Finance Committee on Feb. 23rd, 2016

[The Chair, Liberal, Wayne Easter]

We will come to order. This is meeting nine of the standing committee. Pursuant to Standing Order 108(2), we are continuing our pre-budget consultations for budget 2016.

It gives us pleasure to welcome, I guess to his first finance committee meeting, the honourable Minister Bill Morneau, along with deputy minister Mr. Rochon.

Mr. Minister, I understand you have limited time, but we are very pleased to have you here. We'll go to your statement and then to questions. The floor is yours. Welcome.

[Bill Morneau, Liberal, Minister of Finance]

Thank you very much, Mr. Chair, and thank you to the entire committee for inviting me here. It's a pleasure to be here, and of course, it's my honour to appear before you for the first time as Minister of Finance. I want to thank you for your work not only in keeping the government to account, but in ensuring that Canadians are heard throughout the parliamentary process.

As you know, we're four weeks away from budget day. I'll have a great deal more to say on March 22 regarding the details of our plan for investing in the middle class to grow the economy, but I didn't want to miss the opportunity to be with you today as we begin committee proceedings under a new Parliament and a new government. Yesterday, in a pre-budget town hall here in Ottawa, I reconfirmed that our government is taking a fundamentally different approach to managing the economy, and I'm pleased to have the opportunity to take some time this morning to reiterate that here.

After 10 years of weak growth, Canadians chose a new path to economic growth. They chose investment. They chose a government committed to helping the middle class. Canadians told us that they want inclusive growth, meaning that no one is left behind. I'm pleased to be here today to talk more about that commitment and to share with you what we've heard from Canadians during our pre-budget consultations.

One of the most telling things that I've heard as I've travelled across the country during my pre-budget consultations is that people really do see the big picture. They know that oil prices have contributed to the fall of the dollar and to things like higher food prices, and of course they're worried. But they also know that the recent downturn is really just a symptom of what many of us have been feeling for a long time now. The economy is just not working for the middle class and those people who are working hard to join it.

Over the last four decades, almost every group in our society has seen their income go up, but when you look carefully at the numbers, you see that the top 1% and the top 0.1% have benefited much more from the gains than have the middle class. We know that income inequality is an even greater challenge in times of significant economic stress.

I can tell you that when the Prime Minister appointed me as finance minister, he instructed me to undertake an ambitious growth agenda, a plan that I believe to be even more important in light of the revised growth projections that we released yesterday.

Yesterday, we confirmed what Canadians already know. Since we presented the economic update in the fall, Canada's growth perspectives have deteriorated. The prices of the commodities Canada produces continue to drop, and the recovery of the global economy is weak and hesitant. After ten years of weak growth, the Canadian economy was too vulnerable, faced with the conjunction of the drop in oil prices and global economic uncertainty. Given the current economic situation, Canadians made the right choice by placing their confidence in us.

Barely eleven days ago, I met with private sector economists who expect the price of oil to average US$40 a barrel in 2016, which is $14 less per barrel than expected at the time of the fall economic update.

The economists also lowered their growth rate forecast for 2016 from 2% to 1.4%. At the end of the last year Canada's economy showed little vigour, and this seems to be continuing in 2016. This downturn has a real impact on many families, as well as on government revenues.

We are aware that many Canadians are facing particular problems because of the recent economic slowdown, especially in regions such as Alberta, Newfoundland and Labrador and Saskatchewan.

In fact, I was happy to confirm this morning that Alberta has qualified for $251 million in stabilization funding. I was pleased to work directly with Minister Ceci for the benefit of Albertan families who I know are going through a particularly challenging time.

I want to thank the members of our Alberta caucus, including Minister Hehr and Minister Sohi for their tireless advocacy for their province.

There is no doubt that the time has come to chart a new course and adopt a fundamentally different approach in our economic and budgetary policies.

When it's presented four weeks from today, budget 2016 will be the first major step in enacting our new direction and plan. In other words, in addition to bringing in measures that will address the challenges Canadian families face today, budget 2016 will create conditions for growth. There will be more to do.

