Evidence of meeting #36 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was quebec.
A recording is available from Parliament.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
However, it's unsuccessful industrial policy, as we've been hearing for 10 years.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
Thank you.
Mr. Giguère, do you have any lessons from your 2024 report, “Boosting Income Mobility through Economic Liberty in Quebec”, that could be applied to Canada and inform Canadian fiscal policy?
Gabriel Giguère Senior Policy Analyst, Montreal Economic Institute
Absolutely.
Just a week ago, we produced a report on entrepreneurship in Quebec that may be related to that. Basically, we're seeing a drop in entrepreneurship in Quebec, particularly because of the regulatory and tax burden. A concrete example of this was the Trudeau government's increase in the maximum tax rate.
In September 2023, we produced another report that quantified the decline in the number of entrepreneurs as a result of the creation of that tax bracket. Unfortunately, more than 9,000 people have not gone on to become entrepreneurs. Basically, that's what we're seeing.
In the longer term, over the last 20 years, we've observed a fairly significant decline in the number of entrepreneurs, whether they are self-employed workers or entrepreneurs who have employees. It is a very alarming and unfortunate path that Canada is going down.
Conservative
Pat Kelly Conservative Calgary Crowfoot, AB
Thank you.
One of the items you commented on in your report was that, “In economically free environments, the persistence of income status through inheritance at birth is massively eroded.” Those are your words. Therefore, in an economically free environment, people are able to succeed and you don't have the disparity of wealth created by inheritance alone. However, at this committee, we heard in our previous study about the real divide in Canada now between those who own real estate and those who do not and the concentration of wealth among those who owned property before inflation took hold.
Do you have any views on the distortions and whatnot that may come as a result of the doubling of housing prices over the tenure of this government?
Senior Policy Analyst, Montreal Economic Institute
There is an obvious impact on wealth levels, yes. Now, we have to figure out the causes and fix the issue. You are correct to mention it.
Costs have indeed been rising quickly, but there's also a regulatory burden, specifically at the municipal level. Wait times to get building permits are very long, for example. There are also administrative decisions that are made. In some municipalities, there is sometimes a lack of understanding of the homebuilding trip chain. Even for $500,000, $600,000 or $700,000, there's a trip chain. Trip chains also ensure that affordable housing is available for every Canadian. Understanding this mechanism leads to better public policy.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Giguère. We have to leave it there.
Mr. Leitão now has the floor for six minutes.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Thank you very much, Madam Chair.
Good afternoon, ladies and gentlemen. Thank you for being here.
Mr. Dufort and Mr. Giguère, I'm sure it's no surprise to you that I disagree with much of what you've said.
Regarding the Canada Strong fund, Canada's first sovereign wealth fund, which was announced this morning, more details will be provided tomorrow with the economic update.
There is one thing I want to clarify, however. You compared this fund to the Canada Infrastructure Bank, or CIB, but they're not the same. I agree with you that it took some time for the CIB to hit its cruising speed, but it's been working efficiently for the past few years. At the end of the day, it's working like a development bank, like the Inter-American Development Bank or the European Bank for Reconstruction and Development. It acts as a long-term lender, and the interest rates charged by these types of banks are generally lower than the market rates, because the market wouldn't provide such long-term funding for infrastructure projects.
I believe that the CIB's model has changed a lot over the past two or three years. The fund announced this morning is a sovereign fund, but it will operate as an institutional investment fund. It will take action and be a part owner of the projects developed through the Major Projects Office. It will provide long-term funding, but as an owner. It's a different model. Because it is managed independently from government, the fund will generate higher returns than its setup cost. These are two different models.
Mr. Dufort, you mentioned several times that these are examples of industrial policies. The Montreal Economic Institute being opposed to industrial policy issues is nothing new. Would you say that there's a large consensus, especially in Quebec, on the state's ability to act and implement industrial policies?
President and Chief Executive Officer, Montreal Economic Institute
There are certainly numerous examples of economic dirigisme in Quebec. I'm sure that Quebeckers feel the effect of recent failures that cost them dearly, including in the battery sector. It is that type of industrial policy that we find particularly risky and ill-advised. It's not a replacement for a more competitive economy with predictable regulations and lower tax rates.
Liberal
Carlos Leitão Liberal Marc-Aurèle-Fortin, QC
Personally, I would have picked the Caisse de dépôt et placement du Québec to draw a parallel with the fund announced today, but we'll leave that for a future discussion.
Ms. Robson, thank you for coming.
You mentioned a few things that I found quite interesting. One of them was that total provincial revenues exceed total federal revenues, but the federal government generates more income tax revenue than the provinces.
What conclusions do you take from that? What does it mean? Should we worry about it? What's the problem with that, if there is a problem?
Associate Professor, Carleton University, As an Individual
To put some figures to that statement, federal all-source revenue is about $500 billion, federal spending is about $561 billion and all-source revenue for the provinces is $688 billion, give or take.
It's important, as the committee continues this study, to bear in mind—I think it was implicit in the motion that started this conversation—that there is a concern about fiscal balance within the federation. I would encourage the committee to consider all-source revenues and to recognize that at times in this country, politically, we have fallen into a bit of a pattern of thinking that if something is important enough, then the federal government must become responsible for it and it must become the spender.
