Finance Committee on Oct. 4th, 2010

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Tal, quickly, on the question of the tax reductions for Canada's most profitable corporations, I know, as you do, that a company that hasn't made a profit didn't pay any taxes and doesn't get any help from a tax reduction. Is that still, in your mind, in the next projected series of reductions of the corporate tax rate, a good or a bad idea?

[Benjamin Tal]

I think it's a good idea to keep taxes to the minimum if you can afford it. I think you have to offset it. As I said, the manufacturing sector in Canada will face major challenges over the next two to three years, not only from a strong Canadian dollar, but also from an American industry that is restructuring in a very significant way as we talk. We will wake up two years from now and see a manufacturing sector in the U.S. that we will not be able to compete with.

I think that if you can afford to cut taxes, yes, do it, but you must offset it by something else, be it a carbon tax or anything else, including a consumption tax. I'm not getting into the details now, but the direction is definitely to lower taxes, yes.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go now to Mr. Szabo for a five-minute round, please.

[Paul Szabo, Liberal, Mississauga South, ON]

There seems to be a consensus that one of the top priorities is to return to balanced budgets. As for how you get there, some of you have indicated some possibilities, such as the reintroduction of contingency reserves, probably prudent reserves, etc., as was done under a previous government. But to do that, especially on the contingency side, you have to find something to cut to provide that and still hold the same projected level of deficit. Do you still feel strongly that we should have contingency and prudence factors in there? Is that an element of getting our books balanced again?

[Glen Hodgson]

I'll start. As a first principle, yes. On how you do it, I couldn't agree more that it's difficult. Although we did see fairly rapid federal spending growth all through the 2000 decade and there has to be some scope for.... Essentially, we're at a point where government has to be rethought. It has to think about words like “productivity” and “efficiency” and “service delivery”. But I think that as a first principle, given how uncertain the world is out there--

[Paul Szabo, Liberal, Mississauga South, ON]

Okay. I just have five minutes. I'm sorry.

Anybody else? Are we about the same...?

Let's talk about the U.S. dollar. I heard not too long ago that there are possibilities that the dollar could actually hit not just parity, but maybe as much as $1.05 sometime in the next calendar year. Given the export scenario for Canada, with about 70% of our exports going to the U.S., obviously it's going to put significant pressure on our exports. How do you rebalance the economy between now and next year to take into account a premium on the Canadian dollar?

[Benjamin Tal]

The short answer is that you can't. That's why this economy will grow only by 1.9% to 2%. That's why the budget assumptions of last year were too optimistic. That's why this economy will slow down. In a short period of time, you cannot reverse the situation. Parity is going to be very, very significant to the manufacturing sector. We are already losing ground in the U.S., and that will continue.

[Paul Szabo, Liberal, Mississauga South, ON]

Exactly. Now let's follow that through.

Others can jump in on this. This is my last question anyway.

Who is responsible for the pressure to move the Canadian dollar to parity and greater? Who is driving this?

[Carlos Leitao]

The short answer is the market, but that doesn't say anything. It says it all, but it doesn't say anything.

Currencies are the most difficult thing to predict, particularly in the short term. Flip a coin; I have no clue. The Canadian dollar could go to $1.05, and it could go to 92¢ U.S. We are perceived as being part of the dollar bloc, so we tend to move along with the U.S. dollar. We've seen some very strange movements in currencies over the past six months at least.

As far as who is responsible, I throw my hands up. In fact, one of the biggest risks we now face is that there appears to be a bit of a currency war developing. We've seen the Japanese try to bring down their currency. We see the Chinese trying to resist bringing up their currency. We see the Americans not being too displeased with a lower currency. The Europeans don't know what they want with their currency. So the risk here is that we'll engage in comparative devaluations.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay.

I have one last one.

Does everyone agree that we must have a shift away from income taxes to consumption taxes, and do you recommend to the Government of Canada that we increase the GST/HST?

