Finance Committee on Nov. 1st, 2011

[The Chair, Conservative, James Rajotte]

I call this meeting to order, and I ask all of our friends in the media to cease recording, please.

Thank you.

It's our pleasure today to welcome the Minister of Finance, The Honourable Jim Flaherty, to the finance committee to discuss Bill C-13, An Act to implement certain provisions of the 2011 budget as updated on June 6, 2011 and other measures.

Minister, it's a pleasure having you here. We have you here for one hour, from 4 p.m. to 5 p.m., and then we'll have your officials after that. We want to welcome you to the committee. I think the last time you were before us was on August 19, and a lot has transpired since then. But you're here in particular to discuss the budget measures. I know you'll have an opening statement, and then you'll have questions from members.

You may begin your statement at any time.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Chair. I'm here, of course, with officials from the Department of Finance who can be helpful on any technical questions after I make some relatively brief opening remarks.

Now before I begin, let me congratulate the chair and the members of the finance committee for your hard work over the past few months doing pre-budget consultations. I know you've been travelling across the country to places large and small, and I appreciate the effort you do.

Along with my consultations as Minister of Finance, the finance committee's pre-budget consultation does help ensure that Canadians are heard and that their voices are reported, through you, from across the country.

Recommendations flowing from your pre-budget hearings always inform and influence the ultimate budget document. I urge the finance committee to conclude its pre-budget consultations, and I look forward to reviewing your findings.

First, I want to urge the committee to study and pass Bill C-13, the Keeping Canada's Economy and Jobs Growing Act.

That legislative measure, adapted to today's realities, is an important and positive solution to the current economic challenges. It also prepares Canada to take advantage of tomorrow's economic prospects.

While the economic recovery remains fragile and uncertain, as exemplified by the situation in the U.S. and Europe, Canada will continue to face and feel the effects of global headwinds from abroad. In any event, our government knows that this is not the time to rest on our laurels, as we are still faced with very real economic challenges.

On economic growth, both the IMF and the OECD forecast that here in Canada we will have among the strongest economies in the G-7 in the years ahead. On jobs, Canada has the strongest job creation record in the G-7, with about 650,000 net new jobs created since the end of the recession in July 2009. Nearly 90% of those jobs are full-time. On our fiscal situation, Canada, based on IMF projections, has and will continue to have by far the lowest total government net debt to GDP ratio in the entire G-7.

On our financial sector, the World Economic Forum has, for the fourth straight year, rated our banking system the best in the world. On fiscal and economic fundamentals, Canada's credit rating, unlike that of numerous other countries, has been affirmed as the highest possible by all three major credit-rating agencies. Indeed, only last week, Standard & Poor's renewed Canada's leading credit rating, declaring, and I quote:

Canada's superior political and economic profile rests...on its policymaking and political institutions, which we see as highly effective, stable, and predictable. Canadian authorities have a strong track record in managing past economic and financial crises and delivering economic growth.

On competitiveness, Forbes, the influential business magazine, ranked Canada—largely due to our low tax plan for Canadian businesses—as the best country in the world for businesses to grow and create jobs. And the list goes on.

As RBC chief economist Craig Wright recently observed, and I quote:

In Canada's case we're well positioned, whether you look at it from our fiscal position in Canada, or indeed from our economic fundamentals. ... ...our domestic economy has a very solid foundation....

Nevertheless, our government recognizes that now is not the time to rest on our laurels, as very real economic challenges persist.

In fact, too many Canadians are still looking for work. As I just pointed out, the global economic recovery is still fragile. That is why our government continues to focus on supporting the Canadian economy and helping it grow.

At the first signs of economic downturn, at the end of 2008, our government responded by introducing Canada's Economic Action Plan. That measure earmarked $60 billion to support employment and growth while the country weathers the worst global economic crisis.

