Proceedings of the Standing Senate Committee on
National Finance
Issue 13 - Evidence - May 29, 2008 (Morning meeting)
OTTAWA, Thursday, May 29, 2008
The Standing Senate Committee on National Finance met this day at 9:05 a.m. to give consideration to the subject matter of Bill C-50, An Act to implement certain provisions of the budget tabled in Parliament on February 26, 2008 and to enact provisions to preserve the fiscal plan set out in that budget.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Welcome, everyone. Welcome to this meeting of the Standing Senate Committee on National Finance. My name is Joseph Day, I represent the Province of New Brunswick in the Senate, and I am the chair of this committee.
The committee's field of interest is government spending and operations, including reviewing the activities of officers of Parliament and other various individuals and groups that help parliamentarians to hold the government to account.
We do this through estimates of expenditures and funds made available to officers of Parliament to perform their functions and through budget implementation acts and other matters referred to this committee by the Senate.
On May 15 of this year our committee received authority and direction from the Senate chamber to begin a study of the subject matter of Bill C-50, An Act to implement certain provisions of the budget tabled in Parliament on February 26, 2008 and to enact provisions to preserve the fiscal plan set out in that budget, otherwise known colloquially as the proposed budget implementation act, 2008.
We are pleased this morning to have various government departments involved with the implementation of this wide-ranging proposed budget implementation act, Bill C-50, to help us understand the various aspects of proposed changes to the bill. We understand that the bill is proceeding in the House of Commons and should be received here in the Senate probably next week. In the meantime, we will have been studying the subject matter for several days so that we will be ready to receive the bill when it arrives.
Because there are 10 parts to this bill, we propose, honourable senators, to have probably three different sessions this morning with different representatives. I will have them introduced as we proceed.
I will call on Mr. Gérard Lalonde from Finance Canada to give us an initial overview, and then I will ask Mr. Lawrence Purdy and Mr. Carlos Achadinha, dealing with Part 2 of the bill, to join him at the table. I strongly recommend that each of us have the bill in front of us. We will deal with the first five parts in this first session.
Part 3 is Mr Pierre Mercille, with the Goods and Services Tax, GST, and the Harmonized Sales Tax, HST, provisions; Part 4 is Ms. Rosaline Frith, the Canada Millennium Scholarship Foundation; Part 5 is Nathalie Archambault and Gird Reicker, Canada Student Financial Assistance Act and the Canada Student Loans Act. Then we will have a short break and bring in a separate panel.
I will now call upon Mr. Lalonde to give us introductory remarks.
Gérard Lalonde, Director, Tax Legislation Division, Tax Policy Branch, Finance Canada: I have been asked to provide an introduction to this bill. As indicated, there are 10 parts to the bill, so it is a fairly significant bill. It is a bill implementing the 2008 federal budget. This bill was tabled in the House of Commons on March 14, 2008.
We have a number of people here who know far more about the parts of the bill than I do but I gather, given the number of times that I have been here to speak to this committee, I have been selected as the individual to introduce the various parts.
As I have indicated, the bill has 10 parts to it and departmental officials will provide more detail about the measures as we get to the various parts.
Part 1 of the bill — my favourite part as the director of tax legislation — contains the amendments related to the Income Tax Act, including various amendments to the Canada Pension Plan, the Employment Insurance Act as well as some coordinating amendments with other proposed legislation.
This part of the bill contains the new Tax-Free Savings Account, TFSA, which is one of the most important measures proposed in Budget 2008, at least from my perspective.
Part 2 of the bill contains measures related to the excise duty on alcohol and tobacco and involves amendments to the Excise Act, the Excise Act 2001 and other related amendments.
Part 3 contains amendments to the Excise Tax Act being the legislation pertaining to the Goods and Services Tax and the Harmonized Sales Tax.
Part 4 of Bill C-50 contains the enabling legislation for the dissolution of the Canada Millennium Scholarship Foundation.
Part 5 contains the proposed legislation to provide federal financial assistance for students. This includes amendments to the Canada Student Financial Assistance Act and the Canada Student Loans Act. These are the parts we will be addressing first with the individuals here at the table.
After that, if the chair will indulge us, we would skip to Part 7, which relates to proposed changes in this year's budget to the management and governance of the Employment Insurance program.
Part 8 pertains to payments to provinces and territories and includes the enabling legislation to create a police officers' recruitment fund as well as a third-party trust for public transit infrastructure.
Part 9, then, provides for payments to certain entities, such as Genome Canada and the Mental Health Commission of Canada.
Finally, Part 10 of the bill proposes various consequential amendments to a variety of federal acts.
We will then skip back to Part 6 of the bill, which, from our experience with the bill, has generated probably the most number of inquiries. In that way, we can move through the other parts, perhaps, a little faster than might otherwise be the case.
With the chair's indulgence, we will start off with Part 1 of the bill, dealing with income tax measures.
It is the practice of Finance Canada and governments in general to issue a budget implementation bill shortly after each budget that contains a large variety of measures — and often not all of the income tax measures given the consultation that is required for them. In this particular budget, however, we do have a number of tax measures included in the first budget implementation bill, being this one, Bill C-50, including as I mentioned earlier the Tax-Free Savings Account, amendments dealing with Registered Education Savings Plans, the Northern residence deduction, the medical expense tax credit, Registered Disability Savings Plans, the mineral exploration tax credit, capital gains and donations of exchangeable securities, the dividend tax credit, amendments dealing with the scientific research and experimental development tax credit, amendments dealing with cross-border business and investment, donations of medicines and the provincial component of the tax on specified investment flow-through trusts, SIFTs. All of those are in Part 1.
Rather than trying to describe each of the amendments in detail, I presume that each of you have read the budget documents and come with questions that you already have. Rather than boring you all with the details of each and every one of these measures, again, if it is suitable to the chair, I would ask to have the questions put directly to the officials now on that part and deal with them.
The Chair: We have spent the last day on Part 6, so our minds are in the immigration side of things. If you could spend a bit of time explaining to us, in Part 1, for example, the coordinating amendments with respect to different bills, Bill C-10 and Bill C-253; if you could explain what is trying to be achieved and what the purpose is for each of the provisions in Part 1 that would be helpful.
Mr. Lalonde: It can happen that two bills will be in Parliament at the same time both amending the same provision. One cannot assume that the bills will be passed in the same order in which they were introduced. In those circumstances, if an amendment touches the same provisions, amendments are required to ensure that if the later bill passes first, the required changes introduced by the earlier bill do not override and wipe out the changes that were introduced by the first bill.
That would be the situation for the coordinating amendments to Bill C-10, which is a large bill, including a large number of technical amendments to the Income Tax Act, as well as amendments introducing a regime dealing with foreign investment entities and non-resident trusts, which we, in the department, refer to as FIEs and NRTs. Those coordinating amendments, in essence, deal with the fairly dry technical issues.
The other coordinating amendment, dealing with private member's Bill C-253, is an amendment which effectively reinstates the status quo ante that was in place before Bill C-253 was passed by Parliament. If the Senate passes Bill C- 253 and also passes Bill C-50 such that both of those bills receive Royal Assent, then the provisions in Bill C-50 will reinstate the status quo ante in place before the introduction of Bill C-253.
The Chair: Could you refresh our memories on Bill C-253? We are familiar with Bill C-50.
Mr. Lalonde: Bill C-253 was a private member's bill that provided for the deductibility of certain contributions to Registered Education Savings Plans, RESPs. The bill had a variety of difficulties from the government's perspective; technical difficulties for sure and also fairly fundamental policy difficulty. The structure of the RESP is designed not so much to deliver assistance by way of a deduction but, rather, to deliver assistance by way of matching contributions. As well, there was a broader governance issue dealing with private members' bills implementing fairly significant expenditures.
The Chair: I think honourable senators are familiar with that, but people following our deliberations here might find this to be a little strange. The bill passed and then this Bill C-50 would, in fact, cancel what has already been passed; is that correct?
Mr. Lalonde: That is correct.
The Chair: Thank you. Just so we have background to Part 2, and also so we can get the proper pronunciation of Mr. Achadinha's name, can you give us some background on these provisions? Do you work with the customs and excise side of things?
Carlos Achadinha, Chief, Sales Tax Division, Alcohol, Tobacco and Excise Legislation, Tax Policy Branch, Department of Finance Canada: Yes, I deal with the excise duties on tobacco and alcohol products.
Part 2 of the bill deals with the excise duties on alcohol and tobacco products. With respect to tobacco products, a number of changes are introduced to enhance tobacco taxation and compliance, as well as some minor changes on certain products subject to duty.
With respect to enforcement and compliance issues, to make it more difficult for a non-licensee to produce contraband products, the budget proposes to limit the possession and importation of tobacco manufacturing equipment to licensees. Under the act, anyone who undertakes to produce products is required to hold the licence and authorized to produce. Therefore, when these measures go forward the rules will be in place that to hold the manufacturing equipment you should be a licensee. This is intended to limit the production of contraband products.
Similarly, there are amendments in terms of the licensing provisions. They clarify that under the current rules you can have your licence denied or revoked if it is in the public interest. Some of the amendments are introduced to clarify what is intended by ``the public interest,'' including if there is access to the licensee's premises that would be a means in terms of it would be a reason to deny a personal licence or revoke a licence. Similarly, there are some amendments with respect to certain products. These are intended to help the Canada Revenue Agency's, CRA's, introduction of a new stamping and marking regime.
There are other amendments with respect to duties on tobacco sticks. These are pre-proportioned products that require some additional assembly. They are currently subject to a lower tax than cigarettes; however, these products have evolved over time. They are very similar to cigarettes, therefore the tax has been increased and the measure in this bill would have them taxed at the same rate as a cigarette going forward.
There are minor amendments on the excise duty on tobacco products for duty-free markets. The current regime is that those products in duty-free markets are subject to duty. The rules intended here are for the imports going into these markets. The amendments would allow the importers to prepay the duty themselves to simplify the process for the vendors and for people bringing products into Canada subsequently at the border.
With respect to alcohol, there is an amendment introduced to place a limit on beer. Currently, there is no limit on malt-based or brewed products that qualify for the term ``beer.'' The intent of the amendments is to place a threshold of 12 per cent on what can be entitled to be a beer. This is intended to address some new, high-alcohol, malt-based products that have been introduced into the market that are subject to a lower rate of duty as a beer just because they qualify as they are a malt-based product. These are products that are spirit-flavoured and have a secondary process to increase the level of alcohol. These would be treated as spirits given they are like-based products, so this would equalize the tax treatment of these products.
That is a summary of the excise duty measures.
The Chair: That is a general summary that I think honourable senators will find helpful.
Next we have Mr. Mercille on Part 3 of the bill.
