Finance Committee on Oct. 31st, 2017

[Trevor Shaw]

Yes, exactly.

[The Chair, Liberal, Wayne Easter]

I'm looking at 2016-17 versus 2022-23. Just to tell you where I stand, I'm one who feels that personal income tax is too high and corporate income tax is too low. This year, corporations are paying 22.7% as much tax into the system as personal income tax is.

Five years out, the corporate income tax is going to go up a bit, from 22.7% of the share to 26.3%. Do you know why that is?

[Trevor Shaw]

A major reason our corporate income tax profile is, let's say, flatter as a share of GDP compared with personal income tax has to do with the fact that the proxy we use for the corporate income tax base is corporate profits before tax in the system of national accounts, and this has been very weak throughout the past two or three years. What's somewhat of a puzzle is that the taxable income base, as we see on CRA's T2 forms, has held very strong. Commensurate with that, corporate income tax revenues have been very strong as well.

Given that there has been very low profitability in recent years, we think this is going to lead to, let's say, great loss carry-forwards in subsequent years, which has led to us having a slightly weaker corporate income tax revenue profile over the next two or three years of our forecasts.

[The Chair, Liberal, Wayne Easter]

I have one other quick question.

How do we compare with the rest of the world in terms of business tax versus personal tax as percentages? Do you have those figures?

[Trevor Shaw]

I don't know off the top of my head but certainly that's data I can get for you.

[The Chair, Liberal, Wayne Easter]

That's great.

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I would also like to have those data, which clearly show that government revenues are increasingly coming from individuals rather than corporations.

Let me go back to table 6, which deals with elderly benefits. My question is about what I consider a demographic problem, which we will be facing in the future. According to the table, elderly benefits were $48.2 billion in 2016-17 and will increase to $66.9 billion in 2022-23, which is significant. I, for one, wonder how significant it is if we consider the big picture.

In your opinion, are demographics and the continued increase in elderly benefits problems that will eventually come up in Canada? What percentage of the total government budget do elderly benefits represent? Is there an increase in those benefits compared to the total government budget? If so, is that a problem?

[Chris Matier]

It's a really good question because I think it ties naturally into our fiscal sustainability report where we look out over the long term so we're able to see the impacts of population aging and the OAS and elderly benefits programs. We project a sizeable increase in them relative to the size of the economy out to its peak in 2032 or so.

One of the compensating factors is that these payments to seniors are indexed only to inflation. Over time, yes, as the baby boom cohort goes through and collects OAS benefits, as they depart, there will be less pressure, at least relative to the size of the economy. This is unlike, let's say, health care spending at the provincial level where spending is growing at the rate of the economy plus the aging that's going on. The federal government doesn't face this pressure. Once beyond 2032 we'll have more fiscal room.

[The Chair, Liberal, Wayne Easter]

Mr. Picard.

[Michel Picard, Liberal, Montarville, QC]

Thank you, Mr. Chair.

Mr. Matier, you said that the debt service ratio will be as high as it was when Canada went through a financial crisis. I do not have the exact year, but it was a few years ago. Is it not true that, when our country is in a financial crisis, debt servicing is a considerable burden, putting the country in a more precarious situation?

[Chris Matier]

I apologize if I misspoke. I didn't mean to say that the federal government was facing a fiscal crisis going ahead because of rising debt charges. If anything, even though we are projecting an increase in the level of public debt charges, these are manageable within the government's current fiscal policy. If the measure or benchmark is maintaining a debt-to-GDP ratio on a downward path it's not a crisis per se.

[Michel Picard, Liberal, Montarville, QC]

What I wanted to say is that if we're going to face a crisis, the height of this percentage that we were looking at seems to be similar to the one we got years ago when we faced a decline, a financial crisis. Therefore, at the time the country must have been in a more delicate situation than obviously the one we're looking at, considering there seems to be some positive trends to inflation, productivity, and revenue in general.

[Chris Matier]

I think the one important distinction that you really have to make relative to that period is that, yes, debt charges were high but our debt-to-GDP ratio was also at its peak, at least according to Finance Canada's fiscal reference tables. Around that time the peak of the debt-to-GDP ratio was about 67%. Right now it's 30%, I believe, so it's less than half of that.

In comparison to that previous fiscal crisis period, public debt charges are only around 8¢ per revenue dollar whereas previously 30¢ of every revenue dollar went to debt charges. Even though the level of debt charges might be comparable to that period, the broader context of the government's federal debt, relative to the size of the economy, and debt charges relative to revenue are very different.

[Michel Picard, Liberal, Montarville, QC]

And therefore very encouraging.

[The Chair, Liberal, Wayne Easter]

Thank you. We'll have to leave it there.

We have a split question over here from Mr. Albas and Mr. Poilievre, and that's it. We're a little over time.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

This is again in reference to last week's economic update, which quoted about an $18.4-billion deficit projected for this year. Your numbers are saying that it's higher than $20 billion. Why the difference?

I have a very short question after that.

[Trevor Shaw]

First, for the 2017-18 fiscal year, the major difference between our view and Finance Canada's was in our view on corporate income tax. We think that corporate income tax revenues will be lower than Finance Canada viewed them as being as part of the fall update. That explains much of the difference in our views on the budget balance.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Expand on the reason for that, if you could. Also, I have a further question. In previous years there's been a contingency fund, and now it's called a risk fund or whatnot—the name keeps changing.

Can you comment on whether it is helpful public policy to have a constantly renamed fund and whether it's appropriate for the Minister of Finance to cancel something one year and then bring it back under a new name the next year, in terms of profiling?

[Mostafa Askari]

Concerning the contingency fund, or whatever—the prudence factor—you're right. The name has changed over many years. There have been different definitions of this, but the bottom line is that it is just to protect against any kind of downside risk for the economy and possible changes in the global economy or fiscal structure. It's just a cushion that governments provide for themselves for unforeseen events over time.

For this update, it was $1.5 billion for 2017-18 and $3 billion for the rest of the projection period. The difference between our bottom line fiscal balance projection and the finance department's is essentially that we do not include a prudence factor in our projection, but they do. On average, that really explains the difference between the two projections.

[The Chair, Liberal, Wayne Easter]

Here is the last quick question.

[Pierre Poilievre, Conservative, Carleton, ON]

The chairman was asking about the relative share of the tax burden on corporations versus individuals. We have in this country a system of tax integration whereby companies pay the same tax on corporate profits as individuals pay on income, when the tax on dividends is included.

When corporate taxes go down, the tax on dividends automatically goes up. Is that correct?

[Trevor Shaw]

That's correct.

[Pierre Poilievre, Conservative, Carleton, ON]

The question I have, then, is, ought we, all of us—Finance Canada, PBO, and everyone else—not include the dividend tax that is paid on corporate profits flowed to shareholders? Should it not be included when we calculate the share of the tax burden paid by companies as compared with the share paid by individuals?

[Trevor Shaw]

My understanding of this is that dividends are a form of income to an individual, much as labour income would be, and that ultimately the owners of all corporate income are individuals themselves. Income is taxed either at the personal level or at the corporate level, and it's the desire, I think, of the Canadian tax system to ultimately have some harmony between those two systems. I don't think it's the role of our office to comment on the relative split between those two.

[The Chair, Liberal, Wayne Easter]

Is there a place in which those figures are accessible? It would give a fairer comparison.