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.
4:55 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
Do you want to talk about the effect on personal income tax compared to the November update?
4:55 p.m.
Conservative
Luc Harvey Conservative Louis-Hébert, QC
I want to know what the effect will be compared to my last tax return.
4:55 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
Yes, on average, income taxes will be lower. If you also include the GST reduction, nearly everyone will have a real decrease in their income taxes.
4:55 p.m.
Bloc
4:55 p.m.
Conservative
Luc Harvey Conservative Louis-Hébert, QC
A bit earlier, there was talk of $5 billion to eliminate the debt. What saving, in terms of interest, does a refund of some $5 billion have?
4:55 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
More or less, if we take the interest rate in effect on the debt, which is about 5.5%, a reduction in the debt of some $8 billion represents a permanent saving of slightly more than $400 million a year.
4:55 p.m.
Conservative
Luc Harvey Conservative Louis-Hébert, QC
These are recurring amounts. Agreed.
I have one final question. In your opinion, at what rate should we pay off the debt so that it is fair? I am the father of four children and may be a grandfather one day. What would be equitable, as a debt reimbursement cycle, so that one generation does not lose more or so that it does not have to pay more than another? Is this a good question?
4:55 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
That is a very good question. However, if you put it to all the people sitting around this table, I am sure that you would get as many answers, if not more, as there are people. I cannot venture to say what the optimum reimbursement or the optimum reduction of the debt is. I can say, though, that the government aims to reduce the debt-equity ratio – which is really the relevant figure in terms of measuring the debt burden – to 25% in 2013-2014. We have to remember that it was over 68% in the mid-1990s. This is huge progress over the situation then. So I can simply tell you what the rate of reduction of the debt burden planned here is.
5 p.m.
Conservative
5 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
Reduction of the debt burden results from reimbursement of the debt, that is, from $8 billion to $3 billion, but especially from growth of the economy. It is important to consider the debt burden in relation to the size of the economy, that is, the capacity of Canadian taxpayers to assume this debt. That is what is most important. There may be a reduction of up to 25% shortly before the middle of the next...
5 p.m.
Conservative
Luc Harvey Conservative Louis-Hébert, QC
Would it be preferable to cancel the debt or to maintain it at its present level?
5 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
We can always have all sorts of wishes and say that it would be preferable not to have any debts. What I see, myself, is that we are making huge progress and we are going to continue to make progress so as to deal with future demographic pressures.
Reduction of the debt burden also results in a reduction of the share of government revenue that is devoted to payment of interest on the debt. In the mid-1990s, over one third of every dollar collected was used to service the debt. At present, this percentage is a little over 16%. By decreasing the indebtedness ratio to 25%, this ratio will be about 12¢ a dollar, or a third of what it was in the mid-1990s. This decrease will give us enough flexibility to cope with the pressures stemming from future demographic changes.
5 p.m.
Conservative
5 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chair.
My question is about the same subject. Our debt is about $499 billion, is it not?
5 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
It is $494.4 billion.
5 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
If we plan to reimburse $3 billion a year, that means that we are going to be reimbursing the debt for another 125 or 130 years, or more. I think that is the answer that Mr. Harvey was looking for.
As for interest rates, if they increased by 1%, would that mean that we could end up with an extra $4 billion in interest at the end of the year?
5 p.m.
Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance
The document shows the impact of changes in interest rates on servicing the debt. An increase of 1% in the interest rates results in a variation in debt service of about $1 billion. So, if the interest rates increase by 1% during one year, there will be a net increase of...
5 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
This is $1 billion, not $4 billion. It is not 1% of the total debt. Thank you.
This next question is mainly for information. I wasn't here at the beginning of your presentation.
How does it work for the budget process? We had the Canada Revenue Agency and had different numbers thrown at us on the costs whenever there's a change in policy, such as when the tax rates go from 15% to 16%, or from 16% to 15% and 15.5%. The one that we had questions on was the GST, when the GST is reduced from 7% to 6%.
I'm a bit worried. If you're not talking to a department like the Revenue Agency and trying to determine how much it's going to cost, I wonder, with all these measures when you're preparing a budget, how much it really costs to implement some of these measures, especially some of these superficial ones where we're giving back $80 for books and public transit and things like that.
5 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
In terms of the GST, I believe Monsieur Michel Dorais yesterday said that it would cost around $10 million in total to administer the tax reduction. More generally, we do speak with CRA to find out how much it costs to administer measures.
5:05 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
But do we have any idea of what the GST would have been, the reduction from--
5:05 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
On the GST, Monsieur Michel Dorais mentioned yesterday that it would cost $10 million to administer the change.
5:05 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
But it wasn't clear whether it was $10 million, or whether it was recurring or non-recurring?
5:05 p.m.
General Director, Analysis, Tax Policy Branch, Department of Finance
No, it's non-recurring; it's $10 million flat. The transition from the 7% to the 6% will cost $10 million.
5:05 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Are there any costs related to the private sector? Do you look at what it costs in the private sector? Does that affect your numbers, or...?
