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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Wednesday, April 9, 2003

1540

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. Bryon Wilfert (Parliamentary Secretary to the Minister of Finance)

1545

1550

1555

The Chair

Mr. Richard Harris (Prince George—Bulkley Valley, Canadian Alliance)

Mr. Bryon Wilfert

1600

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Gérard Lalonde (Senior Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance)

Mr. Richard Harris

1605

Mr. Bryon Wilfert

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Richard Harris

Mr. Bryon Wilfert

1610

The Chair

Mr. Richard Harris

The Chair

Mr. Richard Harris

The Chair

Mr. Richard Harris

The Chair

Mr. Bryon Wilfert

The Chair

Mr. Pierre Paquette (Joliette, BQ)

Mr. Bryon Wilfert

1615

Mr. Pierre Paquette

Mr. Bryon Wilfert

Mr. Pierre Paquette

Mr. Bryon Wilfert

Mr. Pierre Paquette

Mr. Bryon Wilfert

1620

Mr. Pierre Paquette

The Chair

Mr. Pierre Paquette

The Chair

Mr. Bryon Wilfert

Mr. Pierre Paquette

Mr. Bryon Wilfert

Ms. Marlene Legare (Senior Chief, Sales Tax Division, Tax Policy Branch, Department of Finance)

Mr. Pierre Paquette

Ms. Marlene Legare

1625

Mr. Pierre Paquette

Ms. Marlene Legare

Mr. Pierre Paquette

Ms. Marlene Legare

Mr. Pierre Paquette

The Chair

Mr. Bryon Wilfert

The Chair

Hon. Charles Caccia (Davenport, Lib.)

The Chair

1630

Mr. Bryon Wilfert

Mr. Gérard Lalonde

Mr. Charles Caccia

Mr. Gérard Lalonde

Mr. Bryon Wilfert

The Chair

Mr. Charles Caccia

Mr. Gérard Lalonde

1635

The Chair

Mr. Charles Caccia

Mr. Bryon Wilfert

The Chair

Ms. Sophia Leung (Vancouver Kingsway, Lib.)

Mr. Bryon Wilfert

Ms. Sophia Leung

1640

Mr. Bryon Wilfert

Ms. Sophia Leung

Mr. Bryon Wilfert

The Chair

Mr. Richard Harris

1645

Mr. Bryon Wilfert

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Richard Harris

1650

Mr. Bryon Wilfert

Mr. Richard Harris

The Chair

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Richard Harris

Mr. Pierre Paquette

Mr. Bryon Wilfert

Ms. Pauline Picard (Drummond, BQ)

The Chair

Mr. Richard Harris

Mr. Bryon Wilfert

The Chair

Ms. Pauline Picard

Mr. Pierre Paquette

The Chair

Ms. Pauline Picard

Mr. Bryon Wilfert

1655

Ms. Pauline Picard

Mr. Bryon Wilfert

The Chair

Ms. Julie Mah (Chief, Strategic Planning, Department of Human Resources Development)

Ms. Pauline Picard

Ms. Julie Mah

Ms. Pauline Picard

Mr. Pierre Paquette

Mr. Geoff Truman (Senior Tax Policy Officer, Sales Tax Division, Tax Policy Branch, Department of Finance)

1700

Ms. Pauline Picard

Mr. Bryon Wilfert

The Chair

Mr. Bryon Wilfert

The Chair

Ms. Pauline Picard

Mr. Bryon Wilfert

Ms. Pauline Picard

The Chair

Ms. Pauline Picard

Mr. Bryon Wilfert

The Chair

Ms. Sophia Leung

Mr. Bryon Wilfert

The Chair

Ms. Sophia Leung

Mr. Bryon Wilfert

Ms. Sophia Leung

Mr. Bryon Wilfert

The Chair

Mr. Bryon Wilfert

Ms. Sophia Leung

Mr. Bryon Wilfert

1710

Ms. Sophia Leung

Mr. Bryon Wilfert

The Chair

Mr. Charles Caccia

The Chair

Mr. Bryon Wilfert

The Chair

Mr. Richard Harris

Mr. Bryon Wilfert

Mr. Richard Harris

The Chair

Mr. Bryon Wilfert

The Chair

Mr. Pierre Paquette

Mr. Bryon Wilfert

1715

Mr. Pierre Paquette

Mr. Bryon Wilfert

The Chair

Ms. Pauline Picard

Mr. Bryon Wilfert

The Chair

Mr. Bryon Wilfert

The Chair

Ms. Annie Carrier (Chief, first Nations Taxation Section, Tax Policy Branch)

The Chair

1720

Mr. Bryon Wilfert

The Chair

CANADA

Standing Committee on Finance

NUMBER 051

2nd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, April 9, 2003

[Recorded by Electronic Apparatus]

¹ (1540)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Welcome, everyone.

The order of the day is Bill C-28, an act to implement certain provisions of the budget tabled in Parliament on February 18, 2003.

Mr. Bryon Wilfert, parliamentary secretary to the Minister of Finance, will be making a presentation and he will have with him a number of senior departmental officials; we welcome them at the table right now, Peter DeVries and Isabelle Brault. As Mr. Wilfert answers members' questions, we'll be calling other officials to the table.

The floor is yours, Mr. Wilfert. I understand some of our other colleagues are in other committees doing some clause-by-clause right now and will be joining us a little later. Please commence.

Mr. Bryon Wilfert (Parliamentary Secretary to the Minister of Finance): Thank you very much, Madam Chairman. I appreciate the opportunity to appear before your committee today to discuss Bill C-28, which implements key elements of the 2003 budget.

The measures in this budget reflect the ideas, advice, and concerns of Canadians in consultation across the country. They told us that a budget must be more than a tallying of accounts; it must reflect the sum of our values as well. Budget 2003 responds to that challenge with concrete, comprehensive action in three arenas of national life.

First, the budget takes steps to build the society Canadians value by making investments in individual Canadians, their families, and their communities. Second, the budget takes steps to build the economy Canadians need by promoting productivity and innovation while staying fiscally prudent. Third, the budget takes steps to build the accountability Canadians deserve by making government spending more transparent and accountable. Because of our continuing commitment to sound fiscal management, the government is able to meet these challenges and pursue significant new investments without risking a return to deficits.

In terms of the society Canadians value and the strengthening of health care, Madam Chairman, the budget makes significant investments to address the concerns of Canadians about their health care system. It confirms $34.8 billion in increased funding needed over five years to meet the goals outlined in the 2003 accord on health care renewal reached in February by the Prime Minister and first ministers. The accord will improve access to the health care system, enhance accountability of how health dollars are spent, and ensure that the system is sustainable for future generations.

Budget 2003 sets out funding in support of the accord. It further increases federal support for health care to the provinces and territories through the Canada health and social transfer, the CHST, by $1.8 billion, and extends funding for an additional two years. As a result, total yearly cash transfers to provinces will rise to $21.6 billion in 2006-2007 and $22.2 billion in 2007-2008. That's over $22 billion for that one year.

In addition, the budget provides an immediate $2.5 billion supplement to the CHST to help relieve existing pressures in the health care system. Provinces and territories will be able to draw down their allocated funds as they require up to the end of 2005-2006.

Along with further financing, the sustained renewal of Canada's health care system needs positive structural change. That is why the first ministers also agreed to restructure the CHST into two separate and distinct transfers, effective April 1, 2004. The Canada health transfer will enhance transparency and accountability and ensure predictability for health transfers, while the Canada social transfer will continue federal support for post-secondary education, social assistance, and social services, including early childhood development and early learning and child care services.

At the same time, first ministers strengthened the equalization program by agreeing to permanently remove the ceiling on equalization payments, beginning in 2002-2003.

All these measures will provide a predictable, sustainable, and growing long-term funding and planning framework for transfers to the provinces and territories in support of health care and other social programs.

In terms of health reform, at the same time, Bill C-28 implements other investments agreed to in the health accord. First, a five-year, $16 billion health reform transfer targeted to primary health care, home care, and catastrophic drug coverage will help provinces and territories accelerate reform in these areas.

Next, in addition, $1.5 billion over the next three years for the acquisition of diagnostic equipment and related specialized staff training will help to improve access to publicly funded diagnostic services. This funding builds on the $1 billion provided in the 2000 budget for the medical equipment fund.

Another measure ensures that Canada Health Infoway will receive $600 million to accelerate the development of electronic health records, common information technology standards across the country, and tele-health applications. This funding is on top of the $500 million provided in the September 2000 budget.