It is an economic action plan that, according to independent observers, was both appropriate and effective. In the words of BMO economist Doug Porter, it was, and I quote, “arguably one of the most successful stimulus programs in the industrialized world”.

Now, earlier this year, our government further built on the record of accomplishment with Budget 2011, which is the next phase of Canada's economic action plan. The next phase seeks to promote long-term economic prosperity while staying on track to return to balanced budgets and helping Canadian families.

Since March 22, Parliament and all Canadians have examined and debated the provisions included in the next phase of Canada's economic action plan. I'm happy to report that the reaction has been positive. Indeed, Canadians expressed their support for it this past May, and their support for a government squarely focused on helping Canada's economy and job growth.

Today's legislation, the Keeping Canada's Economy and Jobs Growing Act, is an important component of the next phase of Canada's economic action plan, as it includes many of the key provisions from Budget 2011.

While I do not have enough time, nor would I take that much time, to highlight every measure in today's legislation, I would like to provide the committee with a brief overview of some of the measures and how they will assist Canadians.

For instance, the act supports job creation and economic growth by providing a temporary hiring credit for small business to encourage additional hiring; by expanding tax support for clean energy generation to encourage green investments; by extending the mineral exploration tax credit for flow-through share investors by one year to support Canada's mining sector; by simplifying customs tariffs in order to facilitate trade and lower the administrative burden for businesses; by extending the accelerated capital cost allowance for investments in productivity-improving machinery and equipment for Canada's manufacturing sector; and by eliminating the mandatory retirement age for federally regulated employees in order to give older workers wishing to work the option of remaining in the workforce.

The act helps Canada's communities, large and small, by legislating a permanent annual investment of $2 billion in the gas tax fund to provide municipalities predictable long-term infrastructure funding; by enhancing the wage earner protection program to cover more workers affected by employer bankruptcy or receivership; by introducing a volunteer firefighter tax credit for volunteer firefighters; and by increasing the ability of Canadians to give more confidently to legitimate charities by helping combat fraud and other forms of abuse by illegitimate charities.

The Keeping Canada's Economy and Jobs Growing Act helps families from coast to coast by introducing a new family caregiver tax credit to assist caregivers of all types of infirm, dependent relatives; by removing the limit on the amount of eligible expenses caregivers can claim for their financially dependent relatives under the medical expense tax credit; and by introducing a new children's arts tax credit for programs associated with children's arts, cultural, recreational, and developmental activities.

The act also makes key investments in education and training by forgiving loans for new doctors and nurses in underserved rural and remote areas; by helping apprentices in the skilled trades and workers in regulated professions; by making occupational trade and professional exam fees eligible for the tuition tax credit; by improving federal financial assistance for students; and by making it easier to allocate registered education savings plan assets among siblings without incurring tax penalties or forfeiting Canada education savings grants.

With that, Chair, I invite questions from the committee. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Minister, for your presentation.

We will begin members' questions with Mr. Julian for a five-minute round, please.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much, Mr. Chair.

Thank you, Minister Flaherty, for coming here today.

As a finance committee we have been seized with a number of forecasts over the course of the day. The first was from the Governor of the Bank of Canada, who has indicated an economic slowdown this fall. We've had the Parliamentary Budget Officer indicate that in many respects we're already in a slowdown.

The original plan of this government was for an austerity budget and to bring in significant additional corporate tax cuts--billions of dollars--on January 1. We've been hearing as a finance committee that there are needed investments.

With some of the other figures that have come out--for example, the disturbing figures around food banks and record usage, with nearly a million Canadians depending on food banks to make ends meet, and two million unemployed in this country--it's fair to say that we can't really look at the economic situation with rose-coloured glasses.

I was in this Parliament when we were on the boundary of a recession in early 2008, and I recall that your comments were very positive. You said on June 3 in Parliament, “The Canadian economy is strong.” You said on August 15, “I anticipate that over the course of the year we will have positive economic growth.” Of course, we were entering a recession at that point.