Pierre Mercille, Chief, Sales Tax Division, GST Legislation, Tax Policy Branch, Department of Finance Canada: Part 3 deals with the amendments relating to the Goods and Services Tax and the Harmonized Sales Tax. There are three categories of amendment. First, the health package, which includes a new exemption under certain conditions for training that is specially designed to assist individuals to cope with the effects of a disorder or a disability. An example of that would be specially designed training for people who cope with autism.
Another amendment is to expand the exemption for nursing services so that the exemption always applies if the supply is made in the course of a nurse-patient relationship irrespective of where the supply is performed. Before, there were specific places where the service had to be performed in order to be exempt. Also, there is an exemption for some diagnostic services. That is expanded, so now, if the diagnostic is required and ordered by a registered nurse, it would be exempt whereas before it had to be ordered by a doctor.
With respect to prescription drugs, the GST-free treatment of prescription drugs is expanded. We now allow the GST-free treatment of drugs that are prescribed by health professionals other than doctors and dentists. If the professional is authorized to prescribe under provincial legislation, then the drug will be GST-free when it is purchased by the consumer at a pharmacy.
The GST-free treatment of some medical-assisted devices has been expanded. These include machines designed for neuromuscular stimulation, standing therapy, chest wall installation systems and other specific machines — I hope you will not ask me what they do.
There is also a more technical amendment in the health area. Some services provided by health care professionals are currently exempt, and the amendment ensures that is whether the health care professional incorporates this practice or he practices this service himself, the service will continue to be exempt if it is rendered to the patient.
The second area of change is the GST treatment of long-term care residential facilities. Basically, this is a real property amendment. It clarifies rules that apply to the owner of the facility or the lease between the owner of the facility and the operator of the long-term care facility. It ensures that a new rental property rebate is available for long- term care facilities the same as it is available for the owner of an apartment building. It also ensures that the lease between the owner of the building and the operator of the facility is exempt.
The last amendment is in respect of wind and solar energy. It expands a natural GST-free treatment for the right to enter to explore for minerals to the right to enter and install a windmill on the property of someone. Basically, the lease will be GST-free.
The Chair: Thank you for the background. Ms. Frith, please proceed.
Rosaline Frith, Director General, Canada Student Loans Program, Human Resources and Social Development Canada: Part 4 of the bill essentially deals with the liquidation and dissolution of the Canada Millennium Scholarship Foundation. The foundation came into force with a mandate of 10 years that ends in January 2010. The bill would, therefore, dissolve what is left of the foundation. It will deal with the liquidation of its assets and the return of any donation of monies to the original donors. It will deal with the transfer of books, records, data and any other relevant information that the foundation has under its control to Human Resources and Social Development Canada, HRSDC. It will deal with any of the remaining monies that are to be returned to the government after the settling of assets and debts and will deposit that money into the Consolidated Revenue Fund.
It will amend acts that have the name of the Canada Millennium Scholarship Foundation within it, such as the Budget Implementation Act, 1998, and the Access to Information Act and the Privacy Act. It will set out the timelines for the actual dissolution of the foundation and the liquidation of its assets.
If committee members would like, I can explain Part 5 next.
The Chair: I have Ms. Archambault and Mr. Reiker on my list for that. Are you subbing for them, Ms. Frith?
Ms. Frith: Yes, I am.
Part 5 of the bill deals with some of the changes that are required in order to implement the budget announcement for modernizing the current Canada Student Loans Program as well as a major change for introducing a new Canada Student Grant Program, which would replace the non-financial assistance that has been given out in the past with a new grant. It also touches on improvements for students with permanent disabilities, as well as certain other areas. In effect, it will change the definition for ``permanent disability'' to ``severe permanent disability,'' but will allow for regulations to be but in place that will lead to a new repayment assistance program that will be more generous and more helpful for students with permanent disabilities. It will also allow for authorities that enable the implementation of electronic systems for electronic transactions and information sharing, which will allow us to modernize the Canada Student Loans Program. It will expand authorities in terms of debt management overall that will allow us to have classes of borrowers; for example, those with permanent disabilities or other special groups of borrowers that can obtain assistance in dealing with their loans.
This bill will bring into force an amendment that will allow us to have a more efficient cash management system. The Government of Canada works in collaboration with four integrated provinces in order to deliver Canada student loans as well as provincial student loans. This cash management process will allow a service provider to return monies to appropriate governments as quickly as possible and to review students' files as quickly as possible.
There is also an amendment that will allow a deferral of part-time loan payments for students who were attending on a part-time basis. As long as they remain in study, either on a full- or part-time basis, they will not be required to begin repaying their loans. The bill will also allow for the removal of a six-month time restriction for forgiveness of risk-shared loans due to death. That will mean that in the future there will be no restrictions for those people who have risk-shared loans, as is the case for direct loans, should a student with such a loan die. Their estate will not be called upon to repay that loan.
I mentioned electronic authorities, which will allow for the issuance of certificates electronically and dealing with certificates of eligibility for students electronically. There is an amendment that will allow us to recover loans made to minors. A new ministerial waiver will further allow the government to waive certain requirements that in the past have caused difficulty for some students who are attending out of the country and are unable to provide the same types of documentation as students within Canada.
We will also have an ability to remedy situations where financial assistance has been denied due to a government error or an error on the part of our service provider so that we can review and deal with those cases.
That, in essence, will allow us to have a more streamlined and modern Canada Student Loans Program and a very much improved Canada Student Grant Program.
The Chair: Thank you very much, Ms. Frith. In summary, it is proposed to do away with the Canada Millennium Scholarship Foundation, and the Canada Student Financial Assistance Act and the Canada Student Loans Act are both existing legislation that will be amended.
Ms. Frith: That is correct.
The Chair: You might say improved.
Ms. Frith: They will be much improved.
The Chair: We will make a judgment on that as we review in more detail what is being done, but we appreciate the background.
Senator Di Nino: Thank you, and welcome. This is a complex document. I want to talk about a couple of points in these first five sections. The first question deals with the Registered Disability Savings Plan. How is ``severe disability'' defined?
Mr. Lalonde: The amendments in this bill do not deal with the definition of ``severe disability.'' Rather, they use the definitions used for the disability tax credit. Generally speaking, those conditions are considered to be a severe and continued impairment of the normal abilities of daily life. I do not have the act in front of me, unfortunately.
Senator Di Nino: Is it clearly defined in the legislation that set this up?
Mr. Lalonde: Yes, it is defined in detail with variances in the Income Tax Act for the disability tax credit.
Senator Di Nino: It is obviously subject to interpretation by someone somewhere, which is fine.
Mr. Lalonde: It requires certification by a medical practitioner, so there is professional oversight.
Senator Di Nino: I understand that the definition includes both mental and physical disability.
Mr. Lalonde: That is correct.
Senator Di Nino: This is a great program that will help a large number of families who are some of the most courageous people I have ever met.
Is this measure limited to families with children with severe disabilities, or can it be used by families or households that have dependents? Is it applicable to the extended family as opposed to only parents?
Mr. Lalonde: There are constraints on who can set up a Registered Disability Savings Plan as only one plan is allowed per person. In terms of eligibility, I believe the expanded definition of ``child'' under the act is used, which generally includes nieces and nephews, et cetera, but I will check on that.
Senator Di Nino: Would grandparents be able to avail themselves of this?
Mr. Lalonde: Yes, they would.
Senator Di Nino: That question was asked of me by someone.
My second question is on capital gains and listed securities. For those of us who do not deal with these every day, will you tell us in layperson's language what change we are making?
Mr. Lalonde: In income tax terms even layperson's language is sometimes complicated. The essence is that we have an existing capital gains exemption for gains that arise on gifts of listed securities to registered charities. It may happen that someone has a security that is not a listed security. It might be a share of a corporation, but the share is not listed; or an interest in a partnership, but the interest is not listed. However, that unlisted security might be exchangeable for one that is listed.
The issue that arises is that the person who holds this unlisted security might wish to give the security to a registered charity or, alternatively, exercise the exchange rate, get the listed security and donate the listed security to charity. The problem is that the gain arises at the wrong stage in the process in order to access the capital gains exemption. Under the existing law, the gain arises on the exchange of the unlisted security for the listed security, such that when the listed security is then donated to the charity fairly soon thereafter, so there is no gain or loss at that point; the gain has been crystallized before.
This amendment provides the capital gains exemption where, as part of the donation, the unlisted security is exchanged for a listed security that is then given to a charity. The gain on the intermediate transaction is also exempted.
Senator Di Nino: I thought this was one of the best measures introduced by the government to encourage people to donate to charitable organization. From what I understand, this is a very good addition to the original plan.
To be more specific, when you say ``unlisted,'' is that a ublic unlisted company or a private corporation that would be eligible as long as those shares could be transferred in some manner — although I do not know the technical way of doing — to a listed company? Is it only public companies that do not happen to be listed, of which there are many under different definitions, or would private companies be available assuming that they can follow the necessary steps to achieve that designation?
Mr. Lalonde: The security that is donated to the charity has to be a publicly listed security of a public corporation. However, the security that is exchangeable into that security need not be, so it could include a share of a private corporation or an interest in a partnership that is not listed on an exchange.
Senator Di Nino: For those of us who regularly raise funds, this a good vehicle. We will have to explore this a little more.
We recently spoke about Bill C-253. That bill is in the Senate at this time, it is in second reading, I believe, and it may pass. What happens if Bill C-50 is passed by the House and the Senate, does that kill that bill? Suppose Bill C-50 passes and Bill C-253 also passes? Can you clear up that potential situation for me?
Mr. Lalonde: As long as Bill C-50 passes, regardless of whether Bill C-253 passes, the provisions of the Income Tax Act will essentially be reinstated to the status quo ante before the introduction of Bill C-253. If it should happen that Bill C-253 passes but Bill C-50 does not, the provisions of Bill C-253 would carry on.
Senator Di Nino: Thank you. Mr. Chair, I may want to come back later.
The Chair: The gap you left out is this situation: Bill C-253 passes and is in force for a period of time before Bill C-50 passes.
Mr. Lalonde: Once Bill C-50 passes, it will reinstate the status quo ante, ab initio — from the beginning.
The Chair: Therefore, will people that started relying on Bill C-253 be told they cannot rely on it any more and to change their plans?
Mr. Lalonde: That is correct.
The Chair: Okay. That is clear.
Senator Nancy Ruth: Mr. Lalonde, with respect to the private shares, can you give me a story? If someone had a holding company that was privately held shares that held publicly traded securities, what is the mechanism — should they wish to donate money to a charity — for converting, say, one of their shares? For example, for a privately held company that has 500 shares, what is the mechanism to convert that to a publicly traded security?
Mr. Lalonde: This provision is aimed not so much at privately listed shares that someone would like to add a conversion feature on to and then convert it into another share, but more so to a publicly listed share that was issued in circumstances where it did have the conversion feature.
