That is correct.
Evidence of meeting #28 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was families.
A recording is available from Parliament.
Evidence of meeting #28 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was families.
A recording is available from Parliament.
11:15 a.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
No, I haven't read it, but that's definitely one of the documents that I follow closely.
11:15 a.m.
Conservative
Lisa Raitt Conservative Milton, ON
In the summary, it talks about exactly what you guys talked about in your paper. It had to do with vulnerabilities, and that shock to the system could actually spin us into a very dark place in terms of either a recession or Canadian households would not have the ability to bounce back.
You expressed some concerns in it. The Bank of Canada is expressing concerns going into the future as well.
What advice would you have for parliamentarians to watch for as a distant early warning system, I guess, for something like this happening? The way I see it right now, both the Bank of Canada and you have very forcefully—because you wrote it in a paper and you're giving it light—said that household indebtedness in Canada is very concerning, and that if something were to happen, we're vulnerable. What advice would you give to parliamentarians in terms of what we should be watching for and what we should be doing?
11:15 a.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
In terms of the financial indicators that are released by Statistics Canada, I think that their debt service ratios as well as their debt-to-income ratios and their leverage ratios, their debt-to-asset ratios, that they publish are a good place to start. As well, I think documents and reports such as the bank's “Financial System Review” is essential reading. Again, they are providing a much deeper dive into the finer details.
The other indicators that are often looked at are mortgage delinquencies or loan delinquencies as well at a higher frequency. If you start to see those trend up, that is an early warning sign, too.
11:20 a.m.
Conservative
Lisa Raitt Conservative Milton, ON
With respect to household indebtedness, 174% I think is what you guys have indicated. It was at least 170%. For every $100 of disposable income, households had a debt obligation of $171, which is the highest level recorded since 1990. That's what you wrote in your report.
I'm curious, how much of this has to do with the inflation of housing prices in markets such as Toronto and Vancouver?
11:20 a.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
That's a good question and one which we didn't focus on in terms of trying to disentangle. There are several factors that are contributing to that increase in indebtedness. I see that with some lower interest rates and the higher housing prices that are fed by that, but also through other demands from outside the country. No, we don't have a precise estimate of the contributing factors there.
11:20 a.m.
Conservative
Lisa Raitt Conservative Milton, ON
I have one last question.
When you use the term “disposable income”, that's the income people have after they pay everything out, like the rent and the mortgage, and I assume it's the money people have left over after they pay their taxes.
11:20 a.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
You're right in that taxes are taken out of there. What's not taken out are those mortgage payments, or even the interest payments. This is the amount that would be used to go toward paying those interest charges or mortgage payments.
11:20 a.m.
Conservative
Lisa Raitt Conservative Milton, ON
Right.
In a ratio, you would agree that if anything takes away from that disposable income, like higher taxes, you're going to see the indebtedness of households go up.
11:20 a.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Yes.
11:20 a.m.
Conservative
Lisa Raitt Conservative Milton, ON
You said that's with the percentage, but higher taxes from the government, higher payments on CPP, higher OAS, higher ORPP, or higher GST, all those things could possibly drive Canadians into a more precarious situation of vulnerability in their households.
11:20 a.m.
Senior Director, Economic and Fiscal Analysis and Forecasting, Office of the Parliamentary Budget Officer, Library of Parliament
Yes, all else being equal in an accounting sense, that would happen. In our report, what we were trying to flag was the shock in the labour market. For whatever reason, if there were an increase in unemployment or a weaker wage growth, then that would contribute to the stretching of that formula.
11:20 a.m.
Conservative
Lisa Raitt Conservative Milton, ON
I want to say the shock that we've experienced in the commodity market in the past two years, as noted by the OECD, has been significant on our GDP growth. That's a shock the Canadian system would feel that would have an effect on household indebtedness and have an effect on the overall piece. We should do what we can to help them out.
With that, Mr. Chair, I'm done.
Thank you very much.
11:20 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you very much, Mr. Chair.
My thanks to the witnesses for meeting with us to answer our questions.
Mr. Fréchette, I would like to start with the issue of transparency.
