I'm simplifying it here.
Evidence of meeting #44 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was federal.
A recording is available from Parliament.
Evidence of meeting #44 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was federal.
A recording is available from Parliament.
4:55 p.m.
Parliamentary Budget Officer, Library of Parliament
Yes. It's important to do reconciliations. What is the difference between our numbers, for example, and what is different in the Department of Finance's numbers is important--to have a sense of what those projected income shares are for the economy. What does personal income look like at the Department of Finance in its five-year projections? What does its corporate income tax look like, etc.? Then we can reconcile our numbers. But our models are actually quite similar. What we lack is the grittiness, the level of detail, particularly on the program spending side. That's where we've been pushing.
4:55 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
In the last six months, where have you not got any information in particular?
4:55 p.m.
Parliamentary Budget Officer, Library of Parliament
I think there are two parts to the answer to that. One part is when we do our economic and fiscal projections. We've tried to get from the Department of Finance those income shares and they're--
4:55 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
That has nothing to do with policy or cabinet secrecy, correct?
4:55 p.m.
Parliamentary Budget Officer, Library of Parliament
No. As we've said on numerous occasions, we believe that has been shared with the private sector forecasters in the past when there was a different type of relationship in doing fiscal projections. More recently we've struggled with the issue. We've been working with the committee of operations and estimates on the program spending five-year outlook requirements.
5 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Those are all programs that have been announced.
5 p.m.
Parliamentary Budget Officer, Library of Parliament
Yes. Money has been approved through the budgets. There's always a question of in-year spending with the estimates. What we really want are those five-year approved reference levels for departments broken out.
On the other side of the question there are issues of policy costing. In our small shop we've done big policy costing on Afghanistan, aboriginal educational infrastructure, and the Truth in Sentencing Act.
5 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
We're going through our pre-budget consultations. Witnesses are coming forward who are able to cost our proposals. Finance seems to have a hard time costing certain proposals, so there seems to be an inconsistency there.
I understand your frustration in getting information. The committee has also tried in the past to get estimates from Finance before we propose a recommendation, and we get crazy estimates. We even get crazy estimates on some of the private members' bills we've come up with, as far as the variances.
In your third paragraph you say there are also structural problems, such as low productivity, aging demographics, and fiscal imbalances. Mr. Burleton was talking about household debt. Is that what you're talking about?
5 p.m.
Parliamentary Budget Officer, Library of Parliament
No. Mr. Burleton will probably want to add on the issue of household debt and how that might impair economic growth going forward. But we were referring to structural deficit. So when we look at the fiscal imbalances, like other countries we break out what is cyclical and what is structural. If you have a structural issue, that means you'll be running deficits even when the economy gets back to potential. We're saying it's not going to get back to potential until 2016.
5 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
So that would be part of your fiscal imbalance?
5 p.m.
Conservative
5 p.m.
Conservative
Lois Brown Conservative Newmarket—Aurora, ON
Thank you, Mr. Chair.
Thank you very much for your presentations today.
I'm a visitor to this committee, so thank you for allowing me to speak.
Contrary to other people on this committee, I am very interested in hearing from our economists.
Mr. Poschmann, my question goes first to you. But maybe our banks can also comment, because they are probably providing credit.
I was reading the public accounts books that were released the other day. Some people say I should get a life, but as a person who has studied economics, I have an interest in them.
What was notable to me in the first few pages was a pie chart showing that government receives 47% of its income from income tax and 13% from corporate income tax. We're talking about lowering corporate income tax to create more jobs in our economy--to create well-paying jobs in our economy. What impact will that have on income tax generation for the government? What will happen if we don't make those corporate tax cuts? Tim Hortons recently returned to Canada because of corporate tax reductions. What allure will this have for other companies to invest here?
5 p.m.
Vice-President, Research, C.D. Howe Institute
If I may, I'd like to take that question, Mr. Chairman.
Thank you for the question, Honourable Member.
