Finance Committee on Nov. 3rd, 2010

[Thomas Mulcair, NDP, Outremont, QC]

Okay, I'm going to stop you right there. Thank you. If we're listening to your opinion and not the Bank of Nova Scotia's, I'm going straight to Mr. Page.

It's the same thing with Mr. Poschmann. I'm not here to listen to people's personal opinions; I'm here to listen to an institution. If you're not here representing your institution, thank you for your time.

Mr. Page, you have already said that the situation we are facing right now is a result of choices made. In previous reports, you said that the government was making choices that would lead to that outcome. You spoke for instance of corporate tax reductions which by definition only benefit the more profitable companies, since a forestry or manufacturing company that was struggling and not turning a profit obviously would not be paying income tax and so could not benefit from a tax reduction.

I would like to hear your point of view on the program expenditures mentioned here in the presentations of some of your colleagues who say that they expect program expenditures to be set at a certain level. Will the government's choice to maintain or not maintain program expenditures have a determining effect on the economy? If so, how do you assess the risks involved?

As far as we are concerned, we think it very likely that the Conservatives, faced with a deficit they have themselves created, will say that the solution is to cut program expenditures radically.

And so, I would like to hear your analysis of the possible results of such a choice, and I would like you to tell us if you think that is a priority for them, since it is our turn to make a forecast.

[Kevin Page]

The government did make some choices. It decided to spend on certain programs, just as, for instance, it decided to amend the Criminal Code. Program expenditures are affected by government decisions. These are not decisions, in my opinion, that the Office of the Parliamentary Budget Officer can really examine.

It is important for our office to examine expenditure levels and to see whether they are reasonable, and if there is a risk—the government in fact referred to this—that operational expenditures may be frozen in order to achieve savings. That is not really a matter of choice, to our mind. On the basis of the government's choices, we analyze the figures and the rest is not really our affair.

[Thomas Mulcair, NDP, Outremont, QC]

Of course. We have always respected that and I think that you have always shown caution. You do not hazard into the minefield of commenting on political choices, that is certain. You assess for us the probable results of the choices you witness.

Another term that has been used here today is “priority”. So if the priority remains unchanged, certain results are probable. But if the priority becomes to react to an apprehended crisis that they themselves have created...

When you grant $60 billion in total tax reductions to the biggest corporations, and empty the coffers of employment insurance, which then are empty in periods of high unemployment, those are choices. That money was put there by all businesses, both those who were losing money and those who were making some. But since the priority seems to be to provide assistance to the big corporations, the most profitable ones, it is very likely—and it is our job as politicians to point this out—that the choice will be an across-the-board reduction of program expenditures, just as they granted “wall to wall” tax reductions to the most profitable companies without making job creation a priority, nor productivity. It is predictable that we are going to see “wall to wall” cuts. They don't want to know, managing this doesn't interest them.

And so I would like to know what you think, without inviting you to comment on these choices; what is the probable consequence of “wall to wall” cuts in program expenditures? The government is going to try to present this as something positive: we are reducing expenditures. But what are the possible negative impacts of such a choice on society, in your opinion?

[Kevin Page]

Our office has the opportunity to examine fiscal risk issues, as well as risks relating to services provided to the population. However, we need certain pieces of information to calculate these levels of risk. As I said, we don't have the necessary information to examine fiscal risk issues, the level of risk to services and the consequences for Canadians.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chairman, I am going to conclude by thanking Mr. Page again for his balanced analysis, which always helps us tremendously.

Like my colleague Mr. Paillé, I am very sorry to hear once again that Mr. Page does not have all the information he needs, as he represents an institution that was of course created to assist parliamentarians but also, through us, to benefit the Canadian public. The fact that his work is always limited by the refusal to provide him with information he is entitled to have prevents us from doing our work, but more crucially, prevents the population from having access to essential information.

I thank you once again, Mr. Page, you are an extraordinary public servant.

[The Chair, Conservative, James Rajotte]

It's been raised by a couple of colleagues, and I just want to clarify for colleagues the exact motion that was unanimously agreed to.

