Proceedings of the Standing Senate Committee on
National Finance
Issue 33 - Evidence - June 2, 2015
OTTAWA, Tuesday, June 2, 2015
The Standing Senate Committee on National Finance met this day, at 2:45 p.m., to continue its study on the subject matter of Bill C-59, An Act to implement certain provisions of the budget tabled in Parliament on April 21, 2015 and other measures.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, this afternoon, we are continuing our study on the subject matter of Bill C-59, An Act to implement certain provisions of the budget tabled in Parliament on April 21, 2015 and other measures.
[English]
In our first panel this afternoon we will be looking at Part 2, support for families, clauses 29 to 40, which can be found at page 29 of the English version. We have before us, to help us out with these sections, someone who can explain a bit about how these sections will impact the Canadian public and taxpayers, from the Canadian Taxpayers Federation, we welcome Mr. Aaron Wudrick, Federal Director.
Mr. Wudrick, before we start I will also let honourable senators know that if there are other tax measures you may be able to field questions in relation to other measures as well. Your comments will primarily be with respect to support for families, but we do know there is a renewal of an accelerated capital cost allowance for mining that we see on an annual basis, a temporary extension of that, and if you have any comments of how that process of renewing it on an annual basis impacts the industry that would be of interest to us as well.
Colleagues, I will let you know before we start that we have had circulated, and this will be part of our record, a letter that we received and was also sent to the House of Commons from the Privacy Commissioner. It is quite a long, extensive letter, dated June 1, analyzing from a privacy point of view the Privacy Commissioner's comments. We hadn't planned on having the Privacy Commissioner here, but if anyone felt otherwise we could certainly bring the Privacy Commissioner in to deal with that particular document.
The other announcement I wanted to make is that we will be dealing with Mr. Wudrick until quarter past 3:00 and then the minister will be arriving roughly at that time. We'll adjourn once the minister arrives to proceed with the minister's presentation.
Finally, we have two reports that we're waiting on so we can move those along in relation to supply and one of those reports is for sup A and the other is for main supply but both are now in translation. As you might guess, a lot of other committees have documents in for translation and that is causing some delay but we're hoping to be in a position to be able to review them over this weekend coming and deal with them Tuesday morning at our meeting, which will put them in the process for debate by Wednesday or Thursday of next week. That will be good because then we will be ready to receive the two supply bills.
Let's get back to budget implementation Mr. Wudrick. You have the floor, sir.
Aaron Wudrick, Federal Director, Canadian Taxpayers Federation: Thank you very much. Good afternoon senators. My name is Aaron Wudrick. I'm the Federal Director of the Canadian Taxpayers Federation. Thank you for the opportunity to appear today to speak to Part 2 of Bill C-59, the provisions of which the Canadian Taxpayers Federation is generally supportive.
The Canadian Taxpayers Federation is a federally incorporated, not-for-profit citizens' group founded in 1990, with 84,000 supporters. We are dedicated to three key principles, those being lower taxes, less waste and accountable government. Perhaps unsurprisingly we appear today largely pursuant to the first of these principles — lower taxes.
I did want to take a moment to highlight our support for the budget as a whole. We at the CTF have been highly critical of the many years of deficits and so we feel it only fair to also give credit where it is due and applaud the government for finally balancing the budget.
With respect to the measures in Part 2 of Bill C-59, the increase in the child care expense deduction, we are strongly in favour of this measure. Indeed, we proposed an even greater increase in this deduction before the budget last fall. We also believe that the government should consider modifying the deduction to allow a parent to pay a stay-at-home partner and similarly claim the deduction.
With respect to income splitting, one of CTF's guiding taxation principles is advocating for broad-based tax cuts. Our first preference is always cuts, for example, to general income tax rates so that all Canadians may benefit. That said, income splitting is not a terrible second-best. What it adds in complexity it compensates for in equity. We believe that it, for example, is entirely reasonable to ensure that the tax code treats like as like, that is that a household that earns $80,000 a year should not pay vastly different amounts of tax depending on how that earning is divided up among spouses.
The current government first introduced income splitting for seniors and now for families. We would hope that the next objective would be to introduce income splitting for everyone else in order to broaden the benefits for such a policy, including possible provision for single persons to split income with dependants in certain circumstances.
With respect to the Universal Child Care Benefit, it is again no secret that we at the Canadian Taxpayers Federation prefer tax relief rather than entitlement programs. Taxing citizens and then returning the money with a bow-wrapped cheque courtesy of the Government of Canada is not our preferred model. Having said that, we are in agreement with the government that parental choice is paramount and that putting money back into the hands of parents to spend on the form of child care that works best for them is a better policy than creating, as some have proposed, a giant government-run daycare system.
We fully recognize that the UCCB is not enough to cover the entire cost of child care for most families, but we think that's rather beside the point. We believe that while supporting families is of course a valid and proper objective of government policy, it does not necessarily follow that the government should cover 100 per cent of the cost.
