Finance Committee on Nov. 2nd, 2011

[Mark Adler, Conservative, York Centre, ON]

But would you not agree, given those demographic changes that we anticipate happening, that we are well positioned, better than any other country around the world, to take that on?

[Kevin Page]

Than any other country in the world? That would be hard to do. Certainly if you look at G-8 on average or G-20 on average, we're in better shape when we compare our levels of gross or net debt with that of other countries. Going into the recession in 2009-10, we were in better shape. It allowed us to have a fiscal stimulus package.

Again, the question for you today is, as you look to the future and you see the range of private sector forecasts, what do you feel is realistic in this context? You're going to get different data points from different people. And it's in that kind of context where you might say that if you're going to operate so long below potential, then should you consider stimulus. But if you consider stimulus, you're absolutely right, it would be deficit finance. And it would have to be done in the context of a longer-term scenario. Because of aging demographics, we have more fiscal pressures to face. There is a trade-off.

[Mark Adler, Conservative, York Centre, ON]

Based on your methodology, if we were to go into deficit spending right now, what would that mean for our economy? I'm asking you as an economist.

[Kevin Page]

Well, let me think. We've had deficits in the last few years. We had a deficit of $56 billion in 2009, and we shrunk 2.5%. We had a deficit of $34 billion in 2010-11, and we grew 3.2%. Economies can grow with deficits. What you want to avoid is a buildup of debt that we will pass on to future generations and that will restrain capital spending. We've got to give our future governments room to manoeuvre.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Adler.

We'll go to Mr. Marston, please.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you, Mr. Chair.

Mr. Page, I certainly appreciate the work of you and your staff. You offer Canadians a view of government policy in a very distanced way. You stand back and you take a very interesting view of things. And at times I think you find yourself somewhat in conflict with the government of the day, but that's healthy. That puts us in a position of better understanding. And as I said, I thank you for that.

Over the last 10 years, and in particular since this government took office in 2006, there have been significant reductions in the corporate tax rates. We went from, I believe, 20% to.... We're headed for 15%. From my understanding, that's taking about $16 billion out of the fiscal capacity on a yearly basis.

You mentioned structural deficit. Do you see that contributing to the structural deficit?

[Kevin Page]

Just to back up, yes, since probably 2000 we've seen a dramatic reduction of roughly a little over 20%, to 15% next year, in the corporate income tax rate. It does raise an issue. Have we seen, based on the reduction of those corporate rates, improvement in investment, improvement in business productivity, labour productivity, and multi-factor business productivity?

On the first part, I think most economists are disappointed and scratching their heads, asking why, after all those corporate income tax reductions, we haven't seen more productivity. We wish we would have more productivity. We know we need that productivity.

Going forward, we have a structural deficit in this country, in terms of the current year, of about 1.5%. As we move over the medium term, this deficit, in our projections, at the structural level is more or less eliminated—over the medium term—because of spending restraint. If we get the spending restraint, we will eliminate for the most part that structural deficit. As we move to the longer term, we see that structural deficit opening up because of aging demographics.

So yes, one could say that all tax cuts, whether corporate or PIT.... At one point we cut a little bit too deeply. Or you could argue on the other side that as a result of additional spending, which was structural in nature, that has contributed to the structural deficit.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

That, very clearly, is the gap between us and the governing party.

In terms of the demographic change you're talking about, we've called on the government to respond to the fact that 63% of working Canadians today have no pensions or no savings. There's a wall out there, about 35 years from now, and if we don't start to address it now, as you would say, in the long term in our planning, there's going to be a major crisis for Canada as a whole.

We've proposed an increase to the Canada Pension Plan of 2.5% monthly for both employer and employee. And yes, that amounts to a cost factor for business—there's no doubt. But there will be another cost factor if we don't respond.

I'm curious about your response to the need that's genuinely there and the idea of that particular response. It would double CPP in about 30 years, but it would have to be phased in, obviously.

[Kevin Page]

Sir, we have not been asked to do work. We know the government, the Department of Finance, has been a doing significant amount of work on the overall pension issue, but we haven't been asked to cost a proposal. If asked, though, we would be happy to do so, if we could be helpful.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

If I could just do the asking, I'd be pleased to. But thank you.

Yesterday, when Finance Minister Flaherty was before us, I expressed a concern to him about this ongoing European crisis. We are all very proud of the situation the Canadian banks have found themselves in, but beyond that, with the exposure of American banks, particularly to the failure of some banks in Greece or in the European zone, can you express the impact that may have directly on either our economy or our banks, or both?

[Kevin Page]

I think it's fair to say that when you look at credit growth and various measures, and surveys done by the Bank of Canada on credit growth in general at the business level, we haven't seen the significant tightening that would raise major concerns.

I think what you're alluding to is what if we found ourselves in a scenario, somewhat similar to the fall of 2008, where we had a banking crisis, and what would that mean in terms of tightening? We're perhaps all a little bit shocked at how fast that tightening could actually take place and even impact on Canada. We would have to respond accordingly.

Again, it's one of those difficult choices you make as you look forward. I don't think anybody in these forecasts, whether you're looking at PBO or the average private...is planning a recession right now. But yes, we would get tightening in a hurry if that happened.

We're not planning it. We're assuming, as I said, that we'll have containment in terms of the Europe credit crisis and that the U.S. will restructure in a coordinated way.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you very much, Mr. Marston.

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

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

Thank you, Chair.

