Thank you, Chair. I'll make my comments as brief as possible to allow time for the questions from committee members of course.
First of all, let me applaud you, Chair, and all of the finance committee members for your work over the past several weeks in travelling coast to coast to coast as part of your pre-budget consultations. I know hundreds of people and organizations want to make presentations to you, and the work you're doing is very important to help inform the next budget.
We have introduced online pre-budget consultations as well, as you know, in past years.
I look forward to receiving the report of the committee with respect to your extensive pre-budget consultations.
I have always believed that Canadians should be able to participate more in the federal budget process. In addition to my consultations as Minister of Finance, the prebudget consultations held by the Standing Committee on Finance give Canadians an opportunity to be heard.
What's more, recommendations flowing from your hearings always inform and influence the final budget document. I urge the committee to continue your consultations, as I look forward to reviewing the findings.
Earlier, I asked the Committee to study and quickly pass Bill C-51, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and to implement other measures.
The Economic Recovery Act is an important component of Canada's economic action plan, legislating not only key provisions from Budget 2009 but other important initiatives as well. The Economic Recovery Act is but one part of our government's comprehensive response to the global economic crisis, a crisis that has impacted the world since it began a little over a year ago, a downturn that did not originate in Canada but that, in spite of our relatively strong economic fundamentals, has impacted us nonetheless.
As RBC economist Patricia Croft noted, and I quote:
|| ...this is not a made-in-Canada recession. This started outside of our borders, but because we're a small open economy, we've been caught up in the economic turbulence.... ...I do think there's reasons to be hopeful, and I think there's a great story to tell about Canada in that we may come out of this recession much stronger than our global counterparts.
Our government, like this legislation, is focused on the economy. While we have recently seen tentative and early signs of early economic recovery both domestically and abroad, such signs are simply that--tentative and early. Recent positive economic data from the housing and job markets are undeniably encouraging. BMO economist Douglas Porter has remarked that “...the domestic side of Canada's economy is flaring back faster than anyone could believe possible”.
But that should not lull Canadians into believing we are out of the woods yet. For too many families in too many parts of Canada, unemployment remains all too real.
Even though Canada is in a good position to emerge from the recession relatively stronger than most other developed economies, as the Prime Minister has pointed out, we were drawn into events which occurred beyond our borders during this recession, and we are going to continue feeling the effect of those events, especially the ones that took place in the United States, our biggest trading partner.
The road to recovery will not be clear and straight, but bumpy, with sharp turns along the way, especially if we take our eyes off the road. As the G-20 leaders stated in their communiqué following the most recent G-20 summit in Pittsburgh, “A sense of normalcy should not lead to complacency. The process of recovery and repair remains incomplete.... We cannot rest until the global economy is restored to full health....”
So our job is not done, neither here nor abroad. We must stay on track. We must work to assure a strong and sustained recovery domestically; we must support the international recovery efforts; we must continue to implement Canada's economic action plan.
That is precisely what we are doing with the Economic Recovery Act.
Through this act, we are cutting taxes for individuals and businesses to grow the economy by implementing the first-time homebuyers' tax credit, by making the working income tax benefit more generous for modest and low-income Canadians, by extending tax deferrals to assist Canadian farmers in dealing with extreme weather conditions, by relaxing tariffs on temporarily imported shipping containers, and by implementing the job-creating home renovation tax credit.
Before continuing, I should point out the blatantly obvious. The HRTC has proven very successful. In raw numbers, even as the overall economy contracted, the volume of home renovation investment increased 2.2% in the second quarter of 2009, 9% on an annual basis. Indeed, a survey conducted for RBC Royal Bank and released last week revealed that almost half of Canadians renovating have done even more renovations than planned because of the home renovation tax credit.
As Bernice Dunsby, the RBC senior manager of home equity financing, noted, and I quote, “Did the HRTC accelerate Canadians' decisions to undertake renovations? I definitely think it did, especially those who may have been sitting on the fence.”
On a more anecdotal basis, it has become among the clearest signs to everyday Canadians that the economic action plan is directly impacting and benefiting their local economies. In the words of an Ottawa Citizen editorial, the HRTC has “...turned out to be effective and smart.... Even the quietest streets roar with hammers and saws. The result is brand new decks, roofs, driveways, and brickwork.... This is keeping construction workers employed who, in turn, spend money that keeps others employed. Home centres and hardware stores are humming.” This was exactly the right thing to do.
