Finance Committee on Oct. 27th, 2009

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair.

Mr. Minister, good morning and thank you for being here with us today.

I would like to begin with a subject which is addressed in Bill C-51 and which you have talked about as an aside to our meeting today, and that is better protection of pensions. You announced today a series of measures that seek to achieve what the NDP has been calling for for a very long time.

Can you give me a rough idea of the percentage of pensions that will be affected by the changes you are proposing?

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

Thank you for the question. It depends on which amendments. As you know, the federal government regulates about 10% of pension plans in Canada—the federal jurisdiction corporations like telecommunications, the airlines, the banks, and so on. Most of these changes would affect only those pension plans, except the tax changes. The government does intend to increase the pension surplus threshold under the Income Tax Act to 25% from 10%. That will apply to both federally and provincially regulated defined benefit plans.

[Thomas Mulcair, NDP, Outremont, QC]

We can agree that these are changes which are moving in the right direction, but is it your government's intention to undertake a more comprehensive examination of the entire issue? You are absolutely correct when you say that only 10% of pensions are paid by the federal government, but I am going to mention a case that will show you why we believe the federal government can play a bigger role. In Quebec, 90% of people deal with credit unions, Mouvement Desjardins and others, and not with chartered banks. However, the Canada Deposit Insurance Corporation guarantees deposits in credit unions as well as in chartered banks. It's the same system of guarantees.

Would it be possible to create a pension protection scheme that the provinces would have the option of joining, a bit like what is already being done with deposit insurance?

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

Not specifically that idea, but the broader area of protection, yes.

We started these discussions on a federal-provincial-territorial basis as finance ministers. When we met in Saskatoon last December, I had invited, with the consent of the other ministers at that time, Claude Lamoureux and Jack Mintz to come and speak to the ministers about pension issues. We've had further discussions since then, at our spring meeting. We're meeting again in December in Whitehorse.

In the meantime, we agreed to have a research group work on these broader subjects, and I'm told we will have that report in time for our meeting in December. So I look forward to having that discussion with my colleague, Minister Bachand, from Quebec, and with my other colleagues in the broader sphere.

We've taken some steps in the federal framework here in what we've announced today as a result of the consultations done by my parliamentary secretary.

[Thomas Mulcair, NDP, Outremont, QC]

The Whitehorse meeting is actually part of the subjects being discussed by this committee. At the request of Mr. Menzies, instead of putting more emphasis on it during this fall's hearing, it was decided to wait until December so that there would be no duplication.

Is there reason to hope that after the Whitehorse meeting, when Parliament returns, after Christmas, you will table—perhaps during the spring session—more comprehensive legislation on pensions in light of what is learned from the expert report you will be getting in Whitehorse?

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

I'm certainly willing to do that if I have the consent of my colleagues in the provinces and territories.

I'd just add that this is a complex issue. This is not an issue that's given to easy answers. It takes a lot of work; it's complicated. It's difficult for people and for parliamentarians and all of us to deal with all the facets in some sort of comprehensive way, which is what we're attempting to do.

[Thomas Mulcair, NDP, Outremont, QC]

That's why I said that this was an area in which it was easy to cross party lines. We all have the same interest. We don't always take the same approach, but we all have an interest in ensuring that there is cross-generational fairness, in other words that we look after those who built and continue to build our country.

As we wrap up this first section of our conversation, Mr. Minister, I would like to know if you intend to look at the possibility of increasing Canada Pension Plan payments to all eligible senior citizens. If you do, how much would the increase be and are you willing to consider an increase in the contributions paid by people who are currently working? You know as I do that many senior citizens in Canada today live below the poverty line. Do you plan to look at that issue?

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

The governance of the CPP, as you know, Mr. Mulcair, is joint governance between the federal government and the provinces. We only act in concert, in agreement, when we make changes with respect to the CPP, so I'm not in a position to unilaterally do any of those things.

To respond to your question, Alberta, British Columbia, Ontario, and Nova Scotia, at least those four provinces, have all done some substantial work on possible additional pension entitlements. It was because of some of that work that we're doing the broader research work now that Professor Mintz is chairing. So there are some ideas out there that will be forthcoming. We know they've done some innovative things in Australia, for example. Some of the reviews of some of those innovative things are not positive, but there are some ideas that are out there on pension reform that we will certainly examine. I expect that the research work would be made public.