In summary, we are, with the caveats we've already identified, generally supportive of the provisions contained in Part 2 of Bill C-59. And while we will never stop pointing out that complex boutique measures clutter up the tax code, raise administrative costs and generally confuse Canadians when it's not necessary, the fact remains that the overall federal tax burden faced by Canadians continues to go down and we certainly welcome that development.
Thank you and, as the senator stated, I'm happy to take questions on this or other measures in the budget.
The Chair: Thank you very much. I'll go to Senator Bellemare.
[Translation]
Senator Bellemare: Mr. Wudrick, I have a question. You said you wished that the income splitting measure could be available to everyone. What you are basically saying is that tax would be paid per household, and it could be split within a household regardless of the relationships between the individuals.
Have you estimated what this kind of a measure may cost? What economic logic is behind that idea?
[English]
Mr. Wudrick: Yes, we're generally in favour of the principle that costs are incurred by Canadians by household. A family incurs costs the same way regardless of whether they have one person working or two, or whether those two spouses are earning the same amount or a different amount. We think that the principle should be applied beyond families.
Indeed, one of the main criticisms that we think is valid of the current income splitting policy towards families is on its own it does nothing for single-parent families and we think that that's a problem. That is why we think it would be reasonable to consider situations where there's a single parent they may be able to split their income with certain valid dependants in order to ensure that they also benefit from this.
With respect to the costs, we haven't crunched the numbers because, of course, there are very many different ways to do this. Our view is, of course, we prefer less spending, but even if you were in favour of a larger size of government you would be able to adjust taxes such that you could have a certain level of revenue but just ensure that the payment is paid equitably by household regardless of the composition of that household.
[Translation]
Senator Bellemare: Are any countries doing that? Do you have any facts in support of the idea?
[English]
Mr. Wudrick: I should be more informed on some of the international examples. I know that certainly there are some countries that they are not simply paying taxes on an individual basis. It is on a unit basis, but I don't have them handy.
The Chair: Could you tell us about the child tax credit? The indication in clause 30 is an amendment to repeal the child tax credit for 2015. Just what is happening? We see an awful lot of, as you mentioned, boutique programs. Could you explain to us these various proposals for the child tax credit and proposed family tax credit? There are quite a few of them that appear in the legislation. Do you have any comment with respect to trying to simplify the income tax?
Mr. Wudrick: The general comment that we have is that in many cases this government has talked about cutting taxes and they have cut them, but they've cut them in very inefficient, complicated and complex ways. We think, for example, something like a general cut to the income tax rate would be the simplest, most efficient, broad-based way to ensure that all Canadians would benefit rather than targeting it at specific groups. Even if you're talking about families, as I alluded to in the previous question, there are certain families with a certain structure that don't benefit from the provisions.
I recognize that the way that the so-called family tax cut has been framed by rolling in the UCCB and the child care deduction along with the income split is to ensure that everyone comes away with something. But we're vigilant observers of the size of the tax code and we are torn on the one hand because taxes are going down, but the tax code is increasingly complicated, the administrative cost is much higher and we think there is a much simpler way to cut taxes.
The Chair: A program that you proposed where you are advocating where one parent could pay a partner to stay home. That's a form of income splitting is it not?
Mr. Wudrick: Yes. If the government is talking about maximizing choice for households, that to me seems to be the philosophical position behind providing the cheque rather than daycare. They're saying that we're going to give you money; you make the decision about what's best for you. Why not empower families who would like to have a spouse stay home but are not able to do so? If they could simply pay their spouse and claim it under this form of child care credit, which they can claim right now only if they put their child in the care of someone else, why not simply allow them to do that too?
The Chair: Could you comment on the other point in the introduction that I mentioned? It seems strange to us that we keep seeing this one-time renewal for another year of the accelerated capital cost allowance for mining activities.
Mr. Wudrick: Yes. This is one of the boutique measures that we're often critical of. In and of itself, if it's something that benefits business and defers costs for them, great, but part of the benefit of any measure is the simplicity and the predictability thereof. So if we have what we're calling a temporary measure that is simply being renewed every year, I don't know what that does in terms of the predictability for any business.
Additionally, it's mystifying to us why only one particular industry should be benefiting from this measure. If capital cost allowance is something that is good for business, why not simply allow all businesses to claim a similar measure?
The Chair: Thank you. We were wondering about that.
Can you explain, in clause 30 — if you have a copy of the bill in front of you — Income Tax Act 118(1), and it's paragraph (b.1) of the description of (B) in this section of the act provides child tax credit and family caregiver amount for a child. And paragraph (b.1) is amended to repeal the child tax credit as of 2015.
Is that repealing an existing program and then bringing in another program?
Mr. Wudrick: Sorry, I'm not clear what you're referring to.
The Chair: Bill C-59, which we're looking at, it's clause number 30. Child amount; it's Income Tax Act section 118.
