Finance Committee on Feb. 23rd, 2009

[The Chair, Conservative, James Rajotte]

I call to order the seventh meeting of the Standing Committee on Finance.

Pursuant to the order of reference of Wednesday, December 2, we are discussing Bill C-10, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures. As a committee, we are very pleased to have before us the Honourable Jim Flaherty, Minister of Finance. We have the minister with us today from 3:30 to 4:30, as part of the discussion surrounding the budget implementation act.

Minister, welcome to the committee.

You have an opening statement of about 10 minutes, I understand. Then we will go to questions from members. You may begin at any time.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Mr. Chairman.

My opening remarks should be about 10 minutes. I hope they're not more than that.

I will keep my remarks brief so that there will be enough time for questions.

First of all, I would like to thank the chair and the members of the committee for recognizing the seriousness of the recession that is presently gripping every country's economy at the same time.

I am confident that all members understand the importance of expediting the passage of the important measures in Bill C-10, the first budget 2009 implementation bill, to stimulate and protect our economy. As we all recognize, in order for these measures to be most effective, they must be implemented in a timely manner. That is why we need parliamentarians to pass this bill without delay.

Last year, I note, the first budget bill took approximately three months, or more than one hundred days, to receive royal assent. We do not have that kind of luxury this year.

We will be going through a very difficult year, a year in which we will see a slowing of the economy, both in Canada and around the world, a drop in exports and more and more job losses.

Mr. Chairman, to delay our economic action plan for partisan or abstract debates would be reckless. We owe it to those Canadians who will be hardest hit by this difficult period to rise above politics as usual and act as quickly as possible.

To those who would engage in lengthy debates about our economic action plan, I remind them now that during December and January we held the most comprehensive pre-budget consultations in history, which were open to all parliamentarians. We asked for input then, input that helped to shape our plan. That time has now passed. It is now time for Parliament to act. I am heartened that the majority of this committee has understood that and has understood why we must expedite this bill, led by their able chair, the member for Edmonton—Leduc.

As I mentioned, the recession is hitting every country in the world simultaneously. It did not start in Canada.

As the Governor of the Bank of Canada said to this committee earlier this month, “The reality is that the financial crisis and subsequent recession originated beyond our borders and the necessary triggers for a sustainable recovery must be found there as well.” We need to acknowledge that reality. As an open exporting country, our prosperity is tied to a healthy, open global economy.

A recovery in the global economy, especially in the United States, will be a strong prerequisite for sustained economic growth in Canada. That's why we are taking a leading role in international forums to help facilitate that. We have been especially prominent on the regulatory leadership file. Canada is co-chairing a G20 group, known as Working Group 1, that is developing a blueprint to enhance regulation of financial services and improved transparency to help avoid another global banking crisis. That group and the others will be preparing their work for the G20 leaders meeting in London on April 2.

Recently I attended a meeting of the G7 finance ministers in Rome. In my discussions, two things quickly became evident. First of all, Canada has become a model for the world to follow in combatting the current global economic crisis, both in how we have managed our finances and how we have kept our financial system strong.

In the words of President Obama last week, “...in the midst of this enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system in the economy in ways that we haven't always been here in the United States. And I think that's important for us to take note of.”

Second, like other countries, we must immediately take measures that will fulfill Canada's international commitment, meaning that we must implement the economic recovery plan as quickly as possible.

For Canada, the first stage of that process is to pass this bill and allow the government to put Canada's Economic Action Plan into effect quickly.

But our expectations must be realistic. The plan in itself will not be able to protect every job or to solve every problem in the global economy. As I said, the recession did not start in Canada. Concerted international efforts will be needed to stamp it out.

What our plan will do is take real action to protect those hardest hit by the current recession, while helping create and maintain jobs. Briefly, let me outline a few select measures from our economic action plan being legislated in Bill C-10, measures vital to stimulating Canada's economy, and measures that should be passed quickly.

First of all, Bill C-10 implements various tax relief measures outlined in the recent budget. This represents important tax relief that will help stimulate the economy and also remove 265,000 low-income Canadians from the tax rolls completely.

