Government Operations Committee on March 18th, 2024

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

It's a bit of an interesting question, given that it would appear that the witness we had here at committee last week, the chief security officer for a company that was contracted by the government, did no real work when it came to those security assessments. I'd be really interested to know whether we're funding individuals within the public service or if this is supposed to help those external consultants actually check off a box when they're looking to procure contracts with the government.

[Yves Giroux]

I think that's a question that would be better answered by the deputy minister at PSPC, or the minister, unfortunately.

[The Chair, Conservative, Kelly McCauley]

We will have them here on Wednesday, so you can re-ask then.

Mr. Jowhari, please go ahead, sir.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you.

Welcome to our committee, Mr. Giroux. It's good to have you and your team here. Once again thank you very much for the time that your team provided a couple of weeks ago when we had a comprehensive review of the estimates—the main estimates as well as the supplementaries—and the department plan, as well as the result.

Also, we had an opportunity to talk about the great report that you put out on March 5 on the economic and fiscal outlook. Thank you very much. In that report there was a lot of good news, and we actually promoted that on our social media. The report talked about the fact that it is projected that inflation will get to about 2%. We are on the right trajectory for the bank to start reducing the interest rates, possibly as early as the second quarter of this year, and the trajectory for the debt-to-GDP ratio is decreasing.

You also highlighted a number of things that we need to watch. You indicated that economic growth might be a bit sluggish and that this could result in excess supply, which will put a downward pressure on prices, helping with inflation. However, you highlighted the increase on the debt service cost, and that's a substantial increase. Hopefully, the decrease in the interest rate will be some help.

It is very interesting to me, and I want to ask some questions around the percentage of deficit to the GDP. You talked about a projection of about 0.8%. Can you give me a sense of how much this 0.8% would be? What do we need to do when we talk about wanting to eliminate the deficit? What are some of the 170 measures, on the 2023 budget that's been proposed, that need to either be reduced or eliminated?

[Yves Giroux]

Thank you for doing a very good summary of our economic and fiscal outlook. I should probably borrow that.

The 0.8% of GDP that's expected to be the deficit in 2026-27 is about $25.1 billion. That is 0.8% of the GDP in 2026-27.

When it comes to how the government could go back to balance if it wished to do so, it could of course reduce spending. It could reduce the speed at which spending increases. It could also choose to increase revenues. There are multiple ways through which it could choose to return to balance. Cutting some specific budget measures is also a possibility.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Let's talk about those cuts. To reduce costs, with an extension, I understand that some programs might take longer.

What would be the top three programs that, if we want to get to that zero deficit, government would be in a position to cut?

[Yves Giroux]

That's a policy decision for which you as parliamentarians are better qualified to determine than I am.

[Majid Jowhari, Liberal, Richmond Hill, ON]

You're not going to walk into this trap. Okay, I got it.

The point I'm trying to make is that for us to get to that balanced budget and zero deficit, we have to extend the time, we have to reduce, or we have to cut.

What is there to cut? Are you going to cut the $10-a-day day care program? Are you going to cut the dental program? Are you going to cut a lot of programs that have been rolled out as part of those 170 measures that have brought so much prosperity and have helped us to be able to recover so fast?

Thank you very much. I found the report—the economic and fiscal outlook—very helpful. I intend to promote that, because I think it sends a very positive message. You also fairly highlighted the areas that Canadians should be watching. To me, that's great.

Thank you, Mr. Chair.

[The Chair, Conservative, Kelly McCauley]

Thank you, Mr. Jowhari.

Mr. Scheer, welcome back to OGGO. Go ahead, please.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Thank you very much, Mr. Chair.

I was hoping that we could have a discussion about the looming carbon tax hike that the Prime Minister is planning for April 1.

You did a comprehensive study of the carbon tax, and you not only looked at the direct cost but also at the total cost.

On page 3 of the report, it says “Household net cost of the federal fuel charge—fiscal and economic impacts”.

I'm sure there are lots of Canadians who are following this very closely because they know how high prices are and they're afraid of how high they're going to jump on April 1. Can you explain what “fiscal and economic impacts” means?

[Yves Giroux]

The fiscal impact is the impact of paying the tax directly—for example, filling up the gas tank or paying for gas to heat the home. There's also the indirect cost. For example, if you buy a service or goods, there's an energy component embedded, plus the GST that's applied to that tax. That's the fiscal cost.

The government sends a cheque or a rebate, so the fiscal impact is the difference between what you pay, indirectly and directly, minus the rebate. On that front, we estimate that 80% of households get more than what they pay.

