Finance Committee on Nov. 25th, 2009

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Deschamps.

[Mike Wallace, Conservative, Burlington, ON]

Point of order, Mr. Chair. Could you ask whether they are willing to come back to talk to us more about the bill? I'd like to have them back.

[The Chair, Conservative, James Rajotte]

That's not a point of order, Mr. Wallace. Obviously if the bill continues in its study, I'm sure they'd be willing to come back.

Thank you.

We will suspend for a minute or so, and then we'll have the Parliamentary Budget Officer. Merci.

[The Chair, Conservative, James Rajotte]

I'll call the meeting to order. I would ask that any conversations be taken outside the room.

We are continuing our discussion of Bill C-288.

We have before us for the next hour, from the Library of Parliament, the Parliamentary Budget Officer. Welcome back to the committee, Mr. Page.

With Mr. Page are Mr. Khan, the assistant parliamentary budget officer; and Mr. Jacques, the financial advisor on expenditure and revenue analysis. Thank you all for being with us today.

Mr. Page, I understand you have an opening statement with respect to your report on this bill, so we will ask you to present your opening statement. Thank you.

[Kevin Page, Parliamentary Budget Officer, Library of Parliament]

Thank you, Chair.

My staff and I appreciate the opportunity to appear before the committee today to answer your questions regarding our cost assessment of Bill C-288, which is intended to provide a non-refundable tax credit to new graduates who settle in certain regions of the country.

Before we begin with questions, I wanted to first take the chance to provide members with some context regarding the terms of reference of our assessment, the key findings, and future analysis that may be warranted.

We prepared the terms of reference in consultation with committee members shortly after receiving the committee's request in September of 2009. This is a standard aspect of our work, intended to ensure that there is a common set of expectations between the requester and my staff regarding the scope of work, depth of analysis and timelines for delivering. The terms of reference are attached as Annex A to our cost assessment. At the time, there was a general consensus among members of the committee that the most useful contribution I could make to your deliberations would be to analyze the cost estimates that had been presented to this committee and to the House of Commons.

In addition, there was also interest expressed in determining the regional impacts of the proposed legislative amendments, if possible. A key aspect of the terms of reference was agreement among members to share the substantial work that had been completed to date and underpin the $180 million and $600 million cost estimates. By building on these earlier efforts, I ensured that I could avoid duplicating work already completed by others and respond to the committee's request in a more timely manner. With this in mind, my work focused on two key activities: reproducing each of the two estimates and determining their implicit assumptions; and, building a framework to assess if the assumptions' corresponding results appeared to be reasonable. I want to thank officials from Finance Canada and Statistics Canada, in particular, for their timely and patient help in preparation of my assessment.

Over the past seven weeks I have drawn on the expertise and experience of provincial governments, academics, and government executives to assess the reasonableness of the cost assessments presented to the committee. As I outlined in my note, the two cost estimates are based on different assumptions regarding the size of the regions that would be designated as eligible for the proposed tax credit and the propensity of new graduates to take up the new tax credit.

The lower estimate of $180 million is based on actual data from the Province of Quebec. The Quebec tax credit that has been available since 2006 is generally consistent with the proposal in Bill C-288. It is available in regions that comprise approximately 14% of the provincial population and has an actual take-up rate of roughly 7% of total graduates.

The higher estimate of $600 million is based on a model developed by Finance Canada. It assumes that the tax credit would be available in regions of the country that were originally designated under the Regional Development Incentives Act in 1974, including urban centres such as Winnipeg and Halifax, comprising closer to 28% of the national population. It also assumes a take-up rate that would be closer to 20% of annual graduates.

Relying on data from Statistics Canada, I have also prepared an objective assessment of costs using sub-provincial census and labour market data. This analysis generally corroborates the low and high-cost estimates for the proposed tax credit, depending on the size and the number of the regions, as well as the take-up rate among new graduates.

ln general, the data suggest that the larger the coverage of the designated regions, the greater the take-up rate among new graduates and the higher the cost of the tax credit. The bottom line is that both estimates appear reasonable given their respective assumptions. ln effect, I conclude that the question posed by the committee is not really a costing issue, but rather a policy issue that is best left to you for further deliberation.

As committee members are aware, the proposed legislation would use the statutory authority of the Regional Development Incentives Act to establish designated regions. While there are regions that were designated at the time the act was brought into force in 1974, these expired in the mid-1980s.