That could happen where, for example, the corporation were to be bought out by another corporation but the existing shareholder preferred to keep the shares of the private corporation with the proviso that they could convert to a share of the public corporation. In those circumstances, the share of the private corporation is almost the same as the share of the public corporation because it can be transferred or exchanged on demand.
Senator Nancy Ruth: It is similar to holding rights.
Mr. Lalonde: That is correct.
Senator Cowan: With respect to the Canada Millennium Scholarship Foundation, Ms. Frith, would you be the proper focus for that?
As I understand it, the government proposal is to wind up the foundation and to establish a new vehicle that will deliver a refocused program.
Can you tell me what the estimated cost of the wind up of the Canada Millennium Scholar Foundation will be?
Ms. Frith: I imagine the wind up costs will be very little. Should this legislation be approved, the work on legislating the dissolution of the foundation will have been done. Obviously, a cost is associated with doing the legislative work. I do not know what that cost is. The next cost would be any of the work involved in doing the transfer of the data, et cetera, back to the department. Again, that cost should be minimal. It is all existing data in formats that, hopefully, will be easily transferred. Very little cost will be involved in that.
The same would go for the accounting associated with the return of monies to original sources.
Senator Cowan: I understand that part of it. I am thinking more in terms of the Canada Millennium Scholarship Foundation employees who have contracts. I believe you mentioned a 10-year mandate. Do you know whether the contracts were all to the end of that mandate and, if not, could you provide the committee with that information?
Ms. Frith: I will have someone do a double check on that to be sure of my answer to you. I know right now that all of the major agreements that were put in place by the foundation with the provinces and territories in order to distribute the bursary money will all be terminated before January 2010.
The Excellence Awards Program will be terminated in late 2009. If they have not already entered into discussions with the employees, they will shortly. However, the original mandate for the foundation will end officially in January 2010.
Senator Cowan: Is it your understanding that none of the contracts of employment and other obligations — equipment leases, accommodation, office rent, office space and that sort of thing — would survive the original 10-year mandate?
Ms. Frith: My understanding is that they would have been managing in a proper way and mitigating all risks. They knew that their mandate was to run out in January 2010. However, I will confirm that.
Senator Cowan: Can you tell me what the quantum of the donations that are on hand that would be returned to third parties are?
Ms. Frith: There will be very little. Their current plan is to provide the bulk of the remaining funds to meritorious students by the end of 2009.
Senator Cowan: All of us who are concerned about post-secondary education and the access to post-secondary education are obviously supportive of measures that reduce obstacles to students attending post-secondary education institutions, as well as encouraging people who otherwise might not do so. We also want to try to minimize the debt loads that such students have. I think all of us support that.
Are you aware of any studies, or do you have access to any studies that would indicate that this refocus of support — which is contemplated by the abolition or winding up of the scholarship foundation and its replacement with another vehicle — would actually achieve those objectives better than they were being achieved through the current vehicle?
Ms. Frith: The current vehicle would no longer exist and monies would run out. Therefore, there is no money under the current vehicle after January 2010.
Senator Cowan: I understand. However, an option clearly was to renew the mandate. Therefore, the government has decided not to renew the mandate and to substitute it with a vehicle of a different focus.
Do you have access to and would you provide to the committee any studies that would indicate that that refocus will achieve the objectives that I am sure all of us share?
Ms. Frith: I can share with you that there have been studies done that show that, if you were to give non-repayable assistance to students, it must be given to them in a transparent fashion so that they know ahead of time that they will receive it and that they are receiving it up front.
That means they are receiving it at the beginning of a school year and not after they have completed their studies for that year. That is more effect than a system whereby they have received the money either at the end of a term as a result of having completed it, or that non-repayable assistance is given as loan remission. That means it is given to them, and they are told that their loan is no longer at a certain level but that it has been reduced.
Senator Cowan: Am I correct in saying that the refocus we are speaking about has to do with whether you are targeting people with high debt levels or that have lower income, family income or student income?
Ms. Frith: Only to a certain extent.
Senator Cowan: To the extent that that is so, could you provide the committee with studies that indicate that that refocus is effective or will be effective in reducing the barrier and will presumably increase the percentage of such students who would attend post-secondary education?
Ms. Frith: I do not know of a study that will say that you should not focus on a student from a high-income family more so than on someone else.
Senator Cowan: No one is suggesting that.
Ms. Frith: That is not how the new grant has been refocused. The new grant is intended to provide students from low-income families with a larger amount of non-repayable assistance. It is intended to provide students from middle- income families with assistance but at a somewhat lower rate.
Senator Cowan: That is precisely my point. Could you provide the committee with any studies that would indicate that to focus on students from low-income families as opposed to those who might have higher incomes but higher debt load, would increase the participation by students from low-income families by encouraging them to go into post- secondary education, which all of us agree is desirable.
Ms. Frith: I believe that we can provide you with the studies that show that providing non-repayable assistance up front, at the beginning of the school year, to students who are not currently attending will encourage a higher attendance level from those students.
Senator Cowan: That is not my point. My point is that you said that the new program will focus on students from low-income families and on a lesser support for students who come from better-off families; and that that presumably will increase the participation rate of students from low-income families. I am not talking about when they get the money but rather the focus of the program. I would like to believe that that is correct. Anything I have seen indicates that it is not correct, so I would welcome any documentation, any studies you have that indicate this focus showing where this has happened. This is not unique. It has had such results elsewhere.
Ms. Frith: We will share with you the studies on non-repayable assistance that show those results when the assistance is provided up front.
Senator Cowan: I understand.
Ms. Frith: We want low-income students from low-income families to attend — those students who currently do not attend. We know we have a much lower participation rate from students of low-income families and, therefore, in Budget 2008 the government chose to target the low-income group more so than the middle- or high-income groups who we know are attending and will continue to attend. The program will target those low-income students to ensure that the ones who are not attending will have non-repayable assistance to increase their participation levels.
Senator Cowan: That is precisely the point. We would like to see what empirical evidence you have to indicate that that is the effect. Thank you.
Ms. Frith: You are welcome.
The Chair: Ms. Frith, we look forward to receiving the material. Pleased forward it to the clerk for distribution to all committee members.
Senator Ringuette: Ms. Frith, we know that the Canada Student Loans Program is delivered through a private contractor for Human Resources and Social Development Canada, HRSDC. The company has 800 employees in Toronto and was looking at having an office in Ottawa. I received that information at meetings held in February and March, which we both recall.
Is the opening of the Ottawa office in anticipation of this new student grant program under Bill C-50?
Ms. Frith: No, it is not. The opening of the Ottawa office was contemplated several years ago in discussions with Resolve Corporation when they came in with their bid for a new contract. We have recently come through that process, and they undertook their new contract as of April-May 2008.
Senator Ringuette: Since you have no employees per se who provide the service of student loans within HRSDC, who will provide the services offered under the new program?
Ms. Frith: HRSDC has employees that dictate how the grants or loans are being delivered. As well, they monitor to ensure that they are being delivered properly.
Senator Ringuette: We understand that. You cannot contract the monitoring of policies.
Ms. Frith: Those same employees will lay out for the service provider and for the provinces and territories the way in which to implement the new grant program, just as they do now. The workload within the department will not increase substantially because we already deal with a certain number of grants and a large number of loans.
The different grants come from the Canada Student Loans Program and from the Canada Millennium Scholarship Foundation. The bulk of the monies from the Canada Millennium Scholarship Foundation were delivered by the provinces and territories directly through two vehicles. One was a direct grant of money to the students, which was a very small amount; and a much larger amount that was being handled by the provinces and territories as loan remission. The students never saw that money. They got a loan at the beginning of the year from the federal and provincial governments, and at the end of the school year, the provincial government would deduct the amount of the Canada Millennium Scholarship Foundation bursary from their provincial loan so that they would have a smaller loan to repay when they completed their studies.
We would implement the new grant by having the provinces and territories do the same need assessment as they do today, but they will give the students the funds to which they are entitled at the beginning of the year. We have eliminated several steps in how the money is allocated.
On the actual delivery of the money, we will have discussions with the provinces and territories to decide whether they will deliver the money or whether the service provider will do it. That is no different from the way the current system works. In some cases, Resolve Corporation actually sends out some monies. In other cases, the cheques come directly from the government. The Receiver General of Canada sends an electronic deposit into the student's bank account. All of those processes are currently in place and will continue to be in place.
Senator Ringuette: You are saying that if the transfer of money is not done by agreements between the Government of Canada and the provinces and territories, it will be done by a contracted-out service provider that could be an extension of the Resolve Corporation contract?
Ms. Frith: It would be the Resolve Corporation contract. Currently, the money for the federal loan comes directly from federal government and not via the service provider. The service provider manages the loan papers, but the actual money is managed in Ottawa by federal employees within HRSDC and Public Works and Government Services Canada, being the Receiver General of Canada.
Senator Ringuette: How many employees are there at the millennium program to provide the service to the students?
Ms. Frith: The majority of the work done by the foundation was to manage the contracts with the provinces and territories and to do research. In addition, there are the excellence awards. I cannot tell you the exact distribution, but all the work involved in doing the analysis of the students' files and the distribution and tracking of the money was being done by the provinces and territories under agreements with the Canada Millennium Scholarship Foundation, and not within the foundation itself.
Senator Ringuette: How many employees do you anticipate you will need in your department to assure continuity in the program?
Ms. Frith: There is no continuity in the program. There is a period of transition during which students who are receiving a Canada Millennium Scholarship Foundation bursary will not have fully completed their studies and would have continued to receive some funding. Arrangements to deal with that will be made with the provinces and territories that were administering in any case, not the foundation.
Senator Ringuette: Let us go to the bottom line of this, Ms. Frith. I cannot believe, with the professionalism that I know you have, that estimates of the needed human resource years for your department or for a contracted-out private company have not been done when studies have been done of the transition from the current millennium program to what is being proposed in this bill. That is the bottom line issue, Ms. Frith.
Ms. Frith: Within the department some administrative costs will change, but we were already giving grants to a large number of students.
Senator Ringuette: I do not want to know the process; I want to know the cost, Ms. Frith.
Ms. Frith: I realize that, but the cost associated with a student will remain the cost for that student. Whether we give them more money or less money is irrelevant. The cost is associated with, first, determining whether they have a need for assistance. We are already paying for that.
Senator Ringuette: You said earlier to Senator Cowan that the objective of the new program is to add the number of students.
Ms. Frith: That is correct, senator.
Senator Ringuette: Therefore, you must have an estimate of the new cost and the new requirements with respect to human resources.