¹ (1545)

Considering, Madame Chairman, I threw my back out on the weekend, I may need some of this sooner than later. If I'm shifting around here, you'll understand why.

As well, in the area of health research the budget allocates $500 million to the Canada Foundation for Innovation to enhance its support for state-of-the-art health research facilities and allocates $75 million to Genome Canada for applied health genomics.

The budget also provides significant funding for a range of other initiatives fundamentally linked to health reform. For example, $205 million over five years is being set aside for governance and accountability initiatives, including funding for the Canadian Institute for Health Information to enable better public reporting on the health system and the health of Canadians.

Funding will also be provided to support the establishment of a new Canadian Patient Safety Institute as well as to improve the timeliness of Health Canada's regulatory process with respect to human drugs to assist in the pursuit of a national immunization strategy and to better assess the use of diagnostic and treatment technologies.

All of these investments--support for transfers to the provinces and support for research as well as spending on direct federal responsibilities--will go to improve access and the quality of health care for Canadians.

Working through Bill C-28, Budget 2003 also strengthens the government's long-standing commitment to Canadian children and families in several key areas to help ease the economic problems facing families who must deal with grave illnesses. Starting January 4, 2004, eligible workers will be entitled to a six-week paid compassionate care benefit under the employment insurance program to provide care or support to a gravely ill or dying parent, spouse, or child. To enhance its flexibility, the benefit can be shared among eligible family members.

Another measure increases annual assistance for children in low-income families through the Canada child tax benefit to over $10 billion annually by 2007 with annual benefits increasing to a maximum of $3,243 or up to $3,495 for a child under seven years of age.

The budget commits to transfer to provinces and territories an additional $900 million over five years for investments in early learning and child care as recently agreed by the social services ministers.

There's also significant new support for those facing the challenges of disability. This includes both a new, indexed $1,600 child disability benefit. Effective this July, we'll provide additional assistance of up to $1,600 annually to low- and modest-income families with a disabled child and $80 million per year to improve tax assistance for persons with disabilities, drawing on a forthcoming evaluation of the existing disability tax credit and the advice of a technical advisory committee.

The budget also builds on existing tax measures that provide support to persons with disabilities. For example, more infirm children will be able to receive a tax-deferred rollover on the proceeds of a deceased parent's or grandparent's registered retirement savings plan, RRSP, or registered retirement income fund, the RRIF.

As well, the budget extends the list of expenses eligible for the medical expense tax credit to include real-time captioning and note-taking services, voice recognition software, and the incremental cost to individuals with celiac disease acquiring gluten-free food products.

Madame Chairman, our ability to make major long-term investments in boosting the quality of Canadian life without jeopardizing our fiscal balance rests on a healthy, growing economy. But better economic performance tomorrow requires a more productive, innovative, and sustainable economy today. Again, Budget 2003 responds. It recognizes that improved skills and learning are vital to improve productivity and competitiveness and create a better life for all Canadians.

To help give Canadians the opportunity to gain new skills, the budget commits $60 million over two years to strengthen the Canada student loans program, to put more money into the hands of students and better enable post-secondary graduates to manage their debt.

¹ (1550)

In addition, the budget includes measures to improve access to interest relief for graduates who are in default on their Canada student loans or have declared bankruptcy, and to extend eligibility for student loan assistance to protected persons, including convention refugees.

The 2003 budget also builds on the government's five-year tax reduction plan to further improve the tax system through incentives to save and invest to help small and medium-sized businesses and to boost Canadian competitiveness.

For example, the budget increases the RRSP and registered pension plan limits to $18,000 over four years and indexes these new limits. It extends the 12% federal small-business tax rate to active business incomes between $200,000 and $300,000 over the next four years. It eliminates the $2 million limit on the amount of small-business investment eligible for the capital gains rollover. It improves the tax treatment for automobile benefits for employees and auto expenses for employers, and totally eliminates the federal capital tax over the next five years.

As you can see, the scope of our budget plan is dramatic, yet I have covered only a portion of the measures in Bill C-28.

Two of the remaining measures provide for increases in federal taxes on tobacco products effective June 18, 2002, and for voluntary arrangements with interested first nations to levy a broadly based sales tax consistent with the GST.

Furthermore, the bill proposes three clarifying amendments to the Excise Tax Act to ensure the long-standing and well-understood policy intention underlying the legislation in the affected areas is respected.

As well, we are taking action in such vital areas of public concern as climate change, the environment, and agriculture. In addition this bill makes a clear investment in our cities and signals an ever-growing commitment to our urban communities.

This commitment of the federal government is something municipal leaders have indicated they wanted in order to better plan their capital project needs.

Some of the key investments include an additional $3 billion over the next 10 years to the infrastructure program, which brings the total to $8.25 billion when you add the $5.2 billion of the previous two budgets.

I might say, Madam Chairman, that money will be leveraged with the provinces, the territories, and urban communities, and as a former president of the Federation of Canadian Municipalities, I can tell you this is one thing the FCM has been asking for for many years--a long-term plan--and this government has delivered.

Let us not forget the commitment to the affordable housing initiative with an additional $320 million over five years through existing housing agreements with the provinces and territories. This is in addition to the previous $600 million announced in 2001, which will lead to 40,000 new units across the country and a total federal investment of $1 billion by 2007-08.

The residential rehabilitation assistance program and other related programs have been extended by three years with an investment of $128 million per year, which will help preserve the stock of existing affordable housing.

Furthermore, in order to address the homeless issue, this bill provides $135 million per year for three years to extend the supporting communities partnership initiative, the SCPI, which has provided shelter for 90,000 people, support-facility services for 250,000, and access to support services for 117,000 people.

Let me end on the subject of cities by saying we will benefit from the support on climate change, with $2 billion over five years to support environmental technology and partnerships in areas such as sustainable transportation.

Along with the new investments to build the society Canadians value and the economy we need, Canadians made it clear that these investments must be backed by an enhanced accountability to Parliament and the public.

Following up on the government's commitment to review the air travellers' security charge to ensure that revenue remains in line with the cost of enhanced air travel security systems, the budget reduces the charge to $7 from $12 each way for domestic flights.

Accountability is also the anchor of the new health accord. The accord sets out an improved accountability framework that includes a commitment by all governments to report regularly to Canadians.

¹ (1555)

In addition, foundations will become more accountable to Canadians and parliamentarians, with the exception of the Canada Foundation for Innovation, the Canada Millennium Scholarship Foundation, and the Canada Foundation for Sustainable Development Technology, which were established by federal statute. These changes can be made under the existing funding agreements.

Bill C-28 ensures that should these three foundations ever wind up, the responsible minister will have the authority to recover and return any unspent money to the government. At present, unspent funds will be distributed among the eligible recipients who receive the grants.

The budget also announced the launch of consultations on a permanent EI rate-setting regime for 2005 and beyond to provide employers and employees with certainty about contribution rates until that time. Bill C-28 will set the employee premium rate for 2004 at $1.98. Based on the private sector economic forecast in the budget, it is estimated that this rate would generate premium revenues equal to project program costs for 2004.

And finally, the budget terminates the debt servicing and reduction account, the DSRA, which was established to pay interest on the public debt and ultimately to reduce the debt. There's no longer any need for this account since the DSRA revenues must be ultimately deposited into the consolidated revenue fund.

Madam Chairman, this concludes my overview of the measures in Bill C-28. Clearly, the 2003 budget delivers a dramatic range of action while maintaining the government's commitment to prudent fiscal planning for balanced budgets.

Officials of the Department of Finance and Human Resources Development Canada have joined me here today, and we would welcome your questions.

Thank you very much.

The Chair: Thank you very much.

And I'll commence with Mr. Harris, for up to ten minutes.

Mr. Richard Harris (Prince George—Bulkley Valley, Canadian Alliance): Thank you, Madam Chair.

Mr. Wilfert, thank you for your presentation.

I want to go to the disability tax credit part of Bill C-28, which causes me a lot of concern. Let's say we're talking about a person who's developmentally disabled with mental challenges. In this bill and in your definition, as I read it, as long as that person is able to eat on their own and dress themselves on their own in a satisfactory manner, even though they would be totally incapable of knowing the value of money, of being able to shop for food or clothing in any normal way, that person would be exempt from the disability tax credit because they could feed and dress themselves. This is notwithstanding the fact that they don't have the wherewithal to buy food or proper clothing or to recognize the value of money in any way that would allow them do that.

Am I correct in how I interpret this?