Over the coming months, the government will develop a robust growth strategy designed to deliver strong and sustainable growth that will benefit us all and higher living standards for all Canadians. It will deliver the strategy to Canadians before year-end.

In support of that strategy, I announced yesterday that Dominic Barton has accepted to lead the new advisory council on economic growth. Their first job will be to find ways to increase our productivity so that as our demographics shift, we nonetheless continue to enjoy the highest possible standard of living. This is long overdue.

To members of the opposition who have been less than fully supportive of our plan, I invite you to consider the alternative. The other parties, who committed during the last election campaign to a balanced budget at any cost approach, would be making cuts of tens of billions of dollars at precisely the wrong time. This would have led to massive job losses in a time of already high unemployment. This would have led to program cuts at a time when regions and population segments need those programs most. To be frank, this likely would have led us into another recession.

Our philosophy is simple. We want to focus on the middle class and help those who are working to join it, help those who are most in need, and make judicious investments in roads, bridges and public transit that will create jobs and help us get to work faster, transport our products further, and make our communities more ecologically sound.

We have already taken the first steps this year by lowering income taxes for 9 million Canadians. By the same token, we asked those who make more to pay a bit more.

We also took steps to help young Canadians by investing up to $113 million more in the Canada summer jobs program. That investment will help our young people to gain the valuable work experience they need. It will also help to create 35,000 additional summer jobs for students this year.

In addition, we announced plans to create a new, simpler and more generous Canada child benefit. It will help 9 families out of 10 and will take hundreds of thousands of children out of poverty. We expect this benefit to reduce the proportion of children in Canada who live in low-income families to a threshold which will be below the average for the member countries of the Organization for Economic Co-operation and Development. Reducing child poverty will bear fruit later. This will put children on the path to success throughout their lives, while placing Canada on the road to growth.

We will also make targeted and judicious investments in infrastructure, not only for short term gain, but also to ensure that the government plays its role in supporting businesses that need access to markets, increased productivity and sustained economic growth over the long term.

Making strategic investments in growth right now is the fair and reasonable thing to do, especially as we have the lowest debt-to-GDP ratio among G7 countries. That means we have the fiscal flexibility to support measures to invest in infrastructure that will help economic growth and create opportunities for future generations without overburdening them with debt.

Mr. Chair, I am pleased that the committee has given itself an ambitious program to improve the lives of Canadians and mobilize them so that they participate in discussions on the measures the government wants to take to contribute to economic growth and support the middle class and those who would like to join it.

I know that the committee has a large quantity of information to sort. I will thus limit myself to a summary of this year's consultations.

From the beginning of the pre-budget consultations on January 6, our objective was clear: we wanted to consult as many Canadian men and women as possible, in a spirit of renewed cooperation and unprecedented transparency. We launched those consultations with an enthusiasm that was well received and equalled by Canadians, both in person and online. In fact, the Department of Finance received a record number of presentations and comments. The rate of participation in pre-budget consultations was the highest in history.

Our first consultation meeting was with students from eight Canadian universities, through Google Hangouts. Parliamentary Secretary François-Philippe Champagne and myself then did a whirlwind tour of the country, from one end to the other. That tour began on January 11 in Halifax. In the subsequent six days, I went to Montreal, Toronto, Winnipeg and Calgary, and then concluded the tour in Vancouver and Surrey. In addition, François-Philippe went to Moncton, Quebec City, Trois-Rivières, Sault Ste. Marie, Saskatoon, Edmonton and Yellowknife.

As of today, François-Philippe and I have conducted 21 separate round tables, meetings, chats, and panels. That's not counting the many local meetings with MPs from both sides of the floor held in their ridings. Let's not forget the Facebook live events that were held in Halifax, Calgary, and yesterday in Ottawa, where tens of thousands of Canadians tuned in, asked questions, and gave me some very good advice on growing the economy. In fact, over the course of the consultation, we've reached well over 200,000 Canadians. While the numbers are impressive, they all add up to the same thing: engaging with Canadians in a way that had not previously been attempted.

