EVIDENCE

Standing Committee on Finance NUMBER 002 1st SESSION 43rd PARLIAMENT Monday, February 3, 2020 Le lundi 3 février 2020 Standing Committee on Finance CANADA [Recorded by Electronic Apparatus] EVIDENCE February 3, 2020 Committee Edited Evidence * Table of Contents * Number 002 (Official Version) Official Report * Table of Contents * Number 002 (Official Version) Témoignages * Table des matières * Numéro 002 (Version officielle) 02 03 02 2020 2020/02/03 15:30:00 House Of Commons Comité permanent des finances Standing Committee on Finance FINA Chair The Honourable Wayne Easter 1 43

(1530) [ English ]

The Chair (Hon. Wayne Easter (Malpeque, Lib.)) :

We shall call the meeting to order. Pursuant to Standing Order 108(2), we'll start our study of the pre-budget consultations for 2020. We have a number of witnesses here from the Department of Finance Canada who will have a presentation in a moment. First, I want to thank all of the parties for getting their witness lists in on time under a very tight schedule. The clerk tells me that one of the difficulties is that pretty nearly all the witnesses have accepted in response to the initial calls, which surprises me, given the tight time frame. That's a good thing.

I just want to remind people of the other things that we agreed to the other day on the schedule, if people want to make note of these dates while the witnesses are going through some of these areas. On February 18, there is a 6 p.m. deadline for the submission of recommendations to the committee clerk. On February 19 at 3 p.m., we hope that we'll be able to distribute all of the recommendations by all parties to all committee members.

We'll meet on February 20 from 11 until 2 and from 3:30 until 6:30 as a committee to discuss the report and the recommendations because—and we talked about it the other day—we have to give the Library of Parliament time to get its work done so that we'll be able to table the report in the House. There will be meetings, as necessary, during the week of February 24 to finalize the report. Are there any questions on that? Seeing none, we will turn to the witnesses from the Department of Finance. We have Mr. Leswick, assistant deputy minister, economic and fiscal policy branch; Mr.

Marsland, senior assistant deputy minister, tax policy branch; and Ms. Dancey, associate assistant deputy minister, economic development and corporate finance branch. Welcome. I'm not sure who is leading off. Are you, Nicholas?

Mr. Nicholas Leswick (Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance) :

Yes.

The Chair :

Go ahead. The floor is yours.

Mr. Nicholas Leswick :

I'll just make a few short opening remarks. Good afternoon, Mr. Chair, and honourable members of the committee. Well, you've introduced me, Nick Leswick, the assistant deputy minister of the economic and fiscal policy branch, with overall responsibility within the department for economic and fiscal forecasting and the production of the federal budget. Andrew Marsland is our assistant deputy minister of tax policy. Evelyn Dancey is our associate ADM of the economic development and corporate finance branch.

I have other officials from the Department of Finance behind me who can assist us in providing responses to your questions. I will speak briefly about the preparations currently under way at the department for budget 2020. Every year, the Department of Finance organizes its own pre-budget consultations in addition to the consultations that you, the committee members, are hosting. Through town halls, focus groups and online surveys, and by receiving emails and regular mail, the consultations allow the Government of Canada to hear directly from Canadians on what measures could be included in the upcoming budget.

This year's pre-budget consultations are focused on the themes from the Speech from the Throne, themes that we know are important to Canadians and that the government has stated as its clear priorities: strengthening the middle class, protecting our environment, keeping Canadians safe and healthy, and reconciliation with indigenous peoples. These pre-budget consultations were launched on January 13. The objective was clear: inviting Canadians and experts to share their ideas and help build the upcoming budget.

As you may know, Minister Morneau and Minister Fortier , as well as Parliamentary Secretary Fraser, who is at this committee, have held town halls and round tables across the country to date. Also, 15,000 Canadians have responded so far to online surveys on our website, and responses come in every day. The consultations are ongoing; therefore, there is still time for Canadians to share their ideas and their priorities with the government, whether that is online or at events across the country. The government wants to hear from as many Canadians as possible. With that, Mr.

Chair, we will be happy to answer any questions the members of the committee may have as they pursue the various themes under this year's pre-budget consultations.

(1535) The Chair :

It is a different lineup from last time. Who is first over there, guys? I never asked you earlier. Mr. Morantz.

Mr. Marty Morantz (Charleswood—St. James—Assiniboia—Headingley, CPC) :

I just have a question about the promise about the basic personal amount that was made in the campaign. During the campaign, the parliamentary budget office said that in 2023-24 the cost would be roughly $5.6 billion. Its most recent estimate is $6.8 billion in 2024. Your report, “Lower Taxes for the Middle Class and People Working Hard to Join It”, has the number at roughly $6 billion in 2024. Which number is correct?

Mr. Andrew Marsland (Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance) :

Perhaps I can give some background on my understanding of those numbers. I believe that the costing of the platform was based on the basic personal amount only. There are essentially three credits: the basic personal amount, the eligible dependant credit and the spousal amount, which are equivalent. If your spouse isn't working or you're a single parent, then you get, essentially, the basic personal amount. My understanding is that the costing was based on only the first of those, and the actual proposal includes all three.

In terms of the most recent Parliamentary Budget Officer costing, I think the difference is largely explained by a different database. The Parliamentary Budget Officer uses Statistics Canada's SPSD/M model, which basically takes some taxpayer information and some survey data and builds a model. The department uses, essentially, taxpayer information. We use the tax returns filed by Canadians to build a microsimulation model, and that results in a more accurate, in our view, picture of the cost.

Mr. Marty Morantz :

In your view, your number is the most accurate.

Mr. Andrew Marsland :

That would be...yes.

Mr. Marty Morantz :

Would you say the parliamentary budget office is incorrect?

Mr. Andrew Marsland :

What I'm saying is that the numbers are derived from different data sources, which sometimes give somewhat different results.

Mr. Marty Morantz :

Okay.

The Chair :

You still have plenty of time. Your number is what figure, Andrew?

Mr. Andrew Marsland :

It's just over $6 billion, I believe.

Mr. Marty Morantz :

I still have more time. This was my first time asking a question.

The Chair :

You still have about three minutes left, Marty, or Pierre can take it.

Mr. Marty Morantz :

I'll pass. Those were my questions. I'm sure we'll be circling back to that question.

Hon. Pierre Poilievre (Carleton, CPC) :

Yes.

Mr. Marty Morantz :

I'll pass it to Mr. Poilievre.

The Chair :

Not a problem. Mr. Poilievre, the rest.... Just so we have it, what was the exact number, Andrew?

Mr. Marty Morantz :

The department's number was $6 billion in 2024. I have $6,210,000,000.

The Chair :

Thank you, Marty. Go ahead, Mr. Poilievre.

Hon. Pierre Poilievre :

Were there any other factors that explained the difference, other than the differing data methodology and the addition of the spousal and dependants amount?

Mr. Andrew Marsland :

As I understand it, the Parliamentary Budget Officer also included a behavioural response, which had a very small proportion of a very small.... I think it was something in the region of $20 million. Over $6 billion was the difference.

Hon. Pierre Poilievre :

Was there anything else, though, in terms of economic data? Was there an update on the economic data environment when you published the most recent numbers?

(1540) Mr. Andrew Marsland :

I don't believe so. I think that, when you look at the assumptions around the CPI.... The basic personal amount prior to the change and in the future will be indexed for inflation.

Hon. Pierre Poilievre :

Right.

Mr. Andrew Marsland :

I believe there's a slight difference there, but it's not material.

Hon. Pierre Poilievre :

On what date are intergovernmental transfers generally made; that is to say, from the federal government to provincial governments, for things such as the Canada social transfer, the equalization, the Canada health transfer? Is there a date in the fiscal year or a series of dates in which these transfers occur, where money actually transacts from one account to another?

Mr. Andrew Marsland :

I'm sure there is, but I don't have that information.

Mr. Nicholas Leswick :

Mr. Chair, perhaps I could invite another official from the department.

The Chair :

Ms. McDonald, the floor is yours.

Ms. Suzy McDonald (Associate Assistant Deputy Minister, Federal-Provincial Relations and Social Policy Branch, Department of Finance) :

Generally the numbers are made public in December of every year—what the estimates are for the payments for the next fiscal year—and then payments are made on a monthly basis. We transfer dollars monthly into the accounts of the provinces and territories based on the payments that are set out in the December forecasts.

Hon. Pierre Poilievre :

Is that at the end of every month or at the beginning?

Ms. Suzy McDonald :

That's a detail that I would need to check.

Hon. Pierre Poilievre :

Okay, if you don't mind, would you get back to me on that? Finally, I have a question regarding the deficit. It is going to increase the debt-to-GDP ratio slightly this year. Is it the continued commitment of this government to reduce the debt-to-GDP ratio in every year thereafter?

Mr. Nicholas Leswick :

As a fact check on the first thing, you're right: it's to rise slightly between the 2018-19 fiscal year and the 2019-20 fiscal year. I can only restate what was in the government's platform, which is their commitment to reduce that debt-to-GDP ratio in each and every year. I think it's what they said, but I—

Hon. Pierre Poilievre :

I'm not asking now about the platform, but about the government's commitment. Is it the commitment of the Government of Canada to reduce the debt-to-GDP ratio every year from now until the end of the planning period?

Mr. Nicholas Leswick :

You'd have to pose that to the associate minister. I think they are scheduled to appear before the committee on Wednesday, if I'm not mistaken. As published in the fall outlook, the update that was printed in December, that trajectory does decline in each and every year.

The Chair :

We'll go to Ms. Koutrakis. You have six minutes, Annie.

[ Translation ]

Ms. Annie Koutrakis (Vimy, Lib.) :

Thank you all for being here this afternoon to discuss a very important topic with the committee. Could you give us a quick economic update, including the figures for employment?

[ English ]

Mr. Nicholas Leswick :

Yes, I'd be happy to give you a general narrative on the economy. More broadly speaking, I think, starting with the global economic perspective, 2019 was a bit of a rough year. It was the slowest growth clip in the global economy in the last 10 years, since the end of the great financial crisis, and it was coming off some highs in 2017 and 2018. There was a deceleration in the global economy. Some of that was just cyclical. There was a lot of stimulus in the global economy in 2017 and 2018 from things that we know, like the Trump tax cuts and a lot of monetary easing that took place over that time.

That faded, so 2019 was a slowing year. Obviously, some of that weakness spilled over into the Canadian economy. Growth in Canada for 2019 is expected to come in at probably just below 2%. Compared with 2017 and 2018, there was a deceleration in growth. That said, employment held up quite tremendously. Job creation in 2019 was very strong, averaging in and around 40,000 jobs per month. Wage growth did pick up to north of 3%, which was a good and encouraging sign. The composition of job growth was pretty good: it was concentrated in the private sector and pretty broadly based across various sectors.

That said, looking forward into 2019 and more specifically into the fourth quarter of 2019, for which we expect results at the end of February, there was some choppiness at the end of 2019. I think some of that weakness will probably spill over into 2020. Again, some of it was cyclical—things like CN Rail strikes, GM strikes and some intermittent shutdowns along the energy production cycle. Overall, the labour market is pretty strong, with low levels of unemployment and, as I said, wage growth picking up, and that's encouraging.

