Evidence of meeting #25 for Finance in the 39th Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was billion.
A recording is available from Parliament.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Okay. Now, if the scenario were, let's say, a slowdown or a major recession, obviously that $15 billion would not be the amount you think would be collected. Isn't that correct? Under what scenario would the $15 billion be collectable? Would it be under a scenario where you're using a moderate slowdown or in a major recession?
Again I'm using the terminology in the paper that I have here.
Senior Economist, Canadian Centre for Policy Alternatives
Well, there are two. There's the technical paper, which was really just trying to look at different assumptions around economic growth and at what they meant for the economic and fiscal update as a base case: without any policy action on the part of the federal government, what would this do to the underlying fiscal balance?
In the alternative federal budget, we use the EFU base case, but we revise our economic growth numbers based on the most recent projections from the Bank of Canada, which are slightly more pessimistic—actually, by about half a percentage point of GDP, I believe—than are the Conference Board's. That's what's driving our assumptions around revenues in the alternative federal budget.
The technical paper was more to demonstrate essentially at what point the budget, of its own course, simply due to the state of the overall economy...what would happen in terms of the bottom line, the surplus or deficit.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Let's say that for the fiscal year 2808-09 we didn't collect the extra $15 billion and we didn't spend the extra $16 billion; in your scenario the government for the fiscal year 2008-09 would only have a $1 billion cushion instead of the $4.4 billion.
Senior Economist, Canadian Centre for Policy Alternatives
Yes, that's the revised status quo framework. If you forget about any of the recommendations we make in the alternative federal budget, the available fiscal room shrinks to $1 billion if we insert the latest economic projections coming from the Bank of Canada into the economic and fiscal update.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Are you doing any work for the Department of Finance, or are you subcontracted for that? Do you give them any advice for their projections?
Senior Economist, Canadian Centre for Policy Alternatives
We do not. We do this as an independent process.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
You spoke about lower interest rates. How would they affect government revenues?
Senior Economist, Canadian Centre for Policy Alternatives
We assume that the effective interest rate on government debt in the 2007-08 year stays constant over the next few years; we project interest payments based on that level. That's built into the status quo framework. A lowering of interest rates would increase the available fiscal room.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Glen, does your organization do some consulting work for the Department of Finance?
Vice-President and Chief Economist, Conference Board of Canada
Yes, we're one of the four forecasters of record working for the Department of Finance, providing an independent fiscal outlook. When the government published the economic statement last fall, we were one of the four forecasters—
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
So the last time you did work for them was for the fiscal economic update?
Vice-President and Chief Economist, Conference Board of Canada
That's right. The last time we ran our numbers in a formal way, that Matt actually modelled, was in mid-September.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Would you be prepared or not to say that you were off, three or four months ago?
Vice-President and Chief Economist, Conference Board of Canada
Well, one of the joys of economic forecasting is that you always get more information. That's why we do our economic forecast four times a year: to try to take advantage of the national accounts data and do the updates.
I would say that the numbers I gave you for next year are actually $7 billion lower than we were forecasting last fall. Because inflation's lower, nominal GDP is actually therefore a fair piece lower than it was expected to be at this time.
Conservative
The Chair Conservative Rob Merrifield
Thank you very much. We'll now move on.
Monsieur Crête, the floor is yours for seven minutes.
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Thank you, Mr. Chairman.
My questions are for both groups.
It has been announced that oil and gas companies in Canada will go from paying 22.12% in corporate taxes to 15%. What do you estimate the savings for gas companies over the next five years will be as a result of these tax cuts?
Vice-President and Chief Economist, Conference Board of Canada
I'll start.
That is part of the government's fiscal plan, but we have not bottled that in any formal way as of yet, because the move to 15% obviously depends upon healthy fiscal outcomes and healthy growth on an ongoing basis. So it's a plan.
I spent 10 years at the Department of Finance, and one of the lessons I learned there is that the things that really matter are the things this year and next year. After that, it's very much a forecast. We wouldn't spend a lot of time, frankly, modelling five years out, because it's not something--
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Give me an estimate for next year or for the next two years.
Vice-President and Chief Economist, Conference Board of Canada
Did we actually formally build that, Matt, into our revenue forecasts?
No, we would not have done that in a formal way, because we did our outlook in September. The economic statement came out at the end of October. I think it was October 30.
The next time we formally model both revenues and expenditures we will take into account things Parliament has passed in terms of the tax code. So if Parliament decides that we're going to cut corporate taxes by so and so, we will build that into our modelling at that time.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Lee, do you have any information on this topic?
Senior Economist, Canadian Centre for Policy Alternatives
The estimates I have for the value of corporate tax cuts are the ones in the economic and fiscal update. And I believe those are not broken out to specify the oil and gas sector.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
If you had to choose between making a productive investment of $4.5 billion in the manufacturing sector or cutting personal taxes by $225 million per year for the next five years, which measure do you believe would be most beneficial for both the Canadian economy and society?
Vice-President and Chief Economist, Conference Board of Canada
We have not formally modelled that. We've obviously thought a lot about the advantages of either subsidizing, sustaining the current economy, or trying to find ways to boost productivity over time. Based on my 25 years of experience, my bias is in favour of allowing the market forces to work while also trying to create the most competitive tax environment possible. And that's why, whenever we've written about cutting taxes versus providing subsidies to sectors, my bias over the long term is to really create the most competitive tax environment possible.
I'm very much aware that there are communities going through pain right now--the forest industry in particular is going through a lot of pain--and I can fully understand why governments would think about adjustment programs to help the workers adjust. But fundamentally, if you're worried about productivity and sustainability long term, I think the choice is between lower taxes and more spending. And I'll opt for lower taxes.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
With respect to the recent GST cut, what would you think if I were to tell you that most of this money will serve to spur China's productivity, rather than establishing a program to provide a tax base to manufacturing companies, allowing them to be competitive?
Vice-President and Chief Economist, Conference Board of Canada
Fundamentally, our view on cutting individual taxes is that cutting personal income taxes is probably a better boost to productivity than cutting sales taxes.
I think it's a bit of a stretch to think that by cutting a tax in Canada, somehow we've done something of benefit to China. China really has its own act together in bringing about ongoing economic reform. There are clearly competitive challenges for Canadian manufacturers, in particular, because of the new competition they're facing from China. But I would take that back to the work we're going to do over the course of this year on what we think is the optimal tax system for Canada and on the kinds of choices governments at all levels are going to have to make.
Among economists, it's very clear that you get much more of a productivity boost from cutting corporate income tax and personal income tax--things that are barriers to investment--than from cutting the GST.