Ms. Frith: There will be 100,000 or 105,000 students, who were not receiving non-repayable assistance, who will now be receiving non-repayable assistance. Those 105,000 students are already receiving Canada Student Loans. We are already paying for need assessment. We are already paying the service provider to manage their accounts. No additional cost is required to do that. A one-time cost is necessary to get some systems in place, but the actual operating costs of transferring from the previous foundation-type of delivery to a delivery system that we already have up and running will be minimal.
In addition to that, senator, Budget 2008 announced large investments in modernizing the program and changing other parts of it, which we will be doing with the service provider and the provinces and territories. The money has been allocated to do that, and that will cover off much of the process work that may be involved.
Senator Nancy Ruth: It is my understanding that national students' organizations and some provincial students' organizations are quite happy with the change that the government is choosing to make. Could you tell us why the students are so happy about this?
Ms. Frith: There are several reasons. First, the non-repayable assistance will now be predictable. They will know ahead of time that if they have one dollar of need, they will, in fact, receive non-repayable assistance. They will understand that system. That is because under the Canada Millennium Scholarship Foundation the money was a fixed pot and not a statutory grant, and therefore it ran out. It was not distributed according to real need across the provinces; it was distributed according to population.
We do not operate the Canada Student Loan Program that way nor would we do it for the Canada Student Grant Program. It would be based on need, and it would be a statutory program. If you meet the criteria, then you definitely will receive it; you will not be cut off.
In the past, you could have had a need of up to $6,000, and in some provinces, you would not get a penny of non- repayable monies out of the Canada Millennium Scholarship Foundation. This was due to the cut-offs; the way it was set up. That is one reason why the students are happier.
A second reason students are happier is because $350 million has been set aside for the Canada Student Grant Program, and it will grow over time. That is more than they currently receive. Therefore, the overall pot of non- repayable assistance has increased. Students will get more money over all.
Third, it will not apply only to the students with the highest need. Often, they are able to handle the debt. However, it is those students, who are going to colleges, who were never able to qualify in the past because the tuition at a college is lower than tuition for a high-cost program at university. Therefore, those students — and many students from low- income families attend colleges — were not able to receive non-repayable assistance. Under the new program they will. That is another reason the students are pleased.
Fourth, some of the bursary money under the foundation and some of the grant money under the federal government were only given to first-year students in a first-year program. If they decided that they were in the wrong program in that first year and changed programs, they could not access non-repayable assistance after that. In any case, they were only entitled for one year as opposed to every year. That meant that maybe you got them in, but you certainly did not help them to complete their education. That, too, is a big change that the students were looking for.
Overall, the students were telling us that they wanted something that was more predictable; they wanted it for every year of study, and they wanted it to apply to programs that cost less but that people still need help to attend. The new grant program covers all of that.
Senator Nancy Ruth: It sounds as though this is a huge step and a good thing for students.
Senator Ringuette: Mr. Lalonde, could you table with this committee, as soon as possible, all the studies that deal directly with Bill C-50 that have been done by your department, by Treasury Board and by the department responsible for the Employment Insurance program?
Mr. Lalonde: With Bill C-50?
Senator Ringuette: Yes, with this bill.
Mr. Lalonde: With the whole bill?
Senator Ringuette: Yes, please.
Mr. Lalonde: I would have to consult with our minister's office. That is a huge request to table every document that has to do with the whole bill.
Senator Ringuette: I said ``studies.'' Perhaps you were busy signing something. I asked for studies with your department, Treasury Board and the department in question.
Mr. Lalonde: I certainly cannot speak for Treasury Board because I am from the Finance Canada. ``The department in question'' being those for all the various parts of the bill that do not have anything to do with income tax, is that right? I cannot speak for those departments, either.
I can let others speak for themselves.
Senator Ringuette: I am talking, in particular, about the Employment Insurance program.
In Part 1 of this bill, Mr. Lalonde, you are dealing with changes to the Employment Insurance Act. I want to have a copy of studies that have been done by your department, by Treasury Board or by the department responsible for program delivery in order to bring changes to the program as per requested with Bill C-50. I think that is very clear.
Mr. Lalonde: The amendments that are contained in Bill C-50 dealing with the Employment Insurance Act and the Canada Pension Plan are consequential amendments dealing with provisions that respond to the remittance requirements; that is, the time for remittance of payments. They are not fundamental to the programs administered by those acts.
No studies would have been done with respect to CPP and EI. These changes are consequential to amendments to the Income Tax Act on remittance due dates for remittances of employees' source deductions. As you know, when an employee gets their pay, withheld from that is CPP, EI and their tax payable.
Senator Ringuette: How do you account for clauses 121 to 135 in the bill?
Mr. Lalonde: I took it that you were asking about the amendments to those programs in Part 1 because I deal with Part 1. To the extent that you are talking about the amendments in Part 7, we will get to that later.
The Chair: Yes, we will deal with that later.
Mr. Lalonde: As we talked about this in the beginning, we will deal with Part 1 through Part 5 now. Part 7 will be dealt with later. When we change our crew, the person in charge of that could, perhaps, respond to your inquiry.
Senator Ringuette: I have a question about Bill C-10. I am on the committee studying Bill C-10. You know the horror stories that we are hearing about the technicalities and requirements for letters of comfort because issues are not being dealt with.
In Part 1, what are the provisions in this bill that would pertain to Bill C-10?
Mr. Lalonde: Are you asking what the provisions are that require the coordinating amendments?
Senator Ringuette: Yes.
Mr. Lalonde: Mr. Purdy, who is with me, will answer that.
Senator Stratton: Are we studying Bill C-10 or Bill C-50?
The Chair: You will recall that earlier I asked a question about the coordination in Bill C-10 and Bill C-253. The honourable senator is following up on those points.
Lawrence Purdy, Senior Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance Canada: Three bills are being discussed here, and it is important to keep straight which are which. Bill C-50, the one currently before you, implements most of the budget measures from Budget 2008.
Bill C-10, to which Senator Ringuette referred, combines a number of things; notably, from our perspective, a large series of technical amendments to the Income Tax Act. It is with respect to some of those that Bill C-50 has what are called ``coordinating amendments.'' You will find those in clauses 40 through to 44 in the bill.
These coordinating amendments are in the nature of ensuring that where Bill C-10 has proposed an amendment to a given provision and then Bill C-50 is amending the same provision, they do not get in each other's way. It is a technical matter. One of our colleagues in the Department of Justice Canada would be glad to explain the intricacies of how this is done in a legislative fashion. It is in terms of the timing of the particular measures.
To give you a flavour of this, there is a cross-reference in a provision of the Income Tax Act that deals with the merger of mutual funds, section 132.2. Again, at a technical level, as a consequential amendment, in Bill C-10 some changes are being made to that same provision. To ensure that the timing of those amendments meshes properly, these coordinating amendments are included here in Bill C-50.
Senator Ringuette: If Bill C-10 is amended, what happens to the mergers that you are talking about?
Mr. Purdy: If Bill C-10 were enacted in a different form, that would have to be examined and a determination made as to whether these coordinating amendments have the desired effect. If they did not have, and if Bill C-50 had been enacted in the interim, there would have to be a change in Bill C-10, or in some subsequent legislation to ensure the correct meshing of the provisions.
Senator Eggleton: In Part 1, with respect to the Scientific Research and Experimental Development, SR&ED, program, there is a tax credit to encourage small- and medium-sized businesses to invest in research and development. The provision takes the expenditure limit from $2 million to $3 million, which is a good move except that $2 million was put in place back in the 1980s, as I recall. People involved in the industry are saying that the amount is way out of line with the realities of today. I chair the Standing Senate Committee on Social Affairs, Science and Technology. Recently, we were examining the new science policy of the government, which, by and large, we liked. However, we made some suggestions for some improvements to it, and one of them was along this line. BIOTECanada, one of the witnesses, indicated that it should be about $10 million as opposed to the $2 million that it was. In the end, it has gone from only $2 million to $3 million.
Could you comment on the reality of dealing with that? It is supposed to be a support for research and development, R&D, efforts in small- and medium-sized businesses. How can it be if it is considered out of line with today's expenditures?
With respect to Canadian-controlled corporations, it is important that research be done in Canada. Many small companies starting up struggle to obtain venture capital; they struggle to create a commercial product and then move into a more viable stage of production. They have a difficult time finding the money in Canada. At times, they have to go to the United States to find that money. However, if they lose control of their company, they will not be eligible for any Canadian money. That does not make sense. Surely, it is not a matter of ownership. We would love the ownership to be here, but surely it is more a matter of where the research is being done and who is benefiting from that research. If people are being employed to research in this country, then I do not know why we do not remove that restriction. Could you comment?
Mr. Lalonde: The first comment is fairly difficult to respond to because it deals largely with the priorities and finances of the government of the day.
The fact of the matter is that the SR&ED program was expanded. Some people may be of the view that it was not expanded enough. The corollary is that other measures in the budget should have been constrained or eliminated. If one looks at the budget plan for 2008, one will see that on an ongoing basis this increase is expected to generate additional funds to the industry of $45 million in 2009-10. As it goes into the steady state for that program, whether $45 million in increases is not enough or is too much is a matter of opinion. You can look at other measures in the budget that deal with northern residences, and they have their issues as well. That expenditure was $10 million for 2009-10.
For example, looking at any of the items on page 272 in the English version of the budget papers will show that a $45-million expenditure is significant in the context of the tax measures that were introduced in Budget 2008.
With respect to the second part of your question, the support for scientific research and experimental development through the tax system is generated through a combination of an upfront, 100 per cent deduction for SR&ED expenditures in addition to a tax credit of 20 per cent or 35 per cent, dependent upon eligibility for the enhanced 35 per cent credit. The ``enhanced'' part is conditional upon the corporation doing the SR&ED being a Canadian-controlled, private corporation. As you probably know, a variety of provisions in the Income Tax Act provide preferential treatment to Canadian-controlled, private corporations. Corporations that are not Canadian-controlled are eligible for the 20 per cent investment tax credit under the existing system under the Income Tax Act, although they are not eligible for the refundable provisions.
The question as to whether the additional incentives for Canadian-controlled corporations should be modified or the distinction between Canadian-controlled and non-Canadian-controlled should be eliminated is very interesting from a tax theory point of view. The fact of the matter is that our tax system has been designed and set up to provide additional assistance to Canadian-controlled corporations through a variety of provisions. You will recognize the small-business deduction included in that and the enhanced SR&ED. You can probably pick through the Income Tax Act to find a number of other provisions that are dependent upon the corporation being Canadian-controlled.
Senator Eggleton: The government claims that research and development is a high priority, yet people involved in R&D in the industry are saying that if that is so, then the government should be making changes. The venture capital in this country for the biotech industry is certainly lacking. I would hope that further thought would be given to that.
The next area that I want to ask about comes under Part 8.
The Chair: We will deal with that in about five minutes.
