Finance Committee on Feb. 16th, 2016

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

Fine.

So basically, you are saying that the increase in the cost of education above and beyond the 2% cap, that is to say all of the money that was not invested year after year over 20 years, amounts to $25 billion. As for the education budget, it is $3.3 billion.

Removing—and we hope that is going to happen—the 2% cap is an important step. There is also, however, the issue of spending on health and social programs. The provinces are currently receiving a 6% increase from the federal government. This means about 3% for social programs. As for spending on education, there seems to be a gradual yearly increase that amounts to approximately 5%.

Based on your knowledge of the issues, can you tell us about the increase in expenditures and investments for first nations programs?

[Peter Dinsdale]

Thank you for the question.

As you have indicated, each area has a different kind of proxy. In health we have the 6% proxy. We're seeing education being closer to 4.4% vis-à-vis the provincial jurisdictions. For things like infrastructure, we have no proxy. There's no existing proxy to utilize in terms of growth. For a lot of our growth estimates, we've taken the 4.5% rate, which seems to be an average of growth in the social indicators, and we applied those to the estimates that are in our submission as well.

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

Fine.

I have one last question.

You talked about the importance of the availability of clean drinking water on reserves, which is sadly lacking at this time. The government has committed to solving that problem and to putting an end to all of the boiled water advisories on reserves and among First Nations.

How can that be put in effect quickly, so as to attain that objective? Finally, what kind of investment will be required to achieve that?

[Dale LeClair]

I think the initial investment's going to be quite large. We have worked with the department, and there's been a lot of identification of what needs to be done and the types of investments. A great many are shovel ready, and many studies have been done. I think there is going to be the opportunity to do some immediate direct investment for those communities that are ready to go.

There are obviously far too many boil-water advisories in the country in our first nations communities that need to be addressed immediately, although they will take substantially more time to get at.

Right now, if we look at requests with regard to the infrastructure commitment, I would hope that in the first year the commitment that was made could be addressed within the 12- to 18-month timeline, as set out.

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

Thank you very much.

My questions will now be addressed to Ms. MacEwen.

On the topic of employment insurance, we often hear about the importance of premiums. A lot of the debate between the Liberals and Conservatives had to do with premium rates, especially those of the employer.

The role of employment insurance as an economic stabilizer is often ignored in the debate. We know that the situation in Alberta, Saskatchewan, and Newfoundland and Labrador is far from easy. Mr. Hodgson in fact confirmed that.

Can you explain to us how employment insurance plays a role as an economic stabilizer in communities, particularly during difficult economic times?

[Angella MacEwen]

Certainly. I'm actually a member of an employment insurance working group that has put out a pre-budget statement. In that statement, we cited federal government research from HRSDC showing that employment insurance is the single most effective automatic stabilizer that the government has, and it reduces the impact of recessions and unemployment by about 14% in the wake of recessions.

It's also money that can be got out quickly, so it's the fastest out the door. If you're worried about implementing the right infrastructure project, take your time to implement those infrastructure projects that we need to have done, and get money to people through the employment insurance program so that they can buy the things they need in their daily lives and make ends meet until they can find another job.

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

What has been the impact of the changes made to employment insurance? I am thinking in particular of the current situation where you can be eligible for employment insurance after having worked 910 hours.

In Alberta and Saskatchewan, for instance, many people are losing their jobs. Often, in order to survive they find small jobs here and there while hoping that the economy will recover. In the meantime, they nevertheless hold down several small jobs. Correct me if I am mistaken, but I think that at this time in Alberta, you have to have worked approximately 600 or 700 hours in order to be eligible for employment insurance. It varies according to the unemployment rate. So you must accumulate 600 hours in small jobs in order to have access to employment insurance.

Is that correct?

However, the reform that was brought in...

[The Chair, Liberal, Wayne Easter]

Mr. Caron, we're going to have to.... Ms. MacEwan could answer that, but we're running a bit over time.

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

In that case, I will ask one last question quickly.

Because of the reform, when you apply for employment insurance you have to be willing to accept a job with a lower salary.

What is the impact of these measures on the effect of employment insurance as an economic stabilizer?

