THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, February 13, 2024
The Standing Senate Committee on National Finance met with videoconference this day at 9:01 a.m. [ET] to study the subject matter of Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023; and, in camera, for the consideration of the Main Estimates for the fiscal year ending March 31, 2024.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I wish to welcome all the senators as well as the viewers across the country who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler. I’m a senator from New Brunswick and the chair of the Standing Senate Committee on National Finance. I would now like to ask my colleagues to introduce themselves, starting from my left.
Senator Forest: Good morning. Éric Forest from the Gulf Senate division in Quebec.
Senator Gignac: Good morning. Clément Gignac from Quebec.
[English]
Senator MacAdam: Jane MacAdam, Prince Edward Island.
[Translation]
Senator Galvez: Rosa Galvez from Quebec.
Senator Loffreda: Good morning and welcome. Tony Loffreda from Quebec.
[English]
Senator Ross: Krista Ross, from New Brunswick.
Senator Kingston: Joan Kingston, New Brunswick.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Smith: Larry Smith, Quebec.
The Chair: Thank you, senators.
Senators, today we begin our study on the subject matter of Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023.
[Translation]
Today, we have the pleasure and the honour of welcoming back Yves Giroux, Parliamentary Budget Officer.
[English]
Thank you, Mr. Giroux, for accepting our invitation. Again, I want to reiterate that, every time we ask you to come to the National Finance Committee in the Senate, you always respond in a positive way.
Today, Mr. Giroux is accompanied by Mark Mahabir, General Counsel and Director General, Costing and Budgetary Analysis; and Diarra Sourang, Director, Economic Analysis. Welcome and thank you for accepting this invitation.
[Translation]
On behalf of the committee, I can tell you that it’s always enlightening to receive your testimony, comments and reports. We have one common denominator: transparency, accountability, reliability and predictability for all Canadians from coast to coast.
[English]
We will now hear comments from Mr. Giroux. The floor is yours.
[Translation]
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you. Honourable senators, thank you for inviting me to testify today. We are pleased to be here to discuss Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023.
As you mentioned, Mr. Chair, I am accompanied today by Diarra Sourang, Director, Economic Analysis, and Mark Mahabir, General Counsel and Managing Director, Budget and Cost Analysis. My mandate as Parliamentary Budget Officer, as defined by law, is to provide parliamentarians with independent, non-partisan analysis to help them fulfill their constitutional role of holding government to account.
To this end, my office published an analysis of the 2023 Budget on April 13 and, more recently, on December 7, an analysis of the 2023 Fall Economic Statement released by the Minister of Finance on November 21, 2023. In March, we will publish an update on our economic and financial outlook.
These documents are intended to provide parliamentarians with important information on key issues to inform their discussions about the country’s economic and fiscal situation.
[English]
In the Fall Economic Statement, the government announced $23.6 billion in new spending that was partially offset by $2.9 billion in refocusing and reallocation spending measures. On a net basis, new measures reduced the budgetary balance by $20.7 billion, or $3.4 billion per year on average over 2023-24 to 2028-29.
Yesterday, in response to a request by the House Standing Committee on Government Operations and Estimates, my office published an overview of the $500 million in announced reductions in spending on consulting, professional services and travel for 2023-24 proposed in Budget 2023. However, there is still no information available on the remaining $14.9 billion in planned savings announced in Budget 2023 and the additional $2.4 billion in savings announced in the Fall Economic Statement. Further, there is currently no publicly available information on $3.6 billion in spending to be reallocated in the current fiscal year.
Taking a broader perspective, since Budget 2021, the government has projected a total of $212.8 billion in new fiscal room. Essentially, all of this fiscal room has now been consumed by increased spending on a net basis, with only half a billion dollars used to reduce the deficit on a cumulative basis. Of the almost $213 billion in new fiscal room, $188.8 billion, or 89%, has been used to finance new non-COVID 19 measures over 2021-22 to 2028-29.
I will pause here to allow more time to answer any questions you may have about our Fall Economic Statement and the Budget 2023 analysis, Bill C-59 or any other work conducted by my office. Thank you.