Senator Eggleton: I am sorry, but I will not be here. I have to leave to chair my committee.
The Chair: I am sorry but the people at the table are not here yet. Perhaps you could leave your question with someone else to ask for you.
Senator Nancy Ruth: I want to go back to the program that you said students are so pleased about and ask about the transition mechanisms for those under the old program moving to the new program. Tell me how that flows.
Ms. Frith: Students who would receive, in 2009, money from the Canada Millennium Scholarship Fund through the provincial government at the end of their first year, provided the money held out and the many conditions were met, would continue to receive funding for another three years at a maximum.
The transition fund will allow those students who have three more years in the system to continue to receive the same level of non-repayable assistance that they were receiving through the Canada Millennium Scholarship Foundation bursary via the province or territory. They would continue to receive something. If they were in their second year, they would get it for two more years. If they were in their third year of a four-year program, they would get it for one more year. If they were in the last year of their program, they would obviously not receive any transition funding, or if they were in what was considered under that program to be a one-year program, they would not receive any new funding.
We would calculate how much they would be receiving had they been a scholarship foundation recipient versus how much they would have been entitled to under the new Canada Student Grant Program, and any difference would be topped up. A very small number of students will not qualify for either the low-income or the middle-income categories. During that transition period of the Canada Millennium Scholarship Foundation bursary, that very small number of students will get the full amount that they had previously received.
Senator Nancy Ruth: Full-time students will not lose anything in the transition. They are getting topped up, held over and so on.
Ms. Frith: That is correct.
Senator Nancy Ruth: What happens in terms of transitioning if a full-time student under the millennium project for some reason needs to switch to part-time studies, being that it is easier under the new system?
Ms. Frith: In terms of transitioning, if they would have still qualified for a millennium scholarship, they will get the transition funding. If they would no longer have qualified for a millennium scholarship, they will not get any transition funding, but if they now qualify under the new grant, they will get the new grant.
Senator Nancy Ruth: Do they reapply?
Ms. Frith: Everyone automatically applies. When you apply for a loan, a needs assessment is done by the provincial or territorial government for the federal government and themselves at the same time. Therefore, we know exactly what the needs are. If they have one dollar of need and meet the criteria for the grant, they would get a grant. They do not have to submit a separate application for a grant.
We have some students who are only looking for non-repayable assistance and not for loans. Those are often students with permanent disabilities who need some extra help, but they do not want any debt whatsoever. If that is case, they would have to apply as though they were applying for a loan in order to have the needs assessment done, which is exactly what is happening today, so it is not a new imposition. They would apply, and they would get only grant monies as opposed to a loan and a grant.
The Chair: Thank you, Senator Nancy Ruth, and thank you very much to the entire panel. Ms. Frith seems to have taken the brunt of most of the questions, but thank you all for helping us to understand the first five parts of this ten- part bill.
We will proceed with an exploration of Bill C-50, budget implementation 2008, Part 7 through to and including Part 10. We have with us representatives of the departments that are affected by these proposed changes in the proposed budget implementation act.
I will ask Mr. Beauséjour to give us a brief outline of what is in that part of Bill C-50, and what is being achieved by it.
[Translation]
Louis Beauséjour, Director General, Employment Insurance Policy, Human Resources and Social Development Canada: Mr. Chair, I am the Director General for Employment Insurance Policy. I come not from New Brunswick but from Quebec, from the Montreal region.
In fact, Part 7 of the budget implementation act consists of three parts. The first establishes the Canada Employment Insurance Financing Board, which will be responsible for setting employment insurance premium rates and managing a separate account and retaining and investing a $2 billion reserve.
The second part consist of amendments relating to employment insurance. These amendments establish a new way of setting premium rates.
The third part deals with consequential amendments to the Department of Human Resources and Skills Development Act and the Financial Administration Act.
[English]
Krista Campbell, Senior Chief, Federal-Provincial Relations Division, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Part 8 does three things with respect to payments to provinces and territories. First, it establishes three trust funds: $400 million to provinces and territories for hiring an additional 2,500 police officers over the next five years; $500 million over two years to provinces and territories for investments in transit initiatives; and $240 million over four years to the Province of Saskatchewan for a carbon capture and storage demonstration project.
Second, Part 8 provides for a direct payment to Nova Scotia of $5 million for geological research related to carbon capture and storage. Finally, Part 8 creates a change to the Canada Social Transfer protection provisions that were created in Budget 2007.
Briefly, Budget 2007 made a number of changes to fiscal arrangements. The Canada Social Transfer was moved to a per capita cash transfer. To ensure that provinces and territories received at least as much under the new system as they would have received under the old way of allocating the Canada Social Transfer, a protection provision was provided. In addition, the federal government provided $250 million for investments in child care in Budget 2008 to ensure that the protection applies to both the Canada Social Transfer and the child care component. As a result, Saskatchewan and Nunavut respectively are receiving $31.2 million and $750,000 to ensure that under the protection provision they would receive no less. It is slightly more generous because of the inclusion of this child care funding.
The Chair: The child care funding of $250 million was on a per capita basis, is that why you need the transition protection rules?
Ms. Campbell: The $250 million was provided outside of the Canada Social Transfer in 2007-08 and inside the Canada Social Transfer beginning in 2008-09. Because of the change with per capita that you noted, that is how the math worked out.
The Chair: Thank you for that helpful explanation. Part 9 deals with payments to certain entities.
Elisha Ram, Chief, Microeconomic Policy Analysis, Industry Knowledge Economy Section, Economic Development and Corporate Finance, Department of Finance Canada: Part 9 creates the authority for the government to make payments to certain third-party organizations, that is, non-federal organizations. Payments to four organizations are covered by this part of the bill: $140 million to Genome Canada in support of genomic research; $110 million to the Mental Health Commission of Canada — Mr. Giroux can tell us more about that; $20 million as an endowment to the Gairdner Foundation, which is a not-for-profit foundation that awards prizes in health research to both international and Canadian researchers; and $5 million to the University of Calgary — Mr. Firla can tell us more about that.
The Chair: Would Mr. Firla and Mr. Giroux tell us a bit about the payments?
Ross Firla, Economist, Resources, Energy and Environment, Department of Finance Canada: The $5 million allocated under Part 9 for the University of Calgary will go to the Institute of Sustainable Energy, Environment and Economy to examine technological and regulatory barriers to the development of clean carbon and storage technologies to further the government's clean air agenda.
[Translation]
Yves Giroux, Director, Social Policy, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Mr. Chair, the purpose of the $110 million dollars allotted to the Mental Health Foundation, or the Commission, where one of your former colleagues, Senator Kirby, is in charge, is to carry out projects to identify better ways of dealing with or assisting people with mental health problems in various regions and various circumstances in the country.
[English]
Jeremy Rudin, General Director, Financial Sector Policy Branch, Economic Development and Corporate Finance, Department of Finance Canada: Part 10 is the miscellaneous section of the bill that amends various acts. These are organized in alphabetical order of the act amended, so the subjects move about a bit. I think it will be easier for members of the committee to proceed in alphabetical order with the proviso that we will come back to topics after leaving them.
The first act that is amended is the Bank of Canada Act. These amendments are brought forward in light of the experience that we have had in Canada and abroad beginning last summer when financial markets went into a state of turbulence and central banks around the world, including the Bank of Canada, conducted operations to support the stability of the financial system.
In Canada, we discovered that the bank had limited flexibility in the way it is able to do this, so the government has brought forward these amendments to the Bank of Canada Act to allow the bank to more effectively fulfill its mandate with respect to financial stability and monetary policy.
These amendments replace a specific list of securities that the bank may buy or sell, with the power for the bank to establish the list itself as long as those transactions are for the purpose of conducting monetary policy or promoting the stability of the financial system. Therefore, there is a purpose test.
To support transparency and accountability, the bank is required to publish its policy governing the use of these proposed powers in the Canada Gazette at least seven days before the policy comes into effect.
Clause 148 proposes to amend a particular part of the Budget Implementation Act, 2006. That part of the Budget Implementation Act provided the Minister of Finance with authority to enter into guarantee agreements with private- sector providers of mortgage default insurance. The government does this because the government is the proprietor of the dominant provider of mortgage default insurance, the Canada Mortgage and Housing Corporation, CMHC. It is also desirable to have private-sector competitors for CMHC, and they would not be able to compete with CMHC on a roughly equal footing without a partial guarantee provided by the government to the policy holders of those private- sector insurance providers.
The aggregate face-value exposure that the government can take on through those guaranteed agreements has a limit. This amendment would raise that aggregate limit by $50 billion to ensure that private-sector providers are able to continue to function in the market on a roughly equal footing with CMHC.
The next act is the Canadian Forces Superannuation Act, and Ms. Arnold will tell you what that is about.
Joan Arnold, Senior Director, Insurance Benefits Program Group, Treasury Board of Canada Scretariat: This statute and two other closely-related statutes are about the following public sector pension plans: the Canadian Forces Superannuation Act, the Public Service Superannuation Act and the Royal Canadian Mounted Police Superannuation Act.
The same amendments are made to all three. The first amendment is to allow the plans to deal more readily with technological changes in the future with respect to electronic communication between plan members and the administration.
The second amendment is to allow for the payment of interest on overpayments made under the acts; if a plan member has overpaid, we can pay them interest when we are required to give them money back. In addition to the Public Service Superannuation Act, there are two technical amendments, one to correct a cross-reference and another to ensure the efficient application of regulations already made.
Mr. Rudin: The amendment to the Cooperative Credit Associations Act is technical amendment to change the definition of a commercial loan. A commercial loan — a mortgage or loan secured against real property — can be considered a commercial loan under the current act if it is one where the loan-to-value ratio is below 75 per cent.
Bill C-37, which amended a variety of financial institution statutes — that is the comprehensive five-year review that was passed last year — changed the definition of a ``high-ratio mortgage'' from one that is above 75 per cent to one that is above 80 per cent. This, for example, is used in the requirements to have mortgage insurance that is related to the clause that I was just discussing.
We simply neglected to change the definition of ``commercial loan'' in the Cooperative Credit Associations Act to move the threshold from 75 to 80 per cent as would have been logically consistent at the time. This amendment catches that up.
Mr. Lomas will explain the Donkin Coal Block Development Opportunity Act.
Robert Lomas, Special Advisor to the Director General, Minerals, Metals and Materials Policy Branch, Natural Resources Canada: The amendment to the Donkin Coal Block Development Opportunity Act will permit the Minister of Natural Resources to make statutory payments to Nova Scotia from the Consolidated Revenue Fund. The payments are in respect to coal and coalbed methane royalties that will be collected by Nova Scotia from portions of the Donkin coal block that lies in the offshore. As per the act, the royalties are required to be deposited to the Receiver General of Canada and must be remitted back to Nova Scotia. Therefore, it is simply to facilitate an easy mechanism for making that transfer of those payments back to Nova Scotia.