I work for a non-partisan, non-profit public policy research shop, and accordingly we publish on a wide range of issues, sometimes publishing opposing views by scholars who write for us. Last week, for instance, we published a two-part report, one part of which said the Bank of Canada should publish its forecast of the interest rate, looking out a few years. The other part explained that the Bank of Canada should not publish its forecast interest rate, looking down a few years. There are valid views on both sides of that issue. There usually are on economic issues.
On the question of tax rates, though, the work published by the institute, including my own, has been pretty consistent, in that creating a low-tax environment—one that's favourable for investment, favourable for growth, favourable for attracting jobs—is necessarily going to produce a good outcome for Canadians of all incomes. That's what a low-rate tax system is all about: having the base as broad as you can have it, having it as simple as you can have it, and taxing different businesses across sectors in very similar ways.
Likewise, if you're looking at how one might treat personal income taxes, right now, because we income-test family benefits based on family income levels, families can face fairly high effective tax rates quite low on the income scale. In other words, they might have incomes that are between $40,000 and $70,000 a year as a family. If they have children, they're going to be losing their benefits over that range, and that can expose them to fairly high effective tax rates. Those are problems for households, and we think it's generally wrong that when families go out and earn an extra dollar of income, they're sharply penalized through loss of benefits for earning that income. That's a question of what's good for incomes, what's good for families, and likewise what's good for growth.
So we've been pretty consistent in saying that a low tax rate is something that's good for investment, good for businesses, and good for households.
5:05 p.m.
Conservative
5:05 p.m.
Deputy Chief Economist, TD Bank Financial Group
Certainly, we're supportive of creating a tax advantage in this country, I think. One of the challenges Canada has is it's a smaller market than the United States and a lot of other big countries around the world. To the extent that we can create an improved environment, it's certainly going to help deal with some of this productivity challenge down the road. Obviously, as economists, we've moved away from this notion that just getting the debt down and getting taxes down does everything. But the cost of investment is still a very important element.
With the moves in place, both federally and provincially over the next couple of years, we're going to do just that. Our marginal effective tax rates on investment will be about half that, on average, in the United States, and that's a pretty attractive lure, particularly with a high Canadian dollar. In our forecast, the Canadian dollar does go up higher, so that's going to be an added impediment.
Thank you.
5:05 p.m.
Conservative
5:05 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chair.
Mr. Page, just to continue with what you were saying with your fiscal imbalances, I think you were answering a question and you said there's risk associated with some of these items, or they're cyclical and structural.
5:05 p.m.
Parliamentary Budget Officer, Library of Parliament
They're structural in nature. As members of the panel talked about here today, Canada's productivity performance has been very weak in the past 10 years: multi-factor productivity, negative; labour productivity, very weak growth in the past 10 years on an annual basis. We mentioned in that list as well aging demographics; it's structural in nature. The working-age population right now is growing at a little over 1% per year, and over the next 15 years it'll drop to less than half. That's going to have a huge impact on labour input in this country and potential output on revenues, even on spending pressures, as we get older.
Then there's the issue, sir, of fiscal imbalance. We say we have a small structural deficit in this country right now, about 1% declining to half a percentage point over the next five years. It's small in the sense of what we experienced in the late 1990s, early 1980s, which was upwards of five or six percentage points in terms of structural deficit; small compared to what other countries are experiencing right now. But structural deficit, as you look long term, will actually grow due to aging demographics.
5:05 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
How do we factor that into the government numbers? Is that based on revenue coming down, or is there some type of contingency required in our expenses?
5:05 p.m.
Parliamentary Budget Officer, Library of Parliament
When you look at the fiscal balance track, whether you look at the PBO numbers or the government's numbers, you could take the balance track in our case, sir--you were talking about a $40 billion deficit estimate for 2010-11 falling to $11 billion in 2015-16. We can break out what we think is deemed to be cyclical and what is deemed to be structural. What we're saying, roughly, is we're in the neighbourhood right now--
5:05 p.m.
Parliamentary Budget Officer, Library of Parliament
We do the analysis, sir, and we know the Department of Finance analyses because we all worked for many years at the Department of Finance.
