Finance Committee on June 16th, 2009

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

Well, as you know, in the economic action plan we took specific action with respect to the forestry sectors. The community adjustment fund is $1 billion. That's largely directed to single-industry towns, many pulp and paper towns across the country, including in Quebec. We're fully aware of the challenges in the forestry sector, as we are in the automotive sector. It's not accurate to say that there have not been substantial measures taken with respect to the forestry sector.

[Thomas Mulcair, NDP, Outremont, QC]

We can nevertheless agree on the fact that 10 times more was invested in the auto industry, and that's all fine and well for those working in that industry, but that is not the issue. We need to know why he is not providing proportional assistance to the forestry sector. The answer is, as you have said yourself so often in English:

governments don't pick winners.

This means that governments are not able to judge economic sectors.

Does the minister agree with us in saying that since the Second World War, Canada which is the second largest country in the world, has been successful in developing a balanced economy, with a primary resource sector, particularly in the area of forests and mines? We have managed to create jobs in these vast regions, develop and benefit from the land. However all this has been endangered by the Conservative ideology.

In fact, well before the current crisis began, we had already lost hundreds of thousands of jobs because of this doctrinaire stubbornness. These people are refusing to see that, in order to ensure a balance within this vast country, instead of giving money to the big oil companies out west or the banks, which really didn't need it, they should have provided strategic intervention, on a sectoral basis, to support those sectors of the economy instead of witnessing what is happening now happen. The unemployment rate is the worst it is been in a generation.

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

Well, let's deal with the real world rather than ideology. The forestry sector is in transformation, it's changing. The people in the forestry sector made that clear to me when I prepared the budget, not just this year but in previous years. We have to deal with the transformation. You can stick your head in the sand and pretend that all businesses stay the same for generations and generations, but that's not the way economies work. There's more competition in the world now with respect to forestry.

What do the forestry people ask us to do? They ask us to help them with capital cost allowances and so on, so they can modernize, get the right equipment so they can compete in the world, so their industry can transform and survive. That's what they're doing.

[Thomas Mulcair, NDP, Outremont, QC]

Once again, we see the right-wing ideology of this minister. He's telling us that we're hiding our heads in the sand and he's convincing himself of that. He is also convincing himself that there is equal competition in the world in which we live. Let's look at the facts. Black liquor, a by-product of the pulping process, used as fuel, has been around for a century. However, the Americans are adding 0.5% diesel to it, and miraculously, this by-product of an industrial process that has been around for a century has become a biofuel, which allows them to get subsidies totalling several billion dollars.

You talked about doing something to help Canada deal with this situation, but you still haven't done anything. The Americans are cheating in ways that are strictly not allowed, but you are hiding your head in the sand; you are sticking your head in the sand and not doing anything to allow us to be competitive.

You are in London now, and you're telling us that there's nothing in the softwood lumber agreement that would prevent Canada from granting loan guarantees at a competitive rate, at market rates. That's your position legally, before the tribunal in London, but each time you stand up in the House, it's to say that you are not entitled to it. There is an egregious contradiction in those two positions.

[The Chair, Conservative, James Rajotte]

Thank you.

Minister, you have about 30 seconds for a brief response, please.

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

Just factually, Mr. Mulcair, if you go back and look at our budgets, you'll see we have made a very substantial investment of taxpayers' money in biofuels. That's just the fact.

With respect to protectionism, which I think is what you're talking about, we have been prominent on the world stage fighting protectionism. President Obama has agreed with our view, and we have to be vigilant to protect our country from protectionist tendencies, which would lead to a downward spiral.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Chair.

Thank you, Minister, for appearing before this committee today.

I've found the last few months to be very troubling. I'm sure you share this concern. Bringing the economy back, helping Canadians to help themselves, is all about consumer confidence. I get very troubled when all we seem to hear is talking down the economy, talking up job losses, and that's not helpful. Yet we see such a contrast every time there's an international meeting.

I know you've been spending quite a bit of time outside the country, and I would guess it's partly as an adviser, because everything we hear—whether it's the IMF or the G20 or the G7 or the G8, which you just returned from—is that they speak glowingly about Canada's position, both the position going into this and the position we'll take coming out of this worldwide recession. As you repeated before, we'll have the lowest marginal effective tax rate by 2012. Even I heard, when I was at the European Bank for Reconstruction and Development, that everyone was looking to Canada enviously, as you have said before in your discussions with Geithner and Lagarde and Darling.

Can you share with us some of what you're hearing from the outside, possibly to share with Canadians? Are these countries seeking advice from you as to how we've handled it, or are they simply wondering what we have done differently in this country? Would you share some of your experiences from outside the country, please?

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

On the debt issue—and we put a chart specifically in the second report, at page 62, showing the relative deficit and net debt positions of the G7 countries—Canada is ahead of all the G7 countries. There are staggering levels of deficit in the United States, to which Mr. McCallum fondly referred earlier. We're looking at a deficit in the United States this year of almost 14% of GDP. The Canadian deficit, even with our one-time spending in the auto sector and increased employment insurance, will be about 3.3% of GDP. This is a staggering difference. Germany is higher, Italy is higher, as are France, the United Kingdom, and Japan, and then the United States. The fact that we paid down about $40 billion worth of debt in the first three years of our mandate—mandates, I guess, with an election in there—is very significant because it gives us the fiscal room to move.

The World Bank president, Rob Zoellick, was here last week, and he said Canada is in an enviable position by global standards: “I think a lot of people would like to change places with Canada.” I was there when he said that. He said that at the Conférence de Montreal in front of a couple of thousand people from all over the world. This is the kind of credit our country is getting internationally because of the management we are exercising. People are surprised we're actually able to keep the deficit reined in as much as we've been able to, because they have not been able to do it in other jurisdictions.