Looking forward to 2020, I think that growth in and around Canada's potential, which is dictated by productivity and labour supply, will probably be in and around that 2% mark, which is kind of the consensus view among most economists around the country. Obviously, some risks include things like what we are experiencing now: the coronavirus and the containment of that shock and how it's expected to spill over into the global economy and into Canada. Geopolitical risks seem to be fading a bit.

We're very encouraged, obviously, with the signing of the most recent trade deal between the U.S. and China and the dissipating effects from the uncertainty surrounding Brexit and some of the EU uncertainties. Overall, I think it's steady as she goes, and we'll see how it plays out over the next couple of months.

(1545) [ Translation ]

Ms. Annie Koutrakis :

Thank you for your answer. Could you give us details about the tax cuts for the middle class? Specifically, how many people are benefiting, and how much is each household saving?

[ English ]

Mr. Andrew Marsland :

Yes, I'd be pleased to do that. In December the government announced a phased-in increase of the basic personal amount, as we mentioned earlier, and the equivalent amounts for spouses and eligible dependants. That will increase steadily to $15,000, up from about $12,000, I believe. By 2023, about 20 million Canadians will see a reduction in tax. Those who won't are.... Essentially, the design of the increase in the credit is effectively reduced between the fourth and fifth tax brackets, which means that once you get to the threshold of the fifth bracket, there is no increase. That would result in about 1.1 million Canadians no longer paying tax.

Ms. Annie Koutrakis :

I have only one more question, Mr. Chair. How does our middle-class tax cut stand up to other G7 countries? How does Canada rank with regard to the tax burden, and what trends do we see?

Mr. Andrew Marsland :

It's somewhat challenging to compare. There are a number of ways to compare the tax burden overall. For example, you can look at the percentage of GDP that the tax revenues represent. Canada is at about 32.6% of GDP. That's total taxes, federal and provincial. France is at 46%. The U.S. is somewhat lower, at 25%. You can look at the overall burden there. The OECD has a measure based on the average industrial worker. That's another measure you can look at, or at multiples of that and so on, such as families with children.

I think when you look at, for example, families with children, it's really quite low, given that one should add in refundable credits, such as the Canada child benefit. I don't have the actual statistics, but I'd happily provide those to the committee.

The Chair :

Thank you. We'll turn to Mr. Ste-Marie for six minutes, and then Mr. Julian.

[ Translation ]

Mr. Gabriel Ste-Marie (Joliette, BQ) :

Good afternoon everyone. Thank you for being here. First, I have questions about elements in the Minister of Finance ’s mandate letter and the way that the department is addressing them. My first questions are about tax avoidance schemes used by corporations to divert a portion of their profits to tax havens, a perfectly legal practice. I'd like to read two of the priorities that the Prime Minister assigned to the Minister of Finance:

Modernize anti-avoidance rules to stop large multinational companies from being able to shop for lower tax rates by constructing complex schemes between countries.

Close corporate tax loopholes that allow companies to excessively deduct debt to artificially reduce the tax that they pay.

What does the department know about these schemes? How prevalent are they? Approximately how many companies are using these schemes right now? How much is being dodged in payable taxes every year?

(1550) Mr. Andrew Marsland :

Thank you for your question. [ English ] Perhaps I'll begin by underlining the work we do multilaterally with the OECD. For a number of years now, the OECD has been engaged in an exercise about base erosion and profit shifting. That exercise laid out certain mandatory approaches, certain common approaches, and so on. We have been working very closely with the OECD. Successive budgets have introduced measures aimed at implementing those recommendations. The common remote reporting standard is one that's now in place.

It allows countries to get a common view, a full view, of the operations of multinationals and how they're reporting revenues and allocating income from jurisdiction to jurisdiction. The multilateral instrument, which I believe was passed last year, is a way of automatically updating the network of tax treaties. We have over 90 tax treaties, I believe, around the world. Those update each of those tax treaties to deal with such issues as treaty shopping, which is an approach that corporations could use to obtain inappropriately the benefits of tax treaties to which they're not entitled.

That being said, it's work that continues. There are other areas that were dealt with in the BEPS approach. There are issues like how to deal with hybrid mismatches, or strategies to leverage differences in the tax systems, and so on. I think those are the kinds of areas that are referred to in the minister's mandate letter.

[ Translation ]

Mr. Gabriel Ste-Marie :

I see. Thank you. Specifically, I'd like an estimate. Do you have one? For instance, the mandate letter clearly states that companies “excessively deduct debt to artificially reduce the tax that they pay.” Have you estimated the number of companies using that type of scheme in Canada? Shell Canada, for instance, uses it to artificially divert profits to Shell Bahamas, if I'm not mistaken. How many companies are doing this, and how much would you say they’re diverting?

[ English ]

Mr. Andrew Marsland :

I'm not going to comment on particular taxpayers, but I'd begin by saying that there is nothing wrong in principle with deducting interest. That's all part of the calculation of income. Where that becomes a challenge is where debt is allocated between jurisdictions, which reduces the tax base of a particular jurisdiction at the expense of another, and so on. That's the thing that we of course look at very carefully, along with other measures. In successive budgets, we bring forward proposals to protect the Canadian tax base.

While I'm not responding directly to your question about specific corporations, I can assure you that we examine and analyze the corporate tax base very carefully to make sure that—

[ Translation ]

Mr. Gabriel Ste-Marie :

Thank you. I have a request for you. If possible, could you get back to us with an estimate of how many companies are using the schemes in Canada? Without naming any specific cases, as I just did, how many companies using the schemes have you identified? As we know, it’s perfectly legal in the current tax regime, but the Prime Minister has asked the Minister of Finance to make precisely that change. How much would Canadian tax authorities be able to collect if such a change were made? How much time do I have left, Mr. Chair?

(1555) [ English ]

The Chair :

You have half a minute.

[ Translation ]

Mr. Gabriel Ste-Marie :

Oh, wonderful. I'd like to discuss another point in the letter. The Prime Minister asked the finance minister to introduce a new 10% tax on luxury boats, cars and personal aircraft over $100,000. Again, I'd like to know whether you’ve done an estimate of how much such a tax would bring in.

[ English ]

Mr. Andrew Marsland :

I'm not really in a position to comment on proposals, particularly prior to a budget, but I would say that we're, of course, in the process of working on the issues that were outlined in the minister's mandate letter, in preparation for providing advice to the government in the context of the budget.

[ Translation ]

Mr. Gabriel Ste-Marie :

All right.

[ English ]

The Chair :

Thank you both. We'll have Mr. Julian and then Mr. Cumming.

[ Translation ]

Mr. Peter Julian (New Westminster—Burnaby, NDP) :

Thank you very much, Mr. Chair. I'd like to thank the witnesses for being here today. [ English ] I want to come back to the question that Mr. Ste-Marie just asked about the overall erosion of our tax base, because the last time we met as a committee, back on June 21, we had in our hands the PBO report that was fresh off the press. It came out that very same day. It talks about an erosion of our tax base because of overseas tax havens, which they calculated—and the PBO was very clear that this is a conservative calculation—at $25 billion a year. That's an erosion of our tax base of $25 billion.

When we think of the crisis in affordable housing, the fact that we don't have in place basic dental care or pharmacare, we look at $25 billion being eroded from our tax base. That is a considerable sum of money that could resolve many of the challenges that so many Canadians face. Mr. Ste-Marie asked whether you have done an evaluation. I'll come right back to that. Specifically, does the department have an evaluation of whether that $25 billion figure is conservative or whether the ministry feels it is excessive?

What are the numbers the Ministry of Finance has to compare with the amount that was put forward by the Parliamentary Budget Officer, who was of course working in the interest of all Canadians?

Mr. Andrew Marsland :

I can't really comment on the Parliamentary Budget Officer's numbers. I'd have to go back and look at the methodology used, but I will commit to the committee to come back to you with our comments on that report.

Mr. Peter Julian :

Thank you. I take from that there has been more evaluation done since the PBO report came out in June.

Mr. Andrew Marsland :

These kinds of evaluations are very sensitive to how you measure them, what the baseline is and what assumptions you use. On that basis, I don't really want to comment on whether I agree with that assessment or not.

Mr. Peter Julian :

I understand, but I just want to be specific on this: the department has not done an evaluation since the PBO report came out on June 21.

Mr. Andrew Marsland :

The department continues to examine the corporate tax system. It continues to examine issues on a multilateral basis with the OECD and to implement measures to protect the base. We look at specific arrangements that we consider contrary to the policy, and we bring forward measures in every budget to address those. For example, in the last budget there were measures to reinforce the anti-dumping rules and to reinforce the transfer pricing rules, which relate to that, and to deal with withholding tax issues around securities lending arrangements, to give some examples.

Mr. Peter Julian :

Okay, thank you for that. As Mr. Ste-Marie mentioned, if there is any material available through the ministry, I think it would be something that we would all be seized with. I want to go to the Trans Mountain pipeline. As I mentioned, I asked the finance minister last spring whether there had been an evaluation of the updated construction costs. As I'm sure you're well aware, the shippers' contracts are dependent on that update. They haven't been updated for years and construction costs are escalating in British Columbia. Since the spring, has the Ministry of Finance done an evaluation of what the updated construction cost would be for that pipeline?

Ms. Evelyn Dancey (Associate Assistant Deputy Minister, Economic Development and Corporate Finance Branch, Department of Finance) :

Thank you. I can take that question. The responsibility for costing the project rests with the Trans Mountain Corporation, the company that owns the underlying asset and is responsible for the project. It's the board of directors' responsibility to undertake that costing exercise rather than the Department of Finance's, to be clear about our role versus their role. At this time, the board of directors has not approved and released an updated cost estimate. If you were looking at something, I believe $7.4 billion was the last number that was put into the public realm.

As members can appreciate, I'm sure it has been an uncertain time for the project, in terms of the regulatory uncertainty, the legal challenges, etc. The board of directors has to take into account the actual costs of where the pipeline will run and the details of construction in a climate that has been quite unpredictable. We are hopeful of receiving updated costing, but at this time there isn't a number available that I can share.

(1600) Mr. Peter Julian :

And the Ministry of Finance has not been involved in any way in updating those costs, which are now estimated to be twice as much as what were originally projected a few years ago.

Ms. Evelyn Dancey :

This is a responsibility that rests with the Crown corporation rather than the finance department.

Mr. Peter Julian :

Okay, thank you. For my final question, I want to go to the Hoskins report and the recommendation around universal public pharmacare. Has the Ministry of Finance done any costing or evaluation of how best to financially approach putting in place universal public pharmacare in Canada?

Mr. Nicholas Leswick :

Mr. Chair, I'll invite my colleague Suzy McDonald back to the table.

The Chair :

You might as well stay at the table, Ms. McDonald. I was going to tell you that before you took off when I wasn't looking.

Mr. Peter Julian :

Have yourself a glass of water. Settle in.

The Chair :

Go ahead, Ms. McDonald.

Ms. Suzy McDonald :

With great pleasure. Thank you. On the question of universal pharmacare, that work is ongoing within the Department of Health and the Department of Finance. The question, I think, was specifically about whether or not costing of universal pharmacare itself has taken place. Is that correct?

Mr. Peter Julian :

It's whether the Ministry of Finance has done an evaluation as to how to implement and put into place universal public pharmacare, on the basis of the Hoskins report.

