Finance Committee on Oct. 27th, 2009

[The Chair, Conservative, James Rajotte]

Order, please.

This is the 57th meeting of the Standing Committee on Finance. Pursuant to the order of reference of Wednesday, October 7, 2009, we have before us Bill C-51, an act to implement certain provisions of the budget tabled in Parliament on January 27, 2009, and to implement other measures.

We have a two-hour session today. For the first hour we have the Honourable Jim Flaherty, the Minister of Finance, and for the second hour we have officials from the Department of Finance.

Minister, we have time for an opening statement. I believe you have up to 15 minutes, and then we'll have questions from members.

Thank you for being with us here today. You may begin your opening statement at any time.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Chair. I'll make my comments as brief as possible to allow time for the questions from committee members of course.

First of all, let me applaud you, Chair, and all of the finance committee members for your work over the past several weeks in travelling coast to coast to coast as part of your pre-budget consultations. I know hundreds of people and organizations want to make presentations to you, and the work you're doing is very important to help inform the next budget.

We have introduced online pre-budget consultations as well, as you know, in past years.

I look forward to receiving the report of the committee with respect to your extensive pre-budget consultations.

I have always believed that Canadians should be able to participate more in the federal budget process. In addition to my consultations as Minister of Finance, the prebudget consultations held by the Standing Committee on Finance give Canadians an opportunity to be heard.

What's more, recommendations flowing from your hearings always inform and influence the final budget document. I urge the committee to continue your consultations, as I look forward to reviewing the findings.

Earlier, I asked the Committee to study and quickly pass Bill C-51, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and to implement other measures.

The Economic Recovery Act is an important component of Canada's economic action plan, legislating not only key provisions from Budget 2009 but other important initiatives as well. The Economic Recovery Act is but one part of our government's comprehensive response to the global economic crisis, a crisis that has impacted the world since it began a little over a year ago, a downturn that did not originate in Canada but that, in spite of our relatively strong economic fundamentals, has impacted us nonetheless.

As RBC economist Patricia Croft noted, and I quote:

...this is not a made-in-Canada recession. This started outside of our borders, but because we're a small open economy, we've been caught up in the economic turbulence.... ...I do think there's reasons to be hopeful, and I think there's a great story to tell about Canada in that we may come out of this recession much stronger than our global counterparts.

Our government, like this legislation, is focused on the economy. While we have recently seen tentative and early signs of early economic recovery both domestically and abroad, such signs are simply that--tentative and early. Recent positive economic data from the housing and job markets are undeniably encouraging. BMO economist Douglas Porter has remarked that “...the domestic side of Canada's economy is flaring back faster than anyone could believe possible”.

But that should not lull Canadians into believing we are out of the woods yet. For too many families in too many parts of Canada, unemployment remains all too real.

Even though Canada is in a good position to emerge from the recession relatively stronger than most other developed economies, as the Prime Minister has pointed out, we were drawn into events which occurred beyond our borders during this recession, and we are going to continue feeling the effect of those events, especially the ones that took place in the United States, our biggest trading partner.

The road to recovery will not be clear and straight, but bumpy, with sharp turns along the way, especially if we take our eyes off the road. As the G-20 leaders stated in their communiqué following the most recent G-20 summit in Pittsburgh, “A sense of normalcy should not lead to complacency. The process of recovery and repair remains incomplete.... We cannot rest until the global economy is restored to full health....”

So our job is not done, neither here nor abroad. We must stay on track. We must work to assure a strong and sustained recovery domestically; we must support the international recovery efforts; we must continue to implement Canada's economic action plan.

That is precisely what we are doing with the Economic Recovery Act.

Through this act, we are cutting taxes for individuals and businesses to grow the economy by implementing the first-time homebuyers' tax credit, by making the working income tax benefit more generous for modest and low-income Canadians, by extending tax deferrals to assist Canadian farmers in dealing with extreme weather conditions, by relaxing tariffs on temporarily imported shipping containers, and by implementing the job-creating home renovation tax credit.

