Finance Committee on Feb. 3rd, 2020

[The Chair, Liberal, Wayne Easter]

Okay. We'll have to leave it at that.

Turning to five-minute rounds, we'll go to Mr. Cumming and then back to Mr. McLeod.

Mr. Cumming.

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you for appearing today.

One key principle around this budget is this concept of strengthening the middle class.

For the purposes of the department, what is the definition of “middle class”? What are you working towards? Is it defined through a tax bracket? Is it change by areas of the country?

How can you craft a budget, and under what kind of definition?

[Nicholas Leswick]

Firstly, I know that the associate minister has a thing or two to say about the definition of middle class, and I'm sure you'll have that discussion on Wednesday.

From purely a bean-counter and statistical perspective, though, I can say that there is no common definition of “middle class”. Any definition—attempted definition—would have to take in a range of considerations: family size; family composition, i.e., how many children you have; geography, where you live. Just with those three variables, there is a range of definitions around what is the middle class, which can range from some peripheral around the median income.... By extension, when defining “income”, is that before-tax income or after-tax income? You talk about a peripheral within the 50% or 150% of the median income.

Then, in adjusting for family size, there's this concept of adjusting for a per-adult equivalent. On a per-adult basis, is it $20,000 to $85,000? Is that after tax or before tax? That then changes those metrics.

I'm not trying to escape the question, by any stretch, but trying to emphasize that there are general variables in play when trying to attach a statistical definition to “middle class”.

[James Cumming, Conservative, Edmonton Centre, AB]

The difficulty with that would be that if it's a key pillar and you can't clearly define it, I can't understand how you can craft a budget on the basis of that being one of the key outcomes you're trying to generate. Hopefully we'll get a better response on that from the associate minister.

There is some concern about tax structure. In your opening remarks you mentioned, related to the U.S., a more aggressive tax structure. Is there any concern, in crafting this budget, about a reduction in potential corporate revenue? The U.S. have been quite aggressive in its tax strategy, whereas in Canada we've actually been increasing input taxes on corporations, particularly small businesses, related to the carbon tax and increasing CPP and EI premiums, which are affecting their ability to compete. Is there a concern in the department that there could be a potential reduction in corporate revenue?

[Andrew Marsland]

This is an issue that we continually look at in terms of competitiveness. In 2017, as I'm sure you are aware, the United States introduced quite a comprehensive tax reform, and the department spent a fair degree of time analyzing that—and continues to do so, in fact, because some of the details of it are still coming out. It's a dynamic environment, and I think you need to continue to look at it.

In the fall economic update of 2018, the government announced measures in response to that, essentially the accelerated investment incentive. That was focused on a number of things. It focused on a concept, the marginal effective tax rate, which is essentially a measure we use—not the only measure, but one measure—to look at the relative competitiveness of tax systems. Essentially that measures the total tax burden on an investment producing a normal rate of return and takes into account the entire picture of taxes. It takes into account the sales tax burden, the income tax burden and so on. It's a useful measure because it gives you one perspective on that. Those measures allowed us to bring our marginal effective tax rate down a number of percentage points below that of the U.S., to be the lowest rate in the G7.

I think that's one measure. I think it's important to look at a number of measures, but it's an area we continue to be focused on in terms of the overall competitiveness of the tax system being one element—an important element but not the only element—in terms of assessing the competitiveness of the overall economy.

[James Cumming, Conservative, Edmonton Centre, AB]

Has the department taken the opportunity to study the impact of those increased import taxes, particularly with the carbon tax and the increase in CPP and EI, and particularly in the small business sector, on their ability to compete and the revenues generated? Has a specific study been done on that?

[Andrew Marsland]

I'm not aware of a specific study, but a large part of our work is looking at those factors. It's not as if we do just one study. We look at the impacts of all of those factors to try to understand what the impacts of those are on overall competitiveness.

You mentioned a couple of things there in terms of carbon pricing, and the carbon pricing system is designed in a way that essentially addresses some competitiveness issues for those sectors that are large emitters and trade-exposed. In the small business sector, we have, in comparative terms, a very low small business rate, in fact the lowest in the G7.

Those are just two factors in a range of factors, I think a couple of which you mentioned, so I think we continue to look at the implications of all of those for competitiveness.

[The Chair, Liberal, Wayne Easter]

Mr. McLeod and then Mr. Cooper.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

Thanks, presenters today, for coming and presenting, although your presentation is a little bit skimpy. I was hoping to hear more on some of the work you've done in the pre-budget consultations and especially what you heard from the north, because I wanted to raise an issue that is affecting the north. It's the physical pressures that the territories are facing. We have a small tax base and high costs of construction and service, and we have a set borrowing limit. That borrowing limit is set by this government and it's currently $1.3 billion. The Government of Northwest Territories always seems to be right at its debt limit and struggles to get projects done.