Mr. Bryon Wilfert: First of all, Mr. Harris, let me indicate to you that it is the intention of the government not to limit but to enhance the disability tax credit. I've outlined a number of areas, including children with disabilities. I would point out to you that we have programs in excess of close to $4 billion. In terms of the disability tax credit per se, I indicated we're adding another $80 million.

The specific example you gave is rather a long example, I might say.

º (1600)

Mr. Richard Harris: Well, it's a simple example, though, because there are many people with mental challenges who are in fact able to feed and dress themselves as long as the food and the clothing are provided for them. Their motor skills are fine. The way I understand this change is that if they are able to feed and clothe themselves, they're going to be ineligible for a disability tax credit, notwithstanding the fact that they can't go out and buy the clothes.

So it appears to me that you are excluding a very critical part of their life that they're not able to do, and that you would now disqualify their eligibility for the disability tax credit.

Mr. Bryon Wilfert: I'll respond and then I'll ask Mr. Lalonde to add to that.

These amendments ensure that individuals who currently are eligible for the DTC because they have difficulty preparing their own meals for reasons other than dietary ones will continue to receive and will be eligible for the DTC. If individuals will not be able to, solely because of the amount of time they spend for food or shopping, that would be a different case, but this bill could clearly--

Mr. Richard Harris: Let me interrupt you. Let me save you some time.

I spent a lot of time in the last 15 years working with a group called Special Olympics, and in that group are many individuals who have no problems feeding and dressing themselves, because their motor skills are just fine. They currently qualify for the disability tax credit. They are unable to go out to buy the proper clothing and proper food because they don't understand the concept of money. Because they can feed and clothe themselves, that would exempt them, because they would not being considered having a disability, as I understand Bill C-28.

Mr. Bryon Wilfert: As I indicated, it's not going to in fact do that, but I'll have Mr. Lalonde comment.

Mr. Gérard Lalonde (Senior Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance): There was something of a fundamental misunderstanding of what the measure in the bill does. Currently, the disability tax credit is available to people who are blind or are otherwise markedly restricted in their ability to perform a basic activity of daily living.

Currently, the act defines a basic activity of daily living as perceiving, thinking, and remembering, feeding and dressing oneself, speaking, hearing, elimination, and walking. Each one of those headings is separate. The amendments in the bill deal only with feeding and dressing oneself. So if someone is eligible for the disability tax credit because they are markedly restricted in perceiving, for example, or thinking and remembering, which seems to be the example you are bringing to our attention, that would be the heading under which they have historically looked to entitlement to the disability tax credit, and under which they would continue. The amendments dealing with feeding and dressing oneself would have nothing to do with the example that you've posed.

Mr. Richard Harris: Thank you for your answer. We'll see. That's all I can say.

Let's move on, if I may, to the tobacco tax, which I agree with, surprisingly, but I do have some concerns about the smuggling problem that we experienced prior to the government lowering the tax in order to try to stop smuggling. Now it's going back on, which is fine. What does the government anticipate insofar as a resurgence of cigarette smuggling? And in the areas where the government in Canada was reluctant to send police forces, is the government prepared to launch a full policing offensive if smuggling begins to increase again as a result of these increased taxes?

º (1605)

Mr. Bryon Wilfert: The government, first of all, is acting in concert--as you know, Mr. Harris--with the provinces. We've also been in touch with, and are working with, law enforcement agencies, including the RCMP, and certainly we have looked at the implications of increasing the tax rate. It is continually monitored, and to my understanding at the present time that is continuing. I certainly am familiar with many of the cases along the St. Lawrence, particularly Cornwall and other areas. This obviously was done in consultation, particularly to look at the effect it may have on smuggling, and the law enforcement agencies seem quite satisfied. We are doing it, again, in concert with our provincial governments.

Mr. Richard Harris: Could you advise us what the current surplus of the EI account is and why the government appears to be content, notwithstanding the slight decrease, to continue overcharging Canadians for employment insurance?

Mr. Bryon Wilfert: Apparently, since the Auditor General in 1986 said we could not maintain a separate fund, it is in consolidated revenue. It's about $40 billion. As you know, since the government came into office in 1993, the rates have continued to go down, and they've gone down in this budget, as I've announced in my comments today.

The minister has initiated a review with all key stakeholders. They will report back sometime in June. I think the minister is very clear on his position as to where he'd like to see the EI account go, and clearly it's the intent of the government to make sure that occurs. But we are dealing with all the stakeholders, because we think that's very important. It's an issue that we've recognized, and the consultations. I know, Mr. Harris, you will be very anxious to be part of that and to assist us in that regard.

Mr. Richard Harris: Would you just refresh us as to where the minister would like to see the EI fund go?

Mr. Bryon Wilfert: The minister obviously wants to make sure there is enough money in that account for those who need it. Beyond that, it has to be a sustainable fund but clearly a fund that is there for Canadians when they need it, but not in dollars that would be beyond what in fact the actuary and others have indicated would be required.

Mr. Richard Harris: In the past, the Auditor General has indicated that at around $1.80, the fund could be sustainable and at the same time provide for a rainy-day emergency. On more than one occasion the Auditor General has indicated that, yet the government is only lowering it to $1.98, which is 18¢ more than what the Auditor General has said would be enough to sustain the fund and also provide a rainy-day fund.

Obviously the government is going to continue using it as a cash cow...unless they have some numbers that the Auditor General doesn't have.

Mr. Bryon Wilfert: Mr. Harris, first of all, I'm sure you want to congratulate us on the fact that this is the tenth year in a row that it is going down, which I think is a major statement in itself. The fact is, this reduction will represent the tenth consecutive reduction, as I say, and resulting savings to employees and employers of $9.7 billion in 2004. Remember, the rate was $3.04 when the government came to power ten years ago.

The fact is, as I said earlier, this rate was set in conjunction with private economic forecasts. I would point out to you that in terms of where the minister would like to see this go, he has indicated very clearly that premium rates should be set transparently. The premium rates should be set on the basis of independent advice. Expected premium revenues should correspond to expected program costs, which I think will hopefully answer that question again. Premium rate-setting should mitigate the impact on the business cycle, and premium rates should be relatively stable over time.

I'm sure that's something you would support. We certainly believe it's important, and I would hope that we'll all work together on that in order to deal with it.

Those submissions will be to the government by the end of June of this year.

º (1610)

The Chair: Thank you very much.

Mr. Richard Harris: May I ask one more little question?

The Chair: Okay, go ahead. I'm just going to add some time--

Mr. Richard Harris: Because I was here first, right?

The Chair: Okay. I'll add some extra time for Mr. Paquette.

Mr. Richard Harris: Notwithstanding where the EI fund was in 1993, and notwithstanding the ten years of cuts, which I'm sure is appreciated, the government still managed to build up a $40-billion surplus, which is far in excess of what the Auditor General said was required.

So it's one thing to give genuine tax cuts to Canadians, but it's quite another thing to be overcharging them in the first place and then giving them only a portion of that back and expecting them to be happy about it.

The fact is, the government is still overcharging Canadians, even after your latest cut, by 18¢ on EI premiums, because the Auditor General has said $1.80 would be very sufficient to carry the rainy-day fund and the sustainability of the fund. So pretending to be Mr. Nice Guys after ten years of cuts is one thing, but still overcharging them is another. Canadian workers need a break.

The Chair: I think we'll go to round two for the answer on that, and we'll start with Mr. Paquette.

Mr. Bryon Wilfert: Madam Chairman, if he wants an answer, I don't have to pretend to be a nice guy; I already am. But I want you to know that the structural changes the minister wants to see are why we have launched this consultation.

The Chair: Thank you.

Mr. Paquette, go ahead, sir.

[Translation]

Mr. Pierre Paquette (Joliette, BQ): Thank you, Madam Chair.

I would like to continue in the same vein with respect to the issue of employment insurance. The parliamentary secretary has told us that the rate should generate contributions that will be equivalent to the estimated costs of the program in 2004. This is the first time that I have seen this. This is something new.

I am prepared to bet the parliamentary secretary a good bottle of Quebec wine against a good bottle of Canadian wine that that will not happen, because Minister Manley, in his October statement, estimated, and this is bearing in mind the drop in the rate from $2.10 to $2 that he announced, a surplus of $4 billion in the employment insurance fund, namely $17 billion in revenues and $13 billion in benefits.

So now we are being told that the rate will drop by 2¢, from $2 to $1.98—the budget did not call for a very large reduction—and that would apparently result in a loss of $4 billion from the employment insurance fund. We're being taken for idiots.