On the motion of Massimo Pacetti, it was agreed:

That the Committee invite Kevin Page, Parliamentary Budget Officer, and private sector economists to appear before the committee on Wednesday, November 3, 2010, for 2 hours to discuss the government's most recent economic update / fiscal projections and any other item related to the government's fiscal framework or their own revenue and expenditure projections.

I think we should always endeavour to treat all of our guests and colleagues with respect. I would say that the chair did invite people to be here today. The clerk obviously contacted people, and I don't think we had any suggestions from members as to private sector economists.

But in the future, if the committee wishes to have Mr. Page separately, please indicate that to the chair and that is exactly what the chair will do. Then the chair will have a panel with Mr. Page and a panel with the private sector economists.

I was simply, as the chair, fulfilling the wish of the motion as introduced by Mr. Pacetti and agreed to by this committee. I'd just like to point that out to members.

Mr. Mulcair, on a point of order.

[Thomas Mulcair, NDP, Outremont, QC]

I want to make it clear, Mr. Chair, that we have no trouble listening to people who come representing institutions and giving us the view of those institutions. There's a big difference for us, however, if I'm going to be talking to someone as a private individual or someone representing an institution.

When you present them to us as representing an institution and then the first thing we're told is they are representing no institution, and we're given their names...I just prefer to stick with the person who is here representing an institution, and that's Mr. Page.

No lack of respect meant and none intended. If there was any, my profoundest apologies to you, Mr. Chair, and to the committee.

[The Chair, Conservative, James Rajotte]

Thank you for raising that. I appreciate that.

But my understanding is, and I can be corrected, Ms. Webb does represent Scotiabank Group and my understanding is Mr. Burleton does represent TD Bank Financial Group.

Am I correct in that assumption?

[Thomas Mulcair, NDP, Outremont, QC]

She said just the opposite when I asked her a question. She said she was speaking privately and her views don't represent those of Scotiabank.

[The Chair, Conservative, James Rajotte]

Ms. Webb, can you just clarify for us?

[Mary Webb]

I spoke out of turn, I suppose.

When I made the comment about the 95¢ dollar, I was making reference to the fact that initially back 15 years ago, when we were talking about a dollar going to 90¢ or 92¢, there were studies that indicated that things like our motor vehicle parts could not cope with a dollar that was much over 85¢ to 86¢, and that 88¢ would be impossible. There's absolutely no question that our manufacturing sector has been hard hit and the dollar has hurt them. But it has found efficiencies and marketing niches that allow it to do that.

It's something that I've written about, and the restructuring of Ontario. So it has been my research. You are right, I do that research for Scotiabank. I probably shouldn't have replied as abruptly as I did that it was my research, but it was. But I do represent Scotiabank.

[The Chair, Conservative, James Rajotte]

Thank you. Thank you all.

We will now go to Mr. Szabo.

[Paul Szabo, Liberal, Mississauga South, ON]

Thank you.

Mr. Page, you made some commentary on the status of the economic stimulus plan and suggested that there was a risk that a large percentage of these may not be completed by March 2011.

Do you have an update on your opinion with regard to that? Can you give us an idea of the impacts, in the worst possible case, in terms of employment numbers as well as GDP?

[Kevin Page]

Maybe I'll start and then ask Mr. Sahir Khan to add to my comments.

As I've noted, we will be releasing in a few weeks a study that looks at the stimulus overall from the macro-economic impact. It will also include our survey of municipalities that have received money as a result of the infrastructure stimulus fund program. It will look at output jobs and the effectiveness of program delivery. That study should be available to parliamentarians in a few weeks' time.

We've also received data, which is now a little bit aged, from Infrastructure Canada with respect to the infrastructure stimulus fund program. This is progress report data as of June 30. So we will update our estimates, sir, in terms of the number of projects that may be at risk. But again, the data is quite old and we will be preparing a study.

I will ask Mr. Khan just to update you on where that work is at.

[Sahir Khan, Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

We're actually trying to get the report out. Usually, once we receive it from the department, we're able to produce it in about 10 days.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay, fair enough.

The recovery of jobs was disproportionately part-time from what we've reported so far. Does that give you any indication, or do you use that, to make some sort of an assessment of the strength of the recovery on the corporate sector?

