Finance Committee on June 16th, 2009

[The Chair, Conservative, James Rajotte]

I call to order the 36th meeting of the Standing Committee on Finance.

Our orders today, pursuant to Standing Order 108(2), are a study of expenditure plans for the fiscal year 2009-10.

We're honoured here today to have the Honourable Jim Flaherty, the Minister of Finance. Welcome, Minister, to the committee. We're glad to have you back. We understand you have a PowerPoint presentation for about a 10-minute opening statement and then we'll go to questions from members.

Colleagues, we'll go for 45 minutes, because we have four motions, and I would like to get at least two of the motions through today.

Minister, please begin your remarks.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Chair and members. I'll try to get through the presentation on time.

I do appreciate the opportunity to meet with you and the members of the finance committee today. I would like to make a few remarks about the progress the government has made since introducing Canada's economic action plan. Our action plan is helping to protect Canadians hit hardest by the global recession.

I must say I just returned from the meeting of the G8 finance ministers in Italy a few days ago, and it is accurate to say that we in Canada are viewed with some envy by our colleagues in the G8 because of the relative smallness of our deficit and the soundness of our fiscal situation, not only federally but provincially, and the soundness of our financial institutions.

Last week we had the second report to Canadians. The government showed how measures in the economic action plan are stimulating the economy and giving it a much-needed boost. The plan is also improving access to financing.

It is making important investments in infrastructure, housing and other support for our communities.

These measures are investments in our future and they will help Canada emerge from the global recession stronger than ever.

Our economic stimulus in Canada's economic action plan is $62 billion. For this year and next, this stimulus is proportionally the largest of any country in the G7. Our financial system is among the strongest in the world.

Our housing markets are stable. Our household balance sheets are strong.

Our public pensions are safe. The fiscal situations of our governments in Canada, including the provincial governments, are sustainable, and it is internationally recognized that we have our fiscal house in order.

Over the weekend, I met with my G8 colleagues in Italy. I heard from them once again that our country is the envy of the group when it comes to our fiscal and economic situation.

The International Monetary Fund expects Canada to have the smallest economic contraction in the G7 this year and the fastest growing economy in the G7 next year.

So Canada entered the recession from a position of strength.

Canada's economic action plan builds on these strengths, as we deal with the challenges we face as a trading nation in the face of a global recession.

An essential component of the economic action plan is tax relief, and I want to focus on that this morning. Our government believes in reducing taxes. It remains the cornerstone of our economic strategy. Since even before the global recession, this government has been reducing taxes for businesses and families across Canada. The economic action plan builds on this sound record of tax relief. This further tax relief is helping to stimulate the economy and create and maintain jobs.

Tax relief supports businesses and jobs in the short term by providing upfront stimulus.

This helps individuals and businesses get through a period of economic contraction. At the same time, tax relief creates a long-term advantage for sustained economic and employment growth.

I'm very pleased to discover that according to the Fraser Institute, tax freedom day occurred three days earlier this year than it did in 2008. When combined with the measures announced in Canada's economic action plan, since 2006 taxes on individuals, families, and businesses will have been reduced by an estimated $220 billion over 2008-09 and the following five fiscal years. This tax relief takes a number of forms.

As this chart from last week's action plan update shows, we are providing a boost to the economy in helping thousands of Canadians improve their homes and purchase their first home. Through the temporary home renovation tax credit ,we've provided up to $1,350 for families who do eligible renovations on their homes this year. We're also providing up to $750 in tax relief to assist first-time home buyers with the purchase of a home.

Canada's economic action plan also gives individual Canadians more flexibility to improve their quality of life, even when times are tough.

The plan benefits all taxpayers, especially lower- and middle-income Canadians. We increased the basic personal amount and increased the upper limit of the two lowest personal income tax brackets above their 2008 levels.

These charts offer examples of what the tax relief can mean. For example, a single parent of two children earning $35,000 a year has seen more than $1,600 in tax relief since our government took office. Similarly, a single-income family with two children will also be more than $1,600 better off. And in this case, a two-parent household with two children, with one parent earning $85,000 and the other earning $45,000, has seen their personal income taxes cut by 10%, leading to $1,938 in additional tax relief.

The new income tax relief included in Canada's economic action plan has been in effect for Canadians on their pay stubs since April 2009. As this chart indicates, Canadians at all levels are benefiting from this tax relief, with proportionately greater savings for those with lower incomes.

We have also made a key improvement for low-income Canadians who receive social assistance.

For too many in this situation, landing a job can cost them dearly in both higher taxes and reduced income support. As you know, we previously introduced the working income tax benefit in the budget this year. We doubled the total tax relief provided by WITB, starting in 2009, to further help low- and middle-income families who made enhancements to the national child benefit and the Canada child tax benefit supplement.

