Finance Committee on June 9th, 2016

[The Vice-Chair, NDP, Guy Caron]

Mr. Fréchette, I would like to go back to the questions I asked about transparency, and to your role and responsibilities.

At the moment, you are quite busy. Actually, you have been ever since your organization was created. Two commitments were made during the election campaign, that the Parliamentary Budget Officer should be independent and that the office should be well financed. Have there been any discussions about that and any progress on the matter?

The objectives, in fact, are to make your office independent—by which we mean reporting to Parliament rather than to the Library of Parliament—and to make sure that it is well financed—by which we mean that you are able to adequately fulfill the responsibilities you have been given.

[Jean-Denis Fréchette]

There have indeed been preliminary, exploratory discussions to determine what we do, what our current mandate is and how that could be extended, especially in terms of assessing election platforms, which is quite an important mandate. That requires resources, but it also requires some discipline on the part of the political parties and the Parliamentary Budget Officer.

We were asked for an information document. We prepared it and gave it to the government. The example we used was of the parliamentary budget officer in Australia, the only PBO with a legislative mandate to assess election platforms. The PBO in the Netherlands does it, but has no legislative mandate.

In a word, there have been preliminary discussions and we have provided some information, but there have been no negotiations as such or any dialogue along those lines.

[The Vice-Chair, NDP, Guy Caron]

In terms of the independence of your office, have there been any discussions about having amended the act that created the Office of the Parliamentary Budget Officer so that it would henceforth report to Parliament rather than to the Library of Parliament?

[Jean-Denis Fréchette]

The three topics that were election promises have been discussed. In presenting the possible scenarios, we did not provide legislative terms, we provided a form of wording for them. Within the Library of Parliament, the PBO is independent, but not in the way that is understood in the act.

What does independence imply? Does the Parliamentary Budget Officer become an officer of Parliament like the others, like those referred to as senior officials of Parliament? We have discussed those matters and proposed various models.

[The Vice-Chair, NDP, Guy Caron]

You used the Australian system as an example.

Do we have to base ourselves on the experience of countries following the British parliamentary tradition or can we look to the experience of other countries?

[Jean-Denis Fréchette]

I also gave the example of the Netherlands; they do not have a legislative mandate, but they began to work in that way in 1986. However, I would say that it is not the best example, given that they have a parliamentary system that is quite different from ours.

In a country with 10 political parties, it is a little easier to come up with calculations, because everyone wants to do it. Only Australia has the legislative mandate to do so. By the way, it is interesting to note that they are presently in an election campaign and that the act is changed so that they have to report after the elections.

[The Vice-Chair, NDP, Guy Caron]

Thank you very much.

My time for questions is up.

So we now go back to the top of the list. I suggest allowing five minutes only for each speaker in order to give all members the opportunity to speak.

So, Mr. Sorbara, you have the floor for five minutes.

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

Thank you, Mr. Chair.

I'm following up on Bill C-2, and the report that was issued on May 17, 2016, by the PBO.

I'm looking at the tax cut for the taxpayers in the second bracket. I want to ask about the efficacy of this tax cut versus cutting the first bracket. My understanding is that many of the individuals in that first tax bracket, because of credits and because of the way the tax system works, don't at the end of the year have taxes owing to the government.

Cutting the second tax bracket is a good thing because the benefits do flow. There are a large number of Canadians, around nine million Canadians, who are now benefiting because of a higher income level. As they go into the second tax bracket, they lose a lot of those benefits or credits that are made available to the individuals in that first tax bracket.

[Mostafa Askari]

I wasn't sure exactly what the question was, but what we did in that case was we looked at the overall impact of the two tax changes the government proposed. The additional work was on reusing the tax rate for the first bracket. We looked at that because everyone will benefit from the changing of that tax.

It is a wider group of Canadians who can benefit from a reduction in the rate in the first bracket. The second bracket benefits everybody who has taxable income of $45,000 and above.

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

It is a fact that two-thirds of filers in that first tax bracket at the end of year, because of the way the tax system works with the credits, won't have any taxes owing at the end of the year.

[Mostafa Askari]

That's correct.

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

Thank you.

I have a second comment.

My understanding is the size of the Canadian economy is about $2 trillion. The changes or the impact from the federal revenue, from the study on May 10, 2016, on small businesses, is about a $300-million impact on revenues.

[Mostafa Askari]

Yes, that's correct.

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

It's very small.

[Mostafa Askari]

Sorry, that $300 million is in GDP.

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

Yes, GDP.

The multiplier effect from investing in infrastructure, from my understanding, is about a $1.50 for every $1 that is invested.

[Mostafa Askari]

That's the estimate from the Department of Finance. The multiplier is 1.2.

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

Okay, 1.2.

Knowing the economics field quite well, my understanding is that multipliers vary with different institutions significantly sometimes.

Looking at this study, I would say the multiplier from investing in infrastructure, rather than proceeding with a lowering of the tax rate for small businesses, is much larger in terms of investing in infrastructure on the overall impact on the economy.

[Mostafa Askari]

That's correct.

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

Ms. Raitt raised this issue as well. The Bank of Canada's financial system review was released this morning, on the vulnerabilities or household imbalances. This is something the government has monitored over the years.

I have always been one who has argued that the ratio we look at is the debt ratio rather than the income ratio or interest expense ratio, if you wanted to define it in those terms. If Canadians are working, then they're able to pay their debts off. If Canadians are not working, then it doesn't matter what your interest ratio is because you have no cash flow to pay your debt. That's why it's so important for me, as more of a statement, that we keep this economy moving forward through our infrastructure plan. We need to keep Canadians working.

That's why I was alluding to the impact of the multipliers for infrastructure.

I would like to get a general comment about what the PBO has looked at in terms of the household imbalances in relation to where we are in the economy right now.

[Mostafa Askari]

Sorry, household imbalances in what sense?

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

In relation to where we are in the economic cycle.

[Chris Matier]

In our earlier report, we looked at the debt servicing ratio that households are paying off, in servicing their debt both by making interest payments and by paying back mortgages—repayments. We've noticed that this ratio has been elevated and relatively stable over the last few years, but this was in the context of very low interest rates at the same time, and also a sort of lacklustre economic performance.

Looking ahead, obviously we think that interest rates will gradually increase over the medium term, and the economy is projected to improve. Together, we think households should be able to manage this, but again, this analysis was done at a very macro aggregated level. I think that looking at the analysis the bank has put out in their FSR is helpful in order to see which households and which income ranges or regions are more vulnerable than others.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Sorbara.

We do have a number of names on the list. I'd like to go to committee business, if we could, either at 1:30 p.m. or before, so we'll go to Ms. Raitt and then Mr. Caron, and then if anybody across the room has one or two pertinent questions they want to put, we'll go to them.

Ms. Raitt.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much, Mr. Chair.

Thank you very much, Mr. Fréchette, for talking to my colleague Mr. Caron about the independence of the PBO. I have a great interest in it. I know that one of the things being looked at was how to extract you from the Library of Parliament so that you could be set up on your own. I hope we hear more about that.

On that topic of impartiality, obviously, there are concerns with respect to making sure you retain your independence, but your mandate is pretty clear, I would submit. If a member of Parliament or a senator asks you a question, there's very little room for you to say no, to say that you won't study the matter, so long as it does apply to a financial cost of any proposal for matters over which Parliament has jurisdiction. It's a pretty broad mandate.

Would you comment on whether or not you're actually allowed to tell members that you won't study a matter if that test is met? Also, has that ever happened before, and has the parliamentarian appealed?