Proceedings of the Standing Senate Committee on
National Finance
Issue No. 37 - Evidence - June 15, 2017
OTTAWA, Thursday, June 15, 2017
The Standing Senate Committee on National Finance, to which was referred Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, met this day at 2:04 p.m., in public, to study the bill, and in camera, to study a draft report concerning Supplementary Estimates (A) for the fiscal year ending March 31, 2018.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Honourable senators, welcome to this meeting of the Standing Senate Committee on National Finance.
[English]
My name is Percy Mockler, senator from New Brunswick and chair of the committee.
[Translation]
Thank you for accepting our invitation. I want to say that your staff has always worked with us when we've asked you to be here. Also, your department has helped us a great deal with answering the committee members' questions.
[English]
I wish to welcome all of those who are with us in the room and viewers across the country who may be watching on television or online. As a reminder to those watching, the committee hearings are open to the public and available online at sencanada.ca.
[Translation]
You'll also find information on the committee, including past reports, bills studied and lists of witnesses.
[English]
Now I would like to ask, officially, all the senators at National Finance Committee today to introduce themselves, starting on my right, please.
Senator Neufeld: Senator Neufeld, British Columbia.
[Translation]
Senator Forest: Éric Forest from the gulf region of Quebec.
[English]
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Andreychuk: Raynell Andreychuk, Saskatchewan.
Senator Oh: Victor Oh, Ontario.
[Translation]
Senator Moncion: Lucie Moncion from Ontario.
[English]
Senator Woo: Yuen Pau Woo, British Columbia.
[Translation]
Senator Pratte: André Pratte from Quebec.
Senator Massicotte: Paul Massicotte from Quebec.
[English]
Senator Fraser: Joan Fraser, Quebec.
The Chair: I would like to recognize also the clerk of the committee, Gaëtane Lemay, and our two analysts, Sylvain Fleury and Olivier Leblanc-Laurendeau, who team up to support the work of this committee.
Honourable senators, today we will discuss Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017, and other measures.
We have the honour to welcome the Honourable Bill Morneau, P.C., M.P., Minister of Finance. He is accompanied by his Deputy Minister, Mr. Paul Rochon. More officials are present in the audience to help answer questions if the minister wants to add additional information.
[Translation]
Minister Morneau, you're at home here. The floor is yours.
[English]
Hon. Bill Morneau, P.C., M.P., Minister of Finance: Thank you very much. It's a pleasure to be here. This is a very big room, so if I don't answer your question with reference to your name, I can't actually see far enough to read all your names. It will be by memory. Of course, I remember Senator Pratte's name by memory. That has been indelibly impressed on my mind. I will certainly look forward to questions. Senator Massicotte lives in the same building as I do, so I do recognize him, but I don't recognize him in a suit.
I'm happy to be here to discuss the Budget Implementation Act, Bill C-44. I would like to start by saying that we have a vote in the House of Commons at three o'clock, and I told the whip that I probably won't attend. I would like you to know that I'm here as long as you need me to be here. If you have questions of me, my next engagement is tomorrow at one o'clock in the afternoon. My 18-year-old is graduating from high school, so I'm not going to cancel that. Between now and then, I'm all yours. I'm happy to answer whatever questions you might have.
The bill that we're talking about is for us the next step of our plan to strengthen and grow the middle class in our country. We know it will allow the government to continue to make the kinds of investments we know we need to make to create jobs, to grow our economy and to provide more opportunities for Canadians across the country.
[Translation]
Over the past year, the economy has created over a quarter of a million new jobs. The majority of these jobs are full- time positions in the private sector. Private sector economists are expecting Canada's economic growth to pick up in the next two years. Numbers released recently on our economy put growth in the first quarter at 3.7 per cent, which exceeds most estimates. Canada now has the strongest growth in the G7, and we still have the best fiscal position in the G7.
[English]
As finance minister I understand, despite this good news, that many Canadians still feel anxious about their future. I guess I should start by saying their concerns are very real. We know that automation is on the rise. The economy is changing and it's changing quickly, creating real challenges for Canadians and for families. They want to be assured that their hard work will mean a better future for their kids and for their grandkids.
That's why we're focused as a government on implementing a plan to continue to strengthen the middle class while we also grow the economy. Our bill, Bill C-44, is the next step in that plan.
I thought I would start today by talking about a subject that we have talked a lot about in the last few weeks in the Senate, in the House of Commons and in the newspapers, and that's the Canada infrastructure bank. For us, it's fundamental to our plan to make historic investments in public infrastructure to build stronger, healthier communities, and to prepare our economy for the future. That's exactly why it's in this budget bill, because it's a critically important part of our economic plan.
Last year, we laid out a plan to invest more than $180 billion in infrastructure over the course of the next 12 years. We know that it comes at a time when the need for this investment is great.
According to some estimates, Canada faces a gap in infrastructure spending, even after those expenditures of $570 billion.
[Translation]
Meeting these infrastructure needs therefore places significant fiscal pressure on all levels of government. Financing the infrastructure gap with public funds alone would place a heavy burden on Canadian families. No level of government can fill that gap alone. It requires innovative solutions and new partnerships.
[English]
Bill C-44 proposes to establish the new Canada infrastructure bank as a Crown corporation. I would like to spend a couple of moments laying out for you what that means.
The bank will be governed by a board of directors. Their appointments must strike a balance between independence and accountability in order to reflect what we view to be critical and important considerations.
First, as the government is ultimately accountable for the use of public funds by the Canada infrastructure bank, the board must ensure that it has in place safeguards to course correct the bank's activities or the way it's managed if it becomes necessary.
[Translation]
Second, the bank will invest only in public interest projects. The model proposed for appointing directors will help ensure the bank's activities are always aligned with the infrastructure priorities of both the federal government and the provincial, territorial and municipal governments that wish to move forward in partnership with the bank.
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The appointment model proposed for the Canada infrastructure bank isn't unusual. For example, it's similar to the model in place at Export Development Canada, another Crown corporation. The government will be responsible for setting the overall policy direction and high-level investment priorities. A summary of the bank's corporate plan and annual report will be tabled annually in Parliament.
That's how the bank will be structured.
Here is what we want the bank to do. The bank will invest at least $35 billion over 11 years through a broad range of financial tools, including loans and equity investments, and it can incur an additional $15 billion in accrual expenses. This means that the maximum fiscal impact of the Canada infrastructure bank will be $15 billion over 11 years. That is the maximum fiscal impact on the government resources.
We have talked a lot about project risks in the context of the Canada infrastructure bank but I don't think we have ever put it in the proper context, so I would like to do that now for you.
When the government builds infrastructure, the taxpayers, Canadian citizens, bear 100 per cent of the risk. That's how things are typically done today. The risk may be at different levels of government, but it is in fact Canadian citizens and taxpayers who take on that risk. In working with the private sector, the bank will ensure that the risks are shared and that the risks to taxpayers are reduced, including the risks associated with cost overruns in construction.
The bank will only support projects that are deemed by multiple governments to be in the public interest and secure leading expertise to effectively negotiate a price with investors that protects that interest.
This is a partnership model where the public proponents and the bank are the ones who remain in control. This means that the bank and governments involved in the project will decide at the end of the day what they want to do with an asset, what the regulation around it should be, what the approval process is, and how it will be managed.