Ms. Suzy McDonald :

That work is ongoing in terms of discussions with provinces and territories around what pharmacare would and could look like moving forward.

The Chair :

Okay. We'll have to leave it at that. Turning to five-minute rounds, we'll go to Mr. Cumming and then back to Mr. McLeod. Mr. Cumming.

Mr. James Cumming (Edmonton Centre, CPC) :

Thank you for appearing today. One key principle around this budget is this concept of strengthening the middle class. For the purposes of the department, what is the definition of “middle class”? What are you working towards? Is it defined through a tax bracket? Is it change by areas of the country? How can you craft a budget, and under what kind of definition?

Mr. Nicholas Leswick :

Firstly, I know that the associate minister has a thing or two to say about the definition of middle class, and I'm sure you'll have that discussion on Wednesday. From purely a bean-counter and statistical perspective, though, I can say that there is no common definition of “middle class”. Any definition—attempted definition—would have to take in a range of considerations: family size; family composition, i.e., how many children you have; geography, where you live. Just with those three variables, there is a range of

definitions around what is the middle class, which can range from some peripheral around the median income.... By extension, when defining “income”, is that before-tax income or after-tax income? You talk about a peripheral within the 50% or 150% of the median income. Then, in adjusting for family size, there's this concept of adjusting for a per-adult equivalent. On a per-adult basis, is it $20,000 to $85,000? Is that after tax or before tax? That then changes those metrics. I'm not trying to escape the question, by any stretch, but trying to emphasize that there are general variables in play when trying to attach a statistical definition to “middle class”.

Mr. James Cumming :

The difficulty with that would be that if it's a key pillar and you can't clearly define it, I can't understand how you can craft a budget on the basis of that being one of the key outcomes you're trying to generate. Hopefully we'll get a better response on that from the associate minister. There is some concern about tax structure. In your opening remarks you mentioned, related to the U.S., a more aggressive tax structure. Is there any concern, in crafting this budget, about a reduction in potential corporate revenue? The U.S. have been quite aggressive in its tax strategy,

whereas in Canada we've actually been increasing input taxes on corporations, particularly small businesses, related to the carbon tax and increasing CPP and EI premiums, which are affecting their ability to compete. Is there a concern in the department that there could be a potential reduction in corporate revenue?

(1605) Mr. Andrew Marsland :

This is an issue that we continually look at in terms of competitiveness. In 2017, as I'm sure you are aware, the United States introduced quite a comprehensive tax reform, and the department spent a fair degree of time analyzing that—and continues to do so, in fact, because some of the details of it are still coming out. It's a dynamic environment, and I think you need to continue to look at it. In the fall economic update of 2018, the government announced measures in response to that, essentially the accelerated investment incentive. That was focused on a number of things.

It focused on a concept, the marginal effective tax rate, which is essentially a measure we use—not the only measure, but one measure—to look at the relative competitiveness of tax systems. Essentially that measures the total tax burden on an investment producing a normal rate of return and takes into account the entire picture of taxes. It takes into account the sales tax burden, the income tax burden and so on. It's a useful measure because it gives you one perspective on that.

Those measures allowed us to bring our marginal effective tax rate down a number of percentage points below that of the U.S., to be the lowest rate in the G7. I think that's one measure. I think it's important to look at a number of measures, but it's an area we continue to be focused on in terms of the overall competitiveness of the tax system being one element—an important element but not the only element—in terms of assessing the competitiveness of the overall economy.

Mr. James Cumming :

Has the department taken the opportunity to study the impact of those increased import taxes, particularly with the carbon tax and the increase in CPP and EI, and particularly in the small business sector, on their ability to compete and the revenues generated? Has a specific study been done on that?

Mr. Andrew Marsland :

I'm not aware of a specific study, but a large part of our work is looking at those factors. It's not as if we do just one study. We look at the impacts of all of those factors to try to understand what the impacts of those are on overall competitiveness. You mentioned a couple of things there in terms of carbon pricing, and the carbon pricing system is designed in a way that essentially addresses some competitiveness issues for those sectors that are large emitters and trade-exposed. In the small business sector, we have, in comparative terms, a very low small business rate, in fact the lowest in the G7.

Those are just two factors in a range of factors, I think a couple of which you mentioned, so I think we continue to look at the implications of all of those for competitiveness.

The Chair :

Mr. McLeod and then Mr. Cooper.

Mr. Michael McLeod (Northwest Territories, Lib.) :

Thank you, Mr. Chair. Thanks, presenters today, for coming and presenting, although your presentation is a little bit skimpy. I was hoping to hear more on some of the work you've done in the pre-budget consultations and especially what you heard from the north, because I wanted to raise an issue that is affecting the north. It's the physical pressures that the territories are facing. We have a small tax base and high costs of construction and service, and we have a set borrowing limit. That borrowing limit is set by this government and it's currently $1.3 billion.

The Government of Northwest Territories always seems to be right at its debt limit and struggles to get projects done. Is the Government of Canada open to exploring options to assist the Government of Northwest Territories in addressing some of the challenges through such measures as increasing their borrowing limit or allowing for greater flexibility in cost sharing on projects, infrastructure and other things?

(1610) The Chair :

Ms. McDonald.

Ms. Suzy McDonald :

We certainly heard some of the concerns from the north about the pressures being faced. We've had a number of conversations with regard to borrowing limits, and specifically, not only with the Northwest Territories but with some of the other territories as well. Those conversations are ongoing, and it would be premature to talk about what a final outcome of those might be. Your second question was about infrastructure. Perhaps my colleague, Evelyn, would be able to speak to that.

Ms. Evelyn Dancey :

First and foremost, within the public service we're very mindful of the particular challenges in relation to economic development in the north, which is the area I'm representing from the finance department. With respect to infrastructure, I'm sure you know already about this programming, but I'll mention that of the $2.4 billion national trade corridors fund, there's $800 million identified for projects in the north. It's a fairly large allocation on a per capita basis, but it's in recognition of the transformative nature that infrastructure investments can make in the north.

Mr. Michael McLeod :

The definition of “large” depends what side of the fence you're on. The $800 million doesn't go very far when you split it among three territories and some of the provinces. Just one road costs over $2 billion. I should remind the government that the Government of Canada is still responsible for building roads in the Northwest Territories. It still holds that responsibility. When we talk about how other countries are doing, and how the national indicators are showing that our country is doing well and things are going pretty well, there are some areas of concern for the Northwest Territories.

Our economy has not been keeping up with what's going on in the rest of Canada. We're growing at a slower pace. We are getting to a point where the backbone of our economy is going to be disappearing pretty soon. The diamond mines are all past their peak production points. We really don't have any other industry ready to offset their decline. What efforts is the Government of Canada taking to support regional economies, like ours, to grow and diversify?

Ms. Evelyn Dancey :

That's a discussion that could take hours. To use the time efficiently, I'll note the government's recent Arctic and northern policy framework, which includes measures, opportunities, and targets, across a range of policy areas, including economic development, but not only economic development. That very much is a work in progress in implementing the framework in partnership with other levels of government, indigenous communities, non-governmental organizations and the private sector in the north. I don't have a single answer to that type of question.

However, there's an enormous amount of collaboration and partnership trying to marshal resources to where they can hopefully have the greatest impact in the north not only from an economic development perspective, but also from other perspectives. If it's helpful, I'd be happy to follow-up with background on that framework.

The Chair :

Mr. Cooper.

Mr. Michael Cooper (St. Albert—Edmonton, CPC) :

Thank you, Mr. Chair, and thank you to the departmental officials for appearing today. In the EFU 2019, it was confirmed that the government would be undertaking a comprehensive review of government spending with the goal of achieving $1.5 billion in savings by 2020-21. Could you provide an update on the status of that review?

Mr. Nicholas Leswick :

On the spending side, to be quite honest, we're still working through the details of that process in the review framework with the government. We anticipate that more details will be provided in the upcoming budget on how that will be undertaken.

Mr. Michael Cooper :

So, it's still very much a work in progress.

(1615) Mr. Nicholas Leswick :

Yes, sir.

Mr. Michael Cooper :

In that regard, or consistent with that, no details have been published regarding the criteria for the assessment programs. Would you be able to provide any insights in terms of the policies or operational actions the government is considering in order to see that $1.5 billion in savings by 2020-21?

Mr. Nicholas Leswick :

I don't want to speculate, and I certainly don't want to mislead you, so in terms of the overall program spending base in government, which is north of $350 billion, we're working through the government in terms of what would be the review base and how to go about that review. Those are the kinds of details we're discussing with the government right now with the hopes of coming back to Canadians and this committee with more details in that regard.

Mr. Michael Cooper :

Thank you for that. Now, switching gears a little bit to an issue that is near and dear to the constituents I represent in St. Albert—Edmonton, the issue is the energy sector and the competitiveness gap that exists and has resulted in a significant flow of investment from the sector. Certainly, the sector was impacted by 2017 U.S. tax changes. In response to that, the government did move forward with accelerated capital cost allowance, but it's temporary. It's going to be phased out.

I would submit that, consistent with ensuring and maintaining competitiveness, it would make sense to make that permanent in light of the U.S. situation especially. Would you be able to provide any insight on any work being done around that or any consideration?

Mr. Andrew Marsland :

Perhaps I might respond to that.

Mr. Michael Cooper: Yes.

Mr. Andrew Marsland: You will appreciate that I can't really comment on what actions the government might take.

Mr. Michael Cooper :

Right.

Mr. Andrew Marsland :

As I mentioned earlier, that was an important measure in 2018 to effectively reduce the cost of investment through allowing for faster writeoffs. As you say, those measures were put in place I think until 2023-24, if my memory serves me correctly, for a five-year period. I guess that's where we stand now. I can't really comment on matters of policy, which are issues for ministers.

Mr. Michael Cooper :

Thank you.

The Chair :

Ms. Dzerowicz.

Ms. Julie Dzerowicz (Davenport, Lib.) :

Thank you so much, Mr. Chair, and I want to say thanks to the department for being here today. In my riding of Davenport, which is downtown west Toronto, climate change was one of the top two issues that I heard about during the recent campaign. One of the key things people there have asked our national government about is whether or not we can move faster on eliminating fossil fuel subsidies. How far along are we in eliminating fossil fuel subsidies and can we go faster?

Mr. Andrew Marsland :

Perhaps I could begin by categorizing them. Being the tax policy guy, I see the world as tax and everything else, so I focus on tax all the time, which makes me pretty boring, but there you go. Maybe I'll speak to the tax component of that. Back in I think 2007, the G20 committed to essentially rationalize inefficient fossil fuel subsidies over the medium term. I guess in more recent years—I think in the last two or three years—that's been crystalized by some countries, including Canada, to mean 2025.

Ms. Julie Dzerowicz :

I'm sorry to interrupt. I'm assuming that inefficient subsidies are those that promote emissions, GHG emissions.

Mr. Andrew Marsland :

There's a whole debate about what “inefficiency” means. Essentially, I could go through a whole range of criteria—

Ms. Julie Dzerowicz :

We don't have time, unfortunately.

Mr. Andrew Marsland :

From a tax perspective, every year we publish a report on federal tax expenditures and table it in Parliament. It's about 300 pages long. It identifies every deviation from a benchmark tax system, that being the most basic tax system. In a way, you can say that any tax expenditure is in essence a subsidy in one way or another. We have a pretty good handle on it, and we identify in that report which ones relate to the fossil fuel sector.

