Finance Committee on April 30th, 2013

[Nicolas Zorn]

Thank you for the question.

The Piketty, Saez and Stancheva study, published in 2011, notes a major drop in marginal tax rates in countries where that 1% has increased significantly. The correlation is clear. Even more interesting is the fact that there is no correlation between a drop in marginal tax rates and GDP growth. Consequently, the amount taxed is not related to tax levels. What is taken into consideration is the use of that money.

As for the correlation, marginal tax rates have two effects. The first is the capping of high income, as richer people have a higher savings rate. They do not spend all their money—contrary to the middle class—and they often invest their savings abroad or in the stock market. That creates an extra income and increases the growth of the richest 1%.

The second effect is that....

[The Chair, Conservative, James Rajotte]

Thank you.

[Nicolas Zorn]

The other effect is an extraction of income with a lower marginal tax rate. Why? With lower taxes, an individual benefits more from negotiating a higher salary without compensation in terms of a productivity increase.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Côté.

Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair, and thank you all for being here today.

Mr. Broadbent, it's truly an honour to have you here today. I'm so happy you're here.

I do have a couple of questions for you. I would like to pursue my line of questioning with you, if you don't mind. You spoke in your remarks about governments making political choices, and that's what we do as a government. Our political choice, in terms of the Canada health and social transfer, is the health transfer going up 6%, plus nominal GDP, and the social transfer going up 3%, plus nominal GDP. We give that block transfer to the provinces and they in turn spend it on health, and social transfers are spent on education, etc. They have not been spending all the money we've been giving them—in fact, a lot less than what we've been giving them.

Could you talk a bit about the political choices they are making? We seem to be making the right choices on that front and they are making the wrong choices. Could you comment on how their choices are contributing to social inequality?

[Ed Broadbent]

All I can say is that the old movies are still with us. When I was around in this place, 150 years ago, we had the same issue with various governments—sometimes a federal Liberal government, sometimes in the past a federal Conservative government—and that is whether the transfers were being used for what they were intended. You have put your finger on a very serious issue.

If I remember correctly—and I think I do—the Romanow commission recommended the big increase at that time. It was big, and it was badly needed. He also recommended that certain reforms go with it—to drive down costs of health care, for example—but he also wanted some kind of agreement that would see the provinces actually spend in areas in which they're supposed to.

As you know, our Constitution has real problems with enforcing that. I don't care about the ideological persuasion of a given federal government; whoever the federal government is will have problems, given the provincial constitutional authority, in enforcing the priorities. All I would hope for is that, in a negotiating process, a mechanism for enforcement be set up.

I would go so far as to say that a certain conditionality should be introduced. If a province is going to get money and negotiates a certain percentage from the federal government, then I think it should be obligated to use that money for what was intended—otherwise, don't take part in the agreement.

Having said that, I don't underestimate the challenge of making that happen.

[Mark Adler, Conservative, York Centre, ON]

Thank you.

As you know, we've also increased the guaranteed income supplement by 25%, which is the largest in Canadian history. Do these initiatives by us solve the problem? No, but we're certainly moving in the right direction.

Could you comment on what happened in the 1990s, when the government of that time balanced the federal budget by cutting transfers to the provinces, and on what effects that had on social inequality?

[Ed Broadbent]

To give a very brief answer, it was disastrous. I think it was the biggest net cut in social programming in post-war Canadian history that flowed from that.

If I may say so, being as objective and as non-partisan as I can be in this—but it's a judgment—if you look at what Mr. Clinton did in the same period in dealing with deficit problems, did he have massive cuts in social programming in the U.S.? No. Do you know what he did? He stimulated growth in the economy. He said the real way out of this was to get more jobs, on the one hand, and he increased taxes on the rich, by the way.

Very soon the American economy was taking off, and broadly speaking, the Canadian economy started to take off too, because such a high percentage of what we produce is exported to the U.S. market.

[The Chair, Conservative, James Rajotte]

We have about 30 seconds.

[Ed Broadbent]

This is the subject of a big discussion. It wasn't the massive cutbacks in social programming that turned the Canadian economy around. In my view, it was the booming American economy, created by a different approach by Mr. Clinton, that had that effect.

[Mark Adler, Conservative, York Centre, ON]

I just need 15 seconds.

Thank you.

[The Chair, Conservative, James Rajotte]

Be very brief.

[Ed Broadbent]

It is a complex issue.

[Mark Adler, Conservative, York Centre, ON]

It is, very; I'd love to pursue this more with you.

I have two very quick questions.

One is, do you have any regrets about the 1979 decision—remember, there was the 18¢-a-gallon issue during the campaign—on bringing down the government?

[Voices]

Oh, oh!

[Mark Adler, Conservative, York Centre, ON]

Second, do you ever think of what could have been, had there been an election in the summer of 1987?

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Order.

[Ed Broadbent]

In the summer of 1987?

[Mark Adler, Conservative, York Centre, ON]

Do you remember? You were roaring in the polls.

[Ed Broadbent]

Yes, I would think retrospectively that we should have had them.

[Voices]

Oh, oh!

[Ed Broadbent]

Absolutely, when we were riding high in polls all over the country, I think.... God was not performing correctly in Canadian history.

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Adler.

Mr. Rankin, please.