Before continuing, I should point out the blatantly obvious. The HRTC has proven very successful. In raw numbers, even as the overall economy contracted, the volume of home renovation investment increased 2.2% in the second quarter of 2009, 9% on an annual basis. Indeed, a survey conducted for RBC Royal Bank and released last week revealed that almost half of Canadians renovating have done even more renovations than planned because of the home renovation tax credit.

As Bernice Dunsby, the RBC senior manager of home equity financing, noted, and I quote, “Did the HRTC accelerate Canadians' decisions to undertake renovations? I definitely think it did, especially those who may have been sitting on the fence.”

On a more anecdotal basis, it has become among the clearest signs to everyday Canadians that the economic action plan is directly impacting and benefiting their local economies. In the words of an Ottawa Citizen editorial, the HRTC has “...turned out to be effective and smart.... Even the quietest streets roar with hammers and saws. The result is brand new decks, roofs, driveways, and brickwork.... This is keeping construction workers employed who, in turn, spend money that keeps others employed. Home centres and hardware stores are humming.” This was exactly the right thing to do.

We are also strengthening the Canada Pension Plan in order to give Canadians greater flexibility in the way they live, work and enjoy retirement.

Included in these important reforms is the removal of a requirement for individuals to stop working or reduce earnings for two months in order to take up CPP. The reforms also allow more low-earning years to be excluded from the pension calculation.

I note, of course, that the CPP is a jointly managed federal-provincial plan, and neither level of government can unilaterally alter it. The reforms laid out in this legislation were unanimously agreed to and made public by federal, provincial, and territorial governments this past May as part of the mandated triennial review of the plan.

We are fostering global cooperation by giving low-income countries a stronger voice in the International Monetary Fund, and we are increasing Canada's commitment to debt reduction.

We are both improving government transparency and delivering on a 2008 election platform commitment through a new requirement for all federal departments and crown corporations to prepare and publish quarterly financial reports. We are, after decades of neglect under previous federal governments, finally ending the decades-long crown share saga to benefit the people of Nova Scotia.

In the words of the newly elected NDP premier of Nova Scotia, Darrell Dexter, and I quote, “Nova Scotia is seeing progress on the Crown share file.... I congratulate the federal government for moving forward to seal the deal. This is good for Nova Scotia, and good for Canada.”

We are supporting public broadcasting by increasing the borrowing power of the CBC/Radio-Canada in order to ensure the corporation's survival. These are only some of the main elements of the Economic Recovery Act.

I firmly believe that this important bill deserves the committee's support.

I am confident that through this legislation and the larger economic action plan, our government is helping provide the stability needed to ensure Canada maintains and builds on its current economic strengths as this global recession transforms into a global recovery. As the IMF and other economists have consistently declared, Canada is better positioned than most countries to weather the economic crisis. Indeed, we are forecast to have the strongest recovery in all the G-7 for 2010.

While we should take some comfort in such forecasts, we cannot use them to invite complacent self-satisfaction or inaction. Economic forecasts, as we all know, are just that: they are forecasts, although educated ones. They carry no guarantees or certainty. We cannot rely on forecasts of future prosperity alone to bring us that prosperity.

Inaction is not an option, and little political games are an insult to the people who elected us to represent them. The right thing to do for Canadians, in fact the only thing to do, is to move forward.

Move forward with Canada's economic action plan, forward with this legislation, and forward with the recovery. Only this will help build a stronger future for all Canadians.

The stakes are too high and the recovery too fragile to act otherwise. On that note, I am prepared to answer the committee's question.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you very much, Minister, for your opening statement. We will now start with questions from members.

Mr. McCallum, for seven minutes.

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

Thank you, Mr. Chair, and thank you, Minister, for being with us this afternoon.

I appreciate your kind words about the work of this committee, so my first question relates to that in the context of the main plank of your pension reform, which was to raise the maximum allowable surplus from 10% to 25%. The problem in doing this now is that the horse is out of the door, in the sense that with deficits of 20% to 33% for most of our pension plans, the fact that you can have a surplus greater than 10% is at best a moot point.