When you look back over the past decade or so, at one point you could say, looking at the measures that have been eliminated—phased out or in the course of being phased out—about eight significant measures are in that category. Then, when you look at what else relates to the fossil fuels industry, there's very little left. There is essentially one measure that we're identifying there that relates both to the mining

section and to the fossil fuel sector—

(1620) Ms. Julie Dzerowicz :

I'm running out of time, and I have two other questions. Is it that we're 80% or 90% of the way there? What's your best guess?

Mr. Andrew Marsland :

From the measures in the tax system, we've made very significant progress. There's very little left that is effective.

Ms. Julie Dzerowicz :

So, I can go back to Davenport and say we have largely eliminated fossil fuel subsidies.

Mr. Andrew Marsland :

That's fair in the tax system that I'm speaking to.

Ms. Julie Dzerowicz :

My second question, and this is another thing that's a topic within my riding, is whether or not we have started making budget decisions based on the impact on climate change. Our budget decisions are moving Canada to being more sustainable and achieving our Paris accord targets. Is that something we're systematically doing?

Mr. Andrew Marsland :

From a departmental perspective, we analyze every budget proposal through a strategic environmental assessment that includes those considerations.

Ms. Julie Dzerowicz :

That's good news, and good to know. I know my constituents will be very happy to hear that. The last question I have is based on a comment made by one of my colleagues across the way, who said that we have to clearly define “middle class” before we would be able to create policies that would positively impact the middle class in Canada. Yet, I note we have introduced a tax cut, which you indicated earlier, that, if passed, would benefit over 20 million Canadians, which is the broad swath of Canadians. It would also eliminate taxes for one million Canadians. Do we need to clearly define “middle class” in order to create policies that broadly benefit Canadians?

Mr. Andrew Marsland :

Building on what my colleague, Mr. Leswick, said earlier, and given the challenges in clearly defining the middle class, you wouldn't want to wait until you had that definition before you....

Ms. Julie Dzerowicz :

And we obviously haven't. Thank you.

The Chair :

We're going to two-and-a-half minute rounds for the next two questioners. Mr. Ste-Marie and then Mr. Julian.

[ Translation ]

Mr. Gabriel Ste-Marie :

I have a rather technical question. The House decided to compensate dairy producers under the supply management system to make up for expanded market access conceded under the Canada–European Union Comprehensive Economic and Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. That measure was announced in the budget back in the spring, but the necessary funding wasn't in the corresponding budget implementation bill. Technically speaking, which vote did the money for the compensation come from? Could you also tell me approximately when the first cheque was issued?

Ms. Evelyn Dancey :

Thank you for the question. [ English ] Indeed, it is the case. I know you have the figures already of the government announcing a total of $2.5 billion in compensation for supply-managed farmers and processors, with $2.4 billion being allocated to farmers. To date, payment for the current fiscal year is what has been announced. I have the number here; I think it was $345 million. I can check my notes if that's not right. The remaining compensation for that has been announced. My suggestion would be, in following the government steps on this, is to raise that question with the Minister of Agriculture and Agri-Food . I would refer you to Minister Bibeau.

(1625) [ Translation ]

Mr. Gabriel Ste-Marie :

If I understand correctly, you can't tell me the approximate date that the first cheque went out or which vote the money came from. You're saying the minister is the person who can answer my questions. Is that right?

Ms. Evelyn Dancey :

Yes. It’s not within the purview of the Department of Finance, so I don’t know the date or the vote.

Mr. Gabriel Ste-Marie :

I see. Thank you. My fellow member Ms. Dzerowicz asked you whether the climate impact of budget measures was taken into account. If I’m not mistaken, you said that it was. Is it possible to make those analyses publicly available?

[ English ]

Mr. Nicholas Leswick :

Go ahead, Andrew.

Mr. Andrew Marsland :

We were required to carry out those strategic environmental assessments, but those form part of the overall advice that we provide to the government in the context of budget-making, and as usual we do not release the advice.

[ Translation ]

Mr. Gabriel Ste-Marie :

I see. If I understand correctly, then, that information can’t be released to the finance committee either.

[ English ]

Mr. Andrew Marsland :

That wouldn't be my decision to do that, though normally those are confidential documents.

The Chair :

Okay. Thank you. Mr. Julian, two and a half minutes go fast.

Mr. Peter Julian :

Well, then, they do exist. That's interesting. Thank you for that. I want to come back to TMX and the escalating construction costs, which of course put in peril its financial viability. Regardless of whether we're for or against it, the financial viability of the project is impacted by this. As I understand it from my last questions, there has been no consultation at all with the finance ministry on the impact on public funds of a revised construction cost

schedule that is twice what was originally put into place. The finance ministry has not been consulted and has not been asked to undertake any sort of study on this.

Ms. Evelyn Dancey :

What I can offer is that the government as the owner of this project has indicated that it stands ready to see the project through to construction, so the costs would be something that the government has put itself behind in being willing to support through the appropriate instruments to obtain the cash required for the project. I'd just like to put in a point of emphasis. There really is an emphasis on commercial decision-making in respect of that project, which is why these business details are within the purview of the Crown corporation.

When there is a costing that is ready to be actioned, when there are calls for cash to be made upon the shareholder, to be made upon the government, the government would seek to obtain the funds necessary for construction.

Mr. Peter Julian :

That comes to my next question, which is of course on the actual purchase of TMX, which was evaluated by the Parliamentary Budget Officer as being a billion dollars more than should have been paid, even at market value.

In this case as I understand it—and I'm not trying to put words in your mouth—the government basically decided to throw massive amounts of money at this, but the finance ministry was not consulted consulted on the inflated purchase price of over a billion dollars over the value, and it hasn't been consulted on what the financial impacts will be of construction costs that are twice what was originally foreseen and that, of course, would require significant amounts of public funds. The finance ministry has not been involved in any way on that.

It just responds to the government's saying, “We want to spend this money.”

Ms. Evelyn Dancey :

What I'm trying to emphasize really is the division of labour and that this kind of delineation between who is responsible for what protects and preserves the commercial decision-making in respect of the project. It is the case that the Department of Finance.... It's within our Minister of Finance 's portfolio where you find these Crown corporations, and there is a responsible and accountable flow of information in respect of the activities of Crowns in the minister's purview, but decision-making in respect of the project rests with the Crown corporation. The information that it seems you're interested in, in terms of costs, is something to be provided and approved by the board of directors.

(1630) The Chair :

I'll have to end it there, Peter. I'm coming to Mr. Poilievre. Just on that question, though, because I think it is hanging in the air, the Crown corporation looking after TMX—the Trans Mountain pipeline—certainly can't spend at their leisure and bill the Government of Canada. There must be some rules around keeping the spending in line, are there not?

Ms. Evelyn Dancey :

Yes. The Crown corporations in any government minister's portfolio are responsible to provide corporate plans. As I mentioned in passing on the question of accountabilities, the overall planned activities and the cash or the capital requirements of Crowns run through an appropriate government decision-making. That respects the commercial orientation of the Crowns. When there is a requirement for cash, for example, that can only be a request put forward to the government. It's not something that the entities may do on their own. It's something that moves appropriately through government and Parliament if there's an appropriation.

The Chair :

Okay. Thank you. We are turning back to five-minute rounds. Mr. Poilievre is first and then Mr. Fraser.

Hon. Pierre Poilievre :

Does that appropriation come through EDC or BDC, or what agency of government transfers the appropriation to the Crown corporation?

Ms. Evelyn Dancey :

There are different instruments for different Crown corporations, but if we're talking about the Trans Mountain Corporation, which I think we are—

Hon. Pierre Poilievre :

Yes.

Ms. Evelyn Dancey :

—to date the financing has been untaken on the EDC Canada Account. The Canada Account involves a statutory appropriation versus a voted appropriation. I think it would be premature for me to comment, going forward, on how future costs related to the projects would be financed, but that's been—

Hon. Pierre Poilievre :

But “statutory appropriation” means that there is a law in place authorizing the expenditure, as distinct from the use of the estimates to authorize expenditures. Is this amount available to the corporation written in some legislation? Which statutory authority are you using for this purpose?

Ms. Evelyn Dancey :

The Canada Account is a construct that exists through the legislation. The act is the Export Development Act, so it's—

Hon. Pierre Poilievre :

So it is through EDC then.

Ms. Evelyn Dancey :

It does create the statutory appropriation. On EDC's website there is a disclosure about the transactions that have been undertaken on the Canada Account.

Hon. Pierre Poilievre :

I see. So then it's not as though every major transfer is approved by Parliament. There is just a statutory amount available to EDC, and then EDC is using that authority to transfer the money to the Crown and in this case to the Crown corporation. Do I have that right?

Ms. Evelyn Dancey :

From a historical perspective, that's how it has proceeded to date. There would be a number of other types of transfers that are statutory, and one of the statutory instruments that exist is this one.

Hon. Pierre Poilievre :

Who has to make the decision if, for example, the project does become more expensive than was foreseen? Who would give authorization for an increased amount? Who would say, “Yes, you can have more than we originally thought you were going to require?” Would it be Treasury Board or...?

Ms. Evelyn Dancey :

First and foremost, the government makes its decisions around the allocation of funding and resources, typically through a budget process but not always through a budget process, so that's a conversation between the Minister of Finance and the Prime Minister and cabinet. I think there is a difference between the commitment to making funding available and the means through which the cash is appropriated or obtained. I think you get into different permutations, so I would be speculating on how the future discussions would go.

Hon. Pierre Poilievre :

Right. I'm just trying to ascertain what would be in place to stop an overrun, for example, or to prevent an excess amount going to a project like this. It's not a normal, for example, infrastructure project for which a municipality would submit an invoice and the federal government would fulfill that invoice up to a set limit. It is an amount that flows through EDC to yet another body, so I'm just wondering what disciplines are in place to prevent cost overruns.

(1635) Ms. Evelyn Dancey :

The entity does not have the ability to simply flow its costs through for payment by the government.

Hon. Pierre Poilievre :

Right.

Ms. Evelyn Dancey :

I mentioned, for example, that the corporate plans must be approved, and I probably didn't say that they go through a process that involves approval by the Treasury Board. I'm sure you would have seen corporate plan summaries of various entities tabled recently in Parliament as well, but they tend to include the planned activities and the cash requirements for an upcoming year. But in behind that there is diligence by whichever is the lead department—in this case the lead department is the Department of Finance—as well as the diligence of the other central agencies on those corporate plans.

In terms of a planning document, there is oversight in that way. It sounds as though you may have an interest in the Canada Account. Within the legislation there is a limitation. There is an upper threshold on that as well. That's not an area that I am responsible for, so I don't have the background on that, but we could follow up if you're interested in that instrument.

The Chair :

We have time for a very quick one. Mr. Poilievre, you can have a quick one.

Hon. Pierre Poilievre :

All right. What estimates do we have for the final construction cost of the Trans Mountain pipeline at this point?

Ms. Evelyn Dancey :

The estimate that has been released publicly by the board is quite old at this point. It's the $7.4 billion that I'm sure you have seen.

Hon. Pierre Poilievre :

Right. So, we're still operating on that old number. That was the number I remember hearing at the outset. Do you have any idea of whether that number's going to change?

