Finance Committee on April 16th, 2008

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

No, no, that's fine. We don't use that word “short”.

At the G7 ministers meeting, there was some discussion about stimulus and the views of different countries about the need for stimulus within their own economy. As you know, the U.S. economy has been significantly slowed of late, and the U.S. has a stimulus package that will start sending out cheques, which are refundable cheques, including to the people who don't pay tax. They start going out in May and they'll be going out until the end of June. A huge number of cheques will go out--as I understand it, more than 100 million of them--to Americans. This is a one-time, one-year stimulus. So it's not a structural change in the U.S., and it amounts to a little over 1% of U.S. GDP.

On our side, our stimulus is about $21 billion, which is about 1.4% of Canada's GDP. It is--looking at the numbers on the weekend--the largest stimulus package per capita in the G7, as far as I could determine by looking at what the other countries are doing. And thank goodness we did it, because we are seeing what we thought we would see last year. We're seeing it happen this year--that is, slower economic growth in Canada--and fortunately the stimulus has entered and is entering our economy now.

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

Thank you, Mr. Menzies.

I'm going to focus a bit on education and investment in universities and colleges.

In 2006, Minister, you put in the budget a billion dollars for university and college infrastructure; in 2007, a 40% increase in funding to universities and colleges, which amounted to a little over $800 million. This year there was a commitment to extending the new Canada student grants program to ensure that all students who need the financial help do have the opportunity to go to university or to college. Included in that was the enhanced graduate scholarship opportunities program. I thought it wouldn't be a bad thing to take a couple of moments just to comment on that, because obviously there's been a strategic investment, year by year, back into universities and colleges. I think letting folks know the purpose and the reason for that investment would be extremely helpful.

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

Thank you, Mr. Dykstra.

Our economic plan for Canada is called Advantage Canada, which we published in October 2006. It seeks to create five advantages for Canada, one of which is the knowledge advantage, and we're going ahead and implementing that for each budget. We're doing more this year, with the new Vanier post-graduate scholarships, more with Canada chairs and funding Canada chairs. Indeed part of the immigration reform we're doing is to help facilitate students being able to study in Canada, particularly doing post-graduate work. We need more bright people. We need more master's degrees. We need more PhDs in Canada. We need to expand that for the sake of our economy and economic growth going forward.

I was very pleased to receive a letter after the budget from the Ontario association of university presidents, praising the budget. Good things have been said by the College Student Alliance, the Canadian Federation of Students, the Association of Universities and Colleges of Canada, and others.

I meet with university presidents from time to time as well, and we consult with them. We have them to our advisory meetings and so on. It's vitally important, from an economic point of view and other points of view, that we make our university system, our post-secondary education system, including the colleges, as vibrant as possible.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move to Mr. McKay. You have five minutes.

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

Thank you, Minister.

There are quite a number of things jammed into this bill, one of which is amendments to the Bank of Canada Act. As you know, the Bank of Canada has put about $10 billion of additional funding to liquefy, if you will, the system over the last number of months.

In the bill here it says “conducting monetary policy or”--that's a well-understood purpose of the Bank of Canada--“promoting the stability of the Canadian financial system”.

My first question is whether that is new to the role of the Bank of Canada.

My second question is with respect to “it can buy and sell...securities”. That would be well understood. And then it says “any other financial instruments”. That's a pretty broad idea of any other financial instruments. Can you give us some idea of what the Bank of Canada has in mind?

And my third question has to do with “a severe and unusual stress on a financial system”, which apparently the governor alone determines. It seems to me, on the face of it, that this is an enormous allocation of powers to the Governor of the Bank of Canada, with virtually no parliamentary oversight whatsoever. I understand that the Bank of Canada is responsible for monetary policy, but this seems, on the face of it, to have the potential of enormously expanding the governor's authorities.

Could you comment on that, please?

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

First of all, the mandate of the bank is not changing. But to give you the context for this, last August the subprime issue raised its ugly head, and it became apparent fairly quickly that some of the central banks had more room to move than did other central banks. That included a need to expand the options that the Bank of Canada has. That's why we've gone ahead in this bill and seem to have expanded the types of securities that they can take.

You've seen some of the announcements about that by the bank in recent times as well. Mr. Rudin can reply with respect to the specific instruments.

[Jeremy Rudin]

I would just note that the section you're referring to is in the Bank of Canada Act as it stands. It's for drafting purposes, and that's been repeated. The current subparagraph 18(g.1) says:

if the Governor is of the opinion that there is a severe and unusual stress on a financial market or financial system, buy and sell any other securities...to the extent determined necessary by the Governor for the purpose of promoting the stability of the Canadian financial system.

So that's a power that's already there. The change is really the proposed subparagraph above that, in proposed section 146, which gives the governor the authority, even when he is not of the opinion that there is a severe and unusual financial stress, to establish a list of securities in which the Bank of Canada will conduct open market operations.

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

Excuse me. Are you saying it's when he's not of the opinion, or when he is of the opinion?

