Finance Committee on Feb. 17th, 2016

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much, Mr. Chair.

Mr. Wright, I guess you'll be getting a lot of my questions today since you talked about some of the matters that I'm very interested in.

One of the things you talked about was the debt-to-GDP ratio, and my colleague on the other side of the table mentioned it as well. I think the part that causes me a bit of concern on using this as a fiscal anchor is that part of the equation is missing, and that's the provincial debt. We don't tend to talk about that, but the reality is that provincial debt is an important piece of the overall economic sustainability of the country. I'll give you an example. If Ontario right now is spending $5 billion a year to service interest payments, that's $5 billion they don't have for the social services and it's $5 billion that goes into the equalization framework and category.

I guess my question is along the lines of how much do the provinces matter, do you think, in terms of the debt-to-GDP ratio. I mentioned some of these numbers yesterday; you may not have them. The reality is, these are a little dated but they're still in the same framework. I don't think they've got particularly better. That's what I'm trying to say from the numbers I'm going to give you.

Alberta has a debt-to-GDP ratio of about 35%. Saskatchewan is 42%; B.C. is 54%; Ontario is 76%; and Quebec is 87%. These are significant numbers that impact what happens on the federal side.

I guess I'd like to get your thoughts about fiscal policy—you're talking about that—the anchor debt-to-GDP, and what role the provinces have. I would submit that the provinces actually do matter when you're talking about debt-to-GDP ratio, and it's something missing from the conversation so far.

[Craig Wright]

Thank you.

The Alberta debt-to-GDP numbers don't square with what I've looked at, and given that they're starting from—

[Lisa Raitt, Conservative, Milton, ON]

And if you had it more updated, that would be great. If it's higher, you can let me know.

[Craig Wright]

It's gross debt, maybe, not net debt. Just in clarity, I was speaking net debt to GDP.

I mentioned that my preference for a fiscal anchor is the balanced budget; over the fiscal plan or slightly beyond the fiscal plan would be the ideal. I think the reality of what we're hearing more recently is that fiscal anchor has been altered and that now the preference is debt-to-GDP, which I suggested is not my preference, but that seems to be where we're headed. Then when you look at the debt-to-GDP ratio, there are some who would suggest not to even bother and let it run higher rather than let it run lower. My preference would be to continue to see it move lower for some of the reasons you've mentioned, that we do look just at federal government debt-to-GDP at 31% and hopefully declining. The federal government with their debt situation is in a better position on a net debt basis than most of the provinces, and the ability to stimulate the economy at a time when we need it.... Alberta, given their relative net asset position, is well positioned, and they seem to be going down that path as well, but most provinces Ontario and east have fiscal constraints upon them. Maybe Manitoba is on that list as well, but not quite as much, though.

I think the feds see that the debt-to-GDP ratio going down would be a preference. The first preference would be a balanced budget. But as for the debt-to-GDP, as I suggested, they have some control over the debt but no control over the GDP.

[Lisa Raitt, Conservative, Milton, ON]

Or interest rates.

[Craig Wright]

That's why a preference would be for a balanced budget, which you have more control over.

If the commitments keep moving lower, if you have 4% nominal growth, you can run a deficit in the $25-billion to $30-billion range. That doesn't leave much leeway for any slip in the GDP numbers, so I wouldn't want to see it push our luck or our limits with a new target.

The other side of it is longer term I'd like to see these debt-to-GDP ratios move lower, because of the aging demographics, which means a slower speed for the economy and a slower revenue base at a time when health care costs are going higher. With the fiscal situation federally as well as in many of the provinces where health care spending is already at 40%, we will see that debt dynamic change.

So with an eye on the fiscal challenges in the provinces, if they do go debt-to-GDP as the new anchor, I think that they should target it lower, not higher.

[Lisa Raitt, Conservative, Milton, ON]

Okay, I appreciate that.

On economic growth, my point of view is that our problem with economic growth from the country—the commodities growth—just isn't there. We're getting hammered in oil, in gas, and in minerals.

Do you think, though, that we're going to have a situation where we can outpace the status quo on commodities? I don't see it bouncing back right now. Are we going to be able to outpace that reduction with our other sectors? I see B.C. and Ontario doing better, but is it enough to push us into positive growth?

[Craig Wright]

Yes.

The commodity shock—the known and now—is taking place in the investment side, and we're seeing a collapse in energy investment. Last year it was 35%, and this year most forecasters have it kind of pegged at another 25%. So it's a big hit. The hope is that the offset comes from the other side. When you get the negative commodity price shock, there are some offsets, and one is the currency. The currency has weakened alongside the commodity and at the same time, it's an effective tax cut to any importing nation or importing province. Effectively, it should be net positive for global growth, and we should see that particularly in the U.S. They have seen some of that tax cut effective in lower gas prices. Their savings rates are up on a year-to-year basis about $100 billion. So they're saving it. I think that's the uncertainty, and it will eventually get spent. But the U. S. growth is, as I've suggested in my comments, at 2.5%. It's taking place in the sectors we export to with a competitive currency. We're starting to see those export numbers turn around. They finished the year on a solid foundation. I think that will carry the support.

You still need consumer spending. It's 60% of the economy, so you can't have growth without a consumer sector. I just think that consumer spending is more moderate than in the past because you're not getting the extra kick from data accumulation, we hope.

[Lisa Raitt, Conservative, Milton, ON]

Is business investment picking up in the country?

[Craig Wright]

Well, no. The negative is showing up through the energy side and the rest—

[Lisa Raitt, Conservative, Milton, ON]

And the rest as well?