In fact, there's a fair amount of fiscal capacity at the provincial level as well. It's not necessarily the case that, simply by transferring fiscal capacity from federal to provincial governments, we would arrive at a better balance than we already have.
This is to take a broader view. We tend to focus very much on income tax as the primary method of generating revenues in this country, but the picture is much broader than that.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Leitão. That is your time.
Mr. Garon, you have the floor for six minutes.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
Thank you, Madam Chair.
I want to start by welcoming all our witnesses and thanking them for being with us today.
We always neglect our witnesses who participate via video conference, so let me start with you, Professor Schirle.
You mentioned that the federal government's spending power can sometimes correct market failures, such as asymmetrical information. The federal government recently launched its national dental care program. Quebec already had its own regime and computer systems, including for children who could get direct care. The federal government chose to send checks directly to people, mostly for visibility reasons, even if Quebec could have provided the service directly.
Can you explain which market failure the federal government addressed in this case in Quebec?
Professor, Department of Economics, Wilfrid Laurier University, As an Individual
Thank you for the question. It's an excellent question to ask.
If you were to look at dental care generally, we're looking at a market failure—
Bloc
Jean-Denis Garon Bloc Mirabel, QC
I'm talking about Quebec, Ms. Schirle. Did the federal government correct a market failure in Quebec by bringing in its own program instead of letting the Government of Quebec do the job with its own system already in place?
Professor, Department of Economics, Wilfrid Laurier University, As an Individual
I'm not as familiar with Quebec's specific program. It sounds to me as though there is a market failure that Quebec is addressing, in the sense that insurance markets often fail to offer a well-priced good to a broad population. I would look more closely at whether there was anything missing in the Quebec system before commenting on that further.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
See, Madam Chair, that's the issue. There's a system in Quebec. The market failure is already addressed in Quebec. The rest of Canada doesn't know about Quebec's regime.
We have highly competent people just like you, Ms. Schirle. I've read some of your research papers. Such is life. What can I say? You come in and tell us that we should maybe look at what's being done in Quebec after the federal government has already imposed its system there.
For example, in the 1990s, the Liberal government merged the Canada health transfer and the Canada social transfer and then drastically reduced them, which prevented Quebec from moving toward ambulatory care. Let me quote what Marcel Massé, who was President of the Treasury Board of Canada at the time, said about Quebec's premier: “When Bouchard has to make cuts, those of us in Ottawa will be able to demonstrate that we have the means to preserve the future of social programs.”
The federal government was quite openly depriving Quebec's health care system of resources to play politics with people's health. Please explain which market failure the Liberals addressed back then.
Professor, Department of Economics, Wilfrid Laurier University, As an Individual
I would have to ask them. That is really the answer to your question. I'm sorry.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
My doctorate in economics tells me that they didn't address any market failure whatsoever.
Professor Robson, when the federal government transfers money with strings attached in jurisdictions where it can't legislate under sections 91 and 92 of the Constitution, we end up with a health system where part of the funding comes from Quebec and the rest comes from Ottawa.
The federal government imposes conditions, but the people who need the care only see the Quebec flag and the Quebec government logo. When the health system isn't working well and people have a hard time getting access to services, do you think that the average citizen knows all about the transfer regime and is able to punish the proper government for the system's inefficiency come provincial or federal election time?
Associate Professor, Carleton University, As an Individual
Thank you for your question. I can be more specific if I answer in English.
With regard to the health transfer, I do not study Canadian public opinion, so I am not in a position to comment on what the median voter might perceive in terms of responsibility for various areas of spending. If this is of interest, I would suggest looking at some of the work done by colleagues of mine at the Chaire en fiscalité et en finances publiques in Quebec. They've done some very interesting work with regard to public understanding of taxes and transfers and areas of responsibility. I'm not in a position to cite from that work.
With regard to the Canadian health transfer specifically, which is the major transfer in public health in this country, I would note that it is an interesting example in terms of conditionality. While there are conditions, the process by which the federal government holds back any funds in cases of a suspected contravention of the Canada Health Act is quite rigorous. If anything, it's a nice model of federal-provincial co-operation in an area of—
Bloc
Jean-Denis Garon Bloc Mirabel, QC
I will cut you off there. The answer is that the average Quebecker has no way to figure out which government to punish, and that creates a democratic issue.
You're probably familiar with other federations around the world. Can you give me a single example of a federation on planet Earth where the federal government's spending power isn't limited in any way, not by a constitution or by any sort of legislation?
Either you, Professor Schirle or anyone else in the room can answer.
Associate Professor, Carleton University, As an Individual
I would prefer to take this off-line and get back to the committee with a more detailed response on this. If you look, for example, at the federal spending power of the central government of the United States, their power to provide direction to states is quite strong and quite powerful in a number of legislated areas.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
The United States is an example we very much like to follow here.
Just before I entered politics, I spoke to my friend Robin Boadway, whom you know, at Queen's University. I told him that I was worried that one day soon, there would be new programs based on the federal government's spending power. Mr. Boadway told me not to worry, because the last major program based on federal spending power we had was the Canada health transfer, and there probably wouldn't be any more.
Since then, we've had dental care. I could name some—