Is the Government of Canada open to exploring options to assist the Government of Northwest Territories in addressing some of the challenges through such measures as increasing their borrowing limit or allowing for greater flexibility in cost sharing on projects, infrastructure and other things?

[The Chair, Liberal, Wayne Easter]

Ms. McDonald.

[Suzy McDonald]

We certainly heard some of the concerns from the north about the pressures being faced. We've had a number of conversations with regard to borrowing limits, and specifically, not only with the Northwest Territories but with some of the other territories as well. Those conversations are ongoing, and it would be premature to talk about what a final outcome of those might be.

Your second question was about infrastructure. Perhaps my colleague, Evelyn, would be able to speak to that.

[Evelyn Dancey]

First and foremost, within the public service we're very mindful of the particular challenges in relation to economic development in the north, which is the area I'm representing from the finance department.

With respect to infrastructure, I'm sure you know already about this programming, but I'll mention that of the $2.4 billion national trade corridors fund, there's $800 million identified for projects in the north. It's a fairly large allocation on a per capita basis, but it's in recognition of the transformative nature that infrastructure investments can make in the north.

[Michael McLeod, Liberal, Northwest Territories, NT]

The definition of “large” depends what side of the fence you're on. The $800 million doesn't go very far when you split it among three territories and some of the provinces. Just one road costs over $2 billion. I should remind the government that the Government of Canada is still responsible for building roads in the Northwest Territories. It still holds that responsibility.

When we talk about how other countries are doing, and how the national indicators are showing that our country is doing well and things are going pretty well, there are some areas of concern for the Northwest Territories. Our economy has not been keeping up with what's going on in the rest of Canada. We're growing at a slower pace. We are getting to a point where the backbone of our economy is going to be disappearing pretty soon. The diamond mines are all past their peak production points. We really don't have any other industry ready to offset their decline.

What efforts is the Government of Canada taking to support regional economies, like ours, to grow and diversify?

[Evelyn Dancey]

That's a discussion that could take hours.

To use the time efficiently, I'll note the government's recent Arctic and northern policy framework, which includes measures, opportunities, and targets, across a range of policy areas, including economic development, but not only economic development. That very much is a work in progress in implementing the framework in partnership with other levels of government, indigenous communities, non-governmental organizations and the private sector in the north.

I don't have a single answer to that type of question. However, there's an enormous amount of collaboration and partnership trying to marshal resources to where they can hopefully have the greatest impact in the north not only from an economic development perspective, but also from other perspectives. If it's helpful, I'd be happy to follow-up with background on that framework.

[The Chair, Liberal, Wayne Easter]

Mr. Cooper.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you, Mr. Chair, and thank you to the departmental officials for appearing today.

In the EFU 2019, it was confirmed that the government would be undertaking a comprehensive review of government spending with the goal of achieving $1.5 billion in savings by 2020-21.

Could you provide an update on the status of that review?

[Nicholas Leswick]

On the spending side, to be quite honest, we're still working through the details of that process in the review framework with the government. We anticipate that more details will be provided in the upcoming budget on how that will be undertaken.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

So, it's still very much a work in progress.

[Nicholas Leswick]

Yes, sir.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

In that regard, or consistent with that, no details have been published regarding the criteria for the assessment programs. Would you be able to provide any insights in terms of the policies or operational actions the government is considering in order to see that $1.5 billion in savings by 2020-21?

[Nicholas Leswick]

I don't want to speculate, and I certainly don't want to mislead you, so in terms of the overall program spending base in government, which is north of $350 billion, we're working through the government in terms of what would be the review base and how to go about that review.

Those are the kinds of details we're discussing with the government right now with the hopes of coming back to Canadians and this committee with more details in that regard.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you for that.

Now, switching gears a little bit to an issue that is near and dear to the constituents I represent in St. Albert—Edmonton, the issue is the energy sector and the competitiveness gap that exists and has resulted in a significant flow of investment from the sector.

Certainly, the sector was impacted by 2017 U.S. tax changes. In response to that, the government did move forward with accelerated capital cost allowance, but it's temporary. It's going to be phased out. I would submit that, consistent with ensuring and maintaining competitiveness, it would make sense to make that permanent in light of the U.S. situation especially. Would you be able to provide any insight on any work being done around that or any consideration?

[Andrew Marsland]

Perhaps I might respond to that.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Yes.

[Andrew Marsland]

You will appreciate that I can't really comment on what actions the government might take.