In addition, to help families with children under the age of 18, a tax credit in the amount of $2,089 in 2009 can be claimed by families through the government's child tax credit.

To help seniors deal with financial burdens, the government is leaving more money in their pockets, providing over $300 million on top of the $1.6 billion in targeted tax relief that the government is already providing to pensioners and seniors for the 2009 tax year.

Since coming to office, the government increased the age credit amount by $1,000 in both 2006 and 2009.

We have also introduced pension income splitting and doubled the pension income credit, allowing seniors to save more on their tax bill.

Of course, we reduced the GST. We introduced the tax-free savings account.

Our government has also brought forward significant tax relief for businesses small and large.

We have taken steps to make our entire tax system more competitive internationally. Doing so is important in terms of the cooperation of the provinces and territories on this tax relief effort on the corporate side. As a result of the corporate income tax reductions introduced since 2006, Canada will have the lowest statutory tax rate in the G7 by 2012. I'm pleased to say we'll reach the goal of the lowest overall tax rate on new business investment in the G7 by next year.

In total, the government has introduced more than $60 billion in tax relief for Canadian businesses over 2008, 2009, and the following five years.

This year in the economic action plan, we introduced a two-year temporary measure that allows businesses to expense their investment in computers in the year they are acquired.

This will encourage the adoption of newer technology at a faster pace.

We also extended the 50% straight-line accelerated capital cost allowance rate for investment in manufacturing or processing machinery and equipment in 2010 and 2011.

This tax relief gives much-needed support for the hard-hit manufacturing and processing sector. For small businesses, we increased the amount of small business income eligible for the reduced federal tax rate of 11% from $400,00 to $500,000, helping small business reinvest, grow, and create jobs.

And to promote mineral exploration across the country, the temporary mineral exploration tax credit was extended another year.

As the economy recovers, the tax relief we have provided will help Canada emerge from the global recession stronger than ever.

In conclusion, the policy decisions we have made as a government reflect and respond to the current situation, while never losing sight of where we want to be further down the road. We must do what it takes now to protect Canadians during the current global storm. We must always consider what is in the best interests of Canadians and the Canadian economy for the long term. Eighty per cent of Canada's economic action plan funding has been committed and is being implemented across the country. It is providing stimulus to our nation's economy that is timely, targeted, temporary, and cost-effective.

The government has provided the smart and sensible policy decision-making that Canada needs now. Through Canada's economic action plan, we are delivering for Canadians.

The tax relief and other stimulus in the economy are unprecedented. They are historic in scale, and Canadians deserve nothing less.

Merci, monsieur le président.

[The Chair, Conservative, James Rajotte]

Thank you, Minister Flaherty, for your presentation.

We'll now go to questions from members.

Mr. McCallum, you have seven minutes, please.

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

Thank you, Chair.

And thank you for joining us this morning, Minister.

I'd like to divide my time--assuming I have enough--between two of the four issues that our leader raised. One is getting money out the door, and the other is getting rid of the deficit at some point.

On the first issue of money out the door, the Prime Minister said yesterday that if the estimates weren't passed and we went into an election, he wouldn't get the stimulus money out the door. This is totally wrong, unless he chooses not to get the money out the door, because Canadian Press reported today, after speaking to Treasury Board officials, that well over 90% of the stimulus money could flow with or without an election campaign.

On the question of money out the door, I've referred a couple of times to the contrast between our approach and the approach south of the border. I have, for example, in my hand from the U.S. website an allocation of $30 billion to health. Of that, $20 billion has been spent to date. This is updated every week. For agriculture, $2.7 billion has been committed, and $1.7 billion spent. There's a chart showing the commitment and the amount spent from week to week.

I don't understand why Americans deserve such transparency and such good information when Canadians get nothing whatsoever about money actually spent, actually out the door. We get money on commitments, on promises, on other such words, but we do not know in dollars and cents how much money has actually been spent, let alone how many jobs have been created or saved.

Why do Americans deserve this transparent, clear information that Canadians do not seem to be entitled to? Would you, Minister, be able to provide us in coming days with at least some information on the money that has actually been spent, as opposed to commitments or announcements?

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

The website is www.actionplan.gc.ca. Canadians can look at it any time they want and see the list of more than 3,000 projects on which commitments have been made. A large number of them--about 40% or so--are done through the provinces and the municipalities, and the mayors understand. I met with the mayor of Brampton yesterday, for example, and she fully understands the way it works. They have to get their projects under way and send in their bills, and their bills get paid. The federal government has always funded infrastructure that way in modern times. These projects have to be tendered; everyone knows that. A process has to be followed by the municipalities, and that's exactly what we're doing.