[Translation]
The bank's investments will be made strategically. The investments will focus on the large transformative projects, such as regional transit plans, transportation networks and electricity grid interconnections.
[English]
As a result, these large projects will see more innovation and, importantly, will just build more of them. While the vision of the bank and the benefits that it can deliver are long term, we see an urgency here. We need the work to start now to ensure that all orders of government can benefit from getting their infrastructure needs built sooner and at a lower cost than would otherwise be possible.
Moving to another topic, I would also like to take this opportunity to talk to measures related to the taxation of tobacco and alcohol products, as it has garnered at least a bit of attention. Budget 2017 proposes that excise duty rates on alcohol products be increased by 2 per cent, effective March 23, 2017, the day after budget day.
I would like to provide senators here with the context for this proposed change. It has been over 30 years since the government last adjusted federal excise duty rates on alcohol products independently of other changes to taxes affecting these products. As a result, over time, federal excise duties have represented a smaller and smaller proportion of the total price of alcohol products. This has reduced the effectiveness of these excise duties.
To maintain the effectiveness of excise duty rates on alcohol products, the government also proposes that these rates be automatically adjusted to the CPI, the consumer price index, on April 1 of every year, starting in 2018. The proposed 2 per cent increase in these rates will only have a small impact on prices: less than one penny for a standard bottle of wine, a nickel on a 24-pack of beer, and seven cents for a regular bottle of spirits.
[Translation]
The adjustment of the excise duty rate on alcohol products will result in greater predictability for producers and will maintain the effectiveness of these rates over time. If we agree that a fair tax system is a system that evolves over the years to take into account the economic reality, I urge the honourable senators to support the passage of Bill C-44.
[English]
Finally, I'd like to touch on a question raised yesterday during debate regarding the borrowing authority. The changes proposed in this legislation would grant Parliament and the Senate more powers than it has ever had in the past in approving the funding requirements of the federal government.
Ten years ago, Parliament's authority was revoked by the previous government, and it was left solely to cabinet. We're keeping our promise by empowering Parliament once again with the authority to approve the funding requirement of the government.
Our government believes in greater transparency and openness, Parliament, we believe, should always provide checks on borrowing needs to ensure the government is accountable to Canadians and is properly managing its finances.
I would like to explain why Parliament will be more empowered than ever before with the borrowing authority legislation that we are proposing.
First, Parliament will have the authority to approve marketable debt for the federal government and for agents of the Crown. This authority will not only be for current borrowing needs but for the entire stock of debt, which is important. Parliament's authority has never reached that far in terms of its oversight of the borrowing requirements of the government.
Second, transparency is further enhanced by requiring the Minister of Finance to update Parliament on the debt situation at least every three years, even when the level of debt is stable or declining. This implies that should the borrowing requirements of the government increase above the pre-approved limit granted by Parliament within the three-year period, the government will need to return to Parliament for new borrowing approval. This is a really important point.
On process, a question was raised as to why the government didn't declare the provision in force in 2016. Our objective from the start was to link the full framework, which was still in progress, to the budget process and to the updated budget numbers. In other words, we needed two steps in the process. In the first step, the government amended the Financial Administration Act in 2016 to reinstate parliamentary approval. In second step, we are coming to you with a borrowing authority act, which defines what Parliament will need to approve based on current budget figures. Once the borrowing authority act is committed to law, the government will need to come back to Parliament within a maximum period of three years to renew parliamentary approval.
To conclude, the bill before us has concrete measures that move Canada forward and move our economy forward.
[Translation]
However, we can and will do more to help the middle class and those working hard to join it. I urge the committee members to support Bill C-44.
[English]
Again, thanks very much for giving me the opportunity to speak to you today. I'm happy to take as many questions as you might have on Bill C-44 so that we can move on, which I think is important for the work that we're trying to do to maintain and improve our economic success. Thank you.
The Chair: Before we move on to questions, I will ask the deputy chair to introduce herself.
Senator Cools: My name is Anne Cools. I have been a senator for 33 years. I shall retire from the Senate next year in August, a year from now almost. I will serve on this committee for donkey's years.
In fact, Mr. Morneau, you should know that very devoted Liberals approached me early in your new mandate, after the election, after the houses were open, and asked me to take over the role of the vice-chairmanship of this committee. I don't know if you know, but there has been a practice in the Senate for years with this committee, and the chair has always been an opposition supporter, and a deputy chair was always been the government supporter. For me, for donkey's years the role of doing your supply bills has been a big job. Trust me, I know.
I have done that for a long, long time and I would say to you, Mr. Morneau, I see this as a privilege and a duty to do this, especially with a new government that came in with relatively inexperienced ministers. In any event, I welcome you. I have a soft spot in my heart for you. I look forward to looking closely with you on your own files.
The Chair: We are all anxious for the questions.
Mr. Morneau: I'm very happy with the preambles if they are all like that.
The Chair: All senators have shown an interest in asking questions. Therefore in round one, could senators be succinct and limit ourselves to two questions?
We will have a second round with time availability from the minister, like he said earlier.
Senator Pratte: Minister, thank you for being available. It will be a total surprise for you, of course, if my two questions are about the Canada infrastructure bank.
In a letter that you sent to our colleague, Senator Woo, about the governance model, you do explain in some detail how you envisage the role of the government and of the CIB board. You did mention again today, in quite clear terms, how you see the respective roles. It is becoming clearer, at least in my mind with time, much clearer than it was early on, the exact roles that both will play.
Would it be possible to put in those terms, in those clearer terms, in the act itself in more detail, because it's not in the act, the respective roles of the Governor-in-Council and the board?
Mr. Morneau: Do you have a second question too?
Senator Pratte: They are both so different I would rather ask the second question after.
Mr. Morneau: We chose the governance model for the Canada infrastructure bank with some serious consideration as to what the bank was intended to do. We took a look at the governance models of other institutions that are currently Crown corporations and other institutions that are successfully completing their mandate. We looked at the pros and cons of those models.
Our view is that we have had a great deal of success with the governance models proposed with other Canadian Crown corporations. It has worked well. We obviously have a practice as we think about appointing board members, giving the board members the appropriate mandate, and having the capacity as a government to have oversight of them. It has been a very successful practice over a long period of time.
We have the ability in government to remove board members as the authority for the organizations, which we believe is appropriate. However, as we know from history, that's a prerogative that is very seldom used. In fact that's something that has been a very big positive for this infrastructure bank as we have gone around the world to talk to investors. They have seen that we're a country with a very low level of political risk and a governance model that has worked.
We don't see a reason to be changing that. We see what is important for us is to make sure that, following the governance procedure, the mandates given to the executive team are mandates that are clear, so that we can ensure they are on the right track; that they come back to Parliament with their annual plan, which gives us an ability to course correct; and that, in practice, this will mean that this will be an institution that will stand the test of time and won't lead to future governments, which are, of course, sovereign, making changes of their own accord. Choosing something that is tried and true, consistent with the past, leaves us in a position where we aren't trying to recreate the wheel but do something that has worked. We think that leaves us in the best position for long-term success for the institution.
Senator Pratte: You have insisted time and time again, and again today, on the fact that the maximum fiscal impact of the bank is $15 billion, the other $20 billion being equity loans or whatever that will be backed by assets and therefore will not appear on the government's bottom line.
