Evidence of meeting #130 for Government Operations and Estimates in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was subcommittee.
A video is available from Parliament.
NDP
Matthew Green NDP Hamilton Centre, ON
The PBO published a note on its website on April 17 admitting that the economic analysis of the consumer carbon pricing done in 2022 and 2023 erroneously included the impact of the industrial carbon price. How was this mistake made not once but twice?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
This is a question that has been asked a few times, and I think Chris Matier could shed a little more light on it.
I'd like to say one thing, though, before Mr. Matier answers it. We have sent our results to several people. We still have the capacity—
NDP
Matthew Green NDP Hamilton Centre, ON
I do require the answer because my time is limited. Thank you.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Okay.
Chris.
Senior Advisor, Office of the Parliamentary Budget Officer
Thank you for the question.
The error was made back in late 2021. The modelling that we used, a computable general equilibrium model, essentially combined...because there's one carbon price in the carbon pricing system and that carbon price affects both the fuel charge and the output-based pricing system.
That price was set to zero in our counterfactual, but it was hitting both parts of the system. We had thought that it was only that one part, the fuel charge, but it was both parts. That was the error, but in our April 17 notice we still believe that it doesn't invalidate our analysis—
NDP
Matthew Green NDP Hamilton Centre, ON
I would say that, at this committee and in Parliament generally, we deal with a lot of counterfactual points, so I would ask you this. Do you think your office did enough to ensure that the public was made aware of the misinformation?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Our responsibility is to inform parliamentarians. That's what we did by publishing a note on our website. We received a lot of questions from parliamentarians, but also from certain ministerial cabinets and climate groups. This gave us the impression that a lot of people interested in climate issues had noticed our note on our website, right from the first day it was published. Could we have done more? Yes, but did we feel we'd done enough? Given the nature of the questions we received and where they came from, we had the impression that a lot of people were aware of the issues. However, it seems that this impression was wrong.
Conservative
The Chair Conservative Kelly McCauley
Thanks very much.
Mr. Hallan, go ahead, please, for five minutes.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
Thanks, Chair.
Mr. Giroux, it's been nine years under this government. Canadian workers today get about 58¢ of investment for every dollar that American workers get, and this is even before the capital gains tax hike takes place. Do you think that this capital gains tax hike will negatively impact what businesses invest in their workers?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's quite possible, given that the inclusion rate will increase for corporations, but it's also introduced at the same time as the lifetime capital gains exemption is increasing for small business owners and, at the same time, there is a new exemption for certain types of entrepreneurs. For larger businesses, there is no such exemption. Knowing that the behaviour of businesses is dependent on the overall tax rates they pay, it's quite possible that the amount of investment will be lower, other things being equal.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
Yes, exactly. Just for you to confirm, a higher capital gains tax could mean less investment in workers' paycheques, in investing in equipment, in growing the company or even in hiring more workers when we know that Canada is in a productivity crisis. Can you confirm that these are some of the knock-on effects of this?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That would be what you would normally expect, again, as I said, other things being equal. That may not happen equally in all sectors, especially in sectors where there are other tax incentives.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
Absolutely. The government admits that there are 300,000 businesses, most of them small businesses, that would be affected by this capital gains tax hike. That means that there are hundreds of thousands of businesses and millions of workers. Canada is in a productivity crisis, as per the Bank of Canada. They said this is a break-glass emergency crisis right now.
Could this also impact job creators and those businesses, making productivity even worse?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
A number of groups have mentioned that it will impede or lower investment that would otherwise take place and, de facto, also reduce employment, again, other things being equal.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
That would, in other words, reduce productivity.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's not something that is favourable to increasing productivity—that's clear.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
Exactly. Over the last nine years of this government, because of their policies, we've seen $460 billion of investment outflow to the U.S. We've seen that the U.S. GDP per person has increased 50%, whereas in Canada it's only grown 4.7% in the same given time.
Do you think that investors are less likely to invest in Canadian workers? Would or could this capital gains tax hike have a knock-on effect of having U.S. workers getting a higher paycheque due to investment leaving Canada?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
As a general rule, if you tax something, there is less of it. If you tax investment, other things being equal again, it's likely and evidence or literature suggests that there should be slightly less of it if you tax something.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
That's fair enough.
I want to continue on with the conversation that my last colleague had about the carbon tax scam. When the report was released, it was admitted that about $25 billion is what the hit to the economy would be because of this carbon tax scam, and it took Conservatives pushing on this for this report to be released by the department.
Have you done an analysis on or is there an estimate of what impact this would put on government revenues at all?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Chris will answer.
Senior Advisor, Office of the Parliamentary Budget Officer
In our March 2022 and 2023 reports, we provided estimates of the potential budgetary impact related to carbon pricing.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
Did that include this $25-billion hit to the economy?
Senior Advisor, Office of the Parliamentary Budget Officer
It included our estimate of the impact on real GDP. I don't have the dollar figure of our estimate at that time, but it was 1.3% in terms of the reduction in real GDP. That's compared to the 0.9% reduction.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
What does that mean? Is it because businesses would invest less in their own businesses and workers would have less?
Senior Advisor, Office of the Parliamentary Budget Officer
Essentially, that reflects the economic impact of the distortion created by carbon pricing, so it's households having to shift—