Finance Committee on Nov. 23rd, 2006

[Don Drummond]

No, most high-income people would be paying instalment payments, plus they would have been paying—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

The instalments are based on the previous year, so if you're having a good year in capital gains, you're only going to—

[Don Drummond]

That's right, but people would have been paying when they filed their tax report, in April, of the acquisition this year.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Oh, based on the year before. That's fine. I can agree with that concept.

[Don Drummond]

That would have been paid in May and June.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Pacetti.

Mr. Orr, I just have a quick question. What impact, if any, on debt service costs does the declining Canadian dollar have?

[Dr. Dale Orr]

Not very much, because we don't have a lot of debt in foreign currencies. As a matter of fact, the impact of a fall in the interest rate on the debt charges is not that great. The rollover is about a third of that, so a lot of the debt is not impacted by a change in interest rates.

[The Chair, Conservative, Brian Pallister]

So those two variables aren't significant in your overall determination of your numbers.

[Dr. Dale Orr]

No, they're not, and the forecast of the debt over the next four or five years by all forecasters is $34 billion to $35 billion.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman. I'm going to share my time with Mr. Dykstra so that we make sure we each get a question in there.

[The Chair, Conservative, Brian Pallister]

You both will.

[Mike Wallace, Conservative, Burlington, ON]

From The Globe and Mail of September 27, I quote that “critics charge the choice of spending cuts was ‘political.’ This is utter silliness.”

[A voice]

That's true.

[Mike Wallace, Conservative, Burlington, ON]

It has to be true.

Can you explain that comment a little bit?

And there's another thing that I haven't heard from anybody, other than maybe employment insurance. You talk a lot about revenue, but should we be cutting more spending or not?

[Don Drummond]

I'm going to give the rationale on why I said that.

It's been a source of frustration to me all the time I worked in government, because everybody would always say that with all that spending, there have to be billions and billions of dollars that somehow just disappear, so you can cut and no one feels it. Obviously, by definition, every single dollar the government spends goes to something or to somebody, and there are always implications to it.

You have to make choices, and Parliament makes choices. You're politicians, so you therefore have to make political choices. But there isn't some little mysterious bag out there that you can cut and no one's going to feel the effect of it.

So yes, the cherished programs get touched, as does the money that goes to people, whether they're civil servants or people on some type of assistance. That's the harsh reality of the world. Unfortunately, you have to face those choices when you cut spending.

[Mike Wallace, Conservative, Burlington, ON]

That's my question. I know we were talking about revenue and whether we're getting it or not. Do you not think we have a responsibility to look at whether programs are working or not, and those that are not, we should be cutting?

[Don Drummond]

We really started a process with the program review in the mid-1990s, and I've always argued that it has to be an ongoing process. Every time you create a new program, by definition, all of the previous programs have slipped down one degree of priority and they all have to be looked at. The new program should ultimately mean the elimination of an existing one. When a new program comes in, it has to be evaluated after two or three years to see if it's working. If it's not working, then get out of it.

[Mike Wallace, Conservative, Burlington, ON]

Thank you. Those are my questions.

[The Chair, Conservative, Brian Pallister]

We'll go to Mr. Savage now and conclude with Mr. Dykstra.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Chair.

Mr. Drummond, you mentioned that budgets are about making choices. I wonder if any of you think that spending $5.5 billion to $6 billion to reduce the GST further, from 6% to 5%, is a good choice.

[Don Drummond]

As it was noted, I tried to do a paper on the consensus of what economists think of what's needed to impact the growth rate, and you won't find an awful lot of economists supporting the cut of the GST. It's extraordinarily effective in reducing the tax burden on people. It gets money into their pockets, but it doesn't give the incentives to increase savings or investments, and therefore it doesn't have an impact on growth. So clearly, almost any economist will give an answer of no. They'd rather work on the tax rate on income and capital rather than on consumption.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I want to come back to that. I think everybody can see it's a dumb choice, but one of the arguments that were made by our colleagues opposite, including the one who will rebut me, is that it's an effective way to help those low-income Canadians who aren't necessarily helped by a lower marginal rate but who don't pay tax.

I asked the Library of Parliament for some information on this, and what I had back was the estimated savings from a 1% reduction in GST, from 6% to 5% . For the average single person making $20,000, it would be a savings of $52, and for the average Canadian making $100,000 or more, it would be $647. That's startling to anybody who figures out that the more you spend, the more you save. I would argue that not only is it a dumb move, it's also a mean move.

I wonder, Ms. Russell, if you have a comment on that.

[Ellen Russell]

Yes. If you were setting up to design a tax cut that was directed towards low-income people, you'd sweeten the GST credit.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

That makes sense.