Finance Committee on Sept. 29th, 2014

[Glen Hodgson]

Well, in a very short response, if you don't enter the labour force and get engaged in a career path where you're building skills, you end up sucking the life out of the economy. It erodes productivity, the long-term wealth creation capacity of the economy. As taxpayers, we end up having to support them either directly or indirectly: directly through income transfers; indirectly through other forms of social support. It's imperative that we find a way to bridge kids from school into the workplace as efficiently as possible.

I like Brian's ideas very much.

[Scott Brison, Liberal, Kings—Hants, NS]

Is the direct financial subsidization by parents and grandparents of young people who have a good education but can't get a good start one of the factors that is driving record levels of personal debt? Is that one of the factors?

[Glen Hodgson]

I actually haven't taken the drivers apart. We like to sit down and do a serious analysis of the drivers of personal debt levels.

I suspect it's what Mr. Moist referred to. It's a matter of compensation for not having significant real income gains over time.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Scott Brison, Liberal, Kings—Hants, NS]

In terms of education and training—this is to Mr. Kingston's point as well—we need better labour data and more investment in solid data and evidence. You seem to be promoting that, Mr. Kingston.

Mr. Holle has talked of the importance of science and investment in scientific research. I believe you mentioned one example in particular.

Can any of you think of any organization in the world over the last 10 years, government or business, that has deliberately chosen to reduce both the quantity and quality of the data it collects? Can you think of anyone?

[The Chair, Conservative, James Rajotte]

Could just one person to respond, very briefly.

Is that a known—

[Scott Brison, Liberal, Kings—Hants, NS]

I can help you. It's the Canadian government. And it's a skill-testing question, because in this age of big data it's hard to find any organization, business or government, that has chosen to receive less quality information. So I would leave you with that.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison. Thank you for answering your own question. Thank you.

[Voices]

Oh, oh!

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Keddy, please.

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

Thank you, Mr. Chairman.

Welcome to our witnesses. You'll be glad to hear that I don't have any skill-testing questions for you because I think you're all very skilled in the categories you are representing.

I do have a question for Mr. Holle on an interesting statistic on how we collect tax dollars, with the federal government collecting 43% of all taxes. You make a bid for decentralizing services. Most of us would like to see a simpler or more simplified taxation system, but it's not something that can happen overnight. Do you really think that decentralizing services would be cheaper?

My concern would be that we'd end up decentralizing services and pass back more to the provinces and end up with a hodgepodge of systems across Canada where some provinces might have a fairly good system and encourage growth and opportunity, and other provinces would be left behind, frankly.

[Peter Holle]

You also have 10 laboratories of experiments where provinces might want to try new things, and what will happen is that there will be a sorting out and eventually the things that are working the best will be adopted by other provinces. What we have now is a system that is artificially enlarging the size of the public sector. There's just not a lot of accountability. When I look at a construction project and there are three levels of government involved, three levels of bureaucracy, three levels of administration, I can't see how that is saving anybody any money. It would be much smarter to give, for example, the gas tax back to the cities or to the province and have them then decide what their local priorities are.

On equalization there is some very good research that's been done by several think tanks showing that the money tends to stick to the bureaucracy and the bureaucracy gets larger. Why would they take money and pass it through? It also discourages innovation and experimentation with new forms of service delivery.

There is a lot of room to have a more creative, innovative public sector by having government stick to their knitting. The federal government is into certain roles—foreign affairs, armies, courts—but it shouldn't be involved in local issues, potholes and so on. The flip side is cities shouldn't be involved in federal issues as well.

There is plenty of opportunity to simplify things. I would argue strongly that the equalization system is actually helping nobody. It certainly hurts Manitoba, where the money has essentially gone into a large, slow-moving system.

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

On another point, there was a lot of discussion by all stakeholders of the national infrastructure plan that we have in place—about making it even more robust. So we come back to your comment on potholes. I don't quite see how you can have three levels of government really applying similar taxation policies and have that somehow simplify the system. It actually increases the layers of bureaucracy and the layers of tax.

I have one final question. We've had a substantial red tape reduction action plan. It was an ambitious plan. It's one of the best red tape reduction action plans in the world today. It underscores our reputation as a place to invest and, in addition, our one-to-one rule has saved Canadian businesses somewhere in the neighbourhood of about $20 million.

Again, if you don't have one umbrella, if you don't have one overseer, how do you make that happen at all the three levels of government if someone doesn't take a leadership role?

I'm not saying there is not more to do.