At best, I am exaggerating. Let's say that the 2¢ reduction results in an incredible loss of revenue, plus the so-called humanitarian measures, let's say a billion dollars; we are still forecasting a surplus of $3 billion in the employment insurance fund this year.

So I do not know where you are finding your figures, but this just doesn't make sense at all, even in relation to what Mr. Manley told us last October. But I will move on to something else.

I would like the parliamentary secretary to tell us if, right now, given that the fiscal year is ending at the end of the month, he is able to tell us how much the surplus will be before the measures announced in the budget. Once again, you will remember that when the minister made his economic statement last October, he told us that there would be a surplus, including the contingency fund, of $4 billion. Prior to the measures announced in the budget, I would like to know, in your opinion, what this surplus will be for the fiscal year 2002-2003.

[English]

Mr. Bryon Wilfert: Thank you, Mr. Paquette.

First of all, I bet you a bottle of good Ontario wine, Canadian wine, and a good bottle of Canadian wine from Quebec that we will be right.

However, I would point out that you are wrong, with all due respect, in that it is not a 2¢ reduction. The minister forecast very clearly in October--and I know you remember that, because you were there--in Halifax that we were looking at least at a 10¢ reduction, based on private forecasts. We exceeded that, so we are now at a 12¢ reduction. We have bettered the 10¢, so it's not a 2¢ reduction. There was a forecast of 10¢ and it's actually 12¢.

In terms of where we will be by the time the budget is implemented, that will depend on this committee and on Parliament getting this bill out of committee to Parliament as quickly as we can.

I suggest that the forecast of $4 billion the minister indicated is reasonable, but I wouldn't want to bet any wine on it at the moment, given the fact it will depend on where we are by the time this bill is adopted by the House.

º (1615)

[Translation]

Mr. Pierre Paquette: As regards the surplus, are you able to assess more or less what it will be before the measures announced in the budget, for example, the $2.5 billion that Mr. Chrétien has earmarked for health?

[English]

Mr. Bryon Wilfert: If we don't announce any measures between now and then it will be about $6.4 billion, but again that will depend on the timing. This is not an exact science at this point.

[Translation]

Mr. Pierre Paquette: I bet you're wrong once again, that there will probably be a surplus of approximately $10 billion or $11 billion. It seems to me that this tendency to camouflage the figures is one of the big problems, right now, with the credibility of the exercise, and this applies to both the former Minister of Finance and the current one.

I find it unacceptable that we are not given the real figures. I am convinced that, with the surpluses that will be announced over the next few months, we would have been capable of meeting the needs spelled out by the Romanow Commission, which suggested that $15 billion be spent over three years and not $16 billion over five years, as the government says it did. We must remember that the provinces were asking for about $18 billion for this period. So, as far as this matter is concerned, it is unfortunate that we do not have the necessary transparency.

I will now move on to another question, the issue of municipal infrastructures. An announcement was made that one billion dollars would be spent over 10 years. This represents about $100 million per year; let's say that, for Quebec, that means $25 million per year. What type of municipal infrastructure do you think that we will be able to renovate or build with $25 million per year for all of Quebec?

[English]

Mr. Bryon Wilfert: Before I answer the second part, let me respond to the first part.

The fact is it's always important, if we're erring, to do it with more money coming in rather than less, which was the situation prior to 1993. I'd point out to the member that the Canadian economy is creating more jobs, more people are working, therefore more money is coming in. It's always a good sign, and over 550,000 new jobs last year is not a bad record.

As far as municipal infrastructure is concerned, I would point out to Mr. Paquette that it was this government in 1994 that adopted the Federation of Canadian Municipalities' national infrastructure program. We signed Canada infrastructure agreements with each province, and therefore each province is different. I'm certainly very familiar with the province of Quebec, as I am with other provinces.

We renewed that program in 1997, and we then brought in another new program. And I would point out to you that your figures unfortunately don't tell the whole story, because it is not a billion dollars over ten years; that's the down payment.

I would assume the Province of Quebec, the Province of Ontario, and others are going to come to the table as partners, as well as the municipalities. And I know the UMQ in Quebec very much wants to see the Government of Quebec come to the table and provide those extra dollars so that in fact we can deal with the infrastructure needs of our cities, towns, and villages in this country.

Although it is technically a provincial responsibility under section 92, as you know, this government has taken up its responsibilities and adopted this program. But it is only a down payment, and the minister has indicated that to Madam Chair on a number of occasions. And I know from past experiences the Government of Quebec will be at the table; they have been a very important partner in this relationship. And I know that the UMQ, through their president, has certainly had discussions with the provincial minister.

I know that together with Quebec and other jurisdictions in this country we will see the types of infrastructure needs addressed, and the private sector will have a role as well.

[Translation]

Mr. Pierre Paquette: Madam Chair, I still have a little bit of time left. First of all, I would just like to mention to the parliamentary secretary that their proposal has made them the laughing stock of the entire municipal world, in Quebec and elsewhere in Canada. Everyone found that this amount was not only inadequate but really just peanuts as far as meeting the needs were concerned.

I would like to ask you a question about the GST and school busing.

[English]

Mr. Bryon Wilfert: Mr. Chair, I would just say to the member, I don't have the letter with me, but I'd be more than happy to give it to Mr. Paquette. The FCM president's letter of March 5, 2003, which I have quoted on numerous occasions in the House, in fact indicates that now that they understand the situation, as it's been clarified for them, they understand it is a down payment. And in fact the FMC is on record as in support, as is the UMQ.

º (1620)

[Translation]

Mr. Pierre Paquette: I will send you the comments by Gilles Vaillancourt.

As for the issue of school busing, the budget contains a retroactive measure that reneges on something that was decided at the end of January. At that time there was an agreement reached between Department of Finance officials and the plaintiff, school boards in Quebec and Ontario. So that was part of the Tax Court of Canada ruling. So the federal government, the Minister of Finance, through the budget, wants to revisit a case that has already been decided. According to many legal experts, it seems that this would be unprecedented, and that yes, we have had retroactive legislation in the past, but this is the first time that there has been a retroactive law that disturbs a prior ruling.

We could debate the matter; in fact, I have asked the committee to do an in-depth analysis of the issue. But I would like to know why the departmental lawyers made an offer to the school boards at the end of January, knowing probably full well that in the budget tabled on February 18, the minister was going to renege on the agreement with the school boards. And I would remind you that these amounts are, for the school boards...

[English]

The Chair: Excuse me, I'm sorry.

Could we take the phone out of here during the meeting? Thank you.

[Translation]

Mr. Pierre Paquette: I would remind you that as far as the plaintiffs were concerned, this represented $8 million for the Quebec school boards and $10 million for the Ontario school boards.

So why did the departmental lawyers enter into an agreement that was included in the Tax Court decision, knowing full well that a few weeks later, if not a few days later, the minister was going to retroactively nullify that decision?

[English]

The Chair: Okay.

Mr. Bryon Wilfert: Just so I am clear, Mr. Paquette, you're referring to the GST and HST refunds on student transportation services. Is that correct?

Mr. Pierre Paquette: Yes.

Mr. Bryon Wilfert: The amendment is being made in response to the 2001 Federal Court of Appeal decision that certain provincial funding arrangements, the supply of student services by local authorities, be subject to GST rules. This has been something that has been in effect, and again was negotiated, and it was well understood, as it was with regard to municipal services in general. We certainly made reference to that, and I don't think it comes as any great surprise.

Would you like to add anything, Ms. Legare?

Ms. Marlene Legare (Senior Chief, Sales Tax Division, Tax Policy Branch, Department of Finance): I believe the member's question, in particular following up from what Mr. Wilfert has indicated, relates to further developments, litigation that occurred in January and February of this year.

A number of school boards in Quebec and Ontario decided to pursue their claims for refunds on the basis of the existing law and with the full knowledge of the government's stated intention in its announcement of December 2001 that this law would be amended retroactively in a manner that would apply to those boards. Despite the knowledge of that, the boards decided to proceed with the litigation procedures. And since the Federal Court had already rendered an interpretation of the existing law, as you correctly pointed out, and in the case of the new cases that were being proceeded with it was found that there were no new substantive differences in the facts of those cases, the Department of Justice consented to judgment in those cases, again on the basis of the existing law, since the Federal Court had already pronounced itself on the existing law. But throughout that process, the government was always very clear in its dealings with school boards and representatives that there had been no change at any time in the government's intention to amend that law retroactively.

