Finance Committee on April 28th, 2015

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay.

When it comes to income splitting, you've got a two-parent family where one works and one doesn't and then you've got a two-parent family where both work. Why would it be fair to tax them differently in the sense that the whole purpose of the income splitting is to level the playing field when you have one parent who stays at home? It allows the two parents to average the income over two people, which is what two-parent families who both work do as well.

So why would that not make sense for a family that chooses to have one parent stay at home?

[Mostafa Askari]

Again, sir, going back to what I said earlier, we don't really pass judgment on the validity of the policy. Policy is proposed and made, and we just provide an estimate of the consequences of those policies.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Let's move on to oil prices for a moment here. I notice that you mentioned in your opening remarks that you expect the price of oil to range between $50 and $66 for the next five years, from 2015 to 2020. We all know that oil prices are extremely volatile. We've seen them move several dollars in a day and multiple dollars in a week and certainly in a month. You're talking about a five-year period when they're only moving a very small amount. Can you explain your rationale behind that?

[Chris Matier, Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament]

Underlying our projection for oil prices is that they are really just based on futures prices. This reflects the beliefs of financial markets and people who are trading and betting on oil prices.

In comparison to the private sector average, yes, it is lower, but I think it's also in line with the Bank of Canada's assumption that assumes that oil prices will remain at their current level over the next three years, so it would be in between those projections.

[Andrew Saxton, Conservative, North Vancouver, BC]

Now, am I reading it correctly that it shows pretty much a flat number over most of that period of time under review?

[Chris Matier]

It's a very gradual increase from about $52 on average over 2015 to $64 in 2019, and ultimately our end point would be at the end of 2020, which would be $66.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay, thank you.

Then finally on your GDP growth numbers, how do you arrive at those projections?

[Chris Matier]

These projections are based on our macroeconomic model, and it requires a lot of assumptions on the U.S. economy, commodity prices, as well as monetary and fiscal policy—

[Andrew Saxton, Conservative, North Vancouver, BC]

Do you take into consideration private sector economists' projections?

[The Chair, Conservative, James Rajotte]

We're over time. Just briefly answer that, and we'll come back to it.

[Chris Matier]

Okay.

No, our projection is an independent projection.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Brison, please.

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

Thank you, Mr. Chair.

Thank you very much for joining us again today.

Some time ago I requested that the PBO study Canada's federal tax gap. I think it was almost two years ago. Has the CRA provided you with the the necessary information to undertake this study?

[Jean-Denis Fréchette]

No. After several months of negotiations, because we made some offers...and we offered some protocol. If you remember, the last time we were here we mentioned that we even offered to pay for a certain series of data. At the end of the negotiations, we offered to go for a joint reference to Federal Court, and the CRA turned down that offer.

Now we are facing two things. There is a motion from a senator asking for a change to the CRA legislation, and we are continuing on our side. That's why in my opening remarks I mentioned the motion from the joint committee on the Library of Parliament. We will see, we will try that parliamentary remedy, and at the end of it, as I said before, going for a joint reference or a reference to court remains an option.

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

So you're prepared to take the government to court if there's continued non-cooperation.

[Jean-Denis Fréchette]

As I mentioned to the CRA commissioner, I would like to clarify his interpretation and PBO's interpretation, legal interpretation, of the CRA's...about the taxpayers' data.

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

Thank you.

On the oil price forecasts you referenced earlier, and Mr. Saxton referenced, your projections are much closer to the Bank of Canada's projections. The governor was with us earlier today and was saying WTI $55, Brent $60, but the government in the budget, as you know, is projecting an increase to $78.

Do you think it would be more prudent to assume a more conservative number in terms of growth, in terms of fiscal projections?

[Jean-Denis Fréchette]

I'll ask Chris, who is the expert on oil prices, to answer that question.

[Chris Matier]

Thanks, but I'm not an expert on oil prices.

I believe in the April 2015 MPR from the Bank of Canada, the assumption for WTI oil prices was $50 a barrel for the next three years, so out to 2017. As you know, oil prices are quite volatile and play an important role in the Canadian economy. I think in doing projections it's important to have probably a range of estimates, or at least a risk analysis around that.

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

Given the impact of oil prices on of course GDP growth, and of course the impact of GDP growth on government revenue, the delta between where the government is projecting oil prices to go in the mid-term compared to where you're projecting oil prices, or the Bank of Canada, on the fiscal impact, are we more in a deficit territory in the mid-term if oil prices, in fact, on a go-forward basis stay where you're projecting them?

[Mostafa Askari]

As we said in our opening remarks, there is about $20 billion difference between the nominal GDP or our estimate and the government or private sector estimates. That roughly translates into about $3 billion difference in tax revenues. So yes, obviously when you have a different nominal GDP projection, you get a different impact on the revenue.

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

That would put us back into deficit territory.

[Mostafa Askari]

That's reflected in our projection, which we show over the medium term as a slight deficit of about $2.5 billion over the last three years of the projection.

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

That's going to make that new balanced budget legislation tricky, I guess. Rosy oil price projections aren't really a good budgeting practice.

Structurally, are we still in deficit territory, then? Based on your projections, would you refer to that as a structural deficit?

[Mostafa Askari]

We are showing the actual structural numbers and roughly over the period we are essentially roughly balanced. There's a slight structural deficit in 2018-19 and 2019-20, but it's not really that big; it's about $1 billion.