I believe that the clerk has shared with committee members the reports from my pre-budget consultations, and I hope that they're useful to you in your work. With the consent of the committee, I'd also like to table the over 4,000 pre-budget submissions Canadians have made online. The comments and views included in these submissions are unedited and unfiltered; they were not vetted by my office or my department. Due to the volume of the submissions, they're presented in source language, untranslated. Mr. Chair, if there's consent, I have a USB key for each of the committee members here containing these submissions.

[The Chair, Liberal, Wayne Easter]

We might as well deal with it right now. As I understand it, they're in the language in which they were originally presented. Some would be in French only, and some would be in English only. Normally, we want them in both languages, but given the volume, is there any concern about that if they're presented in the language as is?

Mr. Caron.

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

Thank you, Mr. Chair.

It is essential that we have them in both official languages. This is submitted to the committee and I would like the French and English versions to be distributed as quickly as possible in the context of the work of the committee. It is acceptable that we not have them immediately, but I think they should be available to all Canadians who would like to have access to them.

[The Chair, Liberal, Wayne Easter]

We'll come back to you, Mr. Minister, in a minute.

There are over 4,000 presentations, so it is almost an impossible task. Are these available on the finance department's website?

[Bill Morneau, Liberal, Toronto Centre, ON]

I don't believe they are available on the website. We would be happy to give them to the members now so they have access to them and translate them as necessary, or translate them on demand, one by one. Our reason for bringing them this way and not bringing in a truckload of boxes was for the convenience of the members. Our reason for not having the translation is really just because we wanted to get the information to the members of the committee as rapidly as possible.

[The Chair, Liberal, Wayne Easter]

Mr. Caron.

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

This raises an interesting question. I can understand that given the size of the sampling, making this available on demand may seem daunting. However, there is a difference between ministerial pre-budget consultations and the ones held in committee. The documents that are distributed to members of the committee must already be translated, in advance. That is an important and worthwhile point to raise.

[The Chair, Liberal, Wayne Easter]

Mr. McColeman.

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

I think Mr. Caron just dealt with it. It's a precedent for the committee to accept in both official languages. Moving outside of that.... We never move outside for other witnesses, so I would say we should follow that principle.

[The Chair, Liberal, Wayne Easter]

Okay, we will hold on it for now, and maybe see if there's a way we can deal with this at a scheduled meeting as a committee to see if there's any way we can access them faster.

The floor is yours again, Mr. Minister, and we'll come back to that later.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you, Mr. Chair.

For those Canadians who have not been able to meet us in person or send their ideas online, there is still some time. They have until midnight tonight to get in touch through the budget.gc.ca website, or on Twitter using #pbc16, or on the “Your Money Matters” Facebook page.

I'd like to thank all of those who have contributed to the pre-budget consultations, whether in person, by mail, or online. Of course I'd like to also thank the members of this committee. In my estimation, this input is vital in ensuring that Canadians can help direct and focus the decisions that the government will take with respect to budget 2016.

I'm here to tell you, and of course to tell Canadians, that we're listening. I believe the broad reach and engagement during the pre-budget consultations and the upcoming federal budget are proof. While the pre-budget consultation period is drawing to a close, the advice we've received from Canadians is clear. We've found that Canadians want to contribute to finding a better way and better lives for themselves, their communities, and their country, and they want to be involved in finding solutions.

As you can see by the information and input we've already provided to the committee, and from your own hearings, Canadians want us to continue to help the middle class, help those who need it most, and make smart and well-timed strategic investments in roads, bridges, transit—things to get people to jobs faster—while making our communities greener. I look forward to working with you in all of the coming weeks, months, and years ahead to act on what we've heard from Canadians and to make better decisions as a result.

With that, Mr. Chair, I am happy to take questions from the committee.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Minister.

It takes about 53 to 55 minutes to give everyone an opportunity to put a question to you. We hope you can stay so that everybody has the opportunity to ask a question. I know you're committed to just an hour.

We'll start with Steven MacKinnon, for seven minutes.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

I am going to share my time with Ms. O'Connell.