We are also strengthening the Canada Pension Plan in order to give Canadians greater flexibility in the way they live, work and enjoy retirement.
Included in these important reforms is the removal of a requirement for individuals to stop working or reduce earnings for two months in order to take up CPP. The reforms also allow more low-earning years to be excluded from the pension calculation.
I note, of course, that the CPP is a jointly managed federal-provincial plan, and neither level of government can unilaterally alter it. The reforms laid out in this legislation were unanimously agreed to and made public by federal, provincial, and territorial governments this past May as part of the mandated triennial review of the plan.
We are fostering global cooperation by giving low-income countries a stronger voice in the International Monetary Fund, and we are increasing Canada's commitment to debt reduction.
We are both improving government transparency and delivering on a 2008 election platform commitment through a new requirement for all federal departments and crown corporations to prepare and publish quarterly financial reports. We are, after decades of neglect under previous federal governments, finally ending the decades-long crown share saga to benefit the people of Nova Scotia.
In the words of the newly elected NDP premier of Nova Scotia, Darrell Dexter, and I quote, “Nova Scotia is seeing progress on the Crown share file.... I congratulate the federal government for moving forward to seal the deal. This is good for Nova Scotia, and good for Canada.”
We are supporting public broadcasting by increasing the borrowing power of the CBC/Radio-Canada in order to ensure the corporation's survival. These are only some of the main elements of the Economic Recovery Act.
I firmly believe that this important bill deserves the committee's support.
I am confident that through this legislation and the larger economic action plan, our government is helping provide the stability needed to ensure Canada maintains and builds on its current economic strengths as this global recession transforms into a global recovery. As the IMF and other economists have consistently declared, Canada is better positioned than most countries to weather the economic crisis. Indeed, we are forecast to have the strongest recovery in all the G-7 for 2010.
While we should take some comfort in such forecasts, we cannot use them to invite complacent self-satisfaction or inaction. Economic forecasts, as we all know, are just that: they are forecasts, although educated ones. They carry no guarantees or certainty. We cannot rely on forecasts of future prosperity alone to bring us that prosperity.
Inaction is not an option, and little political games are an insult to the people who elected us to represent them. The right thing to do for Canadians, in fact the only thing to do, is to move forward.
Move forward with Canada's economic action plan, forward with this legislation, and forward with the recovery. Only this will help build a stronger future for all Canadians.
The stakes are too high and the recovery too fragile to act otherwise. On that note, I am prepared to answer the committee's question.
Thank you, Mr. Chairman.
Well, certainly the feedback with respect to the previous pension changes from the triennial review of the Canada Pension Plan changes has been positive. People want to have more flexibility with respect to when they retire and have access to Canada Pension Plan benefits. That's a consistent theme.
In the changes we announced today, we are enhancing protection for plan members, we are reducing funding volatility for defined benefit plans, we are making it easier for participants to negotiate changes to their pension arrangements, we are improving the framework for defined contribution plans and for negotiated contribution plans, and we are modernizing the rule for investments made by pension plans.
Let me give you one example of why this matters. The solvency workout procedures that we're putting forward today, for example, deal with a situation we had to deal with in practice with Air Canada earlier this year. I think there were five unions, and Air Canada was in a position such that it probably would not have been able to continue to function if the pension issues were not resolved. In an ad hoc way, I asked former Justice Farley of the Superior Court of Ontario, who had dealt with the Air Canada bankruptcy previously, to act as a mediator, and he did, with the five unions and the management of Air Canada. They were able to work out, along with representatives of the pensioners of Air Canada, a solvency arrangement so that Air Canada would have more time to top up the pension plan. That was successful; the airline has continued to operate.
We're going to institutionalize that process—or that's the plan—in the new proposed changes, so that we hopefully will see the process followed when pension plans get into some difficulty and so that we don't have operating companies that could continue to operate were it not for the challenge they have in topping up their pension plans.
At the same time, this ought not to be done without the consent of the representatives of the workers, whether they're unionized or non-unionized, and the pensioners as well. We have that process built into the new proposals.
First of all, one has to look at what the debt comprises. A little more than half of the deficit this year relates to the economic action plan: infrastructure spending, increased EI availability. The infrastructure spending, as planned, will end at the two-year mark. So we run substantial deficits, relatively speaking, this fiscal year and next fiscal year, but we have built in the exit strategy; that is that this spending ends as of early 2011.