Ms. Evelyn Dancey :

Projects of this nature that have encountered significant uncertainties and delays on an already very large infrastructure project.... My experience in seeing infrastructure projects is that costs tend to go up over time. I wouldn't be surprised if that's the direction, based on the delays and so on. However, we really do stand ready to receive the views of the board of directors of Trans Mountain Corporation with respect to what its more detailed costing suggests is necessary for the project.

Hon. Pierre Poilievre :

Thanks.

The Chair :

Thank you. We'll go now to Mr. Fraser for five minutes. We don't have anybody else on the list after Mr. Fraser, so if others want in, we can go.... The department has agreed to be here until 5:30. We don't have to go that long because we have three hours tonight, and we should probably take a break and have a bite to eat sometime between 5:15 and 5:30. So, first we'll have Mr. Fraser, and then we can have a show of hands for who wants to go next.

Mr. Sean Fraser (Central Nova, Lib.) :

Excellent. Thanks very much to each of you for being here. I think, given the nature of the exercise we're undertaking—a pre-budget consultation—it might help to frame the notion of where we stand in terms of our fiscal position right now. There were a few comments at the outset of the meeting around our debt-to-GDP ratio. Do you mind sharing on the record what our debt-to-GDP ratio actually is, as of the most recent date you have the data for?

Mr. Nicholas Leswick :

As published last December, our federal debt-to-GDP ratio is 30.9%. I guess that was our forecasted debt-to-GDP ratio for the conclusion of this 2019-20 fiscal year.

Mr. Sean Fraser :

How does that compare with it in 2015?

Mr. Nicholas Leswick :

I don't know the number off the top of my head.

Mr. Sean Fraser :

Do you have a rough sense of where it was a few years ago?

Mr. Nicholas Leswick :

I pride myself on being a numbers guy, so I don't want to throw out a number if I don't know it.

Mr. Sean Fraser :

No, it's fine. We can dig it out. What I'm getting at is that one of the bullet points in the minister's mandate letter was to preserve fiscal firepower in the event of a downturn and continue to make investments that are essentially going to help people. It was phrased, perhaps, more eloquently than that. In your view, given that we have a AAA credit rating—I think that within the G7, only Germany shares that status—do we have room today to respond should a downturn come on the radar in the near term?

Mr. Nicholas Leswick :

Yes, we work with credit rating agencies to review our debt dynamics. We don't just talk about our own debt dynamics, but the debt loads that provincial governments are facing. I think everyone around the room knows that provinces are the most likely to face acute pressures over the coming generation with the costs of an aging population and those pressures. I think that it should be stated that our debt loads are pretty good compared to other advanced economies. We have a significantly lower debt-to-GDP ratio than other comparators in the G7, so that bodes well.

Likewise, we have well-funded social security schemes, like the CPP and the QPP. Looking forward to the next recession.... That is a tough one to call. Every recession is different, with its own character and in terms of when and where those pressures and impacts will be most felt. I guess the next recession is going to be a lot different from the last one. We'll have a lot less monetary policy room—

(1640) Mr. Sean Fraser :

None of the economists advising the minister today are projecting that we're going to be there in the near future, though. Is that correct?

Mr. Nicholas Leswick :

No, there are no recession doomsayers out there right now. As things go, it's very cyclical, depending on what's going on that day or week and on what the yield curve or labour market report is telling us, so we're always prepared for what could be an economic shock on the horizon.

Mr. Sean Fraser :

You mentioned the CPP. Another item in the minister's mandate letter that I'll pick up is the completion of the enhancement of the CPP. Can you tell us where that initiative is at as of today?

Ms. Suzy McDonald :

In the mandate letter, there are two separate things on the CPP. I think you're asking about the enhancement itself?

Mr. Sean Fraser :

Yes, as opposed to the survivor benefits.

Ms. Suzy McDonald :

The enhancement is well under way. Those payments have started to be made. Both of those contributions have started to be made, and there's a phased-in approach to it, as I'm sure you're well aware. There were some additional regulatory pieces that needed to happen in order to ensure the long-term sustainability of the CPP regulations moving forward, and we continue to work with provinces and territories to make sure that we're able to bring those particular pieces into force. The enhancement has begun and is rolling forward.

Mr. Sean Fraser :

Has anyone quantified the risk in economic terms of where we would have been had the CPP enhancement not been put in place?

Ms. Suzy McDonald :

The risk to...?

Mr. Sean Fraser :

You mentioned our ability to respond to a potential downturn by having social safety nets in place. That's what triggered the question.

Ms. Suzy McDonald :

I think the thought behind the CPP enhancement was that we really needed to change the way we did the CPP program moving forward, ensuring that we're not using a pay-as-you-go program anymore and that we have a fully funded model that ensures that Canadians will have more money in their pockets as they move forward.

Mr. Sean Fraser :

In the 20 seconds I have left, I would love to squeeze in one more question.

Ms. Suzy McDonald :

Sure. I'll stop there.

The Chair :

Go ahead.

Mr. Sean Fraser :

One witness mentioned that with the accelerated capital cost allowance changes that were made in 2018, we have a marginal tax advantage of a few percentage points over the United States. With the mandate letter commitment of a 50% cut for zero-emissions technologies, I'm curious to know where we think that would position Canada in the global marketplace in terms of anyone trying to get into the business of manufacturing zero-emissions technology.

Mr. Andrew Marsland :

I'm not sure I have a numerical answer. Clearly, as I mentioned earlier, we're working on the issues laid out in the minister's mandate letter and analyzing them. Whenever you change the tax parameters, you affect the marginal effective tax rates. Logic would tell you that if you were reducing the statutory rate, then that would go further down. As to just how much, I don't have that, but of course it would have a positive impact.

Mr. Sean Fraser :

We don't have a comparator relative to other manufacturing countries that may be—

Mr. Andrew Marsland :

Clearly, as we work through the approach, we will look at other countries that are in that business. Countries like Sweden and others are leaders in that industry. I think that's one area we'll analyze as we work through the proposal.

Mr. Sean Fraser :

Okay. I'm significantly past my time. Thank you.

The Chair :

Thank you to all. We will go to Mr. Cumming first, then to Ms. Dzerowicz, Mr. Ste-Marie, Mr. Julian and Mr. Fragiskatos. Mr. Cumming, you have five minutes.

Mr. James Cumming :

Thank you. Mr. Leswick, you suggested that we're in relatively good shape by the percentage of GDP and overall debt levels. Those anchors have always been important, whether it be retiring debt or following some kind of metric. Has the department studied, or are you concerned with, the rising debt levels not just within the federal government but outside it, Canada-wide, particularly the provinces and municipalities? The federal government has a role with infrastructure programs. There are always matching funds. What kind of shape are we in as a country when it comes to rising debt levels?

(1645) Mr. Nicholas Leswick :

From a public sector perspective, I think indeed we are concerned about rising debt levels in the provinces. They have exceeded their previous historical peaks. That is in the context of facing, as I said, acute pressures in their social and health systems over the next generation. For sure there is some concern there. We encourage provinces to continue on their fiscal consolidation tracks to make sure those debt levels don't accelerate. I think you also suggested overall economy-wide debt, the household sector and the corporate sector.

Mr. James Cumming :

Correct.

Mr. Nicholas Leswick :

I wouldn't say there are any alarm bells, although it is a key risk to the economy, especially in the household sector. It's more, I think, from the perspective of, yes, household vulnerabilities, but our ability to smooth consumption in the face of what could be the next economic shock. Obviously, households have more debt. They're probably a little bit more interest rate sensitive and less willing to take on debt. An instrument like the Bank of Canada's policy rate is probably a little bit less effective when you look forward to what could be the next economic shock.

Likewise from the corporate sector, we have a non-financial corporate sector and a financial corporate sector that are increasingly indebted. I don't know that there's necessarily the optimal steady-state level of debt. It seems that it's being redefined every year as we go forward in the global economy. That said, these corporations are also very interest rate sensitive. We're very mindful, in any sort of backup in rates or some sort of increase in the corporate debt spread, of our ability, Canadian corporations' ability, to take on more debt or to smooth out their consumption and investment patterns.

It's something we're mindful of, and it's always on our roster of risks, but we try to manage those in balance.

The Chair :

Mr. Morantz, do you want to take the rest of the time? Go ahead.

Mr. Marty Morantz :

I want to ask a couple of other questions. Getting back to the basic personal amount, I'm looking at the Parliamentary Budget Officer's report, which gives a breakdown. You've seen this report, I presume.

Mr. Andrew Marsland :

Yes.

Mr. Marty Morantz :

On page 3, it gives a breakdown of what the benefit will be to individual taxpayers in 2023. In the range of $0 to $15,000, it says $1, and with $227,000 and above, it's $11. The report says that “21.0 million individuals will pay less federal income tax as a result of this policy change.” Out of curiosity—and if you don't have this number here, you could get it to me—how many million Canadians will receive a tax break of between $1 and $11 by 2023?

Mr. Andrew Marsland :

Well, you anticipated that I wouldn't have that, but I can see if we can find that.

Mr. Marty Morantz :

That's assuming these numbers are right. Your numbers might differ, because this isn't your report card.

Mr. Andrew Marsland :

To give a bit of context, the design of this is that it essentially increases the tax threshold. Now the tax threshold is noted at $15,000. That is the basic personal amount. However, in reality, the non-tax threshold for many taxpayers—in fact I would say most taxpayers—is higher than that. For example, there's an employment credit, which I think adds $1,200 to $1,300 onto that. If you have pension income, you get another $2,000, which is essentially a non-refundable credit. If you're over 65, you may well get an age credit. There are those thresholds.

With regard to the increase in that basic personal amount, given that many people in the $15,000 to $51,000 range are non-taxable anyway, they would go below the threshold and get the benefit—

Mr. Marty Morantz :

Sure. Would it be possible to get some sort of analysis of that as it relates to my question?

Mr. Andrew Marsland :

I can see what we can do, yes.

Mr. Marty Morantz :

In the PBO report, it also says what the average change in federal income taxes will be by family type in 2023. With the first category, “Individual's Net Income”, it just gives the number in 2023. I'm wondering if your department has the numbers, starting with 2018, as to what the tax benefit will be, for example, in the first year, second year, third year and fourth year. If you have that data, I would like to receive that as well.

(1650) Mr. Andrew Marsland :

I can certainly look into that.

Mr. Marty Morantz :

Okay, that would be great. Getting back to the TMX, for my own clarification—others may know this already—with regard to the $7.4 billion, is that incremental to the acquisition cost?

The Chair :

Ms. Dancey, go ahead.

Ms. Evelyn Dancey :

The $7.4 billion was to cover the portion of construction that had already taken place.

Mr. Marty Morantz :

So that's incremental to the acquisition price.

Ms. Evelyn Dancey :

No, the—

Mr. Marty Morantz :

It's in addition to the cost of acquisition.

Ms. Evelyn Dancey :

Yes.

Mr. Marty Morantz :

Just one more quick—

The Chair :

To make sure we're clear on that, the cost of acquisition was $4.5 billion, and you're saying there's another $7 billion on top of that?

Ms. Evelyn Dancey :

The $7.4 billion is the construction cost.

The Chair :

Okay.

