Finance Committee on Nov. 5th, 2013

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Mr. Chair, is there enough time for other witnesses to comment on that?

[The Chair, Conservative, James Rajotte]

Very briefly, please, if other witnesses wish to comment on that.

Mr. Page, briefly.

[Kevin Page]

Yes, I think that certainly there's an issue of what is the current structure for provincial health care costs going forward. Can they maintain the current low growth rates that we've seen in recent years?

If you look over the long-term trends, you're probably talking about growth in the 5% to 5.5% range if you project forward. That's much faster that anybody would expect nominal GDP to grow going forward over the next 20 years, because of declining labour input, as Professor Godbout has highlighted, and weak productivity growth, so I think we have an issue.

Also, we have a federal transfer system right now for health care, and when we look at the rising growth in health care costs and the federal contribution, our federal contribution will go from roughly 20% to 12%. Then the question is, how do we maintain a health care system going forward?

[The Chair, Conservative, James Rajotte]

Thank you. Merci.

I'm going to take the next round as the chair.

First, as a comment to accounting organizations—and I echo my colleague's sentiment concerning your merger and I look forward to it—I know that you have argued in the past for a comprehensive review. We've recommended that in the last two reports. Perhaps it will be “third time lucky” this year. We'll see what happens.

My next point is with respect to Mr. Black.

You've identified in your presentation a government loan or guarantee of one half of these funds, or $100 million, with respect to the major feasibility study. In the last pre-budget report that this committee did, it recommended looking at accelerated depreciation for upgraders and refineries. Would something like that make this project more feasible?

[David Black]

I think the tax situation is already fine. We have done the cashflows and they work out fine.

[The Chair, Conservative, James Rajotte]

So something like that would not alter whether this project would go forward or not?

[David Black]

No, it wouldn't. We do need the kinds of funds I'm asking for to get it going, but it is nicely sustaining after that. It's a really strong business case.

[The Chair, Conservative, James Rajotte]

Okay. I appreciate that.

I want to return to the conversation we've had at this committee today concerning austerity. Like my colleague Mr. Van Kesteren, I am trying to understand exactly what people mean when they say “austerity”. The Oxford definition is: difficult economic conditions created by government measures to reduce public expenditure.

Mr. MacDonald, you raised this initially. I presume austerity would be reducing public expenditures, not increasing them. Would you agree with that?

[David Macdonald]

That's right. Austerity generally reduces the rate of growth of public expenditures over time.

[The Chair, Conservative, James Rajotte]

I'm looking at the annual financial report that was put out recently, pages 17 to 20. Among transfers to persons, elderly benefits go up 5.8% from last year; children's benefits are up 2%. Transfers to provinces for health and other social programs are up by 5.4% over last year—that's 6% for health and 3% for the Canada social transfer. I find it very odd that we use terms such as “austerity”.

In the mid 1990s, the government cut very substantially the transfers to provinces, so I can see defining that as austerity. When people use “austerity” to describe a situation when transfers to persons and transfers to provinces are both increasing, I find it very confusing to determine why those terms are used to describe increasing public expenditure. It seems to me to be the exact opposite of the definition.

[David Macdonald]

What may be confusing is that in this case we're talking about the change in the rate of growth over time.

For instance, if you take a look at the operating budgets of the federal government, which had been frozen, they're not declining in that sense; however, inflation still eats away at their value and the amount of services they can deliver, one thing that Kevin Page has highlighted.

For those speaking about austerity, particularly when we look at it from the perspective of economic growth, the question is how much governments are contributing to or withdrawing from economic growth over time. Are they continuing to push economic growth, or are they becoming a drag on economic growth?

Certainly in the past year they were a much less important portion of economic growth than they were, say, in 2009 and 2010—following the stimulus years, when they were a much more important component of economic growth.

[The Chair, Conservative, James Rajotte]

I think we have to admit that those are two extraordinary years of responding in concert with the other G-20 nations to the global recession, spending 2% of GDP on massive stimulus programs, which the government put in place. But also, at the same time it had, as a result, a deficit of $56 billion.

You also talked about the importance of getting back to a balanced budget position, so this is a very confusing message, frankly. To use “austerity” when we're increasing by 5.4% to 5.8% the major transfers from the federal government to persons and provinces is I think language that's frankly not appropriate.