Now you are certainly more expert than I am. Being a journalist, I'm not an expert in anything, but would you agree with me that $20 billion could eventually appear in the government's bottom line if, for instance, a loan went bad, something had to be written off or whatever? Therefore it's true that in the immediate the $15 billion is the maximum that could be the fiscal impact but, eventually, some parts of the $20 billion could also appear on the government's bottom line?
Mr. Morneau: I look at it is this way. First of all, as we know, the current approach to infrastructure projects leaves 100 per cent of the risk with government. To the extent that a project goes too long and is more expensive, that risk goes entirely to government.
In this new situation, we're saying that there are two tranches of capital available. The $15 billion tranche might not all get used because it may well not need to get used; but it may get used in order to provide a way to make sure that a project becomes viable, thus limiting the amount the government might put into any one project.
What's critically important is that as we consider these projects very early in the process we also look at the amount of that $15 billion that might get used as concessional capital for any one project to get a project to actually happen. Additionally, the $20 billion, as you say, will be an amount that can be used for other aspects of making the financial model work.
What I would say is that the government has a really positive track record with other institutions that have capital. We have other institutions in the country that have balance sheets which produce returns for the government. The Canada Mortgage and Housing Corporation, the Business Development Corporation of Canada, Export Development Corporation, and Farm Credit Corporation, all of these organizations have balance sheets. All of these organizations, like any institution that has a balance sheet, have an obligation to use those balance sheets wisely. You can never completely eliminate risk, but we have a very strong track record for managing that risk and turning it into opportunity.
Those institutions are all actually returning money from the capital that they have there, and that would be our goal. In order to achieve that goal, we need to have the proper level of oversight. We will seek expertise at the board level and at the executive level, so that we have the executives that are creating the plan, the board that's approving the plan; the executives that are building each project and the board that's approving each project. Then we, of course, are approving the plan and approving on a project basis.
We have belts and suspenders in the approach we've laid out. We believe it's one that will have the impact we're seeking. We also see that it's important to move forward on this quickly because that impact can start once we get going with this. I believe we've chosen an approach that is fiscally prudent while creating opportunity.
Senator Marshall: Thank you, minister, for being here today.
My question is on the fiscal situation of the government. The deficits now are about $30 billion a year or approaching $30 billion. Even your own borrowing authority act, which is in Bill C-44, indicates now that our debt is moving toward $1 trillion. The budget documents show that interest expense is going to increase from $25 billion to $33 billion over four years, so that's an increase of about a third. We're moving along and increasing our risk, in my opinion.
You yourself have said in your opening remarks that times are good. The economy is pretty good. There might be a couple of soft spots, but we seem to be rolling along. However, we are accumulating these incredible deficits and massive accumulated debt. It certainly doesn't agree with the election platform that came down in 2015.
There will be a day of reckoning to come. The debt will have to be repaid. Either taxes will have to be increased or spending will have to be restrained.
My question is: Do you have any plans whatsoever to restrain spending, to eliminate or reduce the deficit, or to do anything that would bring constraint to the government's spending?
Mr. Morneau: We've been quite clear that we believe it's important for us to make long-term investments in the productive capacity of our economy. We started by dealing with what we see as an immediate challenge in terms of the confidence levels of Canadians and their sense that the challenges faced by technology change and by job situation was something we needed to deal with. The good news is you've seen results.
What you've seen from what's happened in the time since we've been in government is a material and, I would argue, a sustained change in our economic situation. You could argue that it's not all due to us, but I'm fairly certain that if it was going badly, we would be owning the issue.
What I can say is that when the unemployment rate goes from 7.1 per cent down to 6.5 or 6.6 per cent, when a quarter of a million new full-time jobs are created, and when the economic growth turns from being really the significant challenge which presented that change in terms of the amount of projected deficit to where it is now, which is significantly greater, we can agree that things are going in the right direction.
What we believe is that it's important for us to continue to invest in the places that we know will have a big long- term impact. The numbers that you were looking at that led to your question, of course, were numbers put out by the Finance Department based on then policies. The good news is that today you have an opportunity to help.
What you can do is approve Bill C-44, which will put in place the Canada infrastructure bank, an important issue for helping us to grow the economy long term. Of course, that will help us in terms of our economic prospects. The prospects right now, just to put the numbers into place, that we've shown in terms of debt levels include a declining level of debt to GDP.
As you talk about potential risks, what we believe is critically important is that we have reduced those potential risks to the economy. We're showing an outlook, financially, that reduces the net amount of debt to GDP over time. As you rightly point out, that presents us with the flexibility required, should economic situations change, and that's exactly what we're doing.
We believe this is the appropriate way for us to do this. Showing that track allows, in the short term, more confidence for Canadians and their families and, in the longer term, a sense that we're being fiscally responsible in how we're managing both our income statement and our balance sheet, which is proportionately smaller as a percentage of our overall economy.
Senator Marshall: We talked about the debt, how high it is at $1 trillion. You're proposing this new borrowing act. In it, you're committing or you're saying you will file a report every three years. Why would you file a report every three years when the norm within government is to file an annual report?
The deficit, the debt of the country, is so high, why not file a report annually? Why not let the people of the country know on an annual basis? Every three years is really out there. I've never seen anything in legislation requiring a report every three years. Why every three years? Why not annually?
Mr. Morneau: Can I start by commenting on a fact that you're using? The number that you're putting forward, that $1 trillion number, is including the debt at our Crown corporations, which also have assets against them. It's actually not an appropriate measure to consider.
Just to be clear, we expect the current level of debt of our country for 2016-17 will be $637 billion. I want to correct that for the record.
I'd like to explain then how the approach we've come up with on parliamentary oversight on budgeting is, from our perspective, appropriate. It's important to consider, first of all, where we were at.
The previous government decided, we think inappropriately, to get rid of the parliamentary oversight on government borrowing. First and foremost, we heard from many actors, importantly from senators, that they believed it was something we should deal with. We listened and we heard, and we are moving forward with that. This is an improvement over where we are. Then we said, "Let's make sure that we don't put in place an approach that's inappropriate to the goal that we're actually trying to achieve.''
As you'll know, there are actually some experts in the Senate. You actually have people who have dealt with really big balance sheets. Senator Marwah is a good example. He has dealt with a really big balance sheet.
The borrowing cycle of the government is not the same as the annual cycle that you're proposing. It's a long-term cycle. We want to make sure that the cycle is consistent with the approach that we take in terms of actually managing the government resources. Imposing a cycle that's not appropriate to the actual issue at hand, we don't think makes sense. Let's think about what we're actually trying to do here. We're saying that every three years, Parliament will be required to review the borrowing authority of the government. That's different from what was in place prior to 2007.
Prior to 2007, Parliament had the ability to review it, but they didn't actually do it. Between 1996 and 2007, Parliament didn't review the borrowing authority of the government, not ever. Now we're putting in place that it has to happen every three years. More importantly, if the borrowing authority needs are higher, we have to come back, even within those three years. It's a three-year review, plus in the interim period, if we need more, we're coming back to Parliament.
This is a pretty rigorous oversight and certainly vastly superior to what happened before 2007, and infinitely superior because there was nothing between 2007 and 2009. We believe that we've taken an approach that's in accordance with what the goals are. We've taken an approach that's in accordance with how we actually run government, and it's one that we think will stand the test of time.