[Carlos Leitao]

Yes.

[François Dupuis]

I am going to say yes as well and I am also going to answer the other question on currency.

When I made my presentation at the beginning, I said that the growing volatility of currency was a significant risk. So, the American dollar is showing a long-term downward trend and the Canadian dollar is on the rise and will continue to show a long-term upward trend. All factors are presently working in favour of a strong Canadian dollar and they will continue to do so.

Everything must be done to try to help our businesses as much as possible, especially export businesses.

[The Chair, Conservative, James Rajotte]

Merci.

We'll get Mr. Tal and Mr. Hodgson on this very brief question about consumption taxes versus income taxes.

[Glen Hodgson]

We're on the record as saying that you tax the most what you value the least. I would go with consumption taxes and carbon taxes.

[The Chair, Conservative, James Rajotte]

Okay.

[Benjamin Tal]

I agree.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

We'll go now to Mr. Carrier, s'il vous plaît.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you.

Good afternoon, gentlemen. It is a pleasure to meet leading authorities in economics such as yourselves. By the way, I always appreciate a reference text with presentations. Then we at least have a written document after a presentation.

Earlier, I understood the fact that we are not living on an island: we depend on foreign markets, especially the one in the United States. I would like to explore a topic that my colleagues did not. That is housing. I believe Mr. Dupuis or Mr. Leitao mentioned it. The concern was the slowing of housing construction in the United States, which certainly affects us too. Here, it continued at relatively stable levels, but I am under the impression that the growth is currently losing speed. That is what I have read, anyway.

Since these are pre-budget consultations, dealing with the economic choices that the government has to make, I was wondering if it was doing enough for housing. I am specifically thinking about the Canada Mortgage and Housing Corporation that is accumulating billions of dollars at the moment. Could those billions be better used for non-profit community-owned and affordable housing that the country is surely in sore need of? Is this not a category, a kind of government investment that produces most economic spinoffs, compared with huge purchases of military aircraft manufactured abroad, say in the United States? In terms of job creation, would it not be more effective by comparison to invest more heavily in affordable housing for the country?

Perhaps I will start with Mr. Dupuis.

[François Dupuis]

That is a very good question. Of course, it has a lot to do with the government's choices and the current economic situation. In Canada, the poverty rate is still high. Particularly after the recession, we are seeing that food banks are empty and many people are still in need. Different provinces are under a lot of pressure to increase the number of housing units for people who are disadvantaged or in need. I am not sure whether the CMHC should intervene or whether the government should just increase the funding in its budget. I know some provinces have done that recently.

I, myself, am very aware of the arguments that may not be directly related to the economy, such as the environment or poverty. I support increasing the number of housing units for disadvantaged people.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Housing construction is a good economic stimulant, is it not?

[François Dupuis]

Yes, it is. But the residential housing market is not hurting right now. On the contrary, the market has experienced a boom in the past few years; there was a slight slowdown during the recession. Prices are higher now than they were before the recession. Yes, we have seen a bit of a slowdown in recent weeks, but that was on the heels of a very strong demand after the recession, because of the pent-up demand from people who wanted to buy during the recession. And a lot of people wanted to buy before interest rates went up.

We are seeing a healthy trend in the market, and I do not think more stimulus is needed right now.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Mr....

[Carlos Leitao]

I agree with François. Overall, the housing market is a bit overheated. I do not think more stimulus is needed.

You brought up social housing. If the government pursues that, it should be because there is a need for it and because it would help society, not necessarily to stimulate the economy. That decision should be made because it would be helpful and desirable from a social standpoint. So, yes, I am in favour of it in that sense, but not to stimulate the economy.

[The Chair, Conservative, James Rajotte]

You have 30 seconds left.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I would like you to explain the following point, because we are here to decide on which investments the government should make. Let us compare an investment by the government in weaponry that is acquired abroad versus an investment in a massive program to build affordable housing.

Do you not think the government should favour one program over the other?