Mr. Rudin: Clause 153 of the bill proposes an amendment to the Financial Administration Act providing the Minister of Finance with the authority to appoint advisory and other committees. The Governor-in-Council would determine the amounts to be paid for services and expenses.
This is a power that a number of other ministers have that the Minister of Finance does not have at the moment.
Clause 154 would amend the Insurance Companies Act to redefine ``commercial loan'' as has been proposed for the Cooperative Credit Associations Act.
Clause 155 of Bill C-50 would amend the Interest Act. The Interest Act defines the pre-payment rights for borrowers who have mortgages on real property of terms longer than five years. It provides that any person who has a mortgage with a term longer than five years will have the right to repay that mortgage early, on payment of a penalty of three months' interest.
Another part of the Interest Act then provides a carve-out for that for certain types of commercial entities. Commercial entities who are perhaps building a shopping centre want to be able to secure long-term financing — mortgages longer than five years — and lenders will be reluctant to lend on that basis if the borrower has the right to repay early.
That carve-out has not been functioning exactly as intended because some commercial-type entities have been captured by the pre-payment right, even though they would like to be able to give it up. This is particularly an issue for real estate investment trust-type vehicles in the province of Quebec, although it is not necessarily entirely restricted to that domain.
The amendments proposed to the Interest Act in this bill would allow the government to carve out other commercial-type entities who wish to give up this pre-payment right.
Clause 156 amends the Old Age Security Act.
Mr. Giroux: That is to provide the capacity for people who are in receipt of the Guaranteed Income Supplement, GIS, to earn higher work-related income without having their GIS clawed back in any given year.
Mr. Rudin: The amendments to the Public Service Superannuation Act and the Royal Canadian Mounted Police Superannuation Act have been dealt with.
Finally, the amendments to Trust and Loan Companies Act is the same type of amendment as proposed to the Insurance Companies Act and the Cooperative Credit Associations Act, which is to change the commercial loan definition, the boundary changing from 75 per cent loan-to-value ratio to 80 per cent.
The Chair: That is quite a basket of amendments.
Is that everything in Part 10?
Mr. Rudin: Yes, it is.
The Chair: I thank each and all of you. We will proceed to questions and answers, and a discussion on Part 7 through to Part 10. The first questioner is the deputy chair of this committee, a senator from Red River, Manitoba, Senator Stratton.
Senator Stratton: Thanks for your presentations, as brief as they are.
I would like to go to Part 7, the Employment Insurance Act. Over the years, this theoretical or paper surplus ended up being about $54 billion. I do recall the days when it was growing in the $20 billion to $30 billion range, and we complained quite strongly over the surpluses, saying that it was just another tax.
Could you explain to the committee and the folks watching these proceedings what will happen to this surplus? Does it get paid back or, because it is really a paper surplus, has it already been spent, in theory? What can we tell people about this?
Mr. Beauséjour: The current surplus, as you have mentioned, is a bookkeeping surplus that accounts for the revenue and the expenses that have occurred in the past. The change that is proposed in Part 7 of the bill is a go-forward change that will ensure that, in the future, the expense and the revenue will break even.
Senator Stratton: In order to not do this again.
Mr. Beauséjour: Exactly.
Senator Stratton: You have limited the account for Employment Insurance to $2 billion, as I read it. The intent is that that would look after a drawdown should unemployment rise.
Why or how did you arrive at the $2-billion figure? We have been told in the past that, if in a severe downturn in the economy, there likely would be a necessity for having around $15 billion rather than $2 billion. Can you provide a perspective as to why it is staying at $2 million rather than being allowed to flow up to and hold at $15 billion?
[Translation]
Mr. Beauséjour: The $2 billion figure was arrived at through a series of economic scenarios and hypotheses. It was determined that this amount would be sufficient, given the mechanism for setting premiums, which provides for increases of up to 15 cents per $100 in premiums, of insurable employment, to deal with a medium-level recession such as we experienced in 2001-2002.
Mr. Giroux: The $15 billion was estimated by the chief Actuary at a point when economic conditions in Canada were very different. The employment situation was different, and it also assumed that premiums were maintained at a stable level through a period of economic slowdown. So it was a scenario in which the employment insurance premium setting mechanism was different from what is proposed under Bill C-50. The figure is several years old, using a premium setting scenario that was different from what it will be now.
[English]
Senator Stratton: For example, if it remains at $2 billion and the economy takes a downturn, what will happen? Does the federal government step in to subsidize that? In so doing, does that mean the insurance premiums will rise in future years to pay back that amount?
[Translation]
Mr. Beauséjour: Exactly. The bill provides that if premium revenue is not sufficient to cover expenditures, the first thing that will happen is that the $2 billion reserve will be used to pay expenditures and employment insurance provides that the consolidated fund will be used to cover any expenditure that has to be incurred for the employment insurance program.
Then, in future years, premiums will be increased to restore the fund, the new corporation's reserve, to $2 billion.
[English]
Senator Stratton: I would like to be on the second round so that I may talk about the board.
Senator Cowan: Can you explain to me in 25 words or less what in the world Part 6 has to do with budget implementation? That section deals with amendments to the Immigration and Refugee Protection Act.
The Chair: We will deal with that section in the next panel.
Senator Cowan: I want to continue my discussion on scholarships, and I understand that I will have time at the end of this panel.
The Chair: Yes, Ms. Frith has remained for that very purpose.
Senator Ringuette: With respect to the seniors working income in Part 10, what working income limit are we moving to, and from what level?
Mr. Giroux: We would move from 20 per cent of up to $2,500, which is the current system. Seniors who are on the GIS have an exemption of 20 per cent of their earned income from the clawback, which is 50 per cent. In effect, this reduces the clawback from 50 per cent to 40 per cent for earned income up to $2,500. The proposal in Bill C-50 would exempt $3,500. It would move the value of the exemption from $500, which is 20 per cent of $2,500, to $3,500. Therefore, $3,500 would be totally exempt because it is the average earned income of those who receive the GIS.
Senator Ringuette: Have you used statistics to determine that move from $2,500 to $3,500?
Mr. Giroux: Yes, we used statistics and consideration of the fiscal affordability of the measure.
Senator Ringuette: How many seniors are we talking about?
Mr. Giroux: Off the top of my head, I would say that we are talking about 60,000 seniors per year.
Senator Ringuette: How many seniors currently receive the Guaranteed Income Supplement?
Mr. Giroux: I do not have that figure, although I could obtain that for you.
Senator Ringuette: We are only helping about 6 per cent.
Mr. Giroux: You must keep in mind that those on the Guaranteed Income Supplement must be 65 years of age and over, and relatively few people stay in the labour force in that age group. We will be helping those who are still in the workforce or who want to come back to the labour force.
Senator Ringuette: How many hours of work and at what rate of pay are we talking about? Do these seniors work at places such as McDonald's?
Mr. Giroux: Those who receive the GIS are by definition 65 years of age and older. I do not have information on place of employment or average rate of pay.
Senator Ringuette: When was the figure of $2,500 established? Are we simply catching up with inflation?
Mr. Giroux: I would have to go back and find out when it was initially implemented to be able to answer that question.
Senator Ringuette: My next question is for Mr. Ram. Tell us about your foundation. Do we not have a foundation dealing with the type of research funding that we are talking about?
Mr. Ram: Gairdner Foundation is a private foundation that was established in Toronto in the late 1950s with a mandate to recognize outstanding achievement in the field of health science and research. They provide awards annually through a national symposium. They award between six and eight awards per year. They also do what we think of as science promotion by taking the winners on a national tour and introducing them to young Canadians in order to empower them to pursue science careers in the future.
The activities of the Gairdner Foundation are unique in Canada. They are considered to be among the top three global awards for health science along with the Lasker Prize and the Nobel Prize for medicine.
The endowment provided for in the bill will allow the foundation to increase the value of the awards it provides, to potentially offer new awards that it does not currently offer and to expand its science promotion activities so that more young Canadians can be exposed to the type of science that the awards recognize.
Also, in recognition of the endowment from the government, the foundation has agreed to add the word ``Canada'' to its awards in order to better brand Canada internationally as a good place to do health research.
Senator Ringuette: Can you provide us with the names of the members of the board of directors of this foundation?
Mr. Ram: The chair of the board of directors is Dr. Henry Friesen, a well-respected Canadian scientist, who was formerly the president of the Canadian Institutes of Health Research. I do not have the full board membership with me, but I will provide that to you.
Senator Ringuette: Thank you very much.
I will move to Part 8 and Ms. Campbell.
What are the requirements of the provinces for the $250 million for child care being transferred to them?
Ms. Campbell: The $250 million is in addition to the funding already being provided through the Canada Social Transfer for early learning and child care and early childhood development. Provinces, territories and the federal government have two framework agreements in place with respect to early childhood development and early learning and child care.
Budget 2007 extended the funding commitment and the priorities outlined in those multilateral agreements and frameworks and then increased the funding. The $250 million supports the initiatives outlined in those framework agreements.
Senator Ringuette: Are any of these funds for child care directed at creating new spaces?
Ms. Campbell: Yes, provinces and territories are working on various initiatives to reflect their own priorities with respect to child care agreements and commitments to their public on how they intend to provide for early learning and child care programs, which can include creating new child care spaces.
Senator Ringuette: The current government has recognized that its approach to early child care and the destruction of the agreements that they had with the different provinces did not create any new child care spaces. Therefore, they are going back to negotiating with the provinces to create new child care spaces, which was the proper approach to take.
I will move on to Part 7, the Employment Insurance program. The $2 billion in surplus is certainly not sufficient with the way the Canadian economy is currently going. I am tempted to say that the professional actuary who has been doing projections on this fund for many years is more right in his estimate of $15 billion than you are in your $2-billion projection.
What are the differences between the two amounts?
[Translation]
Mr. Beauséjour: As was noted, the $2 billion was determined to be insufficient, given what had been projected.
[English]
Senator Ringuette: I am not repeating Senator Stratton's question. The chief actuary has been making estimates on this fund for over a decade. I am more at ease with his $15-billion estimate than with yours.
Can you tell me why your unit believes that $2 billion will be sufficient?
[Translation]
Mr. Beauséjour: In fact, the $15 billion figure was set several years ago using very different economic hypotheses. It was thought that we would never achieve an unemployment level as low as it is at present. The labour market situation has changed drastically since that time.
The chief actuary's hypothesis was that premium rates would be permanent, they would not change over time, it would be a fixed rate. His hypothesis was that he would put enough money aside to deal with a severe recession. The government's present approach is to set money aside to deal with a less severe recession, given the fact that there was no longer enough money in the existing reserve, that the consolidated fund would be used in any event to make up for benefit payments.