That's the first, important part of the exit strategy. We anticipate, of course, some economic growth. I'd be the first to acknowledge that the economists are all over the map in what they're predicting over the next year or two. Since we started looking at the private sector economists in the Department of Finance, in 1992 or so, we have never, I'm told, seen such a range of opinion. There is no consensus among the private sector economists, which is why we've said we should be able to balance, and intend to balance, the budget in the medium term.
We will have the stimulus spending ending; that's the beginning of the exit strategy. And then, to respond to your question, if we look at the major parts of federal government spending, we have the transfers to the provinces. We're not going to reduce them; they're for health, education, and social services, as you know. It was a tragedy, quite frankly, when the previous Liberal government did that in the 1980s, a tragedy for the people of Canada in terms of health care and education. I know that, because I was on the other end of it as a provincial minister when it was happening in the 1990s.
So there's that. Then there are the transfers to persons. We don't want to reduce those, because they are helping the elderly and children. They're important social programs in the country.
Then we would have about $100 billion of spending on programs. That's a lot of spending. There are about 2,500 programs. That spending has been growing at about 3.3% per annum, and it might, if we did not have adequate economic growth, be necessary to restrain the rate of growth of that spending in the medium term. But we'll have to wait and see what the actual economic growth is. It may not be necessary to do that. If the economic growth and the resulting tax revenues are sufficient, it would not be necessary to do it.
Thank you, Mr. Chairman.
Thank you, Mr. Minister, for coming before committee. It's always fun to have you here.
Let me make a technical comment on the working income tax benefit. Usually the tax forms are not ready before February, and we don't start receiving our T slips before February, so it's going to be tough for us to ask for the working income tax benefit in the month of January. But I understand where you're going with that. I agree with you: the faster we can pass this type of legislation, the better it will be.
My question is more geared towards the home renovation tax credit. You seem to be pretty confident that the home renovation tax credit is going to work and that people are jumping at the door. But when we ask for precise numbers, you're not able to give them to us because, you said, nobody has filed a tax return claiming the home renovation tax credit.
So you can predict that the home renovation tax credit is working, but you can't predict what your deficit is going to be—you've changed it three or four times in the last 12 months.
So what are we supposed to believe, that people are going to be able to use the home renovation tax credit according to the estimates you've given us? You haven't given us any. All you have said is that it's going to make a big change in the economic recovery. When we asked Mark Carney, the Bank of Canada governor, he said that the renovation market, the housing market, is a very small component of any economic recovery that this country is going to see.
Could you comment on that?
Sure, I can respond to that.
There were some questions posed earlier I think when the minister was here as well, and they may have referred to the measure as a tax credit, which was not completely accurate. This particular measure relates obviously to farmers. It talks about situations in which a farmer is required to dispose of their breeding herd because of drought conditions in the past and, with the new measure, the excess moisture or flood conditions.
Many farmers operate using the cash method of accounting, which means they will deduct the cost of purchasing their inventory, including animals, and when they sell the animals they will include the whole proceeds in income. This differs from many other types of businesses that use accrual accounting, such that you would not deduct the cost of acquiring your income, and hence when you sold the property the cost of the property that you sold would be excluded from your income. It's the profit element that you would take into account. Using the cash method, it's different. When you buy the inventory the whole thing is a deduction; when you sell the property the whole thing is an income inclusion.
For those farmers who have to sell breeding cattle, part of their breeding herd, because of drought, or now because of excess moisture and flood conditions, they're selling at a time when even though they may not be making a profit on the sale because it's being made at a time when the market is distressed because of the drought or the flood conditions, they will have to include the whole proceeds of disposition into income.
The next year, if they are going to want to replenish their herd, they won't have the money because they will have paid the tax in the previous year. What this measure does is allow farmers to withhold or defer a portion of the tax on the sale of the breeding herd to the next year. At such time they will have the deduction from buying the new replacement cattle, and as such they continue going and they don't have a cashflow problem.
The tax law provides that for dispositions of breeding herds between zero and 15%, there's no deferral; between 15% and 30%, there's a deferral of 30% of the proceeds; and for dispositions of more than 30% of your breeding herd, there's a 90% deferral until the next year. If the next year also happens to be a drought or flood year, then it shifts to the year following, etc.