Among the tax measures are these: raising the age credit amount by $1,000 to help seniors; increasing the amount that can be withdrawn under the home buyers' plan to $25,000 to help first-time home buyers; an extension of the temporary mineral exploration tax credit; raising the threshold from $400,000 to $500,000 to allow more job-creating businesses to qualify for the reduced 11% small business tax rate; increasing the basic personal amount that all Canadians can earn before paying federal income taxes; and allowing Canadians to keep more of their money before being subject to higher tax rates by increasing the two lowest personal income tax brackets.

I note that the Canadian Taxpayers Federation heralded many of these moves as important broad-based measures that will allow individuals and families to make the decisions that are necessary for them during these uncertain times.

Bill C-10 also helps Canadians hardest hit by the recession by extending all regular EI benefit entitlements by five extra weeks, increasing the maximum benefit duration from 45 weeks to 50 weeks for two years.

I emphasize that this sorely needed assistance cannot be provided before Parliament allows the bill to receive royal assent.

Bill C-10 also takes action to help improve access to financing and strengthens our financial system. We all recognize the impact the current economic downturn is having on access to credit.

To combat the recession, our plan contains a number of measures designed to ease access to credit for Canadians and for Canadian businesses. Many of those measures are in set out in Bill C-10.

The bill also allows EDC and BDC to extend additional financing to Canadian businesses, which is vitally important.

In addition, it also increases the maximum amount for loans made by the Canada Small Business Financing Program.

These and several other measures explain why organizations like the Alliance des manufacturiers et exportateurs du Québec have praised the merits of our plan. They want it to be put into effect quickly. I quote:

Budget 2009... includes a number of positive measures designed to help our businesses in this time of crisis. It is imperative that these measures be put into effect as quickly as possible.

Bill C-10 also authorizes nearly $6 billion for initiatives ranging from infrastructure to community adjustment, housing, and health care. This includes nearly $4 billion in investments to pave roads, improve our universities and colleges, fix sewers, and repair bridges. These are investments that would have been required regardless, but they will help create jobs now by being brought forward. As the Federation of Canadian Municipalities recently stated:

“Quality infrastructure will help Canada compete for talent and investment in the global economy.”

With all orders of government working around the same table, with the same goal, [budget 2009] will create tens of thousands of jobs, boost our flagging economy, and deliver value to Canadians for generations to come.

Our plan also includes over $1 billion in investments for social and low-income housing, seniors' housing, housing for persons with disabilities, and first nations' housing.

These represent only a few highlights of the vital measures included in Bill C-10.

Also included are initiatives to help transition toward a Canadian securities regulator with willing provinces and territories, to modernize the Investment Canada Act to encourage new investments and the jobs that new investments will produce, to protect consumers from anti-competitive and unscrupulous business practices by adding new provisions to the Competition Act, and more.

Colleagues, I can see that at 524 pages, this is a detailed and lengthy bill. We could, as parliamentarians, spend months engaging in debate, some of it abstract or philosophical, and sometimes partisan, I'm sure, about the measures within this large bill, but as I mentioned earlier, we do not have that luxury. The consequences of delay for Canadians are too high. Bill C-10 contains the right measures that we need to implement right now in order to help Canadian families now and to help our overall economy weather the current economic storm.

We must pass this bill as soon as we can.

At this point, I invite the committee to ask questions.

Thank you for the courtesy of permitting me to deliver that opening statement, Chairman. I look forward to the questions of the members of the committee.

[The Chair, Conservative, James Rajotte]

Thank you, Minister, for your opening statement.

We'll go immediately to questions.

Mr. McCallum, you have seven minutes.

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

Thank you, Mr. Chair.

Thank you for coming today, Minister.

As you may have heard, we got a little flak from some of our opposition colleagues by saying that we would work to get this bill through at lightning speed by parliamentary standards. I agree with you that we are faced with a crisis and that urgency is crucial. But I have three questions, and if I may, I'd put my three questions all at once, which in part underlines the urgency.

