Public Accounts Committee on March 5th, 2013

[Benoît Robidoux]

I am not familiar with the Parliamentary Budget Officer's analysis. According to the analysis we carried out at the time, if only one of the two spouses earns an income, the gains stemming from income splitting are larger. So fiscal costs are higher. If household composition is stable, the cost will be relatively stable over time. If the composition changes and the proportion increases—both spouses earn an income—that cost will decrease, by definition, as both adults will have an income. In that case, income splitting will be less beneficial for them, and the cost will be lower.

What is being said here and what was said at the time is that, based on past trends, women's increased participation in the labour force and the fact that many households have two income earners, the impact should basically decrease over time. We never said anything about the cost being eliminated, but we did talk about a proportional drop.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

That's....

[The Chair, NDP, David Christopherson]

Sorry, Mr. Giguère, we're way over time. It has expired.

We'll move along to Mr. Kramp. You have the floor, sir.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

Welcome again to everyone here today.

I have a couple of questions, including one regarding health care funding, which I'll get to in a second.

Before I do that, I'd like to discuss the TFSA. I'm of the personal opinion that it's the greatest thing I've seen since cut cake. I think it's just an absolutely magnificent program. In particular, I'm delighted that we all recognize that retirement income down the road is a challenge, has been a challenge, will be a challenge. I find this to be particularly interesting.

The focus, of course, is that it's a benefit to our young people should they be able to take advantage of this. I think it's almost incalculable down the road.

I would like to have some kind of indication as to what we could expect as a long-term impact out of this TFSA, in terms of how much we could expect to see in tax savings. I know it's difficult to go eight, 10, 12, 15, 20, 30, 40, or 50 years down the road, but of course when governments bring in programs like this that are lengthy in usage and application, I think we need some kind of broad guesstimates and/or we need to know the mechanics of how you arrive at your decision.

For the Finance department, what are we looking at in tax savings for the foreseeable future with the utilization of the TFSA?

[Benoît Robidoux]

This is a case where, as you said, it's a very powerful tool for saving for the future. We looked at the impact. In the short term, it was fairly small. We started small but it increases by $5,000 every year. It's cumulative, so potentially the savings and the household advantage grow over time and the fiscal impact too. This was fully factored in at the time when the decision was taken about the impact.

I don't have the analysis with me, but what we found was that over the long period the impact was potentially bigger, but over 10 years it was fairly manageable because we were starting from nothing, so very small. This has been fully accounted for. Also, this measure was assumed to plateau at some point where people would max out a bit on the use of that savings tool. It was kind of plateauing at some point, as far as I remember.

Again, I am not the expert on that and I think it would be a good question for my tax colleagues who did the analysis at the time. It was a while ago and I'm kind of busy on some other budgets right now, but this is what I remember from that analysis.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Great. I thank you for that. Certainly, that is a question we could take a look at.

Would the Auditor General have any indication whatsoever on the long-term implications for taxes, or for benefit on this, or did you do any analysis whatsoever on this?

[Nancy Cheng]

Mr. Chair, not on this particular tax measure.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Okay, fine. Thank you very much.

Slipping across now to, I guess it's a hobby horse, but it's also critical for all of us, there isn't a member of Parliament, certainly around this table, and most Canadians, who don't share a concern with regard to health care in Canada. There are many, many options out there. In many cases we live in a falsehood that we have nothing but the best in the world when in reality we have many jurisdictions that can claim to provide better health care for less money. There is no doubt there is room for improvement. There is a way that we have to look at how we're going to do that, how we can improve health care services while certainly controlling the cost.

I think we're well aware that this government in particular, over the past number of years, has put the escalator clause at 6% per year to 2016-17, with the recognition that health care in its present direction is just not sustainable.

I can recall being involved earlier when health care took about 23% or 24% of the provincial budget in Ontario. Now it's upwards of 48%. It certainly is not sustainable going forward. There has to be some acknowledgement that we have to have some significant changes.

I've been at round tables. I've listened to medical professionals all over and they, quite frankly, are in concurrence with this, so everybody's looking for that solution.

I'm pleased to say that most of the provinces are actually heeding this. My understanding is that their expenditures are going up in the range of 3% to 4% even while we're contributing 6%. Of course, that escalator will slow in 2017 and on. I understand that we are still committed to a base of 3% plus inflationary measures in there.

Going forward, is what I've said here a true assessment of the reality of the situation? This is what I'm being led to believe by all the professional people I'm dealing with, both in my riding and around the country, but I'd like to have the official version on behalf of Finance.

[Benoît Robidoux]

In a nutshell, we tend to fully agree with what you've said. You are right on the facts. Effectively, the data we have this year for provinces is that they are in the range of 3% to 4% rate of growth in spending on health care. Their spending has been going down quite significantly in recent years. They will receive 6% up to 2016-17. After that, they will receive a minimum of 2%, or the rate of growth in nominal GDP. That could be more in the range of, in normal years, 4% to 4.5%. Therefore, that is what they would receive.

Effectively, although it's fairly complicated to control the costs of health care on the ground, the only solution over a long period, like we have analyzed in these documents of 50 years and 30 years, is to control such a big element of spending. The only way is to control it and make sure that it is not growing faster than GDP, which is your base of taxation.

