Finance Committee on Nov. 23rd, 2010

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Chair.

Very quickly, Mr. Minister, I know you were in Oakville yesterday talking to some Canadian families. Can you share with us what you're hearing. I know you've got a very elaborate process ongoing on your pre-budget consultations with Canadians. Did you hear, or are you hearing so far, if we're on the right track? What are they asking you to do?

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

Thank you for that leading question.

What I'm hearing is that we don't need any big new spending plans, that they appreciate the fact that our economic performance in Canada has certainly been better than that of our neighbour, the United States, and other industrialized countries. There is some concern about making sure the recovery keeps going, and the economic action plan is recognized as a useful plan to keep the economy going. There's a desire to get back to balanced budgets, and we will stay the course that we set out previously, including in the fall economic update, to get to a balanced budget by 2015-16.

I think one of the lessons of this economic crisis we've been going through is that people recognize the importance of sovereign states like Canada making sure we keep our fiscal house, our books, in order, so that when difficult times come we're able to take action and not get into very difficult situations, as some other countries have.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Menzies.

Minister, I want to thank you for appearing before us today, for responding to our questions. As you can tell, we are a committee still working towards a consensus on the securities regulation issue.

Thank you very much for being here. We appreciate it.

Colleagues, we will suspend for a couple of minutes.

[The Chair, Conservative, James Rajotte]

I call the meeting back to order. I do want to thank the officials from the Department of Finance and other departments for being here today to answer our questions.

We will proceed in the same order of questions.

My understanding is there are no opening statements from the officials today, so we will go in order of questions by party. Therefore, the Liberal Party has the first round, if it so wishes.

Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Initially, on Bill C-47, I would like you to explain. We're all very interested in the accelerated capital cost allowance on box-top sets of televisions, because I think that's an issue that's pivotal to our deliberations today. So please explain to the committee the accelerated capital cost allowance on these. We do have a global economic crisis, and the government is bringing forward visionary policies to address the issue that we're hearing about from constituents on an ongoing basis, and that is, accelerated capital cost allowance around box-top sets? What is that? I don't own a television. Explain to me the policy. It's very important that we understand it.

[Tim Wach, Director of Legislative Development, Tax Policy Branch, Department of Finance]

The box-top sets in question are the decoders that are used for satellite or cable television. It's actually not an accelerated capital cost allowance that is provided, but really one that reflects the economic life of the asset. The change that was proposed in the budget and that is included in Bill C-47 is simply intended to bring the CCA rate into line with the economic useful life of the underlying asset. It was a particular item that was identified by the department. We are constantly looking at the rates that are provided for tax depreciation to ensure that they accurately reflect the economics of the particular assets, and this is one that was identified and brought forward as part of the regular process.

[Scott Brison, Liberal, Kings—Hants, NS]

In terms of the amendments to the Bank Act, we're entering now, of course, a period of discussion around the Bank Act where we will be potentially amending the Bank Act further. Why would these amendments be part of this legislation as part of a more fulsome reform of the Bank Act, which occurs every five years and is coming up in the next, I believe, few months? The Bank Act is to be...by 2012, so why would this amendment to the Bank Act in this legislation not have waited until that round of reform?

[Diane Lafleur, General Director, Financial Sector Policy Branch, Department of Finance]

The amendments to the Bank Act in respect of dispute resolution mechanisms stem directly from an announcement that was made in Budget 2010, so it makes sense that it would be in a budget implementation act. You're correct that we recently launched, in September, the next five-year review of the financial institution statutes. The initial call for comments ended last Friday, if I'm not mistaken. That will take some time to actually come together into a legislative package that the committee will consider. In the meantime, this amendment, which relates, as I said, to a budget measure, was ready to go and is appropriately included in the Budget Implementation Act.

[Scott Brison, Liberal, Kings—Hants, NS]

When you're speaking about amendments to the Bank Act and other prudential regulatory changes, could you inform the committee as to the discussions within Finance Canada, the Bank of Canada, OSFI, CDIC, around the financial stability committee.

[Diane Lafleur]

The Department of Finance follows international developments very closely. As the Minister of Finance says, we already have in place in Canada a system that works very effectively. Adding to what the minister said earlier today, I would also mention that there is already what's called the “senior advisory committee” as well, which is composed of the same membership as the FISC but is chaired by the deputy minister of finance.

Its membership is not establishing legislation, so it does have some flexibility to invite other parties to the table should there be a need. You suggested that CMHC might contribute to the discussion, and indeed that is possible in the context of the senior advisory committee, which is a policy committee that advises the minister on such issues.