Mr. Wudrick: Yes, the effect, to my understanding of this particular provision, is rather than simply leaving the money in the hands of individuals, by the increase in the UCCB it will essentially cancel this out. It's a change in the delivery of the benefit to Canadians but the net benefit is nothing on that particular measure individually.
The Chair: The net benefit to the taxpayer is the same, it's just it's a different type program?
Mr. Wudrick: Yes, that in particular is what I was talking about earlier in that we certainly prefer that the position be if the government doesn't need the money leave it in their hands in the first place. Don't take it from them, repackage it and then hand it back to them in a different way.
[Translation]
Senator Chaput: No one will say that we do not agree with supporting our families and our children. We all agree with the principle that we have to support families and help them. Obviously, we can reduce taxes or give them some money back, or both. How many members does the Canadian Taxpayers Federation have?
[English]
Mr. Wudrick: We have 84,000 supporters.
[Translation]
Senator Chaput: Have you ever had a discussion with the members? Have they shared their preferences in terms of the support provided to families? Have you discussed any potential initiatives that are not part of this bill?
[English]
Mr. Wudrick: We survey our supporters regularly to get an idea of what their priorities are in terms of our federal advocacy. We surveyed them on income splitting. Income splitting was not their first choice in terms of tax relief. We asked them also whether if it was income splitting or no tax relief would they take the income splitting and the vast majority of them said yes.
In terms of specific measures for families, again, our support base generally is less in favour of targeted tax relief and more in favour of broad relief that applies to all Canadians and not only families. There is no specific measure that they have brought forward that they would like to see on the issue with respect to families.
[Translation]
Senator Chaput: Thank you very much, sir.
[English]
The Chair: Part 3, Division 1, is a new statute enactment of the federal balanced budget act. Do you have any comments in relation to that particular initiative?
Mr. Wudrick: Yes, I would say we don't think that that provision will do any harm. We do find it a bit ironic that the provision is brought forward right at the time a budget is balanced after governments have been running deficits for seven years. We would have liked to have seen something that was what we would consider tougher.
Again, we welcome the fact that balanced budget legislation is being talked about. We think it's important and we think certainly it's a good thing for governments to be talking about, but more important than talking about it is walking the walk.
I would say, with this government or all future governments, regardless of whether this law is passed the Canadian Taxpayers Federation will be quite happy if the budget remains balanced, whether or not this law is part of it.
The Chair: Thank you.
Senator Mockler: I understand also that paying down the federal debt was a top priority of 52 per cent of your supporters, versus 40 per cent wanting to reduce taxes; is that fair? Is that the statement you've made?
Mr. Wudrick: Yes, the number one priority for our supporters — and not just through our surveys but I can tell from my own interactions with them — is our federal debt. This is obviously a topic that is not discussed very much by any of the political parties. It is over $600 billion and counting.
One of the proposals we've floated recently is in order to address this rather than simply have surpluses applied to the federal debt, which is the default that occurs right now, we would like to see a line item in future federal budgets where money is earmarked to pay down the federal debt.
We appreciate that the Conservative government, for example, has committed to lowering the debt-to-GDP ratio. That's certainly a positive step, but from where we sit that doesn't address the fundamental problem which is the nominal figure. Most Canadians will be surprised to know we spend almost $28 billion, $29 billion a year on interest payments on that debt alone. That is larger than the single largest departmental spending in National Defence. That is a large sum of money and we can debate what to do with that money if we paid it down, whether it's tax cuts or program spending, but we think either way it would be better served than simply paying interest on debt.
Senator Mockler: I would like to have your comments or that of the Canadian Taxpayers Federation on the following: How would you qualify what happened to us in 2008 up to 2010 to 2012 globally and the role of Canada?
Mr. Wudrick: Certainly. Obviously there was a severe economic downturn. The Canadian Taxpayers Federation is one of the few voices that opposed the fiscal stimulus, which was largely the consensus of all the major political parties and most of the media and commentary establishment. Our view is simply that stimulus was not necessary, or certainly not to the extent that it plunged us back into debt. As a result, we believe that the debt accumulated since then, and deficits that have flowed as a consequence from them, is essentially the hangover from the spending binge in 2009.
Senator Mockler: What would have happened had the Government of Canada not run deficits for seven years? What would have happened to the Canadian people?
Mr. Wudrick: That's certainly an interesting hypothetical. I know that the position of many people is that there would have been utter economic devastation if the government hadn't taken that road. We beg to differ. If we're talking about a global economic phenomenon and many other countries are engaging in a stimulus, the fact that Canada does not, for example, if a lot of our demand is driven from outside of the country, those stimulus programs may have largely helped turn the economy around.
I realize this is all a counter-factual debate and I don't think there will ever be a meeting of the minds on it, but regardless of the fact that has happened we think it's important now to deal with the consequences. Even if we accept it happened, we can't defer the fact that we ran up bills that have to be paid and if they're not paid now then future generations will be stuck with them.
Senator Mockler: You said that you beg to differ. Would you qualify what you mean by you beg to differ had we not done that?