The only other solution is to increase taxation without limit, or to reduce spending elsewhere, like in education and so on, which are also big elements on the provincial side, again without much limit. This is fairly technical in these kinds of projections, but this is in fact the dire reality of all of these people. There's not much of a way out. You need to control it over time.

[The Chair, NDP, David Christopherson]

Very good, thank you.

The time has expired.

Madame Blanchette-Lamothe, you have the floor.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you very much.

Ms. Cheng, I have a few questions about the second recommendation of your report.

You mentioned it in your presentation. You suggest that the Department of Finance provide from time to time another analysis for all governments combined, including the provincial and territorial governments.

Could you explain to us, in about one minute, why such reports should be produced?

[Nancy Cheng]

Mr. Chair, in the recommendation, we asked for a complete picture for Canada as a whole. This is particularly relevant when you are dealing with big changes that affect federal-provincial transfers. On the one hand, while you have a picture whereby the federal finances have changed as a result of certain transfer measures, it might look differently on the side of the provinces. When you step back to look at Canada as a whole, if you only provide the federal picture, you don't have a complete one. You need the provinces to be able to round off the picture.

Going back to the first question about whether Finance is accountable for the actions of the provinces, by no means in any way are we suggesting that by providing a report like that Finance is responsible and accountable for those actions. It seems that Finance would be, or the federal government would be, in the best position to provide this kind of combined picture rather than relying on the research of Parliament, like the PBO, or a private sector think-tank to provide that picture. Both the OECD and the IMF suggest and encourage the Canadian government to provide those kinds of pictures as a whole.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you very much.

When you say a report should be produced, do you also mean it should be made public? Is that part of your recommendations to the Department of Finance?

[Nancy Cheng]

Our recommendation is to have such information published in the public domain.

We suggested that it would be from time to time, so we're certainly not trying to put excessive onus on the government and the Department of Finance to try to produce this type of information on an annual basis. It's really up to the judgment of the government as to when it might be appropriate. Once you've done it once, then I guess it depends on the measures that get introduced. If there are significant changes, then maybe it's time to publish another one. It doesn't seem to call for an annual publication of this type of report.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you very much.

That is the source of the problem for parliamentarians. Thanks to your report, we know that the Department of Finance conducts analyses on long-term sustainability impacts for the provinces. Those analyses are conducted, but access to that information is problematic. As you just pointed out, publishing that information on sustainability projections does not necessarily make the department accountable for the provinces.

Are there any rules that would formally prevent the Department of Finance from producing and publishing such reports?

[Nancy Cheng]

Mr. Chair, certainly, I'm not aware of any particular prohibition. It depends on the sensitivity and the confidentiality of the information that the provinces choose to share with their federal counterpart. If there is indeed confidential information, then obviously that should not be shared in the public domain like in a combined report.

We're recommending a combined report. We're not suggesting that there should be an analysis for each individual province, but one combined report for all of Canada. It doesn't necessarily call for a lot of precise information on a specific province. If Finance agrees that this would be the right thing to do, then that would seem like it's doable.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

Your recommendation is clear. You have just expanded on it. The department's response leads me to believe that it accepts your recommendation, but that it will not implement the second part of it, which calls for publishing reports on sustainability impacts for the provinces. The details of the response give me the impression that the department will not implement your recommendation fully.

You can confirm or deny what I just said, and Mr. Robidoux could then say whether or not he agrees with that part of the recommendation, which consists in publishing analyses on the provinces' long-term sustainability.

[Nancy Cheng]

Thank you, Mr. Chair.

I think I've indicated what our recommendations are composed of, and I don't have comments to add.

[Benoît Robidoux]

I just want to repeat that the government did say, in its response, that it would publish long-term fiscal sustainability analyses for the federal government, but not for the provinces, since the government is not accountable for the provinces.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

That means you are not accepting the recommendation fully. Correct?

[Benoît Robidoux]

Yes, we accepted part of the recommendation.

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Do I have any time left, Mr. Chair?

[The Chair, NDP, David Christopherson]

I was waiting for the translation to be completed so we aren't cutting off your important words and the words of our witnesses.

We are done there. Thank you very much, and now, Mr. Aspin, you have the floor, sir.

[Jay Aspin, Conservative, Nipissing—Timiskaming, ON]

Thank you very much, Chair, and welcome to our guests. My first question is with regard to the approach to and interpretation of a methodology.

With respect to long-term economic projections released by any organization, do you believe they should be treated as firm, educated projections based on today's factors? That is, should we also treat them with some important caveats? Indeed with today's global uncertainty, is it possible that today's baseline and economic and fiscal projections might be thrown substantially off course?

[Nancy Cheng]

Mr. Chair, certainly these are projections and not predictions, so they don't come with any precision with respect to what the point estimates might be. Even with our estimation, if you look at the graph on page 21, exhibit 7.5, you'll see we've included grey zones. That's why the OECD best practices encourage sensitivity analyses, because the economic and the demographic assumptions cannot be precise. Things do change and the assumptions can be off. Any of those elements that might be off by a small percentage could have a significant impact as you project to the long-term.

We're trying to get the general trend line rather than a precise point estimate of any particular measure at a particular point.