Senator Marshall: I thank you for your explanation, but I'm not convinced with regard to the triennial report.
Senator Andreychuk: I'm not a financial expert like Senator Marshall is. I'm more interested in the public policy and how it gets translated to people. I'm back to my favourite topic with you: middle class.
You continue to use that phrase, and my concern is that it doesn't translate well when I talk to people. We're still having that same problem. Who does it cover? Is it the lower middle class or the upper middle class, and what about those who don't even fall into the middle class?
It seemed to me that we should be talking about Canadians and the opportunities for Canadians in sustaining their way of life. On the one hand, you say you want an infrastructure bank because it will create jobs, contribute to the GDP and will be all good for the middle class. I hope you're saying all Canadians. Yet, I read the papers and they say this will not be sufficient. We need more in infrastructure if we're really to be competitive.
I see a gap there. How will you to turn around the issue of the lack of infrastructure, which seems to be one of the issues that has lagged behind and kept us behind? How do you translate all the risk that I see in your statements? They are promises of what you're going to do. Where are the markers that Canadians can look at throughout? We can't wait 5, 10 or 20 years, because that's what the infrastructure will take to really change this around. How do we know we're in the right direction?
Mr. Morneau: Let me start by where I think we 100 per cent agree. We believe there is a need for us to focus on how we can create infrastructure that improves the lives of Canadians. We recognize that there are needs around public transit, especially in our biggest cities. We see that the challenges around affordable housing are significant, and we need to get at that. We know that wastewater systems in many parts of our country are breaking down because of changes to climate. We're witnessing these things happen.
We're 100 per cent in agreement that the goal of getting at more infrastructure projects makes sense from the standpoint of what we're actually trying to achieve in terms of quality of life. We are also of the view that doing more, to the extent we have capacity, makes sense.
We've made some pretty significant commitments. Taking what was proposed by the previous government, and more than doubling it over a dozen years, is really important. That $180 billion over a dozen years is not the total amount that we focused on infrastructure because we'll be seeking incremental funding from provinces and municipalities. You could argue it will be twice to three times that in terms of the actual amount of infrastructure spending.
Even after that, as I mentioned in my prepared remarks, we see a $500 billion-plus continued gap. Our view is that there's only so far we should go with the government balance sheet. I'd encourage you to turn to the senator to your left to talk about that. As we think about ways to go further, we need to think about other alternatives, and that's why we've focused on the Canada infrastructure bank.
We know because we've gone out internationally. We've heard from Canada Pension Plan Investment Board, OMERS, Teachers' and Caisse de dépôt, that they want to make investments in infrastructure projects. They will seek to do that because those assets match their liabilities. They're in the game. We need now to find a way to create the government expertise so that we can actually build the projects have confidence that we can partner with them. That will increase the amount of infrastructure that we'll be able to get at.
The judgments that Canadians will make will be around whether we are able to get at these infrastructure projects. Do we have the transformative projects that will make a long-term difference? They will take time, so we can't create a fiction that we will redo a transit system in two years. It doesn't happen that way. It takes time. We need to get on with it now so that people see the impact in the time period that they need. As our cities get denser, we need to have this infrastructure.
You're preaching to the choir here. We agree with you. We think getting on with it is critical and we think we've laid out a structure that allows us to do that in a measured and appropriate way.
Senator Andreychuk: That's putting a lot of trust that you're going to accomplish that. I think part of the comment I'm trying to make is: How can we judge it along the way as the debt increases? I'm thinking of your child that will graduate. Intergenerationally, are we to wake up one day and have an overwhelming debt but not the results?
I want some markers and some assurances. Whether it's a review more often than three years, I want something that we can look at because promises are made constantly. I've been around long enough to have gone through too many governments that have made the promise of changing it around. Some things have happened, but not sufficient to make us continually competitive. That's my speech back to you.
My other comment and question is really around the escalator clause with the excise tax. You're saying it will not add much to a can of beer. Others disagree with you, and that's in the industry. Many jobs are dependent on those industries, from tourism, et cetera, and many of those jobs are sustaining families at a low income. Every one cent can jeopardize many more jobs. That's the one I keep hearing.
What troubled me is that in our pre-study no impact studies were done. It wasn't really specific to that industry. It's the Consumer Price Index across the board. It seems to me that we're giving you an awful lot by putting in an escalator clause that will go on and on and on, tied to a Consumer Price Index that we don't know. We're jeopardizing industries that have been cultivated: the wine industry and the distilleries. We know what happened before.
Those are the kinds of jobs we have now throughout many smaller communities and throughout many cities. It would seem to me that this is not the time to do the escalator clause. You can justify the increase, because there hasn't been one, but to put that much uncertainty in place is troublesome.
Mr. Morneau: Let me address the two things that you've said. Let's start with the markers around infrastructure. I don't know how I can better explain how markers will be laid down than thinking about the Canada infrastructure bank. Let's think about what will happen here. We will see this new infrastructure bank come up with a project. That project will need to be reviewed and approved by multiple levels of government because that's the way it works. The municipalities, the provinces and the federal government, they will need to review it. There's no ability here for us to just give financiers the responsibility for infrastructure. We work in a system where we have multiple levels of government. We get the project approved.
We'll then have a financial model that will be put out for this project. At that stage that financial model will be approved. We'll approve that and we will then invite investors to be part of this project. There's a contract form to that stage. The contract is investors will invest in a project because they will be seeking a rate of return. They will likely be the majority owners of the project.
The conclusion you have is that these investors, people who have been extraordinarily successful investors in infrastructure, like Teachers', the CPPIB and the Caisse de dépôt, will be going into these projects because they see a return. That return will be based on actually delivering the project. We're putting in place a vehicle that does exactly what you're asking. The way you can help us is by approving Bill C-44.
With respect to the excise tax, I'd like to review what's really going on here. In the past, governments have seen fit to raise excise tax significantly, periodically, and as much as 44 per cent at one time. We don't think that's an appropriate way to deal with industry. As I think you know, before I came to this role, I was in business. If I knew there was unpredictability around a cost, that it could be raised by 44 per cent, it would make it very difficult for me to make an investment.
Businesses seek predictability. We looked at this and we said that it is far superior for us to put in place an approach that keeps the real amount of this tax constant over time. I would implore you in this room to stop calling this an escalator, because it's false. Inflation is a real thing; it actually exists. As we think about what we're doing, we are saying that this tax will stay constant over time.
Now I'm that business owner. I'm thinking about whether I'm going to employ people. If I think government might raise that excise tax by 44 per cent, I don't know what I should be doing; but if I know it's going to be constant in real terms over time, that gives me the ability to make an investment. That's what we're seeking to do here. As we say, this is something that is giving us authority over the long term. It's giving us authority to stay real.
Let's remember what happens in other parts of government. Old Age Security, Guaranteed Income Supplement and salaries for public servants all go up with inflation. Our expenses go up with inflation. Income taxes go up, based on the percentage of income that people have. People's incomes go up with inflation. Currently, we have a system where taxes go up with inflation and expenses go up with inflation. What that does is it keeps it real, and that's exactly what we're doing here.
