Finance Committee on Nov. 3rd, 2014

[Mostafa Askari]

Well, I understand that is coming from CFIB, and—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

You've seen CFIB's analysis.

[Mostafa Askari]

We have seen some analysis from CFIB. The way it has calculated those job numbers is not the way that the job impact of a policy measure is normally calculated. It is talking about a job-year or person-year impact over a long period of time, which I believe is a 10-year period.

First of all, on the structure, based on the Employment Insurance Act, the account has to be balanced over a seven-year period. There is really no way you can get any gain or losses from this account by changing the premium. Whatever you do now, if you give credit now on EI, you have to offset that in the future by having the rate higher than what it would have been. If you maintain a higher rate now, the rate in the future will be lower. Whatever you do in that account over that period of time, it has to balance.

In effect, you can't really get any positive or negative impact from this account on the activity or on jobs.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Is this, then, why your conclusion comes to this $550,000 per job created?

[The Chair, Conservative, James Rajotte]

You have one minute.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Chair.

It's such an extraordinarily high figure. It is because of the very nature of the employment insurance account. If you borrow from Peter, you have to pay Paul.

[Mostafa Askari]

Well, yes, in fact. The way that the credit was done, it was only over a two-year period, so whatever the number of jobs we estimated, obviously the cost divided by that will be the cost per....

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

This is the last question. Has the government disputed your analysis of this EI hiring scheme?

[Mostafa Askari]

We have not seen any official comment.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Let's find out if they choose to now.

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cullen.

We'll go to Mr. Saxton, please, for seven minutes.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Chair. Thank you to our Parliamentary Budget Officer for being here with your colleagues.

Since coming to office, our Conservative government has been implementing its low-tax plan. In fact, since 2006 our government has lowered over 180 different taxes leaving about $30 billion in the pockets of Canadians. I think you confirmed that in your previous report.

The average Canadian family now will have an extra $4,500 in their pockets at the end of next year. In addition to that, corporate taxes are also now reported to be about 46% lower than those in the United States. As a result we're seeing companies like Tim Hortons moving their corporate head offices back to Canada in order to take advantage of our lower tax policies. This of course in turn creates jobs and grows the economy.

At the same time as reducing taxes we're also on track to balance the budget a year ahead of schedule. This is unusual because many countries in fact have to raise taxes in order to balance their budgets. We've been able to do the opposite. We've been able to keep taxes low and balance our budgets at the same time. Given this, would you say that the Conservative government's plan to stay the course by keeping taxes low and balancing the budget is working?

[Mostafa Askari]

We would not comment on whether a plan from the government or any other party works or not. We can provide an assessment of what the results are from those measures.

Certainly some of the things you just mentioned are facts. Obviously the measures that have been taken by the government in terms of the tax reduction... The balanced budget obviously is the consequence of some of those decisions, but I would not get into whether the program works or not. That's an assessment of policy, which we don't normally do.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay.

Would you normally then be able to say that because of taxes being lower in Canada we have had corporate head offices relocate back to Canada, which in turn has helped to create jobs and stimulate the economy?

[Mostafa Askari]

I think we have seen one example of that in terms of one major company moving their headquarters here and that definitely has some positive impact on the job market. But whether or not the tax is the only reason they have done that I can't really say as I don't really know what exactly the reason was they moved their headquarters. One could speculate that taxes would be one factor but whether that's the only factor or not I can't really say.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay. But I think it's clear that if taxes were higher in Canada they likely would not have come back to Canada.

In your report on the surplus you say, and I quote:

Policymakers should be wary of using surpluses to implement permanent tax relief or spending initiatives if they wish to avoid returning to deficits as economic growth subsides.

Then you go on later to say under the spending section:

There is policy room to permanently increase spending or reduce the tax burden by 1.4 per cent of GDP ($28.2 billion in 2014-15) while maintaining the stability of public debt over a 75-year horizon.

I don't quite understand. O the one hand, you are cautioning against putting in permanent tax relief measures and on the other hand, you are saying that there is room for permanently reducing the tax burden. Can you square that circle for me please?

[Mostafa Askari]

Certainly.

It all depends on what your perspective and fiscal anchor is. If the fiscal anchor is over the medium term and the objective is not to have deficits over the medium term then the room is very limited. As we showed, after the measures introduced last week actually the room is negative.

However, we do a long-term analysis of fiscal sustainability that uses fiscal debt-to-GDP ratio as a fiscal anchor. That debt-to-GDP ratio is the current debt-to-GDP ratio.

Our analysis shows that if your goal is to maintain a stable debt-to-GDP ratio in the long run and the long run is a 75-year horizon, then you would have the fiscal room of 1.4% of GDP. So again it all depends on what the fiscal anchor is over what period of time. If it is a medium term then there is not room actually left in the budget. But if you have a long-term perspective, which in our view is actually a more appropriate way of looking at the fiscal room, to look at the debt sustainability rather than the annual fiscal balance, in that case you would have a larger room.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you for explaining that.

Since our government took office in 2006, we've negotiated a record number of free trade agreements. I think we now have them with 43 different countries, and we had only five countries with these agreements in place when we came into office.

The most notable ones were the last two, which are with the European Union and with South Korea. They are both quite notable in the sense that the one with South Korea is the first free trade agreement with a country in the Asia-Pacific, and the one with Europe is notable because of its size and scope, so many countries involved, and such significant measures that are going to be taking place.

Our own analysts have calculated perhaps as many as 80,000 jobs will be created as a result of the European free trade agreement, and that could translate into $1,000 per Canadian family.

How effective are free trade agreements at creating jobs and growing the economy, and how will Canada benefit in the years ahead from these new free trade agreements as Canada has with the free trade agreement with the United States and NAFTA that was negotiated by a previous Conservative government in the 1980s?

[Mostafa Askari]

In principle, freer trade definitely would benefit the economy. That's without question.

We haven't done any studies on CETA, the new agreement with the European Union. We have a study on that in our work plan, but it would take a while to finish it. It's a complex project. Hopefully sometime next year we can provide that assessment.

[Andrew Saxton, Conservative, North Vancouver, BC]

Briefly, you mention in your report the importance of investing in public infrastructure. I think our government has made it absolutely clear that we agree with you. That's why we put a record amount of money in place to invest in public infrastructure.

Can you clarify for me or confirm to me that you think this is a good move the federal government should be doing?

[The Chair, Conservative, James Rajotte]

Reply very briefly, please.

[Mostafa Askari]

That was not a direct policy recommendation in our report. It was just an illustration of how capital investment would affect the budget and debt in Canada. We showed the impact on the budget is very small, and it may have potential benefits.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Saxton.

Mr. Chan, please, you have seven minutes.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Thank you, Mr. Chair, and thank you witnesses for your presentation, and thank you in particular, Mr. Fréchette, for your presentation.

I wanted to start by looking at the issue of oil prices. Oil prices have been dropping quite steadily since June by about 25%. A recent banking report suggested oil prices could drop to as low as $70 U.S. a barrel by Christmas.

Do you think falling oil prices will have an impact on the government's balance sheet?

[Mostafa Askari]

In general since we are a net oil exporter, in the short run there will definitely be a negative impact on revenue through lower corporate taxes.

The complexity of that issue is lower oil prices will benefit other sectors of the economy and also consumers because consumers will have more real income available to spend on other things.

So over time typically you get that negative impact on the revenues in the first year, and then the other sectors of the economy will adjust to lower energy prices and lower costs so some of that negative impact will disappear over time.

In the end the net impact on government revenue in Canada may be very small.