Finance Committee on May 29th, 2012

[The Chair, Conservative, James Rajotte]

I call to order the 64th meeting of the Standing Committee on Finance.

I want to welcome our witnesses here this afternoon.

Our orders today, pursuant to the order of reference of Monday, May 14, are for our study of Bill C-38, An Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.

We have four organizations with us in this panel.

Firstly, we have the Canadian Labour Congress.

Next we have the Conseil national des chômeurs et chômeuses.

Thirdly, we have the Macdonald-Laurier Institute.

Then we have PPP Canada Inc.

Thanks to all of you for being with us here this afternoon. You will each have up to five minutes for an opening statement, and then we'll have questions from members.

We will begin with the Canadian Labour Congress, please.

[Andrew Jackson, Chief Economist, Canadian Labour Congress]

I'll try to keep it to five minutes. It's a pretty big bill for five minutes.

The first point I'd make is what we would have hoped for, which is that in our view the provisions in the bill relating to the changes to old age security and employment insurance should be removed from the bill, and there should be a separate consultation on those. I think both sets of provisions have very far-reaching ramifications.

I'd also note that I don't think that in either case the government has produced a really clear policy rationale for the changes, and it would be good to have that more informed debate on the issues.

So I'll just make a few points very, very quickly.

On employment insurance, we would certainly have a major concern regarding the new appeal process with the social security tribunal. As members are probably aware, there are now about 1,000 part-time members of EI boards of referees across the country that are assigned to each of the EI regions. In our view—and I think in the view of employers as well—the existing system gives unemployed workers a fair and impartial process. The appeals are dealt with on a speedy basis. We don't see that 39 full-time people are going to adequately replace that in terms of an appeal process.

That concern about the loss of a fair process is of particular concern given the other provisions in the bill relating to employment insurance, which I think imply that there's going to be closer scrutiny of unemployed workers and greater expectations of them in terms of job search and the kind of work they should have, so the interaction there is of concern.

I guess around the new expectations of the unemployed in terms of taking available jobs—with significant wage cuts, in some circumstances—it's unclear to us what the rationale is for this change. Is it the case that the government thinks unemployed workers are or are not turning down suitable job offers at the present time?

Most of the impact of those provisions is going to fall on workers in the higher unemployment regions. In the high unemployment regions in Atlantic Canada and Quebec, there is something in the range of 10 unemployed workers for every job vacancy that's reported by employers. It would seem to us that we're very far from a situation where there are jobs going begging because of unemployed workers turning them down.

Again, particularly in the higher unemployment regions where wages are relatively low to begin with, the other concern is that obliging some subgroup of the unemployed to take significant wage cuts could further depress wages quite significantly.

With regard to the old age security and the guaranteed income supplement, it's again unclear to us what the key objective here is. Is it to require older workers to work longer or is it primarily to save money? If it's to make people work longer, I'd draw to the attention of the committee the fact that the average retirement age actually has been rising over the last decade, in line with rising life expectancy, so time spent in work is not falling, as is often alleged. If you look at people aged 65 to 70, you see that now one in four in that age category is continuing to work while collecting, in the vast majority of cases, an old age security pension. There's no requirement to cease work to collect OAS.

To put it in a nutshell, I guess the concern is that if we look at people in that 65-to-67 age group who are going to lose access to OAS and GIS, there is a very significant subgroup in that population that relies on the guaranteed income supplement in particular to give them a barely adequate standard of living. Thirty per cent of the income of people aged 65 to 67 comes from OAS and GIS, primarily because people at the bottom end really rely on that. There's going to be some important subgroup of people who are unable to continue working past age 65 for reasons of ill health, or for reasons of caring for somebody else, and who are likely unable to work to replace that important income from OAS.

If we look at people age 65 to 67 who are working now, we see that 40% are working part time, and 40% are self-employed, often at very low incomes. So it's far from clear that people in that age group who continue to work, assuming the government wants to encourage them to do so, will be able to earn sufficient income to replace that lost OAS and GIS income.

In conclusion, I would just urge that there be more extended scrutiny of those sections of the bill related to EI and OAS than we're going to be able to give them through this process.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Jackson.

Mr. Céré, you have five minutes.

[Pierre Céré, Spokesperson, Conseil national des chômeurs et chômeuses]

Mr. Chair, members of the committee, thank you for inviting us to speak to you today.

My testimony will be solely about the part of the budget implementation Bill C-38 that deals with employment insurance.

Mr. Chair, I must tell you that we hesitated a little before accepting this invitation because we are very well aware, as is everyone here, that Bill C-38 is going to be passed anyway. But we have a deep belief in democracy, we are democrats. We feel that Quebeckers and Canadians have to know about the issues that underlie the proposed changes to employment insurance, because those changes will have very serious consequences.