[Translation]

Mr. Pierre Paquette: So why did the officials make an offer at the end of January? Does that mean that the offer still holds and that the money indicated in this agreement will be paid back to the school boards?

[English]

Ms. Marlene Legare: If I understood correctly, I reiterate, it is a process of litigation that was proceeded with, and proceeded with obviously on the basis of the existing law, and on that basis the Department of Justice consented to judgment, but with the clear understanding that the government had made a proposal to amend that law retroactively in a way that would apply to those boards.

º (1625)

[Translation]

Mr. Pierre Paquette: Is the Department of Finance aware that this is the first time that a prior ruling has ever been disturbed or that, in the opinion of certain legal experts at least, it would be a first?

[English]

Ms. Marlene Legare: Could you clarify in terms of the question whether that was--

[Translation]

Mr. Pierre Paquette: There was an agreement between the officials and the school boards, which was included in a Tax Court ruling.

[English]

Ms. Marlene Legare: There wasn't really an agreement per se, in the sense that the procedure that is referred to in terms of a consent to judgment is a legal procedure that the Department of Justice must make in ascertaining whether it will proceed on the basis of the existing law with arguments or whether there is no basis to proceed on the basis of the existing law. And that was the conclusion they came to.

[Translation]

Mr. Pierre Paquette: At any rate, I read the transcript and I can tell you that there appeared to be an agreement between the officials and the school boards. Since that is what the school boards understood, they were extremely surprised to see in the budget, not so much a retroactive law, but a law that disturbed the ruling, because the Government of Quebec has the same interpretation as the federal government, and they reached an agreement with the school boards.

What is a little bit worrisome here, is that an agreement was reached at the end of January—at any rate, that's the information that I have—and, in the budget of February 18, the government reneged on the agreement that was part of a ruling. This is what I would like the committee to debate. At any rate, if you have any information to provide me or the committee, I would be very happy to receive it.

[English]

The Chair: Thank you.

Mr. Bryon Wilfert: Again, Madam Chair, to highlight that this was well understood, the school boards in fact have been complying with the GST law since 1991, since its inception. And in fact there would be implications for all of the MUSH sector, and I'm sure that is part of clearly an understood policy, which all members of the MUSH sector have responded to since the time of the inception of the GST.

The Chair: Thank you.

Now we will go to Mr. Caccia. Go ahead, sir.

Hon. Charles Caccia (Davenport, Lib.): Madam Chair, thank you.

First of all, my apology for the electronic interference. I had inadvertently not turned off the infernal gadget, as I should have.

The parliamentary secretary has given us a very comprehensive and overarching analysis of the budget, for which I am extremely grateful. I noticed also that he made a reference on page 7 to action being taken with respect to climate change, and that is very welcome, because Parliament did approve, with a massive yes, the ratification of the Kyoto agreement, as you may recall, in December.

The questions that perhaps the parliamentary secretary would be able to enlighten me on are threefold. First, why does the current taxation system in Canada encourage subsidies for the greater production of greenhouse gas emissions, rather than removing these “tax expenditures”, as they are commonly called in the Department of Finance?

Secondly, why does the current fiscal system treat fossil fuels by far with much greater generosity, if you like, than the production of energy through renewable sources?

And finally, as indicated here on page 6, in the fourth bullet, why does the budget improve the tax treatment of automobile benefits for employees and auto expenses for employers but not for those Canadians who use public transit?

Thank you, Madam Speaker.

The Chair: Mr. Wilfert, I'm sure you'll take those questions.

º (1630)

Mr. Bryon Wilfert: Madam Chair, I'll take the last question first, but first of all I thank the member for his very kind comments. And I would point out to the member that, as he knows, over the years I, in another incarnation, was with the FCM, where I worked very hard with the government, in which of course the member was in the leadership, in the environmental field to deal with issues in urban communities such as the 20% Club to reduce carbon dioxide emissions by 20% over 10 years. And in fact a component of that issue is the urban transit sector.

In terms of why we treat the issue of automobiles differently from transit, I would have to say to you that the finance department has never supported this view, because it feels that it does not in fact--and we are talking, I assume, here about tax deductibility of transit passes--encourage more riders but simply assists those who are already riding. We could discuss that, but I would suggest to you that any increase in the public transit system is in fact significant. A 2% to 3% increase in the system is significant, but there have been figures to show those to be as high as 20%. But this has not been a policy that has been embraced by the department, which I would certainly love to talk to you about at some length.

With regard to the first question, on the issues dealing with fossil fuels, etc., I would really have to defer to one of the officials as to the rationale more than probably you would want to hear....

Do you want to go on to the tax issue, Mr. Lalonde? Then I'll come back to the automobiles.

Mr. Gérard Lalonde: It's a bit difficult to answer your question because I'm not sure exactly which tax expenditures you're referring to in terms of promoting greenhouse gas--

Mr. Charles Caccia: I am referring to the $585 million a year in tax concessions given to the tar sand oil industry in Canada, as recognized by the Department of Finance, of course. These are not my figures.

Mr. Gérard Lalonde: I don't have the figure in front of me, so I'm not going to try. I'm sure you have the figure right, that you've verified that figure.

I'm sure you're aware that the Canadian economy is largely based on the resource sector. One has to balance priorities between encouraging Canadian oil and gas and mining activities and encouraging people to avoid or reduce greenhouse gases. The policy in this regard is not one of cutting off your nose to spite your face but rather a policy of trying to maximize the benefits to the Canadian economy and at the same time putting Canada at the forefront of environmental awareness, as is evidenced by the Kyoto Accord.

Mr. Bryon Wilfert: If you'd like, Madam Chairman, I will endeavour to obtain additional information from a policy standpoint and get back to the member.

The Chair: As you wish.

Mr. Caccia.

Mr. Charles Caccia: The basic question is whether a sector that is doing well anyway without subsidies should be given subsidies that run counter to an agreement we have ratified, one that imposes on us a reduction in the very same greenhouse gases we are encouraging through the tax system. The sector is doing well, so there is no fear of, as you said, cutting off our nose to spite our face.

Mr. Gérard Lalonde: At this point I don't think I can improve upon Mr. Wilfert's answer. The obvious way to deal with your question is to get back to you in more depth.

º (1635)

The Chair: Did you have another question, Mr. Caccia?

Mr. Charles Caccia: Mr. Wilfert wants to come back on the automobile item, but I don't want to press it too hard because I know where his heart lies, and his mind is forced to go in the opposite direction. We can leave it at that.

I wonder who runs the Department of Finance, because if the policy is not embraced by the department, then the implication of the fact that the finance department decided so-and-so, as the parliamentary secretary indicated.... You wonder where the political leadership rests.

Mr. Bryon Wilfert: I'd point out, Madam Chairman, that again, on the evidence that was presented to this committee, the will of this committee on the issue of the transit passes was that the committee decided not to proceed. That was a decision, I have to say, of the committee based on whatever evidence was presented by all the important stakeholders who were here. It wasn't simply a representation of a department or of many departments, it was the collective will of my colleagues here.

The Chair: Thank you very much.

Ms. Leung, please go ahead.

Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Madam Chair, and I want to thank Mr. Wilfert for his very fine presentation.

I have a couple of questions. First, we Canadians are really very grateful for that badly needed $34.8 billion for the provinces and territories over five years to reform our health care system. We all know that in the past the CHST, the transfer, was given to provinces and territories without a definite commitment to using it for health. My question is, number one, how do you distribute the large sum to different provinces? Is it by calculation of population? By what method, what formula? Another thing is, is there a commitment by each province as to how we're going to measure this, how we issue report cards?

Mr. Bryon Wilfert: Thank you, Ms. Leung.

As you know, the first ministers and the Prime Minister got together and on February 5 came to an agreement. I would point out to all the members that there was no gun put to their heads and they all agreed on the dollars that came out of this accord, as happened in September 2000, a very significant agreement by the ministers.

We are seeking more accountability, which is why the health reform transfer is going into place and why we are making sure Canadians can in fact see where moneys are spent. As you know, there have been some questions in the past as to where the dollars have occurred.

We are maintaining the national criteria for the Canada Health Act. We are in fact also dealing with issues in terms of the transfers, whether it's based on a province's total entitlement, that is, the cash and the tax.... As you know, the ceiling was eliminated in Ontario, British Columbia, and Alberta a few years ago. That is important, and it will be based on the growth in those provinces so we're able to provide the necessary dollars.

But we're also making it much more visible to Canadians as to where the dollars are going. We needed this amendment because in fact the federal government will continue to transfer the dollars--cash and tax points, and I want to again emphasize, Madam Chair, cash and tax points--in support of these programs.