But I would remind you, Minister, that this committee, in the pre-budget hearings of 2007, made precisely this same recommendation to you, that in Budget 2007 you raise this maximum surplus from 10% to 25%. Had you done it then, prior to the crisis, it might have had an impact, because the crisis had not yet happened and pension plans were in much better shape.

Would you acknowledge that it was unfortunate you did not follow this committee's advice and raise that pension surplus in 2007, before the horse had left the barn?

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

As you know, Mr. McCallum, no one, including all the economists in Canada, predicted that we were going to have a recession, much less a deep recession, much less a global recession. The consultations that were led by my parliamentary secretary heard a great deal about this particular issue this year, and the result is the step we've taken. There has been some improvement in the conditions of insolvency ratios of pension plans because of the improvement in equity markets this year, as you know.

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

But I think, at least with the benefit of hindsight, if it was good policy today, it would have been good policy in 2007, and we'd be better off had you followed that advice.

My next question is about the punishing increases in payroll tax, employment insurance premiums post-2011, that you announced in your fiscal update. According to Dale Orr, these amount to $1,200 in additional tax for a two-earner family and a $9,000 additional cost for a small business with 10 employees.

I have a double-barrelled question on this issue. One is a question of semantics. I don't think you could deny that this is a tax hike, so that would be my question. Whether it's imposed through some automatic mechanism or not, it's still a tax hike, and you would have the authority, if you so chose, to have an additional year of EI premium freezes, for example.

My second part of the question is, given the fragile state of the economy, given that the Governor of the Bank of Canada, who was here this morning, has downgraded his forecast for the outer years, partly because of the strong dollar, do you really think the economy can absorb such abrupt and large increases in the payroll tax as you have imposed in your fiscal update?

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

Well, first of all, let's be clear: the EI premiums for employers and employees have been frozen for two years as part of the economic action plan. That is a direct stimulus to the economy; that's money staying in the economy, staying in the hands of employers and employees. This is a temporary measure, as are a number of other measures, including infrastructure stimulus spending in the economic action plan. This will end. This was always the plan. This was clear in the economic action plan, which I presented in the House on January 27. This is nothing new.

The House also approved the creation of a board to set EI premium levels. This is to take it away from the politicians. As you know, there was a lot of questioning, to put it politely, about EI surpluses and the way they were dealt with by the previous government. So we are going to have the board go ahead, as authorized by Parliament, and set the EI rates once we're beyond the stimulus period, the economic action plan period of two years.

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

Okay, but I don't think you deny that you have the authority, should you desire to use it, to extend that freeze for one more year. Then we would have less abrupt increases in payroll taxes, and that presumably would be helpful for employment.

I'll come to my third question, and probably my last.

We had the Governor of the Bank of Canada here this morning, and he confirmed the factual statement that in the second quarter of 2009, three G-7 countries had positive growth. Those were France, Germany, and Japan. Canada, among the G-7 countries, not only had negative growth, but the most negative growth among the remaining four countries.

So I asked Mr. Carney, how can you possibly say that, out of the G-7, Canada will lead the way out of recession in the G-7 when three countries have already factually escaped from recession and at the same time Canada remains in recession. It's a fact, and I don't think it can be denied, that the leaders of the G-7 to get out of recession are France, Germany, and Japan, because they have already done so.

So how can you continually repeat this idea that Canada will lead the G-7 out of recession when three of the G-7 countries have already done so and Canada has not?

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

It's because we entered the recession later.

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

But that doesn't answer the question. I asked how can you say that Canada will lead the G-7 out of recession. You must admit that this is a factually incorrect statement when three countries have already gotten out of recession before us as a matter of fact.

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

I think when the IMF and others look at this, what they see is Canada entering the recession later than other countries and then having the fiscal foundation to exit in a strong position.

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

So you agree with me that we did not lead the G-7 out of recession.

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

I agree with you that some of the countries had positive GDP growth in the second quarter.

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

Okay. Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

We have Monsieur Laforest, pour cinq minutes.

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

Thank you, Mr. Chair.

