Finance Committee on Nov. 5th, 2013

[Kevin Page]

Very quickly, I think balanced budget legislation, perhaps in the context of a country that's experiencing very high debt relative to GDP.... We don't have that. We had that in the 1990s. I think “normal” times to economists means when the economy's operating at its potential, and that's when the budget is balanced.

The government right now has a strong commitment to get back to balance. We see progress towards getting back to balance. Personally, I don't see the need for legislation.

[The Vice-Chair, NDP, Peggy Nash]

Thank you.

Mr. Jean.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you very much.

I appreciate everybody coming today to testify.

Mr. Black, my questions will be directed towards you. I would suggest your testimony today is very appropriate, in that our job is, in part, to improve the Canadian economy, to build and secure our economy, and to increase productivity numbers. I would suggest and submit that your proposal does exactly that.

The future, indeed, looks bleak for our oil industry, which is obviously an economic driver now for our economy. We expect the United States to import less oil. We have constrained pipeline capacity, and we're, in essence, landlocked out of the world market. We're getting minimum value added to our Canadian oil, as most of our refining is done in the United States. Our real threats are not in relation to the supply, because we have one of the largest supplies in the world, but in the constraint in delivery to the world market. In fact, some experts have indicated that we lose $30 million to $50 million per day in the Canadian economy as we're forced to sell to the United States.

Now I understand your proposal is economical. It's a $25 billion investment, one of the largest investments, if not the largest investment, in B.C.'s history—6,000 construction jobs, 3,000 permanent jobs, 3,000 indirect jobs, annual revenues of $25 billion, with a 10-year payback. It sounds like an incredible investment, with one of the greenest, if not the greenest, refineries in the world proposed. Two-thirds of the investment capital is guaranteed, and you have a guaranteed customer with one of the largest refineries in the world going forward. I also understand you're working well with aboriginals.

My question to you today, Mr. Black, is this: what can the federal government do? I saw in your proposal two things in particular, one in relation to a study and the other in relation to a loan guarantee. Is there a precedent? Do you see that this particular proposal you're coming forward with is similar to, for instance, the Muskrat Falls proposal that went forward recently and was supported by this government?

[David Black]

Yes, sir. In my discussions with Mr. Oliver, he mentioned that he thinks there's adequate precedent for this. I believe the Canadian government stepped up at least ten times. He showed me a sheet starting with the Lloydminster upgrader, Hibernia—there are a lot of projects where the government has guaranteed bank funds in order to get major projects that are vital to Canada's future off the ground. The last one, of course, is Muskrat Falls; I think it was $6.6 billion.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Related to this particular proposal, do you see anything being a stumbling block from here on? Do you see the aboriginal issues being a stumbling block?

On page 6 of your proposal you talk about B.C. social licence. The statistics you quote show that British Columbians look very favourably indeed on your proposal. But I am wondering in particular about the aboriginal issues.

[David Black]

I think we will be able to solve the aboriginal issues. I think we need to play our cards close to the chest for the time being, because certainly no one wants that kind of thing to be said publicly; it just raises hackles. We have, as I said, spoken to 25 chiefs directly so far; we have not had a solid no. There are a couple who are going to be a little tougher to convince—and they have been publicly dismissive of Northern Gateway—but even those two are saying “David, you show us statistics that prove your statement that modern pipelines are safe and we will change our minds.” I can show them those statistics; they are available. So I'm quite confident that we will get almost all, if not all, of the first nations on side.

They do understand that if it doesn't come by pipeline, the pressures are such that it will come by rail. They do understand that that is not as good, that is not as safe, and it is much more disruptive of small town life—there are a lot of level crossings out here in the west—because it would add 12 trains a day, and of course there's no extra money in it for first nations or for the communities and the tax base, whereas if you put a pipeline through, there's a lot of extra money. They do understand that there are a lot of reasons for this.

We're in Kitimat right now talking again to three of the first nations and the town councils, just keeping everybody up to speed, and it's going very well.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Very briefly—I only have 30 seconds left—you mentioned something in your brief about neutralizing the current amount of GHGs from the oil sands because of the savings on the per barrel production that your refinery would do. Could you explain just very briefly how you came to that conclusion?

[David Black]

Yes. Under the new approach we will use, greenhouse gas emissions will drop. The CO₂ emissions will drop from seven million tonnes a year to three and a half million tonnes a year. That saving of three and a half million tonnes pretty much neutralizes the extra tonnes of CO₂ given off by creating steam over in the oil patch. In tandem, the extraction and the refining aren't that much different now from any other oil field and refining in the world.

We do believe that the—

[The Vice-Chair, NDP, Peggy Nash]

Thank you, Mr. Black. I'm afraid we're out of time.

Thank you very much. Maybe we can come back to you in another round of questioning.

