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.