I will tell you as a final comment that although it's not easy to do impact analyses on things that effectively aren't changing, because in real terms this isn't changing, the department did impact analyses and would be pleased to table them for you. What you will find is that the impact is negligible. That's the best I can say. That's the reality, because it's flat over time. Unless you think inflation isn't a real thing, that's the only conclusion you can get to.
Senator Andreychuk: I think I'm cut off, but I'd love to continue.
Senator Fraser: Minister, welcome to the Senate. I'd like to come back to the borrowing authority. When you say that you're giving Parliament more authority than it has ever had, I assume you say that because under your proposal there would be a legislated debt ceiling. That sounds rather like the American system to me and it raises the prospect of deadlock. That's why I assume, and tell me if my assumptions are wrong, that under section 6 of the proposed act there is an exception that the minister may exceed the debt ceiling.
Does that not, in effect, make the debt ceiling rather more of a cloud than an actual hard ceiling?
Mr. Morneau: You've spent a lot of time reviewing this, which we appreciate. You're exactly right in the sense of what actually is in what we're proposing. We will have a debt ceiling. What will happen is the debt will be approved by Parliament. There will be a debt ceiling. If the government wants to exceed that in the normal course of business we'll need to come back to Parliament.
In the case of an economic crisis we need to deal with immediately, I can tell you that the morning after Brexit, I was on the phone with all of the G7 finance ministers and all of the G7 central bank governors in order to think about what we should be doing in the case of a significant financial challenge. As it turned out, that issue was not needed because the impact was actually quite muted, but at that stage we couldn't have known for sure.
There needs to be the ability for the government to act on a dime in the case of financial crises, but we need to come back each year with our plan. We need to come back with a debt plan each year. It's also in there that we come back each year and report to Parliament.
We think we have an approach that recognizes the importance of this issue, that allows Parliament the appropriate oversight, that allows us the ability to act in a crisis in the case of a real problem, and includes a requirement to come back to table with Parliament what the situation is.
Senator Fraser: I must have missed something. I didn't find the requirement for the annual report, but if it's in here, that's wonderful. I'm glad to have your assurance about it.
Mr. Morneau: It's annex 2, the debt management strategy.
Senator Fraser: I'm looking at the actual proposed bill. Forgive me.
When it comes to re-legislating a new debt ceiling, which presumably would be required every time you had to do it, can you give us any assurance that authority will be sought in a separate bill rather than just tucked into an omnibus budget bill like this one?
Mr. Morneau: Let me start by challenging the underlying frame of your question. Everything in this bill is related to our budget. We were very clear when we ran for office. We believe this is important. The things that go into our budget implementation act have to be related to our budget. If there is something that you find in our budget implementation act that's not related to our budget, I'd appreciate your telling us, because we don't see it that way. In that we believe we're staying absolutely true to what we said we would do.
With respect to how we'll do this in three years, I'll tell you honestly we have not yet concluded on the appropriate way to do this, whether it should be separately or within the context of a budget. There would be an argument that the debt of our country is something that could be considered as a financial measure in our budget, but we haven't done the analysis to get to a conclusion. I can't tell you "yes'' or "no.'' I can tell you that our approach will be considered. We'll have the reason why we choose the approach that we do on display for you to ask at that time.
Senator Fraser: Thank you.
[Translation]
Senator Massicotte: Since I'm not a member of this committee, I appreciate the fact that you're letting me ask a question.
[English]
Thank you, minister, for again being in front of this committee. I'm very much in favour of and very much like the infrastructure bank. I agree with you economically. It's important to our country. It's important to increasing productivity. As you know, our GDP is going down. This will help us significantly be more competitive. I have no problems with the idea and no problem with the whole concept of leveraging our capital to get a bigger bang for the buck.
I also note that your own advisory committee on economic growth, chaired by Mr. Barton, a managing partner of McKinsey, recommended strongly the creation of the infrastructure bank. I also note they made a significant emphasis on the importance of the independent nature of the bank. They say, "This should include the appointment of a highly independent board of directors and a CEO with world-class relevant experience.'' I think that's fundamental.
If you look at the PPPs or infrastructure projects in the world that have gone wrong, it's usually because they haven't been structured right. The interest is not mutual, or they're not aligned to be mutual. It's extremely important we structure this well. It's extremely important that we have a very strong board and an extremely strong CEO. I buy that.
The concern I have is how do we ensure we get there. I'm always concerned about the governance. I think I like very much the contents of your letter dated 2017. I think it was yesterday's letter.
Mr. Morneau: I'm sure it was yesterday's letter.
Senator Massicotte: I think I like what it says, but I'm not sure it says what I think it says. I wouldn't mind reviewing that with you. To be upfront with you, I'm particularly concerned about, and I think it is what everybody is concerned about, the people investing with us being convinced the board and the organization will make decisions based upon financial merit. That's the critical concern.
What they're not saying is that too many times in history decisions have been made for electoral reasons, especially around election time. Not so long ago, a year and a half ago, I looked at my own home town of Montreal. The Champlain Bridge was supposed to be user pay. As you know, user pay is a very efficient allocation of capital. It usually has strong merits and, oops, an election campaign comes on. The mayor of Montreal does his job and puts pressure on, and all of a sudden the Champlain Bridge is not user pay; it's a fully paid $4 billion gift. Bang, done.
We want to make sure, in the interests of Canadians, that future decisions are not made upon that basis, but made upon merit-based, wise economic decisions. The structure of the bank is very relevant.
Here is what I'll say in my own words about what I think your letter says. You can tell me if I'm wrong. What you're really saying, and rightfully so, is that every year you will receive a budget and you will receive a business plan from the organization. You'll approve of that or disapprove, but for them to proceed you must approve that plan. Don't forget, infrastructure projects take years. It's not going to pop up one month and get done the second month. That plan will be comprehensive. It will probably discuss projects you're looking at and, at least conceptually, what the criteria for success should be.
I understand once you approve that, the bank, the board and its CEO will have full authority to negotiate what they consider to be the best deal on behalf of Canadians. You will not get involved at the very last minute, neither you nor your successor nor anybody else on the government side. There will not be a political direction given, saying, "On this one we don't agree. Why don't you make a deal in this riding?'' or "Why don't you do a deal in this interest?'' They have full authority over the deal and consume the deal based upon your approval of the annual plan and the budget.
I think that's what your letter says, but you did previously testify at our Banking Committee that you would approve every project. I guess that's where some of us, including me, became concerned, saying, "Uh-oh, this may get political.'' Political is not a bad word. If it's electoral, it may be a bad word. That means it's in the interest of a political party and not in the interest of the Canadians.
Am I correct in the way I see it that you'll approve the master plan, you will approve the business plan, and you will approve the budget, but then it's hands-off unless you see something dramatically wrong?
Mr. Morneau: No, you're not correct in the statement you just made. Let's take the REM project in Montreal. That project is one that has the concurrence of the City of Montreal, the Government of Quebec and, as of this morning, the federal government. Imagine if we now said that was a project for the Canada infrastructure bank, which it potentially could be. Hopefully, if we get this bill passed, that could potentially be something the Canada infrastructure bank could consider.
We have said that we will fund it, but we have said that this would be something the bank would consider. Let's just say that the bank considered that and put an investment in there. We will need to have the approval of the project, which we have said we concur with. We will need to have approval of the financial expenditure, which would be what the infrastructure bank would come to the table with. They would look at the model and they would come to the table. We would have to approve it. Whatever the amount, the $15 billion or $20 billion could be used for financial leverage or making the project more attractive.
