Finance Committee on Feb. 15th, 2011

[Kevin Page]

Sir, if you look at...and we do this in our fiscal sustainability now; we look at revenue ratios and spending ratios. These are ratios relative to the size of the economy. I think because of tax reductions and different governments, if you go back to where we were and budgetary revenue as a per cent of GDP, in the late 1990s you were probably in the neighbourhood of 18%. We're down about 15% now.

So your total budgetary revenue as a per cent of GDP has come down significantly, and again, through different factors: mostly through tax reductions, different governments, but also a weaker economy, particularly in 2009 and 2010, but an economy that's recovering--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Well, if that's the result, then we have to keep an eye on the expense side.

[Kevin Page]

I think we need to look at both.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Pacetti.

We'll go to Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

First of all, I have a couple of quick comments. Maybe you could respond, and then I have a more detailed question.

Certainly, I think it's important to go back to these corporate tax rates and the corporate tax rate issue. I think the choice between expansive revenue and lower rates or restrained revenue with higher rates.... We have Finn Poschmann, who says, “There is no reason to expect corporate income tax reductions to put any meaningful dent in tax revenue.” I've also noticed that we've tended to average 12.6% of government revenue over the year, and in 2010 it was 13.9%.

Within your projections you have taken into account the corporate tax cuts. I would assume that you also built into your projections that there is also some added benefit to those cuts, so it was not strictly a take-off to existing...that you also did some projections around how it would actually improve the revenue with new companies coming...? Is that accurate?

[Kevin Page]

Again, Madam, like the Department of Finance, we take the average private sector forecast, we take those key headline numbers, nominal GDP, real GDP, inflation, interest rates, labour market unemployment rates, and we translate that into a fiscal forecast.

Private sector forecasters, when they see the government reducing taxes or increasing infrastructure spending, will do their own calculations. Their models have these built-in multipliers. They will build those positive and potentially negative multipliers into the projections. We take those economic assumptions and we translate them for you into a fiscal projection.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I think it's probably accurate to say that you can't take—which I believe the opposition might be doing right now—a 1.5% reduction in the tax rate and immediately say the numbers are going to be $6 billion, or whatever they throw out.

Your comment is what I really want to focus on. One of the benefits of Parliament is that people come from many different backgrounds. Because health care has been chatted about...I actually come from a health care background. The provinces are as aware as anyone in terms of what's been happening, in terms of their expenditures, and I know the provinces are looking internationally.

They know there are countries that are doing much better jobs in terms of respecting the Canada Health Act, but also in terms of their outcomes and their expenditure. I've seen a lot of work within the Province of British Columbia in terms of their health care transformation and the improvements to their system.

I think we need to be reassured that they are trying to tackle that enormous growth rate, and we perhaps don't need to be as negative in terms of our perspective of what might happen over the next number of years. I can remember the deputy minister in British Columbia having these graphs and saying that we have to tackle this problem.

I'm quite optimistic that a lot of work is being done in the provinces in terms of that particular piece. I think that, of course, becomes very hard to capture on a macro level without the work in terms of health care transformation and the impact. Is that a reasonable statement?

[Kevin Page]

Actually, I think you made two points that I'd like to respond to.

The first is on the health care. As we do the broader analysis on fiscal sustainability, building on the work we did in 2010, we do, as in all of our work--to respond to Mr. Wallace--actually look at sensitivity. We'll show you different numbers. We have different scenarios for health care. If there are things going on in the development that we're hearing out of federal-provincial discussions, we could build some richer scenarios for you. We'd be happy to do that on health care. We could build that into these fiscal projections.

Just on the fiscal cost point of view, I think the Department of Finance does cost changes, up or down--personal income taxes, corporate income taxes. We do get information. We do model it. We don't get a detailed corporate income tax model. We do our own rough estimates using private sector models.

It is possible to say. We need to know, for fiscal due diligence purposes, what a 1% or 2% cut in corporate income tax will mean fiscally. There is a cost to it, notwithstanding that one of the economists you alluded to.... Even the Department of Finance assumes that if we reduce corporate income taxes, there will be a fiscal cost.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I come from an area that was particularly hard hit by the recession in terms of jobs. My community had huge opportunities through the economic action plan in terms of growth, the job opportunities program. I was disappointed with the comments about the economic action plan and growth. It really filled the gap for our community over this last year and a half or two years. In the last few months, two of our sawmills are reopening.

