Finance Committee on Oct. 25th, 2006

[Luc Harvey, Conservative, Louis-Hébert, QC]

I will not get the rest of my answer.

[The Chair, Conservative, Brian Pallister]

I make sure there is another opportunity for your comment.

The next questioner will be Ms. Judy Wasylycia-Leis.

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

Thank your, Mr. Chairman.

I thank you for your presentations, which are very important.

If we want to discuss the issue of productivity and competitiveness in Canada in the context of globalization, education remains the most important factor. Could anyone disagree with that?

It is been almost 10 years since the federal government really broach the issue of education and its funding. In the first budget, apart from bill C-48 as put forward by the NDP, and regarding which the conservative government finally tabled the motion, the federal government simply granted a tax credit for text books. That's it.

It seems to me that transfer payments must be increased by least 25%. Moreover, we must ensure that funds are made available for colleges, CEGEPs, as well as universities. So how could we convince the Conservatives to solve this problem of transfer increases?

I am putting that question to you, Mr. Juneau, Mr. Godbout or Mr. Patry.

[Denis Juneau]

With respect to the production of wealth in a given country, Canada in particular, a number of factors come into play. We need skilled manpower that meet the needs of businesses. However, under-financing of higher education is limiting not only the system's ability to educate as many people as we would like to in colleges, but it also limits their ability to work with state-of-the-art high-technology equipment used in businesses. When young people come into a company with their CEGEP diploma, they should already be familiar and able to use the technology that is there.

This is one example that should help you understand that some people focus on financial considerations. However, with respect to manpower, Quebec's colleges and universities must educate people and give them the right skills through the right technology, and that meet the needs of businesses today.

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

My question is to Pierre Patry and Denis Patry.

If we had to choose between putting more funding into education and reducing corporate and business taxes, which would be the best choice?

[Pierre Patry]

We believe the choice is quite clear. Earlier, we talked about productivity issues. Obviously education, especially higher education, is a significant factor in improving a given country's productivity. In our view, there is no doubt we should opt for reinvesting in education.

That is why we are asking for the fiscal imbalance to be remedied. Education is under provincial jurisdiction. If the federal government were to inject more money into the provinces, the provinces would be able to fulfill their educational responsibilities properly.

With respect to education spending, in 1977 the federal government covered 25% of costs through transfer payments. Today, with social assistance and other factors taken into account, that figure has dropped to 11.5%. It is half of what it was.

Even if we were to ask for $3.4 billion or $3.9 billion to correct the fiscal imbalance, we would not be asking the federal government to go back to its 1977 spending levels, but just to its 1994 or 1995 spending levels, which were 18 or 19%.

In our view, that must be the top priority. The government has been bringing the debt down for several years now. Nonetheless, we believe it would have been preferable to put more money into the provinces and enable the provinces to cover their education costs better. That would have been much more productive, both socially and economically.

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

I'd also like to hear from Denis Patry.

[Denis Patry]

If I understood the question correctly, you are asking which would be more important: increasing education transfers...

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

If we had to make a choice.

[Denis Patry]

I would try to do both.

Rather than trying to achieve a single goal, I would try to achieve both. I would increase transfers to the universities to help them regain their rightful place as educational institutions of note in our regions, and as contributors to business development. I would also provide funding or tax credits to help businesses become better equipped, be more productive, and compete better in the international market place.

Productivity has dropped. We are not competitive enough. People have waited too long, or have been unable to invest in modernizing their equipment and becoming more competitive.

I would also take the opportunity to provide subsidies, to increase transfers to organizations that promote exports and economic development.

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

Could you comment on the remarks made by Pierre Patry? He said that, in spite of all the tax cuts businesses have received over the past ten years, there has been no increased investment in Canada's economy and no indication that tax cuts will benefit Canadians when it comes to services, jobs, and so on.

[Pierre Patry]

I share that view. There is no clear link between reducing corporate taxes and investments.