Actually, in your April update, we see that it wasn't necessarily easier at the time for parliamentarians to properly study the various initiatives, especially those in the estimates. There was especially the fact that the budget has shortened the period for the government's cost estimates from five years to two.
Furthermore, the budget does not clearly make a distinction between purely discretionary decisions and the fluctuations in the economy. The government's response was that this is not necessarily a problem.
Did you receive a proper answer to your concerns on this issue?
11:20 a.m.
Parliamentary Budget Officer, Library of Parliament
Yes and no. Actually, there was information missing from that five-year period since we had only two years.
We finally received information for the five years, but we were told that we couldn’t use it. We subsequently received authorization telling us that the data could be used and published, which is what we did.
At the same time, we received a letter stating that someone may have made a mistake, but that the government was prepared to be open and transparent in the future with the Parliamentary Budget Officer.
That being said, we still don’t have the projections for the federal debt to gross domestic product ratio. We still don’t have that information, but we were promised that, for everything else—in a letter that is now on the site—the government will be open and transparent.
11:20 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
It remains to be seen whether the content of the letter will be borne out in the future.
11:20 a.m.
Parliamentary Budget Officer, Library of Parliament
The same goes for the requests for information to the other departments. There are still some problems. So far there has been some improvement with the two most problematic departments, but there is still room for improvement and we hope to see it soon.
11:25 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Just out of curiosity, we had asked you to do a study on the fiscal impact, in order to find out who would benefit from lowering the second tax bracket in Bill C-2.
You have also done studies, including for the Senate, to determine the impact of the new Canada child benefit, and the results have been interesting.
The government tends to combine everything together. It says that everyone will benefit from it, meaning that 90% of people will benefit from tax measures and that nine million Canadians will benefit from tax cuts.
According to the scenarios explored by the Senate, those measures are appealing because they will benefit families with children, but there is no study on the impact of the Canada child benefit on families without children. Has there been a request for such a study? In your view, would it be useful to study the overall impact of the tax measures, the combined tax cuts, the Canada child benefit and the tax cut for SMEs? You have also studied the elimination of that tax cut.
The government said that, since it granted a tax cut to the middle class, SMEs don't need an additional tax cut. Have you studied the impact of those three measures combined and would it be useful to do so?
11:25 a.m.
Parliamentary Budget Officer, Library of Parliament
We have not necessarily analyzed all those measures together, however in the case of the child tax credit, we have looked at some scenarios that have been provided to us. The same is true for the Senate. When we receive a request from someone, such as the one you sent in January, we comply with the request that has been made. In terms of the various tax rates, meaning the amount of $1.8 billion that will be redistributed to 33% of the people in the last tax bracket, we provided four scenarios that have been discussed with the requester. We said that there were a number of scenarios but that we will provide four and that the requester could examine those as a whole. If the committee were to make a request, it might be interesting to pursue that idea.
11:25 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
You have conducted various studies. We can draw conclusions by extrapolating from the various studies published by your office. Calculations have been done and, ultimately, the tax cut will benefit only those who work full time and earn approximately $23 an hour. If someone earns a full-time annual salary that is equivalent to $20 an hour, they will not have access to the tax cut. Clearly, if those people have no children and earn only $15, $16 or $17 an hour, they will not benefit from the Canada child benefit either. That is quite a significant segment of the population that will not have access to those two measures.
11:25 a.m.
Parliamentary Budget Officer, Library of Parliament
Would you like me to comment on your remarks?
11:25 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Actually, here is what I would like to know.
Now that we have information about these various tax measures, would it be desirable to put them together and see who benefits and who is being shortchanged? Right now, the government is saying that 90% of the population is benefiting from certain measures and that nine million Canadians are benefiting from the other measure. It would be interesting to have a clear picture of the Canadians who will be affected by these changes.
11:25 a.m.
Parliamentary Budget Officer, Library of Parliament
You are absolutely right. If you would like to know that, we can certainly look into it. However, I can't tell you when it will be done. I must admit that, these days, we are receiving countless cost assessment requests in relation to infrastructure taxes and so on. However, this is certainly something we can look at.
11:25 a.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Is your budget sufficient? According to your mandate, if I’m not mistaken, you must study the fiscal impact of each private member's bill associated with a specific expense, correct?
