Evidence of meeting #3 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was budget.
4 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
The government indicated what measures would be confirmed and which ones they would not follow through on, and they decided to proceed differently with regard to aboriginal issues.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
So roughly it freed up about $5 billion for other uses?
4 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
It's probably not that much, but--
4 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Yes.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
The second question has to do with a chart that appeared in the 2005 budget. I know it appears on your website, and it has to do with, if you will, the advocacy of a tax relief measure. The chart talks about the economic value of tax relief in the area of capital cost allowances or capital taxes or personal income tax versus a consumption tax. And in your documentation and in your chapter in the 2005 budget, it talks extensively about what is the best tax relief for increases in productivity. Are you able to confirm that chart and that information is still valid information, and it's still the view of the department that in terms of productivity the consumption tax is the last tax you would cut--assuming you had a choice--and personal income tax or capital cost allowances are in fact first choices to be able to develop an enhanced productivity?
4:05 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
The department has published a number of studies in the past that showed that according to economic models, from an economic efficiency point of view, the consumption tax is the most efficient. With that being said, however, there are a number of factors entering into the decision as to whether or not to reduce a particular tax. There are, of course, other criteria such as administrative simplicity, fairness, and so on and so forth. But if we believe these models, the consumption tax is the most efficient tax.
4:05 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
It's not only private sector economists who would take the view the department holds, but the department has not changed its view in the last few months.
4:05 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
If we believe these models, then that's what these models say. Just to make sure, however, the budget reduced the GST but also reduced many personal income taxes and corporate income tax. In fact, in terms of tax reduction, most of the tax reduction is in terms of income tax, not the GST.
4:05 p.m.
Conservative
4:05 p.m.
Conservative
4:05 p.m.
Assistant Deputy Minister, Corporate Services Branch, Department of Finance
Yes.
4:05 p.m.
Conservative
Garth Turner Conservative Halton, ON
Vote 10 is a change from the previous estimates, which named two insurance companies in the mortgage insurance business as being GE Capital, now Genworth, and CMHC. And now we're changing the wording of that to throw this open to more competition, I presume.
There are some issues here that concern me a little bit, because right now half of all the mortgages being insured in this country are basically high-ratio mortgages. And we have a real estate market that's gone nuts, and we have housing prices that are the highest ever. It strikes me that high-ratio mortgages are now an issue of some importance, and particularly if the real estate market starts to unwind, the Government of Canada has a potentially huge liability on its hands. So we need to be fairly careful as we open up this area to more competition.
So my questions are pretty simple. Have you consulted with the stakeholders prior to this being put before us? In other words, have the existing companies in the mortgage insurance field been able to offer their input into this change?
4:05 p.m.
Serge Dupont Acting Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
That's a good question. Obviously the mortgage market is evolving rapidly, and this is an important measure.
In fact, simply to clarify, CMHC is not named here. Rather, it is the predecessor company, the Mortgage Insurance Company of Canada, in the prior vote, that has ceased to do business, and GE Mortgage Insurance, which is the predecessor to Genworth. Those were the two there.
What the vote does, as you're indicating, is allow the minister to enter into agreement with other companies to basically offer the same guarantee facility to those other providers. These other providers, then, clearly would be coming into competition with Genworth and with CMHC for the mortgage insurance business.
In regard to the prudential part of your question, these providers obviously are regulated by the Superintendent of Financial Institutions. They need to hold sufficient capital commensurate with the risks they're taking. Therefore, that is providing some level of comfort that the guarantee is not an open-ended type of liability but rather is a contingent liability that is protected through prudential means.
4:10 p.m.
Conservative
Garth Turner Conservative Halton, ON
Just to clarify, though, in the case of Genworth, that's 90% that the Government of Canada--
4:10 p.m.
Acting Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Correct. It is not exactly the same treatment as CMHC.
4:10 p.m.
Conservative
Garth Turner Conservative Halton, ON
Right. The Government of Canada is on the hook for 90% of what Genworth lends somebody to buy a home with 5% down.
4:10 p.m.
Acting Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Well, the way it works is that if there is a default of a house owner, the financial institution then would first realize on the property. For the shortfall, they would then go to their insurer. Their insurer is regulated by OSFI, the superintendent, to ensure that it has sufficient capital to be able to withstand these kinds of contingencies. So the government guarantee comes into play only if the insurer--in this case Genworth, the only one out there--were to become insolvent. Then the government would have to....
Genworth, in addition to holding its regulatory capital, in support of this agreement with the Government of Canada is contributing to a guarantee fund that is providing further capital against this contingent liability for the Government of Canada. It is also paying a fee to the Government of Canada. So there are a number of steps before you actually reach the government liability.
4:10 p.m.
Conservative
Garth Turner Conservative Halton, ON
Yes, I understand.
The chairman has a hell of a heavy gavel in this committee, so can we move it along a little bit?
4:10 p.m.
Acting Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
I'm sorry.
4:10 p.m.
Conservative
The Chair Conservative Brian Pallister
You have time left, Mr. Turner, if you'd like to use it creatively.
4:10 p.m.
Conservative
4:10 p.m.
Acting Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
We have had a number of discussions with Genworth over the past number of years, until recently. We have not consulted with them on this specific vote.
We, to my mind, have always been clear with Genworth that this was not an exclusive type of agreement we had with the company, and there was never any representation made to that effect. So Genworth was not consulted with regard to the specific wording, but would have had reason to expect that at a point in time another competitor would come in to claim for the same facility.