And you can say that of the $70 billion of the rest of spending, government sought between 5% and 10% reductions from departments. But to describe that as austerity, compared with what some other western industrialized countries have had to do with respect to their public benefits is I think language that's not appropriate.

[David Macdonald]

I think you're absolutely right, in that the Canadian government's austerity measures were not nearly as severe as other governments'—particularly European governments'—austerity measures. Those have been a complete disaster. Austerity measures in southern Europe, for instance, have caused a wholesale depression there. Certainly, it's a much smaller scale that we're speaking about here in Canada.

However, I would point out that economic growth has been quite slow, despite the fact that we are seeing small amounts of economic growth—well under the 2.5% to 3% that we saw in the decade of the 2000s. Driving that growth back up more to the potential of the Canadian economy should be a key concern of the federal government.

[The Chair, Conservative, James Rajotte]

It absolutely is, and I think that's a very large discussion we can have. Unfortunately, I'm.... Mr. Keddy wanted one minute for one question.

Please, very briefly.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Mr. Chairman, you looked at me like you didn't believe I could do this in a minute.

There are a number of questions I'd like to ask, but the one I have is for Mr. Black.

Your project sounds quite phenomenal, actually. I think most Canadians certainly see the merit in it. The only problem that I can see with it is that you're looking at a 10-year payback period on a multi-billion dollar project, which is a very quick return on your investment, and you only have one customer. I see that as extremely problematic. Have you looked at the rest of Southeast Asia and how you get away from the one customer conundrum?

[David Black]

Yes, sir. I think you've named two potential problems. The first is on the ROI. The ROI turns out to be very good. I can take you through the P and Ls, the cashflows, and the ROIs, but it's very strong, partly because there really isn't very much expenditure for the first three years. That's the permitting period. That's when we have to spend $100 million to $200 million, but that's about it.

The construction period is five years after that, and for much of that we don't have to put out big money because export development agencies elsewhere will pay for the building of the prefabricated components. The money we have to spend comes late in the construction cycle, and it ends up turning a very good ROI.

In terms of one customer, we're safe on that front. What we will do is have a take or pay contract with a country like China that wants all of the fuel, and of course they're prepared to put up most of the money to build the project. If they were to pull away from their take or pay contract and say “sue us”, which could be a problem, they would leave behind all of the financing that they put in place for the project. I think we're rock steady there.

The most important thing I've learned over 45 years in business is that it isn't the contracts we write; it's what's driving the partners to a deal. In this case, the Chinese are driven to this deal because we are simply the best supplier of fuel for them for the next 100 years. Remember, they're dealing with every dictator in the Middle East and Africa. They need more fuel every year. They need 500,000 barrels more every year, and we're the best.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Keddy.

Mr. Côté, you have two minutes.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

What a luxury. Thank you very much, Mr. Chair.

I will address Mr. Macdonald.

I am sorry I did not have enough time to ask Mr. Hodgson a question about the innovation report card provided by the Conference Board of Canada. In terms of Canada's performance, the Conference Board says that Canada's improved showing is fairly minimal and more a reflection of weakness among the other peer countries than of a stellar economy. It also says that Canada has been a chronic laggard on several of the more important indicators—notably, labour productivity growth and competition for global investment.

Could you comment on the fact that we are so vulnerable and that we depend heavily on the rest of the world to save our skin to some extent?

[David Macdonald]

Thank you very much for your question.

In terms of Canadian innovation and some of the productivity problems that we're seeing going forward, one of the things that I think we need to remember is that in some sense, slow productivity is offset by a significant increase in the labour force, particularly since the 1980s, as women entered the labour force. There may well be a trade-off that we're having there. Lower productivity means we can employ more people. It may well be as labour markets tighten, as Canadians retire, the productivity will increase as we have fewer people to fill those positions. There is some international evidence to that effect, so we'll see how that plays out on the international stage.

Certainly trying to help our companies improve and drive productivity forward is something we should be looking at, irrespective of some of this international evidence.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Merci beaucoup, Monsieur Côté.

Thank you very much to all of our panellists, all of our guests, both here in Ottawa and Mr. Black in British Columbia. Thank you so much for being with us here today. Thank you for your input into pre-budget consultations.

This meeting is adjourned.