[Angella MacEwen]

The changes that were made forced people to take lower-paying jobs or jobs outside of their original jobs. We lose the human capital that had been created if they have to take jobs outside of their normal work or end up with lower wages. We lose capacity. The company loses capacity. If we can keep those people in the higher-paying jobs related to the training they already have as much as possible, then we end up with a more productive economy.

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

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We will turn to Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair. The first question is directed to Glen, from the Conference Board.

Glen, in the last couple of months we've had significant revisions to Canada's economic growth profile for 2016. We've had a large downward revision in economic growth from the private sector forecasters. We've seen the output gap, if you want to call it that, probably not close quickly enough or as quickly as we had assumed.

We have 10-year government rates at 1% and 30-year rates at below 2%. We have a historic moment when we can undertake strategic investments, as you commented in your opening remarks, in a prudent fashion and allow the debt-to-GDP ratio to decline but at the same time take advantage of slackened labour markets where stimulus is needed, investment is needed, and there's an infrastructure deficit. We've had the Governor of the Bank of Canada comment that infrastructure spending and investment are economic enablers.

Two or three months ago, Mr. Bernanke was in Toronto, where he opined the same thing. We've also had the past governor, Mr. Dodge, come out vigorously for strategic investment in infrastructure across Canada.

I would like to ask your views on the infrastructure spending that could occur in the coming months. We think it will occur and that it is needed, with the understanding that we continue to allow the debt-to-GDP ratio to decline and we provide mild stimulus investment for the economy.

[Glen Hodgson]

There are a number of comments I could make.

First of all, I think it's fair to say that most economists now think we have to rebalance our macroeconomic strategy and that we've reached a point where cutting interest rates further is pushing on a string. The Bank of Canada has done its job now, as central banks have around the world. It is legitimate to think about adding a bit of a nudge forward in terms of physical stimulus.

We've done a lot of work on infrastructure over the years. Canada has systematically underinvested in public infrastructure for about the last 30 years. You have to go back a long period of time. The Federation of Canadian Municipalities talks about a deficit of $175 billion across the country. That's a shockingly high number simply to maintain current urban infrastructure. We're looking at a big bill. You can't fix that overnight. It's not a one-year plan.

It has to be almost a generational plan in finding more clever ways to dedicate federal, provincial, and city resources. I guess that's one of the key pieces. We've written about having all three levels of government working in harmony together as a collective. The feds have arguably more financing capacity, but don't have the line of sight the other two levels of government do. I would say a critical piece in this is coordination among three levels of government, working with cities and provinces to try to identify not only the most important projects but also the ones that are going to give you the biggest payback over a generation.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I would like to switch gears over to the Atlantic provinces.

We all are well aware of the demographic challenges facing Atlantic Canada and the economic challenges in terms of where the commodity markets are going. In my estimation, our government's agenda is to target strategic investments in innovation. Innovation occurring in Atlantic Canada is going to be key to getting that economy turned around, to getting growth back, and to reversing the internal brain drain that's occurring in Canada. I wanted to hear your thoughts on that tangent, please.

[Finn Poschmann]

Thank you, and thank you, Mr. Chairman.

I agree entirely with the premise of the question. Innovation is very important. The question is, who is good at choosing where we invest in innovative processes, in technologies, in industries or sectors? It's a mixed bag, looking historically across jurisdictions. Sometimes we get them right, but often we get them wrong. That is why, when I was describing, for example, a federal innovation box policy for the corporate income tax, the approach is silent. It's agnostic about exactly what it is or where it is that we pursue innovation and make use of intellectual property. That, I think, is more likely to produce good outcomes, because they're market driven.

May I add to the infrastructure prioritization question? I think there are great examples and bad ones. I generally agree with the themes that Glen enumerated. We do need long-term investment, and that helps you prioritize. The point that I was making earlier is that it has to enhance productivity, meaning things like transport linkages, such as ports and airports. Those all work.

I also strongly recommend, for something quicker, the point raised by the Assembly of First Nations on water quality. That is a terrific one. We don't have boil-water warnings because of lead or mercury poisoning. It's biological. It's bacterial or protozoan. We know how to deal with those things. We know how to fix them. The technology is off the shelf and not that expensive, and this investment would have huge improvements for quality of life and productivity on-reserve.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I think we're all well aware of the productivity challenge we face as a nation, and that ties into our innovation agenda, such as going through the universities and allowing them to flourish as incubators and so forth. Our government agenda is on that tangent. We need to do better and we will do better.