Let's say that we decided that, oops, we now want to put this project in Winnipeg. Do you think the investors would stay on board? I mean the point here is that we have to have other levels of government engaged in the approval, because that's the nature of the projects. We have to sign off that we believe the financial model is okay. From that period, then, the investors will be part of it.
Now this moves into the zone of contract law. The bank puts out a contract opportunity for AIMCo in Alberta or Caisse de dépôt in Quebec or the infrastructure fund from Denmark. They have said, "We're going to buy into this for $100 million.'' We have a contract. We can't all of a sudden, then, break that contract and say, "We're moving it from Montreal to Winnipeg.'' It would be absurd.
That's the nature. The approvals have to be at the beginning by definition. The financial model has to be at the beginning because only with the approvals done and the financial model agreed to, can we go out and seek investors who will buy into the project as stated.
The elimination of political interference comes from the fact that the government of today or the government of tomorrow will not overturn that contract. I mean we live in a country that adheres to laws. They will not overturn that without fairly significant problems for us long term.
Senator Massicotte: I'm not concerned once the contract is in place. They can sue for damages, and so on. The issue will be, if the investment committee is not convinced decisions were made to be merit based, or if they get suspicious that they are electorally based, you will suffer the same thing as the Northern Australia Infrastructure Fund, which set up a facility, as they called it, in 2010. Investors did not come out adequately enough. They amended the legislation in 2016 whereby, you're right, the minister has a right to disagree with the decision; but it has to be done in writing and the letter has to say exactly why he disagrees.
In other words, there is at least a little burden to make sure it remains merit based, it's done in a logical way and there is a frame of reference. I really want this infrastructure bank to be successful. That's why I'm raising this point. I hope it's credible enough that people say that in spite of the fact you have all the flexibility in the world to make it political or electoral, they are not going to do so. If they think you are going to do so before the contract is signed and you are going to waste all their time, they are not going to sit down with the bank.
Mr. Morneau: Look, I'm delighted that you see the merits of what we're trying to achieve. We are listening to what is coming in this room and we're listening to what is coming in other rooms. We will need to put in place practices that this organization will work through that will consider these observations. We will need to put in place practices to ensure that as the executive teams is given a mandate they will have practices in place to enhance the likely effectiveness of this organization. We will be able to take advantage of the experience of other jurisdictions, like the Australian jurisdiction you mentioned.
We just don't see a world in which we don't have to go through the political process in order to get to what project can be considered. We are talking about transformative infrastructure projects. We will be required to go to the municipality if we think we will do something in the Blue Line in Calgary. There is no scope for doing that without going to the City of Calgary. If we want to do that, there is no scope for doing it without getting Alberta on board. We need to do that, and we need to assure ourselves that the financial model is appropriate.
Once it's done, once it is presented, then the authority is with the bank and the ability to get to the contract is with the bank. The checks and balances are the 150 years of history we have in the country of adhering to contract law and recognizing that is the way we should move forward in this case.
Our success will be entirely dependent on our effectiveness in doing that. We will have a political advantage if we can get more projects done, which means we need to create the dynamics that allow investors to find the projects that work.
Your concerns are noted. We have more steps to do afterward to make sure that this organization works effectively. These will be some of the considerations that will be critical.
The Chair: I would like to recognize that Conservative Senator Larry Smith, Leader of the Opposition in the Senate, was here. Also, before we go to questions, I would to recognize the dean of all parliamentarians in Canada, the Honourable George Baker from Newfoundland and Labrador, who is a member of the Standing Senate Committee on National Finance.
Senator Neufeld: Thank you for being here, minister. There have been lots of questions about the infrastructure bank, but let me back up just a minute. There has also been talk about funding for indigenous communities for some of the things they will need.
When the board of directors is appointed, will there be room on that board of directors for someone from the First Nations community? Can you make the commitment here that you will actually look seriously at having them represented on the board?
Mr. Morneau: I can make the commitment here that we will be seeking, in this board of directors, to achieve two things.
First and foremost, we will be seeking to have the levels of expertise, experience, background and judgment that will allow us to get this organization up and running, and to assure that we have the capacity to start a new and ambitious organization in a way that assures the projects will get done and that the significant financial contribution of the federal government will be considered in every decision.
Second, and we believe we can achieve both of these goals, we will seek to make sure that this board reflects Canada, to the greatest extent possible because we know that having people who understand our country is important. In that, we will certainly be considering having both genders represented, people from different parts of the country and people with different backgrounds, including, importantly, indigenous Canadians.
What I won't commit to you, because we won't be taking this approach, is that there will be a quota system for anyone on this board, or that we will have slots available only to people with certain backgrounds because that could unnecessarily restrict our ability to attract the requisite expertise.
I will say that it's not clear that the people on the board will necessarily be Canadians. We have not considered this yet, but we may consider whether there is a particular expertise that can be brought from someone who potentially has a different passport. Similarly, we will take the same approach for the executive team.
This is important question you bring up and it is certainly something that we'll be considering. The magic will be in trying to achieve those goals at the same time.
Senator Neufeld: I'm sure, in the First Nations community, you can find someone with all those qualifications. To infer you may not, I don't like that. In fact, I can give you some names of people who could sit on there.
My second question had to do with the escalator on alcohol and so on. I won't ask that again, but I will make a comment on the question of Senator Fraser, in which she referred to an omnibus bill. You took a bit of exception to that, and you said you promised in the election you wouldn't do that.
I guess you also promised in your election that you wouldn't spend more than $10 billion of deficit in a year. Forgive me if I'm a little bit — I don't know if that's called jaded or a little bit suspicious.
Mr. Morneau: Is that a question? I'll happily take that.
To the first issue, as we create the board I want to be on the record as saying that I have a high level of confidence we'll find highly competent people from different backgrounds, including First Nations, Metis and Inuit in the country who might have expertise that would be helpful.
With respect to our approach to deficits, this has come up a couple of times today. It's very important to have context. When we were running in the fall of 2015, the economic forecasts that were there at that time were, of course, based on what happened earlier in that year. As you recall, oil prices took a pretty precipitous change and the forecasts for future growth changed dramatically.
If you actually look into the numbers that we put out, you'll see that roughly half of the deficit projection put forward in our first budget was related to changes in economic forecasts. As you think about that, I believe it was 29.4. Roughly half of that was related to changes in economic circumstances and future growth.
The good news is our approach is starting to have the impact on the economy that we were hoping to have. I know, as you do the math, that you'll see the alignment with what we proposed in our campaign and what we actually did. Given the changes in the economic environment, it is pretty close. We believe that's the appropriate approach to dealing with that economic situation.
[Translation]
Senator Forest: Thank you, Minister Morneau, for being here.
My first question concerns the excise tax on alcohol products. I want to make you aware of an issue. I think the excise tax of 2 per cent hasn't been increased in a long time. However, the annual automatic adjustment to the CPI varies across the country. The absolute value is minimal.
In today's world, people want to buy products close to home, so more local products. The tourism aspect is important. Canada draws people through its culture and landscapes, but also through its regional products.