Senator Ringuette: In the 1980s, the Auditor General said that program funding should be in a separate program. In the 1990s, the Auditor General said that the funds had to come from the government's consolidated fund. We have two different reports that gave us two different approaches.
I would like to get a copy of the studies done to justify the changes you are asking for in this bill.
Mr. Giroux: I would like to correct your premise.
Senator Ringuette: I am going to finish my question. What is the new model for setting the premium rate and how will the members of the board of directors of this board be selected as compared to the board of directors or the committee? I cannot remember the exact title of the existing group of representatives to advise the minister on employment insurance. What is your premise?
Mr. Giroux: The premise being that the Auditor General recommended a separate fund in the 1980s when the opposite was the case, he recommended that the Government of Canada consolidate the employment insurance account in the Consolidated Revenue Fund. At the time, the employment insurance account was experiencing major deficits. It was in response to that recommendation that the employment insurance account was consolidated in the Consolidated Revenue Fund, since 1986, if I recall correctly.
Mr. Beauséjour: I count three other questions. The first question concerning studies, I am going to get back to the department, and if in fact there are studies available, we will make them available.
Senator Ringuette: That have been done.
Mr. Beauséjour: We will make them public, available.
In terms of new models for setting premium rates, the major change in the new model is that in future, surpluses accumulated in a year in the employment insurance account will be will be transferred to a new corporation.
The board will take into account those amounts and returns on investments in setting premium rates for the next year, so as to maintain the reserve it manages at the $2 billion level. The other parameters relating to setting rates are already there in the existing legislation, it is the parameter establishing a limit of 15 cents per $100 for changes in the premium rate.
On the question of selecting directors, there is a two-stage process. A nominating committee composed of three members will be appointed: the two existing employment insurance commissioners, the Commissioner for Workers and the Commissioner for Employers, and a chairperson appointed by the minister, as provided in the bill:
. . .shall be appointed on the basis of merit taking into account any relevant experience in the functioning of a board of directors and in the financial or insurance sector. . . .
The nominating committee will create a list of potential candidates, and then the directors will be appointed, by order in council, on the recommendation of the Minister of Human Resources and Social Development.
Senator Ringuette: At present, if I am not mistaken, there are representatives of workers, union representatives, and employer representatives. How many members are there on the board of directors? Is labour market representation going to be required?
Mr. Beauséjour: The board of directors is to have seven members. The factors considered in establishing the list of potential candidates are based on the skills to be expected of a board of directors of that nature, recognized financial skills, work experience that qualifies them to help the board to perform its mission effectively. That is really the mandate.
Senator Ringuette: So there is nothing that would require that there be representatives of workers on the board of directors?
Mr. Beauséjour: There is nothing at present that requires that there be representatives of workers or employers. It is a board of directors that will be appointed based on skills, but it is the nominating committee that will establish the list of potential candidates. There are the chairperson and the two existing Commissioners of the Employment Insurance Commission, the Commissioner for Workers and the Commissioner for Employers.
Senator Ringuette: Yes, but once the board of directors is in place, that committee will be dissolved.
Mr. Beauséjour: No, the Employment Insurance Commission will still be there. The new board really has a very limited mandate. It relates to the financing part, whereas the whole part relating to setting benefits and the other processes will still be the responsibility of the department and the Employment Insurance Commission. so the Employment Insurance Commission will continue to perform the major part of its mandate; the only part of its mandate it will no longer perform in future is setting the premium rate.
[English]
Senator Di Nino: During the break, Mr. Lalonde informed me that he had a fuller response to my question about Registered Disability Saving Plans, particularly whether the measures are available to others other than the families. I wonder if, through you, could you ask him to submit it to us rather than taking the time that we probably do not have.
The Chair: Certainly. Mr. Lalonde is here now. If he wishes to give it verbally, he may do so.
Senator Di Nino: I did not want to take the time.
The Chair: However, he is here, and he has been waiting anxiously to speak to us.
Mr. Lalonde: Earlier, you asked me who could establish a Registered Disability Savings Plan, RDSP.
Senator Di Nino: Also, who can contribute to it?
Mr. Lalonde: I indicated that there are certain constraints on who can establish the plan. Generally speaking, it is the disabled individual himself or herself, or their legal guardian in the case of minors or those otherwise incapable of contracting.
With the permission of the plan holder — that is, the person in whose name the plan is made, or the guardian — anyone can contribute to the plan, including friends.
Senator Di Nino: Can strangers contribute?
Mr. Lalonde: I do not think it would be a stranger, but it is possible. Mostly it would be friends, grandparents or neighbours. Anyone can contribute to the plan subject to the lifetime cap.
Senator Di Nino: That is very useful.
I want to return to the matter of the $54 billion. People say that a kitty exists, a huge hole with $54 billion that was accumulated in excess payments. Where, really, is that $54 billion now?
Senator Stratton: It is gone, spent.
Mr. Giroux: It has been consolidated within the Consolidated Revenue Fund, CRF. It was has been used to provide government services over the years, pay down the debt, et cetera.
Senator Di Nino: It was used to pay down the debt and reduce the deficit.
Mr. Giroux: That is correct.
Senator Di Nino: Therefore, no $54-billion kitty exists, is that right?
Mr. Giroux: No, it is a bookkeeping entry that kept track of the expenditures, revenues and the total over the years.
Senator Di Nino: There are changes to the Trust and Loan Companies Act, the Cooperative Credit Associations Act, the Insurance Companies Act and the Interest Act. Have these been done in consultation with the industry? They are not controversial, but, for the purposes of the record, has it been publicized that these have taken place? Has there been, other than through Bill C-50, some dissemination of the information?
Mr. Rudin: With regard to the Interest Act, the origin of these amendments are representations from people active in the industry, particularly in the province of Quebec, where they highlighted that the section of the act that attempted to carve out commercial entities was not working as it was intended in that province. That was the origin of it.
We have also had correspondence with some of the people who brought the issue forward since the tabling of the bill to clarify the intent; to use the regular legislative authority embedded in these amendments. The amendments do not extend the carve-out against prepayment to specific mortgages or to specific types of borrowers. It provides the government with regulatory authority to subsequently establish what those entities are and which mortgages would be covered.
We have corresponded with some of the people who brought forward this idea to clarify the intent. The intent is to carefully prescribe commercial-type entities without extending, perhaps by accident, this carve-out to households, family trusts and so on. The other intent is to ensure that all existing arrangements are grandfathered so that there is no change to the circumstances under which existing contracts were entered into.
Senator Di Nino: The purpose for my question is that, as you just indicated to us, this is a complex issue. It is not as simple as it sounds when you put it in a paragraph in a piece of legislation. I want to ensure that there has been sufficient consultation with the industry and stakeholders to ensure general agreement. You will not have 100 per cent agreement on every aspect but all the stakeholders must be comfortable with this new measure.
Mr. Rudin: I understand. When the bill is adopted, it comes into force on that date. No one's rights will have changed because the amendments propose a regulatory authority for the government to extend this carve-out provision. The government would have to draft regulations, which would include two types of consultation. An informal consultation would take place with stakeholders, whom we know are interested in developing a draft; and the draft regulations would be pre-published in the Canada Gazette, after which formal comments would be received. The regulations may be pre-published a second time or final published. The intent is to ensure that a thorough consultation process takes place so that the new carve-out is used as intended and does not inadvertently create a problem rather than solve a problem.
Senator Di Nino: Thank you for the answer. However, I wish the consultation had been done before.
With respect to the changes to the Bank of Canada Act, we understand that this is to provide additional flexibility in dealing with major market disruptions or generally the better management of the affairs of the act under those particular conditions. I would like you to confirm, first, that a number of other central banks are using it, in particular the Bank of England and the European Central Bank — if you know of any others, it would be nice to have that on the record — and, second, that it was adopted as one of those measures that should be undertaken by the central banks at the G7 meetings. Is that correct?
Mr. Rudin: Both of those statements are correct. While every central bank's governing statutes are a bit different, these amendments would bring the Bank of Canada's powers in this regard much closer to the powers of the Bank of England and those of the European Central Bank. The G7 finance ministers met in April when they received a report from the Financial Stability Forum, which had about 60 recommendations to enhance market and institutional resilience in looking forward to the remainder of this period of financial turbulence and others. Two of the recommendations speak to ensuring that central banks have broad and adequate powers to transact in a variety of instruments with a variety of counterparties in order to enhance financial stability.
Senator Di Nino: My last question deals with the two words that we hear all the time: accountability and transparency. I support this particular initiative. However, the Bank of Canada will now set its own list of securities that it finds acceptable for this purpose.
I am told that the transparency will be in the publishing of the list in the Canada Gazette. However, with all due respect, other than the 14 people in the department itself, no one reads the Canada Gazette.
Senator Murray: That is why the immigration provisions of this bill are so offensive.
Senator Di Nino: Let us deal with that at the appropriate time.
Does the minister play a role in this? Is the department entrusted with a review of this list on a regular basis?
Mr. Rudin: The proposed amendments would give the authority to establish the list to the Governor of the Bank of Canada and not to the Minister of Finance. If the Bank of Canada wished to consult the department or the minister ahead of publishing the list, they would be free to do so. No obligation exists in the proposed amendments for that to take place.
It is the case that the casual reader of the Canada Gazette might not happen upon this list or understand it, but it would be of great interest to financial market participants. The obvious course of action for the Bank of Canada would be to post it on its website and send out a notice to market participants of when it would be changed. It would not be a legal requirement, but it would help the functioning of the system if the bank were to do that.
It would be brought to the attention of financial market participants and financial journalists.
Senator Di Nino: Does the ministry or the minister have any role to play after or during the preparation and analysis of the list, understanding that the authority is given to the Governor of the Bank of Canada and to the board, I would assume. I suspect the governor would not do this list alone. Does the minister or the ministry have any role to play in the preparation, either before or after, or in the analysis of these lists?
Mr. Rudin: Certainly, the department would follow the decisions of the bank, would brief the minister and would be in a position to make recommendations or analysis. However, the authority to establish the list is exclusively that of the Governor of the Bank of Canada.
The Chair: We are looking at page 125, Part 10 of Bill C-50, clause 146(1), which amends paragraph 18(g) and (g.1) of the Bank of Canada Act. The focus of the questioning has been primarily with respect to proposed subparagraph 18(g)(i) whereby there has to be publication in the Canada Gazette under proposed subsection 18.1(2) in clause 147 of the bill prior to the Governor of the Bank of Canada acting. There is some objective standard in the Canada Gazette. However, the concern arises in respect of proposed subparagraph 18(g)(ii), whereby the Governor of the Bank of Canada can act without any objective standard or consultation if he, and he alone, is of the opinion that there is severe and unusual stress on the economy. Are you telling Senator Di Nino and this group that that very wide, unreserved discretion to the Governor of the Bank of Canada is exercised by similar office holders in other countries?
