Government Operations Committee on Dec. 8th, 2009

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

But think of all the forestry companies that closed before that date; that is a form of recession too. You have not calculated that. This is why I am telling you that your model-based plan is all very well, but it only accounts for certain aspects.

[Paul Rochon]

I understand your concern. Perhaps the answer is just that it is hard to make a perfect assessment of a situation like this.

The Congressional Budget Office in the United States has done some work on this. They make exactly the same points. They say that the situation is very difficult. They analyzed all the job creation reports. They analyzed the work done by the United States Government Accountability Office. The conclusions are very simple and take up only three pages. It is very difficult to use examples and reports per project in order to do an overall calculation of the impact on employment or of the results of these kinds of initiatives.

[The Chair, Liberal, Yasmin Ratansi]

Thank you.

We'll now go to Monsieur Gourde for eight minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you very much, Mr. Chair.

I would like to talk to Mr. Rochon. On page 5 of your presentation, we see the growth of investment in homes and renovations. I think the renovation tax credit has turned out to be a very significant stimulus as we move forward. We see what it represents as a percentage, but is it possible to quantify its benefit to Canada in millions or billions of dollars?

[Paul Rochon]

We can't tell you exactly what impact these measures have had. All we know is that there has been a tremendous amount of interest in and many questions surrounding this credit. Businesses in this sector tell us that the impact has been significant. However, I can't tell you whether there is a direct link between this measure and renovation activities. No attempt has been made thus far to establish a connection between the two.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

I think you will have a better idea of the numbers when people start filing their tax returns and claiming the tax credit in February and March. I know that in my region, all of the renovation companies are busy and are hiring more staff. Business is also brisk at hardware stores. People are buying kitchen counters, doors and windows and so forth. Renovation companies in my riding are working full out. There is even a shortage of skilled workers.

Is the increase in activity tied to the various measures set out in Canada's Economic Action Plan, or to this specific tax credit?

[Paul Rochon]

The figure of 220,000 jobs is tied solely to Canada's Economic Action Plan. However, you are correct in saying that before Canada's Economic Action Plan was unveiled in the fall of 2007, the government had announced $60 billion in tax cuts over five years, beginning in January 2008. We have calculated the impact of these tax cuts.

[Benoit Robidoux, General Director, Economic and Fiscal Policy Branch, Department of Finance]

The schedule to the estimates shows the impact of the Economic Action Plan as well as the impact of the measures announced at the end of 2007 that came into effect in January 2009. So then, schedule 1 to the Main Estimates lists the impact separately for this year.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Were the tax cuts successful in preventing or delaying the recession in Canada? Households received an injection of cash. Did the cuts help to maintain consumer confidence in the Canadian economy, given the situation unfolding in the United States, our neighbours and, indirectly, our partners in this financial crisis?

[Paul Rochon]

I really believe a range of factors came into play. One was the reduction in the tax burden, but there were others too. In general, Canadian households, businesses and banks were much healthier, financially speaking, than the residential real estate sector. Canada did not experience the same kind of real estate bubble as the United States did. Furthermore, the government and the Bank of Canada reacted quickly, and on a very large scale.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Has lowering taxes increased our businesses' competitive advantage over our US neighbours? Down the road, will some businesses prefer to set up shop in Canada, in light of our more competitive tax rate? Will lower taxes also have an impact on real employment levels?

We can see this from a chart that appears on another page. Today, the unemployment rate in the United States is higher that it is in Canada. For a period of about twenty years, the unemployment rate in Canada was always slightly higher than the US rate. Since 2006, the trend has shifted. Now, the Canadian rate is lower than the US rate by 2%.

Do you expect to see this trend continue, given all of the initiatives put in place on the personal and business tax front to improve our competitive position?

[Paul Rochon]

As far as businesses are concerned, you are correct in saying that the tax rate on investments in Canada will soon be 16.9%, compared to 33.9% in the United States. This is a tremendous advantage that should favour investment in Canada. I believe it's a long-term advantage, or in other words, an initiative that will have an impact for many years. While it will also have an impact in the short term, the benefits will continue to increase over time.

Regarding the unemployment rate in Canada and the United States, it is clear the Canadian rate will remain lower for a few years, but as for the long term...

[Benoit Robidoux]

It is a little difficult to know what's happening with the United States, in so far as the long-term unemployment rate is concerned. There is no real way of knowing how the US economy will recover. As Paul already mentioned, this is the biggest gap between the Canadian and US unemployment rates since 1975. The Canadian economy is better positioned, structurally speaking, than the US economy. Therefore, it's possible this gap will not close. Will the gap remain the same as it is today? Probably not, but the Canadian economy is faring well.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

I have one last question.

