Evidence of meeting #78 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was debt.
A recording is available from Parliament.
12:25 p.m.
Liberal
John McCallum Liberal Markham—Unionville, ON
Thank you, Mr. Chair.
First, on a point of fact, if the income trusts are down 6% since Hallowe'en, and the TSX, as a whole, is up 10%, the relevant statistic is that income trusts are down 16% relative to the stock market since Hallowe'en.
12:25 p.m.
A voice
Yes.
12:25 p.m.
Liberal
John McCallum Liberal Markham—Unionville, ON
That's not my question.
I refer to Mr. Flaherty's favourite economist, Jack Mintz, who said today that Flaherty now has a hornet's nest on his hands. What he is referring to is the fact that while Canadians are in the process of being deprived of the privilege of owning income trusts, it's the big guys with deep pockets who can buy the underlying assets directly and who are retaining the privilege of effectively holding income trusts. I'm referring, as you will be aware, to the large pension plans that are tax-exempt, in the minister's words, and the private equity concerns that arrange their affairs so as to pay little or no tax.
It is a double-barrelled problem, which has been identified by Jack Mintz and others. How is it possibly fair to deprive ordinary Canadians of the benefits of holding income trusts while giving those privileges to the big pension plans and the private equity concerns?
Second, how is it possibly good for the government's revenue base when those previous income trust holders paid lots of tax, albeit personal, whereas the pension plans and the private equity concerns pay little if any tax? It seems to me that the unintended consequence of this policy is bad for federal revenues and grossly unfair in terms of which Canadians--ordinary or privileged--are allowed to continue to benefit from the income trust model.
I'm asking you a double question on both fairness and protecting the revenue base.
12:25 p.m.
Senior Associate Deputy Minister, Department of Finance
Thank you.
I have a point of fact, if I may, on the performance of income trusts. One has to add in the distribution of trusts. Since trusts yield 9%, 10%, that 6% is just a capital number. One would add that back in for making a comparative number, and obviously stocks don't.
On fairness, I would note that in terms of Canadian pension funds, particularly large pension funds benefit. The solvency of those pension funds, particularly CPPIB, directly benefits millions of Canadians in terms of the solvency of those pension funds.
Second, on the market test--to very briefly refer to the earlier answer in terms of buyouts and the revenue impact--there are capital gains, and capital gains that are reinvested if this becomes a substantial activity.
12:25 p.m.
Liberal
John McCallum Liberal Markham—Unionville, ON
With all due respect, 70% of Canadians don't have these pension plans. That is point number one.
I don't think you have answered my basic question. Why is it fair to deprive ordinary Canadians of this income stream, and why is it good that this income stream falls into the hands of those who pay essentially no tax? Perhaps on capital gains...I'll concede you that point, but they pay essentially no tax on the income streams, whereas the holders of the income trusts paid high personal tax on those income streams.
I don't think you've answered my question. How can you dispute that it's bad for both fairness and tax revenues?
12:25 p.m.
Senior Associate Deputy Minister, Department of Finance
On the tax revenue point, as I referenced earlier, there were $9 billion worth of private equity buyouts last year on the $2 trillion market, compared to a $200 trillion total trust market capitalization at that time, so the orders of magnitude here are substantially different.
12:30 p.m.
Conservative
12:30 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you, Mr. Chair.
Page 57 has the departmental planned spending and full-time equivalents. You're listing it. Underneath you've got adjustments in supplementary estimates, and the forecast spending for 2006-07 is about $750 million. You have nothing, or very little, in the planned spending for 2007, 2008, and 2009. Can you explain to me why that is? Are we not going to see supplements from you guys? What's the scoop?
12:30 p.m.
Senior Associate Deputy Minister, Department of Finance
I'm sorry, for clarity, the adjustment supplementary estimates reconciles the main from 2006-07 to what was actually spent, just as in this year, in part because of the budget, and we can go through in detail what the impacts of the budget are. There will be some changes in the supplementary estimates, which will change the total amount the department spent almost exclusively on transfers.
12:30 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
So we only see it during supplementaries that these things tend to get filled in. Then we see what happens.
12:30 p.m.
Senior Associate Deputy Minister, Department of Finance
But I can assure you that at this stage the vast bulk of changes, 99%, will be because of the measures to restore fiscal balance that were included in budget 2007, so obviously this committee reviews that.
12:30 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
So one of your organizations here, I'm not sure which, I don't think asked for any supplementaries last year. Is that accurate? I went back to have a look and I think one agency didn't get any supplementary. I can't remember which one it was.
I'll ask another question. On FINTRAC, we have financial resources going down relatively significantly in 2008-09. It continues to reduce, but the staffing stays the same. How is that possible?
12:30 p.m.
Senior Associate Deputy Minister, Department of Finance
My opening comments referenced the fact that FINTRAC has already appeared before this committee and that we were going to focus on the budget of the department.
We'll go back to FINTRAC and get you an answer, Mr. Wallace.
12:30 p.m.
Conservative
12:30 p.m.
Senior Associate Deputy Minister, Department of Finance
Just on the $76-odd billion of the department.
12:30 p.m.
Conservative
The Chair Conservative Brian Pallister
Just as a closing question, you alluded earlier to a mix on Canada's debt of 40% floating and 60% fixed. Is that written in stone? That's a policy of the debt management aspect of the finance department?
12:30 p.m.
Senior Associate Deputy Minister, Department of Finance
It's part of debt management strategy, and the minister does table that each year.
12:30 p.m.
Conservative
The Chair Conservative Brian Pallister
Okay. The second thing, on the 60% fixed, is there a policy also on the average term length of the bond?
12:30 p.m.
Senior Associate Deputy Minister, Department of Finance
There is a policy. We make adjustments to that. It is part of the debt management strategy. I'll give you one example. This year we increased the amount of inflation-indexed bonds the government's issuing because they're trading at a substantial premium right now, and there's no information in them for the Bank of Canada.
12:30 p.m.
Conservative
The Chair Conservative Brian Pallister
I'm just curious, with the yield curve flattening, I think there's some movement on that policy in terms of longer-term interest rates. They seem to be relatively similar to five-year, versus ten. Isn't that different, in an historical context? I'm wondering if the finance department is looking to lengthen average--