Government Operations Committee on June 17th, 2024

[The Chair, Conservative, Kelly McCauley]

Good morning, everyone. I call this meeting to order.

Welcome to meeting 130 of the House of Commons Standing Committee on Government Operations and Estimates, or—as the PBO calls it—the mighty OGGO.

Welcome back, Mr. Giroux, Ms. Giswold and Mr. Matier. It's wonderful to have you back.

We'll open with your five-minute statement.

As a reminder to everyone, please keep your headpieces away from your microphones at all times.

The floor is yours, Mr. Giroux.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Good morning, Mr. Chair and members of the committee. Thank you for the invitation to appear before you today.

We are pleased to be here to discuss our report on the supplementary estimates (A) 2024-25, which was published on May 30, 2024. With me today are Jill Giswold, the lead analyst on the report, and Chris Matier, a senior adviser in my office.

The government's supplementary estimates (A) 2024-25 outline an additional $12.7 billion in budgetary authorities. Voted authorities, which require approval by Parliament, total $11.2 billion. Statutory authorities, which the government already has Parliament's approval to spend through other legislation, are forecast to increase by a total of $1.5 billion.

The forecasted increase in statutory authorities reflects updated forecasts from budget 2024 and is primarily attributable to two items. One is an increase of $1.9 billion in public debt costs, primarily due to higher projected interest rates and higher borrowing requirements. Another is a decrease of $533 million in elderly benefits due to revisions to the projected number of beneficiaries.

Almost two-thirds of the spending proposed in these supplementary estimates, or $7.8 billion, falls within the indigenous portfolio and is primarily earmarked for indigenous settlements and claims.

Planned spending on professional and special services totals $704 million, bringing the total proposed authority for 2024-25 to $19.8 billion for this line item.

Approximately $1.6 billion, or 12.5%, is allocated to 11 measures in the 2024 budget, including $605 million for the incentives for zero-emission vehicles program.

To assist parliamentarians in their review of budget 2024 implementation, we have prepared tracking tables that list all budget initiatives, planned spending amounts as well as corresponding legislative funding authorizations. These tables, which can be viewed on our website, will be updated throughout the year as the government presents its legislative agenda.

Ms. Giswold, Mr. Matier and I will be happy to answer your questions about our analysis of the Supplementary Estimates (A) 2024–2025.

[The Chair, Conservative, Kelly McCauley]

Thank you, Mr. Giroux.

We'll start with Mrs. Kusie for six minutes.

[Stephanie Kusie, Conservative, Calgary Midnapore, AB]

Mr. PBO, it's always wonderful to see you here. It's very much appreciated.

However, we're surprised by your appearance here today, considering the way you've been gagged. As you can see, we brought in the best from my caucus in an effort to question you—our House leader Mr. Scheer, our finance critic Mr. Jasraj Hallan and Mr. Lawrence.

With that, Mr. McCauley, I'll pass the time over to Mr. Lawrence.

Thank you very much.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

Thank you, Mr. Giroux, for coming and for your brief statement. We appreciate it.

I'm going to talk a bit about debt and the continued spending of this government.

Of course, two years ago, the finance minister and deputy leader promised that the debt-to-GDP ratio would never go up. They appear to have shoehorned stuff in to keep the debt-to-GDP ratio within their projections. There are a number of projections that I think are a little optimistic, including getting an additional $7 billion from the increase in capital gains.

I was wondering if I could get your comments on that, Mr. Giroux.

[Yves Giroux]

The revenue-raising capacity of the increase in the inclusion rate of capital gains is something we have not estimated independently yet. However, it's quite possible that the revenue raised in the first year of the measure will indeed reach $6.9 billion, especially considering that the measure was announced two months in advance. This leaves time for some types of transactions to materialize before the higher inclusion rate kicks in.

That's not the case for real estate transactions, of course, but for stocks, for example, it's quite possible that the number of transactions will spike in anticipation of that increase. This means that the revenue of the outer years—year two and forward—is not certain to be at that level, given the number of transactions that are likely to have been advanced in time.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

If I hear you correctly, Mr. Giroux, what you're saying is that if, in fact, the transactions go through or are particularly robust this year—in other words, a fire sale—in the latter years, the next two or three years, we could see revenue less than expected.

Is that what you're saying?