As a manner fact, in Quebec, for the past few years, investments are down, while the tax burden of corporations has been reduced.

From a tax standpoint, we must therefore make sure that we properly target the measures that we put forward. We are prepared to examine some accommodations. We do not think that overall, the tax burden on corporations should be reduced, but we could consider some accommodations in order to increase productivity and foster job creation. Moreover, one of the important factors in terms of job creation is education. It has been proven that the more people are educated, the less likely they are to be unemployed, and if they have to collect employment-insurance benefits, they will have more opportunities to upgrade their skills because they will have acquired a solid foundation of knowledge.

If I had to make a choice, I would not hesitate: I would opt to reinvesting transfer payments in education rather than tax cuts.

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

Mr. Godbout...

[The Chair, Conservative, Brian Pallister]

Your time is up, Madam.

We will continue with Mr. McCallum.

You have four minutes, sir.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

My question is for Mr. Godbout on fiscal imbalance. Recently, we saw cutbacks of $1billion in literacy programs, grants to museums, etc. but if we were to transfer the entire GST to the provinces, the loss of federal revenue would be over $30 billion. That means that cuts would have to be 30 times greater than those that we have just seen.

Are you really serious?

[Prof. Luc Godbout]

First of all, I did not say that the seven per cent of the GST should be given to the provinces. As a matter fact, it is not 7% anymore but it is now six. And now it is at 6%, the government has made a commitment to bring it down to 5%.

[John McCallum, Liberal, Markham—Unionville, ON]

$6 billion a year, even it is 5 points, multiplied by six, that is $30 billion.

[Prof. Luc Godbout]

But right now, we are not at $6 billion per percentage point. The government has committed to lowering the rate to 5%; it could decide to bring it down to 4%. What I am saying is that after that, what would be the transfer to the provinces would have to be negotiated. If transfers for social programs were abolished, $9 billion will be recovered. So it will not cost $30 billion net. You have to subtract that.

Do you agree? Is that all right until now? We should understand each other.

[John McCallum, Liberal, Markham—Unionville, ON]

If you are saying that you would eliminate all transfers, that is different.

[Prof. Luc Godbout]

Not all transfers to the provinces; not in the area of healthcare, but they could be eliminated in the case of social programs.

After that, negotiations would be required. Perhaps the provinces could take over some areas of federal spending that come under their area of jurisdiction. Then, a timetable could be set to implement initiatives. I am not talking about putting all this in place by April 1^st, 2007.

[John McCallum, Liberal, Markham—Unionville, ON]

But you are talking about a loss of revenue in the order of $30 billion. I think that is not realistic at all given the problems caused by cutbacks of just $1 billion.

[Prof. Luc Godbout]

You do not want to consider my proposal to abolish transfers for social programs. Right now, you are talking about net cost. We must not talk about...

[John McCallum, Liberal, Markham—Unionville, ON]

$20 billion is still a problem.

Let me go on with to my second question. I get the impression that the government is trying to use a single amount of money for dual purposes.

They speak out of both sides of their mouth.

On one hand, the reduction of the GST targeted Canadian citizens, as promised during the election campaign. On the other hand , the point of the drop in the GST was to settle the fiscal balance.

Is it not impossible to use this money twice?

[Prof. Luc Godbout]

I fully agree with you.

When Mr. Harper made that commitment, during the last election campaign, he was standing next to the cash register. You do not need a PHD in psychology to understand that he was not granting a tax break to the provinces, but rather to individuals. He said that the GST would go from 7 to 6% , then to 5%, while standing next to a cash register. That is wonderful for individuals.

However, he could decide to set it at 4% for individuals an give the remaining 4 points to the provinces, but he cannot say that he is going to give these points both to the provinces and to individuals. You must agree with me on that.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Patry, you said that you want the government to reduce taxpayers taxes. Is that more of a priority for you than a second decrease in the GST? You did not mention the GST.