Mr. Marty Morantz :

Thank you for that clarification. Mr. Leswick, I have one quick question.

The Chair :

We're considerably over time, but we're kind today.

Mr. Marty Morantz :

Mr. Leswick, I want to circle back to something you said earlier when one of the members opposite was asking about the potential for a recession. You didn't have a chance to finish your thought, but you uttered the words, “We'll have a lot less monetary policy room”. I'm wondering if you could elaborate on what you meant by that.

Mr. Nicholas Leswick :

In entering the last recession, the great recession in 2009, the Bank of Canada was operating at a monetary policy rate of I think 4.75%. I mean, they had a lot of room between 4.75% and, let's just call it the lower bound at that time, of 0%. They had a lot of monetary policy room to ease rates—to provide monetary policy easing into the economy. However, that was then and this is now. Our policy rate now is 1.75%. It gives you a sense that if the recession were to happen tomorrow, which I'm not predicting it is, the Bank of Canada would only have so much space to provide monetary policy stimulus.

When you think of what the tool kit is, then there would be more burden of stimulus falling on other parts of the tool kit: provincial governments, federal governments and macroprudential....

The Chair :

Thank you. That was a good point. Do you have a supplementary question?

Mr. Marty Morantz :

I just want to paraphrase this in more laymen's terms. In other words, if we had another recession, the government would have fewer tools at its disposal, given current monetary policy, than it had in the last great recession.

Mr. Nicholas Leswick :

Yes, and I just want to say this isn't a Canada-specific thing. This is a global phenomenon where central banks have been easing through conventional and unconventional monetary policy for the last 10 years, so every central bank has a whole different starting point than it had 10 years ago. There is a global conversation amongst smart economists about how this recession is going to have a different character because it's likely that more of the burden will fall on other tools.

Mr. Marty Morantz :

Thank you very much.

The Chair :

Okay, thank you all. I'll go to Ms. Dzerowicz, then back to Mr. Ste-Marie.

Ms. Julie Dzerowicz :

Thanks for your patience today in answering all our questions. We have been talking quite a bit about the state of our economy, today and moving forward. I want to talk a little bit about our competitive climate, since it has come up a little bit. Can you talk a little bit about the investment climate in Canada today for foreign direct investment, and then business investment in general? Could you just tell me the state of both of those?

Mr. Nicholas Leswick :

It is kind of a longer story line. You just look at investment levels and the Canadian economy, let's say in the early 2010s when oil prices were riding near $100 a barrel and there were a lot of capital inflows into the Canadian economy really concentrated in the energy sector. Then suddenly there is a global energy price shock and there was a huge deceleration in energy sector investment, so you're coming off some pretty steep highs there in the early 2010s to a point where there was a massive contraction.

Over the last four or five years or so, it has been a real game to recover those lost investment flows, and it's been very challenging. In the energy sector any people you would invite to this committee who would have a commentary about what's going on in western Canada would suggest that it's been very difficult to regain those lost flows and just get back to level.

In the non-energy sector, there has been a little bit more encouraging momentum—outside the energy sector, in particular in services-based economies, service companies in Canada investing in high tech and in productivity-enhancing machinery and equipment, and then the factory sector, also where we've seen encouraging signs of growth over the last couple of years and in the last couple of quarters.

That said, it hasn't been off-the-charts record growth either, so anything governments can do—and this government has put in place incentives like it put last fall to accelerate capital writeoffs—to encourage business investment, encourage foreign direct inflows, is hugely important. That's our advice to the government. That's where the government's policy approach is.

(1655) Ms. Julie Dzerowicz :

Okay. First, thank you very much for the excellent context and reminder about that. It is important and also helpful to know that we've put a number of measures in place that have been helpful. Right now running through the House of Commons is the updated CUSMA, as we call it, or as I call it, NAFTA 2.0. I know that we have signed a number of trade agreements in addition to what's going through the House right now. What's the importance of those agreements to our competitiveness?

Mr. Nicholas Leswick :

Hugely important is access to these growing, large global marketplaces. That is huge for our Canadian exporters across the board: again the energy sector, non-energy sector and our service sectors. Again, previous governments and this government have made important investments in things that would support Canadian companies getting access or actually installing in these foreign markets and exporting to these foreign markets through enhancements to the Trade Commissioner Service and concierge services through organizations like Export Development Canada. Anything we can do to help Canadian companies grow, and to grow their businesses outside of Canada, is good for Canada.

Ms. Julie Dzerowicz :

Just remind me. I think we've opened up about 55 or 57 new—I'm trying to remember—offices around the world. I've forgotten what they are formally called.

Mr. Nicholas Leswick :

I can invite my colleague to give you a whole commentary on things we've done to support export development. I don't know the number there, but yes, our investments in our Trade Commissioner Service—

Ms. Julie Dzerowicz :

Trade commissioner: that's it.

Mr. Nicholas Leswick :

—and missions and embassies around the world have been bolstered over the last couple of years. There are more boots on the ground selling Canadian companies into these foreign markets.

Ms. Julie Dzerowicz :

Thank you. That's helpful. Thank you.

The Chair :

Mr. Ste-Marie, then Mr. Julian.

[ Translation ]

Mr. Gabriel Ste-Marie :

Thank you. I’d like to come back to the minister’s mandate letter, in which he is called upon to “complete implementation of the new financial consumer protection framework.” Is the implementation of that new framework within your department’s purview?

Mr. Soren Halverson (Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance) :

Yes, it’s part of our department’s mandate, but it’s also done in coordination with other federal agencies, including the Financial Consumer Agency of Canada.

Mr. Gabriel Ste-Marie :

Thank you. Could you please confirm whether the implementation of the new consumer protection framework for banking will alter or affect the application of Quebec’s Consumer Protection Act as it relates to banking? After all, Quebec has a civil law tradition, and the Civil Code governs banking. Does that factor in to the department’s work on this issue?

[ English ]

Mr. Soren Halverson :

If I may—I apologize for responding to you in English—the interests of provincial partners are very much fundamental to moving through an exercise like this. I think the issue you raise will be top of mind in the way those are developed.

(1700) [ Translation ]

Mr. Gabriel Ste-Marie :

That’s quite reassuring, so thank you very much. I’m going to switch topics now. The government proposed using employment insurance, or EI, benefits as payment during periods of illness. Has the department costed out that measure? If so, is the current premium rate sufficient, in the department’s view? If not, where does the premium rate need to be?

Ms. Suzy McDonald :

The program is administered in conjunction with our colleagues at Employment and Social Development Canada. I gather that you’d like to know whether we’ve calculated the increase in the premium rate. Those calculations are part of our budget discussions. We are reviewing the data with our colleagues now, but they are the ones with the mandate to implement that measure.

Mr. Gabriel Ste-Marie :

All right. Thank you.

[ English ]

The Chair :

Do you have a very quick question, Gabriel?

Mr. Gabriel Ste-Marie: No.

The Chair: Mr. Julian.

[ Translation ]

Mr. Gabriel Ste-Marie :

No, Mr. Chair.

[ English ]

The Chair :

Mr. Julian.

Mr. Peter Julian :

Thank you. I appreciate your answering these questions. I want to come back to TMX, and not just because taxpayers are currently subsidizing it. After interest charges, as we're all well aware, it's losing about $150 million a year. There's some real concern about putting more and more money into this. I appreciated the comments around the EDC Canada Account. Just going on the disclosure form on the EDC website, they say that the Canada Account is for projects where “the risks are assumed by the Federal government”. We are talking about taxpayers' money here.

Looking through the Canada Account, on the EDC website they do have a disclosure of 30 projects. It's about $7.5 billion this century. If we look at the size and scope of the cost overruns for Trans Mountain, most construction estimates vary now between $15 billion and $17 billion, much higher than the initial cost of about $7.5 billion. That eclipses in scope all of the Canada Account expenditures this century. That would be twice as much. In terms of process, we finally get an updated construction cost. That means, say, $17 billion.

It appears that cabinet has the ability, unless I'm wrong, to make that call and approve, through the Canada Account, risks assumed by the federal government of that $17 billion. Then, of course, we have the risk that the updated construction cost allows every single shipper, as economist Robyn Allan has pointed out, to pull out of the deal. It seems to be a bit of a house of cards. I guess I'm wondering, first off, if our reading is correct that cabinet basically can make that decision even though it dwarfs all of the other expenditures around the Canada Account, at least this century.

Is it entirely up to cabinet? What is the system of checks and balances around that? This is particularly in light of the impact on shippers' contracts and the fact that we could well end up with massive costs, with shippers pulling out for a variety of reasons, including the fact that they can legally do so once that updated construction cost is published.

Ms. Evelyn Dancey :

I guess there are a few things that I feel I can follow up on in terms of information points, but I think a lot of what you're hypothesizing is in the realm of conjecture, and I'm not going to be able to comment on it. A $17-billion figure isn't something that—

Mr. Peter Julian :

I understand. Yes. Those are for construction professionals.

Ms. Evelyn Dancey :

That has not come to my attention. That's a number you've said, but that's not a number that has come to my attention. First and foremost, this is a project that is being undertaken from a commercial mindset, and the Crown corporation responsible would have in mind its ability to profitably move product through the pipeline, so the concerns of shippers would be in the minds of the corporation and its board of directors. There's not more I can add on that as a finance official.

There is a kind of system of oversight around the use of the Canada Account that I think we undertake to provide to you in terms of what the decision-making points are around it so you understand the accountability for the use of that instrument of government. It's certainly not the case that the spending by a Crown corporation would be

an act; I've noted that there are corporate plans and there is Treasury Board approval of capital budgets, which are the investment budgets of Crown corporations. Obtaining a source of cash for the project is another decision point. The figure you mentioned isn't one I have anything to comment on in terms of process. There's a lot of process in behind both the authorization of the entity to pursue the commercial objectives as well as the government's process for obtaining cash to pay for construction costs.

(1705) Mr. Peter Julian :

Who else would be involved in the approval process?

The Chair :

What was your quick one there, Peter? Who else...?

Mr. Peter Julian :

Yes. Who else? Just reading from the disclosure form it appears that it's cabinet, the ministers, but who else is involved, then, in the approval process?

Ms. Evelyn Dancey :

If you have the information on the website, that's what we could follow up with as well as the decision, the points of accountability around the use of the Canada Account. I think you do have that already, but I would have followed up and provided that information.

The Chair :

We have Mr. Fragiskatos for the last question for five minutes.

Mr. Peter Fragiskatos (London North Centre, Lib.) :

Thank you, Mr. Chair, and thank you to officials for being here today. Mr. Marsland, on the number of Canadians who won't pay any tax because of changes to be made on the basic personal amount, can we have that number?

Mr. Andrew Marsland :

Yes. I believe it's 1.1 million.

Mr. Peter Fragiskatos :

I'm sorry?

Mr. Andrew Marsland :

It's 1.1 million.

Mr. Peter Fragiskatos :

It's 1.1 million. Okay. I also wanted to ask about deficits. I often hear from some members who may or may not be across the way that we are in a very troubling financial situation and that deficits are out of control. Could you compare the current fiscal reality? I know you've talked about debt-to-GDP levels. I know you've compared it with other countries. Could you talk about where we are in relation to, say, the 1980s or the early 1990s? I guess that is probably more suited to Mr. Leswick.

