Finance Committee on April 26th, 2012

[Kevin Page]

At the federal level, I think for some period of time we were on a downward path in terms of reducing deficits. That reflects the fact that some of the deficit that we are experiencing right now is simply cyclical, meaning that as the economy gets back to potential, revenues will come back. Spending on employment insurance types of programs would be reduced as the labour market strengthens. Much of that deficit would have been eliminated over the medium term.

As well, we've been saying for some time that there was a structural deficit. Those are still numbers.... If you look at our current numbers right now for 2011-2012, you will see we are still talking about roughly about 15 that is structural. This deficit we are seeing, even when the economy gets back to potential, would still exist, according to our estimates.

The government is taking actions to reduce and effectively eliminate that structural deficit and we're saying by 2013-2014 will actually eliminate it. So even before the economy gets back to potential, we would actually be in a structural surplus mode.

There are long-term benefits, for sure, to get our debt loads down. I think it would be well received by the next generation that this hand-off with respect to debt would be much smaller. I think we're now talking about over the medium-term something in terms of a debt-to-GDP ratio of roughly about 28% or 29%, which is a little bit higher than what we had targeted for a few years back. Still, relative to other countries, it is an extremely low debt-to-GDP ratio, which situates us well.

Again, I'm also saying that what we're seeing in this report is that there are always trade-offs. To take these tough actions in the economy where there's labour market slack, it will cost some jobs for some of—

[Randy Hoback, Conservative, Prince Albert, SK]

But that's where I have a problem, Mr. Page. You talk about the labour market being slack. I come from Saskatchewan. We have a 4% unemployment rate. I'm losing opportunity because I don't have enough people. I know Mr. Jean is in the same boat, coming from Fort McMurray. So I kind of look at labour mobility as more of an issue than the lack of labour. That is our issue in Saskatchewan. I don't see this surplus of labour in Saskatchewan, so I guess I'm trying to figure that out.

[Kevin Page]

Sir, could I respond to that very quickly?

In Canada we're still looking at an unemployment rate of roughly 7.2% and we're talking about that employment rate in the context of our participation rate that is at least a percentage point below where it was before we started this recession. As well, we all recall that with this government back in 2006-2007, we had an unemployment rate down to 5.9%. So to us, overall, on an aggregate basis, a macro basis for the economy--which is obviously not necessarily the situation is Saskatchewan—we are still talking about a fair amount of labour market slack.

[Randy Hoback, Conservative, Prince Albert, SK]

I guess the option of not doing what we did to reduce the deficit would be to raise taxes, and the implication of raising taxes also would have had the domino effect in the labour markets. There's no question about that.

Maybe you can help some of my colleagues understand the importance of keeping our corporate tax levels down to the rate we're at, and the importance of keeping a low tax rate. I have talked to the business community, not only here in Canada but abroad, and we're attracting businesses. If we had ignored the measures we have taken and had raised taxes, what would have been the impact? Would we have seen more of a domino effect and increasing deficits? What did your forecast look like there?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Kevin Page]

We don't have an analysis for you today. We didn't do a policy analysis option saying what if we did this or did that--what if instead of cutting spending we did, say, a 1% increase to a personal income tax rate, or we increased the revenue intakes. Actually, we don't have that type of analysis. But actually your point is right, sir. If we can get fiscal balance and we can get the lowest possible tax rates, we can create an environment for businesses that is stable. Where we have healthy balances, we are all better served.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hoback.

Mr. Mai, go ahead.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

I want to thank our witnesses for joining us today.

Mr. Page, thank you for your report. There is clearly an issue with transparency when it comes to data. You have even deemed that issue to be unacceptable. In the latest report, the Auditor General criticized the government for its poor management of the F-35 procurement process. He downright accuses the government of misleading Parliament about the program's cost and of wanting to award the contract to a single provider to replace the aging CF-18s without asking for approval or the required preliminary documents.

Do you agree with the Auditor General's assessment of how the F-35 issue was handled?

[Kevin Page]

I had a chance to read the Auditor General's report, but our work is very different from his. In the case of the F-35, we had prepared projections on the costs of procuring, operating and maintaining those aircraft before the government decided to purchase them. Therefore, our work is really different. We commend the Auditor General for providing such an assessment.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Did you have any difficulty in obtaining documents? Was the government transparent in your dealings with it?

[Kevin Page]

I think it is preferable that all parliamentarians obtain adequate analyses and transparent information, and that a proper debate be held to determine whether the F-35s are the best type of aircraft and what the repercussions would be on the Department of National Defence's budget and operating costs.

Transparency is certainly preferable in such a situation.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

You are talking about the loss of 100,000 jobs. Could you tell us a bit more about the impact that could have? In your report, you also said that the Canadian economy is not operating at its full potential.