[Peter Holle]

Again, I'm arguing in favour of diversity, experimentation, and innovation. I look at the public sector in general in Canada, and it's not a world-beater. I could look at Australia, or New Zealand, or other places and ask, “What can we learn from them?”

We tend to have a bias towards in-house monopolies with no accounting measurement. We don't know what things cost. When you do the proper accounting, we generally have expensive services. I think you can look at some of the models out there where basically the government's role is to purchase the outputs from the marketplace, and if it can be done more efficiently in-house, they have the information and they keep it in-house. But if they have information showing that there are cheaper ways of doing it out of house, they go with that. We don't even have those information systems in Canada and, I would argue, at all levels of government.

Again, in terms of upgrading the policy DNA in the civil service and so on, I think there are some great opportunities. I'd encourage the government to look at that.

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

Mr. Kingston, you talked about a federal-provincial net debt somewhere in the neighbourhood of 52%. It's a pretty daunting number when you get up over that 50% mark. It's more than a little bit scary.

However, given the discussion we just had, you start to look at devolution of powers and devolution of taxation. You also need to have some societal buy-ins, some societal acceptance. Do you see that out there? Would there be societal buy-in and societal acceptance?

[Brian Kingston]

For debt reduction?

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

Not just for debt reduction, but for devolution of how we look at debt, at separating provincial debt and federal debt.

[Brian Kingston]

Well, I do see a bit of a concerning societal view on debt. When you look at the federal level, there seems to be an acceptance that the government should return to balance and reduce the debt. However, in some provinces there are extremely worrying debt levels. We had a recent election in Ontario where that didn't seem to be a huge concern coming from the population. I do see two different views on it, and I think it is something to be concerned about.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Keddy.

I now yield the floor to Mr. Caron, who has five minutes.

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

Thank you very much, Mr. Chair.

Once again, I want to thank the witnesses who appeared before us. Their presentations were quite interesting.

I would like to begin with Mr. Hodgson.

We won't discuss the most recent report which was on intergenerational equity, but rather the previous report which was entitled A Difficult Road Ahead: Canada's Economic and Fiscal Prospects.

At a previous meeting, some people mentioned that even if the federal government had a budget surplus, the provinces are far from having surpluses. So the road ahead is going to be quite difficult for them.

Indeed, you mentioned in your report that if we maintain the status quo, in 20 years, between now and 2034-2035, the federal government budgetary surplus will balloon to $110 billion, whereas the provinces will have clocked a deficit of $171 billion.

Given the current budgetary situation, what role can the federal government play to assist the provinces?

The federal government did several things. For instance, in the 1990s, it reduced transfers. Currently, it is adopting other measures such as the reform of employment insurance, cuting the growth of health care costs, and cutting health transfers to the provinces. These measures will have major impacts on the provinces.

In your opinion, how could the federal government act directly to help the provinces and try to reduce this disparity between the health of federal finances and that of the provinces?

[Glen Hodgson]

Well, that's the $64,000 question. Isn't fiscal federalism the nature of Canada? Trying to figure out what the alignment is between provinces and the federal government? Essentially, you have two choices. Either the federal government decides to vacate space and then provinces can step in and raise taxes, or you transfer more.

I don't think there's a single right answer. I think we've always ended up with a kind of blended system. In some cases, some governments have transferred tax points, which has happened in the past. In other cases, governments have chosen to transfer more funds.

What is clear is that most of the cost drivers in public services are at the provincial level. They include health care, which has grown by about 6% to 6.5% over the last 20 years. In a world of nominal growth of 4%, clearly something has to happen there in terms of the state of the health care system. It's the same with education.

The provinces have the expensive programs. Right now, the federal government has the revenue source.

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

I understand what you are saying.

[Glen Hodgson]

There's not a single answer; there's really an array of choices.

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

I understand what you are saying.

On the other hand, the government is also responsible for not making the problem worse.

For instance, there is a cut to health transfer growth. It will go from 6% to 3% per year, and the Conference Board of Canada assesses in its model that growth would be 5.2% per year. So the provinces have choices to make, but the federal government is transferring less money to meet their needs.

[Glen Hodgson]

Sacrifices have to be made. The federal government committed, I think it was three budgets ago, to a nominal increase in transfers after 2017, after the Martin accord runs out, in line with the economy. There's a policy debate around whether that's fast enough or not.

Frankly, we're not advocates. We don't have a view on that. But clearly there's a debate that the public has to have, as they elect members of Parliament, about whether they want to maintain that, increase it, or even decrease it.