Mr. Wudrick: Yes. We do not think that the economic consequences of not going on a large debt stimulus would be as dire as some of the people were predicting. Of course we're debating a hypothetical here because a stimulus did occur and the economy proceeded as a result of that stimulus. So we don't really know what would have happened without it. We are saying that people claiming that the consequences would have been very dire without it is exaggerated.
Senator Mockler: I guess I beg to differ on your comment.
Senator Wallace: Mr. Wudrick, there are different ways that individuals and families are able to receive benefits from the federal government with tax credits, deductions, allowances and supplements. This bill deals with the Universal Child Care Benefit Act and the Children's Special Allowances Act.
The question I have for you is: From your experience and the feedback you get from your members, how widely understood are these benefits by the general public? More particularly, do you encounter many situations where people are not aware of the benefits that may be available to them and so simply don't apply for them? Is that an issue? Is that a concern?
Mr. Wudrick: That's difficult to answer because it's not something that comes up by and large in terms of whether they're aware. I would suggest that our supporters are probably more aware than the average Canadian, just given that they are by nature more engaged in Canadian politics. By virtue of the fact that they're supporters of the CTF, they seem to take a greater interest in politics than perhaps some others. I don't have any anecdotal evidence one way or the other.
Senator Wallace: I guess I wasn't clear enough in my question. It wasn't so much your members but the clients they represent, Canadians. Are there any issues there with a lack of awareness on the part of Canadian families and, as a result, they're not taking advantage of benefits that are available to them under these various federal acts?
Mr. Wudrick: I don't think so. Certainly, at tax time, given the nature of my role, I tend to get a lot of queries from people: What can I get? How do I do my taxes? Ironically, I'm nothing of an accountant, so I find that interesting.
Take as an example the bump in the Universal Child Care Benefit Act. I have two young children under 5. I noticed that the benefit was being increased, so of course it will benefit my family. I noticed a lot of advertising: Sign up for the enhanced UCCB. Upon looking into it, I discovered there was nothing for me to do because I would receive these benefits automatically. Of course, it was only for people who had not been receiving that benefit. Public awareness is as high for this as it would be for any other measure that would make money available to a wide class of Canadians.
Senator Wallace: Not all Canadians would receive tax advice.
Mr. Wudrick: No, they would not.
Senator Wallace: That could be an issue. Okay, thank you.
[Translation]
Senator Rivard: You said earlier that 80,000 taxpayers are members of the Canadian Taxpayers Federation. Do you know how many of those members are in Quebec? Approximately, do they account for 10 per cent or 5 per cent?
[English]
Mr. Wudrick: I don't have the numbers available. Sorry.
[Translation]
Senator Rivard: Have any of your federation's members from Quebec suggested that Quebecers should have to file only one income tax return, instead of one return for Quebec and another one for the federal government? That causes a lot of problems, as the processes are not really similar and this forces taxpayers to have their income tax returns filed by a specialized firm or by tax experts. Have any members from Quebec brought this situation to your attention in the past?
[English]
Mr. Wudrick: I can't speak to Quebec numbers specifically. I know we've had a constant theme among our supporters that it's very complicated to do taxes. One of them brought the example to me. And I live there myself, so I filled it out. In Hong Kong, the tax return form is one page. There are about eight boxes to fill out. It is simple. A lot of Canadians would certainly be beside themselves to know that in some places a matter of filling out your taxes takes five minutes and no expert is required.
The Chair: Mr. Wudrick, we'd like to thank you very much for being here and giving us the position of the Canadian Taxpayers Federation. We know that you came on short notice, and we appreciate that very much.
We're very pleased to welcome the Honourable Joe Oliver, P.C., M.P., Minister of Finance. The minister is accompanied by three officials from Finance Canada. You'll see a number of others who are behind him, who will be called forward if you pose a question that requires their assistance.
Sitting at the table with him: Mr. Paul Rochon, Deputy Minister; Nicholas Leswick, General Director, Economic and Fiscal Policy Branch; and Andrew Marsland, who is the Senior Assistant Deputy Minister, Tax Policy Branch.
Mr. Minister, we thank you very much for being here with us this afternoon. We are scheduled until 4:00, if that's satisfactory with you. As you know, we're dealing with Bill C-59, the budget implementation, and we are dealing with the bill even before it has arrived in the Senate, in a practice we call pre-study. When the bill does arrive from the House of Commons, we will be in a position to deal with it expeditiously, and we probably won't have to call you back again when we do have the bill. That's why we have the pre-study, so we can move quickly.
I give you the floor now for any introductory remarks. Then, if we have time, we'll engage in a question-and-answer comment period.
[Translation]
Hon. Joe Oliver, P.C., M.P., Minister of Finance: Honourable senators, I am glad to have this opportunity to discuss Bill C-59, an act to implement certain provisions of Economic Action Plan 2015.