The Chair: Thank you, Mr. Giroux.
We will now move to questions. The first round will be five minutes each, and the second round will be three minutes.
Senator Marshall: Thank you, Mr. Giroux, for being here, and welcome to your officials also.
My questions are on the Fall Economic Statement as opposed to the bill itself. In your opening remarks, you were saying that the new initiatives, the net costs, would be just over $20 billion. The government has indicated in their strategy that they will be borrowing again this year to fund at least some of those additional programs.
In your October report, the Economic and Fiscal Outlook — I was trying to match up your two reports — you project the borrowing requirements up to 2028-29 to be just over $1.7 billion, but the limit now is $1.8 billion under the Borrowing Authority Act. Looking at your number and the government’s number, it looks like there is no need to increase the borrowing limit. I expect something to come probably in May because the triannual borrowing authority report is due then.
Is that limit still realistic in terms of the additional $20 billion in new spending? Have you established a new limit from that $1.7 billion, or are you planning to? Could you just talk about that a little bit?
Mr. Giroux: Based on what we have seen so far and what has been indicated by the government in terms of its upcoming spending plans, the borrowing limit as it currently stands seems to be appropriate. However, we don’t know exactly what the government plans on spending or doing in terms of new spending or potential spending reductions or tax initiatives. We will have to see what the government intends on doing with its fiscal plan going forward when the next budget is tabled.
Senator Marshall: But as it stands now, it looks reasonable or realistic?
Mr. Giroux: It looks sufficient, but the government always wants to give itself some room to manœuvre in case there are unforeseen events that require borrowing on short notice.
Senator Marshall: When you look at the numbers in the Fall Economic Statement and compare them to the numbers that are in the budget, the numbers are shifting, not in a positive way but in a negative way. Do you feel that the numbers in the Fall Economic Statement are realistic or reasonable, especially in light of the fact that, as you were saying in your opening remarks, you can’t find any information on these large estimated savings that the government is projecting? They are rolled into the government’s projections. They have not met their targets in the past. In light of the concerns you have expressed, are they going to meet their targets in the future?
Mr. Giroux: Generally speaking, what we have noticed with government spending is that if you look at a budget or a fall economic statement, in the past, the government shows a track for expenditures — as you would expect, it’s going up — and then when the next budget document or fall statement is tabled for the same years, it rises a bit. Even from a budget to a fall economic statement, the government revises its spending targets upwards, which brings me to the reallocation and savings exercise. There is not a lot of detail so far despite the fact that all the documents and proposals were supposed to be in to the Treasury Board of Canada Secretariat and the Treasury Board group of ministers by early October, so we’re expecting some announcements to be made in the upcoming budget about the details of how the government will reduce spending or more likely reallocate some of that spending. My personal belief is that we won’t see a reduction in overall government spending but rather some small reductions in some areas and increases in other areas.
Senator Marshall: The government could have had a $9 billion deficit last year. They booked $26 billion for either Crown-Indigenous Relations and Northern Affairs Canada, or CIRNAC, or Indigenous Services Canada, or ISC. Have you had any opportunity to look at that? I spent quite a bit of time trying to find some information on it. Have you ever looked at that issue, or are you going to look at that issue?
Mr. Giroux: We have looked at that issue, and you are probably referring to contingent liabilities as well as child and family services amounts that have been booked. We found that most of the additional money that was booked was for a revision upwards of liabilities that were assessed as such by government lawyers when it comes to First Nations claims — specific and land claims.
Senator Marshall: Could you tell how much was for ISC and how much was for CIRNAC?
Mr. Giroux: I don’t have the numbers off the top of my head.
Senator Marshall: Going back to the government’s fiscal projections, I was looking specifically at the revenues from enterprise Crown corporations. They’re showing that they are projecting an increase from $3.7 billion this year to $9.8 billion next year, and then up to $19.6 billion in 2028-29. However, when you look at the 10-year historic goal information, it ranges — actually, it was an expenditure a couple of years ago of $10 billion because of the losses of the Bank of Canada, but it usually averages around $7 billion. Have you looked at that $19.6 billion? That’s $20 billion. It seems rather high, but that’s what the government is projecting. Have you looked at that specifically?