First, you mentioned EDC and BDC. As I understand it, there's something on the order of $8 billion committed in the budget. Given that the credit situation is getting more and more serious, according to reports, and given the disturbing news that I have heard from representatives of the business community that BDC does not share my sense of urgency and it may take some months before they even decide how to proceed, I would like you to be able to commit to Canadians that BDC and EDC will act with urgency.

I don't know the exact commitment that can be made, but if the number is $8 billion, is it reasonable that all of that $8 billion get out the door within twelve months? We would like to have some indication of your degree of urgency on this, especially in light of indications of a less than urgent attitude on the part of some of those institutions.

To my second question, yes, we want to get everything in this budget that has to do with stimulating the economy through as fast as possible. There are many items in the bill that have nothing to do with stimulating the economy and may be contentious. Will the government entertain any amendments that are not to do with getting money out the door, or do you consider every word and item in the bill to be set in stone and a matter of confidence?

My third and final question is what I tried to raise in question period, which had to do with the tradition since Confederation that the government goes to Parliament with a borrowing authority bill when it seeks to borrow money to finance a deficit. For the first time in Confederation, it appears that this is not the government's intention, which, I would contend, trivializes the enormous debt that is being placed on our children and grandchildren. Will the government seek authority from Parliament to borrow, as has been the tradition since Confederation, or will the government simply do this by order in council?

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

Mr. Minister.

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

If I can try to respond to the first issue about EDC and BDC, I can assure my colleagues around this table that I have met with the CEO of EDC, as have my officials. He and his senior people certainly understand the urgency of the situation. The idea is not to create a lending power for 2010, 2011, or 2012; it's for now. We know that the number one issue is access to credit, not only here but among our trading partners. I'm also following up with BDC in the same way, through my colleague, the Minister of Industry, since, as you know, BDC reports to Industry, but I'm also going to deal directly with the CEO of BDC. So the degree of urgency is understood. I can add that the degree of urgency is understood throughout the government. This is an extraordinary time. This is not a time for business as usual. We--and I--have been making that clear throughout the departments of government, particularly those departments that are primarily charged with delivery of the items that are in the budget, including infrastructure.

With respect to the budget bill and it being a matter of confidence, yes, it is a matter of confidence. With respect to the authority to borrow, I think if I'm on the same wavelength as the member from Markham—Unionville on this, this is from budget plan 2007, where we brought in the borrowing authority, the standing authority to refinance market debt and specific authority under the FAA for the Minister of Finance and the filing and accountability requirements. If we're not on the same page on that, please let me know and I'll look into it further.

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

I'd like to come back on two of these areas.

On BDC and EDC, I hope you're right. I've heard otherwise in terms of sense of urgency. My question was really specific. I don't suggest you do this at this moment, but can you come back at some point and say that if the total borrowing is for $8 billion, we can expect to see X within six months and Y within twelve months? It's much in the same spirit as we want to get the infrastructure money out the door.

The second point I come back on is your last one. The measure you referred to, I understood, was to allow the government to borrow on behalf of crown corporations. It seems to be about to be used as a sort of backdoor mechanism to avoid going back to Parliament to seek authority to get into deficit financing. I just think that if the government treats deficits seriously and honours the history since Confederation, then the government, notwithstanding its borrowing on behalf of crown corporations, should seek parliamentary approval for the specific borrowing authority, especially when we're talking about a $34 billion deficit.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Minister, you have about 30 seconds.

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

I take your second point.

On the first point about EDC and BDC, of course I will be reporting to Parliament about the steps we're taking to increase access to credit. I take the member's point and I will seek to get the best information possible from EDC and BDC about their projections, bearing in mind that we are in significantly uncertain times.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McCallum.

We'll go to Monsieur Laforest.

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

Thank you, Mr. Chair.