[Thomas Mulcair, NDP, Outremont, QC]

Having a single information or data base will benefit everyone.

Thank you, Mr. Minister.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Mulcair.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair, and thank you, Minister, for joining us here today.

If I can go a little farther even than the governor did this morning, we asked for his input to this committee on what his role was in the last year, his role and Canada's role, if you will, in dealing with this worldwide recession.

I know you've been a very strong advocate of making sure that countries don't ramp up their protectionism. We are a trading nation, there's no doubt about that. We are an exporting nation, and we need to encourage open trade. This portion of Bill C-51 that deals with the reduction of tariffs for temporarily imported shipping containers--could you elaborate on that and perhaps some of the other tariff reduction initiatives that you've taken or that you intend?

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

Thank you, Mr. Menzies.

I've heard many of the discussions at G-20 meetings and G-7 meetings in the past year. It's common for everyone to talk about protectionism and avoiding protectionism. Unfortunately, we don't always see evidence of that, and sometimes we see some evidence to the contrary. Canada is exemplary in this way. Not only have we not been erecting barriers to trade, but we have been eliminating tariffs. In the budget this year we eliminated tariffs on a range of machinery and equipment, and this was legislated in the first budget bill this year. That was hailed by the Canadian Manufacturers and Exporters as an incredible move to make our exports more globally competitive.

Similarly, we're removing some other tariffs in this legislation that is before your committee. We also published draft regulations—I think they were published on Saturday last—with respect to the shipping industry as well and tariffs in that regard. The direction we're going as a government is toward the elimination of tariffs, which are, at the end of the day, barriers to trade.

[Ted Menzies, Conservative, Macleod, AB]

Thank you. It's very important.

I believe, Ms. Block, I will pass it on to you. I think you have an important question too.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much.

Thank you, Minister Flaherty, for being here today. As a new member of the finance committee I have certainly appreciated participating in the pre-budget consultations, and I've come to appreciate the many hours of work that go into preparing for our budgets.

The issue of pensions and pension security has been gaining increased attention, especially in the past few weeks. I know I've received many calls from constituents in my riding. I do know that our Conservative government has been hard at work on this issue, and indeed was working on it long before it was on the radar screen of many in the opposition.

Bill C-51 and the important reforms to the Canada Pension Plan included in it are one demonstration of that. I'm wondering if you could share some of the feedback you have heard in response to these important reforms and then also speak to how our Conservative government has addressed the larger issues surrounding pensions in Canada.

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

Well, certainly the feedback with respect to the previous pension changes from the triennial review of the Canada Pension Plan changes has been positive. People want to have more flexibility with respect to when they retire and have access to Canada Pension Plan benefits. That's a consistent theme.

In the changes we announced today, we are enhancing protection for plan members, we are reducing funding volatility for defined benefit plans, we are making it easier for participants to negotiate changes to their pension arrangements, we are improving the framework for defined contribution plans and for negotiated contribution plans, and we are modernizing the rule for investments made by pension plans.

Let me give you one example of why this matters. The solvency workout procedures that we're putting forward today, for example, deal with a situation we had to deal with in practice with Air Canada earlier this year. I think there were five unions, and Air Canada was in a position such that it probably would not have been able to continue to function if the pension issues were not resolved. In an ad hoc way, I asked former Justice Farley of the Superior Court of Ontario, who had dealt with the Air Canada bankruptcy previously, to act as a mediator, and he did, with the five unions and the management of Air Canada. They were able to work out, along with representatives of the pensioners of Air Canada, a solvency arrangement so that Air Canada would have more time to top up the pension plan. That was successful; the airline has continued to operate.

We're going to institutionalize that process—or that's the plan—in the new proposed changes, so that we hopefully will see the process followed when pension plans get into some difficulty and so that we don't have operating companies that could continue to operate were it not for the challenge they have in topping up their pension plans.

At the same time, this ought not to be done without the consent of the representatives of the workers, whether they're unionized or non-unionized, and the pensioners as well. We have that process built into the new proposals.

[The Chair, Conservative, James Rajotte]

Thank you.

We go now to Mr. McKay, please, for five minutes.

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

Thank you, Minister, for appearing.