The same will apply of course to social programs as well, but again, because those ceilings were eliminated, we're able to provide, responding to the needs in the fastest-growing provinces as well.

Also, you have equalization, which comes into effect in some provinces as you know, and all that is part of the total package in dollars that go to the provinces, who of course are ultimately responsible for the administration of the system.

Ms. Sophia Leung: Mr. Wilfert, the budget has also provided $900 million over five years for early learning and child care services. This is very welcome, as we know from travelling to different provinces for public consultation. We heard over and over that child care services were really needed by child care personnel and were very welcome.

Can you tell me, how will this $900 million be distributed in the different provinces? It is going to be a sort of individually tailored design for the different provinces? How would the federal government of Canada check how the service is really and truly delivered.

º (1640)

Mr. Bryon Wilfert: As you know, Ms. Leung, the social services ministers reached an agreement on March 13, 2003, on the issue of early learning and childhood funding. This year, 2003-2004, $25 million will be allocated in the CHST, $75 million in 2004-2005, $150 million in 2005-2006, and $300 million in 2006-2007, ultimately reaching $350 million.

Again, the fact is that for this agreement we need an amendment because...it's not going to change the transfers to the provinces. Essentially, to deal with this issue, the funding will be distributed to the provinces on a per capita basis.

Again, this very important agreement recognizes what Dr. Mustard and others have said over the years, and that is that the ages between birth and five years old are extremely important.

This agreement will be put to good use in the provinces to assist with what I know this committee and the chairman are familiar with from representations we had in this regard; again, it is responding to those concerns I know the committee heard.

Ms. Sophia Leung: Now I have one more little question on that. The amount of $60 million over two years to help the student loans is certainly good news for students. How will that begin? I don't see how you will structure this for delivery.

Mr. Bryon Wilfert: There are many components, Ms. Leung. Obviously we're looking at issues of default. We're trying to make it easier for students certainly in terms of repayment, which is very important. We broadened the eligibility criteria, and again that's important in terms of students applying, to make sure that all legitimate costs.... We know that costs are rising because of increased tuition fees in the provinces, and again we're taking that into account. It's broadening it. It's obviously making sure that we ensure equitable treatment of borrowers regardless of which province they happen to reside in. It's on a needs basis to which applicants can apply. But we are very concerned about the debt load of students and are trying to address those important issues for students particularly. I know this committee heard those concerns.

We've also broadened it to deal with protected persons as well, but it's obviously on an eligibility basis, the criteria set out. We're trying to make it broader, but also more attractive. But we are also being very concerned about it. It's an issue that both the finance department and the human resources department have certainly been aware of and been dealing with, and that obviously is debt.

The Chair: Thank you very much.

Mr. Harris, a five-minute round if you'd like.

Mr. Richard Harris: Mr. Wilfert, I want to take issue with the budget 2003 claims of improved transparency in the EI premium rate setting. By introducing the public consultations to determine how to move to a new rate-setting regime for 2005 so that EI revenues will line up with expected program costs, it appears the government is really disguising a step backwards as a step forwards.

The reality is that the EI Act actually required the Employment Commission to set premiums on a break-even basis over the course of a business cycle. However, the government amended the act so that the government and not the EI Commission set the premium rate for 2002 and 2003. The power to set rates was scheduled to return to the commission this fall for the 2004 rates. However, budget 2003 will delay that move, and the government is again setting the rate for 2004 because of this amendment in Bill C-28.

Can you explain why you want to delay the transfer of the rate setting to the EI Commission and retain it in the government control? Is this a deliberate delay, or is this whole thing just some sort of a stalling tactic so that the government can continue to milk the EI cash cow?

º (1645)

Mr. Bryon Wilfert: Well, Madam Chairman, I won't debate the premise that the honourable member has put forth, because he already knows what I think. However, I think the member does know that when we introduced Bill C-2, which became Bill C-44 in the fall of 2000, the government made it very clear that it would undertake a review of the rate-setting mechanism because this committee had called for it. It believed that there were flaws in the current legislation regarding the rate-setting process. So the government decided not to have the commission set rates while the rate-setting review was underway.

As I pointed out to the committee earlier in my comments, there is a very clear approach that the government is taking with regard to this review. I outlined the five key elements, and I again welcome the member's constructive participation in anything that he might like to provide so that we can work collectively to deal with this issue in the report, which will come out after June of 2003.

Mr. Richard Harris: Madam Chair, every time we look, the government is still hiding taxes that should have been eliminated--for example, the 1.5¢ increase on gasoline excise tax. This was brought in in 1995 to help eliminate the deficit, which has been eliminated, and yet the 1.5¢ tax increase still remains.

Why didn't the government address this in their budget? Why didn't they fulfil a promise they made back in 1995?

Mr. Bryon Wilfert: Madam Chairman, as the member knows, the former Minister of Finance in March of 2000 issued a letter to the provinces, to which only one province has replied, in which we agreed to suspend the GST on gasoline if the provinces would follow suit and suspend it on the PST.

I would point out to you, and New Brunswick is an excellent example.... Don't quote me, Mr. Harris, on the actual year, but I think it was around the year 2000 or 1999 that they voluntarily decided to drop 2%, and that was quickly gobbled up by the oil companies.

In other words, there has to be mutual agreement on both sides—the provinces and the federal government—in terms of the reduction of those taxes in order for there to be any substantive saving made by the consumer. As you know, it is the provinces that have the jurisdiction over the ability to freeze prices at the pump.

In fact, if a particular province wants to do so, and we've seen that recently—I remember in my own province, in 1975, the government of the day froze it, and in those days it was 5¢ a gallon increase for 90 days—they have the ability.

We did have an offer on the table in 2000, and regrettably we didn't get the response that we probably would have liked to assist consumers at the time.

Mr. Richard Harris: I would suggest, Madam Chairman, that given the experience that all Canadians have had about this government about promises to get rid of the GST or suspend the GST, probably the provinces just simply didn't believe the government once again.

º (1650)

Mr. Bryon Wilfert: Again, that would be a point of debate, but I don't want to get into it.

Mr. Richard Harris: Yes, I'm sure.

The Chair: Mr. Wilfert, you're out of time, but I'm going to allow one more question. I'll add two more minutes and we'll do a seven-minute round. That will assist, also.

Mr. Richard Harris: Thank you, Madam Chairman.

Mr. Bryon Wilfert: You're awfully liberal there, Madam Chairman.

Mr. Richard Harris: She's a good chairman. Don't give her a hard time.

[Translation]

Mr. Pierre Paquette: This is virtual.

[English]

Mr. Bryon Wilfert: It's such a good budget we don't need any more questions.

[Translation]

Ms. Pauline Picard (Drummond, BQ): It's a good thing that the opposition is here, because the committee would not be able to sit otherwise.

[English]

The Chair: Order, please.

Mr. Richard Harris: I want to ask you about the air security charge. You know that companies that specialize in short hauls, such as WestJet, have asked the government to revise how they look at the air security charge. A one-way trip from Montreal to Vancouver looks now like it is going to cost $7, whereas a trip from Montreal to Ottawa will cost $7. It seems to be somewhat discriminatory to those airlines that specialize in short-haul runs and where most of their traffic comes from.

Is there any reason why the government ignored these suggestions and did not move to a percentage-of-fare system or a system based on the distances travelled, rather than a flat rate?

Mr. Bryon Wilfert: The minister sought and received significant input from the industry, from various stakeholders. As Mr. Harris knows, the government decided, based on that input, to reduce the charge one way domestically from $12 to $7.

I would suggest to the member that this in fact significantly helps short-haul carriers, and I would suggest to you that there has been a favourable response in that regard, taking into account that we're not trying to make money on this. I would also like to point out that the minister had said many times in the House that he was committed to reducing that charge, and the minister has come through on that charge.

The Chair: Thank you.

Please go ahead, Madame Picard, and I'll give you up to eight minutes.

[Translation]

Ms. Pauline Picard: Thank you, Madam Chair. I would like to tell you that you are very brave to chair this committee today. The government members are absent; they both left. So you have to count on the three opposition MPs...

Mr. Pierre Paquette: To liven things up a bit.

[English]

The Chair: On the two members here.

[Translation]

Ms. Pauline Picard: ... to liven things up a bit, and, out of respect for our witnesses and the taxpayers, I want to tell you that you are very brave.