Clause 605 on page 372 of this 452-page bill, which affects 60 separate acts, contains four lines that rescind section 27 of the Employment Insurance Act. The entire historical definition of unsuitable employment is removed, a definition that protected workers who found themselves out of work and gave them a reasonable amount of time in which to keep looking for work in their areas of expertise and experience. From now on, unsuitable work becomes suitable. From now on, what was unacceptable becomes acceptable.

Mr. Chair, we knew of course that a new definition would eventually be introduced into the employment insurance regulations, regulations that do not go through Parliament. Last Thursday, Ms. Finley, the Minister of Human Resources and Skills Development, tabled such a document. We now know more about the spirit in which that definition of suitable and unsuitable work will be couched.

This is a historic stage in the history of employment insurance, a program that has existed since 1940. Three separate classes of the unemployed are now created; they will not have the same rights nor be subject to the same requirements. That is unheard of. Specifically, a new sub-class of the unemployed is being created; they are called frequent claimants and they are no longer entitled to a reasonable search period. They will be required to accept any work at 80% of their previous earnings starting in the first week of unemployment. In the seventh week of unemployment, they will have to take any work paying 70% of their previous earnings.

Who are these frequent claimants? Principally, they are seasonal workers. And where are those seasonal workers, ladies and gentlemen? In eastern Canada. In Quebec, 34% of those receiving employment insurance benefits are seasonal workers. In Atlantic Canada, the percentage in Nova Scotia is 38%, in New Brunswick, it is 46% and in Newfoundland, it is 52%. In Ontario, it is 19%, in British Columbia, it is 14% and in Alberta, it is 9%. In a way, they are declaring war on eastern Canada by penalizing those who live in those regions where a major part of the economic activity comes from seasonal work.

Who are these so-called frequent claimants? Generally speaking, they are people who have no opportunities for a full-time, year-round job. They may be, for example, in the film, cultural, television or advertising industries. They are support workers, like those in school cafeterias. According to the Department of Human Resources and Skills Development's own figures, one-third of the Canadian workforce is in a vulnerable situation. Those are the workers being targeted. They form the newly-created sub-class of unemployed that will be forced to accept unacceptable conditions.

The same bill proposes to abolish the administrative tribunals, meaning the boards of referees and the umpires. My colleague here from the Canadian Labour Congress brought that up as well. I point out in passing that the boards of referees were tripartite—with representation from labour, employers and the government—in order to ensure a measure of balance in the decision-making process. That will all be replaced by a new Social Security Tribunal with only one member. There will be 74 of them for all of Canada, only half of which will be assigned to employment insurance.

I have been mandated to tell you that the current government is in the process of breaking the social contract on which employment insurance was built in 1940, when it was called unemployment insurance. All observers, commentators and columnists, the entire political class in Quebec and the Atlantic provinces, are opposed to these changes.

Let me finish with these words. Mr. Chair, this government is sowing the wind. Those who sow the wind can expect to reap the whirlwind, and the whirlwind is coming.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll now hear from Mr. Clemens, please.

[Jason Clemens, Director of Research, Macdonald-Laurier Institute]

Mr. Chairman, members of the committee, thank you for the opportunity to be here. I apologize for not having something written, but I was just confirmed this morning. Because of other commitments I wasn't able to write something formal.

I was asked to comment on the changes proposed to OAS. I'll just go across some broad strokes with respect to OAS and GIS.

First, I think it is a move toward recognizing the demographic deficit the country is facing. Professor Christopher Ragan did a paper for us showing that by 2040, the structural deficit the country would face would be 4.2% of GDP, which is about $67 billion in current terms. That's driven almost exclusively by demographic changes, largely income transfers to seniors and health care expenditures. I think the changes to OAS are a step in the right direction to dealing with that deficit down the road.

However, I would characterize the reforms as modest. I certainly wouldn't characterize them as radical by any stretch, for several reasons. First, using the traditional definition of sustainability, the program was not sustainable because it either would require more resources or crowding out of other spending. It wasn't sustainable if we used the traditional measure or definition. The actuary said that OAS and GIS spending would go from one in five dollars of government spending to one in four dollars by 2030, so either more taxes or crowding out of other spending would have to occur.

Secondly, the increase in the age to 67 is not all that radical, if you think about it. For example, if we were to index the age of eligibility beginning in 1966, when Canada pension was brought in, the current age of eligibility for retirement would be 74. So the move to 67, given the fairly marked increase in life expectancy over time, is a fairly modest change. In my own writing, I suggested 69. Again, if we had just indexed it, it would have been 74.

