Finance Committee on Feb. 15th, 2007

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

As I said, Mr. Marston, I am dealing with the banks on the issue, which your party raised initially in the House of Commons. I'm not satisfied that I have their final positions on this yet, but I will certainly be open about it when I'm satisfied that I have their final positions.

My view of it perhaps is moderately different from yours in the sense that my goal in the financial institution sector is to see competition and choice. That's the principle we ought to promote in Canada, and there is competition and choice, given the different approach of some of the credit unions.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Under Mr. Mulroney's government in 1987, the finance committee was studying credit cards and the fees and disclosure practices, and they recommended, among other things, that a partial payment should be applied to lowering the interest-bearing balance. Would you agree with that? We think it's high time that was put into place.

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

Could you describe that to me again, Mr. Marston? Just to make sure, because I--

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Okay. I'll read it this time, to be very precise.

[Pierre Paquette, Bloc, Joliette, QC]

We were too young in the Mulroney era.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Under the Mulroney government in 1987, the finance committee studying credit card fees and disclosure practices recommended, among other things, that any partial payment lower the interest-bearing balance.

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

I understand. I take the point. Actually, I don't think we have any specific comment on that, and it wasn't in the white paper, but I'm happy to take it under advisement and go back and look at what was recommended in 1987 and consider it.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Do I have more time, Mr. Chair?

[The Vice-Chair, Liberal, Massimo Pacetti]

Yes, you still have three minutes.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

I like to do what's called a “Timmy's poll” in my city of Hamilton. This is not intended to be insulting to you, but people have asked me out there whether you were one of the advisers during the election campaign to Mr. Harper on finances.

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

Not formally, no. I didn't have any formal position. I don't mind answering. I'm trying to remember now. Certainly Mr. Harper and I discussed issues relating to finances and the economy of Canada, but I did not have any formal position in the campaign.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

The purpose of the question on behalf of the people at Timmy's is that they were raising it in the context of the promise on income trusts and who was involved because they were very concerned with that.

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

I understand the concern. Mr. Harper and I are of one mind on that subject, obviously. The other reason for what we did on October 31 was the changes that happened last year...and had they not occurred. Different people have different views about that, and I've heard them.

What's the duty of government when there's substantial change and you see the economy going in a certain direction that in our view is not in the best interests of our country?

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

To be frank, the NDP did support the taxation, and in fact we called for it in the last election. The concern from people in the community was the change of position.

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

I understand. The explanation is the change in circumstances and what we went through. Sometimes one has to make decisions that are uncomfortable and not decisions one would choose to make, but one feels compelled to make them in the best interest of the country. I can't explain it any better than that.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Ms. Ablonczy.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Thank you, Mr. Chair.

Thank you, Minister, for being here. We always appreciate having you available to us.

My friend Mr. McCallum chose to bring up income trusts, so I'd like to continue on that. As you know, the Liberals brought out a proposal this week. I like to think of it as the gang who couldn't shoot straight comes back.

This is kind of an odd proposal. It continues to tax some businesses more than others. It says that trusts should continue, even though a number of witnesses said that two-thirds of the trusts make payments from capital brought in by investors and not from their income earned. Some witnesses referred to a substantial segment of the industry as a Ponzi scheme, and said there were some structural problems there.

The Liberal proposal would say, “Well, no more trusts can be formed, but if you lobby hard enough maybe you can still form a trust”. So there's a great deal of uncertainty re-created. I guess the Liberals haven't learned that uncertainty is not good for the market and causes a great deal of difficulty for investors.

I think the Liberals are sort of hoping they can convince Canadians that they can have their cake and eat it too. It's the same with a lot of issues with the Liberals. There's a lot of unreality about what they tell Canadians. I think this is dangerous. I'm very concerned about this.

As finance minister, what can you tell Canadians about this proposal the Liberals brought forward? I might add that their proposal came forward after we heard all the witnesses. The committee hasn't really had a chance to ask anybody about it.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Flaherty, I must again remind you that this committee has been pretty flexible in allowing members to utilize their time any which way they choose. If you choose to answer that question, you may. You're a big boy, so I think you can handle it.

