Finance Committee on March 31st, 2008

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

Again, similar to my previous questions in terms of keeping in mind that the government has to raise x number of dollars in revenues, how about all these other types of revenue-generating items the government has? For example, there's the airport tax, ancillary fees. Unemployment is also one of them. There's a surplus in the unemployment account. Are these items the government should be concentrating on as a revenue source, or should governments just focus on personal income tax, corporate taxes, and consumption taxes?

[Prof. Jim Davies]

Perhaps I could just say something very quickly about that. Some of these will be in the nature of user fees—airport taxes, for example. I think that is a good thing to pursue, but there's an appropriate level for these things.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

What we see is that the government is addicted to these revenues, so they'll come out with an airport tax for security purposes and then all of a sudden they're generating profits and continue to sometimes even raise them when they don't actually need those moneys, but they go into the general fund. Is that the way they should do it? In the provinces, they levy a medicare tax for the health insurance, but there are also other moneys coming elsewhere. Should every service have a dedicated tax related to it?

[Prof. Jim Davies]

No. It depends a little on things like administrative costs and so on. In economists' language, we're in a second-best world and providing any government service for free is a little questionable. There could be an excuse for doing that, which is it may cost too much to collect these fees to really make it appropriate to do that. Of course, it's quite possible for these fees to be too high. Perhaps the ones you're citing should be reduced. I'm just reacting to say that, in general, there is broad recognition that user fees are an appropriate source of government finance, but they do have to be set carefully.

[Prof. Jon Kesselman]

I think there is reason for concern, as you suggest, that these kinds of fees are being used in excess. In particular, look at the employment insurance financing over the past, what, 10 or 12 years. Large amounts of excess revenues relative to the needs of that program are being used to finance other purposes. So airport fees and employment insurance premiums should be set to cover the costs of those programs. They should be cost recovery. That's their purpose. They should not be used as a general revenue source.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Just quickly, why not? It goes into general revenue and then goes back to be used for whatever government wants to do with it.

[Prof. Jon Kesselman]

I think there is a reason. We apply special types of financing to some programs that have a benefit very much attached to particular users where we think it is appropriate to charge for that rather than use general revenues. Typically, these are types of services that are not meant to redistribute income or do not have a general public benefit, so user fees for airline travellers are reflecting their private benefits, and it's proper that they should pay, but not that they should pay more than the actual costs they are imposing upon public authorities. It is the same with employment insurance. People are getting a coverage against the risk of unemployment--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So the government should decide which services it should bill and which it shouldn't? It's up to the government to do so?

[Prof. Jon Kesselman]

It's up to government, guided by economic, legal, and other analyses.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But as long as they don't over-tax for that particular service, you're okay with it in theory?

[Prof. Jon Kesselman]

For services where there is not some general public good or some highly important equity or redistributional component, yes.

[The Chair, Conservative, Rob Merrifield]

I have to cut him off, because he gets on a roll and he just doesn't stop.

We want to thank both of you, Mr. Davies and Mr. Kesselman. Thank you for being with us and introducing us to this subject. As the committee continues with this, we're going to find it more and more interesting.

With that, we'll suspend for a couple of minutes. Then we'll carry on with the business of the committee.

Thank you.

[The Chair, Conservative, Rob Merrifield]

We'll call the meeting back to order.

Just before we yield the floor to Mr. McCallum, I want to remind the committee that we have a Chinese delegation here at one o'clock on Wednesday. We are committed to sit down with this group. They will be here for one hour. I imagine we'll make it to question period, and we'll start at one o'clock.

Mr. McCallum, the floor is yours.

[John McCallum, Liberal, Markham—Unionville, ON]

I have a short statement in light of developments that have happened since we last discussed this subject. Like most of you, I've been hearing from many of the over 1,700 retail investors who have been unable to liquidate their asset-backed commercial paper holdings since the market collapsed last August. I've been speaking to them, Mr. Purdy Crawford, and others about the restructuring plan that is currently under consideration.

I think it's desirable to encourage a private sector solution to this extraordinarily complex problem. But many of us also want to see that the special position of many of these smaller retail investors is recognized and appropriately dealt with in that process. Meetings with these investors are going on in Montreal and Toronto today, in Edmonton and Calgary tomorrow, and in Vancouver on Wednesday.

That brings me to what we are discussing today. I believe the results of these discussions over the next few days will have an important effect on who the members of this committee will want to hear from if we decide to proceed with hearings. Even if the special situation of the smaller retail investors can be resolved through this private sector process, I believe this committee will still want to get to the bottom of what went wrong from a regulatory perspective and what must be done to prevent a similar situation from recurring in the future. I believe there are some serious market oversight issues that need to be understood.

Mr. Crawford has confirmed to me that he will be happy to appear before this committee after the April 25 vote on the restructuring plan. We also need to hear from the federal and provincial regulatory authorities, the Superintendent of Financial Institutions, the various provincial securities commissions, investment dealers associations, rating agencies, and the ombudsman for the banking system. What went wrong? We need to understand how governments and regulators are responding to this failure in the U.S. and other jurisdictions.

If the retail investors are not satisfied by the results of discussions over the next few days, that's a different story. In that case, I feel our committee should hear from these investors directly as well as from the regulatory agencies that allowed this to happen under their watch.

So for these reasons, rather than bring my motion forward for a vote today, I would like to reschedule the vote on this motion for Wednesday of this week.

[The Chair, Conservative, Rob Merrifield]

So at present you're not bringing forward your notice of motion. You're tabling it to Wednesday?

[John McCallum, Liberal, Markham—Unionville, ON]

Yes.

[The Chair, Conservative, Rob Merrifield]

We can put it on the agenda for Wednesday, unless there's a good reason not to. Fair enough: we'll leave it at that unless there's anyone who'd like debate it further.

[Ted Menzies, Conservative, Macleod, AB]

I'd like to comment that I think it's prudent of Mr. McCallum to respect those individuals. I don't think anyone here intends this to be a witch-hunt. We won't be looking for culprits, but we want to make sure we provide those people who are impacted with the best opportunity.

Also, we want to make sure we don't negatively impact the outcome of the vote, so I would agree with Mr. McCallum.

[The Chair, Conservative, Rob Merrifield]

Seeing consensus, I will call this meeting adjourned until Wednesday.