Finance Committee on Nov. 23rd, 2006

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Thank you Mr. Minister for being here. Perhaps you could use the earpiece, because I noticed, at one point, that we didn't really understand each other: I was speaking of the fiscal imbalance and you spoke to me about income trusts. So I would rather take precautions.

Are you ready, Mr. Minister?

First, thank you again for being here before the committee to provide this economic and financial update. I cannot say I am not disappointed because the Bloc Québécois and Quebec in general expected more content on the fiscal imbalance. I can see that in a presentation of more than 24 pages, a mere two paragraphs address this issue directly.

I also note that in your presentation, and even in the effort you put into your speech, it is clear that the debt and tax reductions are much more important to you than settling the fiscal imbalance.

As for me, I think this should be a priority for your government since, at first, the Prime Minister made a commitment to settling it, in Québec on December 19, and then you withdrew it in the Speech from the Throne and the budget speech.

I also note that the surplus amounts are dwindling even though they are significant. If we ignore your decision to grant 3 billion dollars to repaying the debt, over the coming years, the surplus will be around 7.2 billion dollars. Then, you decided to grant 3 billion dollars… This is questionable.

Concerning spending, is has—I see as you did—increased in a far too significant manner. Therefore, there is some room to manoeuvre.

I ask you two questions. How much do you plan on dedicating to the settlement of the fiscal imbalance? Where will you find the money?

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

The “how much” is going to have to await the further discussions that are ongoing.

As you know, Mr. Paquette, in the budget on May 2 we set out a plan that we would follow a certain course of negotiation and discussion, which we've done, involving the Prime Minister, me as the Minister of Finance, and various other ministers dealing with infrastructure, post-secondary education, and so on.

Those discussions continue; that was the plan. They will continue next month with the meeting of the finance ministers, and then we'll move forward with steps in Budget 2007. As I say, that's not new; the plan was clearly set out in the budget--

[Pierre Paquette, Bloc, Joliette, QC]

Say you reach a conclusion with the provinces that it will take 4 billion dollars in the next budget, 5 billion in the next budget, 7 billion—

Where will this money come from? Where is the room in you budget, aside from the 7 billion dollar surplus, to fund the settlement of the fiscal imbalance?

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

We haven't agreed on any figures, of course, with any other government about what would be appropriate to remedy the fiscal imbalance.

We have two things: one is that we're the first federal government in Canada to acknowledge that there is a fiscal imbalance and that we need to move toward fiscal balance. We're committed to that.

On page 50, you can see the size of the transfers to other levels of government. They grow from about $40.8 billion in 2005-06 to $49.3 billion in 2011-12, and we also of course are running surpluses.

[Pierre Paquette, Bloc, Joliette, QC]

But I also note that, in the figures you mentioned, it goes from 3% of the GDP, for transfers to other governments, to less than 3% over the coming years. This worries me.

On December 15, you will speak of equalization principles. In the principles you will use to calculate equalization, will the standard of the 10 provinces and 100% of the provinces' income, including income from non-renewable resources, be part of your proposals to the provinces?

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

Again, as I'm sure you appreciate, Mr. Paquette, that's one of the issues being discussed. It's one of the issues that--

[Pierre Paquette, Bloc, Joliette, QC]

But didn't your department have a preference? Some people speak of 50% of income from non-renewable resources. You will go there like a lamb and you will be hunted by 10 wolves? You have no preference?

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

There are many individuals with preferences. I have preferences too, but the idea is to move toward a consensus, if we can, among the governments in Canada, the federal government and the provinces. There's been some progress there. We know that there's unlikely to be unanimity on equalization and transfers, the fiscal balance issues, but we think that on behalf of Canadians we need to move toward as much consensus as we can obtain--

[Pierre Paquette, Bloc, Joliette, QC]

But you agree with me that in the end, it is the federal government that will have to decide since it is a federal program. In this vein, I ask that you think hard about this principle.

To conclude, at page 79 of your document “Building a Strong Economy for Canadians”, you speak of a public policy commitment and you speak of funding infrastructure.

I was quite surprised to see that part of the envelope will be based on the merit principle, to fund projects according to a public-private partnership approach. It seems to me that you will surely favour some projects with this approach. Moreover, you speak of the obligation of the provinces, territories and municipalities to consider relying on public-private partnerships.

Given that in Quebec, the head of infrastructure programs is the province, Quebec, does this mean you will impose the public-private partnership formula on the provinces that are in charge of their infrastructure program?

In the French version, it is on page 79.

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

Thank you for the reference. On page 67 there's reference to the public agencies that have been created in recent years, including

l'Agence des partenariats public-privé du Québec.

[Pierre Paquette, Bloc, Joliette, QC]

But this means that in the merit envelope, it will—

[The Chair, Conservative, Brian Pallister]

We'll continue now with Madam Wasylycia-Leis, for seven minutes.

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

Thank you, Mr. Chairperson.

Thank you, Mr. Minister, for your statement today.

I want to start with your focus on the surplus going to the debt. I probably would concur with you in terms of the Liberal record on this front; however, it's hard to really tell the difference, in that both the Liberal government before you and now your government seem to be talking in a very unbalanced way of putting so much against the debt that it leaves very little flexibility. You've given us an all-or-nothing plan that I don't think leaves us any flexibility, yet just a few months ago you were quite happy to announce the results of what we had been able to negotiate with the Liberal government, that being the NDP's budget for money in housing, transit, and environment. In effect, your colleagues were delighted over the course of this last month to announce these and talk about them as if they were their own initiatives.

With your approach, where do we get the flexibility to do that kind of progressive initiative, to put some of the money in a balanced way into progress and productivity?

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

There are a few issues there.