Mr. Giroux: We haven’t looked at that specifically, or if we did, I don’t have a thorough explanation. However, the return of the Bank of Canada to profits explains part of it. It can also be related to the loans that various government agencies have provided to small businesses during the pandemic, and because these loans were financed by borrowing at the government rate — which is lower than what it’s providing to businesses — there could be an element of profit in there. However, that would not explain the significant increase. The bank would probably be the major component.
[Translation]
Senator Forest: Thank you very much for being here. As always, it’s most instructive.
My first question concerns Bill C-59, which proposes a 2% tax on equity repurchases to encourage companies to invest rather than enrich their shareholders. On the face of it, this seems like a progressive and perfectly logical measure, but it’s taken a long time to be introduced. I’d like to make sure we aren’t shooting ourselves in the foot like we did with the tax on luxury goods, such as private jets in the aerospace industry. What do you think of this tax?
Mr. Giroux: There’s no doubt that a tax, whatever its nature, always has effects that can be counterintuitive or counterproductive. This is a tax we haven’t thoroughly considered and studied, but it goes without saying that design is always of paramount importance — whether there are minimum thresholds below which the tax doesn’t apply, for example. I can’t give you a specific answer about this tax, because it’s not something we’ve examined in detail.
Senator Forest: So, you haven’t… Intuitively, could this affect our competitiveness?
Mr. Giroux: To some extent, it could certainly influence the behaviour of companies in terms of where they decide to locate, or where they decide to declare income. It’s always possible, with intangible assets such as intellectual property rights, to adjust profits declared in certain jurisdictions. That could, of course, have an impact on profits declared in Canada.
Senator Forest: In your opinion, instead of equity repurchases, for example, could tax measures be circumvented by issuing dividends?
Mr. Giroux: Yes, that could indeed be a way of circumventing this tax.
Senator Forest: Thank you.
Bill C-59 also contains a three-year extension of the temporary reduction in corporate tax rates for the profits of manufacturers of zero-emission technologies, commonly known as ZETMs, so that the reduced rates would be phased out beginning in 2032. They would be completely phased out for tax years after 2034, instead of being phased out from 2029 to 2031. Do we have any sense of what this reduction may cost or has cost so far?
Mr. Giroux: We estimated several of the tax measures related to the green economy and the transition to a non-carbon or decarbonized economy, but unfortunately, we didn’t estimate this one. We’ve assessed several, but not this one. The government may have issued cost estimates, but we haven’t done so independently.
Senator Forest: The impact hasn’t been assessed thus far?
Mr. Giroux: No, not yet.
Senator Forest: My next question is especially relevant to me, because it concerns Bill C-208, which I sponsored and whose goal was to create a more conducive environment for business transfers involving family ties. In the end, the government’s determination ensured greater fairness for SME transfers. I note that Bill C-59 revisits this issue and imposes new conditions to ensure that only true intergenerational transfers of businesses are excluded from the anti-surplus stripping rule in section 84.1 of the Income Tax Act.
We didn’t really get access to the briefing on Bill C-59 by officials. I wonder if you understood the amendments made to intergenerational SME transfers in Bill C-59.
Mr. Giroux: That is a fairly technical and specific question in a bill that’s about 520 pages long, so unfortunately I can’t shed any light on it. However, Mark Mahabir, who is cleverer than I am, will be able to.
[English]
Mark Mahabir, General Counsel and Director General, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer: Thank you for the question.
We did have a study that we published five years ago when the private member’s bill was first introduced. The additional measures in Bill C-59 look at ensuring that the valuation of the corporation is done properly and that the shares are held for the required time before they are transferred to the child or grandchild.
[Translation]
Senator Forest: Earlier I mentioned the notion of a tax on luxury goods. There was a great deal of apprehension when we looked at the cost/benefit ratio and the impact it could have. The conclusion, after a few years, looking at the revenues generated, is that we’ve completely shot ourselves in the foot in this instance in terms of costs related to employability and economic activity.
