billion--$18.970 billion.

[Rick Dykstra, Conservative, St. Catharines, ON]

So there is an obvious increase in the funds allocated to the Province of Ontario in this budget versus what was allocated in the last budget.

Thank you.

[The Chair, Conservative, Brian Pallister]

Mr. Turner is next.

[Garth Turner, Conservative, Halton, ON]

I have a quick question or two about the macroeconomic modelling you folks do. I'm wondering whether the change in the exchange rate has any kind of impact here that we ought to know about, because we are obviously in somewhat uncharted territory right now. In other words, are we concerned about the rapid change to the exchange rate in the last few months, and perhaps, going forward, seeing more of the same?

[Paul-Henri Lapointe]

You have to look at the cause of the exchange rate movements. In the past few years the appreciation we have seen has resulted largely from the run-up in commodity prices, and in particular energy prices.

In this case, of course, the impact will be much less. There will be some regional impact, an impact that will require adjustment, but the impact in a macro policy sense will be much less than if it were to occur by a run against a currency or a portfolio shift, as the economists would describe it. The change we have seen today has been largely a reflection of the rise in commodity prices, which reflects the growing wealth of Canada in terms of trade improving.

This is not to say that it has had no impact, that it does not require adjusting the economy, but what we have seen to date is that remarkable capacity for the economy to adjust. We have seen a decline in the manufacturing employment as a result of increased productivity in that sector, but it is offset by job gains in other sectors of the economy, including construction, for instance, so overall employment growth has remained fairly strong. We have the lowest unemployment rate in 30 years.

[Garth Turner, Conservative, Halton, ON]

I'm glad you brought up the point about productivity, because our productivity level has increased, right?

[Paul-Henri Lapointe]

Yes.

[Garth Turner, Conservative, Halton, ON]

It is one of the good stories in the economy right now--up more than two points.

Lastly, there is the impact on interest rates. With the exchange rate differential that we have today, and given some of the inflationary pressures the Bank of Canada has been concerned about...we've had six interest rate increases in the Bank of Canada's base rate. The Fed moved today. The Fed prime is now--what, 5%? Where are we going from here? Are we looking at another two or three rate adjustments by the Bank of Canada? Does that throw your projections off?

[Paul-Henri Lapointe]

I will certainly not try to do the job of the Governor of the Bank of Canada. All I will say is that the private sector forecasts we are using for planning purposes assume, or have built in, some increase in interest rates in 2006. The short-term rates are projected to average about 4.4%, if I recall, compared to an average of 2.7% in 2005, so it's already built into the forecasts of private sector economists.

[Garth Turner, Conservative, Halton, ON]

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Turner.

Mr. McKay, you have just a minute and a half or so.

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

In the not-so-distant past, the department was dead set against children's fitness credits. They had two arguments. The first argument was that there would be endless requests of other people who were going to ask for credits, whether for dance or for other cultural things--for piano, etc. The second argument was that it would be administratively problematic, in part because although you have various large clubs that probably could adjust, you also have a lot of little clubs that would be challenged to be issuing something as valuable as a tax credit.

What has changed since the department had that view?

[Garth Turner, Conservative, Halton, ON]

Our government.

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

Is that the only answer?

Does the department still have that same view?

[Serge Nadeau]

First, in terms of the administration, the budget announced that a small committee of experts would be set up to decide which program would qualify for the tax credit. So that will help the administration in terms of developing guidelines for it.

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

And other than that, the department still retains the same view?

[Serge Nadeau]

I'm just trying to recollect.