Mr. Wilfert, I wanted to speak to you about the air travellers security charge. The government introduced this tax in the wake of the events of September 2001, yet officials came to tell us, to admit to this committee, that no impact study had been carried out in introducing this tax.

Now, in the budget, we see that the tax has been reduced to $7 from $12. Do you now have impact studies which justify the reduction of this tax from $12 to $7? What is the rationale behind the continued existence of this tax? Why is it that, on a one-way ticket, the tax is $7 for a domestic flight and $12 for an international flight? As far as I know, we are talking about the same airports and the same carriers.

[English]

Mr. Bryon Wilfert: Again, Madam Chairman, my answer doesn't really change. It's the same rationale. We don't intend to make money on this. We're responding to the issue of airport security.

Madame Picard, you know that in fact after September 2001 it was almost impossible to look at any reliable data because of course the industry was severely hit by the repercussions of September 11.

However, in evaluating, as I indicated to you, the changes that have occurred under this legislation were made because of the submissions we had from all important stakeholders. We identified the total number of dollars, which is $329 million through 2006 and 2007, that's available to reduce this charge domestically because that seemed to be particularly where the stress was, and again we have received support for that and particularly to answer my colleague earlier about the short-haul issue.

º (1655)

[Translation]

Ms. Pauline Picard: Mr. Wilfert, at the time we were told that it was for buying electronic equipment. However, last year, this equipment had not yet been installed. So, given that this tax was supposed to pay for equipment that we do not yet have, what has happened to the money from this tax? You have been collecting it for two years now, yet we still do not have the equipment, the procurement of which was used to justify this tax. So, for the past two years, you have been pocketing the money and now you've decided to reduce the tax from $12 to $7. Where are the studies? How can you justify your actions?

[English]

Mr. Bryon Wilfert: I would ask someone from Transport Canada, who would be in a better position to explain how the dollars are being utilized--Mr. Truman, Julie Wong.

I anticipated such a question.

The Chair: Wong, is it?

Ms. Julie Mah (Chief, Strategic Planning, Department of Human Resources Development): Ms. Mah. Julie Mah, from Transport Canada.

To step back a little bit, the December 2001 budget provided $2.2 billion for enhancing air security charges over five years. Part of that money went towards Transport Canada and part of that money went towards the Canadian Air Transport Security Authority, or CATSA.

When it comes to what sorts of key initiatives were undertaken, that would include the creation of CATSA, which, as I think you're probably aware, is responsible for the provision of a number of key air security services. Part of the money as well went towards enhancing pre-board screening at a number of airports, as well as, as you mentioned before, the purchase of advanced explosive detection systems. We also used part of that funding for expanding the program for RCMP officers on board selected domestic and international flights.

There is also some funding provided to airlines to help cover the cost of implementing security modifications to aircraft, including the reinforcement of cockpit doors. There were also some contributions that were provided to the airports to help them offset costs for heightened policing and security at the airports.

[Translation]

Ms. Pauline Picard: I'm aware of that. Billions of dollars were injected into the health care system, but the $12 air travellers security charge, according to what we were told last year and two years ago, ought have been used for buying electronic equipment. Last year, this very expensive equipment had not yet been installed. So, has this equipment, which this tax was supposed to pay for, now been installed? It must have cost less given that the tax has been reduced from $12 to $7.

[English]

Ms. Julie Mah: Some equipment has been bought, but some of the air traveller security charge helps offset the cost for a number of initiatives to enhance aviation security, so there were a number of programs and issues that were undertaken, including the purchase of equipment.

[Translation]

Ms. Pauline Picard: But what is the $7 going to be used for now if the tax already covered the cost of this expensive equipment? Why are you maintaining a $7 charge? What are you going to buy with it?

Mr. Pierre Paquette: It is to pay for the electricity.

[English]

Mr. Geoff Truman (Senior Tax Policy Officer, Sales Tax Division, Tax Policy Branch, Department of Finance): May I take this one?

My name is Geoff Truman. I am from the Department of Finance.

Perhaps I could address your concerns in this area. The charge was established in budget 2001 with a five-year timeframe looking at expenditures for air transport security through to the end of 2006-07 and revenue from the charge over that same period. The idea is that the charge effectively takes place on a cost-recovery basis for the period through to the end of fiscal year 2006-07.

As part of the recent budget 2003, the government looked at the charge in terms of revenues to date, as of December 2002, and consulted with Transport Canada and CATSA as to what expenditures were expected to be for the same time period through 2006-07.

The reason the government was able to reduce the charge primarily comes from the change to accrual accounting, which has implications for both revenues and expenditures. The key change under accrual accounting is that the capital assets that are being acquired by CATSA as part of the enhanced air travel security system will now be amortized over their useful economic life, which is estimated at a seven-year period, rather than being fully expensed immediately when they are acquired. That changes the timing of the recognition of expenditures over that five-year period, and that's what allows us, predominantly, to bring the charge down.

Ça va?

» (1700)

[Translation]

Ms. Pauline Picard: That is fine, but why do you charge $7 for domestic flights?

[English]

Mr. Bryon Wilfert: Madame Picard, that's where the $329 million comes from.

The Chair: One person at a time, please.

We'll go to Madame Picard and then we'll go to Mr. Wilfert.

Mr. Bryon Wilfert: Madam Chairman, with all due respect, to finish that off, the $325 million I referred to comes from the accrual accounting.

Also, Madame Picard, as the committee is aware, the minister has again committed to review continually the charge to make sure that we're revenue neutral. We're not trying to make money from this.

The Chair: Madame Picard, the time is yours.

[Translation]

Ms. Pauline Picard: Thank you very much.

You have not answered my second question. Why does it cost $7 for domestic flights and $12 for international flights? At the end of the day, we are talking about the same airports, the same carriers.

[English]

Mr. Bryon Wilfert: Again, Madame Picard, I refer to the consultations that were held, the submissions that were provided. On the impact, again going back to Mr. Harris' comment, much of the impact it was having was on a lot of the short-haul flights issuing domestically in this country. It was felt that significant cuts could occur on the domestic end of it, and that was done. I would also point out that Air Canada, WestJet, and the Air Transportation Association of Canada all have indicated that this is a very good step in terms of where we're going. I would point out to Madam Picard and to members that in fact the government will continue to monitor this.

[Translation]

Ms. Pauline Picard: Do I still have a few minutes left?

The Chair: If you want.

Ms. Pauline Picard: Good. I wanted to talk to you about the disability tax credit. I welcome the disability tax credit initiative, but there is a but. We are tightening the eligibility criteria by introducing a committee which, based on the daily activities of the disabled person, is going to determine whether the person is eligible for the tax credit. If we want to introduce a compassionate measure, then I do not think that this is the right way of letting people know that we are going to support the disabled. Things are already hard enough for people living with disabilities. What is more, they often live below the poverty line.

I was wondering what it is that you aim to do by introducing such a committee and, how you are going to determine whether those responsible for deciding whether a disabled person is indeed eligible for the tax credit have the necessary skills to do so. How are you going to go about that?

[English]

Mr. Bryon Wilfert: Madam Chair, the establishment of the technical advisory committee was as a result of the recommendation of the House of Commons Subcommittee on the Status of Persons With Disabilities. They and representatives of the communities of persons with disabilities called for that technical advisory committee.

Again, I would point out to Madame Picard that there is no intent, nor will there be a reduction. We're not trying to tighten. Targeting eligibility, the disability tax credit involves a very difficult task. The standing committee of the House asked for expert advice, as well as those from the community involved, and that's why we have it.

The Chair: Thank you very much.

I'm going to allow Ms. Leung.

Ms. Sophia Leung: Thank you--

Mr. Bryon Wilfert: If this is the last question, Madam Chair, then I won't have to get up and walk around, but my back is now really bothering me.

The Chair: If you just want to take a minute to stretch, that's fine. We could just suspend for a second. We actually have a couple more, so if you want to just do a stretch....

We'll suspend for just two minutes. Having had a bad back myself at one time, I know it does hurt.

» (1704)

» (1706)

The Chair: We will now proceed with a question by Ms. Leung.

Ms. Sophia Leung: Thank you, Madam Chair.

Mr. Wilfert, I know you mentioned the tax reduction plan, and I am especially interested in the small-business tax rate. You indicate it's extended to 12% for the federal small-business tax rate between $200,000 and $300,000. Would you like to expand a little bit, for the next five years? It's not very clear here.

Mr. Bryon Wilfert: Thank you, Madam Chair.

