Finance Committee on Sept. 29th, 2014

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

There's another point in your report that is interesting. It concerns Old Age Security.

You mentioned the impact of the government's decision to increase the age of eligibility to OAS from 65 to 67, which will of course help on the federal side, but does not help so much on the provincial side. If the situation were reversed and if people could access Old Age Security at 65 years of age, according to the report you produced, this would in the final analysis help the provinces financially.

Did I understand that part of the report correctly? Could you make some further comments in this regard?

[The Vice-Chair, NDP, Nathan Cullen]

You have about a minute left, Mr. Hodgson, to wrap up.

[Glen Hodgson]

First of all, I want to emphasize that we were very much in favour of shifting the operating rules for the Canada Pension Plan. We did the right thing a decade ago when we put it on an actuarially sound basis. In view of the aging population, we think we also have to shift the operating rules.

We actually haven't analyzed how that plays throughout the tax system. Clearly, there are going to be fiscal impacts. But I can't actually speak to this in detail, because we haven't analyzed it.

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

I can even read it to you.

In your report, you did not discuss the Canada Pension Plan. You talked about the Old Age Security plan.

If the government were to reverse its decision and allow people to receive OAS benefits as of the age of 65, the provincial and territorial deficits would be lessened. So that is one thing the federal government could do to help to put the two levels of government on a more equal footing.

[Glen Hodgson]

I can't speak to the report itself because there are four of me at the Conference Board, and that didn't come from my division. But I'm sure if my colleagues wrote that, they got it right.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Thank you. Merci.

We'll go to Mr. Allen, please, for five minutes.

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

Thank you, Chair.

I'd like to start with Mr. Kingston and Mr. Hodgson, please.

Mr. Kingston, you talked about productivity and long-term challenges. We're also talking about some of the GDP growth being spurred on by business investment, exports, and things in the future years—in the next two years especially.

I just want to understand this. When you look at the cash on the balance sheets of some of these companies, and productivity, what are some of the ways you see that this committee could recommend for you to actually spur that investment?

I know you've talked about accelerated capital cost allowance as one of the things. It always strikes me, though, that with accelerated capital cost allowance, if you make it permanent it's not necessarily going to spur a business to do something, as opposed to putting a time limit on it, which might. You have to balance that with the timeline for investment decisions, and major ones.

Could you both comment with respect to how we would do that? Is it through tax measures or is it through regulatory improvements? I know that some small businesses are hinged up on regulatory aspects that prevent them from making investments as well.

So is it tax measures? Is it regulatory? Is it a combination of both? Are small and large businesses impacted differently?

[Brian Kingston]

Thank you.

I think something that would be very helpful to spur productivity for large businesses is a direct R and D program.

A couple of years ago when changes were made to the SR and ED tax credit, it had a very adverse effect on the large Canadian corporations that are responsible for the lion's share of R and D investment in Canada. We estimated that this was going to result in a 25% to 30% reduction in R and D spending by large corporations.

I think if you want to increase productivity and improve research here in Canada, it would be through a direct program that would help these companies make investments in R and D.

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

Mr. Hodgson, do you have a comment?

[Glen Hodgson]

To be really frank, I'm not sure there is a silver bullet. I'm not sure there's much you can do through the tax system or through regulation to change that.

The fact that we're sitting on about $625 billion of cash stuffed in corporate balance sheets is due a fear factor. It's a reflection of an uncertain world out there, of not knowing where the world economy is going. I would suspect, for example, that all the free trade deals we're either signing or pursuing are inherently good things because they give market access to other growing markets.

But I'm not sure there's a silver bullet that could come along and fix the problem. I think you really have to keep building confidence in the private sector. The fact that the American recovery is so strong is a good thing, so we're forecasting private investment growth next year following along stronger export growth.

I wouldn't necessarily advise going in, doing more fine-tuning and fiddling with the tax system.

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

You both also talked about tax reform and simplification and then commented about taxing the right things. What does that mean? You also made one other statement with respect to infrastructure when you commented on infrastructure that would help us transport goods. I know there's been a lot of investment in road and highway infrastructure. Does that suggest that some infrastructure investment is more equal than others?

[Glen Hodgson]

That's a very good question. First of all by “tax the right things” I meant what do we really value in creating long-term wealth? We value investment and income. So we value individual effort. We don't value consumption. Economic theory is very clear on this: consumption taxes are not a long-term wealth creator—albeit they're popular politics. Frankly, taxing carbon is another way to raise revenue and put a price on things that are not good for our economy in the long term.