Good afternoon, Mr. Minister, and thank you for being here at the Finance Committee. You quoted a group that came out in favour of the budget measures you have proposed to stimulate the economy. Well, since this morning, we have heard a number of groups tell us the opposite, and we are going to hear from others today. For example, the Québec Forest Industry Council completely disagrees with the $170 million that you are allocating across Canada while it has been asking for loan guarantees for a sector that has been in crisis since 2005.

How do you explain that the Government of Quebec, through Investissement Québec, can provide loan guarantees to Quebec forestry companies while you answer our questions on the subject by saying that the softwood lumber agreement does not allow it? How can one government do it while another cannot? A lot of people need that explained to them. Why is the federal government not providing adequate assistance to the forest industry in Quebec when it is going through a major crisis?

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

I thank the honourable member for his question.

We have ideas about that. I refer you to page 185.

In chapter 3 of this year's budget, there are four specific provisions with respect to forestry. They provide $80 million over two years for a transformative technologies program administered by FPInnovations; an additional $40 million provided to Natural Resources Canada to develop pilot-scale demonstration projects of new products; $40 million over two years to Natural Resources Canada for the Canada Wood, Value to Wood, and North America Wood First programs; and an additional $10 million to Natural Resources Canada to support large-scale demonstrations of Canadian-style use of wood. I'd remind the honourable member that we also provided $1 billion last year for communities such as forestry communities hard-hit by the recession.

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

Excuse me, Mr. Minister, but the amounts you are talking about are peanuts compared to the $2.7 billion in loan guarantees that the automobile industry in Ontario is getting. You have not answered my question: why is the federal government unable or unwilling to give loan guarantees to the Quebec forest industry? That is what the forest industry is asking for. Earlier today, people were saying, Mr. Chevrette principally, that businesses were going to close, that they would not be ready for the recovery that should be happening towards the end of 2009 or in 2010. Hundreds of municipalities in Quebec make their living from the forest industry alone. This is what they have to look forward to. You say that you are providing $40 billion, that you set up a fund of $1 billion last year and will do the same this year.

Last year, when you testified before the Standing Committee on Finance, I told you that you should have provided trusts and communities with assistance per job lost, as it should be, not by proportion of the population. Last year, Quebec received $2,000 per job lost while Alberta received $23,000 per job lost. This year, you are using the same calculation again, and that is of no help to the population of Quebec, Mr. Minister.

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

Forestry is not an industry confined to the province of Quebec in this country. New Brunswick has a substantial forestry industry, so does Ontario, so does British Columbia, and so do some of the other jurisdictions in Canada. The provisions that I've referred to in the budget apply to all of Canada and the forestry industry across our entire country, including Quebec. So did the $1 billion fund last year, I say to the honourable member, and to me, $1 billion is still a lot of money.

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

I would like to ask a question about the tax breaks being given to Hydro One, in Ontario, for its transmission and distribution operations.

How is it that Ontario gets tax breaks because Hydro One makes money from the transmission and distribution of electricity when we know very well that Hydro-Québec, which does not get the same tax breaks, gets two thirds of its revenue from transmission and distribution operations? That is an outrage, and I would like to know why you are ignoring the fact that Hydro-Québec does not just produce electricity, but also, mostly, in fact, transmits and distributes it.

[The Chair, Conservative, James Rajotte]

You have about one minute for the answer. Also, Minister, could we introduce your official?

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

This does raise a technical point that arises out of the fact that Ontario has now entered equalization.

If it's okay, Chair, I'd like Barb Anderson to reply.

[Barbara Anderson, Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

In the equalization program, we changed the treatment of hydroelectricity revenues just to ensure the consistency of how we treat those revenues across all the provinces. That is the change that was made.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

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

I am sorry, Mr. Chair, but that does not answer my question at all.

Why are Hydro-Québec and Hydro One treated differently?

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

I can try to respond to that. I have discussed this with Premier Charest as well, and I received a letter just in the last week from the Quebec Minister of Finance.

The OPG in Ontario performs certain services and certain functions, and Hydro-Québec performs certain services and functions. They're not all the same, they are not identical, and that is the foundation or reason for the different treatment.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Laforest.

Mr. Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair.