Your projections put the increase in debt at about $175 billion over the next four or five years. You say that you will not increase taxes. You say that you will not cut transfers to pensioners or to persons. You say that you will not cut transfers to provinces. That pretty well leaves two things: programs and debt servicing.

Debt servicing is going to carry on the way it carries on. Presumably it's going to increase because of the increased amount of debt, but also because of a real possibility over the next few years of increased costs of servicing that debt.

That leaves program spending. The largest part of program spending is DND. Presumably you're fairly committed to servicing DND at its current levels. Therefore, Minister, your manoeuvring room for an exit plan is rather circumscribed. I'd be interested in knowing, if you could tell us, what your exit plan is for this rather substantial increase in debt.

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

First of all, one has to look at what the debt comprises. A little more than half of the deficit this year relates to the economic action plan: infrastructure spending, increased EI availability. The infrastructure spending, as planned, will end at the two-year mark. So we run substantial deficits, relatively speaking, this fiscal year and next fiscal year, but we have built in the exit strategy; that is that this spending ends as of early 2011.

That's the first, important part of the exit strategy. We anticipate, of course, some economic growth. I'd be the first to acknowledge that the economists are all over the map in what they're predicting over the next year or two. Since we started looking at the private sector economists in the Department of Finance, in 1992 or so, we have never, I'm told, seen such a range of opinion. There is no consensus among the private sector economists, which is why we've said we should be able to balance, and intend to balance, the budget in the medium term.

We will have the stimulus spending ending; that's the beginning of the exit strategy. And then, to respond to your question, if we look at the major parts of federal government spending, we have the transfers to the provinces. We're not going to reduce them; they're for health, education, and social services, as you know. It was a tragedy, quite frankly, when the previous Liberal government did that in the 1980s, a tragedy for the people of Canada in terms of health care and education. I know that, because I was on the other end of it as a provincial minister when it was happening in the 1990s.

So there's that. Then there are the transfers to persons. We don't want to reduce those, because they are helping the elderly and children. They're important social programs in the country.

Then we would have about $100 billion of spending on programs. That's a lot of spending. There are about 2,500 programs. That spending has been growing at about 3.3% per annum, and it might, if we did not have adequate economic growth, be necessary to restrain the rate of growth of that spending in the medium term. But we'll have to wait and see what the actual economic growth is. It may not be necessary to do that. If the economic growth and the resulting tax revenues are sufficient, it would not be necessary to do it.

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

Minister, I just take note that in the previous fiscal year you were actually in debt; you were already in deficit in the last fiscal year. You certainly have accelerated it with the stimulus spending, but it is also accelerated by the fact that you're in revenue meltdown, that your revenues are simply not there, partly because of your own decisions taken in previous fiscal years. So you are a bit of an author of your own misfortune. And while I might agree with you that the economists' predictions are less reliable as one goes further out, I'd take note that the $175 billion of accumulated deficits, as they become debt, are your own projections.

What I'm hearing you say is that, even on your own numbers, you have a $100 billion problem here and you don't really know how you're going to get out from underneath that problem.

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

I think I've indicated to you the way in which we could get out of the problem, depending on the size of the problem. That is that we could restrain the rate of growth of program spending, which is very substantial.

You know, we have been through the most difficult economic crisis since the Second World War in the past year. That's certainly the view of the G-20 ministers of finance. Canada has come through this better than most countries, and that's because of the strength of the fiscal foundation here and the fact that we have paid off $50 billion worth of debt in our first few years in government. Canada has been able to manage through this recession better than most other countries in the world. That's been recognized abroad by the IMF, by the World Economic Forum, and by the OECD, and it's a credit to Canadians and Canadian business that we've been able to weather the storm as well as we have.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

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

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chair.

Mr. Minister, last week, I read in a Quebec newspaper that, last year, the federal government invested some $20 billion in the lumber industry. However, your budget documents show that the federal government actually announced that it invested some $80 million in the entire Canadian lumber industry.

Is it true that the federal government invested $20 billion in the lumber industry last year?

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

I would have to check the figures. I'm not directly responsible for that, and I would have to check what was spent in the past year. I don't have that at hand.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

You say that it's not your responsibility and that you'd have to check, but could it be that the Minister of Finance doesn't know whether the government invested $20 billion in the lumber industry this year?

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

I'd be happy to get the accurate figures for you, Mr. Roy.