Something the committee should consider is creating a mechanism to index it in the future so that the age of eligibility is automatically increasing as life expectancy is increasing. Right now what happens is the cost of the total benefit increases with no action, simply as life expectancy is extended.

Thirdly, one of the things I was disappointed about is there was no discussion about the eligibility for the benefit on OAS—not GIS but OAS. The fact that you get the full benefit up to almost $70,000 in income indicates to me it is not a well-targeted program, and in an era of scarce resources I think we could do a much better job, particularly in looking at GIS and some of the concerns that Andrew raised, which I agree with on GIS. Those could be more than fully funded if we were to scale or claw back OAS at a lower level of income.

As an example, a two-adult household can have income up to $140,000 and receive full OAS benefits. Again, there's room to scale that back so that we can better use those resources for lower-income seniors. Indeed, one of the real successes of Canada internationally is our ability to essentially wipe out poverty for seniors, largely through the GIS program and its interaction with OAS. So I would suggest that's something we should be putting on the table, the discussion of better targeting the elderly benefits to GIS through a more aggressive clawback of the benefits on OAS.

Lastly, and again, I think I'm echoing--at least in my understanding--some of Andrew's concerns, there are some question marks. For example, we don't know yet the interaction between the provinces and how they will respond to the gap between 65 and 67, even though the government has at least indicated some additional transfer funds. There's a question as to what that program looks like.

In addition, I think the interaction with the pension laws at the provincial level is a critical issue, particularly if the incentive is that we want seniors to work more. What we can't have is a curtailment of benefits to encourage them to work and then marginal tax rates of over 50% because they're getting benefits scaled back if they stay in the labour force. For example, how does the change that has been proposed to the OAS interact with the RRIF guidelines on when you have to start taking income out of deferred tax accounts?

These are important issues that need to be addressed in totality. While I think the budget is a good first step on OAS, there are some important issues that we at the very least need some details or some contours about as to how they'll interact with the increase in the age of OAS.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Clemens.

We'll hear from Mr. Smith now, please.

[Greg Smith, Vice-President, Finance, Risk Administration and Chief Financial Officer, PPP Canada Inc.]

Thank you, Mr. Chair.

I'm pleased to be here on behalf of PPP Canada to discuss Bill C-38, An Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures.

The infrastructure delivery model, known as public-private partnerships, or P3s, has been successfully implemented through the creation of government agencies in the United Kingdom, Australia, and across Europe. To date, the provinces have led the way in the use of P3s in Canada, notably Ontario, Quebec, British Columbia, and Alberta. However, with the creation of PPP Canada, we are seeing more and more jurisdictions adopting policies and frameworks to leverage greater value for money through P3 procurement. This increase in their use has contributed to Canada becoming a recognized global leader in the P3 industry.

P3s are a long-term performance-based approach for procuring public infrastructure, where the private sector assumes a major share of the responsibility in terms of risk and financing for the delivery and the performance of the infrastructure from design to structural planning to long-term maintenance.

In practical terms, this means that governments across Canada harness the innovation and expertise of the private sector to provide the most effective solution to deliver services to Canadians. Through allowing the private sector to design, build, finance, operate, and maintain such things as roads, bridges, and water and waste water treatment facilities, it ensures that the overall cost and risk is considered up front.

More importantly, governments do not pay for the asset until it is built and a substantial portion is paid over the life of the asset if it is properly maintained and performs its services. Moreover, the costs are fixed over the life cycle of the asset, meaning that taxpayers are not on the financial hook for cost overruns, delays, or any performance issues over the asset's life.

For example, imagine that the company that built your house was also responsible for any repairs and maintenance over your 25-year mortgage. Given the amount that you will pay them every year, once it is constructed, is agreed to before the house is built, your payments do not go up if something breaks or needs replacement. Your builder, therefore, would consider the most cost-efficient way of doing something, perhaps installing a metal roof rather than shingles. More expensive to install, but more durable, and easier and cheaper to maintain in the long-run. Moreover, if your dishwasher breaks and they don't come to repair it in the agreed amount of time, you can deduct that from your next payment.

The Government of Canada has recognized the potential benefits of the P3 model and created PPP Canada, a crown corporation, to improve the delivery of public infrastructure by achieving better value, timeliness, and accountability to taxpayers through P3s.

PPP Canada's operational focus is threefold: acting as a source of expertise and advice on public-private partnerships through knowledge development, and sharing that knowledge; building P3 procurement, knowledge, and capacity among federal departments; and leveraging greater value for money from federal investments in provincial, territorial, municipal, and first nation infrastructure through the P3 Canada fund.

