Finance Committee on March 10th, 2020

[Pierre Poilievre, Conservative, Carleton, ON]

Do you have a definition that you use?

[Yves Giroux]

We would generally use “support to businesses”.

[Pierre Poilievre, Conservative, Carleton, ON]

Do you know what that number is?

[Yves Giroux]

I don't because it's a mix of tax preferences, deductions and credits, as well as direct assistance, loans, loans with preferential rates and loans that—as alluded to in the previous session—sometimes don't get repaid. There is a vast array of different types of support that are used by governments.

[Pierre Poilievre, Conservative, Carleton, ON]

Does your model on the amount of taxation for each job loss...? Can you tell us, for example, if the government increased taxes by $1 billion, how many jobs that would cost, if the money were to be generated through increased business taxes, for example?

[Yves Giroux]

It's something that could probably be generated, but obviously, I don't have that number off the top of my head.

[Pierre Poilievre, Conservative, Carleton, ON]

The reason I'm asking is that, sometimes when the government gives these grants to companies, it does so as though the money is falling from the heavens rather than being raised out of the hands of workers and entrepreneurs in the real economy. If the government gives out $1 billion, it first had to take that billion dollars away from a disparate group of people spread across the entire economy. When we have officials come here and claim that their grants have created x number of jobs, they never tell us how many jobs they killed to take that money out of the economy in the first place.

Could your office provide us with a model to explain how many job losses we have for, say, every million dollars of extra tax the government collects, for example?

[Yves Giroux]

I can get back to you probably in writing with an estimate. For example, if we can provide you with a rule of thumb, we will get back to you on that.

The other alternative.... You mentioned taxation. The government can also spend money or invest—whatever words we choose to use—through borrowing. It doesn't necessarily have to raise taxes, but eventually there will have to be some payment of interest on that, so it's—

[Pierre Poilievre, Conservative, Carleton, ON]

We know the lender wants more back than he gave in the first place. The lending option might be even more damaging, because if the government's paying for its corporate handout through the deficit spending, then that corporate handout will have to be paid off over time by taxpayers. That could be even worse. That's not to mention the fact that it had to be borrowed out of the economy in the first place, to whatever extent it was raised through domestic lending. That was money that will not be lent to a private business. It will be lent to the government.

There's no free lunch, as economists like to remind us. I think that's one of the reasons we need to have this study. We continue to hear from the bureaucracies and the recipients of these government corporate welfare programs how many benefits they are bestowing upon us, but nobody can tell us—we had the departments here, and you're here now—the damage it does to take the money out of the economy in the first place.

I would take you up on your offer that you would provide us with a report listing how many dollars of taxation it takes to kill a job. Then secondly you would provide us with your inventory of the number the government is spending on these corporate subsidies, because it will say the government is spending $5 billion on corporate handouts. How many jobs did it kill to take $5 billion out of the economy in the first place and then put it back into the hands of a select and favoured few?

Are you able to provide us with those two parts?

[Yves Giroux]

If that's a motion of the committee, I would be happy to consider that.

[The Chair, Liberal, Wayne Easter]

That is where we are at the moment. You will have to think about such, Pierre, either today or another day.

Go ahead, Ms. Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

Thank you so much for both of your great presentations.

My first question to you, Mr. Giroux, is the following.

My Conservative colleagues have recently started to indicate that the economic situation in Canada is dire, our cupboards are bare and we have nothing left to sustain us in any type of fiscal or emergency crisis that might befall us as we are now undergoing the coronavirus.

You recently have put out, I believe, the “Fiscal Sustainability Report 2020”. Can you kindly describe the state of our current fiscal situation?

[Yves Giroux]

I'll describe the state of the economy first because that was also the premise of your question. We have noticed that economic growth has slowed sharply in the last quarter of 2019. We expect growth to be relatively modest in the first quarter, and that was before the oil price decline of recent days and the rail blockade. We expect growth to be barely positive in the first quarter of 2020.

With respect to the fiscal sustainability report, we released a report earlier this year that takes a long-term perspective of government finances—provincial and federal. In that report, we define fiscal sustainability as having the same debt-to-GDP ratio at the beginning of the period and at the end of the period. Granted, it's an arbitrary point, but that's the best definition that we could come up with in terms of sustainability. That report shows that in the absence of any changes in policies, the federal government has no fiscal sustainability issues, so it's financially sustainable. It has wiggle room to the tune of $41 billion to reduce taxes or increase spending, or a combination of both.