If you want to use the United States as an example, you can look at page 62 of the economic action plan--

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

I'm running out of time. I thank you for your answer.

But the Americans also have a federal system. They have to deal with states and municipalities.You said yourself that the money has to flow within 120 days if the stimulus is to be effective. I think it has been approximately 140 days and we still don't know about dollars actually flowing and jobs actually being created. So one of the requests from our leader is to get more transparency and information on that point.

Let me now move on to my second point.

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

I'll answer your question, if I may. You asked about the American situation.

A lot of those transfers, as you know, are from the federal government to the states for Medicaid and to keep the states from going bankrupt, because most of the states can't run deficits. That's what's happening in the United States. We don't have that problem in Canada.

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

Minister, they have in the United States, by department, how much is allocated, how much is spent on the health department, education, veterans, agriculture, and I could go on. Our system is highly inadequate compared with theirs in terms of information provided to Canadians. And please don't talk about their deficit being bigger. I know it is. The Prime Minister went off on that tangent yesterday. The issue is transparency.

But I'd like to use the rest of my dwindling time to talk about deficits, which is another issue that our leader has raised.

Initially in your report you would not commit to any year in which the deficit would be eliminated. Then, on television on one of the networks, you did commit; and then on the other one, at approximately the same time, you didn't; and yesterday you did commit to 2013-14.

My point is that in the budget the surplus for 2013-14 was $0.7 billion. That was your projection, and as you know, in the world of finance that's like a rounding error. That's a tiny little surplus. So here you have a surplus in the budget of $0.7 billion, and you suddenly go from a deficit of $34 billion to a deficit of $50 billion. Think of all the extra interest you pay on that debt, and then that deficit is going to continue. There'll be some upward effects on deficits in ensuring years as a consequence of that, so your little surplus of $0.7 billion will be more than wiped out by the interest payments alone on the additional debt that you are incurring.

I understand why you wouldn't give a date in the report, because you can't do it unless you have additional measures. But I don't understand how you think you can add $50 billion per year and then more in future years on to the debt and still say you're going to be in balance, when you're starting out with a tiny little surplus. And when TD Bank says the deficit in the same year will be $19 billion--TD Bank has a certain amount of credibility--I think you owe it to Canadians to explain how, given the change in circumstances, given there's a $50 billion deficit, you still propose to be in balance in 2013-14.

[The Chair, Conservative, James Rajotte]

Minister, you have about thirty seconds.

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

I have thirty seconds? All right.

I encourage Canadians to look at page 217 of the budget, the economic action plan, which sets out the plans to run to surplus by 2013-14. I encourage committee members and Canadians to look at page 61 of the report from last week, which breaks down this year's deficit.

As you know, Mr. McCallum, the majority of the deficit this year is one-time spending in the auto sector and increased EI payments to help Canadians in the midst of a global recession. I know you like the Toronto-Dominion Bank, but what about your former employer, the RBC, which is at 2.5% real GDP growth for 2010 as of yesterday? Scotiabank's at the same number, but guess who's not there--TD Bank. They're at 1.3%, which is where Mr. Page is also, as I understand his comments.

We have a plan. We're on target. The economy is actually looking better, so let's be positive about our country. The rest of the world is positive about our country.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Laforest, s'il vous plaît.

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

Thank you, Mr. Chair.

Good morning and welcome, Minister. In your statement, you say that, since April 2009, Canadians have reaped the benefits of income tax cuts set out in the economic action plan. Workers benefiting from your economic action plan are not the problem. You are well aware that the problem is the increase in the number of unemployed persons, a number that has tripled at the very least since your forecast last fall.

You boast about having extended the EI benefit period by five weeks. The problem is that a large number of the unemployed are unable to qualify for EI. One of the ways to improve the program is to abolish the two-week waiting period, a suggestion that has often been put to you during question period. I would like you to draw a parallel with your first statement, when you said that members of the G8 told you that they envied Canada for its very healthy fiscal and economic situation.

If the economic situation in Canada is so healthy, why has the unemployment rate jumped so significantly? Would it not be an opportunity to improve the EI program in order to ensure that those who lose their job can also find the economic action plan to be beneficial?

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

It's an extremely difficult issue. We need to have a positive environment for jobs.

We have taken a major step on employment insurance by extending the period to five weeks. As you know, Mr. Laforest, we have very big challenges in the forestry sector and the automotive sector, just to take two large sectors of the economy. The key thing here is to acknowledge that these sectors are going to be smaller. They will survive, but they will be smaller.