In terms of your second question, we've had the chance to do a lot of the analysis for the federal government and the provinces on the infrastructure programs that were put in place to stimulate the economy in 2009-10, and they're not all equal. Although infrastructure spending is good for the economy because it has very high local content, not every form of infrastructure spending is equally good. But compared to other forms of spending, it's a very good form of spending to kick-start an economy right away.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

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

Mr. Holle, really quickly, you've suggested some pretty profound change. The question then becomes, how realistic is that change? I say this because I haven't seen many provinces come to me to ask me for that.

[Peter Holle]

That's why we have independent think tanks that accept no money from governments. Our goal is to push the envelope at the Frontier Centre. We hear from politicians privately that they agree with us, but it's very difficult to move the ball. Again that's our role. I think this can be framed in terms of lots of benefits for Canada if it's done right. I was once a civil servant and I know the story of bad systems and good people, and I think the government and every politician could do a lot by talking about having better public services and using better accounting. A lot of this stuff around infrastructure deficits is coming out of accounting issues, which can be fixed.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Allen.

We'll go to Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Thank you.

Thank you to all the witnesses for coming.

I would like to start with Mr. Hodgson of the Conference Board, if I might. You had a very sobering study on the gap between young and old that you've referenced today, and you even used the expression “leaving a generation behind”. As a former professor I sure meet a lot of students who are very pessimistic about their future, with youth having twice the unemployment rate, and so forth.

You also referenced the infrastructure deficit and how the government has really only made a “good down payment” on that. Is there a link? Is there a way in which the two issues can be addressed? By increased infrastructure spending and better training can we find new opportunities for youth? Have you put your mind to that?

[Glen Hodgson]

We haven't put our mind to it expressly, but sure there's a linkage between investing in a public good that we need that's going to last 50 years and skills development for young people.

[Murray Rankin, NDP, Victoria, BC]

Mr. Moist, I appreciate your presentation and see that you elaborated on a number of things from your brief today, and some that you didn't. One that you did reference was the growing and record levels of household debt. At the same time you say that corporations are hoarding over $640 billion in surplus cash, more than the federal government's entire debt. First of all, if that figure is accurate—and I invite you to tell us where you got it—do you have any suggestions how we might be able to use a budget to address that and somehow lever that money out for the public good?

[Paul Moist]

Thank you.

Through the chair, first of all I agree with the G-20 report that I quoted—Mr. Brison was speaking about the finance ministers from the G-20—that one feeds the other. High unemployment and stagnant wages truncate people's purchasing decisions, and if business is going to lay out $1 billion.... I was in Washington two weeks ago talking with a Canadian representative about how he's trying to pitch the unused manufacturing capacity in Ontario to people for expansion. If a company's going to put $1 billion into investing in their private infrastructure, they need to know that they've got consumers to buy. Our Canadian Labour Congress is meeting with the Governor of the Bank of Canada next week, and I think he holds a tough job right now. Interest rates are very low. That stimulates some real estate activity, but everybody wonders what would happen in Canada with an inflationary rise in interest rates to that edge of the economy, coupled with truncated or flat wages. I'm talking about the average worker. This seems to me what the G-20 was wrestling with last week saying “we can't shrink ourselves or cut ourselves to greatness”.

[Murray Rankin, NDP, Victoria, BC]

Yes.

The other thing that I think you didn't have the time to reference in your oral presentation, but which is found in your brief, is your reference to the infrastructure programs of the federal government. You mention in your brief that while there have been recent commitments to long-term infrastructure funding, “little of this money has flowed”. People have said that it's back-end loaded to 2017, that it's not going to help us any time soon.

But then in your material you talk about the so-called P3 screen. I've heard from big city mayors, and recently the Federation of Canadian Municipalities, who are very critical about the requirement of having a P3 screen. You say that eliminating the P3 screen and the fund “could save governments not just the $1.25 billion cost of the P3 Fund, but also many billions in future years from not engaging in these more expensive P3s”.

I wonder if you could elaborate on that.

[Paul Moist]

Through the chair, very quickly, there are four things I heard in Niagara Falls with 2,000 mayors and councillors in June at the annual FCM convention.

Number one, they do not agree with the new Building Canada fund's eliminating roads. You can't have a road project and have it funded.

Two, they completely disagree with not being allowed to use the transfer of the gas tax to your municipality to lever applications for other Building Canada projects. They don't understand where that came from.

Three, it is back-loaded, and there is significant frustration with that.

And four, most municipalities don't want to be told what the mandatory P3 screen is going to tell them. They want to be able to, if they choose to, not to mortgage debt into the future but to borrow more cheaply. For those municipalities with tax room to borrow, there couldn't be a better time for Canadian cities to borrow. They think that should be a decision that they want to make.

[Murray Rankin, NDP, Victoria, BC]

Gee, I can sure agree with you. I've heard that from so many mayors.

[The Chair, Conservative, James Rajotte]

You have only 10 seconds left, unfortunately.