Thank you, Minister and Deputy Minister, for being with us today.

After many years of hearing the previous government say, such as when Mr. Oliver brought down his last budget, that the economic situation was improving and that we were headed toward balanced budgets, people were surprised to note, according to the update you gave yesterday, the scope of the deterioration in our economic situation. Could you explain to the committee, and to my electors and fellow citizens, how the financial situation could have deteriorated so quickly, and so badly, on such a scale.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you very much for the question. I think it's an important question that Canadians want to understand. For us, one of the important commitments we made to Canadians is that we would be open and transparent to help them understand our fiscal situation.

It's for exactly that reason that only 16 days after being appointed as Minister of Finance, I came out with an economic and fiscal update for Canadians to give them a sense of the finances of the country, based on our ability to take a close look at those finances. In that update, as you heard in November, we found that we were left with a budget deficit, and we found moreover that the projections for growth were less optimistic than had been foreseen in budget 2015. That was our initial understanding. It was one that we wanted to get out quickly, as I said.

Since that economic and fiscal update, as we've all witnessed, the price of oil has changed significantly. In that November update, the private sector economists gave us an estimate of US$50 oil, which was their planning projection for 2016, and they gave us a projection of 2% real growth in the economy in 2016. I felt it was important that we took a look at those numbers in advance of budget 2016 to make sure we had the appropriate base from which we could plan.

When we went back to the private sector economists, we found that the economy had changed significantly. We now have a planning assumption for oil at US$40 for 2016, and a planning assumption for growth of 1.4% in 2016. Both of those numbers are obviously significant for the economy and drive a significant change in our assumptions.

We additionally took a look at the historical approach to setting objectives, setting assumptions, and we concluded, based on what we had seen over the last number of years, that it was prudent to take an adjustment for risk. While we're currently using a planning assumption of $40—as you'll know the current price of oil is in the low thirties, and we are now almost into March—we believe that is a prudent base from which we can start. For your constituents and for Canadians across the country, we have an open and transparent approach to saying where we are and an understanding of the starting point from which we can build plans to grow the Canadian economy for Canadians, for the middle class, and for those most vulnerable.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you very much.

Yesterday, the leader of the Conservative Party told us that this was a time for cuts and for controlling expenditures, and not a time for spending and investment. However, in a televised debate we took part in, my colleague across the way, who is the Conservative finance critic, told me about the importance of flexibility. She told me that the Conservatives would show flexibility in the face of the changes you have just described in our financial situation.

Can you give us the reasons why you have chosen to invest in the economy? This could help the Conservative Party choose the proper economic approach in its internal discussions.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you very much for the question.

This is a good time to invest. Our economy's growth rate is lower than anticipated. In addition, it has been very low over the past 10 years.This gives us an opportunity to invest in the economy. We have the necessary fiscal flexibility. We have the lowest debt-to-GDP ratio among all of the G7 countries. And so we are in a position to make investments to improve our growth rate, and that is exactly what we promised Canadians.

We can make investments to improve our growth rate, but by the same token we want to improve our quality of life through investments in public transit in our large cities, and in affordable housing throughout the country. These investments will improve our current situation and our growth rate in the short, medium and long term.

[Steven MacKinnon, Liberal, Gatineau, QC]

Ms. O'Connell, you have the floor.

[The Chair, Liberal, Wayne Easter]

We'll have to cut you there. We only have 40 seconds.

We'll go to Ms. Raitt and we'll come back later.

[Lisa Raitt, Conservative, Milton, ON]

Thank you, Mr. Chair.

Welcome, Minister. It's very nice to see you here. Thank you very much for taking time out of your schedule.

Minister, I have three questions. I'll go through them as quickly as I can, but I'll allow you to answer in between them.

First of all, as you know, Minister Flaherty plotted and strategized our return to a balanced budget. Minister Oliver concluded on that plan in his budget last year.

We handed you a surplus, Minister, in November and December of this year, when you took over. It's evidenced by the Department of Finance Canada's “Fiscal Monitor” of December 2015, where they said first, that there was a budgetary surplus of $2.2 billion, and second, they said that for the year, from April to December 2015, ,the government posted a budgetary surplus of $3.2 billion.