Monsieur Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chair.

I would like to welcome everyone.

My first question is for Mr. Godbout.

Mr. Godbout, you spoke about balanced budgets and having balanced budget legislation. The NDP has said many times that it is in favour of balanced budgets, but over a business cycle. We heard in the throne speech and in conversations with Minister Flaherty that he provided balanced budgets for each so-called "normal" year. Normal remains to be defined.

First, do you think the approach of the annual balanced budgets—depending on how you define the word "normal"—is too restrictive compared to the approach of balanced budgets over the entire business cycle?

Second, what would be the consequences of not attaining this balanced budget if a specific situation means that we cannot balance it? Would the Minister of Finance go to jail? How would that work?

[Prof. Luc Godbout]

As I was saying, there are rules. In Sweden and Switzerland, the rules apply to an entire business cycle. You still need parameters. Quebec's balanced budget legislation says that you can have a deficit as long as, if you have a surplus, you put it in the bank virtually. The next year you have a deficit, you dip into the surplus to absorb the deficit. That is basically the same thing. The idea is to have a balanced budget throughout the business cycle. It is a good thing.

However, you don't need legislation for that, but you need a rule to know where you are heading. Of course, the rule is simple: you have a deficit when things go wrong and you have a surplus when things go well. However, even when things go well, it is hard for a politician to find the right time. The federal government has had a deficit for 25 consecutive years. I am not sure things have been bad for 25 years. Quebec has had a deficit for 40 consecutive years, and I am not sure things have been bad for 40 years. Allowing deficits to linger for a long time means that other generations will have to pay for our spending, which is not any better either.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

When all is said and done, you are telling us that this measure is more symbolic than anything, but it is sending messages similar to the message sent by the governor of the Bank of Canada when he talked about his forward guiding.

[Prof. Luc Godbout]

It is sending clear messages.

Second, we have to look at the consequences of not complying with a rule like that. In Quebec, the only consequence is moral authority based on what editorialists say and so on, but the minister will not go to jail. In some other provinces, however, when a deficit is looming, the ministers see their wages cut. The consequence is not the same, and I am not sure whether the impact is stronger, but you see how you can play with either the ministers' wallets or the media reaction to the news.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

Mr. Page, I would like to ask you a quick question.

You talked about the GDP being reduced and jobs being cut because of austerity budgets. You are talking about potential jobs not being created and growth not taking place. Is that correct?

[Kevin Page]

That's correct.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I have a second question for you about the statement Minister Flaherty made a bit earlier. He said that the government's objective was to reach a debt-to-GDP ratio of 25% by 2021. Is 25% a meaningful number? What are the pros and cons of achieving a target of 25% rather than 24%, 26% or 27% by 2021?

[Kevin Page]

It was just a few years ago when the previous government had a debt-to-GDP and net debt-to-GDP target, or accumulated debt target, of 25% in 2011 and 2012. Now we're dealing with a net debt-to-GDP of about 34%. Now we're talking about trying to get back because of the recession, because of the stimulus package. We're trying to get back to something that will look like 25% in 2020 and 2021.

I don't think economists could tell political leaders that there's a right level of debt relative to GDP. I think it's your decision. One thing that's important, as somebody who worked at the finance department for years, is the carrying cost of that debt. When this government inherited a pretty strong fiscal structure, a fiscal surplus, they were paying roughly 13 cents of every revenue dollar for debt interest charges. In the 1990s, just as an example, we were paying 38 cents on every revenue dollar in public debt interest.

As we move forward, you want to keep debt relatively low so we can keep the carrying cost low on that debt.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I have one last question for Ms. Presseault about the concept of tax simplification.

Is it possible to do a comprehensive review on tax simplification without reviewing the tax system as a whole? You are suggesting a panel of independent experts, but that sounds a lot like a simplified version of a royal commission such as the Carter commission. Would it be better to do a study on the tax system or a study on just tax simplification?

[The Vice-Chair, NDP, Peggy Nash]

If I could just interject, you're actually out of time. Could you please give a brief answer to that huge question?

[Carole Presseault]

The objective of the review is tax simplification, the process and tax reform.

[The Vice-Chair, NDP, Peggy Nash]

Merci.

Mr. Van Kesteren.

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

Thank you, Chair. Thank you all for being here today. Mr. Page, thank you for that explanation. I think that was most helpful when you talked about the importance of keeping our debt level down.

Speaking of debt, Mr. Macdonald, you mentioned, and statistics prove, that household debt is far too high. Is it a bad thing to increase your debt when one is having personal financial difficulty? A simple answer will do.

[David Macdonald]

It may be a potentially bad thing to increase personal debt.

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

Would you say in most cases it's a bad thing?

[David Macdonald]

It depends on what you're paying for, I suppose, with that money you're taking out through a line of debt.