[English]
Over the next 10 minutes or so, I would like to provide an overview of the bill. You know its purpose: to create jobs, growth and long-term prosperity for individual Canadians, their families and their communities. To that end, it is placed on a firm foundation, the fulfillment of our long-standing commitment to return to balanced budgets.
The federal deficit has been reduced from $55.6 billion at the depths of the great recession to a projected surplus, this year, of $1.4 billion and $1.7 billion next year. This is great news for Canadians everywhere.
On this strong foundation, we are building a brighter future, but we must stay the course. There is an upward path to prosperity, low taxes, fiscal responsibility and budgetary balance. There is the well-trod path of economic decline that results from excessive spending, tax hikes and even more debt.
[Translation]
We have to choose the right path that will create jobs and promote growth instead of slowing down the economy and negatively affecting Canada's prospects.
[English]
The right path demands the right kind of fiscal and economic management. Integral to that goal are balanced budgets. Why do they matter? They clear the way for more tax relief. They bolster our top triple-A credit rating, keeping interest payments down and inspiring greater consumer and investor confidence. They protect our unprecedented investments in health care and education. They strengthen our ability to respond to unexpected shocks in an unstable world economy and they ensure that we do not saddle our children and grandchildren with burdensome debt.
[Translation]
Having a balanced budget in terms of finance also helps us have a balanced budget in terms of social matters, with benefits, tax reductions and investments that benefit all Canadians, from all walks of life.
[English]
Around the world, Canada's reputation for sound fiscal management is ironclad, as is our reputation for social compassion. We are determined to maintain both. Both are well served by Economic Action Plan 2015. This budget includes important measures to keep Canada on the path of fiscal prudence. Today's legislation enacts the federal balanced budget act. It will ensure that the hard won gains achieved over the past five years will remain in place for future generations.
[Translation]
This bill will also help us ensure that the only acceptable deficit is one created to respond to a recession or exceptional circumstances, such as a war or a natural disaster.
[English]
Deficits outside of these parameters are deemed imprudent. Therefore, our legislation proposes that, should Canada enter into a deficit, the finance minister will be required to testify before the House of Commons Committee on Finance within 30 days and present a plan with concrete timelines to return to balanced budgets. Operating expenditures will be frozen, as will the salaries of cabinet ministers and deputy ministers, government-wide, once the recovery begins.
If, on the other hand, the deficit is not due to recession or exceptional circumstances, like a war or natural disaster — that is, it is due to fiscal imprudence — then operating budgets will be frozen automatically, and the salaries of cabinet ministers and deputy ministers will be reduced by 5 per cent. We are not outlawing deficits, but we are discouraging them by exacting a financial and political price if they occur as a result of poor financial management.
[Translation]
Balanced budgets help us continue to stay the course with our low-tax plan and to plan for further tax cuts. Maintaining that low tax burden and giving more money back to hard-working Canadians, so that they can invest in the economy, are critical to job creation and economic growth.
[English]
Beyond that, putting more money back into the pockets of Canadians is simply the right thing to do. That is why, last October, we announced a series of new benefits for hard-working families. We know the additional financial burden that comes from having kids, so we aim to empower those who care most about their children — mom and dad. Our latest budget expands and enhances the Universal Child Care Benefit, implements the new Family Tax Cut and increased the Child Care Expense Deduction dollar limits. Helping families is also one of the reasons we introduced the Tax-Free Savings Account, a popular initiative that allows Canadians to save more money for their priorities.
[Translation]
Canadians have embraced TFSAs as a way to save. At the end of 2013, nearly 11 million Canadians had a TFSA, with the value of the assets totalling nearly $120 billion.
[English]
In order to provide Canadians with greater opportunity to save on a tax-free basis, today's legislation proposes to nearly double the TFSA annual contribution limit to $10,000, effective for this year and subsequent years.
Canadians use TFSAs to save for what matters to them, including buying a first home, setting aside funds for kids' education and preparing for retirement. Most TFSAs benefit low and middle-income Canadians who need it most. Three quarters of contributors earn less than $75,000 annually. Sixty per cent of those who maxed out their contributions last year earned less than $60,000 annually.
[Translation]
Mr. Chair, just as we are helping Canadians save, we want them to be assured that their savings will be there for them when they retire.
[English]
Seniors are already benefiting from important money-saving measures such as pension income splitting and taking advantage of their TFSAs. Canadians are living longer and healthier lives. We aim to help them to live with dignity in their golden years. That is why Bill C-59 will reduce the minimum withdrawal factors for Registered Retirement Income Funds or RRIFs.
[Translation]
We are also pleased to introduce the new Home Accessibility Tax Credit for seniors and persons with disabilities. This 15 per cent non-refundable tax credit will apply on up to $10,000 of eligible home renovation expenditures per year, providing up to $1,500 in tax relief.
[English]
The credit will help seniors and persons with disabilities to stay longer in their own homes.
The budget also helps those taking care of a sick and dying loved one. Under the old system, Canadians could access compassionate care and Employment Insurance benefits for six weeks. Now they will be able to access benefits for 26 weeks. We believe in helping those who need help the most. That could not be truer than for those helping family at their time of greatest need.