[Yves Giroux]

It's quite possible, and that's why the profile as laid out in the budget has that bump in the first year followed by significantly less revenue in the outer years. It's in anticipation of a higher number of transactions between budget day and June 25, when the higher inclusion rate kicks in.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I want to talk to you a little bit about the capital gains and the revenue expected. Former Liberal finance ministers like Mr. Manley have contemplated that, when they brought down the capital gains exemption from 75% to 50%, they saw an increase in revenue.

Isn't it possible that, even though the rate goes up, the revenue may stay flat or even decline because of the dynamics of the economy?

[Yves Giroux]

It's possible, and we refer to that phenomenon as elasticities of tax measures. In anticipation of lower taxes, there could be investment decisions that are changed and more investment flowing into Canada depending on the exact profile of these investors, but it's not a phenomenon that is very well understood or easily predictable, given the volatile nature of capital gains tax revenues.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you for that.

Just going a little bit further on that as well, a number of venture capitalists and other investment organizations have even gone so far as to call the capital gains tax a tax on innovation and a tax on investment.

I know that the scope of it might be difficult to predict, but is it reasonable to think that it might have a dampening impact on investment in Canada by increasing the inclusion rate of capital gains exemption?

[Yves Giroux]

It's quite possible; however, there are a few things happening at the same time. There's the lifetime capital gains exemption on small businesses that is being increased. There's also a new incentive for entrepreneurs in certain sectors that is being introduced at the same time as the inclusion rate is going up. There are many things at play so it's quite possible that the innovation aspect will not be affected for smaller businesses but also negatively affected for most, if not all of the other sectors—those that trigger capital gains higher than the thresholds.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much, Mr. Giroux.

[The Chair, Conservative, Kelly McCauley]

Thank you, gentlemen.

Mr. Sousa, go ahead, please.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Thank you, Mr. Chair.

Thank you, Mr. Giroux, for being here today.

I noticed that some of my colleagues have questioned you about having a gag order, and that's how you were introduced by the opposition. As you know, you're an independent member of the House. You are there as a trusted, independent officer to direct all of us and provide information where necessary.

Mr. Giroux, are you being gagged by the Government of Canada?

[Yves Giroux]

This is a question I was asked when testifying before another committee and answered in my second language, which probably led to a misunderstanding.

The government doesn't muzzle me, obviously. I was referring to data that had been provided to my office and that the government, in this case the Department of the Environment and Climate Change, had explicitly forbidden me to disclose. That said, the government has not muzzled me with regard to the publication of a report or the content of any of the reports I have published.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

You're like the Auditor General or the ombudsman or, for that matter, even the Governor of the Bank of Canada, who operate without political interference, and that's the way it should be. Is that not true?

When you mention that you have a report, what exactly are you getting at? What's so secret about this report?

[Yves Giroux]

Which report are you referring to, sir? Is it one in particular?

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

You referred to a report that you referenced in regard to outcomes. I'm not sure what you were getting at.

[Yves Giroux]

What I said was that the government had not muzzled me as to the content or as to the publication of any of my reports. I said that the government had provided my office with data that was useful to us in writing reports or that we would use for future reports, but that the government had prohibited me from disclosing that data. That said, the government has not prevented me from publishing a report, nor suggested that I not publish a report, nor dictated the conclusions of any of my reports.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

You're not being gagged. You're not being restricted, and you have the privileges as a public officer to do what is necessary in regard to what's taken place. I just want to reinforce that, if I may.

In respect to the benefit to Ontarians, or Canadians, I should say, especially those who qualify for the rebate, you've stated in the past that eight of the 10 are better off. Is that correct?

[Yves Giroux]

To the best of my knowledge, yes, it is still true that the majority of households in Ontario will be better off, including what they receive in terms of carbon rebate, minus the fuel charge that they pay directly or indirectly.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Thank you.

Mr. Giroux, in regard to the capital gains tax, effectively, a husband and wife may own some assets, secondary properties, stocks, and they get up to half a million dollars in gains, of which 50% is tax-free. At that marginal tax rate, what would that be for those two individuals?

[Yves Giroux]

One would have to look at their province of residence, but if they have capital gains of that magnitude, it depends if they have other income, for example, investment income.

[Charles Sousa, Liberal, Mississauga—Lakeshore, ON]

Let's assume they make $250,000 each on that capital gain. What would their effective tax rate be, on average?