Given all of these disturbing indications that we're in an economic slowdown, will you revise the approach that seems to be based on austerity on the one hand and significant additional corporate tax cuts on the other, and work with the opposition to build the kind of job plan we need to see to get through this slowdown?

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

Thank you for the question.

We will maintain our business tax reductions. We introduced that program of tax reductions in the fall of 2007. We have followed through and stayed the course on that. That was cited as one of the major reasons why Canada is viewed as the best place to invest and create jobs in the world.

We have a moderation of our business tax rates. When we took office back in 2006, the federal corporate tax rate was slightly in excess of 22%. As of January 1, less than 60 days from now, it will be 15%.

In the fall of 2007 I encouraged the provinces to join us in this by reducing their corporate tax rates to 10%, in order to brand our country as welcoming to business and investment from both within our country and outside of it. The majority of the provinces have joined us in this effort. So by 2013, generally in Canada businesses will pay a corporate tax rate of 25%. This is a tremendous advantage for our country. It's one of the reasons we have had the job creation we have had in Canada.

The deficit reduction--

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Sorry, I have some additional questions. I appreciate your responding on that, but I think that's scant comfort to the couple of million unemployed in the country.

There have been concerns about the forecasting methods and how accurate they are. On the chances and opportunities of actually balancing the budget in 2014-15, there are two approaches. You can cut and slash out of deficit or you can grow your way out of deficit. Of course, we prefer growing the economy and creating those additional jobs.

There are also concerns about the use of the EI premiums as part of the government's revenue package. We certainly recall, as we were both in the opposition a few years ago, that the Liberals used EI premiums to bolster revenues for the government rather than help the unemployed.

Could you respond to the concerns around the inaccuracy of your economic forecasting and the concerns around using EI premiums, as the Liberals did, as a way to grow government revenues rather than help the unemployed?

My final question is on the current account deficit on balance of payments. Among industrialized countries, as you know, the IMF is forecasting that in 2012 we'll be among the worst, partly through the failed export policy of this government. Could you comment on that?

[The Chair, Conservative, James Rajotte]

Minister, we have a tradition in this committee of asking three big questions and giving you 20 seconds to answer. So if you can handle all those questions in 30 seconds....

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

Just so we're agreed on the facts, the economic forecast we make is based on the average of 15 private sector economists. I met with them last Tuesday. They agreed that the forecast we are using is a reasonable basis for fiscal planning in Canada. Other people have other views from time to time, but since 1994 that has been the practice of the Department of Finance. That's what we use. They provide me with useful advice.

We are on track. We are seeing modest growth in Canada this year. This is relatively good. As you know, Europe is going through a very difficult time, and it may well be entering into recession. That is not true in this country. We just had the August GDP figure, which was plus 0.3%. It looks like Q3 will be reasonably good for Canada, and I expect it will continue to grow in Q4 as well.

Canada is doing relatively well, and I'll continue to rely on the private sector economists with respect to economic forecasts.

The danger of debt is real. We see that in Greece, in Portugal, and we see it in other countries in the world. For governments to continue to run deficits and accumulate public debt is a very dangerous thing.

I think Canadians understand that, and that's why they have supported our plan, which is to plan on the realistic moderate growth we expect to have this year and next year and to implement a deficit reduction tax plan. It's not to reduce transfers to the provinces for health or education, and it's not to reduce transfers to individuals who are disabled or elderly and funded by the Government of Canada through the taxpayers of Canada. We're not reducing any of that.

We are looking for at least 5% savings on the operating costs of government, which most people in the private sector tell me they can do over breakfast.

Thank you.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Julian.

We'll go to Ms. McLeod, please.

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

Thank you, Chair.

I want to talk briefly about our tax plan and the good news in my riding. In 2008, one of our mills closed down because of competition and the opportunities with more trade. The mill locally put in $25 million, and the community re-employed approximately 250 workers. So I think our plan is working.

