Finance Committee on May 2nd, 2022

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I would like first like talk about the form and substance of this BIA, Bill C-19. I haven't seen before where we received a technical briefing. Props to my colleague Terry Beech for offering those to our parliamentarians, but usually that's done on the BIA.

Would you, sir, be able to tell me whether or not everything that is in C-19 is what was discussed in the ways and means motion, or are there extra measures in this budget implementation act?

[Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

I can take this one. Thank you for your question.

There are some measures that were not necessarily announced in the last budget, but were announced in the previous budget. For instance, the immediate expensing measure, the disability tax credit measure and, I believe, the film and video production tax credits were not announced per se as new measures in the budget, but they are now in BIA No. 1.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I do appreciate that you're going to try to answer as best you can. I do, by the way, appreciate everyone's work for our great country.

Sir, I have to say that you were little bit quiet, so I put my earpiece on. I'm going to ask a variation of the same question, and hopefully we can get through this.

Can you please start by saying what is in Bill C-19 that was not in the previously tabled ways and means motion, on which a technical briefing was given over the course of two nights last week by the parliamentary secretary? If you could just itemize those, please, we will then get into which budget they fell under before.

[Miodrag Jovanovic]

I will have to turn to Lindsay Gwyer, because I am not in a position to answer that question.

[Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, Tax Policy Branch, Department of Finance]

The technical briefing given last week was on the notice of ways and means motions. The items in part 1 of the bill—the income tax part—are all the same. What's in the BIA is the same as what was in the notice of ways and means motion, so there's nothing additional. My understanding is that it would be the same for the other parts, though I can only speak for certain with respect to part 1.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm just going to ask that members of the committee bear in mind that, when I ask the same question of every single group to come forward, it is just to make sure that what we were given a technical briefing on is, in form and substance, exactly the same as what is in Bill C-19. If there are differences, I'd like to hear a rationale from the officials. That is a warning just to you and your colleagues.

You did mention earlier in your first response to me, which I had a little difficulty hearing, something about measures in this BIA that were in previous budgets. Could you recite that a little more clearly, please?

[Miodrag Jovanovic]

Yes, and I am sorry that I misunderstood the question at first.

There are some measures included that are just restating the measures that were announced before budget 2022, for instance, the immediate expensing measure, the disability tax credit and the film or video production tax credits. I don't necessarily have the entire list in front of me, but these are some of them. There is the post-doctoral fellowship income and a few technical items as well. It's not exhaustive, as I said.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay.

Were the changes to the Senate and the positions that would be made available on the Senate side in the ways and means motion?

[Nicholas Leswick]

I don't believe they were in the ways and means motion, but I'd have to verify that for you, Mr. Member.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Would you be able to supply the committee with a list of things that were in the ways and means motion that are also in Bill C-19, as well as other measures in Bill C-19 that were not in the ways and means motion, and under what category they would be captured?

I think the committee would be much better suited to understand how large this bill is, because it's my understanding that it's one of the largest the government has put forward. The government always says that better is always possible, so I would hope that the officials would agree that explaining that to parliamentarians, point by point, would be better.

[Nicholas Leswick]

Thank you. I think that's a great approach, and we'll come back very quickly with an itemized list in accordance with the framework the member outlined.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay.

Again, the doubling of the allowable qualifying expense limit under the home accessibility tax credit was something that was in budget 2021, was it?

[Miodrag Jovanovic]

That was in this budget, 2022.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay. I thought that....

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Albas. That is your time.

Now, we'll move to the Liberals.

We have MP Baker up for six minutes.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Mr. Chair.

Thank you to all of our officials who are here today, both on screen and in person, and for your hard work every day on behalf of Canadians.

In my riding of Etobicoke Centre, a lot of folks are concerned about fiscal responsibility. They want us to make sure that we have the programs in place that are needed to support Canadians, to grow our economy and so on, but they also want to make sure that we're fiscally responsible. One of the components that I get asked about regularly is debt management.

In the budget, there is an annex that speaks to the debt management strategy. I'm just wondering if you could walk us through what our debt management strategy is in terms that my constituents can understand. What are our plans going forward as far as the federal debt goes?

[Nicholas Leswick]

Thank you for the question. I'm happy to do that at a high-level, in broad terms.

Over the course of the pandemic, it was necessary for the government to issue a lot of debt to fund COVID emergency response programs and to fill in gaps from the interruption of revenues over the course of the pandemic and, obviously, the economic contraction through 2020 and into 2021.

The government had committed to funding this debt program through the extension of the term structure of the debt, edging more into the long end of the yield curves with longer duration bonds. You see that reflected in the debt management strategy.

As interest rates are at historic lows—albeit creeping up gradually as the economy strengthens—a bulk of the debt was funded at the long end, so you see that reflected in the chapter you referenced.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

What I hear you saying is that interest rates are low. Generally speaking, yields or interest rates on bonds, which is the mechanism through which the government borrows, tend to be higher the longer the term of the bond. Given that rates are low, however, what I hear you saying is that the government has tried to borrow over longer term periods at lower rates to keep the cost of servicing that debt low in the future. Is that right?

[Nicholas Leswick]

That's exactly right. We extended the term to maturity of the entire debt stock. To execute that, we issued more bonds at the longer end so there are more 10-year, 30-year and even the ultra-long bonds to extend that maturity structure of the debt.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

If I were trying to relate this back to my own personal finances, I might think about Canadians who have bought homes and had to go out and get a mortgage. They can relate to this, right? You can get a mortgage at a variable rate, or you can lock it in for two years, four years or five years, and generally speaking, if you lock in for five years, that's the longest term that a bank will offer, but it allows you to have a lower rate for a longer period of time.

What I hear you saying is that we're locking it in over, in some cases, 30 years, to make sure that Canadian taxpayers for 30 years into the future are paying at today's lower rate.

Is that right?

[Nicholas Leswick]

Yes. Those are the principles. We're cautious as well. We're trying to find that sweet spot between managing the cost and risk dynamics. There is a rollover risk dynamic that I think you're referencing, and then just the actual cost structure as well. Obviously, when you borrow shorter, it's cheaper, and when you borrow longer, it's more expensive. We're trying to find that sweet spot, but fundamentally the government has chosen to extend the term structure of the debt to play into the principles that you speak to.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Again, for my constituents, what's the benefit of that to them? What's the benefit of locking in these lower rates over the longer term? Why should that matter to my constituents?

[Nicholas Leswick]

Obviously, if you aim to lower public debt charges, if you think your base case is a perfect prediction of the future.... Economists including me have never been all that great at predicting the future path of interest rates, so I'm cautious about being too dogmatic on anything I say in this regard.

Again, it plays to the principle that when interest rates are low, and you can lock in some debt at those low rates, that is beneficial for your overall interest charges and what the outlook is for those are going forward.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Right, and presumably that leaves more resources available to the federal government for other programs.

Is that right? The lower that servicing cost, the more money we have for other things.

[Nicholas Leswick]

Right. Interest charges are one portion of what the government spends money on, and the lower those are, I guess, the greater the availability to spend money on other things.