Could you explain to us what kind of an impact—in terms of employment loss—that could have on the Canadian economy?

[Kevin Page]

Could you repeat your question, please?

[Hoang Mai, NDP, Brossard—La Prairie, QC]

One of the things you talked about is the loss of 100,000 jobs. What would be the repercussions of that loss on the Canadian economy?

[Kevin Page]

I think that our report contains a chart of the repercussions on the GDP. In fact, we are talking about 0.7% for 2014. The percentage is less than 1% of the GDP.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Does that have an impact on the fact that the Canadian economy is not at its peak?

[Kevin Page]

In the budget, the government decided to reduce the measures for supporting the economy.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

You also mentioned that this is an austerity budget. Will that have a negative impact in terms of the economic growth?

[Kevin Page]

The impact on GDP's level of growth can be determined. As far as GDP growth goes, the unemployment rate could increase by 0.3% in 2014, when it would be 7.9% instead of 7.6%.

[The Chair, Conservative, James Rajotte]

Mr. Mai, you have 30 seconds left.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

You talked about the fact that the government has not been transparent enough.

Can you compare its transparency level with that of the previous government? Is parliamentarians' lack of information regarding the budget something new?

[Kevin Page]

As I said, the level of transparency in a stimulus context can be compared with the 2010-2011 budget. There are some recent examples. For instance, in 2005, the government provided information on overall cuts, broken down by department and by agency.

I think it would be possible to increase the level of transparency and to hold a proper debate on the topic. I think that $60 billion over five years is a fairly considerable amount.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mai.

Ms. McLeod, please.

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

Thank you, Mr. Chair.

I would like to welcome the guests.

I just have a brief comment about the job issue, and then I actually want to focus in on some comments around demographics.

I think it's absolutely critical that we remember that between 1998 and 2011 our federal public service grew by one-third, so we've gone from just under 300,000 to just under 400,000. Certainly that's much faster than GDP growth, and that's much faster than the population growth.

I think if one asks the average Canadian.... Yes, there are absolutely critical services that the government provides, but also, I was with the red tape reduction commission, and they were saying there is an awful lot of unnecessary red tape bureaucracy. So first of all I think we need to keep the job issue in perspective. It's always very difficult for anyone affected by job cuts, but I think we have to look at the federal public service and what are the key roles and responsibilities and really look again at that job picture over the bigger picture. I just want to make those comments, because 300,000 to 400,000 between 1998 and 2011 is very significant, and what additional services are Canadians actually getting?

The demographic challenges.... I struggle with this one. I was involved in health care for many years prior to being elected a member of Parliament. I can remember for years and years we sat around and navel-gazed about the impact of the demographic challenge on our health care and our health care facilities. I was in many meetings, over time. I think we pontificated a lot about what it was going to mean.

Before the committee last year you spoke at length about the demographic and long-term fiscal challenges facing Canada. I'll just quote what you told us in 2011:

...Canada's major fiscal challenge is long term, not short term. Canada's serious fiscal challenge is underscored by aging demographics and weak productivity growth. Our population is getting older. In 1971 there were 7.8 people at working age for every person over 65, which fell to 5.1 in 2008. And it is projected to be 3.8 in 2019 and 2.5 in 2033. Growth in labour supply will fall dramatically due to slower population growth and the retirement of the baby boom generation.

Those were your comments.

And now I look at what you're saying today. Specifically, you indicated that OAS changes are not necessary. You said to the media, when you were talking about the need to make OAS more sustainable,

...there’s no reason to change from a fiscal sustainability perspective....There may be other reasons to change retirement ages that have to do with broader policy discussions, but that goes beyond fiscal sustainability.

Everyone talks about the challenges. Obviously the government does not want to do things they don't have to do in this area. As soon as someone takes a measure it's really, “Oh my goodness, someone is dealing with this issue”. So as an economist, are you honestly saying that you know the labour supply will fall dramatically due to the slower population...? Will there be no cost pressures whatsoever for this program?

[Kevin Page]

Thank you very much.

We still think that the longer term is always the key issue, and we're gratified when parliamentarians focus on the long term. There are aspects in this budget and decisions have been taken in recent months that certainly deal with the long term. That's a good thing, and these are tough decisions.

What we're saying so we can better support this committee and Parliament in general.... It is to make sure that we can provide analysis for you to decide what is that broader fiscal context. You highlighted those numbers quite correctly in terms of the demographic challenges over the next little while.

When we look at fiscal sustainability in terms of one program, again, the way I think the decision was communicated by the government was that we have to do this for fiscal sustainability reasons.

So for us, as economists, as legislative budget officers, if you're talking about a program that's funded from general revenues you need to look at fiscal sustainability from the broader context. So when we do our analysis we do it in that broader context. It doesn't minimize the challenges that we face.