Honourable senators, let me conclude on a topic that will impact millions of city dwellers. I have spent my life in cities and I share the frustration of commuters who have to fight traffic congestion every day. In places like Toronto, gridlock is getting worse. Every minute spent on a commute is one less spent with our families and means higher costs for businesses. This budget tackles the challenge head on. It launches a major new infrastructure program, the public transit fund. This program, increasing to $1 billion per year by 2019, will be a permanent source of funding to provinces and municipalities for major public transit projects.
[Translation]
It is based on unprecedented investments of $75 billion over 10 years allocated by our government for infrastructure; this is the federal government's biggest long-term commitment in Canadian history.
[English]
Mr. Chair, I strongly believe that all of the initiatives I've highlighted today will greatly benefit the people of Canada. This act will create a higher standard of living for Canadians today and their children tomorrow.
So I ask all senators to support the implementation of this important legislation. Thank you. I look forward to your questions.
The Chair: Thank you, Mr. Minister, for touching on some of those highlights. One of the highlights you talked about was a federal balanced budget act and we had a bit of discussion on that with the previous witness from the Canadian Taxpayers Federation.
In the first quarter of this year, we had an unanticipated real gross domestic shrinkage of 0.6 per cent, and some are forecasting a second quarter reduction in gross domestic product as well, which would mean that we are in recession. In which event would you anticipate, in managing the economy, that we reduce expenses to maintain the surplus at the end of year that you have predicted on balanced budget, or would you trigger clause 12 and some of the other clauses of a balanced budget act because of the recession?
Mr. Oliver: Mr. Chairman, I think you won't be surprised that I'm not going to be discussing the prospects of a recession because we don't anticipate that at all. In fact, the Governor of the Bank of Canada was quite clear that while he expected a weak first quarter, he expected growth to rebound after that and was anticipating growth of 1.9 per cent for the full year.
I came back from last week's G7 meeting in Dresden, Germany, and it was very apparent, as it had been in other meetings of G7 and G20, that the global economy remains fragile and growth is uneven and weak. The United States had a difficult first quarter. In fact, it was a bit lower than ours at negative 0.7 per cent. China's growth has declined from a superlative 10 per cent down to perhaps in the mid 6 per cent or so. Japan just emerged from a recession, and Europe is clearly struggling.
But as I said, the Bank of Canada, the IMF and a private sector economist predict a rebound in Canada and solid growth for the year. So we believe that our low tax plan for jobs and growth is the route for continued growth and we intend to pursue it.
The Chair: Just so the record is clear, you're still projecting a surplus of $1.4 billion for this fiscal year?
Mr. Oliver: Yes, we are. As you know, the economic forecasters are not our own. Rather, they are the average of 15 private sector economists and we use that, including their projection of oil prices, to determine what our bottom line would look like taking into account, of course, our expenditures.
The Chair: Thank you. I will go now to honourable senators.
[Translation]
Senator Rivard: I would like to congratulate you on a measure included in the budget — the reduction of the minimum withdrawal factors for registered retirement income funds. We know that those factors have existed continuously for 23 years, and you have changed the reduction level, thus making it possible to defer or save taxes in the amount of $670 million.
This is admittedly a one-time savings because, eventually, taxpayers will have to withdraw money or, if they die, they will be taxed at 100 per cent. Your measure is extremely useful, and I am sure the taxpayers affected will appreciate it. As this program has existed for 23 years, I am sure that groups of individuals must have suggested something to you other than decreasing the factor at 71 years of age, when people can contribute and convert it to a retirement program that begins at 72 years of age, as people's life span has increased by 5 years on average over the 23 years. So I would like to know whether you have looked at alternatives, such as being able to contribute until the age of 74, in order to start withdrawing money the year after that, at 75. Is that something you have looked at? If so, was it too expensive to be included in the next budget?
Mr. Oliver: We looked into your alternative, but we decided to make this available to all seniors the plan applies to and to have the measure kick in at a later age. However, not everyone agrees with that. We also have to consider the tax implications arising from that recommendation.
Senator Rivard: Thank you for the answer, and I want to say that the measure is a very good one. Do you think the provinces will follow suit, so that the taxation level would be the same? That does not really happen automatically. Take for example the province of Quebec, which imposes its own taxes; a lack of parity leads to an imbalance. We know that the provinces usually follow suit. Have you consulted them or have they told you that they will adopt the measure?
Mr. Oliver: The provinces, with the exception of Quebec, have signed agreements with the federal government confirming that they will make the required changes. We have every reason to believe that Quebec will also agree. Therefore, we do not anticipate any problems.
Senator Rivard: Thank you. I think this is an excellent measure for seniors.