[Ted Menzies, Conservative, Macleod, AB]

Thank you.

I'll let my colleague Bob Dechert share my time.

[The Chair, Conservative, James Rajotte]

You have three minutes, Mr. Dechert.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Chair.

Good morning, Minister.

Minister, when I speak to the residents in my city of Mississauga, one of the most popular measures they tell me about from the economic action plan is the home renovation tax credit. I'd like to share with you some quotes about how this measure is helping to inject immediate stimulus into our economy and also helping people to realize the goal of home ownership and embark on renovation projects that they may have been putting off because of economic worries.

Robert Dutton, the president and CEO of Rona, commented:

We are happy to see measures such as the Home Renovation Tax Credit being implemented as we believe they will help stimulate the Canadian economy. This initiative directly benefits consumers and the industry while helping to save Canadian jobs.

Also, the president of the Calgary Real Estate Board recently praised these incentives, saying:

The people that we're seeing out there buying right now are a lot of first-time buyers. There's been enough incentives to help them out (such as the federal homebuyers' plan and the first-time buyer tax credit).

That was said on May 2 of this year.

Can you elaborate on the features of the home renovation tax credit and the first-time home buyers' tax credit and discuss their benefits to the economy?

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

Thank you for the question.

The home renovation tax credit is part of the infrastructure stimulus. It is individual family infrastructure that people can control themselves. I know that it's popular, because there have been more than 700,000 calls or e-mails to the Canada Revenue Agency line dedicated to the home renovation tax credit. It is time limited, so people need to act before next year if they want to take advantage of it. The maximum benefit is $1,350. As I said, it's for work performed or goods acquired after January 27 this year and before February 1 next year.

We also are providing up to $750 in tax relief to assist first-time home buyers with the costs associated with the purchase of a home. And we've bumped what one can take out of one's RRSP from $20,000 to $25,000.

This is actually encouraging. Yesterday I saw the report from the Canadian Real Estate Association that said that seasonally adjusted home sales rose 8% in May compared to April. This is another sign. We have some signs of stabilization and the beginning of positive growth in the economy.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Minister, I can tell you that the Mississauga Real Estate Board has told me similar stories about how sales are going in Mississauga. Housing prices are stable, which I think is good news for our economy.

Mr. Chair, if there is some time left, I'd like to defer to Mr. Kramp.

[The Chair, Conservative, James Rajotte]

I'm sorry. There are about ten seconds left. I'm sorry about the shortened time.

We'll go now to Mr. McKay. Mr. McKay, you'll have about three to four minutes.

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

Thank you, Chair.

Thank you, Minister.

You went from $34 billion to $50 billion in the space of three months. That's a 50% error. This is beyond a rounding error. Even if you take the dispute between the Toronto-Dominion Bank and the Royal Bank on what the growth going forward is going to be, the difference is in the order of about $3 billion. How can people reasonably have faith in a minister who, in less than 90 days, revises his budget deficit forecast by an enormous percentage?

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

Thank you.

If you look at page 61 of the second report to Canadians, you'll see the breakdown of the projected 2009-10 deficit. You'll see that the majority of the spending is one-time spending on additional employment insurance benefits for Canadians because of the depth of the recession, certainly in the first half of this year, and on the substantial investments in the automotive industry. Again, this is one-time spending.

So if you're concerned, as I gather you are, about ongoing deficits, Canadians need not be concerned, because these are one-time expenditures that were incurred this year.

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

All the spending you reference on page 61 was reasonably anticipated in January. And here we are in June, and it comes as, how shall we say it, a bit of a surprise that we're spending $2.8 billion more in EI benefits and that revenues have been reduced by $4.7 billion. I don't understand how you could be 50% out between January and June when all those things, including the one-time payments for the auto sector, were reasonably anticipated by you and your officials when you were making up your budget at the end of January.

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

The size of the contributions to the auto sector were much larger than anyone anticipated back then, including the Americans, I might add, and including the Government of Ontario. But this is what was necessary to save those companies in that industry, which benefits certainly our parts industry in Canada. If you're against that, please let me know, Mr. McKay. If you're against funding the General Motors investment or you're against funding the Chrysler investment, please let me know. As set out on page 61, that's $8.2 billion.

The increased EI benefits of more than $2 billion are set out on page 61. They are up because the recession in the first half of this year was deeper and broader than was anticipated by the private sector economists and by us.

But this is the right thing to do. These are automatic stabilizers that help people who lose their jobs. In fact, your party has been saying to spend even more than that. So the hypocrisy is breathtaking.

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

Mr. Minister, I don't like to—

[The Chair, Conservative, James Rajotte]

Order, order.

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

Mr. Minister, the issue is not whether increased EI expenses are good or bad. The issue is not whether paying out auto is good or bad. The issue is the enormity of your error. Your error is breathtaking, absolutely breathtaking: a 50% error in 90 days. Therefore, it completely erodes your credibility going forward. That's the issue.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Minister, a brief response, please.

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

Thank you for your best wishes again, Mr. McKay, and your thoughtfulness.

I think Canadians want to see that the right thing is being done to alleviate the impact of the recession and to help our economy grow. That's exactly what the Royal Bank of Canada talked about yesterday, the investments by government helping them come to this positive view of the Canadian economy going forward. That's the right thing to do.

[The Chair, Conservative, James Rajotte]

Thank you.

Minister and colleagues, I apologize for the shortened time, but we do have four motions that have been tabled for discussion by the committee, and we only have until 10 a.m., at which time we start our joint committee.

At this time, Minister, thank you very much for coming in. We certainly welcome you back at any time.

Colleagues, we will now move to the four motions we have on the agenda for today. We'll start very quickly with Mr. Pacetti's motion.

Mr. Pacetti, please.