Finance Committee on Nov. 23rd, 2006

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Most Canadians have a pretty good understanding of what interest payments are. We all live through them. Particularly on credit cards, interest can become quite onerous. Of course, with mortgages, most Canadians have that experience over the course of their lives, and with car loans as well.

This is an area in which, for whatever reason, both provincial and federal governments, over a long period of time in Canada, felt it was okay to spend money they didn't have. That means they were spending the money of the next generation, of my children and everybody else's children and grandchildren in Canada.

Building up deficits, building up public debt, is simply taxing the next generation. It's not fair to the next generation. It's our obligation, it seems to me, to try to clean up what was created in the last generation. We have an opportunity to do that into the next generation. We can then use those interest payments that we don't have to make on government debt to reduce the tax burden in Canada, which internationally is still out of whack.

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

I have a question on one of the interesting points you made with respect to the 260,000 jobs that have been created since the beginning of the year. On page 36 of the update, which I read with great interest, it states:

In the 2005 budget, the previous government launched a reform of government procurement. Savings from this initiative were estimated at $204 million for 2006–07, rising to $888 million per year for 2009–10 and subsequent years. After taking office, Canada’s New Government undertook an assessment of the procurement reform initiative and has determined that the projected savings were significantly over-estimated.

Could you comment a little bit further on that?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I don't want to dwell on their failure to accomplish much. I'd rather do it this way. We've been the government for ten months. Through the hard work of the President of the Treasury Board and other ministers, we've already found savings of $1 billion for this year in expenses, and another $1 billion for next year. This is in a time when we're in surplus, but I think there's an important point here. Governments constantly have to be looking for efficiencies and savings and reallocating funds to priorities. That's not something you just do when times are tough; we have to do that all the time. In that way, we're being proper stewards of taxpayers' money. We're taking care with taxpayers' money, which is their legitimate expectation of government.

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

You mentioned that whenever you do forecasting, there are risks involved. You also focused a little bit on the four private sector companies that have done some due diligence. Is this the first time this has happened with respect to how this actually speaks to accountability?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

One thing that is happening for the first time is that the Department of Finance is publishing its own projections, and correct me if I'm wrong, but they're then publishing separately the projections, the estimates, of the four independent ones, rather than averaging them. This is an opportunity. It's an opportunity for members of Parliament and for everyone in Canada to have a look and compare the numbers. Interestingly, there's not a broad range of projection, and that shows some consistency.

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

One of the interesting five key advantages that I notice is infrastructure. Many folks would assume that the Minister of Transport would be the person who would focus on infrastructure rather than the Minister of Finance. Perhaps you could comment on why that plays such a key role as one of the five Canadian advantages.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I don't think there's much doubt among most people who have looked at the Canadian economy that we need to increase productivity. There are several things we need to do: lower taxes; invest more in research and development and in post-secondary education and training, so that we have a very able and skilled workforce; and build infrastructure. We've allowed an infrastructure deficit to grow in Canada, one of the classic examples being our border crossings, especially Windsor–Detroit, which I referred to.

There is an innovative financing tool available, and that is the public–private partnership tool that has been used in the United Kingdom, Great Britain, the United States, and more recently in Canada. That is a financing mechanism for the most part, hence the interest of the Minister of Finance in such things. What it can accomplish—and we've seen this elsewhere in the world—is allowing projects to be done more quickly and on budget, with some risk transfer. That's good if we can accelerate this.

There are infrastructure projects in Canada that are of national economic importance. What we're proposing in the plan, in Advantage Canada, is not that they must be done as public–private partnerships, but that public–private partnerships must be considered as an option before the chosen path is taken.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Dykstra, Minister.

We move now to the second round of questions, and we begin with Mr. McKay, for five minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Minister.

