Finance Committee on May 25th, 2026

[Gabriel Giguère, Senior Policy Analyst, Montreal Economic Institute]

Of course.

In fact, in this paper, which was prepared by our colleague Trevor Tombe, a research associate, we built a model based on the budget that was tabled in November 2025. We looked at nominal GDP growth, which was projected at 3.8% annually, and extended it through 2035, taking into account revenues that are often linked to economic growth, particularly taxes, as we know. We also found that the commitment to reach military spending equivalent to 3.5% of GDP would drive spending up very sharply. We see an increase of $100 billion.

When we added it all up, we arrived at a deficit of $117 billion, which is quite alarming, because today we have a deficit of $65 billion or $66 billion, and we see that it will not fall below $50 billion by 2030. When we look at the period from 2030 to 2035, we see a reverse trend where the deficit increases. This is alarming in that, even if we do not add new programs—which, in reality, has been the federal government's natural tendency for several years, and even over the past year—we will reach a deficit of $117 billion.

I believe this reality—that is, a projected deficit of $117 billion—also highlights the importance of reducing spending, particularly in the bureaucracy. We have seen an increase of more than 100,000 public servants since 2015, with the arrival of Justin Trudeau's government and the Liberals. We are seeing a slight downward trend, but it is largely insufficient.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

That's an important point. This deficit is 100% on this government. They inherited a balanced budget, something that they don't like to acknowledge, and they have created a structural deficit now that even without new programs will just continue to accelerate. Is that a fair assessment?

[Renaud Brossard]

Absolutely. If it was not for all the new spending we've seen in the last decade, we would have a balanced budget and probably a significant surplus right now.

The problem is that money has been spent. We have used it to hire bureaucrats. We've used it to create a bunch of new different programs. Canadians are not necessarily seeing a lot of those results. We have 100,000 more bureaucrats, but the passport office is still as much of a mess as it's always been.

In essence, we have added a whole lot of new spending. If it was not for that, we would be in a balanced budget. What is the most troubling is that we have a number of areas where we've been saying for a long time that spending pressure is going to increase our budget. Right now, we're seeing one with the size of our military. The fact that this government is committed to increasing its military spending to 3.5% of GDP by 2035, if I remember correctly, that's $100 billion right there. That's not even considered in the current budget. That's going to have a significant effect on our deficit.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Thank you very much. I really want to get other witnesses in.

Dr. Kershaw, thank you for coming to committee. I recall your committee appearance, I believe it was about this time five years ago. We were talking about housing then. You had some very powerful testimony.

What can you add now to your observations on affordability for young people with respect to housing, five years after your testimony then?

[Dr. Paul Kershaw]

Let's pick up on the conversation about a structural deficit. There is no doubt the federal government has a structural deficit, but it is not entirely of the Trudeau government's making. I think we need to recognize that what's driving the deficit is the growth in old age security, which was absolutely predictable. We knew that the baby boomer population would get older, and we needed to prepare a revenue system for it. We did not. As a result, OAS over the last decade is up $40 billion. It's going to go up another $20 billion. That is effectively the scale of the deficit we're dealing with.

That has huge implications for investing in younger people, which is why I am suggesting we need to trim back the OAS subsidies we deliver to those who have six-figure household incomes in retirement, so that we can dramatically scale up money for housing, for post-secondary, for child care or for youth employment. There is a direct trade-off right now with the subsidies that are $17 billion in total soon for those who are retired and have six-figure household incomes, and then we have very little left over to invest in younger generations.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Thank you. I only have 45 seconds left. I want to get the C.D. Howe Institute into this.

In your opening statement, you said, “I'm sure you've heard [it] before,” but maybe not all members of the committee have heard it: weak investment, weak growth and weak GDP growth over the last 10 years.

Can you provide the committee, for context, some statistics around the weakness that we have seen over the last 10 years in the Canadian economy, and what the productivity shortfalls we've had have led to?

[The Chair, Liberal, Karina Gould]

Answer in 30 seconds, please.

[Alexandre Laurin]

On gross national income per capita, which is the best indicator we have for prosperity, from 2015 to 2023 what we have in our studies is a cumulative growth of 2%, and that's lower than any other advanced economy. It's much lower than the average of high-income economies, which was 11% or 12%. Basically, we're not going anywhere in terms of our prosperity compared to most advanced economies, and a lot of people have said that—

[The Chair, Liberal, Karina Gould]

I'm sorry, Mr. Laurin. That's the time we have.

Thank you, Mr. Kelly.

Mr. Leitão, you have the floor for six minutes.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you very much.

Mr. Laurin, tax reform is indeed extremely important. You mention that you want this to be done without affecting the government's total revenue. So this is not a way to generate additional revenue, but rather to change the composition of its revenue. There would be less income tax and more consumption taxes. I would fully agree with that.

Now, I'd like to talk about your second suggestion, which is simplifying the system. You suggest reducing it all to just one page. I find that extremely interesting. Can you give us a few more details on that?

[Alexandre Laurin]

Yes.