Thank you for appearing, Mr. Page. It's good to meet you. We get to see you on television and all these things, but as a parliamentarian it's great to have this opportunity to be one on one with you.

I want to tell you that I don't envy you. I remember when you were first appointed to this position, and I thought about the enormous responsibility you have and the task that lies before you.

We had a chat with another panel last week, and I mentioned to one of the women who was representing that the word “economics” is a Greek word, and I think it means “household finance”. I liken you to the Dad. We have the money, and the kids have all these demands and wants, and you're the one who has to step back and say, “Whoa, whoa, wait a minute, we can't afford this.” So I commend you for your job, and I encourage you to do what a Dad would do to keep a handle on things.

One of the things I think we've experienced in this committee, and it's not unique—I think there are other committees that can say the same—is that we a have good camaraderie here. We don't always agree. There are a few principles on which we're 180 degrees away from each other, but we have this camaraderie. I see that as sometimes being the solution to our problems, because we have to work together.

One of the messages I'm trying to get out, and our party, and all of us, are trying to get out, is that we're looking for solutions from those who come to government. Too often we hear requests, and there are so many needs, but we need solutions.

I wonder if your group, when you talk about some of the solutions, consider those too. One of the things we need to do is recognize that it's the private sector that is going to generate the wealth. We need the public sector, but the two work hand in hand.

So that we can move forward, is there some movement within your organization to encourage the public sector to also look at some of these real challenges we have, some of the things you mentioned, the demographics and productivity and all of these other things?

[Kevin Page]

Yes, we do have conversations when we go out for coffee about what we think would be solutions. And we argue as much as, perhaps even more than, the House finance committee argues about what the direction could be.

But with respect, in terms of our legislative mandate in the act of Parliament—the advice and independent analysis on the economy, the nation's finances—we are very careful not to cross the line and provide a prescription on policy. We're happy to do costings, whether we're looking at programs like the Canada Pension Plan or military procurement, to give you an extra independent data point, which we think is a good thing in this environment.

But, sir, I don't think our mandate allows us--nor do I think we would ever be comfortable--to suggest policy prescriptions. We want to give you the richest planning framework possible.

That's why in the speech today, in addition to these five-year projections, we're giving analysis on the economy relative to trend. Is it cyclical? Is it structural? What is the risk based on our forecast errors over the past 16 years, and what does the longer-term look like? We want you to have this rich planning framework so you can actually debate the solutions the way you debate here.

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

I have one minute.

Would you agree that in the private sector, if we're going to get out of this thing...we've talked about entrepreneurship, the resource section--the gas, the oil, and the mineral technology--the marketing, the programs we're headed toward.... I think of SR and ED and the granting agencies. These are the catalysts we'll need to stimulate and encourage those sectors. Are you in agreement that we're going in the right direction with that, that these are the areas we need to focus on?

[Kevin Page]

Sir, again, I apologize, with great respect, I think it would go beyond my mandate to agree on a policy direction. We think that any plan, whether it's a government policy plan, whether it's fiscal policy or economic policy, that lays out a vision the way you've described and then allows people like me, as a budgetary officer, to say what this means for public finances, to ask if there could potentially be an impact on Canadians' productivity.... That's more where we come in, in terms of our work. But thank you very much.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

You could always choose to go for a coffee together and share some information.

[Kevin Page]

We'd love to go to coffee with you, sir.

[The Chair, Conservative, James Rajotte]

Yes, you could have a good discussion.

We will now go to Mr. Giguère.

You have five minutes.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you very much, Mr. Chair.

Mr. Page, thank you for appearing before us.

Currently in Canada, we are struggling with a labour market problem. In the manufacturing sector, which generates wealth, over 350,000 jobs have been lost and have not come back. The unemployment rate is increasing and the workforce participation rate is decreasing; many people have given up on finding work and 27% of part-time employees would like to work full-time.

In addition, $500 billion in liquidities are not reinvested in businesses. The reinvestment rate is extremely low. If only 10% of those $500 billion were reinvested, would the situation be fundamentally different in terms of revenue? It would be like the opposite of the Greek syndrome. In fact, Greece is making budget cuts, and the more they do, the more unemployment there is; the more unemployment there is, the greater their deficit is. Here, in Canada, if we invested in job creation, would the opposite not be happening, that is, by creating wealth and jobs, would we not be stimulating consumption and generating revenue for the government?

[Kevin Page]

You are right in saying that there have been many problems in our manufacturing sector. Generally speaking, this sector was hard-hit by the recession. The real question is what is the level of recovery in the manufacturing sector. If you look at the figures, you will see that the employment curve has gone down and that production has not managed to bounce back to the pre-recession level.

As Mr. Van Kesteren said, if we were able to stimulate investment, particularly in the manufacturing sector, we could create many jobs and generate economic growth. As you said, this is more of a political question for you rather than for me.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Given the drop in economic activity, job loss and demographic trends, how many jobs should Canada have created in order to be in the same situation it was in before the 2009 recession?

[Kevin Page]

I am not sure that I understood your question properly, but I can tell you that just before the recession, in 2008, conditions were not good for Canada in general nor were they good for the manufacturing and market sectors. The economy was really weak that year.

I think that you had another question.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Yes. As far as the entire labour market is concerned, I would like to know how many jobs we need to create to attain the lower unemployment rate and the higher activity rate we had prior to the recession.

[Kevin Page]

Are you talking about the gap between now and...