I'm looking at your projections, Minister, with respect to your underlying surplus projections of 2007-08. The Conference Board of Canada says it's a 4.4% increase; the University of Toronto, 4.5%; Global Insight, 5.4%; and the Centre for Spatial Economics, 7.6%. You choose the high end of the range. In fact, you choose 7.3%, which is almost as high the Centre for Spatial Economics, instead of choosing the average. You're almost two points higher than the average. You do that both in 2006 and 2007.

On the next page over, you then go on to say there are a fair number of risks here. There's a lower commodity prices risk. There's a U.S. housing market risk. There's a global current accounts risk, etc. Very conveniently, on the following couple of pages, you then say a one-point error is about $2.6 billion. If in fact you are wrong and the average is right, you've just made about a $5.2-billion error. By my calculations, according to your own projections, that puts you into deficit rather quickly. Your planning surplus in 2007-08 is $3.5 billion, yet a two-point swing—in other words, what everybody else says, as opposed to what you say—puts you into deficit.

Minister, why would you eliminate prudence? Why would you move away from taking, if you will, the average projection of private sector economists and pick the high end of the range? Are you just fattening up the top end?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

We're sure anxious to get rid of this made-up category that your government used called “economic prudence”, which was nothing more than a way of putting money aside for your pet projects every March. We weren't interested in that kind of phoniness with the people of Canada. We're still not, and we're not going to do that like you did for thirteen years.

[John McKay, Liberal, Scarborough—Guildwood, ON]

This is pin-the-tail-on-the-donkey economics. You've just taken the top number and said that's the number you're going to use.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

In fairness to the private sector forecasters, the Department of Finance had available the most up-to-date personal income tax revenue figures, which are actually higher than the figures that were available. But the deputy or the senior deputy can comment on that. There was a difference in the base.

[John McKay, Liberal, Scarborough—Guildwood, ON]

But you've moved away from a principle of essentially taking averages from the private sector economists. Presumably, the information they had in 2006 is the same information they had in 2005. I appreciate that your revenues have been going higher over the last few months. Fine. But you've really picked the top-end number and you've put the whole budget at risk.

[The Chair, Conservative, Brian Pallister]

Mr. Carney, would you like to respond to that?

[Mark Carney, Senior Associate Deputy Minister, G-7 Deputy for Canada, Department of Finance]

Thank you, Chair.

The government has retained the principle of using the private sector average. The government's forecast uses the average of the fifteen private sector economists' economic forecasts and then translates them. As the minister said, the key difference is that the government has more up-to-date information and perhaps a better view in terms of the revenue yield, the PIT elasticity, as is outlined in the document, and that results in the higher numbers. So it's providing greater transparency to this committee in terms of what the government's expectation is for the likely surplus.

[John McKay, Liberal, Scarborough—Guildwood, ON]

The obvious question then, Mr. Carney, is why that information wasn't made available to the private sector economists, and whether they would have adjusted their numbers accordingly.

[Mark Carney]

The information was made available to the private sector economists. It is a judgment in terms of where the elasticity is going to go. The private sector economists effectively used the historic average elasticity of 1.2. The government's view, based on what we've seen and perhaps based on greater familiarity, having watched tax receipts come in, is that the elasticity will remain higher for longer as a result of higher revenues.

[John McKay, Liberal, Scarborough—Guildwood, ON]

But you know today that the private sector economists, like Global Insight, TD, Mr. Fortin, and the others, had a top number of about $4.2 billion. So I'm a little puzzled that you should be now picking on the wild side, especially in light of your comments about the softening of the U.S. market, the lower commodity prices, and things of that nature.

[The Chair, Conservative, Brian Pallister]

Mr. McKay, I'll inject a couple of quick questions, if I may.

Minister, what is Canada's total government net debt right now?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Federally it's $480 billion, and the total of the provinces and territories is about $260 billion.

[The Chair, Conservative, Brian Pallister]

That's gross debt, is it? What about net debt?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

That's gross.

[The Chair, Conservative, Brian Pallister]

What's net?

[Mark Carney]

Mr. Chair, net debt as of today is $484 billion.

[The Chair, Conservative, Brian Pallister]

It's $484 billion in total.