Finance Committee on Nov. 23rd, 2006

[The Chair, Conservative, Brian Pallister]

I'm glad to hear you say that, because if you buy that thesis, you buy the thesis that to increase labour force participation we should simply raise income tax, it would seem to me.

[Don Drummond]

Exactly. I don't think it's an argument that goes very far.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Orr, do you want to chip in here?

[Dr. Dale Orr]

I'll make two comments.

First, I agree with Don, and I think the overwhelming issue here is the concept that the family--the household--is the spending unit, and the taxes should be based on that. That's why I and a lot of other economists are in favour of income splitting.

This notion that there could be some side impact on labour force participation makes me very frustrated. It leads me to believe that some people here might not favour income splitting because of this side effect. But as far as I can see, no party here is going to tackle the employment insurance system.

If you want to do something, if you're really concerned about labour force participation, then there are 300,000 people in Quebec and eastward, under the age of 45, who are unemployed today. By our forecast and most other people's forecasts, there will be 300,000 people in Quebec and eastward unemployed in 2010. Many of those people will be the same people. Most of those people could get jobs in Alberta and B.C., and the federal government does not really focus on this question of moving people to where the jobs are. They're spending a lot of money on unemployment insurance, but there is not a high priority on moving people from one province to the other to go where the jobs are.

As a matter of fact, as you know, the unemployment insurance system now is perverse, in that sense. Qualifying for unemployment is easier if you're sitting in an area of relatively high unemployment. It should be the reverse. There you go. If you're worried about incentives for labour force participation, it's sitting out there for you to take action on.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Ms. Russell, you made a rather impassioned plea, it seems, for keeping government revenues higher. It's kind of ironic, in a way. The reason you're here, I think, is in large part because the previous government's tendency was to use fiscal prudence excessively and to therefore create excessively large surpluses, which deprived Canadians of debate on the use of said surpluses, because their forecast didn't match what Canadians ended up producing in terms of surpluses. And now all of you are chiming in on the need for us to be fiscally prudent and to actually be very conservative in our projections, I think.

Madam Russell, you made the impassioned plea that we should make sure we have more revenue in the hands of government so we can do good things with it. I wonder if you extend that thesis to the idea that we've overtaxed Canadian workers--some estimates say by over $40 billion--certainly in the EI fund alone, over the last decade. Surely you don't carry that thesis to the idea of keeping the EI premiums excessively high, because that would really be a tax on Canadian workers and small business largely, wouldn't it?

[Ellen Russell]

There was a lot packed in there.

[The Chair, Conservative, Brian Pallister]

You were saying to keep revenue higher so we can do good things with it. We all know we'd like to do good things with the money Canadians send us.

[Ellen Russell]

My interest here is that if the fiscal position of the government is obvious to all Canadians, then we can have a legitimate public debate. I didn't like it when they were low-balling surpluses, and I won't like it either if we pass a bunch of tax cuts that we can't really pay for and it only becomes clear down the road what the consequences are.

[The Chair, Conservative, Brian Pallister]

I'm clear on that. I just want to be sure you're not including in your thesis of employment insurance premiums being too high and continuing to be too high and that you want to have extra revenue coming to the government from that source. I just want to be sure you're not including employment insurance in your thesis, that's all.

[Ellen Russell]

I set aside the employment insurance.

[The Chair, Conservative, Brian Pallister]

It's not in your thesis, right? You're not saying to keep employment insurance high. I want to be clear on this.

[Ellen Russell]

I have lots that might be done about employment insurance, but this is not the forum where I can really give a whole discourse on that.

[The Chair, Conservative, Brian Pallister]

Fair enough.

[Mathieu Dufour]

I just have a note on that, if I may. In our forecast, we calculated the numbers in a way that employment insurance balances out. That is, only enough revenue is taken in to pay out the premiums. No extra money, if you will, goes to the government from that fund.

[The Chair, Conservative, Brian Pallister]

Thank you very much, monsieur.

We continue with Monsieur St-Cyr, pour cinq minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chairman.

I would like to come back to family income splitting and what you see in terms of an impact.

Those who support this type of measure often say that it would favour the middle class, that it is a measure intended for the middle class. I am not a forecaster, which is why I would like to hear your opinion. To my way of thinking, middle class means a family with a small house, two working parents whose income is about the same, who send their children to school, etc. I would like to know how a family, with each partner earning about the same amount, would benefit by transferring part of one income to the other partner, when both incomes are essentially the same. It seems to me that this type of measure would be more advantages for a couple where one earns a very high income while the other stays at home or earns much less than the partner.

Am I mistaken in my assessment of the average middle income earner and am I out in left field when it comes to assessing the impact that will have on the middle class? Who would like to be the first one to respond?

[Don Drummond]

Income splitting can only be billed as a middle-class item. It's exactly the same as virtually any tax cut. The vast bulk of people are in the middle class, so that's the vast bulk of people it affects.

But just by definition, it affects people who have unequal distribution of incomes. As you pointed out, if both members of a couple have $30,000 of income, there's nothing in it for them. The greatest benefit is in the less equal incomes. In the extreme, if one person has a million dollars, and one has zero, they're going to have a phenomenal savings. It could affect low-income people as well. If one had $45,000 and one had $15,000, there would be a considerable savings. Obviously the split between the two incomes is where you really benefit. It's just the same as with the pension splitting that was announced on October 31.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

It is true that the highest percentage of taxpayers are middle income earners, which means that they would be affected by any tax cut. Would I be wrong in saying though, all things considered, those with the highest income would stand to gain the most, and this would also have a greater impact on the way in which they plan their families.

[Mathieu Dufour]

I think you would be correct in saying that. Moreover, to use Don's argument, there are probably more variables with higher income earners. Statistically, it would be easier to see a difference of $20,000 or $30,000 if one of them earns about $100,000 and the other $70,000, even if both are working. So I would say that it is indeed the case. Your assessment is quite accurate.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Let's go back to the transfer payments. There was some discussion about tax cuts as opposed to transfer payments to the provinces. Now that the bulk of the work to eliminate the deficit during the 1990s has been completed, rather than continue with tax cuts, should we not consider returning social transfer payments to the provinces to the 1994-1995 levels before reducing taxes?

Perhaps Ms. Russell would like to answer that one.

[Ellen Russell]

Obviously cutting taxes is really, really away down on my priority list. To support the kind of social transfers that we could, we should choose as a society to use what resources we have here to invest in our people. I think that would be a great idea.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. St-Cyr.

We continue now with Mr. Del Mastro, for four minutes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

I'm going to have to go very quickly, because I have so much I want to say.

I guess I'd start by indicating that the three elements that of course go into a fiscal forecast are revenue, interest payments on debt, and program spending. It doesn't seem that we're really considering all facets of some of this in some of the presentations. Certainly, Ms. Russell, you may have delivered, if not the most partisan, certainly one of the top 10 of presentations that we've actually received.

In considering tax cuts, you're doing a very straight-line approach to your calculation. Have you given any consideration to economic expansion from a tax cut?

[Ellen Russell]

We go with the forecasts we have at our disposal, which are mostly from all the banks.

[Dean Del Mastro, Conservative, Peterborough, ON]

But you'll agree it's too simplistic to just do a straight line. We had $210 billion this year, we take off $5 billion, that means we'll only have $205 next year. It's not that simple.