Finance Committee on April 29th, 2014

[Jean-Denis Fréchette]

Is that an official request that you are making in public here?

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

Yes.

[Jean-Denis Fréchette]

We will proceed as we usually do when we receive requests of that kind: we meet with the person making the request to discuss the parameters of the report.

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

As I only have a minute left, I would now like to talk about the impact of the employment insurance operating account on the public purse.

Clearly, the government is trying to achieve a balanced budget. At the moment, the employment insurance operating account is accounted for by the government as part of its general accounting.

What impact will the decisions on the level of premiums have on achieving and maintaining a balanced budget for the federal government? Are we talking about a significant impact? If you are saying that the probability of reaching a balanced budget is 50% and that figure goes to 60% to 70% in future years, the impact of the account must be quite significant.

[Mostafa Askari]

If I may, I will answer this in English.

We have looked at the current rate, which is 1.88% and which the government has frozen for three years, but that creates a surplus in the account, which, based on the rules and the regulations that actually were introduced by the government, should not be the case. Based on a calculation, actually the rate could go down below the 1.88% that they have. That will eliminate the surplus in the account in 2015-16.

Overall, what we'll see is that there's going to be an impact of $2.2 billion on the budget balance in 2015-16 and $2.8 billion in the following year because of that change, if you follow the legislation for this.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Caron.

Mr. Allen, please.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Welcome to the PBO staff.

I'd like to follow up on that last question on EI premiums. I'm looking at the chart that's in the 2014 budget. As you know, the 1.88% premium stays in place until 2016-17, and then at that point in time the EI operating account is projected to be at a surplus of 6.4%, but then for the next two years we're projecting benefit drawdown on that. Isn't it prudent that we keep the schedule to make sure that we're balancing over the seven-year basis, as we've said, and not run up a great big surplus in the EI account and have it taken like the Liberals did?

[Mostafa Askari]

In fact, on the issue that we have with that, if that rate could have been dropped much sooner without really creating any further deficit in the account—so a drop in the rate sooner—it would have actually provided that savings to Canadians without really creating any deficit in the accounts. This is where we have an issue, and we've provided an alternative scenario that would in fact show lower premium rates for EI without really creating any deficit in the account, and in fact, the account would be balanced over the seven-year period as the legislation requires the account to be.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Did you project anything beyond 2018-19? Is there going to be a further drawdown on that?

[Mostafa Askari]

Yes, we do that, in fact.

What we do is we make sure that we follow the legislation so whatever premium rate we put in there would actually ensure that the account would be balanced over that seven-year period, which is in the legislation.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I want to follow up on the labour situation. You indicated there's no credible data to say there is a shortage, but at the same time you can say that there isn't a shortage. I don't think you can say there's not a shortage if you can't determine if there is one.

I'll give an analogy, and I'm going to follow up on Mr. Saxton's comment. I have a pretty significant trucking industry in my riding, and they are constantly looking for long-haul truckers. Most of the stuff in western New Brunswick, because there are no train tracks in western New Brunswick, has to move on a truck. There is a lot of advertising; they are looking for temporary foreign workers quite often. I wonder if we can get into this, because there are a number of people out there who have the skills to truck but for various reasons do not want to do the long haul, or may not be able to meet the requirements of a long haul for crossing the border.

Do you believe that maybe there are some of those types of things in there, because there is an estimate, you think there are workers out there, but they are really not ones who can do the job?

[Mostafa Askari]

Normally in a dynamic labour market there is always a mismatch of skills. That's why the unemployment rate actually never goes down to zero, because there's always that kind of mismatch in the labour market. New people come in and new jobs are created, so part of that is normal. The issue is whether that kind of a mismatch is above the normal level.

As I mentioned, based on the existing data that we have from the Conference Board of Canada, we cannot really see any strong evidence that there is a widespread shortage. Certainly, there could be shortages in certain areas and for certain professions and in certain localities in the country, but there doesn't seem to be, at the higher level, any evidence that there is a widespread shortage.

Again, as I said, we looked at the ranges by different professions, but they don't seem to be moving much. If there is a shortage, one has to see that market signal, otherwise the market would not function if that signal is not there. That's how we do our analysis.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I have to get some of my trucking firms to call you.

In one of your statements here you mention that as the economy reaches its potential level of economic activity, PBO projects real GDP growth to be below 2% annually in 2017-18.