Have you conducted the same analysis with respect to the tax on luxury goods?
Mr. Giroux: We didn’t follow up to see if a significant reduction in economic activity resulted from the introduction of the luxury tax. A change in behaviour was predicted for boats, planes and cars, as well as a significant reduction in some categories rather than others — in the range of 25% to 30%, if I’m not mistaken. We haven’t followed up to see if this has actually happened, as the tax is still relatively new. However, it’s certainly a very interesting question.
Senator Gignac: It is my turn to welcome you, Mr. Giroux, as well as your team. Thank you for what you do.
When I looked at your report at the beginning of December, which followed the economic update, what surprised me the most was the last paragraph of the highlights. You referred to it in your opening statement, in fact. You said that since the 2020-2021 budget, the government projected $212 billion in fiscal room. However, 89 or 90% of that additional fiscal room of $200 billion was generated during the pandemic and went to spending. That struck me.
Could you, over the coming weeks, provide a breakdown of the proportion of 90% of new expenditures unrelated to COVID-19? In your document, you said that the $290 billion in new expenditures since the 2020-2021 budget had nothing to do with COVID. Could you provide a breakdown into three or four categories that you select or that I might suggest to you?
I would like to know how much additional spending was allocated to transfers to the provinces, for example, and to new social programs that did not exist at the time. How much additional spending was used to increase Canada’s economic potential? I’m talking about infrastructure and capital expenditures. Could you come back to the committee and provide that information, unless you already have information you could share with us this morning? That is my first question.
Mr. Giroux: The answer is clear enough. Yes, we can provide you with that data, because I think we have a good spending breakdown. No one is correcting me, so I assume that’s right. We will therefore be able to respond in writing and provide that information to the committee.
Senator Gignac: Thank you. That brings me to my second question and I would like to know what you think. The Fall Economic Update introduced new fiscal anchors. According to the update, as of fiscal year 2026-2027, the deficit will stay below 1% of GDP. In light of what you are seeing, does this objective seem realistic? Can we describe this fiscal objective as a fiscal anchor, or is there many a slip between the cup and the lip? For over a decade now, we’ve had significant fiscal anchors, such as the debt not exceeding 30% of GDP. Is it preferable to have a fiscal anchor tied to the deficit or the debt-to-GDP ratio? I’d like to hear what you have to say on the matter.
Mr. Giroux: It is important to know that fiscal anchors guide whole-of-government decisions. We’re talking about decisions on expenditure levels, taxation levels and other aspects.
For several years, we observed a change in the selection of fiscal anchors. Before the pandemic, we talked a great deal about the debt service ratio, which was very low. When it started to increase, the government changed its fiscal anchor and placed a great deal more emphasis on the decreasing ratio of the debt relative to GDP. When the ratio stopped going down and started to increase slightly, we noted publicly that the budgetary policy objective changed again and was set to reduce the ratio in the medium term. As you said, in the Fall Economic Update, we saw decreasing debt-to-GDP ratio with a deficit under 1%, but in several years’ time.
The problem with these fiscal anchors is that we can change them. A fiscal anchor is supposed to be a point that guides us towards an objective; in and of itself, it is an objective. However, if we change the objective, it loses some of its credibility.
The Minister of Finance also talked a great deal about the credit ratings assigned to Canada by major credit rating agencies. That also represents a risk, because the government’s objective then rests in the hands of a few rating agencies.
We are seeing several fiscal anchors. They seem to be a menu that the government chooses from at its convenience. It is not necessarily bad, but I think it reduces the credibility of the government’s economic and budgetary forecasts.
Senator Gignac: I have another brief question. I understand you will review your economic outlook at the beginning of March, as you mentioned in your opening statement. Can we take advantage of your appearance here today, even without having exact numbers? Last fall, you revised the economic outlook upward. In light of the economic environment, do you anticipate another increase compared to last December’s outlook, or will it be the opposite? Is it premature to make this prediction, or do you already have an idea or impression?