Senator Bellemare: I need some clarification, and you could perhaps enlighten me on the federal balanced budget act. The legislation seems fairly clear to me in all the provisions that are properly set out, but there is a difference in the time used to decide whether a balanced budget has been achieved or not. I refer you to section 11, on page 43, where it is clearly explained that a budget deficit will be recorded as of the time when the public accounts are tabled. So we will know whether the budget is balanced when the public accounts are tabled and facts are checked. For example, for 2015-16, we will know whether the 2015-16 budget has been balanced when the public accounts are tabled in the fall of 2016. If the budget is not balanced when the public accounts are tabled, expenditures will be frozen and pay reduction measures will take effect.
However, what will happen if, hypothetically, in 2015-16, we have a deficit in the public accounts in the fall of 2016, but when the 2016-17 budget is tabled in February, March or April, no deficit is recorded? Do you understand what I mean? So, a budget is set with the anticipated expenditures, and months go by. Will a deficit uncovered when the public accounts are tabled mean that adjustments will have to be made in the 2016-17 budget? I am pointing out the problem, and I want to see how this would work over time. There will no doubt be some years where the budget balance could be fairly fragile. Right now, we have a $1-billion reserve, and we may have other $1-billion reserves in the coming years, but even without a recession, we could have a year where we do not achieve a balanced budget for all sorts of reasons. I wanted to know whether this issue has been looked into.
Mr. Oliver: I will try to answer. The balanced budget act maintains a low deficit in some specific circumstances that make that possible. We use the most recent figures and, when the minister announces that there is a deficit, we already understand what the economic realities of the time are. If a change takes place, the policy can potentially be changed. We are not forced to do anything that would have the effect of running counter to reasonable policies in certain economic circumstances. I don't know whether this is a satisfactory answer to your question.
Senator Bellemare: In other words, you are saying that budgetary oversight is provided on an ongoing basis, so it is probably rare for public accounts to have results that greatly differ from those used to prepare the budget in March 2016-17, even though the public accounts for 2015-16 will come much later. Is that perhaps how things will go?
Mr. Oliver: We analyze the economy on an ongoing basis. We also receive advice from private economists. The department reviews those figures regularly. I maintain a dialogue with the Governor of the Bank of Canada, and I can say that we are informed about domestic and international economic development. We can make changes, just as the bank modifies its outlook, based on the most recent figures we receive.
I want to point out that a deficit is not against the law, but there are consequences, and the deficit will be related to a recession or an extraordinary disaster. If a deficit is accumulated in ordinary circumstances, the government would be to blame. The results will be different.
I want to stress the fact that there are circumstances where it is important to drive and stimulate the economy by having a deficit, but this legislation does not provide for that.
[English]
Senator Wallace: Minister, as you are well aware, Part 2 of Bill C-59 concerns support for Canadian families. I am interested in a couple of terms you used in your comments when you referred to the need for government policy, in particular in Bill C-59, to provide a social balance and social compassion. A number of us are business people in our backgrounds, and sometimes those thoughts of the social needs tend to get lost in business objectives. It's refreshing to hear you refer to the social needs.
You are well aware of the economies and circumstances of countries around the world. What is your general sense of your government's approach to providing social balance and social compassion? How does it compare with what other Western countries are doing to achieve a similar result?
Mr. Oliver: Well, I'm glad you referred to the fact that this budget is balanced fiscally and socially. Of course, it's very important that that be the case because at the end of day, it's not only about dollars and cents. Ultimately, it's always about people. We believe that providing tax breaks for families and individual Canadians makes life more affordable. Also, when it's extended to businesses, it creates more employment and growth in taxes and permits us to finance the important social programs that are so critical.
We have in Canada a very progressive tax system. We've taken 1,000,000 taxpayers off the tax rolls. Well over 250,000 such people are seniors. We've also introduced a number of measures in the budget that I think go to that issue. Supporting families in communities is one of the government's main priorities, so enhancement to Employment Insurance compassionate care is one initiative that demonstrates that. It will provide additional security to Canadian workers and their families in times of need. I refer to the extension of the EI benefit from 6 weeks to 26 weeks. There are about 6,900 claimants each year that would stand to benefit from the generous benefits.
We've also provided a home accessibility grant, which I referred to. Of course, a very big initiative announced by the Prime Minister prior to the budget relates to family benefits and family tax cuts. Every single family with children will benefit from these plans, putting more money in the pockets of everyone with kids. Under UCCB, families will receive even more of a generous benefit, over $1,900 per year for each child under 6 and a new $720 benefit for each child aged 6 to 17. About 200,000 families may not be eligible until they apply, so that's one reason we're making sure that Canadians know about it. We're also providing assistance to families in terms of their child care expenses, athletic expenses and so on.
This budget and the measures that preceded it are very much focused on making life more affordable for Canadians who need that help.
Senator Wallace: What steps is the government taking to ensure that Canadians are aware of the benefits that they would be eligible for under Bill C-59?