Regarding this tax, I'll give you the example of a micro-distillery back home, in Rimouski. It's the Distillerie du St. Laurent, and it produces an excellent gin, by the way. The product is sold at the Société des alcools du Québec for almost $10. At the store, it costs $48. The difference is huge, as a result of taxes. To be able to encourage this small business, which creates five or six jobs, we must really be convinced, since we can get a high-end product for $28. Clearly, micro-distilleries and microbreweries will be more affected, because their products are more expensive.
These small producers are found all over the regions. I'm not against the 2 per cent increase. However, regarding the fact that the increase is automatic, there's the principle of no taxation without representation. So, the imposition of an automatic tax increase each year worries me a great deal, given the situation of small producers. There are large tax fields. I'm thinking of major international companies, such as Amazon, Netflix and Facebook. These companies sell domestic products and make billions, and they don't have to pay taxes. Why impose this automatic tax increase based on the CPI, which varies from region to region?
Mr. Morneau: We think it's very important to have a system that works for all the producers. The tax changes will have the same impact for local and international producers. There's no difference between the two, or between the small and large businesses and the Canadian and international systems. It's the same situation for both products side by side.
I understand that you want a better situation for Canadian producers. However, we have another way to encourage Canadian companies. We create an environment that works for them, meaning a system where they can find venture capital and capital that works for small businesses. We decided to create a Canadian business growth fund with the major banks to provide greater access to capital for companies that are very quickly increasing their sales. It's very important. I agree, but we don't think the way to proceed is through our tax system, since the system is equal for small and large businesses. It's our decision for the market.
Senator Forest: I was talking about maintaining some flexibility to do it on an annual basis, rather than on a permanent basis.
My second question is about the large infrastructure initiative. It's one of your government's major initiatives, an incredible effort of $180 billion over 10 years. As you said, it will be supported by the efforts of the provinces, territories and municipalities. A number of programs are one-third, one-third, one-third partnerships. These create significant leverage.
For you, the Canada infrastructure bank is a tool and not an end in itself. It's a very important tool for your strategy. I think the tool must be improved in terms of the practices and business model. Currently, when we look at ownership, the infrastructure deficit in Canada is estimated at $570 billion. Municipal governments are responsible for 57 per cent of infrastructure, provincial governments are responsible for 41 per cent, and the federal government is responsible for 2 per cent. Why can't we take a few months to improve the Infrastructure Bank?
Last year, in 2016-17, we spent 48 per cent of the funding for infrastructure programs. We could improve the partnerships, and very quickly prioritize partnerships between provincial and municipal entities. I'm in favour of the Canada infrastructure bank. However, I want us to spend a bit more time thinking about it and improving the business model and management concept.
Mr. Sabia, from the Caisse de dépôt et placement du Québec, told us that the Caisse is drawn to profitable projects. There are quite a few profitable public infrastructure projects. I don't think these projects will be carried out very quickly, while there are significant gains to be made with partners such as the provinces and municipalities. My question is simple. Why don't we give ourselves a few months to think more about the practices, business model, and management and governance structure of the bank, in order to quickly improve the effectiveness and efficiency of the partnerships with the municipalities, provinces and territories?
Mr. Morneau: We started creating the Canada infrastructure bank over a year and a half ago. The bank plays a central role in our economic model. It's an important investment. That's why the bank is included in our budget. We're investing $15 billion to transform our economy and help launch projects. We've explained how we want to work in the next few months. We're aware that it's always difficult with a budget bill, given the size of the bill. However, we think our approach is clear. The bank will be similar to the other Crown corporations, so it's not very hard to understand.
We think we must start now. We have a good example today. We've made a decision regarding Montreal's Réseau électrique métropolitain. It's a federal investment of $1.3 billion. However, I think the project is viable for the bank. If we wait, it will no longer be possible. The time will no longer be right. Other important projects are ready. If we wait, we'll miss the boat. It's important to support our economy now and in the future. We think our approach is clear. With the arrival of the first projects, we can further explain our way of doing things.
[English]
The Chair: Before we go to the next senator, we're listening to the bells in the Senate. There will be a 30-minute bell and the vote will be at 3:54 p.m.
Minister, you have been very generous with your time. We have a few more senators that would like to ask questions and, if you permit us, we will continue.
[Translation]
Senator Moncion: My first question concerns the recovery period you're planning to make the bank profitable, and the return on investment you're anticipating.
Mr. Morneau: The goal of the bank isn't to make a profit. The goal is to find projects that we can work on with institutional investors.
We'll use the $15 billion to support economic projects for investors. The large transformative projects must be able to count on government support from time to time. We think each project could be profitable, but that's not really the goal. Also, we must ensure that each project will have a positive impact on Canada.
Lastly, we must use the other tranche of capital, the $20 billion, in order to keep capital for the long term. The $15 billion will be used to increase the number of projects and make more different types of projects. The $20 billion will help improve the project using other funding methods and keep capital for the long term. That's the basic goal.
[English]
Senator Cools: I want to thank the minister again for his generosity with his time with us.
Minister, I want to encourage you to be more generous with the public of Canada. We listened here in this committee last week, or some days ago, to some compelling testimony from the vintners, brewers and spirit producers. I must say I'm very sympathetic to your position, your concerns and your commitment to annual inflationary adjustments based on the consumer price index. My intellect is very sympathetic to all of that, but my heart says a different thing.
My heart says to me, minister, that you shouldn't sound like a stingy minister or like a stingy government. I'll tell you why. It is because human beings, Canadians, work very hard and they should be allowed some breaks when it comes to entertaining themselves with a glass of wine or two or whatever. Where you are going to tax people is in their relaxation moments, their social gatherings, their parties, their weddings, their celebratory events, and even graduation parties. I saw a graduation party for some teeny boppers graduating from kindergarten quite recently.
I would ask you, minister, to rethink some of this. It is not that healthy to be taxing people in those vulnerable areas. I will tell you, Mackenzie King first introduced the baby bonus quite some time ago.
The Chair: Is there a question in that?
Senator Cools: There are a lot of questions on this. I'm trying to encourage you to be generous like Mackenzie King was.
It was a baby bonus, and they decided to pay it to the women because if they paid it to the men it would be paid down to the mortgage or rent. They decided, if it was paid to the women, the women would spend it on a party or cake or something special, ice cream or something for the children.
I would like to encourage you, minister, to reconsider your decision on this question of the annually inflated tax to the Consumer Price Index. Canadians should be allowed a bit more freedom, to have a bit more relaxation with their friends. Beer and wine are very common ingredients when people gather to entertain themselves. I'm going to ask you, minister, to reconsider. You do not have to be so miserly with taxpayer dollars.
Mr. Morneau: Well, thank you for that interesting question. Let me talk to the spirit of your question. It's no small beer, my comments, I promise.
The issues that face Canadians in challenging positions is something that we're very sensitive to. I think you've seen that in the multiple things we've done since we've come into office. When we decided to change the Canada child benefit, we decided that the most well-off families didn't need that benefit. I still had two kids under 18 when we made that decision. I'm no longer eligible for that because it was means-tested away. We made a really big difference for those families that do get the benefit. That's really important. It's $2,300, on average, tax-free per year for nine out of ten families.
It is one cent on the bottle of wine or the five cents on the 24-pack of beer. I can't do the math quick enough in my head for the five cents on the 24-pack of beer, but you have to buy an awful lot of beer. It might be a health risk if you try to use the whole $2,300 on the beer.
