Public Accounts Committee on March 5th, 2013

[Nancy Cheng]

In the 2009 consultant report, they indicated that while it's feasible, meaning that in the long term it's actually viable, there are a number of other suggestions that they've made.

Then, we indicated that we have conducted an analysis, and we do find the situation to be sustainable.

Then, for Finance, ultimately we were able to see certain analyses, and their assumptions were very conservative. Using their assumptions, they found it not to be sustainable.

So there are actually three pieces of information that have somewhat different conclusions. But the basis was because of the difference that came from the underlying assumptions, which are more conservative or less conservative when you look at the economy and the demographics moving out into the future.

[The Chair, NDP, David Christopherson]

Very good. Thank you.

That concludes that round.

Our last speaker will be Mr. Saxton, who has the floor.

[Andrew Saxton, Conservative, North Vancouver, BC]

Mr. Chair, I'd pass it on to any of my colleagues who wish to make any comments.

[The Chair, NDP, David Christopherson]

[Inaudible--Editor]...a little earlier. Did you want to jump in?

[John Williamson, Conservative, New Brunswick Southwest, NB]

This is just for personal interest.

In your analysis at the Finance department, in your supercomputer model analysis, when you do tax changes, do you incorporate a dynamic model, a supply side model, or is it static, as I think it's called?

[Benoît Robidoux]

That's a very good question.

We do analyses that look at.... Let's say, for example, it's a major change in tax policy, a reduction in taxes, an increase in taxes, or something major like that in personal income tax or corporate income tax. We have these general accrual models that look at the economic impact that we should expect from these measures. We use those to inform and advise a minister on what could be the potential economic impact of those measures.

We often compartmentalize them and benchmark them. If you have one dollar to spend, where do you spend the dollar? Where will you get the biggest bang for your buck?

When we do the projections, we are prudent. We don't integrate the dynamic scoring that would make these things even more sustainable than they really potentially could be. We are prudent. We don't factor that in.

Now, if there's a major change in policy, such as a tax or tariff that goes the other way and that could reduce economic activity and lead to less revenue, we may consider integrating these impacts into our analysis.

So it's somewhat asymmetric and prudent to make sure that our projections will turn out to be on track or better.

[John Williamson, Conservative, New Brunswick Southwest, NB]

I guess I'll conclude on this and say that's my concern, in that you're making judgment calls as you report the finances of the Government of Canada.

That's why I must say that I admire the work that the Auditor General's office does, but I disagree with the report that the Government of Canada should be making those projections for the provinces. They have their field of expertise. They're best able to project their revenue and spending assumptions, as is the Government of Canada.

You're welcome to respond to that. I have great respect for your office, but I guess I just don't agree with this one.

I think you're putting the federal government in a position where it shouldn't be. It's minding someone else's apple cart.

[Nancy Cheng]

Mr. Chair, I think we are all entitled to our perspectives. We fully respect the member's perspective on this.

[The Chair, NDP, David Christopherson]

Nicely done. Nicely done.

[Voices]

Oh, oh!

[The Chair, NDP, David Christopherson]

There is some time, if any members of the government side would like.

Mr. Dreeshen.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you.

Going back to that particular point, if you were simply to look at some line items out of provincial budgets rather than just say that you have to go in and do a massive analysis of where they're at, which particular line items would be significant that would be common to a territory or a province, whether it's in the west, or Quebec, or wherever? What types of things do you think would be important if we couldn't get this type of cooperation, or quite frankly, if federal politicians decided they didn't want to get into the business of provincial politics, which are, I think, some of the concerns we would see from the political side of things?

Could you talk about the line items aspect? I'm just curious. What would be important?

[Nancy Cheng]

Mr. Chair, first, I would say that it would be quite complex to try to tease it apart as opposed to looking at a combined picture. Having said that, if you do have to tease it apart, then I think the health cost would probably be a good line item to focus on, if you do want to go down that track.