Mr. Nicholas Leswick :

I won't give you a long-drawn-out response, but deficits as a share of the economy are smaller now than they were, probably, during that period.

Mr. Peter Fragiskatos :

Do you have a figure that you could provide in terms of debt-to-GDP ratios?

Mr. Nicholas Leswick :

I'm sorry. I don't have my trusty fiscal reference tables.

Mr. Peter Fragiskatos :

Could you table that with the committee at your convenience?

Mr. Nicholas Leswick :

Yes, no problem.

Mr. Peter Fragiskatos :

But you are saying that it's much better today than yesteryear, right?

Mr. Nicholas Leswick :

Yes. That's my opinion.

Mr. Peter Fragiskatos :

Okay. I have a final question for you because I sense hunger around the table. We talk about ripple effects of particular policies and programs. Do you have any information on the economic benefits of the Canada child benefit and what it has done for families, and how it has boosted the economy in particular? Can you provide us with any of that information? That's as a sort of stimulus to the economy, if you like.

Mr. Nicholas Leswick :

From the perspective of a stimulus to the economy, I think this was a measure that was valued once mature. We're talking about the first round of the CCB and the CCB enhancement being, I think, in the range of $6 billion a year, Andrew...?

Mr. Andrew Marsland :

Somewhere in there.

Mr. Nicholas Leswick :

It was in the range of $6 billion a year. If you put that in context of a $2.3-trillion economy, it did provide a boost to growth in early 2016—like a fiscal impulse in 2016 and 2017. It was well timed. The economy was weak coming off a hangover from the global oil price shock, so just in that context, it was well timed. I think other people—the Bank of Canada and other economists who analyze the Canadian economy—would say the same thing. I guess more broadly from a structural perspective, it is supporting Canadian families. I don't know if I can hand this off to Nicholas just in terms of the kind of income boost it has provided to Canadian families.

Mr. Peter Fragiskatos :

It's like a poverty. There were close to a million Canadians lifted out of poverty, according to Statistics Canada, because of the Canada child benefit. Obviously, when people are not living in poverty, it's good for the economy, but there are very good social effects, for example the savings in our health system. A number of economists have said that if we really want to tackle issues in our health care system, some of the financial challenges that we have, then let's make sure we're doing everything we can to address poverty issues.

A program like the Canada child benefit, by lifting people out of poverty to the extent that it has, has a huge impact in so many different areas. Is that a fair statement?

(1710) Mr. Andrew Marsland :

Yes.

Mr. Peter Fragiskatos :

Mr. Chair, I'm through with my questions, but if my colleagues would indulge me for a moment, and with the unanimous consent of the committee, I want to put forward the following motions. Number one, I move that, in addition to the members, the staff of MPs be permitted to eat the food present in the committee room. I would ask that we support that, if we don't we'll start a revolt, a justifiable revolt.

The Chair :

Before we get to that motion, I'll let the Finance officials go. Thank you very much to all of you, those who came to the table and all who came prepared to answer questions. Thank you very much for appearing before the committee. I believe there are about three items that you have to get back to us on in greater or lesser detail, I'm not sure. If you can take a stab at those questions that were asked and get back to us, that would be great. You can send them to the clerk. On Mr. Fragiskatos's motion, which is related to food, this committee is a little different from others.

We sometimes meet late in the evening, and we all have staff here. We need that motion if staff are going to be able to eat in this room as well. Is there any discussion on it? (Motion agreed to [ See Minutes of Proceedings ])

Mr. Peter Fragiskatos :

With regard to the second motion, Mr. Chair, I move:

That, notwithstanding the Committee's routine motion on the distribution of documents adopted on Wednesday, January 29, 2020, and the ususal practice of committees concerning access to electronic documents, Francesco Sorbara, M.P., and Parliamentary Secretary to the Minister of National Revenue, be added to the Committee's distribution list and be granted access to the Committee's digital binder site for the remainder of the parliamentary session.

The Chair :

We've done that previously, as well. We had a couple of CPC members who needed documents and often attended the committee. Mr. Julian.

Mr. Peter Julian :

I have no problem with that. I believe we've had a history of being very flexible on that. There may be people who will be regularly spelling off other members on the committee. If we can have a general agreement that people who are regular participants at the finance committee have access to the documents, I have no problem supporting the motion.

The Chair :

I believe Pierre-Luc Dusseault had access the last time as well. Are we agreed on that? (Motion agreed to)

The Chair : We shall suspend until 5:30.

(1710) (1730) The Chair :

We will reconvene. As people know, we are continuing on the study of pre-budget consultations for 2020. First of all, I want to welcome everyone here—and Mr. Brunnen by video conference. I know that everyone received very short notice, so a heartfelt thanks to all of you for preparing your submissions. That goes for those who prepared pre-budget submissions that were in by the middle of August and those who have come forward tonight as witnesses. We will have everyone present first. Then we will go to questions from members. I guess we'll start with you, Mr.

Brunnen, via video conference from Calgary, Alberta, for the Canadian Association of Petroleum Producers. Please try to hold it to five minutes. The floor is yours.

(1735) Mr. Ben Brunnen (Vice-President, Oil Sands, Fiscal and Economic Policy, Canadian Association of Petroleum Producers) :

Thank you, Mr. Chair and members of the committee. Thank you for hosting me here today. I represent the Canadian Association of Petroleum Producers, which represents the upstream oil and gas industry in Canada. A strong oil and gas sector can help government achieve its priorities of growing the middle class, reducing our carbon footprint and expanding our collective prosperity. Canada ranks at the top of major oil-producing countries in terms of control of corruption, rule of law, government effectiveness, environmental protection and social progress.

With global energy demand expected to increase, along with an increased focus on GHG emissions reduction, Canada is uniquely positioned as the global hydrocarbon supplier of choice. Through our technology investments, oil sands emissions intensity has decreased by 20% and is now on par with the global average crude blend. On the conventional side, we are committed to reducing methane emissions by 45%. Our regulations are more stringent than those of most other jurisdictions, including in the U.S. Continued technology investments have the potential to achieve substantial additional reductions.

However, in order to achieve this vision, government and industry need to work collaboratively. Despite a positive uptick in investment for 2020 for our industry, we continue to struggle to attract capital. Total equity raised in 2018 was about $650 million, down 94% over the past five years, which was the lowest level on record in 27 years. This has led to lower investment and fewer jobs. In fact, Alberta has 50,000 fewer jobs than it should have, had job creation kept pace with demographics, since the recession. Our total capital investment is about a third of what it was in 2014.

Conversely, U.S. oil producers raised $19.4 billion from debt and equity markets in 2018. This severe reduction in our access to capital comes as the industry continues to be a leader in cost reduction and ESG performance. We see an opportunity for the government to work collaboratively with the oil and gas sector and position Canada to be the global barrel of choice. This concept was echoed by the federal expert panel on sustainable finance, who recognized, and I quote:

Canada's oil and...gas companies are competing against major sovereign producers...that face little pressure for transparency or risk of divestment.... Divestment from these public companies essentially transfers market share from the minority producers most obliged to act responsibly and transparently, to monopoly producers without similar obligations.

The panel further indicated that “[a]chieving Canada's sustainable growth potential will require a sea change in the interaction between innovation, policy and regulation...and investment patterns.” However, in order to achieve this vision, we need the right fiscal and innovation framework driven by close collaboration between the federal government and industry. Therefore, CAPP recommends that the federal government launch an innovation and industrial strategy table involving industry and the ministries of finance, NRCan, ECCC and innovation and economic development.

The table would develop the strategy and coordinate investment in technology that would help achieve substantial emissions reductions and investment growth in our sector. From a fiscal perspective, we recommend that the Department of Finance affirm that existing oil and gas tax measures are not subsidies, as stated by the Department of Finance in the 2017 Auditor General's report.

Finally, there are several fiscal measures that the government can implement that will increase our competitiveness, including reforms to large corporation tax administration, interest expense deductibility, and access to capital for small and medium enterprises. I would be happy to discuss these further during the Q and A session. In closing, CAPP believes that Canada's oil and natural gas sector presents a significant opportunity for inclusive growth that provides broad benefits to all. Thank you for this opportunity to present to you today. I look forward to your questions.

(1740) The Chair :

Thank you very much, Mr. Brunnen. We're turning, then, to the City of London, with the Honourable Ed Holder, mayor, and Mr. Thompson, manager of government and external relations. Welcome, Ed, a former MP who's been around this table a few times—on this side, though.

Hon. Ed Holder (Mayor, City of London) :

Thank you, Mr. Chair. Yes, it feels a little different, I must admit, to be on this side of the table. It's the first time, and hopefully not the last. I'd like to thank you and members of the Standing Committee on Finance for the opportunity to appear before you today. As you've indicated, I'm joined by Adam Thompson, manager of government and external relations with the City of London. As the largest urban centre in southwestern Ontario, London provides economic and social opportunities for all 2.5 million residents of our region.

We embrace our role by providing the infrastructure, jobs and amenities that people rely on each day. We recognize that we rely on our region's success, much as our region relies on our success. In advance of the development of budget 2020, I'd like to focus today on the theme of connection. As a mid-sized city, London connects services to people, people to their community, and the community to the world. I'd like to touch on each connection point individually as all parties weigh in on priorities for the year ahead. First, on connecting services to people, London continues to grapple with a people crisis.

Providing safe, affordable housing for our residents remains a systemic challenge. With average rental market vacancy rates in London at 2.1%, and below-market rental units closer to 0%, we continue to struggle to meet the needs of not just Londoners but residents across the region. At the same time, growing challenges persist in the area of mental health and addictions.

In response, the City of London has moved forward with our core area action plan, which outlines nearly 50 initiatives to respond directly to homelessness, health issues, safety and security in our downtown and create a positive environment through attracting people to the core. Connection forms the heart of our plan. The plan includes the development of 40 resting spaces where individuals can come off the street, shower and have a warm meal; 20 stabilization spaces where individuals can find medical attention and support while in crisis; and 10 supportive housing spaces.

We are actively working with the Province of Ontario to secure the necessary investments into medical personnel to provide primary staffing for these spaces. In addition to providing the direct supports people need, this program will free up essential capacity in our hospitals, providing an estimated $7.5 million per year in emergency room occupancy savings. We've all seen the long lineups of ambulances and emergency vehicles at our hospitals, which are required to wait with people experiencing crises until a hand-off to medical staff can occur.

By providing an alternative, we aim to free up approximately 5,700 hours of police time and 9,200 hours of EMS time per year, time that could be reinvested into serving our community. The Government of Canada can help the City of London advance this work immediately. With nearly 30% of our homeless population self-identifying as indigenous, we know there is a desperate need for community-based, culturally appropriate resources. Under the reaching home strategy, targeted funding under the indigenous stream is available to support municipalities and local indigenous service providers.

While we do not receive funding out of this sub-stream today, future access would support immediate initiatives to open resting spaces, stabilization spaces and supportive housing spaces in a matter of mere months. We have a plan for a pilot program before the Government of Canada, and I'm hopeful that we can move ahead with this immediately. As London continues to focus efforts on connecting critical services to people, we are also undertaking bold action to connect people to their community.