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

Any proposal that would continue preferential tax treatment for trusts is unfair by definition. It fails to treat all Canadians the same for tax purposes. To the extent we can, surely that's the goal toward which we must strive--tax fairness in Canada. As I said, I hope to create more tax fairness in Canada, not less.

This most recent proposal of many proposals from the Liberal Party is a hodge-podge of a little bit of this and that. But it would continue the systemic, structural, preferential tax treatment of one form of corporate structure over others, at the expense of individuals in Canada.

The more useful commentary I've heard of late came from the New Democratic Party on the issue of accounting rules for income trusts. There has been some fairly informed commentary on this in the media and by the New Democratic Party. If further work were to be done on income trusts, I'd be inclined to look at the accuracy and fairness of the accounting that is being done to individuals in Canada who are unit holders of income trusts.

On the leakage issue, I know that some Liberals are fond of saying they don't believe the leakage numbers. I invite them to go back and look at their own figures in 2004 when Mr. Goodale was the Minister of Finance. The leakage, according to their own calculations at the time, was $300 million, and grew with the growth of the income trust sector thereafter.

[The Vice-Chair, Liberal, Massimo Pacetti]

Ms. Ablonczy, you have another minute.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Thank you.

I just want to return to the subject at hand, which is the Bank Act.

You mentioned that there were some advantages to consumers. My friend Mr. Marston knows about that. I wonder if you could tell the committee what advantages you see to consumers in the measures before us in this bill.

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

One of the more significant ones probably is getting the hold period reduced, particularly for people who need that cash flow regularly to pay their mortgage payments, to pay their rent, to pay for groceries, and so on.

We have seen the growth of some of these quick money types of operation in Canada. There's been some concern about their growth and some legislative ideas put forward concerning it. To the extent we can create more efficiency and clear cheques more quickly in the Canadian financial institutions, it will benefit consumers directly, and people will see the benefit of that fairly quickly.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Flaherty. Thank you, Ms. Ablonczy.

We're going to go to three-minute rounds, since we're having a hard time focusing on the subject at hand. We're going to go three-minute rounds so that we can try to get five people in.

I will go to Mr. McKay, Mr. St-Cyr, Mr. Dykstra, Monsieur Thibault, and then Mr. Del Mastro.

Mr. McKay.

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

Minister, you chose to go with 80% for mortgage insurance. As you know, in Scarborough and Whitby $200,000 doesn't buy you much of a house these days, so really you've moved it from $150,000 to $160,000.

Why didn't you go to 85%, since the industry evidence is clear that all of these companies are making quite a bit of money, that there's not a heck of a lot of risk in the down element of the profile, that pretty well from 85% down to 75% there is virtually no risk at all, and that the real risk is from 85% on up? If in fact we're getting new entrants into the system and they want to compete for this business and we want to be protective of consumers, why not move it up to 85%?

The second question has to do with electronic clearance. I'll use you as an example. If in fact you are a good consumer and pay your Visa bill on time electronically, the money is removed from your account but not credited necessarily to your Visa bill instantaneously. Sometimes there's a day or two of clearance time. The consequence is that you have the money then being removed from your account but not credited to the bill you intended to pay on time.

Given that there is some movement on the clearance periods, why not insist that particularly the banks within the payments system clear those things instantaneously, as Canadians have a right to expect?

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

Thanks, Mr. McKay.

On your second point, I'll raise with the banks that issue about instantaneously giving credit. I think there's probably a consumer expectation for it, and if it's not happening, there may be some technological reason, or there may not be. I'll ask and I'll respond to you when I get an answer.

On the issue of why not 85% or some other percentage—90%, I suppose—it's a judgment call about what's prudent in the market. You're correct that there are more entrants in the market now, so there's more competition in the market. We thought, based on the consultations, that it was prudent to move the extra five percentage points, to 80%.

There could be more in the future. I know we are all accustomed now to a very strong housing market. It's not inevitable that it would always be thus. We've lived through cycles before in the housing markets, and some of us are old enough to remember, I think it was August 1981, when the prime rate was 22.5%. You're too young for that—no, you're not—but some of us remember it. People were losing their homes, walking into the lawyer's office and leaving the keys because they couldn't afford to renew their mortgages.

We thought this was prudent. As I say, at 20%, on a $200,000 home the savings is about $1,600 for the purchase.