Canadians saw the budget in March, and they had an opportunity to spend many months looking at it. I think they have given us a strong mandate to move forward with many of the measures. I'm really pleased with how things have been going in the riding that I represent, but I also see it across the country.

The NDP, I think, typically likes to think there are no measures that will help everyday Canadians in this budget. They seem to think there's nothing there.

As a former health caregiver, I see many items in this budget that I think are very, very important. I have to look, first of all, at the new family caregiver tax credit, which is a 15% non-refundable credit on an amount of $2,000, providing relief to caregivers. We certainly know that more and more often we have challenges in that area. Many families are facing those challenges. We've seen the very, very positive response from the Canadian Caregiver Coalition.

Can you briefly talk about the family caregiver tax credit in Bill C-13 and how it will help caregivers in Canada?

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

Thank you.

As members of Parliament, I think all of us frequently have constituents speaking to us about their responsibilities in caring for infirm parents or relatives. This measure, which is in Bill C-13, addresses that challenge. It proposes to provide new support for caregivers of infirm dependent family members by introducing a new family caregiver tax credit.

Technically it is a 15% non-refundable credit on an amount of $2,000, to provide tax relief for caregivers of all types of infirm dependent relatives, including, for the first time, caring for spouses, common-law partners, and minor children.

Assuming it is passed by Parliament, the measure will apply for the 2012 taxation year and subsequent taxation years. It's estimated that over 500,000 caregivers will benefit from the tax credit, receiving $160 million in new annual support.

I hope you will support this measure in Bill C-13.

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

Thank you.

There is another measure that I do have to note, again representing rural communities that traditionally have challenges in terms of recruitment of nurses and doctors.

Could you briefly talk about some of the measures in this act, not only where we're going in terms of supporting nurses and doctors moving into rural communities, but also education in general?

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

Yes, there is the measure about doctors and nurses in rural communities. We hope that will provide an incentive for doctors and nurses--this is an area you would be familiar with, in particular--to be attracted to the good life that exists in rural communities in Canada.

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

I note also there were some general changes in terms of education. As a parent of a number of children...I think many people know that different children have different aspirations in terms of education. And although you might save for one, there are some very important measures that will really support big choices children make regarding education and where money goes in terms of RESPs.

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

The change involves the reallocation of assets in registered education saving plans for siblings without incurring tax penalties, which is important when one has a number of children, whether you have them at the same time or not. I know my parliamentary secretary has five children. I appreciate that. You'll be able to move money around from one RESP to another without having some of the tax consequences that have proven to be difficult for parents, so we're sorting that out in Bill C-13.

I hope members will see fit to support it.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

We'll go to Ms. Murray, please, for five minutes.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Thank you, Mr. Chair. I appreciate having the opportunity.

Minister, I was interested to hear you talk about the fundamentals of the fiscal situation in Canada and the strong banking situation, and I may have misheard, but I thought you said now is not the time to rest on the Liberals' laurels.

I agree with you. One of the things you are doing, though, is creating this EI tax increase. One of the reasons that concerns me is that although the date you picked for your selective statistics on employment was at the very trough of full-time employment, if we look at the beginning of the recession, Canada still has over half a million fewer full-time jobs than we had before the recession, and that's with a million more Canadians in the country, many of whom are also looking for work. We are down in terms of full-time jobs compared with where we were in August 2008, and yet this EI tax increase will put an extra burden of $1.2 billion, just in 2012, and $1.8 billion....

When the temporary hiring credit, which was the first in your list of positives, is only $165 million, do you not see this as a job-killing, payroll tax increase that you're putting into your budget?

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

Thank you for the question.

EI, of course, is a system funded by employers and employees, so there is always a consequence for employers and employees year after year in order to fund the system.