Thank you, Mr. Minister

I remind you that Bloc Québécois MPs rejected your last budget. We voted against the budget because it failed significantly to meet the needs of Quebec and Quebeckers in general. I'm thinking in particular of the very big chunk of that budget that was allocated to the auto industry in Ontario and the fact that there was absolutely nothing for manufacturing industries in Quebec. That is why we voted against that budget.

However, there is a home renovation tax credit in Bill C-51. In that regard, we are very happy to see in the bill a component of the plan the Bloc Québécois presented to you, namely the home renovation tax credit. We are happy with that aspect of the bill.

I would like to come back to your remarks. You talked about the Broadcasting Act in relation to the CBC. You say that you will be increasing the CBC's borrowing power from $25 million to $220 million.

In 2007, a unanimous recommendation from the heritage committee intended to support the CBC and give it a clearer picture of what lay ahead from a financial standpoint, called for the Government of Canada and the CBC to sign a seven-year memorandum of agreement. The agreement would have ensured the future of the CBC in terms of investment and development.

Why did you reject the unanimous proposal from the heritage committee and opt instead to increase its borrowing power?

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

I thank the member for his question.

Choices have to be made by governments, of course, in budgeting, and priorities have to be set.

With respect to the CBC, we are supporting them by giving them greater ability to borrow going forward. We're also supporting them to the tune of about $1.1 billion per year of Canadian taxpayers' money supporting CBC/Radio-Canada. This is a very substantial subsidy by the people of Canada in support of CBC and Radio-Canada, which we are maintaining.

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

I remind you that the CBC, being only one public radio and television broadcasting corporation, receives less than public broadcasters in many other countries that provide a great deal more support for their broadcasting corporations.

I'm going to move on to another subject. In Bill C-51, you talk about agreements concerning member countries of the IMF, which means international agreements. However, there is another international dimension raised by the OECD, which has released a list of countries that foster tax avoidance, or tax havens. The list specifically mentions Panama, with which Canada is currently negotiating a free-trade agreement.

Does it not strike you that by endeavouring to sign such an agreement, you are once again supporting tax avoidance and making Panama one of the tax havens that enable Canadian and Quebec citizens to hide money from the taxman and earn profits from that money elsewhere than here in Canada? In my opinion, it's a little, perhaps a lot, immoral to support a free-trade agreement with a country blacklisted by the OECD.

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

In the area of taxation, for some time now the Government of Canada has not entered into taxation agreements with countries that will not share information with us. We have made that a prerequisite of entering into tax agreements.

We are having an increase in the number of taxation information exchange agreements being entered into by the Government of Canada. I just signed one recently with the Netherlands Antilles on behalf of our government.

I take your point, Mr. Laforest, about the importance of the countries following the G-20 mandate, which is clear, to refrain from encouraging tax havens. The key to that is ensuring an exchange of information. We've seen some significant progress on this, I must say, since the G-20 discussions on the subject this past year.

[The Chair, Conservative, James Rajotte]

You have a minute left, Monsieur Laforest.

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

On the subject of harmonization of the GST, Mr. Minister, you know that Quebec was the first province to harmonize its tax with the GST. Do you intend to drop your demand that the Government of Quebec stop collecting its own sales tax itself? Do you intend to drop that demand?

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

I'm not sure I follow the question. Could you repeat it to me?

I've had discussions with Quebec about harmonization.

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

In the case of harmonization of the GST with the Quebec sales tax, the QST, at the very beginning of the dispute, you demanded that the Government of Quebec stop collecting its sales tax itself. You described that as a condition. Do you plan to drop that demand?

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

The discussions I have had with the Minister of Finance in Quebec, Mr. Bachand, most recently last week, are an effort on his part and mine, on behalf of our governments, to see whether we can come to an agreement about how we could achieve full harmonization of the sales tax of Quebec and the GST of Canada, in a harmonized way similar to what is being accomplished with Ontario and British Columbia. Our officials are continuing the discussions, further to the discussion the minister and I had last week.

[The Chair, Conservative, James Rajotte]

Merci, monsieur Laforest.

We'll go to Monsieur Mulcair, s'il vous plaît.