Part of our reform would involve providing a tax credit in the amount of $10,000. That's 15% of $10,000, after all. In fact, it's a $10,000 tax abatement. It would be optional and would replace a very large number of credits and deductions. There would be six basic tax credits or deductions remaining, including for charitable donations, for the integration of corporate income tax, for the basic personal amount, for contributions to the Quebec Pension Plan, and for contributions to an RRSP. Everything else would be replaced by this $10,000 amount.

We have calculated that nine out of 10 taxpayers would be better off taking this $10,000 rather than any of the other options offered by the tax system. Lower-income families would benefit even more from this new $10,000 amount, because they often make less use of these special tax credits and deductions.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

That's fine, thank you.

Regarding the increase in the Goods and Services Tax, or GST, what do you propose? Is it an increase of one or two percentage points?

[Alexandre Laurin]

It's much more than that. In fact, this new $10,000 credit, which would replace other credits, would be very costly—$14 billion—because many low-income families would benefit from it. It's necessary, because we can't just cut taxes for the wealthiest without doing something for the less fortunate. However, there is a fairly significant cost.

As for the GST, we have calculated that this would require an increase of 2.8 percentage points. Another possible option is a 3.2% payroll tax, which could be more proportional, because we could exempt, for example, the first $15,000 earned. So, there is a certain degree of proportionality, and it applies more broadly, even to the wealthiest. So there are two options.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Okay.

Don't you think that the payroll tax could have a negative effect on hiring? Couldn't that discourage companies from hiring people?

I understand that it would increase investment, but—

[Alexandre Laurin]

The empirical studies conducted in Canada that we have reviewed—some of which were carried out by CIRANO researchers, I believe—have not identified any major impacts on investment or the economy. It should be noted that payroll tax rates in Canada are low, and they would remain low. Therefore, we do not expect there to be significant effects on the economy, compared to other taxes.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Okay, thank you very much.

Dr. Kershaw, I think I'm running out of time here, so I'll be quick. You mentioned that “Canadians are ready” for the big reform in OAS. What makes you say that? I kind of agree in general with the principle, but—

[Dr. Paul Kershaw]

We did polling in March 2026, most recently, that showed what we also found in October 2024, that three-quarters of Canadians, including three-quarters of retirees, support the idea. There's consistency across political parties, across regions and across household incomes.

You can also look at the thought leadership. The idea is endorsed by the Globe and Mail editorial board, by the publisher of The Hub and by the lead reporter for the National Observer. That's the sort of centre, right and left of our mainstream media. You have Basic Income Canada Network endorsing it, and then you can read the Fraser Institute.... That convergence is rare.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Kershaw.

Thank you, Mr. Leitão.

We will continue with Mr. Garon for six minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Madam Chair.

I thank all the witnesses for being here today.

I will start with you, Ms. Tiessen.

We are dealing with a government that, after changing prime ministers, abolished the digital services tax to please President Trump, who, for his part, wants to please Silicon Valley. We are dealing with a government that has decided not to implement the 15% minimum tax, in part because it displeases the U.S. government, which, for its part, wants to please Silicon Valley. We are dealing with a government that is clearly extremely reluctant to ensure any digital sovereignty whatsoever for Canada.

You have submitted a brief and you are enthusiastic, but do you think they will want to listen to you?

[Kaylie Tiessen]

Yes, I do, because we continue to hear that sovereignty, digital sovereignty specifically, is incredibly important. When you listen to any radio program or podcast or you watch TV, the advertisements are real, and there are many, but what we need underneath the conversation and talking points we're seeing is actual governance of what's going on. That's the next step in this process.

We have an AI sovereign compute strategy. Let's embed a digital sovereignty governance strategy inside there so that we can actually see the value capture we need in order to avoid this anemic economic growth we've heard about already today, so that we can strengthen Canadian companies to compete in the digital world and so that we can strengthen Canadians' ability to control or protect their data and make sure it's used for their benefit instead of against them.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you very much for sharing your enthusiasm with us. I hope it will be contagious and spread throughout the room.

Mr. Laurin, essentially, you are proposing a tax reform so that there are fewer tax brackets and everything is simpler. We would tax consumption more through sales taxes, because taxing income and providing deductions for contributions to a registered retirement savings plan or a tax-free savings account, among other things, is a form of consumption tax. So you have your own version of this.

However, you're telling us that we need to tax income less and tax consumption more. So, in that spirit, you're telling us that, in light of the recent rise in gas prices, you wouldn't have granted an excise tax holiday on gas.

Am I right?

[Alexandre Laurin]

This is a slightly different question, but the answer is easy: No, I would not have granted this excise tax holiday, because of the cost, which is still considerable. We are running a deficit, and it is future generations who will have to bear the cost of this temporary exemption.

[Jean-Denis Garon, Bloc, Mirabel, QC]

That's the answer I was looking for.

So, I imagine that would have been part of your $10,000 tax credit, which is intended to help people.

[Alexandre Laurin]

No.

[Jean-Denis Garon, Bloc, Mirabel, QC]

First you talked about fiscal discipline. You told us we might have to tighten the budget a bit and reduce the deficit. You didn't talk about eliminating the deficit, but you did say we'd have to tighten things up.

Do you think Canada is currently in a financial position to deal with a pandemic like COVID‑19, as we saw in 2020, without it leaving significant, lasting effects?