Budget 2011 created a new federal P3 screen for infrastructure with capital costs of $100 million or more and a useful life of at least 20 years. Federal departments are now required to evaluate the potential for using a P3 for large federal capital projects. Should the assessment conclude that there is P3 potential, the procuring department will be required to develop a P3 proposal among the procurement options. Furthermore, the budget also encouraged departments to explore the potential of a P3 approach for other types of procurements.

[The Chair, Conservative, James Rajotte]

You have one minute remaining.

[Greg Smith]

As the centre of expertise for the federal government on P3, P3 Canada will work closely with federal departments and agencies through the screening process, and offer our services should they choose to move forward. That would be creating a development plan, undertaking a robust value-for-money analysis, and a risk analysis.

P3 Canada has created a P3 screening guide to assist departments. That's on our website. This was launched in April, following the release of Treasury Board Secretariat's “Guideline to Implementing Budget 2011 Direction on Public-Private Partnerships”. Other products and tools continue to be developed.

PPP Canada is currently engaged with several departments, including Transport, on the new bridge across the St. Lawrence.

We believe that the increased value and accountability generated by more and better P3 procurements, in addition to the budgetary certainty they provide, will leverage savings for taxpayers far beyond the operations of the organization.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Smith.

We'll now start members' questions with Mr. Marston, for a five-minute round.

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

Thank you, Mr. Chair.

Mr. Clemens, I'm in one of those situations where I agree with you and I disagree with you at the same time.

You talked about old age security and that it has addressed seniors' poverty. Yes, to a marginal degree over time it did, in the days that it was first undertaken, when people were starving to death on the Prairies.

Are you aware that the low-income cut-off is about $22,000 a year? Would you accept that as the poverty line, sir? You don't think that's the poverty line?

[Jason Clemens]

Statistics Canada itself says it's not a measure of poverty.

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

What would you call the poverty line? I'll allow that one to you.

[Jason Clemens]

Well, I think we could use the MBM from Statistics Canada, and we could use Chris Sarlo's number.

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

What would that be?

[Jason Clemens]

I wouldn't use LICO as the poverty line.

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

Okay. What I'm searching for is what you think the poverty line is. Just throw out a dollar figure so we've got something to talk about.

[Jason Clemens]

No, I can't. Maybe....

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

Well, let's talk about what seniors get. Seniors get $1,140 a month, and they don't get GIS unless they quality for OAS. If they're getting $1,140 a month in Canada, they are definitely below the poverty line. They are definitely living in poverty. Pause and think for a second how far one can go with that.

I spoke to people across this country. I held 40 town hall meetings across the country. I talked to seniors about what their lives were like. I listened to them. In St. Thomas a woman told me that some of her husband's medication had been delisted. She didn't know where she would find $90 a month. When the HST was coming in, a lady up in Elliot Lake was worried about where she would find $161 a year. That's where people are in this.

I can't say I disagree with you, sir, on potentially looking at the cut-off point where people qualify for this and that.

Mr. Jackson, I'd like to ask you a question, sir, about the implications of the transfer of this money. People on ODSP, the Ontario disability support program, who look to get ahead a little bit, or people on welfare who look at getting ahead a little bit, at age 65 will be at the lower rate for an additional two years, even lower than GIS and OAS, but the cost is also passed along. Do you agree?

[Andrew Jackson]

Somewhere there is going to be a cost to the provinces for that subgroup of people age 65 to 67. Now, the transition off provincial social assistance programs and other provincial programs onto OAS and GIS happens once they turn 65, so that transition is going to be delayed.

I guess on top of that, there is a layer of single older workers in particular who also would see quite a significant improvement in their standard of living when they turn age 65 and qualify for the GIS.

To go back to your earlier question, in terms of the various low income lines, when you look at the dollar amounts between the market basket measure and the LICO, it doesn't vary all that much. What the GIS really does is to push the great majority of seniors just above that low income line, but they certainly don't get very far above it. It's pretty bare bones.

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

In fairness to the government, the finance minister has said that he was going to help the provinces and the municipalities with some of this. I don't want to be totally.... I'll stop there. I was going to say something different.

Sir, the OECD pension team evaluated OAS. The Parliamentary Budget Officer evaluated OAS. They both said it was sustainable, that the increase required would only be a modest one in relation to GDP. What's your opinion of that? You are an economist, I understand.

[Andrew Jackson]

Well, the figures are there for everybody to look at in the report from the chief actuary. There's nothing about those figures that should come as a surprise to anybody. Why we suddenly thought it became unsustainable when the Prime Minister went to Davos I'm not sure, because there were no new facts that had come to light.

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

It also wasn't mentioned at all by the Prime Minister in the election campaign.

How much time do I have, Mr. Chair?

[The Chair, Conservative, James Rajotte]

You have 30 seconds.