Mr. Rudin: I have two points to make in this regard: The way in which the amendment is drafted certainly gives the appearance that the governor's power to buy and sell from or to any person any securities in the event of severe and unusual stress on a financial system is being inserted into the Bank of Canada Act through this amendment. In fact, that power currently exists in the Bank of Canada Act. It is simply a question of drafting so that the resulting act will read clearly that gives the impression in the amendment that it is a new power.
I am not an expert on the details of all of the powers of various central banks, but I think it is not uncommon to have a power that can be used in periods of severe and unusual stress. The Federal Reserve board of governors in the U.S. used their exceptional powers during recent troubles.
The Chair: The concern of some honourable senators is that with no constraints on this power, the Governor of the Bank of Canada could act in a manner contrary to a policy decision of the Government of Canada. Can you relieve us of that concern?
Senator Di Nino: Good luck, sir.
Senator Murray: The government could relieve itself of the governor.
Senator Stratton: It has in the past.
The Chair: In the meantime, the damage is done.
Mr. Rudin: The intent of this power is so that in extremely exceptional circumstances of unusual stress on a market or on the financial system, the Governor of the Bank of Canada may have the discretion to act to preserve the stability of the financial system.
The Chair: I understand that.
Mr. Rudin: We rely on the process that chooses the governor and the governor's resulting independence to ensure that this power, if ever used, is used appropriately.
Senator Murray: Ms. Frith, I have an analysis of the Budget 2008 as it relates to education. It was put out by the Educational Policy Institute, EPI, which is described as a non-profit research centre focused on issues of educational opportunity, especially for our most needy populations, with offices in Canada, the U.S. and Australia. EPI conducts program evaluation, program analysis, et cetera.
Their analysis of the budget as its affects education is fairly positive, but they have made some comments that I want to take you to. You have probably seen this analysis.
EPI makes reference to an issue that Senator Cowan was pursuing earlier. In their analysis EPI says the following:
Though the total amount of grant aid will stay the same, the government seems intent on spreading it out to more students. This will be good news for students from middle-income families, but bad news for low-income families (who will now be receiving less aid).
Is that true, Ms. Frith?
Ms. Frith: Some students from low-income families who would be attending university and would have significantly high costs might receive slightly less than they would currently have received from the Canada Millennium Scholarship Foundation. It would be a matter of a few hundred dollars. Yes, that is the case, but the majority of students from low- income families who are attending lower-cost institutions — colleges — would actually receive more money than they are currently receiving.
Senator Murray: I am coming to that.
The Chair: We do not have a lot of time, so if you could direct your answer to the question asked and not try to defend. We understand your anxiety to do that.
Senator Murray: I will come to the point you just made, Ms. Frith, about colleges. I am not sure about the linkage between low-income families and college. However, it says here:
By shifting from a need basis to an income basis, there will be more grant dollars received by college students and fewer received by university students.
Is that the case? Is it possible to tell?
Ms. Frith: It is difficult to make that calculation. I can understand how EPI might have come to that conclusion. However, our conclusion was that the additional spread of money to college students, as it says, would not be taking away from university students to any great extent because the amount of money invested is increasing from $350 million per year in 2009 to $430 million per year in 2012-13. As a result, there will be more money overall in the reserve for non-repayable assistance, so there will in effect be more money for university students as well.
The amounts of grants for the students from low- and middle-income families will change over time as a result of the overall increase. That total $350 million is devoted to non-repayable assistance as opposed to going partially for other types of grants or for research.
The overall pot is larger. Therefore, EPI may be correct in the first year, but it will not be correct by year four.
Senator Murray: I want to get these responses on the record. We may wish to pursue them with others later. The Educational Policy Institute continues as follows:
CSLP officials have indicated that they will not be respecting the per-capita jurisdictional expenditure formulas used by the Foundation; as a result, we can expect that more grant dollars will go to students in Manitoba, Saskatchewan and the Atlantic provinces and fewer dollars will go to students in Alberta, BC and Ontario.
Is that true?
Ms. Frith: No, that is not true. The amounts will go to the students in need, and there are more students attending schools in, for instance, Ontario, than the population numbers dedicated money to Ontario or some of the others. It will change in each province, but it is according to the number of students attending and not the overall population. The population does not always reflect the student population.
Senator Murray: The proportion of students to population is an issue, too.
Ms. Frith: That is correct. However, that statement is not correct.
Senator Murray: Thank you.
In relation to those issues EPI say the following:
These issues might cause some friction with provinces and with student groups who may not like the implications, but from a public policy perspective they are probably not overly serious. There are, however, three very major unresolved issues around the new grants which do give grounds for concern and which will require urgent attention.
I will mention two of them because I do not quite understand the third. I would need to look at it more seriously.
They say that independent students appear to be eligible for the low-income grant. Their analysis elaborates as follows:
Since all independent students are effectively ``low-income,'' presumably all independent students will be eligible for a $2000/year grant. This could blow an enormous hole in the budget: current projections are based on 240,000 eligible recipients, but research suggests that there are over 500,000 independent students in the system. If all of these are in fact eligible, then this would inflate program costs to well over $1 billion. This loophole can be fixed, but doing so could be fraught with technical and legal problems.
They do not say political problems, but I would add that.
What do you have to say about that?
Ms. Frith: We looked at that before the EPI report came out, and our numbers do not show that such a risk exists. We have looked at it in from the perspective that if there were suddenly a significant number of students who had never applied for assistance in the past, who do apply for assistance and they do not fall within the expected criteria, that can be corrected by a simple policy adjustment. That would not require legislation, regulatory changes or anything else.
Senator Murray: I take it that you do not quarrel with their estimate of the number who are eligible. You are basing you statement on the number you would expect would apply.
Ms. Frith: I am disagreeing with the number they have come up with of students that they claim exist in the system. We have the actual number of independent students with whom we deal, and we have over 60 years of history.
Senator Murray: Therefore, you do disagree with their estimate of 500,000 independent students.
Ms. Frith: Yes, I do.
Senator Murray: Finally, Ms. Frith, they say that the province of Quebec stands to lose $80 million in student aid funding from Ottawa.
You probably know the argument. Any province can opt out, with compensation, of course, if they have a comparable program.
The EPI then says:
The problem is that when it comes to income-based grants, the Justice Department has already ruled that Quebec does not have a comparable program. In 2005, when the Government of Canada brought in its first income-based grant, Quebec was denied a compensation payment because its program was need-based rather than income- based. In order to receive the grant, either Quebec would need to change its student aid program (which would be a great idea, but will never happen just because Ottawa says so), or the Justice Department would have to rescind its opinion (possible, but not likely), or the Canada Student Financial Assistance Act will have to be amended (the likeliest option).
What is your comment on that?
Ms. Frith: There is no need for any legislative amendments. Quebec will receive their fair share of the funding as they have in the past under the alternative payment. They will receive funds that are equal to their proportionate share of what it would have cost the federal government to implement such a program in Quebec, as long as the Quebec program has significantly the same outcome as the federal program. The federal new grant program is designed to lower the cost for students overall, and in Quebec, they have chosen to keep costs low through many different ways.
Therefore, tuition costs in Quebec today are much lower than anywhere else in Canada. Should Quebec continue, at its own decision, to maintain its cost of education at a much lower level then elsewhere in Canada, they will be exceeding the outcome that is sought by the federal government. Therefore, they will be receiving their alternative payment.
Senator Murray: What is an alternative payment? Are they opting out with compensation?
Ms. Frith: Under the law it is called an ``alternative payment.'' It is not called opting out with compensation. Therefore, they receive what is called an alternative payment, and that is under current legislation.
Senator Murray: Therefore, the fact that the Department of Justice Canada ruled a few years ago that they do not have a comparable program is irrelevant because we are no longer opting out with compensation. We are into alternative payments, are we?
Ms. Frith: We have never been into opting out with compensation. We have an alternative payment formula, which is a legislated formula and is based on the fact that a province that chooses to do its own financial assistance for students is having significantly the same outcomes as the federal loan program or grant program.
Senator Murray: I will leave it there. Thank you, Ms. Frith.
The Chair: I understand Senator Di Nino has a question with respect to Part 7, which is this panel, that relates to the proposed Canada employment insurance financing board act. I would like to thank Ms. Frith for staying on to help us with the questions that were just asked.
Senator Di Nino: Senator Stratton, as you know, had to go to another committee. He asked me to once again probe into the area of the Employment Insurance issue that we are talking about and the proposed creation of the Canada employment insurance financing board act, I think it is called.
I hope I can articulate his question properly: Is this separate entity with this separate board being created so that we will never return to the situation where we were for a number of years, where governments were collecting Employment Insurance premiums that were in excess of what they required to run the program and, in effect, using it to pay government expenses?
Was the purpose of setting it up at arm's-length, if you wish, with the authorities that Parliament will give it, to ensure that that does not happen again?
[Translation]
Mr. Beauséjour: The purpose of creating the Employment Insurance Financing Board is to ensure that in future, all revenue collected for employment insurance will be used to reduce premiums or pay employment insurance benefits.
[English]
Senator Di Nino: In other words, it will not be part of the general revenue fund; it will be kept in these accounts for only the purposes intended by the legislation. If there is an issue where, in some tragic circumstances, more would be required than is in the kitty, then the general revenue fund would kick in. Is that correct?
Mr. Beauséjour: That is correct.
The Chair: Thank you for that clarification. A number of other points in relation to governance and those issues that Senator Ringuette had asked about will be provided to us by Mr. Beauséjour. We will look forward to receiving those.
Honourable senators, we have about three minutes left in this time slot. We all recognize that we have other commitments that must be met. Therefore, I will suggest that we deal with Part 6 Immigration and Refugee Protection Act matter.
We have spent a considerable amount of time on this yesterday but we have yet to hear from the government officials. I want to apologize at this stage, on behalf of the Senate committee, to Ms. Lyon and Mr. Linklater, both of whom have stayed here throughout the morning waiting to participate. I have indicated to them that they could return next week when the minister comes and that they could stay on following that.
Both of you please accept our apologies in that regard. We thank all the others who have been here today. This has been very helpful and informative, and I believe the manner in which we organized this — the 10 different parts in two different panels — has been helpful in allowing us to get our arms around this huge legislation.
Thank you all on behalf of the Standing Senate Committee on National Finance. We look forward to receiving from the clerk those undertakings that you have given us as expeditiously as possible so that we can incorporate those into our deliberations. We anticipate that we will have the bill to deal with on fairly short notice next Tuesday or Wednesday. We are trying to prepare ourselves for that function when it arrives.
Thank you very much for being here.
The committee adjourned.