At my recent state of the city speech, I spoke about our vision of becoming the first major city in Canada to have a zero-emission public transit fleet of buses. We will do this by moving away from diesel to a fully electrified fleet. In April 2019, London City Council declared a climate emergency. We are taking that pledge seriously, not only by our words but by our deeds. Public transit emissions represent as much as 40% of total emissions where London has direct or indirect influence.

Even after electricity costs are factored in, our estimates show that a move towards electrification would represent substantial operational savings each year. These savings will only increase as the cost of fuel rises. Transforming our public transit system would generate significant savings and provide millions of additional dollars each year, money that could be used to invest further in programs to tackle the needs of our most vulnerable residents. The London Transit Commission will be moving forward with a significant study to explore net-zero public transit options over the coming months.

(1745) While this work progresses, we are looking for additional details from the Government of Canada as to how the federal government plans to partner with cities and communities. Budget 2020 provides an excellent opportunity. Finally, we are focusing on a greater connection of London to domestic and international markets. Within the strategic plan, our vision as a council emphasizes London as a leader in commerce, culture and innovation, our region’s connection to the world.

I recently met with the leadership of Via Rail, alongside the new president of Western University, Alan Shepard, to explore expanding rail connections across the province and, ultimately, the country. London operates the fourth-busiest Via Rail station in Canada. Our station operates within Canada’s busiest economic corridor, with nearly $23 billion moving between southwest Ontario and the greater Toronto area each year. Our residents and businesses, and the economic potential they represent, continue to be held back by a lack of options to move between London and Toronto, as well as London and Windsor/Detroit.

Private vehicle and freight traffic on Highway 401 is expected to double over the next decade, heightening safety concerns along this high-frequency corridor. Additionally, increased congestion will continue to cost our economy and impede economic growth if we do not urgently invest in alternative means to move around the entire rail corridor from Windsor to Quebec City. Our conversation with Via Rail will remain a priority in the coming year. Connecting mid-size communities like London will require federal investments into Via Rail to expand the fleet and the service offerings for our people and our businesses.

I look forward to a meaningful discussion with the Government of Canada in the coming months. I would like to thank you for the invitation to present today. I would like to acknowledge that we have two of the four great members of Parliament from London at the table today. I must say, London has fully embraced our place as a regional hub for southwest Ontario. I look forward to further exploring our focus on connection and providing answers to questions from members of the committee. Thank you, Mr. Chair.

The Chair :

Thank you, Ed. From the Insurance Bureau of Canada, we welcome Ms. Dreff and Mr. Stewart.

Mr. Craig Stewart (Vice-President, Federal Affairs, Insurance Bureau of Canada) :

Thank you, Mr. Chair, for the invitation and the opportunity to speak to the standing committee today. I'm Craig Stewart, vice-president of federal affairs, and I'm joined by Nadja Dreff, our chief economist at Insurance Bureau of Canada or IBC. We are the national trade association representing Canada's private home, car and business insurers. I'm going to speak to three topics today. The first is protecting Canadians from escalating climate risk, particularly flooding. Second is protecting Canadians from a severe earthquake.

Third is the importance of transitioning Canada to a low-carbon, resilient and competitive economy by 2050. First is climate risk. Flooding is the single greatest climate threat facing Canadians today. Last January, on behalf of the National Advisory Council on Flood Risk, I presented financial options for addressing flood risk to federal, provincial and territorial ministers responsible for emergency management. The national advisory council had been appointed by then minister of public safety Ralph Goodale, after the 2017 floods across eastern Canada.

After 18 months of consultations, we delivered a report that detailed a comprehensive solution that would ensure that every Canadian would be financially protected from flooding, irrespective of the risk they face. In part because of that work, six different cabinet ministers have flooding as part of their mandate letters. Together, they are to deliver a coordinated action plan on flooding. However, for that to happen, some foundational work must be supported through the federal budget. We can separate Canadian properties into three groupings.

Properties in group one are at the highest risk and will flood predictably every 10 to 20 years. Group two, still at high risk, will flood predictably at least once every 100 years. Group three represents everybody else. Flooding for these properties is an unpredictable accident, if you will. This group, which represents about 90% of Canadian properties, can be insured by regular overland flood insurance. However, other solutions are needed for the remaining 10%, those in groups one and two.

Those in group one, which will flood predictably every 10 to 20 years, can be addressed either through home relocation programs, called strategic retreat, or through significant home retrofits that elevate their homes, or possibly through investments in flood defence infrastructure. Those in group two, those within a 100-year flood interval, should be insured through a public-private partnership, a specialized high-risk insurance pool, which is what happens in many countries, such as the U.S. and the United Kingdom.

If these homes are also de-risked through home retrofits or investment in flood defence infrastructure, they could join group three and be eligible for the regular insurance market. Our goal is to reduce the number of Canadians in groups one and two over time. To meet mandated ministerial commitments, three items should be included within the budget 2020 fiscal framework. First is dedicated funding to design and cost a high-risk insurance pool and an associated program of strategic retreat. This process should be consultative and include consideration of indigenous and other vulnerable populations.

As part of this, funding is needed to align public and private flood risk models. If insurers, banks, realtors and governments do not have a common, reliable and accurate flood map, Canadian consumers will not be well served. Second, funding is needed for a home retrofits program that addresses flood resilience as well as energy efficiency. Third, funding is needed for targeted flood defence infrastructure through an expanded disaster mitigation and adaptation fund.

Infrastructure Canada must have the internal capacity to deliver such funding and should be supporting capacity in smaller communities that lack the expertise to apply for it. The second topic I will address is Canada's financial resilience to an earthquake. Every developed country at high risk of earthquake has a public-private partnership in place designed to ensure financial stability and protect consumers in the case of a significant event—every country, that is, except two: Italy and Canada.

(1750) Canada has two high-risk populated regions: southwestern British Columbia and the Quebec City-Montreal corridor. Finance Canada is currently researching solutions as part of the financial sector framework review, and we are in full support of this work. Budgetary language reflecting a commitment to finding a solution within a specific period of time would be welcome. Furthermore, IBC recommends that the federal government foster the appropriate financial regulatory environment that allows insurers and re-insurers to be part of the climate and earthquake risk solution.

This means ensuring that OSFI regulations do not unduly impose insurance capacity constraints, which could negatively impact insurance affordability for Canadians. Finally, we wish to wholeheartedly endorse the recommendations of the expert panel on sustainable finance. Ms. Zvan, as a member of that expert panel, is better positioned to speak to these. However, we would like to underline that the fourth recommendation—for a Canadian centre for climate information and analytics—is foundational, in our view, for promoting resilience.

Referring back to flooding, any investments in flood mapping should be linked to the creation of this centre. The private sector will help to pay for this data; governments do not have to complete flood mapping all on their own. Thank you again, Chair, for the opportunity to present to you today. I'll close by saying that, as climate change could be considered a central theme for the upcoming federal budget, Canada's P and C insurers have a clear message.

If adapting to flood is not an explicit part of a climate plan, that plan is not relevant in terms of the single greatest climate threat facing Canadians and their pocketbooks today.

The Chair :

Thank you very much. Turning to the Macdonald-Laurier Institute, we welcome senior fellow Phil Cross.

Mr. Philip Cross (Senior Fellow, Macdonald-Laurier Institute) :

Thanks for having me back. I'm the former chief economic analyst at Statistics Canada, so the perspective I bring is one of macroeconomics, the broad trends. I believe there have been two dominant trends in Canada's economy over the past decade, neither of which is discussed enough, if at all. We are stuck in a period of persistent slow growth, while at the same time Canada has seen its debt levels soar. The combination of these two makes Canada vulnerable to a downturn in the turbulent global economy. Chronic slow growth can be demonstrated in a number of ways.

The per capita growth of real GDP, or incomes, over the 2010s was 1%, the lowest since the 1930s. Decadal growth does not lie about the long-term trend of growth. It cannot be dismissed as a misfortune from transitory events. Even more remarkably, slow growth in the 2010s was not dampened by even one recession. Instead, it reflects subpar income gains persisting year after year. Another thing to highlight with regard to how weak growth has been is this: After the economy peaked in 2008, growth over the next 11 years was no better than in the 1930s after its peak in 1929.

Rather than the boom-and-bust cycle of the 1930s, we have had persistently slow growth since the 2009 recession, leaving cumulative GDP growth exactly the same as in the decade after 1929. Slow growth is not as spectacular as the 1930s depression, but its long-term effects are just as insidious and corrosive. This is particularly true of the misguided focus on income distribution. The income of average Canadians has stagnated because of slow overall growth, not because the fruits of that growth are growing disproportionately to those of upper income.

Even as income growth has slowed to a crawl, Canada has racked up one of the world's largest debt burdens. According to the Bank for International Settlements, Canada's debt-to-GDP ratio stood at 306 in 2019, up one third from 2008. This compares with an average increase of 13.8% in advanced market economies. The BIS alone among international organizations warned of the perils of excessive debt growth and trade imbalances leading up to the great financial crisis.

Since then, the BIS has repeatedly warned about the negative consequences for long-term growth from relying on monetary and fiscal demand stimulus while ignoring structural reforms that enhance productivity. Most recently, the BIS has explicitly warned about Canada's debt, stating that when it comes to “aggregate credit...vulnerabilities...Canada, China and Hong Kong SAR stand out, with both the credit-to-GDP gap and the [debt service ratio] flashing red.” In assessing credit conditions, it found Canada at risk for all four categories. No other country was found at risk for all four indicators.

Canada's high level of borrowing reflects how all sectors have gorged themselves on debt since interest rates were cut to historically low levels during and after the 2008-09 recession. Each of the three sectors of domestic demand—that is, households, corporations and governments—has raised its debt load to about 100% of GDP. Canadian households led the borrowing binge with household debt rising to 100% of Canada's GDP. This is the highest of any nation outside of Denmark, and nearly twice the G20 average of 60%.

Non-financial corporations in Canada have borrowed the equivalent of 119% of GDP, more than any other major industrial nation. Borrowing by Canada's government stood at 85% of GDP, not far behind the 98% in the European area and 99% in the United States, both of which had to spend liberally to bail out their banks during the great financial crisis. Government borrowing in Canada is more skewed to the provinces, because our federation is the most decentralized and because provinces are especially vulnerable to slumps in key export markets and are unwilling to adjust their spending accordingly.

The combination of weak income growth and high debt levels leaves Canada in a very precarious position if either interest rates rise or global growth slows significantly. The lesson that we should have learned from the 2008 financial crisis in the U.S.—2010 in the EU—is that debt very quickly can become unbearable when the economy slumps. Downturns usually necessitate extensive government intervention, at which point a seemingly benign government fiscal position suddenly becomes acute.

How did Canada's economy become so vulnerable, and why is there so little discussion of the risk of slow income growth and high debt? Much of the problem is that orthodox economic thinking has a stranglehold on macroeconomic policy-making and research in most nations, including Canada. Every temporary slowdown elicits calls for more monetary and fiscal stimulus to demand, with no recognition of the price they exact from potential growth over the long term.

(1755) Worse, the guardians of economic orthodoxy apparently resist self-examination or external criticism, even from leading economists such as Larry Summers, William White and the BIS. While most economists are reluctant to acknowledge a threat from excessive reliance on short-term demand, stimulus and high debt levels, many ordinary people sense the precariousness of the current state of the economy. This is why so many Canadians feel anxious about the state of the middle class and their own finances. While the unemploy