Can you comment a little bit as to what the drag is in 2017-18, and what led to that more conservative forecast out in time?

[Mostafa Askari]

There are a couple of issues here. The way the projection is done normally, because we always look at the potential output as a sort of driving force for the economy because everything, in our view, has to go back to that.... Part of that is the economy cannot really operate above its potential for a long period of time. Eventually there are forces in the economy that will bring that back down. Also, during that period you see interest rates rising eventually, because now we are seeing the interest rates are going to be essentially constant until mid-2015, and then after that interest rates will start rising, as it's required for the Bank of Canada to control the rate of inflation once the economy reaches its potential.

That by itself will provide some kind of a drag on economic activity. It's consistent with that kind of a story that overall the economy is sort of moving towards its normal level of operation. From 2016 to 2018 we are actually moving above the normal level of operation of the Canadian economy. That cannot be sustained for a long period of time. Eventually it has to come down to its normal level of operation.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

In your projections when you talked about Mr. Saxton's question with respect to if everything stayed status quo, by 2040 we would wipe out over $600 billion in debt based on the current path we are on. That seems pretty impressive to me.

I wonder if you could reconcile the statement that therefore there's limited room to implement new policies that reduce tax revenues or increase spending without introducing structural deficits. It seems to me that if over 26 years you're able to pay off $600 billion in debt, you probably can do a few policy issues. Maybe you could reconcile that for me.

[Mostafa Askari]

Absolutely. If you look at the long term, based on our estimates, we have room of about 1.3% of GDP, about $25 billion, which the government can actually increase spending or reduce taxes without raising the level of debt-to-GDP ratio.

The statement that we have in the report is talking about the medium term over the five-year projection. If one does not want to see another deficit in those five years, then the room to manoeuvre within that five-year period is very limited and limited by the structural bounds that we are showing in our estimate. It is not very large; it is about an average of $2 billion.

[The Chair, Conservative, James Rajotte]

Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Welcome and thank you to the team and Mr. Fréchette for being here and for the excellent work you do.

As you mentioned, Mr. Fréchette, the NDP has been pushing for a CRA strategy on tax cheats and for the government to measure the tax gap, a multi-billion dollar problem as you know. Mr. Keddy says that other countries don't do this. Well the United States and the U.K. have found econometric models to do just that, and we, of course, asked that you take that on to get the data from the CRA.

As you mentioned, Parliament is going to vote tomorrow on a motion from our colleague Monsieur Dionne Labelle to order the government to order the CRA to provide the Parliamentary Budget Officer with the information necessary to provide an independent estimate of the federal tax gap.

If you had those tools, if you had that data, could you undertake the analysis?

[Mostafa Askari]

Yes we can.

[Murray Rankin, NDP, Victoria, BC]

I just hope that our colleagues will join with us and vote in favour of access. In fact, speaking of access, Mr. Saxton asked you to look at more data on a particular subject. I note that in your summary to us today you say:

PBO takes Finance Canada's projection for DPE as given, as the government has refused to release data required to assess if the current restraint is sustainable and to allow PBO to do its own projection of DPE.

It looks like the government is not giving you, according to your statement, the kind of data you need.

[Mostafa Askari]

That refers to a request we had after the 2012 budget to have access to all of the cuts as a result of the operating review. We wanted to assess the impact of the cuts on the service levels by program. We did not get that information at the time. If you remember, we even went to court to get that information, but we have not received that.

[Murray Rankin, NDP, Victoria, BC]

I certainly do remember the government's unwillingness to give the Parliamentary Budget Office the data it requires to do its work, so it's somewhat rich to hear about you seeking more data.

Mr. Askari, you also have a quote here that I think is interesting. In your statement you say:

PBO's outlook incorporates both stimulative and restraint measures introduced beginning in Budget 2012. PBO projects that the level of real GDP will be 0.5 per cent lower in 2016 than would have been the case in the absence of these measures. Further, this economic impact translates into about 46,000 fewer jobs being created by 2016.

In terms of billions of dollars, how much lower do you expect the GDP to be in 2016 due to Conservative budget measures?

[Mostafa Askari]

Well, 0.5% would be about, I believe, $8 billion, $9 billion—

[Murray Rankin, NDP, Victoria, BC]

Eight billion dollars to nine billion dollars.

[Mostafa Askari]

—I don't have all of the numbers in front of me, but....