Finance Committee on April 25th, 2013

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Jean.

Ms. Glover, please, for your round.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

Welcome to all the witnesses, again.

Mr. Holden, I have to say that the quote you provided that Mr. Jean just read out about job creation almost mirrors what the OECD was saying, and the OECD Secretary General Angel Gurría said, “Increasing employment is the best way of reducing poverty”.

I keep hearing here over and over again, let's get people trained, let's give them the skills, let's give them the education so they can get these jobs. We have to create jobs, though, too. So Canada, thankfully, has the best job creation record of the G-7 since the recovery.

Having said that, we also should talk about taxes. I read your briefs, many of you address how taxes affect income inequality, and so I'm going begin by turning to the Frontier Centre for Public Policy, because you haven't had much time to talk here. I'm going to quote your brief. You write that “the 'wrong' way to address inequality...is the introduction of growth-restricting increases on personal and corporate tax rates paid by high earners”.

Why is that?

Mr. Holden, could you please follow the Frontier Centre for Public Policy?

[Benjamin Eisen]

Thank you.

Well, I'll circle back and say that the reason I said that, and the reason I believe it, is that strong economic growth is absolutely essential for everything we're trying to do for poverty reduction and for generating enough revenue to pay for high-quality social programs. So steps we take that have a negative impact on economic growth are undesirable.

I refer back to the OECD studies that I discussed, saying that some of the most progressive taxes in our system—some of the ones that you would naturally and obviously think increasing would be a wise strategy or a potentially effective strategy for addressing income inequality—are also growth-restricting. The OECD has identified them as taxes that are particularly inefficient and particularly likely to restrict economic growth.

So if you raise personal income tax rates and you raise corporate income tax rates, you have these negative effects on growth, which harm people throughout the income distribution. Now that's not to say that, for revenue generation, we can't change the tax code in ways that ultimately make it more progressive but which are more growth-friendly, which I think we can.

I just think that increasing rates is generally not the way to do it. I think there are a lot of tax deductions and exemptions that benefit disproportionately high-income earners. In my brief, I suggested a comprehensive view of those deductions with an effort to try to make the tax code simpler and more growth-friendly, and ultimately, it could have a really positive effect on—

[Shelly Glover, Conservative, Saint Boniface, MB]

So, in closing loop holes—I read your brief and I thought that was excellent—we've closed 75 so far. We're moving toward that in budget 2013. So that's excellent.

What else did you say about it?

[Benjamin Eisen]

Well—

[Shelly Glover, Conservative, Saint Boniface, MB]

And can you give me a minute for Mr. Holden at the end, Mr. Chair?

[Benjamin Eisen]

Yes, the more growth-friendly ways—and the other thing about that is you can use the revenue from that to open up and expand the tax deductions that benefit low-income earners.

Circling back to the original question, we don't want to impair growth. We want growth-friendly strategies, and I think raising rates on some of the most inefficient taxes in our system is not the way to address inequality. I think there are better strategies that can accomplish what we're trying to do and can even make the tax code more progressive and won't have these negative effects on growth that we're concerned about.

[Shelly Glover, Conservative, Saint Boniface, MB]

I appreciate that very much.

Go ahead, Mr. Holden.

[Michael Holden]

I'd emphasize what you mentioned before about creating conditions for economic growth and generating economic growth as a prerequisite for any initiative we want to take in terms of addressing income inequality or quality of opportunity.

For that we need to ensure we have good market access, that we don't face significant barriers in international trade, and that we continue to be an attractive investment environment both for Canadians and for foreigners looking for investment opportunities here.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you.

I did want to address Dr. Reid.

I think the comment you made about your father was impactful—$6,000 a month because he requires some extra assistance because of his dementia. It made me think about the transfers we provide to provinces.

Of course, Mr. Boadway in his wish list said we should match the program spending in provinces with transfers. Well, we have been increasing transfers in health—6% every year—and yet when we were here last year, we talked about how the provinces are only spending 3.08%, aside from what Alberta was spending. It was the only province that was spending over the 6%.

I'd love to see them spend that 6% we give them in its entirety and put it toward things like that. But how do we incent the provinces who are getting record levels, $62 billion at this point, from this government? We've never slashed them like the Liberals did. How do we incent them to do it?

[The Chair, Conservative, James Rajotte]

Give a brief response, please.

[Dr. Anna Reid]

My brief response would be to put some accountability measures on the money that you transfer to them. That would be my brief response.

[Shelly Glover, Conservative, Saint Boniface, MB]

I'd love to do that.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Ms. Glover.

I'm going to go to Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you very much.

It's a shame in a way that we have so many witnesses here and that each one doesn't get more time.

Mr. Wilkinson, I'd like to offer you just a bit more time to speak. There's so much we could ask you in terms of the research you've done, but I need to split my time with Mr. Caron.

I'd like to ask you, in terms of both the causes and the solutions to inequality, what role wage polarization has played in the increase in inequality. We've heard about technological change and economic restructuring, but is it inevitable that we end up with wage polarization and a lower middle class wage, as it were? Can you comment on that?

[Dr. Richard Wilkinson]

I think you're right that the big shift in income distribution has been driven by widening wage differentials—earnings differentials. If you look at the pay gap between CEOs in the top 300 U.S. companies—and these trends are fairly typical of other countries just a bit more exaggerated—compared to the average production worker, up until about 1980 the CEOs were getting 25 times or 30 times as much as the average production worker. By 2000, or early that decade, they were getting 300 or 400 times as much. This has happened in one country after another. It happened first in English-speaking countries—a little bit later, actually, in Canada—and then it spread to non-English-speaking European countries.

I would just say, though, that when people are talking about economic growth and inequality, there's a lot of research looking at the relationship between equality and growth. Although there are some papers that come down on either side of that, the majority suggest that greater equality is good for growth. That's partly because more unequal societies have lower social cohesion. They have more crime. Kids have lower math and literacy scores. You have more people in prison. You have lower social mobility. You're wasting a lot of your talent where you have great inequality.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you for that.

I guess you also have more social spending dealing with the consequences, as well as people in the middle and lower income levels having less disposable income to invest in the economy and generate growth.

How much time do I have left, Mr. Chair?

[The Chair, Conservative, James Rajotte]

You have about two and a half minutes.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay. I'll turn it over to Mr. Caron.

Thank you, Professor Wilkinson.

[The Chair, Conservative, James Rajotte]

Monsieur Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

My question is for Mr. Boadway and Mr. Corak.

I imagine you are aware of the changes to the employment insurance program, not just with respect to what was outlined in the 2012 budget, but also the changes to pilot projects. Surely you've heard about what is happening with the temporary foreign workers program. We're not talking about temporary foreign workers who come here to fill positions following a labour shortage, but rather situations where companies use temporary foreign workers instead of the available Canadian labour force. What will the impact of those two situations be on the trend relating to income inequality?

Mr. Boadway, you may start.

[Dr. Robin Boadway]

The impact of the temporary foreign workers?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I am also talking about employment insurance reform.

[Dr. Robin Boadway]

These are very difficult questions.

I think it's too early to say what the effect of the EI reforms is going to be. It depends on how the seasonal industries respond to the reforms and how the training part of it changes.

That's similarly with respect to the temporary worker program. It's clear that the temporary worker program benefits temporary workers, but whether it benefits any other workers in the economy is not entirely clear. It certainly couldn't have a positive benefit on workers elsewhere in the economy, to the extent that it crowds out their opportunity to get a job; although I'm not familiar with all the arguments about how people are not moving to get the jobs in the first place.

I think it's an open question.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Corak, what do you think?