[Craig Wright]

—the business side is still weak and that's something we hope will.... The corporate balance sheets are in a fairly healthy position. We've seen that globally, and that money has to get to work some day. In fits and starts it shows up in M and A, and share buyback dividend payouts, but on a sustained basis we want investment. Andrew, Stephen, and I all made comments about the multiplier, the bang for your fiscal buck. In infrastructure what you tend to see is that once public sector infrastructure picks up, with a lag private sector infrastructure picks up. If we can restructure this infrastructure build-out to get more of the public sector money, whether it's with corporates or pension plans, I think that would give a huge lift relative to the government's balance sheet.

[The Chair, Liberal, Wayne Easter]

A very quick one.

[Lisa Raitt, Conservative, Milton, ON]

That's it, I'm good.

[The Chair, Liberal, Wayne Easter]

Mr. Caron.

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

Thank you very much, Mr. Chair.

I hope to have at least three minutes at the end because I have many questions to ask.

I will first turn to the Canadian Federation of Agriculture representative.

We have not yet discussed the Canadian Food Inspection Agency. We know that significant cuts have been made that have led to reductions in terms of inspections. During the election campaign, the Liberals promised an additional $80 million over four years.

Do you think that amount is sufficient? Will it ensure greater food safety? Should that absolutely be part of this budget, or could it perhaps be pushed to future years?

[Scott Ross]

Thank you.

I'd like to put out there that this is not a subject matter that I'm an expert in. I know from speaking with my colleagues and our members that the role of the CFIA in food safety has gained prominence in recent years, largely because of an increased level of attention on where our food comes from for the Canadian consumer and from the expert side. Our members have certainly seen impacts of cuts to the CFIA, and that has put constraints on the system's ability to continue to meet the increasing demands being placed on it from this increased interest from consumers.

We haven't highlighted it as a priority for this budget, but we do wish to see continued investment placed into the Canadian Food Inspection Agency and the role they play in maintaining Canada's current position as a high-quality provider of food to the world and as a safe and effective system. We do not believe there's any reason that the current decline in investments has posed any questions as to the capacity of our system as it stands, in terms of its ability to ensure safe food for Canadians and for export. At the same time, we believe that with the increased prominence of social licence and food safety issues in the consumers' attention there will be a need for increased investment moving forward.

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

I would like to put the same question to Mr. Slomp.

Is the $80 million over four years sufficient to address the shortcomings we have noted within the Canadian Food Inspection Agency?

[Jan Slomp]

Well, I would like to answer that in general terms.

I think our regulatory agencies are depending too much on the selective science that is submitted for approval of drugs and additives. I think we need to be partly re-funding the CFIA, as well as re-funding Health Canada, to obtain independent research around health and safety of products. I think we need to flag importation of food a bit more drastically than we have been doing.

Yes, I think we need to reinvest in food safety, partly by funding CFIA better and also asking Health Canada to step up and provide independent studies.

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

Thank you very much.

My next question is for you, Mr. Jackson.

In your presentation, you briefly talked about pensions. The Liberals' platform during the election campaign contained two main elements: an immediate 10% increase to the guaranteed income supplement, as well as improvements to the Canada Pension Plan and, by extension, to the Quebec pension plan.

I am currently a bit concerned about not seeing any firm commitment in that respect in the next budget. We will see what the situation is in the budget. It seems that they are refusing to answer the question on whether those measures will be included in the next budget.

As for the Canada Pension Plan, the conference of finance ministers was held, which ultimately postponed the decision again for a year in order to carry out more research, even though the issue has been under consideration for 10 or 12 years.

What do you think is the urgency of taking action when it comes to pensions?

[Andrew Jackson]

On the Canada pension plan, I'm optimistic. We may be able to move forward here, but there clearly needs to be a concrete proposal put on the table by the federal government, perhaps in co-operation with Ontario.

I do note there was an announcement yesterday that the matter will be discussed at the June meeting of finance ministers. I would have thought it possible, given the work that was done by the federal government and the provinces earlier, for a concrete proposal to come out of that meeting in June, rather than punting it off until next December.

The study we released yesterday really underlines the fact that the RRSP retirement savings of Canadians who don't have pension plans are, for many, grossly inadequate. There's an increased risk of poverty as a result of that. I think the government's commitment to increase the OAS is welcome, and it should be in this budget. The big flaw in that proposal, the way I understand it, is that the way it is set out it applies only to single seniors. At least one in three seniors living at a low income is actually in a couple. There's always a question of whether a 10% increase is adequate. It still leaves a lot of seniors living in poverty, but it's certainly a step in the right direction.

I think you start running into problems just in terms of technical design on the GIS. It's expensive to increase it for everybody, but the risk of targeting it too narrowly is that you end up with a super GIS and not-so-super, plain-old GIS at the end. There are some real design issues there that are a problem.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Keep it tight.

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

As I have very little time left, Ms. Arte, I would like to talk to you quickly about something you did not cover in your brief—in particular, university research and development. We have seen a drop in the importance of basic research compared with applied research. Do you have any recommendations for the committee in that respect?

[Bilan Arte]

Yes, absolutely. We know that in previous governments there were significant investments in what is called the SR and ED tax credit system. It is our recommendation that monies from that tax credit be redirected into the tri-council system for research, particularly targeting graduate research that would be done in the public interest. I think that's been highlighted.

There has been a sharp decline in public funds available for publicly directed research, so it would be our position that existing funds that are currently directed toward the SR and ED tax credit system be redirected toward tri-council funding to provide more opportunities for graduate research to be targeted toward public research.