Mr. Oliver: Well, one way we are doing that is through our advertising program. Some families will automatically receive the enhanced UCCB, or they will be contacted by the Government of Canada to confirm their information. As I say, about 200,000 families that may be eligible will not receive the money they are entitled to unless they apply. This can represent millions of dollars in unclaimed benefits. That's why we're telling Canadians across the country about the benefits available to them. We are proud that these benefits are being made available. It's important for Canadians to understand what the government is doing for them. Part of a long tradition, which certainly preceded our government, is to reach out to Canadians and advertise our programs.
Senator Wallace: As any of us knows when conveying a message, it takes repetition. You can't just do it once and think everybody has got it. There is no easy way around it because it takes repetition for people to realize what is available.
Mr. Oliver: It actually does. I've done a lot of door-to-door canvassing and communicating with my constituents. Sometimes one is surprised by the things that a lot of people don't know about in the Ottawa bubble where we think everybody knows about all of it.
It's interesting that a lot of people seem to know a lot about the Tax Free Savings Account, which 11 million Canadians benefit from. Not everybody is aware of it or that they can contribute the additional amount right now. These are the kinds of things that we try to communicate to Canadians.
Senator L. Smith: You talked about something earlier when you came in — a macro picture. I asked you a similar question last year. We had a small contraction as the Governor of the Bank of Canada alluded to. We have been hit with descending oil prices. How do you see everything unfolding in the next 12 to 18 months when you look at Canada, the U.S. and Europe? What's your sense of where we are going and how we will get there?
Mr. Oliver: I don't want to get into a detailed economic forecast because we rely on the private sector to give us the numbers that we use.
However, it's pretty clear that the first quarter was impacted by the sharp drop in global oil prices and reduced investment activity in the oil sector. It was also impacted to some degree, and we are not sure how much, by the even greater decline in the U.S. economic growth in the first quarter, which is partly attributable to unusual events like wet weather and port issues. We don't have all the facts yet in that regard.
There is a general belief that the North American economy, Canada and the United States, will rebound and that we'll see growth superior to that of many European countries. When people ask me where the great risks are, my response is that they are external for the most part, but not entirely. You have a $17 trillion economy, the largest in the world which is Europe, limping along with some risk of deflation. It doesn't look like that's going to happen but they are not far away from zero inflation, so it's a bit of concern.
At the G7, we talked about Greece, where the issue has not been resolved. While it's a very small proportion of the European economy, there are nevertheless both economic and political implications to that situation. A lot of time was spent on that. The geopolitical risks in Ukraine continue. It's a very unstable situation. We have made clear our support of Ukraine and the Ukrainian people and their right to preserve their territory against aggression. Sanctions have been imposed by us with our allies. Those sanctions can rebound to Europe as well. And there are other areas of geopolitical risk.
Assuming those issues do not get out of hand, we should see continuing growth. But we don't expect spectacular numbers at all out of Europe. It varies and it's quite uneven, of course, so it will take a bit of time.
The discussions have focused, for the last year or more, on the need for structural reform, particularly in Europe, and a coordinated fiscal and monetary policy. As you know, on the monetary side, because there is a European central bank and it's not up to each individual country, there is a massive quantitative easing program of $1.1 trillion euros. That is highly accommodative, shall we say. As well, there's a huge debate in Europe about whether there should be more of a stimulus program or whether the country should be more focused on getting their debt under control.
Senator L. Smith: Do you see greater control of inventory so that oil prices will stabilize and then increase?
Mr. Oliver: That's very unpredictable. Look, I know what you're saying. The obvious economic reason for the decline in oil prices was that demand fell and supply increased. The demand falling is a reflection of the slower economic growth globally. A small part of the increase in supply was a result of a few countries. Certainly, a big part of it was the shale revolution in the United States. Then there was the decision by Saudi Arabia to protect its market share rather than keep prices up. But I'm not going to attempt to predict what they might do.
Senator L. Smith: Looking at our picture, you're putting money in the hands of people, giving them a chance to stimulate the economy, supporting families, and taking care of our own knitting so we can be the best we can be. We have a good banking system and we'll see where we go from there.
Mr. Oliver: Everything I said points to a recurring theme. We talk about the fragility of the international markets. We have the data and the facts all around and it's a persistent problem. It reinforces the need to have a strong fiscal situation so we can react to the unpredictable and unavoidable outside our borders. One example of that, of course, was the precipitous decline in the price of oil. Had we not been in a relatively strong fiscal situation, the impact would have been even more severe. We were able to avoid draconian steps or austerity. There wasn't any need for it. We didn't do it, and that's a good thing. It flowed from the fact that we entered this difficult period with some considerable strength. Right now we have half the debt to GDP of the G7 countries and a triple-A credit rating.
The Chair: Thank you very much, Minister Oliver, for being here and helping to clarify a number of points. Through you, I'd like to thank the team behind you who has been here throughout the last two weeks helping us to understand the diverse parts of this bill, in particular Heather Hickling from your ministry who has been coordinating the various officials. It has been most helpful to us.
The meeting is concluded, colleagues.
(The committee adjourned.)