[Scott Brison, Liberal, Kings—Hants, NS]

The FISC has been established since the 1980s, I believe. That's Finance Canada, Bank of Canada, CDIC, and OSFI--

[Diane Lafleur]

And the Financial Consumer Agency of Canada.

[Scott Brison, Liberal, Kings—Hants, NS]

Other countries, the U.K., the U.S., and Australia, have set up a financial stability committee that would be similar to the FISC. The financial stability committees have included agencies such as CMHC. Were the agencies working together to set up the same type of permanent financial stability committee here in Canada?

[Diane Lafleur]

The agencies, as I said, follow very closely what's going on internationally. Of course, we look to see if there's anything that can be learned from the experiences. As the minister mentioned, our starting point was fundamentally different from that of the United States, the U.K., and a number of other countries.

We already had in place very well-established--as you say, going back to the late eighties--mechanisms for sharing information and coordinating actions. Our starting point simply was not the same as that of those countries. We were quite satisfied with how those structures functioned during the crisis. As we saw, the Canadian system came through the crisis quite well.

[Scott Brison, Liberal, Kings—Hants, NS]

So do you agree with the minister that there's no housing bubble in Canada, that the Economist Intelligence Unit and the Governor of the Bank of Canada are in fact misinformed that there is a housing bubble in Canada?

[Diane Lafleur]

My area of expertise is financial sector regulations, so I do not feel that I am in a position to comment on whether there is or is not a housing bubble in Canada. It would simply be beyond my area of expertise.

[Scott Brison, Liberal, Kings—Hants, NS]

Will you comment on where the directive came from to stop the discussions between Finance Canada, the Bank of Canada, OSFI, CDIC, and CMHC? Where did the direction come from to abort the discussion to form a financial stability committee?

[The Chair, Conservative, James Rajotte]

Just a brief response.

[Diane Lafleur]

I'm not aware of any such direction.

[The Chair, Conservative, James Rajotte]

You have the floor, Mr. Paillé.

[Daniel Paillé, Bloc, Hochelaga, QC]

Mr. Chair, we usually ask the minister about policy matters. Today, we have senior officials from the Department of Finance before us. I will not be asking them any questions. I would even suggest that, come time for the clause-by-clause study, we vote on the clauses in blocks. That is our only comment.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

I have three more members who wish to ask questions, including me. I want to ask about the Federal-Provincial Fiscal Arrangements Act. I'm asking because it is still an issue that I deal with in Alberta, particularly with the finance minister of Alberta, with respect to health transfers. I'm not sure if the person who can best respond to this is at the table. But it is still in contention. The finance minister of Alberta has written to me, to Mr. Menzies, and to the Minister of Finance with respect to the health care transfers. The argument is that Alberta is currently receiving less than it ought to under the health care transfers.

At present, it's a combination of cash and tax points, and you obviously know that. The health care accord runs until 2014. After the expiry of that accord, our government has committed to fund equal per capita cash transfers to all provinces. The argument by the Minister of Finance of Alberta is that the change in the equalization formula after the 2004 health care accord changed the framework. This in fact changed the amount that Ontario would have received as a cash portion for its health care transfer, but this was not done for the Province of Alberta.

They argue that there was a change made because Ontario became a have-not province under the equalization formula. As a result of this change, Ontario is getting more cash per person than Alberta. I've asked this question before and I've gotten responses saying that this is not the case. But the provincial government is still pushing this fairly aggressively. I think it's my responsibility as an Alberta MP to provide as detailed a response as I can to this concern.

[Tom McGirr, Chief, Equalization and Policy Development, Department of Finance]

The answer to this question is a bit complex. You're getting into the nuts and bolts of how the CHT is actually calculated. Part of the CHT calculation, as you're rightly pointing out, deals with the tax point transfer. But the tax point transfer, the equalization system, also takes into account the ability of provinces to raise income taxes. So there's an offsetting calculation that happens within CHT. There is an adjustment made for the amount of money that equalization is already providing, which brings the level of the tax point transfer up to a certain level.

But they didn't recognize a negative amount, which is what was going to happen to Ontario when it became a receiving province in 2009-10. We made an adjustment that recognized this inequity to the Province of Ontario in the form of an additional payment that was made in 2009-10 and again in 2010-11. That system in 2011-12 is longer available for Ontario, and Ontario will be treated just like any other equalization-receiving province.

[The Chair, Conservative, James Rajotte]

So that will no longer be available in the next fiscal year?

[Tom McGirr]

It was a one-time adjustment. It was only for 2009-10 and 2010-11 that an additional payment was set out under the act.