Finance Committee on Oct. 26th, 2009

[The Chair, Conservative, James Rajotte]

We could settle that after the committee meeting.

Thank you.

We'll go to questions from members, starting with Mr. McKay, please.

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

Thank you, Mr. Chair.

Thank you, witnesses.

To Mr. Flexman, help me square this circle. In the first part of your paper, you say that this government will run, in the next five years, about $175-billion worth of debt. Then, in the next part of your paper, you say that the government should reduce its corporate tax revenues and personal income tax revenues. You want to take down the corporate tax rate down to 15%. You want to take down the upper marginal rates, etc.

Given that this government has shown no great enthusiasm for fiscal discipline, how do you square that circle? You're essentially arguing that the people who pay the most taxes in this country should actually get relief from the tax burden.

[Bruce Flexman]

Firstly, the reduction in the corporate rate is already built into the budget projections, so this is legislated and already announced. So the discussion about the corporate side is really built into the projections that we have.

As to further reductions, we agree that there is a balancing act, and future corporate tax reductions would only be responsible when the government returns to a balanced budget. So we understand that dynamic and that balancing act.

With respect to the personal tax issues, we feel that this is something that needs to be looked at. People sometimes forget about the talent and skill level that pays tax at this level. Right now, if we want to be competitive internationally, this is an area that needs some further study.

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

We hear that argument from time to time, that if we don't bring down our personal income taxes, somehow or other all of this talent will drain away. The obvious question is “Drain away to where?” But it's almost an implied threat that if you don't deal with the revenues, they're going to leave the country.

It still begs the basic question here, Mr. Flexman, that this government cannot in any meaningful way address its revenue shortfalls if it reduces income tax revenues from its best source of tax revenue.

[Bruce Flexman]

I think in terms of tax policy there are all sorts of different ways that you can structure your tax regime, and when you look at the different ways in which you can raise tax, you have to be very careful about your competitive position. If you do not retain a strong competitive position within the world, then you are going to have to suffer the consequences, which will further have an impact on your tax.

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

Is there any tax that you would actually raise?

[Bruce Flexman]

There are a number of taxes that could be considered in terms of where you want to get your revenue that may have a lesser economic impact. Governments have to deal with this. Back in the late 1980s and 1990s the government had to deal with a fiscal situation, and they had to find a balance between what to do on the revenue side and what to do on the expenditure side.

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

But they didn't start by reducing the best sources of their revenues, which seems to be your core argument.

I'm sorry; we could carry on with this conversation, but your presentation does seem to have a built-in contradiction in it.

I want to switch to the bankers.

We generally agree that there's some substantial consensus around the national securities regulator. Both the previous Liberal government and this government seem to be pursuing that path. It's far from universal, shall we say. You studiously steered clear of the blindsiding that you got last week from the finance minister with respect to the sale of insurance.

I'd be interested in your observations with respect to that.

[Terry Campbell]

Mr. McKay, as you know, and I guess as many people around the table would know, the position of the banking industry on the insurance rules is long-standing and it's well known. We have been of that position for quite some time. Our focus, of course, is on choice for consumers and competition.

In terms of the specific message from the minister, we were taken by surprise by that. We did not get advance notice. We prided ourselves on being in compliance with the law. We have a compliance culture. We had a statement from the regulator that in fact, according to the current laws, we are in compliance.

Having said that, we know that the minister has a concern. He has brought it to our attention. We are now working with officials and with the department to get a little more clarity on the nature of that concern, and those discussions are carrying on.

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

Okay.

I want to ask Donovan Bailey whether he can answer a question in under ten seconds.

[Voices]

Oh, oh!

[Donovan Bailey, Director, President and Chief Executive Officer, Bailey Inc., ParticipAction]

I've heard them all. It's okay.

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

You've heard them all, yes.

The short question is why ParticipAction as opposed to any other program--under ten seconds.

[Donovan Bailey]

I have been a huge supporter of ParticipAction, obviously, since I was a little child. I think I have the ability now, as a Canadian global brand, to support anyone. I think Kelly has done a phenomenal job since revamping the program. With the advent of the flu virus and so forth, I think the easiest way to get to Canadians is through exercise. I think ParticipAction is the one that deserves that support.

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

Well said.

Thanks, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

Monsieur Laforest, s'il vous plaît.

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

Thank you, Mr. Chair.

Good afternoon and welcome to all of the witnesses.

My first question will be addressed to Mr. Flexman, from the Canadian Institute of Chartered Accountants. In your submission, you make a recommendation according to which, in the interest of the well-being, or better understanding of citizens...

Can you hear the interpretation?

[Bruce Flexman]

The translation didn't come through. Could you try that again, please?

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

In your submission, you say in the interest of citizens' well-being, there must be a specific plan to eliminate the deficit. However, you are not providing any proposal to the finance committee on exactly how this deficit should be paid down.

It would have been useful to have some proposals. You are undoubtedly aware that during the 1990s, when the deficit ballooned out of proportion, the Liberal government, followed by the Conservative government, used the Employment Insurance Fund, worth some $57 billion, to pay down the deficit. Transfers to the provinces were also cut back.

Do you believe that this remains the right approach, or should the government take different action?

The Bloc Québécois proposed a debt-reduction plan that is rather significant. I would like to hear you talk to us about it, to see if the proposals contained in it are still interesting. Obviously, they are not addressed directly to workers, but I would like to know your opinion on them.

[Bruce Flexman]

Thank you.

On the approach that we believe should be taken with the deficit, one would have to look at the spending side of the equation and monitor the ability of the economy to pay for it. Population growth should be taken into account, but it shouldn't be allowed to expand at a faster rate than inflation or population growth.

We don't bring any specific recommendations because we're not economists. We believe it's a tough balancing act. It is left for the government to really decide on the priorities in dealing with the spending side.

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

Fundamentally, my question is whether or not you agree that the Employment Insurance Fund has become more of an anti-deficit fund, or a deficit insurance fund.

[Bruce Flexman]

The employment insurance program is really a balancing aspect. In times of fiscal deficit and fiscal surplus, it would help the government with spending restraint. I'm not sure I totally agree with it being a fund for just dealing with fiscal deficit.

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

Thank you.

Mr. Campbell, earlier, Mr. McKay said that we all agree on the creation of a single securities regulator. I would just like to point out that there is no consensus on that subject. It is very clear that in Quebec, there is a major disagreement. The issue has even been referred to the Supreme Court by the current Conservative government.

You would like to see the establishment of a single securities regulator. For such an entity to operate effectively, where should it be located?

[Terry Campbell]

That's a very good question. Fortunately, that's not a question for me to answer.

The government has created a transition office and, in a kind of opt-in basis, has invited those provinces that are interested to help design it. Mr. Hyndman, who was formerly with the B.C. Securities Commission, is now heading up the transition office. I've heard him say that this will be one of the questions under design as the transition office goes forward.

Now, my sense is that, clearly, to make a system work you would need to have centres of excellence and centres of expertise across the country. But our firmly held view is that an integrated regulator able to apply the same kind of consolidated oversight that OSFI does, for instance, on the prudential side would be a very valuable participant at the table. We know we have the prudential regulator, the deposit insurer, and the Bank of Canada, but there's this empty seat for the securities regulator. Having that kind of integrated approach to regulation would stand Canada in good stead going forward.

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

Mr. Friend, you stated that one of the problems being experienced by the Canadian Home Builders' Association, is work that is done under the table. One way to mitigate the effects of the underground cash economy, is to introduce a tax system that places greater emphasis on consumption taxes, over income taxes. This has already been reported by other organizations in other countries.

Do you believe that this would be a good way of cracking down on work done under the table?