Finance Committee on May 10th, 2006

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

At a certain point, that reduction needs to be made through legislation.

[Serge Nadeau]

Lawrence, does it? Maybe I'll just ask.

[Lawrence Purdy, Chief, Tax Legislation Division, Department of Finance]

Good afternoon. My name is Lawrence Purdy, and I'm with the tax legislation division in the tax policy branch.

If I may venture an answer to your question, Mr. Dykstra, a proposal to reduce a tax rate in the form of a notice of ways and means motion is in legal terms just that, a proposal, until the Parliament of Canada has voted on and approved it. Strictly speaking, it has no legal effect until it has been enacted by Parliament.

As an administrative matter, the Revenue Agency was prepared to act on the basis of the notice of ways and means motion for purposes, for example, such as employer withholdings from their employees. The measures in the current bill implement reductions in the legislative form, and assuming that this bill is passed, those will be the only ones that are enacted. The previous notice of ways and means motion died with the previous Parliament.

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

So if that motion were not carried through in legislation, though, what would happen to the...?

[Lawrence Purdy]

There'd be no rate reductions vis-à -vis the 2005 budget. In other words, the rate reductions that are offered in this budget would not take place if that legislation were not enacted.

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

So would that put us in a position of folks who did actually apply through their tax returns having to reapply based on the fact that 16% to 15% would have never existed?

[Lawrence Purdy]

It would put them in a very difficult position. It would also put the Revenue Agency in a very difficult position. It would have to decide how it would deal with that. It would be faced with large numbers of taxpayers who had filed with an expectation that rates would be x, finding out after the fact that rates in fact were not that.

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

So in fact the reason it is in the budget is that the 16% to 15% reduction needs to be carried out through a piece of legislation?

[Lawrence Purdy]

If it's to have effect, there does need to be an enactment.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Dykstra.

Over to you, Madam Wasylycia-Leis.

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

Thank you very much, Mr. Chairperson.

I'm sorry I was a bit late. I'm glad you're all here. I gather, walking in, that we're asking general questions, not necessarily line-by-line questions? All right, this is great.

I have three areas I'd like to deal with. One is the surplus issue. How much surplus was there at the end of the last fiscal year?

[Paul-Henri Lapointe]

Well, we indicated in the budget that we estimated the surplus at $8 billion.

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

How much was there before you hived it off in different...? What was the total surplus before you began the spending of that in terms of different trust funds or different allocations? Was it $ 20 billion?

[Paul-Henri Lapointe]

If you go to the table 4.2 of the budget plan, we started out with the surplus estimated at $13.4 billion in the fall update.

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

Okay, and what was it just going into the end of March 31? That's all I'm interested in.

[Paul-Henri Lapointe]

Yes, that was the--

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

That was it?

[Paul-Henri Lapointe]

Yes.

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

At $13.4 billion. So we know that--

[Paul-Henri Lapointe]

It was estimated at $13.4 billion--

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

Estimated at, but you would have known then the exact number, because in fact decisions were made right at the end of the fiscal year to disperse significant amounts of the surplus, $3.3 billion to set up trust funds to implement the NDP's portion of last year's budget. You put $2 billion into CPP investment.

So I'm wondering what the total was going into the budget process and why the decision was made to leave five beyond the normal three for contingency and prudence?

[Paul-Henri Lapointe]

I'm not sure I understand what you mean by the CPP, but for 2005-06 we had a surplus estimated at $13.4 billion in the fall update. We had to account for measures that were taken before the update, and it reduced the surplus by $1.4 billion. We have the impact of consolidating the foundations in the government financial statements, which reduced the surplus further.

Then we have revised the surplus projections based on the latest economic forecasts that we had. So that gave us a revised surplus.

If you go to what was done with the surplus, we had to account for the tax reductions that took effect in January 2005, so we had total measures of $5.7 billion that we had to account for. Then we have the money that would be spent under Bill C-48 which amounts to a total of $3.6 billion. And this, of course, is conditional on the surplus being above $2.0 billion at the end of the year--we will know that in September--and that leaves us with a surplus after all this of $8 billion. That's the best estimate that we have now.

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

Okay.

[Paul-Henri Lapointe]

The year, of course, is not closed, as we're looking at the March numbers now, and we are going to go to the normal year-end adjustments for departments that have committed funds and the adjustment for revenue when we go from cash to accrual, and we'll have an estimate at the end of the year. But our estimate right now is $8 billion.

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

I raised the pension issue because as far as I read in the budget there was $2 billion from surplus dollars that went into the CPP fund to deal with...well, I'm not sure exactly why, because the pension is solvent for another 70 years. I'll come back to that. That's not the main point of my question.

What I'm trying to get at is that there's been general agreement by all sides that we should leave some money aside for contingency and prudence and that in fact it does go against the debt. Nobody quarrels with that. But in this case we're $5 billion over that which is likely to go against the debt, or has gone against the debt. Some would say that's good. As far as I can tell, that brings the debt down from $494 billion--straight math--to $489 billion. I'm trying to understand if you've done any cost-benefit analysis of doing that, which probably reduces the time we pay off our debt by a few seconds in a day, versus the $5 billion that could have been invested using the accepted formula of a trust fund, as we did with the Bill C-48 money, in something like child care.

Maybe I'm getting into political issues, and I shouldn't be asking these questions, but I'd like to know, wouldn't the cost-benefit of putting $5 billion into, say, a child care fund over five years produce a lot more than paying off the debt by that much, which brings the total down a bit but sure doesn't do much to stimulate the economy, grow the economy, and build for a reduction in the debt in the long term?