Finance Committee on Feb. 23rd, 2016

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

You're not? Good. Thank you.

[Bill Morneau, Liberal, Toronto Centre, ON]

May I respond to the first part of the question, please, as I have more time?

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

No.

[The Chair, Liberal, Wayne Easter]

Mr. McColeman, the Minister has time to respond to your comments. We have to balance the time here.

Go ahead, Mr. Minister. The floor is yours.

[Bill Morneau, Liberal, Toronto Centre, ON]

I'd like to respond to the first part of the comment.

Our objective remains to balance the budget. My primary interest is in making investments in our economy to grow the economy, after dealing with a low-growth economy for a long period of time. We have been very specific that as we do so, we expect that Canadians will watch us closely, and we will be prudent along the way. It is our intent over the course of our mandate from the first budget to the last budget to reduce our net debt-to-GDP ratio. Those are very specific promises. We will follow through.

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

This is regarding the Canada pension plan. In your recent remarks to Canada's Public Policy Forum, you highlighted something that you've co-written in a book, that Canadians do not face a widespread retirement crisis and that most Canadians—I quote—are actually in pretty good shape and it's a fact that is reinforced by Professor Ian Lee who states that a very specific group of Canadians are the ones who need more retirement support. Your quoted as saying, “It's pretty clear that we've seen change. But we're also witness to a system that works for most Canadians. It begs the question of what to do. Modest, targeted CPP expansion could fill the gap”.

Could I take that to mean this budget will not include any broad-based changes to the Canada pension plan, and that you won't force Canadians to pay more who do not need to?

[The Chair, Liberal, Wayne Easter]

The floor is yours, Mr. Minister.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you for the question.

In our campaign we said clearly that we believe ensuring that Canadians can retire in dignity is an important goal shared by Canadians. My beliefs are that our retirement system has worked effectively over the last 50 years. That said, I also believe, and it's based on fact, that an increasingly large number of Canadians are finding it challenging to retire. For that reason, we are working together with the provinces to engage in a potential enhancement to the Canada pension plan. We started that in December through our first meeting of the finance ministers of the provinces and territories. I'm pleased to be able to tell you this is a project we will continue to work on. We believe the success of the Canadian retirement system is one that should be built on so that we not only have success for a good number of Canadians, but we have success for an overwhelmingly large number of Canadians and best case scenarios for all Canadians through a system that works and makes sure that people don't fall through the cracks.

[The Chair, Liberal, Wayne Easter]

Mr. Sorbara.

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

Thank you, Mr. Chair.

I would like to address something one of my colleagues from the other side mentioned about our platform. In terms of our raising the GIS by 10%, that will benefit 1.3 million single seniors in Canada of which over a million are women. I would hope our opposition colleagues, when we introduce that measure, will vote with us on that. I think it's important to the residents in my riding. There is a large population of seniors who are dealing with high food costs and increased property taxes, and they need some help and some relief.

Mr. Minister, thank you for your commentary and for being here today. In my humble view, this upcoming budget is important for many reasons, but my sense is that it's about jobs; it's about getting Canadians back to work; it's about growing our economy today and for the future. As someone who is a trained economist, and worked 25 years in international financial markets, I see no better time to invest. Interest rates and government rates are at record lows. We have a manageable debt-to-GDP policy. A few months ago Ben Bernanke was in Toronto, and he commented on it and said that infrastructure investing is smart. Our own Bank of Canada governor in his written testimony has commented, “it's an enabler for long-term economic growth”. Even David Dodge has opined on it.

My question for you is, what is our government's fiscal plan for getting Canadians back to work and making those strategic investments for our long-term future?

Thank you, Minister.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

We essentially made four significant commitments that we want to follow through on, and there are many other things we want to do as well.

First and foremost, we said that we want to improve the lives of the middle class and those striving to get into the middle class. We started that with a reduction in middle-class taxes. We believe that's an important decision for the middle class. We also believe that it's an important aid to stimulate the economy, because those people will spend money in the economy. We made a commitment to help those most vulnerable, and the most important signature aspect of what we've been speaking about is the Canada child benefit, which will improve the lives of nine out of ten families with children. It will raise an enormous number of children out of poverty—hundreds of thousands—which will enable those families to be more engaged in the workforce, which will help the economy. It will also enable those families to have a more dignified life.

We've talked about and remain committed to significant infrastructure investments. We'd like to move the amount of spending on infrastructure over the next decade up to $120 billion, which is a historic amount, and split the increase of $60 billion, as you know, among transit, social, and green infrastructure—roughly $20 billion in each area. We are moving forward on those commitments. We believe they will have a significant impact on our long-term rate of productivity. There are definitely some projects that we will be able to move ahead on quickly, which will, as you mentioned, increase jobs across the country.

Finally, and absolutely not least, we recognize that Canada does not have the best record in terms of productivity compared to other countries. We recognize that investments in innovation will and can make a significant difference on our firm-based level of productivity. We know this is important to get on with. Our decisions in the upcoming budget will be consistent with an approach to focusing on innovation, and we will be working on this diligently to move us forward with this plan.

[The Chair, Liberal, Wayne Easter]

Francesco, I'll have to ask you to keep it pretty tight, and the minister as well.

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

Thank you, Minister, for that reply.

In the area I represent in York Region gridlock is faced by all of the families these days, by commuters, and in moving goods and services to markets, and moving people to their jobs. Hearing that response is reassuring to me that we'll undertake the necessary investments to get people to work and get them home at night to their families sooner rather than later. I think that's important.

I want to ask about the debt-to-GDP ratio over our mandate. I think it's important that we continue it as a downward trend. I'd like to hear your comments on that.

[Bill Morneau, Liberal, Toronto Centre, ON]

We told Canadians that investing is the right approach at a time of low growth. We've seen over the last decade that growth has been lower than we'd like it to be. We can see that in the future there will be demographic challenges.