How do we help people who work in those sectors? They need to be retrained. It's much more important that we put the money into training and a longer period of entitlement to employment insurance so people can be retrained. We're putting more money, through the knowledge infrastructure program in the budget, into our community colleges and universities to help people retrain. This is looking a little down the road, so we are actually helping people get into the position where they can support their families.

On job creation, if I use the formula used by the Federation of Canadian Municipalities, about 132,000 jobs will be created over time by the stimulus. We have 120,000 people, as of May alone, participating in the work share process. Many of those folks would not be able to maintain their jobs, and their employers wouldn't be able to maintain their jobs, were it not for the work share program. These are significant initiatives.

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

I do not share your opinion on that matter, Mr. Minister. When you talk about the forestry sector, you say that a decrease in the number of jobs in that sector is inevitable, and that it will see negative growth. Negative growth in that sector is certain if you continue to refuse to support it.

The forestry sector has a future. The raw materials, the natural resources are available, and they need only be developed—perhaps not in the same way they have been traditionally. The lumber industry has a future. Growth in this sector needs to be encouraged by helping to ensure the diversification of products that can be marketed. A number of researchers could show you that this sector has a future, as long as the government provides it with adequate support.

Mr. Minister, people in the regions of Quebec have long criticized you for doing absolutely nothing in comparison to what was done for the auto industry in Ontario. People are aware of this and have been for some time.

I'd like to ask you a question about balanced budgets. I imagine that, in order to have a balanced budget, you will no doubt need to cut the amounts allocated to different programs. Do you have an idea of the various programs that might be affected by this attempt to return to balanced budgets?

[The Chair, Conservative, James Rajotte]

There's about a minute left, Minister.

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

I'm not sure exactly what you're getting at on the fiscal balance question. If you're concerned about Quebec, the transfers to Quebec this year are more than $8 billion. The health transfer is growing at 6% per year, and the Canada social transfer is growing at 3% per year. The transfers to the provinces have never been higher than they are this year. That's the reality. Canadians need to know that.

We are not attempting to budget on the basis of cutting back transfer payments to the provinces. That's what the Liberals did in 1995 and the years after that. I know, because I was a provincial minister in those days. We had tremendous challenges with schools, hospitals, and social services because the Government of Canada at the time decided to balance its budget on the backs of the provinces and the people in the provinces. We're not going to do that federally. It means we'll run a deficit for several years, but it's the right thing to do.

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

I have a question concerning the battle to avoid a deficit. Have you already determined which specific programs might be cut in order to achieve a balanced budget? That should be part of a plan.

[The Chair, Conservative, James Rajotte]

Minister, please be very brief.

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

No.

[The Chair, Conservative, James Rajotte]

That's very brief. Thank you.

We'll go to Monsieur Mulcair.

You have seven minutes.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair.

Brother Flaherty, good morning. I want to congratulate you for your recent interventions as a state socialist.

I want to concentrate on—

[Ted Menzies, Conservative, Macleod, AB]

I have a point of order, Mr. Chair. This is a minister of the crown; let's show a little bit of respect.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair. I'm going to continue.

Mr. Chair, in his presentation this morning, the minister provided various figures. He said the following:When combined with the measures announced in Canada's economic action plan, since 2006, taxes on individuals, families and businesses will have been reduced by an estimated $220 billion over 2008-2009 in the following five fiscal years.

A little further on, he ends on a poetic note—because he even changed his text—in saying that Canadian families deserved no less, and that it was reducing their tax burden.

I would like him to clarify the way that $220 billion was broken down. More specifically, what was the reduction for families and what was the reduction for businesses?

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

As I said earlier, about $60 billion relates to corporations. I know you want that to sound like big business, but it's largely for smaller businesses. Small and medium-sized businesses in the country are the engines of job creation.

I'm very happy that most of the provinces are going in the same direction. We will have a combined corporate tax rate in 2013 of about 26.2%, as I recall, which will be a tremendous selling point for our country.

[Thomas Mulcair, NDP, Outremont, QC]

Does the minister agree with us in saying that a blanket tax cut, in no matter what sector of activity, means that sectors such as the forestry sector, which really needed it, didn't get anything? In fact, a company that didn't show a profit was unable to get a tax reduction since they hadn't paid any taxes. So, his presentation makes a kind of false assumption, in telling us that it's helping businesses.

Does this not prove that part of the difficulties, of which we were well aware before the current recession, lie in the fact that, ideologically, he is refusing to provide government intervention in some sectors of the economy? In fact, the Conservatives are categorically saying no, except when it comes to the auto sector, which is concentrated in the home province of the Minister of Finance.