There is also the economic impact, which takes into account that some sectors will be negatively affected by the carbon tax. The transportation sector and the oil and gas sector are obvious examples. They'll presumably be negatively affected by a carbon tax that progressively increases.

When we also take that into account, we find that households will have lower employment in some sectors and lower investment income. We find that here, the result is the opposite: Once you take into account the fiscal and economic impact and the changes in the economic fabric of the country, households are seeing a negative impact from the carbon tax when including both the amounts that they pay and the economic impact on households.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

In other words, the fiscal impacts are where the tax is applied directly. When I see that on my fuel bill—when I fill up my car or I see that on my heating bill—that's the direct cost. The rebate was only built around capturing that cost, but you're saying today that all the other cascading effects of the carbon tax increase will have a cost to Canadians.

[Yves Giroux]

Yes. There is an adjustment in the economy that's expected to take place by reducing our use of fossil fuels. That will have impacts, certainly in the short term, while the economy adjusts. That increases the costs, for example, of transportation companies, which presumably will have lower profits to redistribute to shareholders, for example.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Higher costs get passed on to consumers. That's a factor too in the economic cost. It's the indirect cascading effect. As a trucker has to pay his share of the carbon tax, that has to be accounted for somewhere through, as you say, either lower wages or lower profits back to shareholders.

With that in mind, are the majority of Canadians better off or worse off, even after you factor in the rebate?

[Yves Giroux]

Well, once you factor in the rebate and also the economic impacts, based on our modelling, the majority of households will see a negative impact as a result of the carbon tax.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Okay.

You've broken down in this chart what are called “quintiles”. For those not familiar with that word, it basically means you take incomes and divide them into five groups, from highest to lowest. Is that right?

[Yves Giroux]

The highest is quintile one, and the highest, we can call them MPs, but we call them quintile five.

That's a joke.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

I'm looking at this chart. Even the middle quintile, the third quintile, is a net loser in the province that I'm looking at. In Alberta, even after you factor in the rebate, the net cost is such that the middle quintile, the middle-income earner, is $1,460 worse off. It's a little over $100 a month.

In Saskatchewan, my home province, they're $929 worse off, even after the rebate. In Manitoba they're $1,000 worse off, even after the rebate. In Ontario it's $1,200. In Nova Scotia they're $1,100 worse off, even after the rebate, and in Prince Edward Island it's $1,118 and in Newfoundland and Labrador it's $680.

In most of these cases, we're talking about an extra $100 a month in costs, even after the rebate. Am I reading that correctly?

[Yves Giroux]

These are averages, of course, and it varies across provinces, depending on the particular economic conditions and the industrial structure of each province and jurisdiction.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Okay.

[The Chair, Conservative, Kelly McCauley]

Thank you very much. That is our time.

Mrs. Atwin, go ahead, please.

[Jenica Atwin, Liberal, Fredericton, NB]

Thank you very much, Mr. Chair.

Mr. Giroux, following up with this line of questioning and some of the numbers you quoted, does this include any costs associated with, say, environmental damages—for example, forest fires, impacts to the agricultural sector, shorter growing seasons, droughts or floods? Are there costs associated with these that are captured in those numbers you've just suggested?

[Yves Giroux]

No, because they are very difficult to estimate in the short term. We've made that point quite often.

It's very difficult to determine which part of forest fires or natural disasters are due to climate change and which ones would occur normally anyway. It's very difficult to determine these aspects. They're unfortunately not included. However, we tried to estimate the cost of climate change over a longer period of time in another report. This report is available.

It's very difficult to determine the impact of climate change in the short term. We have done a horizon between now and 2030. For the carbon tax, it would be very difficult to determine the costs of climate change over such a short period of time. Even though there are impacts that are known, they are difficult to measure.

[Jenica Atwin, Liberal, Fredericton, NB]

How about health? We can consider air pollution impacts, for example, or even incidences of, say, Lyme disease exposure here in my part of the country. There are, of course, health impacts as well. Are there costs associated with those that you could highlight for us?

[Yves Giroux]

There are obviously costs. When we saw the wildfires last year, it was obvious that the people who were suffering from respiratory illnesses and who were in these surroundings were suffering from the wildfires, but it's very difficult to estimate these costs. In good part, that's why we have not tried to estimate these.

Another reason is that even if Canada were to emit zero greenhouse gases, there would still be climate change because of what happens, and what would continue to happen, in other countries. That's why it's very difficult to estimate the cost of climate change and put that in perspective with the cost of acting on the climate.