I am pleased to welcome the minister too. I am going to advise him, because time is always limited, that I will be raising two matters with him.

First of all, there are a number of things included in the Budget Implementation Act that have nothing to do with the budget. For example, pay equity is still there, and has been since November, even though he himself has said that it will not save the government a cent. Could he tell us what it is doing in a budget bill? The Supreme Court has already clearly said that, if such a thing were attempted, it would be rejected since it would not be in accordance with the Charter of Rights and Freedoms. Taking away basic rights would be contested. So, if the object is not to save money, why is it here? The Navigable Waters Protection Act is also in the budget. Can the minister give us one specific and concrete case, not an anecdote, where the Navigable Waters Protection Act prevented anything? Why is it in a budget bill?

Let us move on to the tax provisions for tax havens. Several years ago, Sheila Fraser said that it was a mistake. The minister has already said that it was a mistake, but he is now making it possible to run off to tax havens again.

Let us start with the first part of my question.

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

It's because they are issues dealing with compensation in the public sector.

Listen, we are in the midst of a very serious recession. Thousands of Canadians are going to lose their jobs. I hope you don't think it's reasonable, because I don't think it's reasonable, for public sector workers not to be cognizant of the fact that fellow Canadians in the private sector, thousands of them, are losing their jobs. What we're asking people in the public sector to do, including you and me, is to limit our pay increases to 1.5% over the course of the next few years.

On the pay equity side, we're saying let's have a system that works, that functions properly, that doesn't take 15 years to resolve a pay equity dispute, to learn from the provinces that have successfully dealt with this issue, to get pay equity to the labour negotiation table in collective bargaining, which is where it belongs. You know the way it's been played has been that it isn't dealt with at the table, and then it's taken off to some tribunal after that, causing incredible delay and disservice to the women and men of Canada—because not all the pay equity claims are one way. So that's why it's being done. It's good public policy, and it's important.

On the Navigable Waters Protection Act, when I met with the province and the territories, they were very concerned about the fact that infrastructure spending in this country—and we work in partnership with the provinces and the territories—is ineffective and delayed, at a time of serious recession and with people losing their jobs, because of duplications of environmental assessments. So we're sorting that out in cooperation with the provinces and the territories, getting away from a system right now, quite frankly, where the Northumberland Strait is treated the same as some little creek that's almost dried up. So we're getting more realistic, in cooperation with the provinces and the territories, to create jobs for Canadians. I think that's a good thing.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chairman, I'm going to simply say this. I asked about pay equity and I got an answer that included a reference to what was dismissively called “some tribunal”. These are rights. They can't be negotiated away. They can't be legislated away.

The other thing is that this government has had this ideological bent for a long time. This will be challenged in the courts because it's completely illegal, so any reference to saving time by creating this new thing is completely false. With regard to what was done in the provinces that have made this work, this government, in this legislation, is bringing in, with the culpable complicity of the Liberals, a new bar of 70%, whereas Quebec, Ontario, and New Brunswick, to give but those three examples, had set the bar at 60%. The federal government's general rule before was a 55% presence of women.

You have made it mathematically impossible for anybody to get pay equity, and it's a right, and you're going to lose. This is going to be defeated, but it will take that time. As for the dismissive reference to “some tribunal”, I think that shows a total lack of respect for our institutions.

But let's move on. The time is limited.

I would like to understand how the government reversed itself on the principle of not allowing companies to basically put money twice through tax havens. Sheila Fraser, the Auditor General, has come up against this. You've come back and you've reversed yourself on it. Hundreds of millions of dollars are involved. Those are not my figures, but Sheila Fraser's figures. Why is the government reversing itself on this? At a conference I attended in Paris in January, there was agreement on all sides, whether it was from President Sarkozy or Angela Merkel, who was also there, on this reference to the fact that money can transit so easily through these fiscal havens, these tax havens, and that it's one of the biggest problems we have to face.

This government seems to be rowing against the current on this one, and I'd simply like to understand why they're leaving hundreds of millions of dollars on the table.