I guess those comments about it not being a benefit were disappointing when I know that probably this was duplicated.

Thank you, Mr. Chair.

[Kevin Page]

I think we did do some work. We did survey municipalities. Out of all the programs, one specific program we looked at was the infrastructure stimulus fund, a $4 billion program in a larger envelope of $16 billion worth of infrastructure.

We surveyed. We had 644 municipalities participate in this survey. They had a lot of positive things to say with respect to improving community welfare, with respect to reducing infrastructure deficit. I think it also said that a lot of the work that it was dealing with, with this specific program, was more “bringing forward” kind of work; it was renewal-related work. It had a modest job impact. That's what we heard.

I think overall we've not quibbled at the PBO with the Department of Finance's global estimates in terms of the output. If you have a $47 billion stimulus package, what will be the impact on output? What will be the impact on employment? I think it's important to realize that those estimates are model-based estimates based on historical experience. I think it is important when you have a big stimulus package and it's deficit-financed that you do policy evaluation on it afterwards. It may be quite as positive as you said.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Brison.

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

You've requested costing information on a number of justice bills. As a committee, we've requested information from the government on the cost of 18 separate justice bills. Since you have not been given the information from the government on the costs or the methodology to determine these costs, in your projections for the fiscal framework of the country, have you included any costing for these justice bills?

[Kevin Page]

We've highlighted that we've not seen, either in Budget 2010 or in the 2010 economic and fiscal update, any change in the fiscal planning assumptions for crime legislation, including the one bill that we did spend a lot of time costing, Bill C-25, the Truth in Sentencing Act.

We have a different assumption than the government for operational spending. We're running a little higher, but it is a significant difference when you look to the medium term. We're showing a deficit of roughly $10 billion where the government is showing a small surplus. We don't know what the government assumed in this fiscal planning. For the most part, on the expenditure framework, unless we tell you, we assume the government's numbers will build it up to the voted appropriations.

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

What do you estimate the cost of these justice bills could be? In a range, what do you estimate the cost could be? We know that up to 5,000 new public servants will be hired as part of the justice bills. Can you give us a range based on the information you've obtained?

[Kevin Page]

The only range I could give you would be based on the analysis we did, which looked at one bill, the Truth in Sentencing Act, which is now law. On a status quo basis, our numbers basically said, not assuming behavioural changes, and assuming that we would maintain current occupancy rates and presence, that you would probably be talking about $1 billion a year over the next five years. This would be split out to a little over $600 million in operations and about $300 million for additional capital construction costs.

What we've heard from the government is that it's prepared to look at double-bunking or extra bunking. So occupancy rates could move those numbers around significantly. In some cases, if the government is prepared to double- and triple-bunk, their numbers could seem quite reasonable to us.

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

This legislation is also going to increase the cost to provincial governments, because it's a cost sharing. When you talk about the fiscal framework of the country at a time of rising health care costs, would you agree that the government's justice bills will reduce the capacity for provincial governments to invest in health care?

[Kevin Page]

In the case of the Truth in Sentencing Act, when we change the Criminal Code, it will have a large impact on the provinces. If we're talking about a number of roughly $1 billion a year, assuming the same occupancy ratios, and assuming we build additional prisons based on current occupancy rates, in the correctional system at the provincial level you're talking about a system where the head counts are ten times as large, where there are additional billings, and where the fiscal impact on them is at least as large.

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

So the government's criminal justice agenda is going to reduce the amount of money provinces have to spend on health care?

[Kevin Page]

Well, how the provinces manage these operational restraints is up to them. We know the great public servants at Correctional Services will do the best they can to manage within the amount of moneys they've been given.

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

Mr. Page, if corporate taxes were increased to 2010 levels, would Canada be able to achieve balanced budgets faster?

[Kevin Page]

We would maintain the corporate 18%—

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

If we were to keep the 18%, if there were no other change to the fiscal policy of the country, would we achieve balanced budgets faster?

[Kevin Page]

We would still have a structural deficit, but the size of that structural deficit would be reduced. There's a costing of about $1.5 billion or $1.6 billion per point reduction in the corporate income statutory rate.

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

So we would achieve balanced budgets sooner if we stayed with the 2010 corporate tax rate and didn't go through with a further decrease?

[Kevin Page]

Well, we're saying that you'd still have a structural deficit. You may actually achieve a balanced budget, but you have to have an economy that's operating above its potential.