One is that unlike the previous government, we believe in restraint in the exercise of the federal spending power and in respecting the jurisdiction of provinces. We have the transfer payments, which are accelerating from a little over $40 billion and getting up toward $50 billion. Those are transfer payments to other levels of government, including municipal governments in Canada.

As you know, those are primarily areas of provincial jurisdiction--social services, primary and secondary education, and of course the health transfers, which are accelerating at 6% per year built into the base. The acceleration in that is greater than 6% per annum, and $1.1 billion in total this year for health care. In terms of the social services, there are substantial transfers happening to the provinces.

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

That really doesn't answer this question of having some flexibility on a year-by-year basis to actually invest in those areas that Canadians seem to be anticipating and that they need just to survive on a day-to-day basis.

Let me then take it a step further and go with your analogy of government debt being nothing less than a Canadian national mortgage. Let me ask you this: if there was a working family that had a son or daughter struggling to get to school, and a grandmother who was paying out of her pocket for drugs and couldn't afford necessary medications, and their plumbing was collapsing, and for the sake of argument let's just say their household was fighting an unpredictable and very expensive war, would you advocate putting all of that family's bonus to paying down the mortgage?

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

No, I would advocate budgeting for those items.

If there is in fact a clear need that's a priority, then the Government of Canada should budget for those priorities and not do what the previous government did, which was to have the so-called surprise surpluses every March and then engage in March madness, often spending in areas of provincial jurisdiction without parliamentary authority. We will not do that. We are being open, transparent, and accountable. We're being as accurate as we can in terms of the surplus. If there is a social need, as you described very well--for example, for persons with disabilities--we will budget for it and not go into surplus to pay for it.

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

Fair enough, but I am suggesting that you're not budgeting for the family's needs--Canadians' needs--by putting some money into reducing the costs of education, or into lowering the cost of prescription drugs, or into providing for child care for working families. You're suggesting that all the surplus, all your flexibility, should go against the debt, and I don't think Canadians believe that's appropriate for a government. I think they want some balance; they want some to go against the debt, but they want you and your government to look out for some of those bigger needs, and they see the role of government as something positive, not something negative that must always be shrunk and reduced.

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

Do you know what the role of government has given us in Canada? It's given us $55 billion of taxpayers' money that's going to be paid in interest this year--$55 billion between the provinces and the Government of Canada. That's $34 billion by the Government of Canada and $21 billion by the provinces. That's as much money as all the governments in Canada pay for education in this country--for primary, secondary, and post-secondary education. We're spending that in interest because governments over the years, of different parties, had the attitude in Canada that running up public debt, taxing the next generation, was okay. We don't share that view.

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

Right, but you can end up with a huge debt down the road if you don't invest now in training and educating your young people and in the future. You suggested in this presentation--and I agree with you, based on what we heard this morning from the independent forecasters--that we should expect a very narrow budget balance. Why, then, are you putting such a priority on tax cuts for profitable corporations? Are you leading us down the path you did in Ontario, so that we end up running a deficit because of that agenda?

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

I can assure you that I never ran a deficit in Ontario as Minister of Finance there, and I won't run one here. The way you control that is by being as careful as you can on the spending side. I know that's not a traditional idea in Ottawa, but we're running a tight ship; we are going to control spending. This year we are already spending over $1 billion less than budgeted. The role of Treasury Board is very important; they're doing a terrific job, and so are the ministers, in controlling spending. Nothing gets spent until it's ready to be spent.

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

In this whole approach there seems to be this focus on a trickle-down theory--that if you reduce taxes and put all your money against the debt, then eventually we're going to have a better society. But you're ignoring the fact that the trickle-down theory doesn't always work. Aboriginal people aren't going to escape third-world conditions with your approach, and you've only mentioned them once in terms of that trickle-down approach. Families aren't going to provide for themselves if you're not going to do something meaningful in terms of child care. You've got more emphasis in this paper on bringing in cheap slave-labour foreign workers than in helping families deal with day care--

[The Chair, Conservative, Brian Pallister]

Madam Wasylycia-Leis, your time has elapsed, and we must trickle on to the next questioner.

Mr. Dykstra is next, for seven minutes.

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

Thank you, Mr. Chair.

Certainly I know that Mr. McCallum may not be happy to see you here this afternoon, Mr. Minister, but I certainly am. I'm also interested to note that while he may or may not like your being here this afternoon, you are very popular among Liberal staff, because there are two huge rows of Liberal staffers who came in specifically to listen to you present today, so I want to thank them for coming as well.

One of the points that Mr. McCallum actually made across the country, a question that he asked--and I was surprised he didn't ask it of you--was whether or not the cut in the GST has had a positive impact on the country. I've only got seven minutes and I want to use my time wisely, but could you respond to that question? I'm sure he'd appreciate it.

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

Certainly.

I suppose the most convincing evidence on that is the strong consumer confidence in Canada. It is documented in the papers we've seen. Even in a time of some softening in the manufacturing sector, particularly in Quebec and Ontario, we see strong consumer confidence and very strong employment figures. We have, I think, virtually the highest level of percentage participation in the working economy in Canadian history now. I think it's 63% now in Canada.

As I say, there is strong consumer spending and strong consumer confidence; certainly the reduction of the GST plays some role there, and over the course of the mandate, as I indicated earlier, we intend to fulfill our commitment to reduce it the additional percentage point.

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

Perhaps you could clarify one of the analogies that I'll use and see if it is correct. It's following up on Ms. Wasylycia-Leis' perspective of a household and a working family. I know that whenever I've gone to the bank for a mortgage, the first thing the bank does is get a clear understanding of what all my liabilities are and what all my assets are. I know I've had a lot more success in achieving a mortgage for my family, or in being approved for one, when my assets outweigh my liabilities. Is that a fair assessment of the paydown on the net deficit?