[Earl Dreeshen, Conservative, Red Deer, AB]

So the health transfers, social transfers. Are there any other things at Finance that you would think would be critical to look for?

[Benoît Robidoux]

I think the two critical aspects are health spending and pensions. They tend to be the most important spending items related to aging and that will be important over the next, say, 20 years.

[Earl Dreeshen, Conservative, Red Deer, AB]

So then, do you think they would do the same type of demographic analysis when you're trying to take a look at what's going to occur? Somebody born in 2012 is going to live to 100 and yet we've got 80 as the life expectancy right now. So you take a look and these numbers come up. Should it be 65 as the age that we could apply for OAS, or 67? You have to start taking a look at it.

Would something that is pan-Canadian still be relevant when we're taking a look at 40 and 50 years out for that type of analysis?

[Benoît Robidoux]

Again, I think provinces are well placed to do it. I think most provinces, at least the largest ones, have the tools to do it. To be honest, they probably are doing it as we speak. They do this analysis so they can publish it too. I would encourage these provinces to publish and to encourage discussion about these issues at the provincial level that could inform the national debate thereafter.

So I think there is no problem with that. I think they could do it and I think they should do it.

[The Chair, NDP, David Christopherson]

Thank you. Sorry, your time has expired, Earl, and I've already indicated to Daryl. He knew.

I have one question I'd like to ask, and then Mr. Byrne has asked for the floor.

My question is to follow up with Vice-Chair Kramp on the tax-free savings account in 7.28. In 7.29 you note: While the analyses estimated the cost of the tax measure in the long term, they did not assess what impact it would have on the federal government’s long-term budgetary balance and public debt.

On tax-free savings accounts, first of all, not a lot of my constituents get to use them because they don't have that kind of disposable income, but that political discussion aside, for those who can—and the amount is about to be increased—if they can put in the maximum, a lot of them are going to be people who are very skilled at working the stock market too. They can buy stocks and mutual funds and all the things you could do in an RRSP. It seems to me there's the possibility that over time for very smart and fortunate people, affluent enough to put in the full amount and smart enough to invest it, those funds can grow to an enormous size. The compound interest alone could keep them going. It seems to me theoretically that those TFSAs in the future could literally contain small fortunes that could be passed on in perpetuity and not one dime in income tax would ever be spent.

Am I missing something? Am I wrong?

[Benoît Robidoux]

They pay tax when they put the money in. They just don't pay tax when they get a return on it. It's a bit like an inverted RRSP, if you want, so it's the same idea. So saying they don't pay tax is wrong. They don't pay tax on the return because they put it in an account where the return is not taxed.

[The Chair, NDP, David Christopherson]

Excuse me. They pay the tax on the contributions they make but not on the invested money that's making money within, and that money that's making money is not ever being taxed. That could be huge amounts of money. I'm talking 10, 20, 30, 40 years out. People can build up those funds into multi...tens, hundreds, millions of dollars, theoretically, and while it continues to earn money every year, never will a dime be paid in income tax.

Anyway, I'm not asking for an opinion. I'm just asking if I've got something wrong. Is that theoretically possible?

[Benoît Robidoux]

The return is not taxed, but I would just mention again that it's an inverted RRSP. So the return is not taxed on RRSPs either. It's taxed when you cash it at the end, but you get a deduction at the beginning that you don't get with a TFSA. So it's just inverting the two.

If you don't like TFSAs, you shouldn't like RRSPs either. They are just the same tool, but inverted.

[The Chair, NDP, David Christopherson]

Actually, no. There's a huge difference but I won't go any further.

[John Williamson, Conservative, New Brunswick Southwest, NB]

Chairman, just to—

[The Chair, NDP, David Christopherson]

It's okay. We're going to move on. I can exercise my prerogative and I'm comfortable.

Now I will turn to Mr. Byrne.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you, Mr. Chair.

Seeing more time available to us on the clock, I'd like to continue with a round of questioning consistent with the timeframe that's available and the order of the rotation.