The point is we are focused on trying to help Canadian families. When we said we were going to increase the Guaranteed Income Supplement for seniors who are most vulnerable by 10 per cent, that's an average of $924 a year. We were focused on people who had real needs and challenges. That, we believe, is important.
Those expenditures over time will face inflation. As we decide to make a difference for Canadians, we need to recognize that there's a cost. Mr. Rochon gave me the number, but the lack of inflation on beer, wine and spirits means — andMr. Rochon gave me the number — that since 1986 those excise taxes have reduced in real terms over time by 47 per cent.
We're keeping them constant over time. I appreciate that changing tax rates gives lobbyists an opportunity to speak to people, but keeping it constant over time, we think, is the appropriate thing to do. It allows us the ability to focus on how we can really help people.
Senator Cools: You're still hitting people in a vulnerable place.
Senator Massicotte: Minister, I'm still trying to help to make this bank successful. Maybe I'm not convincing enough or maybe you are being too miserly. I'm not sure which one it is.
Let me talk about the appointment of the CEO. The way you currently have it, the first CEO is obviously named by yourself and then afterward it's the board, in conjunction with the approval of the government. However, you are allowed under legislation to fire the CEO after consultation with the board.
Don't forget, we're looking for a world-class infrastructure expert because this is critical. If you don't get it right, you will waste millions of taxpayer dollars. You hire them "during pleasure'' or "à titre amovible'' in French.
Explain what that means. I'm looking at a lady or a male who has significant experience running a large infrastructure fund, probably making a couple million dollars a year, and you're going to ask them to join this organization where they can get fired at any point in time without compensation. Am I misunderstanding what those words mean? Could you tell me what assurance you will give the individual that this is a serious organization and it is not too partisan or electoral?
Mr. Morneau: It's not any different from what would be the case for that individual going to work anywhere else. If that individual were to choose, instead to go to work for Royal Bank of Canada or Manulife Financial or Teachers' or someplace else where they might be able to have an infrastructure role, they could be dismissed.
Senator Massicotte: "During pleasure'' does not mean you can terminate it. You can break any contract you want, but when you make an employment contract or otherwise you must pay damages. Is this the case also for the CEO?
Mr. Morneau: Of course, yes.
Senator Massicotte: It's equal to a typical contractual arrangement.
Mr. Morneau: Yes.
Senator Massicotte: That's not what I understood, but thank you very much.
Mr. Morneau: Again, as you hire somebody, you build a contract with someone at that level and you come up with the terms of the contract; but the law of the land is, of course, still the law of the land. A wrongful dismissal is wrongful dismissal irrespective of the contract.
Senator Massicotte: Let me repeat what I think I understand. If you employ somebody "during pleasure,'' obviously that's the term of the contract you're going to sign with him or her. If you wish to fire him because you don't like whatever, with or without cause — let's presume it's without cause — this person will still get the severance and damages owed to him?
Mr. Morneau: Yes.
Senator Massicotte: As defined by the provinces.
Mr. Morneau: Yes. Let me qualify that. This person will be like any other person hired, in that they may have a specific contract that gives them certain outcomes based on their potential of being fired.
Certainly we have a legal situation that people cannot be fired at will in this country. They will have the opportunity to have the same rights that any other person would have. This is merely the governance process around that. It's similar to a CEO of a corporation, and it's similar to other CEOs in the public sector that we currently employ.
Senator Massicotte: I'm glad to hear that.
The Chair: Before I ask the following two senators to conclude, Senator Pratte and Senator Woo, I would like to recognize, now that he is present, the Leader of the Opposition in the Senate, Mr. Larry Smith.
Senator Smith, would you please come and join us at the table?
Senator Smith: I'll leave that up to you. I just wanted to come in and out because we're going through legislation and we have to address some bills.
The Chair: Thank you, senator.
Senator Pratte: Minister, I can't remember if I asked you this question before. Anyway, I'll ask you again: Would projects in which the bank is involved be subject to provincial and municipal jurisdiction?
I know that you and your department have been very clear on that point, but there are concerns by both constitutional experts and the Government of Quebec that believe the bill should be amended to make that clear.
Since your government has been very clear that it is not your intention and it is not the intention of the act, and since some experts and the Government of Quebec believe that the act allows that, why not simply make it clear in the act that it's not so and that projects in which the bank invests will be subject to provincial law and municipal regulation?
Mr. Morneau: I have a whole lot of ways to reply to that.
First, we don't amend legislation to say what legislation doesn't do. The legislation does not afford us the ability to override other laws.
Second, we've come up with no example, nor heard of any example, in which this might actually happen. Theoretically, we could put other things in that we had no reason to think could ever happen, but we have no example of this in any way, shape or form being a potential issue.
Third and most important, these projects will only go forward with the approval of the municipality and the provinces. We're not going to impose a federal project on a municipality and a province. No investor would want to invest in a project that the jurisdiction does not want to have because it would be an irresponsible use of funds.
With the best of intent, we can't find any potential possibility where this concern makes any sense.
The Chair: Next is the sponsor of the bill, Senator Woo.
Senator Woo: Thank you, minister, and thank you to all your officials and colleagues who spent many hours here and in other rooms testifying.
You've made it crystal clear that the Canada infrastructure bank is a central plank of your government's strategy and a central plank of the budget bill. Perhaps in the next hours we may learn, when we get back to the chamber, if the Speaker has ruled on the ability of senators to split the bill, and then we will have a debate about whether or not we will split the bill.
I won't presume any outcome, but in the unfortunate event, in my view, that we do split the bill, are you in a position to tell us what the government's position will be if the bill comes back in one version, the bulk of it, and Division 18, the Canada infrastructure bank, is severed from that bill?
Mr. Morneau: My intent coming here today was to listen to all of your comments and concerns. I hope you've taken away that we're listening to your points of view.
We will have many more things to do with this institution. We need to make sure we get a great board of directors. The comment around thinking about the configuration of that board is critically important. We need to make sure we think about how we can ensure the projects are not susceptible to political interference, because that would be quite a negative for the organization and I think it would defy the success of what we're trying to achieve.
We're going to guard against legislative challenges like the one Senator Pratte has just mentioned and make sure we only have projects where provinces and municipalities are entirely engaged. We're trying to listen to your point of view.
We want to make really clear that we think this is central to our plan. As a government, we haven't been shy about this. We talked about this from day one. There's no new information here. We believe it can have a really important impact on our economy. We think that the biggest single way we can have an impact in terms of the escalator of economic impact is through infrastructure spending. Therefore, the single most efficient way we can use government resources is by amplifying their impact by seeking our investors. We think this is a really important idea that will have a big impact.
I know you have to run, but we hope you will not take a decision to do that, because it's central to us. We're not going to take a decision in advance of your decision, but it's central to us. You can read that as you will. We believe this is important. It's central to our budget. We believe that's critically important. We believe it's important for Canadians. We seek your support in making that happen.
The Chair: Thank you, minister.
Honourable senators, before we go immediately for the vote, I want to remind you that we will come back here to address the report on supplementary estimates.
To the Minister of Finance of Canada, thank you very much for your great generosity with your time, and also the professionalism that you have shown.
(The committee continued in camera.)