Businesses and individuals will benefit from tax breaks totalling $200 billion over five years. Furthermore, $100 billion has been invested in Canada, in addition to the funding under the Economic Action Plan. In terms of stimulus initiatives, have we done more or less than our American counterparts? Are we talking about a ratio of two to one, or of three to one?

[Paul Rochon]

Are you talking about stimulus action? Canada's efforts are almost on par with those of the United States. However, in the US, a significant part of the stimulus program is tied to aid primarily to US states, and US states are cutting back significantly on employment.

Getting back to Ms. Bourgeois' question, if you look at the reports coming out of the US, you will note that the states are leading the way in terms of creating jobs. States are hiring people, or are not laying workers off. It is always difficult to draw comparisons between the two countries. Personally, I feel that Canada's stimulus plan is clearly superior to that of the US in terms of its impact on the economy.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Canada's plan is clearly superior.

Thank you very much.

[The Chair, Liberal, Yasmin Ratansi]

Merci.

Mr. Martin, for eight minutes.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Chair.

We keep going round and round to witnesses, and I'm not sure we're still getting what we're looking for. I've been sitting here trying to decide whether we're just not asking the right questions--partly because we're lay people, we're not economists--or whether we're asking questions to which there are no answers.

That's what I've been trying to come up with--a line of questioning that might be useful. But I honestly don't know if I can.

If we're not asking the right questions, we need guidance. We need help to ask them. It's like Rumpelstiltskin or something: you have to say exactly the right word to make the magic begin. But maybe--it could be--there just are no answers to the questions we're asking, or not yet.

Is it simply too early to tell us how many jobs this stimulus money will actually create? Should we ask you to come back in six months or a year and look at it in retrospect, and then you could tell us the job creation?

[Paul Rochon]

Clearly, in retrospect we would have a better idea. I think there are certain things that we can say now about job creation. Monitoring the rollout of the plan is the first step.

As we indicated in the third report, in the auto sector in particular there are 52,000 jobs at stake there. So we know that. We have estimates, and they'll always only be estimates with regard to a number of elements of the plan, such as taxation and EI. We'll be able to tell you how many EI beneficiaries we had at a certain point in time. It's always difficult to say how many we would have had if we hadn't made the increases to the programs that we have made, but we can at least tell you what the enrolment was.

What's difficult is the infrastructure area where funds are flowing in the economy. We have yet to receive bills for that, but we know the activity is going on. So based on a series of assumptions at this point, we can tell you where we think we are, and more or less we think we're tracking.

But to go to your question of things like the home renovation tax credit, we'll know after tax-filing time at some point what the take-up was on that. We think it's large, but we can't tell you how large.

[Pat Martin, NDP, Winnipeg Centre, MB]

I'd be interested to know—I know you can't answer, but maybe you could share your opinion, at least—how much of this recovery would be taking place naturally, without the stimulus. Is it reasonable to assume that Canada probably would have bottomed out and been on the road back to normal without this massive outpouring of spending?

[Paul Rochon]

I think that's an interesting counterfactual question to ask. I think when you start thinking about the answer, though, it gets awfully complicated awfully fast, because not only Canada but also every other country in the world engaged in a round of stimulus. We did it at time when we thought there was a risk of systemic collapse in the global economy. The measures, by and large, by country were very large, not only on the fiscal side but also on the monetary side. So it would be a guess, at best.

The main question before us is would the global economy have collapsed if we hadn't done this? We'll never know the answer to that. But we know the global economy has recovered.

[Pat Martin, NDP, Winnipeg Centre, MB]

We also know that if we don't change the way we do things, we could be at the brink of collapse again. We're being cautioned now that Wall Street and Bay Street really haven't learned their lesson. They took a breather for six or nine months, and now they're right back to the unbridled gluttony that got us into this trouble to begin with.

I know it's not for the Department of Finance to comment on, but it does worry me that despite all the panic that was caused internationally, justifiably, they really haven't learned their lessons. Guys are getting unprecedented bonuses in companies that have shown devastating losses.

Structurally we haven't changed capitalism to level out some of the risk that we're all vulnerable to.

[Paul Rochon]

The only comment I'd make on that is just to remind you that most of those factors that led to the declines in the U.S. and Europe were not present in Canada.

[Pat Martin, NDP, Winnipeg Centre, MB]

That's a good point.

I have one specific question. You list some of the output multipliers. That was something interesting that I gained from today's presentation. You don't put a value to this: what about one dollar spent on EI income maintenance? What is the multiplier effect or the impact of putting a buck in an unemployed guy's pocket?

[Paul Rochon]

That effectively is what we show as measures for low-income households. That multiplier more or less would capture the EI impact.