This bill promotes, Ms. Leung, entrepreneurship, obviously through small business, which of course is the major generator of jobs in this country. This deduction limit to $300,000 is something that had been asked for, and this committee, I congratulate, responded in a recommendation. The minister has then responded as well to that.

It's an important change from the small-business community. And as you know, the CFIB, among others, indicated that this is important for their members. We are responding over a four-year period.

Ms. Sophia Leung: Also, we heard a lot of discussion, as a committee, through the country also asking for a capital tax reduction. We have not really seen a definite plan, just to eliminate it for the next five years. Would you spell it out more clearly?

Mr. Bryon Wilfert: Madam Chair, eliminating the federal capital tax over five years from medium-sized corporations will in fact occur as early as 2004. So in fact, although we say a five-year period for the medium-sized businesses in this country, we're looking at next year in the main.

That is part of the phasing in, given all of the other fiscal pressures. But the minister has again responded to a very important recommendation that I know this committee had in their report. I might say, Madam Chair, that there were 49 recommendations in the committee's report, and I believe the minister responded in whole or part to 33 or 34 of those.

The Chair: Yes. The rest would have been good too.

Mr. Bryon Wilfert: I'm sure he would have loved to have fulfilled all 49.

Ms. Sophia Leung: I know that's very good. We hear it because we all know the small business and medium-to-small businesses are really the backbone of Canada. We really welcome that. I was just wondering, as I still receive some comments, why has it taken so long? Why have we had to wait for five years?

Mr. Bryon Wilfert: Madam Chairman, we wish we could do more, faster, but one of the anchors of this government has been to make sure that we do not go back into a deficit. We want to make sure that we send the right message out to Canadians. You can only do so much with what you have. If you were to accelerate that.... I think prudence is an important guide. The minister has certainly articulated that continually. There will be no deficit.

» (1710)

Ms. Sophia Leung: Madam Chair, I have another question.

The $500 million addition was quite welcomed by the Canada Foundation for Innovation. It's really quite welcome for all their research grants. There's some concern that we have a clear handle on reporting how this research is being used. Is there an effective measurement of how the funding is being properly used?

Mr. Bryon Wilfert: Madam Chairman, this has been one area the minister has been particularly interested in. The CFIB, as you know, puts out annual reports. Those reports are public, and they're also available, of course, to committees and members of Parliament. Therefore, it's a very open and transparent approach. Again, the benefits that we hear from that sector have been extremely positive and of course have resulted in a number of very important successes, and I would say are attracting the best and the brightest.

The Chair: Mr. Caccia, did you have a question?

Mr. Charles Caccia: No, thank you.

The Chair: Okay, then, if I may, I'll just take a minute, because there's one thing I want to put on the record and make sure it's correct.

As to the day care money put out in this budget, I just want to have someone verify to me that this is going to be for regulated day care spaces.

Mr. Bryon Wilfert: Yes, it is.

The Chair: Okay, thank you very much.

I think what we'll do is one question each.

Mr. Harris.

Mr. Richard Harris: I want to get back to the air security tax. The problem Canadians have with it and we in the Alliance Party and the Bloc and the other opposition parties have is that the government has not delivered a full accounting of the money that's been collected and how it was spent since the inception of the air security tax. As a result, the public is wondering how the money was spent, and that leads to mistrust. I believe that the government has a responsibility to tell the public, through Parliament, how much money they've collected, how much they've spent to justify any type of an air security tax.

Mr. Bryon Wilfert: Madam Chair, I want to assure the member—and it's an excellent question—the figures will be released. They will be audited by the Auditor General, and I believe the public accounts committee will have an opportunity to review those in the fall. The Auditor General will review those, and I invite the public accounts committee, as well. Obviously, we'll be looking at that.

Mr. Richard Harris: Can we take that as a commitment, Madam Chairman, on the record?

The Chair: You can take it as testimony from the parliamentary secretary.

Mr. Bryon Wilfert: Thank you, Mr. Harris.

[Translation]

The Chair: Mr. Paquette, please.

Mr. Pierre Paquette: I still have a lot of questions. Unfortunately, you have limited us to one, so I will have to choose. I want to know why the Minister of Finance has not abolished the special gasoline tax which was introduced, if I am not mistaken, in 1995 to reduce the deficit. We have had a surplus for the past six or seven years now, and forecasts suggest that the surplus will remain astronomical. Given that the price of gasoline has reached very problematic levels for consumers and for those who need a car or a truck for work, it seems to me that it would have been not only fitting, but a matter of urgency, to abolish the 1.5¢ per litre.

Why did the government not seize this fine opportunity to get rid of a tax which is utterly useless in terms of its objectives? Had they abolished this tax, the government could have done something worthwhile in light of the current economic situation.

[English]

Mr. Bryon Wilfert: I thank you, Mr. Paquette, for the question.

The fact is that government is about priorities. As we know, one of the major priorities that Canadians have told us, have told this committee, and continue to tell parliamentarians is to reduce taxes. And one of the biggest areas, of course, starting back in October 2000, was the $100 billion tax cut—the largest in Canadian history. I'd like to re-emphasize the minister's commitment to that again. That is going through the system in this year. Personal income taxes, Madam Chairman, have been reduced by 21% on average by 2004-2005, and 27% for families with children.

Again we are looking at the priorities. Mr. Paquette, there's no question that there are many taxes I'm sure people would like to see reduced. The fact is the one area they said they really want to see reduced, because it has the biggest economic impact, is personal taxes. Now, of course you are a member the committee and recommended the elimination of the capital tax, and the government has responded.

» (1715)

[Translation]

Mr. Pierre Paquette: That primarily helps businesses, it does not really help the consumer.

[English]

Mr. Bryon Wilfert: Well, you also indicated you wanted to see more money for health care, and again the government has responded. But the reality is we are not going to go back into a deficit. It's simply priorities. I certainly take your comments under advisement. I appreciate them, but the reality is that it would be a misnomer not to emphasize the impact that the personal tax cuts are having on Canadian families.

The Chair: Ms. Leung. Mr. Caccia. No.

Madame Picard.

[Translation]

Ms. Pauline Picard: Thank you, Madam Chair.

I would like to know why the government did not pay heed to the committee's recommendation to reduce the excise tax for micro-breweries. At the moment, micro-breweries are facing serious problems due to competition from imported beers.

[English]

Mr. Bryon Wilfert: Again, Madame Picard, a good question—a question of where are we able to address some of these issues.

As you know, governments are elected over a maximum mandate of five years, and the fact that something is not addressed in one budget does not mean it may not occur in another. But the reality was that in order to continue the commitment on the personal income tax side, which is significant, that was the priority. But representations will be continued, and I'm sure for those who may not have seen what they would like in this budget, this committee will be hard at work providing direction and assistance in the next budget.

The Chair: I have one question for you, Mr. Wilfert. I would like a little clarification of the taxation rights on part 9 of this, just to put the voluntary nature of that taxation power that might be given to certain first nations, if they so choose.

Mr. Bryon Wilfert: Again, Madam Chairman, it's a good question.

This is again in line with requests that we have had. It is not mandatory. It is simply a voluntary procedure that if in fact first nations wish—similar to the GST, and the application will follow the same as the GST—they can take advantage of it. My understanding is there'll be a couple of delegations that will be before this committee to in fact reiterate their support for that. But it is on a voluntary basis. It will follow the same procedures. It is another tool. If the first nations want to levy it, with the consent of the particular first nation, they will be given the opportunity to do so.

The Chair: If the bill is passed, when would that be an active measure available for those first nations?

Ms. Carrier.

[Translation]

Ms. Annie Carrier (Chief, first Nations Taxation Section, Tax Policy Branch): We probably will not have done it for the 21 which are currently in the budget schedule but we hope to implement the first agreements before the end of 2003. That way taxation will begin in 2004 and taxation powers for the first nations will also be in place in 2004.

[English]

The Chair: Thank you very much.

Thank you very much to all of the people assembled who were here and capable of answering questions, and thank you to our parliamentary secretary and his assistants today.

» (1720)

Mr. Bryon Wilfert: I thank the chair for indulging me on that.

The Chair: No problem.

I just remind the committee that on the first day back after the break there will be the Governor of the Bank of Canada. We will then have witnesses in that week. The following week we'll probably to go to clause-by-clause.

I do want to draw to the committee's attention that the clerk has sent to your offices the names of the clerks and legislative assistants if you require any assistance in drafting any legislative amendments. So you have that on good notice right now, and it's available to you.

With that, I wish you well and we'll see you soon.

We are adjourned.