[Jeremy Rudin]

No, I'm saying even when he is not.

So there are two regimes.

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

So you mean at any time, then.

[Jeremy Rudin]

I mean at any time.

So there are two regimes now, and there would be after the adoption of this bill as well. There is the normal regime, and then there is a more liberal regime when the governor is of the opinion that there is a severe stress.

What we're proposing to change through proposed section 146 is the way the normal regime works. It adds, in the normal regime, the authority for the governor to establish a list of securities in which the bank will conduct transactions. That list must exclude equities. That list has to be published in the Canada Gazette at least seven days before it takes effect.

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

So regardless of whether there is or isn't a stress, the governor will have published a list, and that list will contain all of the instruments that the governor is able to buy and sell.

Now, does that have a retroactive effect?

[Jeremy Rudin]

No.

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

It has no retroactive effect. Okay. Thank you for that. That's helpful.

My final question is to the minister. It's just a short one. I want to know why the $3 billion contingency fund that was taken--

[The Chair, Conservative, Rob Merrifield]

I'm sorry. Actually, you've just had the final question.

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

That's terrible.

[The Chair, Conservative, Rob Merrifield]

I know it is, but those are the rules—your rules, by the way.

Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Minister, you said that the Bloc Québécois had called for a program for older workers and that you had answered that call. However, the program you put forward in your budget is not at all what we were calling for, nor does it meet the needs of the many older workers in Quebec who have lost their jobs.

I'd like to come back to the $1 billion trust you set up to help the manufacturing and forestry sectors. The vast majority of jobs in these sectors were lost in the past two years in Ontario and quite noticeably in Quebec, particularly in the forestry sector.

You set up a trust to help each of these provinces on a per capita basis. Witnesses have told us that your proposed assistance amounts to around $2,000 per job lost in Ontario and Quebec, and $20,000 in Alberta.

Minister, considering that Quebeckers pay federal taxes in the same way as all other Canadians, is it fair to Quebec workers who have paid their taxes to get $2,000 per job lost, while Alberta gets $20,000 per job lost?

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

I don't accept the arithmetic, I can tell you that. There have been significant job losses in manufacturing in Quebec, in Ontario, and elsewhere in Canada. The good news is that those job losses have been absorbed in the economy; people are getting other jobs. There's a strong service sector, as you know, in the Canadian economy, a strong service sector in Quebec and in Ontario as well. The funds are designed primarily to help people adjust and get new jobs, including older workers.

I give your party credit for pushing that subject. We didn't do exactly what was proposed by the Bloc Québécois—that's true—but we did create a program that is of some assistance.

The economy changes, and this is not something that is abnormal, to have economic change and to have people in need of retraining. The important thing for governments, it seems to me, is to make sure we have the retraining programs in place, to make sure we work with the provinces in terms of helping people adjust.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I don't have much time left, Minister.

Basically, you disagree with my figures, but you're not answering my question, which was whether you find that to be fair. I will still send you the document your colleagues received from the committee. It's a study by a professor from the Université de Sherbrooke showing in black and white the unfair distribution of this trust money.

You say you worked very hard to set up the program to assist older workers, and I thank you for saying so publicly, but it doesn't meet the expressed needs of Quebec workers.

Instead, the program you set up provides opportunities to people 65 and over to continue working, but that is not what's needed.

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

All I would say, Monsieur Laforest, is that I would want to look at all of the programs, all of the assistance, and look at the study you mentioned from Université de Sherbrooke. I'm happy to do that and review it and get back to you about it.

There are also substantial transfer payments, as you know, from the Government of Canada to the Government of Quebec, which have been increased significantly.

[The Chair, Conservative, Rob Merrifield]

Thank you.

We'll now move to Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Good afternoon, Mr. Chair. I'll be sharing my time with Mr. Del Mastro. I only have two really quick questions.

Thank you for joining us today, Minister. I'd like to ask you two questions about the tax-free savings account.

One, in your speech today and in the actual document, you talk about flexibility. Maybe you could highlight for me what you mean by this savings plan being flexible and what that means to Canadians.

I'm going to ask my second question at the same time. At present when I get my tax return back, it shows me how much RRSP room I have left--and I do have lots left--to invest in, in the future. Do you expect that to happen for the tax-free savings plan, that Canadians will know how much room they have left? I know it's transferable from one year to the next. Do you expect that to happen? How do you think Canadians should be informed of that?

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

Well, I think the market will work. Financial institutions, I expect, will want to attract this business and will compete for this business, starting January 1, 2009, assuming the bill passes. That is when people will be able to start putting aside money in a tax-free savings account.

I was at York University the other day, and I can tell you that the students there--some of whom were business students, some of whom were law students--sure understand the TFSA. They know all about it, because they know what it will mean for young people. The amount of money they will be able to earn tax-free in their lifetimes will be staggering. In fact, we expect in the Department of Finance that over time, 15 or 20 years, about 90% of savings will not be taxed in Canada. We have the RRSP and now this TFSA vehicle. It's an historic change to encourage savings by Canadians.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.