Mr. Chair, I'd like to share my time with the parliamentary secretary.

[The Chair, Liberal, Wayne Easter]

Okay, go ahead. You only have about 20 seconds, so you'll have to make it quick.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Let me just quote an IMF report. I'd like to ask Mr. Hodgson to comment on it.

It says:

...increasing infrastructure investment on quality projects tends to raise output in both the short and long term, without increasing the debt-to-GDP ratio.

I'd like to hear from you on that. That's the IMF report talking about Canada. Can you comment on whether you agree and tell us what your view is?

[Glen Hodgson]

Yes. We've done a lot of research for the federal government, for provinces, and for cities. Our research shows that $1 invested gives you more than $1 payback for the economy. It's one of the highest-priority forms of stimulus spending we could imagine.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Mr. McColeman is next.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I want to thank the witnesses for being here.

I'd like to start with Mr. Williamson.

You mentioned two items that are of interest to me as a previous small business owner. Point number one was control of the expense side of the balance sheet. It's all talk about spend, spend, spend. We've heard lots of it, and I'm sure we're going to get it. However, in your point number two you mentioned what the federal government would have control of on the expense side, and that's the public sector costs of running government.

I wonder if you could comment on one item that is timely in terms of what's going on there, which is the public service sick leave benefit that has been floated and what is going to happen with it. Do you have any thoughts regarding that?

[John Williamson]

We've all seen the reports over the last couple of years about the gap that exists between the public sector and the private sector, the cost of the current government system, and the need for reform. Reform is needed for two reasons, I think.

One, of course, is the cost savings that have been outlined in the past. The other deals with the intergenerational inequality whereby young public sector workers who come on the job might not have the hours or days built up to take time off if illness strikes them at an early age. It's a question of both fairness for all workers throughout the public sector as well as cost.

Again, we're talking about changes on the margins throughout the system here. We've found in government that we're not talking about massive changes in a single year but about making incremental changes that build up over time.

If you cross the various spending outlets when it comes to the public sector—pensions, sick leave, vacation pay, and pay—you can realize significant savings over the medium term.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I agree with that approach. It's very close to home. My son and daughter are both public sector workers, and I understand exactly what you're saying.

However, the balance between what was experienced by small businesses in the country versus what the public sector is moving toward is something that should be taken into account when we're talking about bringing forward budgets, in the sense that every nickel matters to the bottom line in the end.

The other point that you made was regarding incentives. I believe your words were that “incentives matter”. Could you expand on who you think they matter to? Where do incentives work, and where do they not work? Can you give me your thoughts and perspective on that?

[John Williamson]

Incentives always matter in that any government program or system is going to incentivize people to behave one way or another. The challenge for policy-makers, for the men and women in this room and Parliament, is to have the foresight when they put together a program to envision or think through how it is going to impact the real world out there.

As an example, I'm going to go back to the case I made, because it's one that is very topical right now in Atlantic Canada. There's a call to increase federal transfers for health care. Why is that? That is because we have an older demographic, and of course health care costs are going up. My emphasis back home to provincial policy-makers is that this may be fine and that we understand that challenge. In addressing it, it's not just Ottawa that plays a role; provinces as well have to take advantage of the resources and opportunities that are there for them to tackle. Far too often a lifeline from the federal government can be helpful in the short term but actually detrimental in the long term. If provinces are just turning to Ottawa for that lifeline for problems that have existed for decades now, it doesn't serve them by changing what they're doing.

For example, we see energy as an opportunity that will create jobs, as is taking advantage of natural resources back home. The biggest struggle we have is men and women going to Saskatchewan to work in the shale gas industry, for example, which is an industry we haven't opened in New Brunswick and throughout the region. We're losing people to the very industry that we won't tackle or open up in Atlantic Canada. We are losing those young workers and with them the tax base.

Incentives always matter, and again, it's trying to get at what we are trying to do and how best we can help communities across the country.