At the provincial level, it's a totally different story. In the aggregate, provinces need to make adjustments of $6 billion—$6.6 billion if my memory serves me well—with different pictures, depending on the provinces and territories. Some provinces are already sustainable through relatively high taxes that are matched with high spending in some cases, but taxes that match spending. Others are in more difficult financial situations for which there will need to be some adjustments over a 75-year horizon—that's important—and assuming status quo policies, which we know won't happen. That's why we call these projections rather than forecasts. We know one thing: This is not what will happen. There will be changes before that, for sure.

[Julie Dzerowicz, Liberal, Davenport, ON]

The reality is that you make the best conclusions based on the information that you have right now.

[Yves Giroux]

Exactly.

[Julie Dzerowicz, Liberal, Davenport, ON]

I note that in your report you said, “Current fiscal policy at the federal level is sustainable over the long term.” I also want to acknowledge that you've indicated that we have about $41 billion of wiggle room, which I think is great. I think that's very helpful.

I just wanted to put that out there.

[Sean Fraser, Liberal, Central Nova, NS]

[Inaudible—Editor]

[Julie Dzerowicz, Liberal, Davenport, ON]

I wouldn't say that. I think that the reason you actually have that is that we have been saving for rainy days. I don't think that we want to be spending everything that is in our piggy bank. I do think that maybe the coronavirus might be one of those things we might be looking at.

I thank you for that.

I want to turn my attention very quickly to Mr. Hayes because I only have a minute left. Fossil fuel subsidies and their quick and urgent elimination are a top priority for Davenport residents, and that's the riding I'm very honoured to represent. How do we get to a solution? Is it a matter of finance and environment getting together and better defining inefficient and efficient subsidies, or do we need some external body to help us out?

[Andrew Hayes]

I will start by saying that the government has eliminated a number of tax-based measures that we would call fossil fuel subsidies. Our concern moving forward, I would say, would largely be with the non-tax subsidies, with Environment and Climate Change Canada being the lead on that side of it.

Our concern was that the analysis that they performed was not based on a strong definition. They didn't include all of the agencies and departments that should have been included in that analysis.

Those would be the two starting points for that.

[Julie Dzerowicz, Liberal, Davenport, ON]

I appreciate that.

I'm at my five minutes.

Thank you.

[The Chair, Liberal, Wayne Easter]

You are out of time.

Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, everyone. Thank you for being here. It's very much appreciated.

My question is for Mr. Giroux. I'll go back to what Ms. Dzerowicz was saying earlier. She talked about your studies and the financial viability reports. The findings of your studies is that there is some flexibility at the federal level, but that it is less clear in Quebec and in the provinces, when you look at them as a whole.

Do you think this could indicate that there is still a fiscal imbalance between federal and provincial revenues and expenditures today?

[Yves Giroux]

In my opinion, it is very clear that flexibility at the federal level is due to the fact that federal spending—again, it is important to say that it's within the current parameters—are mainly transfers to the provinces and to individuals. Transfers to the provinces are legislated. Their growth is tied and capped, in some cases, at 3% or the growth of nominal GDP. It is therefore contained growth.

With respect to transfers to individuals, there is employment insurance, which is a self-financing program over the medium term. There is also the guaranteed income supplement and old age security. The growth of these payments is once again limited to inflation and population growth, of course. Federal spending, as a whole, is therefore constrained. We have put the structural lid on the pot.

At the provincial level, again over the long term, the main driver of expenditure growth is related to health expenditures. Unfortunately, experience has shown that the older people get, the more expensive their health care costs become. That is one of the disadvantages of aging. In addition to losing our hair, it costs more in terms of health care. So the provinces have a lot of costs that they can't control, while the federal government can control its spending.

One possible solution, of course, would be to increase transfers to the provinces, especially those facing the greatest challenges.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much for that clarification. I couldn't help but address this issue, even if it strays a bit from our main topic.

The debate within the committee on the subject at hand is this one. When the government spends a dollar in subsidies of any kind in support of business, is it for election purposes and to help its friends, or is it for the purpose of growth and support for economic development?

Mr. Hayes, you said there could be a financial accounting analysis, but the advantage of government support is that you can also juggle parallel gains, like public good, that can't always be accounted for.

My question is for the representative of the Office of the Auditor General and the Parliamentary Budget Officer. To your knowledge, is it possible to have a tool that measures the impact of every dollar spent in support of a business? What is the economic impact in terms of financial impact?

[Andrew Hayes]

At the OAG, we examine the government's actions. So it's not our job to design a tool like the one you're talking about.