[Kevin Page]

Both the corporate sector and overall.... In the announcements we have in our chart today, it talks about the total economy and it talks about total hours, average weekly hours. We have some charts that show where we're at vis-à-vis the peak in the fall of 2008 and where we would be relative to the trend.

Basically, when you look at hours, you get a sense that we're well below trend. We're well below that peak. We're still a good two percentage points below in terms of total hours. That means the labour input that's going in to maintain a strong economy right now is still relatively weak. What's behind that as well is that it supports our analysis to say that when we look at the private sector forecast, and we look at our estimates of potential output, we're talking about an output gap of probably, right now, even today, as of the second quarter, 2.9%, almost 3%, below potential, not closing until 2016. So when members here are thinking about what should be the appropriate policy actions in the budget, they should be thinking about an economy that's operating well below capacity now, closing very gradually.

[Paul Szabo, Liberal, Mississauga South, ON]

Our economy is inextricably linked to the United States and everybody says there are very serious problems. What is going to happen? If we have a stronger dollar, at parity and maybe beyond parity, mostly resource-driven because of the resource part of the economy, at what point in time, over what period of time, will that begin to impact the manufacturing sector that is suffering from a higher dollar?

[Kevin Page]

Maybe this picks up on the point that Mr. Mulcair was making. We've seen, even in recent years, what an impact a high dollar can have on the manufacturing sector's output and net exports from the point of view of growth. It almost happens on a simultaneous basis, where you can see that movement in the U.S. economy has an impact almost simultaneously in the Canadian economy. So as we see the weakness, it's felt fairly quickly. When we saw the start of the strong appreciation of the Canadian dollar in 2007, we saw a significant weakness in our manufacturing sector.

[Paul Szabo, Liberal, Mississauga South, ON]

Okay. To be very brief, looking out to 2015, everybody says things can change--volatility--but in the next fiscal year everybody agrees it will be a lower GDP growth, from the government's economic update.

The minister said in question period today that the plan is in the economic update. Do you understand what the government's plan is, to get their numbers, and why the GDP growth rates are so much lower in your estimates?

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Kevin Page]

I don't know if the government has a plan actually to target a growth rate for the Canadian economy. You're right, I think the average private sector forecast shows growth of 3% this year in real GDP terms, falling to 2.5% next year. I think they have a plan, so to speak, in terms of reducing the deficit. I don't know if they have a plan to ensure that we hit a growth target next year precisely of something like 2.5%.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Carrier, you have the floor.

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

Thank you.

Good afternoon, ladies and gentlemen. I'm going to be addressing my questions to Mr. Page, whom I am happy to see here again.

You are the reliable financial conscience of the government. And so it is important for us to hear your comments and to be able to obtain answers to our questions.

What interests me—my colleague raised this matter a little earlier— is that your next report take into account not only the viewpoint of the federal government, but also that of all the provincial governments.

Personally, I think that that is a good way to try to clarify some of the uncoordinated actions taken by the central government. Let us take for example the tax harmonization that has been granted to certain provinces but has not yet been settled for Quebec, although many think that that tax has been harmonized. I think that that is what Mr. Burleton was saying earlier. We see some individual dealings by a central government.

I'm thinking of revenue from Hydro-Québec that is not treated in the same way as revenue from Hydro One in Ontario. In Ontario, that income is not considered government revenue, contrary to the situation in Quebec. Consequently, that influences the equalization payment and the famous formula used to calculate it.

Will the approach you are proposing help to harmonize the government's actions? Would you be able to target particular approaches that are not recommendable and to suggest, rather, that there be federal policies that apply to the country as a whole?

[Kevin Page]

In our next report, which will be discussing the fiscal viability of federal and provincial governments, we are going to examine the tax structure of the federal government and we will be positing the hypothesis that provincial governments want to maintain that structure. We are doing calculations, we are taking into account the aging of the population and preparing hypotheses on the productivity of all of the provinces. We are calculating the tax gap for the federal government and doing other calculations for the provincial governments. We are attempting to determine whether it is possible to examine each province separately, for instance Quebec, Ontario, British Columbia, etc.

We will see what the situation is according to the results of our analysis. It is difficult to say for the moment whether that will really be possible. In my opinion, it is really important to perform such calculations, to ensure that all parliamentarians have the information and can conduct a proper debate on health and social transfer payments.