More troubling, though, Minister, is what I found in your backgrounder, which says here very clearly on page 8 of 10, “The stronger outlook for revenues is partially offset by higher projected expenses relating to decisions taken since the Fall Update.”

Is it not the case, Minister, that you are spending more, that you're eroding the surplus that was handed to you by a Conservative government, and that any deficit for the year 2015-16 is clearly on the hands of your government?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you very much for the question.

I have the sense that there was more than one question in there. I will certainly start with what I perceive to be the first one and deal with the question around the deficit that was left for us from the Conservatives.

I guess the analogy I can use is a family that has two earners. One of them earns $50,000 a year. She works all 12 months of the year, getting that 1/12th each month of the year. The other person works for the first six months of the year. He has a seasonal job. At the end of the first six months, he no longer works for the last six months of the year. This same family has a situation where their mortgage, for whatever reason, has been designed so that they pay $500 a month for the first 10 months of the year and in the last two months of the year they pay $1,000 a month.

Let's just assume we're this family for a minute. I don't think that family would look at their situation three-quarters of the way through the year and say, “Good news: we are in a surplus situation from a family standpoint.” They would look at it and say, “Oh, we need to consider the fact that our revenues go down in the second half of the year and our expenses go up.”

I will tell you, Mr. Chair, that if we take a look at what happens with the revenues and the expenses for the Government of Canada, what we can see over the last number of years—we've gone through the numbers year by year by year—is that in the last two months of the year, we have a reduction in revenues and an increase in expenses.

What that leads to is a situation where you cannot look at one half of the year, and you certainly cannot look at one month or another month, and come to any conclusions about our situation. I want to make it very clear: we took a look at the finances left us from the previous government, and we found that we would be put into a deficit for calendar year 2015-16.

Perhaps I can go on a little longer, Mr. Chair, if—

[Lisa Raitt, Conservative, Milton, ON]

Actually, I have some more questions, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

The floor is yours.

[Lisa Raitt, Conservative, Milton, ON]

Right.

Sorry, Minister, I do have an agenda here and I'm going to make sure I get through it. It's a lot better than in question period, when we only have 30 seconds.

I would say to your response, Minister, that any CEO knows the importance of quarterly updates. Otherwise, why do we wait until the end of the year to tell everybody what happened? You know that yourself as well.

This is question number two, Minister.

In both the mandate letter and your own words, you talk about platform promises. First of all, your mandate letter states, “Our platform guides our government. Over the course of our...mandate, I expect us to deliver on all of our commitments. It is our collective responsibility to ensure that we fulfill our promises, while living within our fiscal plan.”

Second, you said on the television show The Exchange, on November 4, “We're committed to our platform, and that's why we put it out there. It wasn't a platform that was based on political expediency. It's a platform based on what we think is the right thing to do for Canada and for Canadians.”

Minister, this is my issue: You seem to abandon the costs associated with your platform promises very easily. I would point out to you that my understanding is that as the chief economic adviser for the platform, you did the costing, or you at least signed off on it. You promised a $2.8-billion offset in your tax measures would be offset by a tax increase of $2.8 billion. We now know the reality: it's a $1.3-billion cost.

Second, you said that you would have a deficit of $10 billion. You approved this number. I've already mentioned that. Those were numbers that came after Minister Oliver's projections in April. So you had lots of runway to figure out if something else was going on in the economy.

You're committed to the platform promises, but I fear that you're not committed to the numbers. Here's the problem with that. I take a look at your platform promises and I see lots of other stuff coming—a 10% boost to GIS, indexing OAS, GST rebates, increased indexed northern residents deduction, enhanced flexibility of RRSPs.

Do you have those numbers right, Minister? Because so far we have not seen any kind of consistency in terms of getting the predictions correct.

[The Chair, Liberal, Wayne Easter]

Minister, you're entitled to equal time, which will run out the question period for Ms. Raitt, so you have about a minute and a half.