We designed our platform with that investment in mind. We did it specifically because we believed that as a country we have some real opportunities. We clearly have advantages, such as wonderful natural resources, a highly educated workforce. We also have an advantage. The previous Liberal government in the 1990s did some very hard work to get us to a low debt-to-GDP ratio. That has put us in a very fortunate position globally. As we've mentioned, we have the lowest net debt-to-GDP ratio in the G7. We believe that's an important anchor. What I can tell you is that while growth is lower than we expected, by impacting that measure from our first budget to our last budget, we will be lowering the net debt-to-GDP ratio. We believe that's important. We remain having as an objective getting to a balanced budget, and recognize that this will be more challenging.

[The Chair, Liberal, Wayne Easter]

Minister, I know we're at the end of your scheduled time. Could we squeak about another 10 minutes of your time to give the two members who have not had an opportunity a question?

[Bill Morneau, Liberal, Toronto Centre, ON]

Yes.

[The Chair, Liberal, Wayne Easter]

Thank you, Minister.

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thank you, Mr. Chair, and thank you, Minister, for being here.

I've heard you refer a couple of times to slow growth in the last 10 years, yet it is a known fact that Canada had the highest economic growth in the G7 between 2005 and 2014. We have also created 1.3 million net new jobs since 2009. I would suggest that you have a meeting with the writer of your talking points and correct that because that is not correct.

I do want to go to your numbers. In the document that you released yesterday, it says that the February 26 survey shows that we will move from 0.7% nominal GDP growth in the just concluded year to 2.4% this year and 4.6% in 2017.

Could you explain why we're going to have that uptake, considering the fact that energy east will not be started and very little actual results will come from the infrastructure investment in that first year?

[Bill Morneau, Liberal, Toronto Centre, ON]

I think that the basis from which we start our planning is critically important to help Canadians understand where we are. We've seen, as you just outlined, a difficult period of growth over the last year. There were two impacts to that. One was lower growth than was expected, which in our estimation was because of the wrong policy choices of the previous government. Growth was very low.

We also had a very low inflation rate, so nominal GDP as something that's added up by real growth and inflation was very low. In 2016, when you look at nominal GDP, which you were looking at, you see two separate factors. You see factor number one, which is the real expected growth, which is the number that I spoke about earlier in speaking to private sector economists. They've downgraded that from an expectation of 2% to 1.4%, and added on top of that is what the expectation is of inflation, which we expect will be low in this calendar year. When you add those two numbers, you get to the total number which I believe you referenced as 2.4% nominal.

What we expect will happen in 2017 is that inflation will move closer to the Bank of Canada's targeted inflation rate, which is 2%, which has a significant impact on nominal GDP, and that growth will improve. We expect that this will be as a result, at least in part, of positive policy actions taken by the new government.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I have never known Canada to have a class system, yet we've heard consistently over the last period of time about the middle class. I'd ask you to define what you see as the middle class, and if you're not middle class, what are you?

[Bill Morneau, Liberal, Toronto Centre, ON]

In our campaign, we talked very clearly to Canadians about what we see as a fundamental challenge that's been going on in Canada for the last several decades.

When you look at the changes in the economy, when you look at the productivity growth in the economy, you can see quite clearly that the returns from that growth have gone more to the very top of the economy than it has to those in the middle.

We recognize that this is fundamentally part of the policy choices in Canada. We also know that in dealing with how Canadians are able to prosper in the future, we need to think about how to deal with that situation.

We put in place specific measures that we believe can help the broadest cross-section of Canadians. We put in place a tax reduction for those people who we see have not been able to grow their income as rapidly as others. Specifically, our target was the income tax bracket between $45,000 and $90,000. We reduced taxes for people in that category by 7%.

We increased taxes for those who have done very well over the last several decades by increasing the tax rate for those who make over $200,000. In effect, when you consider the impact of those two tax rates together, it means that people earning over $217,000 pay a slightly higher amount of tax.

We think this is the right thing to do. We recognize that it deals with the fact that the middle class has not done as well over the last number of decades. It starts us on the right path to ensuring that the impact of positive income growth in this country is shared equally among different Canadians.

[The Chair, Liberal, Wayne Easter]

Mr. Ouellette has the last question for the minister's time frame.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Minister.

What is the economic and social impacts of chronic underfunding and ignorance by former governments upon our fellow indigenous citizens, in their education, health, and child welfare, especially upon their social and economic potential, and especially as well upon the social mobility of indigenous Canadians—our fellow citizens—out of lower economic classes?

[Bill Morneau, Liberal, Toronto Centre, ON]

I think it's a good question.

In preparing for coming into office, we recognized that we needed to work not only with those middle-class Canadians who, in our estimation, need to have a better opportunity to share the gains of growth, but also with people in our society who are the most vulnerable. An important part of our platform was dealing with how we can improve the lot of those people who perhaps don't have the appropriate housing and who might be in a difficult situation in terms of having enough to live a dignified life. Square in the middle of that are many indigenous Canadians. We recognize that the outcomes for K to 12 education for people both on and off reserve are not what we had hoped for. We recognize that labour force participation among indigenous groups is lower than among other groups.

Recognizing that 4.3% of our population is indigenous Canadians and that this population is growing faster than other populations, we realize that to enhance our effectiveness as a country we need to get higher labour force participation. In order to do that, we need to have better educational outcomes. Our starting point is to look at how we can have better educational outcomes for indigenous Canadians in the K to 12 sector and how we can improve their lot through better infrastructure investment. As a long-term outcome, we expect to have not only better labour force participation, but enhanced growth in the country.

[The Chair, Liberal, Wayne Easter]

You can have one more question. We have two more minutes.