Evidence of meeting #31 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was debt.
A recording is available from Parliament.
Vice-President , Economic Studies, Mouvement des caisses Desjardins
I think the government's plan was very sensible. We have made a lot of progress, I think, thanks to the strong recovery after the recession. If we stay on course, I think Canada will return to a balanced situation as planned, perhaps even a year early.
But, as has often been said today, there are a lot of risks out there. So we need to be very careful as far as the next few budgets go.
Conservative
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Thank you, Mr. Chair.
I want to repeat to my colleague across the way that we are able to walk and chew gum at the same time; we can build social housing and buy airplanes. What's more, those planes will be based in your riding. So it is even harder to believe that you are not interested in having them.
That said, you talked about a variety of things, including export companies. I looked at it in terms of the potential fiscal stimulus. I would like to hear your opinion on that, Mr. Dupuis. You mentioned export companies a number of times during your remarks.
Vice-President , Economic Studies, Mouvement des caisses Desjardins
When you look at Canada's economic performance for the past 10 years, you see that the economy has done relatively well overall, thanks, in part, to a cleanup of public finances. We had more freedom. The domestic economy grew much stronger.
But the export sector is really hurting. The high Canadian dollar has a lot to do with it. In a number of continents, companies have had a hard time staying competitive. Some companies shut down, with certain problems in specific industries. That is where the challenge lies. For some provinces, such as Quebec, the challenge is huge. It has seen a rather significant drop in exports.
We need to find a way to make our companies more competitive. In any case, we cannot really go against the trend of a rising or steadily strong Canadian dollar. It is often said that being competitive is the result of improving productivity, investing in technology and equipment.
I feel as though I have been beating the same drum for a while now, but that is the message we need to send companies. That is the sector that is lagging behind in Canada right now, there is no doubt.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Right now, the government is being accused of cutting corporate taxes. I would like to hear your thoughts on the implementation of the recovery plan and the continuation of what has already been done to stimulate the economy.
Senior Vice-President and Chief Economist, Conference Board of Canada
As I mentioned earlier, we did research about three years ago pointing to ongoing tax reform as important for the competitiveness of our economy. So the reductions in corporate income tax from you are an important piece of that in adapting to a world where the dollar is going to be more or less at par going forward.
But as I mentioned very briefly before, I'm a bit troubled by one small thing in corporate income tax--the step from the small-business tax rate up to the full corporate rate. I frankly think it's a barrier to growth for small companies. If you're going to be taxed at 5% and suddenly you're at 12%, or whatever the rate is today, that can inhibit overall economic growth in our economy. So I'd like to see a step increase, but as a first principle, shifting the burden of taxation away from earnings and investment towards consumption and carbon would be the right route for me.
Conservative
Deputy Chief Economist, CIBC World Markets
I agree. As I mentioned, it's not only the dollar but other challenges that will make the life of SMEs in Canada very difficult over the next two to three years. We've already lost ground. During this recovery, most of the job gains were actually in large corporations, not small businesses. I think the dollar is part of it, and the reduced propensity to export among SMEs is definitely negative. If we believe that the future is global, SMEs must be outside of Canada and increase their export orientations. Cutting taxes might help doing so, given the very strong dollar.
Conservative
Chief Strategist and Chief Economist, Laurentian Bank of Canada
I would add to my colleague's opinion that we need to diversify our export markets. Canada has always been accustomed to exporting to the United States. Our SMEs are quite adept at it, but we need to seek out other markets: Asia, Europe and so forth. In that kind of environment, the state has a role to play through its agencies, whether it be the EDC, the BDC or some other organization, in encouraging Canada's SMEs to export outside North America.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
So you look favourably on all the trade agreements we are trying to set up right now with various countries, especially in terms of Europe, which we are studying as we speak?
Chief Strategist and Chief Economist, Laurentian Bank of Canada
Of course, I am a strong supporter of free trade. It is always a bit of a struggle for economists to sell people on the benefits of free trade. For us, it is practically intuitive. But I do understand that there are political issues involved. In my view, we need to stay on that path.
Conservative
The Chair Conservative James Rajotte
Okay.
Monsieur Dupuis? No?
Okay. We'll go now to Mr. Brison, please.
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you.
I want to ask a question on tax policy and fiscal policy around deficit reduction. During a time of high deficit, if you had a choice between putting the country back in surplus faster or cutting corporate taxes further, how would you respond to that? I mean, on cutting corporate taxes during times of surplus I think that, with some exceptions to my left, perhaps, most people would agree that a competitive corporate tax rate is a good thing. But the difference between cutting corporate taxes during a surplus and cutting corporate taxes with borrowed money—it's a very different question. So I would appreciate your views: given that any further corporate tax cuts in the short term are going to be on borrowed money, would it not make more sense to cut the deficit further and put us back into the black faster?
Senior Vice-President and Chief Economist, Conference Board of Canada
That's a very tough call, because there are different forces at work, of course. The tax rate becomes an issue of really firm competitiveness. How do firms adapt to a dollar at par? I'm looking for ways to take pressure off them, but I'm also enough of a fiscal hawk—I mean, I spent ten years of my life inside the Department of Finance, and I certainly believe in balanced budgets. So it's sort of Hobson's choice, frankly, for me, or maybe Hodgson's choice: I want both.
Liberal
Scott Brison Liberal Kings—Hants, NS
You are at a great place. Those economists, those two hands....
Senior Vice-President and Chief Economist, Conference Board of Canada
That's why I have them both working.
Liberal
Scott Brison Liberal Kings—Hants, NS
You were mentioning, Mr. Hodgson, that you would prefer a shift towards a carbon tax. I don't know where you were the last federal election, but in any case that's another question.
You were saying that you would support a shift towards a consumption tax. So I'd appreciate your views on a policy to cut consumption tax on high-carbon fuels.
Senior Vice-President and Chief Economist, Conference Board of Canada
Most well-trained economists believe that you have to get the price right on the benefits and what are called “negative externalities of activity”. So as the first principle we should be trying to get the prices right. For me that means actually taxing greenhouse gases.
Frankly, governments that intervene in the price system are inviting trouble down the road. The longer you freeze tax or prices and lock in prices, you are going to have challenges at some point when you have to unfreeze that, and probably face as big a challenge at the end point as you are going in.
Chief Strategist and Chief Economist, Laurentian Bank of Canada
I was just going to say that from a very practical point of view, if you see what went on in British Columbia, I think B.C. was one of the first jurisdictions in North America to actually put in place a fairly intelligent carbon tax some years ago. The backlash against that was huge. So I don't know if the public is receptive.
I've been saying yes, raise consumption taxes, but I appreciate the practical problem of that. The Canadian public is perhaps not prepared. Nothing rallies people more than to see the price of gasoline go up. Everybody goes nuts. We all know that it should go much higher than where it is now.
So there is a very practical, real-life problem of how politicians and political systems address that. But generally speaking, yes, I think we should be taxing carbon, we should be taxing consumption, and lowering corporate income tax rates.
Liberal
Scott Brison Liberal Kings—Hants, NS
Just on the issue, Mr. Hodgson has an interest, I think, on the environmental side as well as the economic side. I'd appreciate your views on cutting consumption taxes on high-carbon energy from an environmental perspective.
Senior Vice-President and Chief Economist, Conference Board of Canada
Cutting taxes on high-carbon energy is heading in the wrong direction. Our economy is going to be more competitive over the long term if we get all the prices right so that investors and consumers both can make rational decisions based upon transparent right prices. That's the right thing to do.