Given the sensitivity of the tax credit's estimated cost to the size and number of the designated regions, members may wish to further refine this proposal to determine how many regions should be designated, and are these regions intended to cover an eighth of the population, as in the $180 million estimate, or a third of the population, as in the $600 million estimate? Members should also consider whether designated areas should include urban areas. Finally, there is the issue of prescriptive selection criteria for designated regions, such as the unemployment rate or some other factor.

After this additional policy work is completed, I am certain that I could calculate a more precise estimate of the potential forgone revenues that would arise as a result of this tax credit.

Thank you for the opportunity to make an opening statement. I look forward to your questions.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Page, for your opening statement.

We'll start with members' questions, with Mr. McCallum, for seven minutes.

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

Thank you, Mr. Chair. I'll share my time with John McKay.

Thank you for being here.

I want to ask you a question. Unknown to you--because it just happened a little while ago--I announced that we would propose an amendment, and the Bloc members agreed, that the definition of “regions” would exclude metropolitan areas with population over either 150,000 or 200,000. So that would, I think, bring it closer to the Quebec situation, because if you exclude cities like Winnipeg, Regina, Saskatoon, Halifax, and no doubt many others, then you make the percentage of the population closer to the Quebec model, and you would bring the costs closer to the Quebec number, as compared with the federal finance number.

Certainly one could calculate the impact by looking at which cities and towns would be involved. Perhaps you don't know that off the top of your head, but can you give some sense of how big an impact this might have if we excluded all cities with population in excess of 150,000?

[Kevin Page]

Sir, what we have done for today's presentation--we assumed that we might get a question like that--is extend the rural assumptions to all provinces. In this case, you would be reducing the total of steady-state mature costs, by our own estimate, by about 43%. So you would get down to a number in the range of $350 million to $370 million a year. So from $600 million--or in our full costing of the finance department estimate it would be probably closer to $650 million--you would reduce the cost by 43% if you just looked at the rural population, if you excluded the big cities. You'd get a number more in the neighbourhood of $350 million, $370 million.

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

So this is only—

[Sahir Khan, Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

I just want to add that this reduction is based on the Finance Canada model. We'd have to look at the eligible population under that scenario to then calculate whether the appropriate take-up rate and assumptions--

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

Presumably the take-up rate would go down too, so it would cost less than what you just said, if the definition of the region is narrower.

[Sahir Khan]

Yes, sir, but in this case, one of the things that we've noted is that the costing is quite sensitive to that definition, so a more precise definition would.... We'd be able to provide you—

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

Just as a point of information, when you say “limited to the rural population”, what's the definition of “rural”?

[Kevin Page]

I'll ask Jason.

[Jason Jacques, Financial Advisor, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

Actually, the figures Mr. Page was referring to are taken directly from the Finance Canada model. For those numbers, we used the definition used by Finance Canada, the rural ratio used by Finance Canada, where the proportion of the population between the ages of 30 and 44 with post-secondary education that is participating in the labour force of a province is compared to the rural proportion of the population.

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

But I'm just asking you what the definition of the word “rural” is.

[Jason Jacques]

We've tried to use a definition consistent with Finance Canada's. We actually used several other measures of rural, and whether it's a Statistics Canada definition or looking at other segments of labour force, for the most part, you come out to a similar number as that used by Finance Canada within their model.

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

You didn't really answer my question, but never mind.

I'll pass it on to John McKay.

[Kevin Page]

Mr. McCallum, I'll get back to you on the precise definition of “rural” used by the Department of Finance.

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

The conversation before you arrived had to do with whether this is a tax credit or a tax deduction or a refundable tax credit, and things of that nature. At the top of the bill it says that this is a tax credit, and then it amends a certain section of the Income Tax Act, which may or may not be the section that needs to be amended, and then in the guts of the bill it says it's a deduction, or that “there may be deducted an amount equal to”.

So I'm not quite sure what our working assumption in here is. Is it a tax credit? Is it a refundable tax credit? Or is it a deduction?

[Kevin Page]

We're assuming it's a non-refundable tax credit.

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

A non-refundable tax credit.

[Kevin Page]

I see here it is set at the 100% level, as opposed to the lower bracket.

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

So for your purposes, at least, we can eliminate the notion that it's a deduction or refundable tax credit.

[Kevin Page]

I think we could also add, Mr. McKay, that was the working assumption used by the member from Chicoutimi as well as the Department of Finance.