This year, we modified the increase that would otherwise have taken place next year, and this was supported very broadly, I can add. It was supported by unions. It was supported by the Canadian Labour Congress. It was supported by the Canadian Chamber of Commerce. It was supported by the Canadian Federation of Independent Business. This was broadly supported as the right thing to do, but of course one must fund the system, because if the system is not properly funded, then it ends up in a very serious deficit situation, which is not desirable.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

It is a matter of timing. We're looking at a time when we're still under the employment that we had a couple of years ago. Our contention is that having a hiring credit that's less than 10% of the cost you're loading on businesses will be a job killer. We recommend and request that the government change that plan.

A second area I wanted to explore is the idea of the new non-refundable tax credits. I'm not sure if the minister is aware that the former tax credit, the child sport tax credit, is essentially $100 million going to families that earn, on average, 25% more than the Canadian average family earns, and probably 400% or 500% more than the very families that are excluded from that tax credit. Low-income people, people who are at the bottom of the inequality gap in Canada, are the ones being excluded.

We have called for the government to make these refundable tax credits, and yet we now have another series of programs like that—the family caregiver tax credit, the children's art tax credit, and the volunteer firefighter tax credit—doing exactly the same thing as the child support tax credit.

Minister, did you have your officials estimate the scope, the size of dollars that will be going to those tax credits and the incomes of the families receiving them compared with the incomes of those families not benefiting from that reduction in the treasury?

[The Chair, Conservative, James Rajotte]

There are about 30 seconds to answer.

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

We have a progressive tax system in this country. I'm proud of our progressive tax system. Because we have a progressive tax system, various credits have different effects on different families depending on their level of income.

The same families you're complaining about that earn more money than some other families are the same families that pay more tax than those other families because they earn more. That's the nature of a progressive tax system. This is a good thing, in our democracy. This is not a bad thing.

The children's fitness tax credit has been hugely popular. Millions and millions of Canadian families have claimed it. I expect that the children's arts tax credit, if it's passed, will also be very popular.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Murray.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, Minister, for appearing here before us.

I want to talk a little bit about small businesses and why small business owners in my riding are encouraged by Budget 2011, especially by things like better transparency and accountability in the Canada Revenue Agency and the hiring credit for small businesses.

We've heard quite a bit. I wanted to quote some of the good news we've heard, for instance, from the Canadian Federation of Independent Business. They said:

In this Year of the Entrepreneur, we give credit to the government for continuing to work to balance its books while finding important, low-cost ways to help small firms grow the economy.... The government took some important steps to enhance job creation and recognize the economic contributions of small businesses in Canada.

The Timmins Chamber of Commerce said:

In Timmins, we estimate the hiring tax credit will affect approximately 90% of all Chamber members. It's something that can be used for training and to encourage hiring.... It's great to see some of the tools being given back to businesses.

I wonder if you could talk to us for a few moments and tell us about the hiring credit for small businesses included in Bill C-13 and how it will help small businesses.

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

Right. I hope small businesses get the message on this and that they hire people, because this is a direct tax credit or a direct incentive. The credit will provide up to $1,000 against a small employer's increase in their 2011 EI premiums over those paid in 2010. So it's a direct, clear benefit to small businesses in Canada, which should help address the challenge of job creation in Canada. About 525,000 businesses are in that category.

We all know from our own experiences and our own communities that it is small business that creates the jobs. We have many more small businesses in Canada than we have large corporate entities. These are the businesses, as I say, that create the jobs, and that's why this hiring tax credit, we feel, will be useful in job creation in Canada.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

You've called this the year of the entrepreneur, and through this budget you've helped to encourage that.

I want to tell you that in my specific case I had the privilege of starting two businesses. I had a friend who moved back to Holland, and he came back. He told me about the hurdles put in front of somebody who wants to start a business. In this country, and especially with this budget, you've made it so that it's easier for those to start a business. You've also put some measures in place to assist entrepreneurs. Could you maybe talk about that a little bit, and why that is so important to the economy?