Mr. Giroux: It would be a bit premature for me to say anything. To protect myself from these questions, my team refused to give me a briefing before my appearance. It’s planned for later this week; they carefully protected me from myself.
Senator Smith: Good morning, Mr. Giroux.
[English]
In your report on the Fall Economic Statement, based on the status quo, without additional spending measures and other factors, you estimated a 70% chance that the federal debt-to-GDP ratio in 2028-29 would be below the 2022-23 levels. In other words, you believe there is a 70% chance that the government will follow through with its commitments to reduce the debt-to-GDP ratio in the next four to five years. Since your report was published in December, do you have any reason to revise these numbers? Are there concerns on the horizon that you anticipate could reduce the confidence you have in the government meeting its fiscal objectives?
Mr. Giroux: There is always new information that comes to light after we publish these reports, which is the nature of events. One thing that could significantly change that would be new spending, which is quite possible given that the government has promised to table legislation regarding, notably, pharmacare. There is also pressure, as we are all aware, to increase spending on national defence. These are two examples of major elements that could change the likelihood of the government meeting its target of declining debt-to-GDP.
Senator Smith: Past behaviour is often a good indicator of future behaviour. The government has been running deficits since it came into power in 2015. It has long abandoned its plan to balance a budget. It came up with “fiscal guard rails” during the pandemic, which it abandoned as well. Here we are with these new anchors which many economists have noted to take with a grain of salt given the government’s track record. I’m wondering if you factor in the past behaviour of the government when you model your confidence intervals.
Mr. Giroux: It’s highly subjective. It would be risky to add that element into our confidence intervals. We look at past history and how events can unfold in a relatively short time frame like that, but we don’t insert subjective elements such as the government’s propensity to introduce new spending measures. That would be highly subjective, to a certain extent.
Senator Smith: Are there certain departments that you feel are advancing in a more positive way than other departments? How do you gauge dealing with various departments in terms of some of the fiscal actions that they’re trying to undertake and not having great success? Is this a systemic issue throughout the government, or are there good performing people and less performing people?
Mr. Giroux: It’s hard to answer that with certainty. There are departments that have some flexibility. Notably, the Department of National Defence has a big budget, so it can easily reduce spending or reduce the pace at which its own expenditures increase because of the sheer magnitude of its budget. Another department, for example, is Employment and Social Development Canada, which is primarily issuing cheques to people. It doesn’t have the same capacity.
The other element to take into consideration is the political direction. Some of you may have heard the Prime Minister say that he’s not a firm believer in spending reductions. He said that in a specific context, but it may be interpreted by senior public servants as the leader of the Government not being so adamant that spending has to be reduced. These types of signals also matter a lot. Some senior public servants use these statements and interpret them in a certain way that makes them not go full on when it comes to managing expenditures in a prudent way that would see expenditures stabilize or reduce.
Senator Smith: Thank you.
Senator Galvez: Good morning and Happy New Year. Thank you, Mr. Giroux, for your visit today.
My colleagues have asked about expenses. I would like to ask about revenues. You said that you revised down the $4.2 billion in 2023-24 due to lower than anticipated offshore oil and gas royalties returned to provinces. I have problems with that because oil and gas are signalling record profits. You’ll have to explain it to me. They received a record $38 billion just last year. We now have a new pipeline, and everybody is increasing their production. Why do you say that we are revising down the royalties? Can you tell us how royalties in Canada compare to other countries?
Mr. Giroux: My understanding is that for oil and gas, at least onshore, the royalties are levied by provinces. The federal government does not collect a lot of royalties on oil and gas because of the constitutional separation of the revenues from these resources. There is the offshore oil and gas royalties, which are a different regime, but there have been agreements with notably Atlantic provinces so that these would be shared in a certain way. There are multiple agreements on that with the spending or sharing of these royalties between the federal and provincial governments.
As to how this compares in Canada to other countries, unfortunately, I don’t have that comparison. However, it’s something we can look into and get back to you if it’s readily available.
Senator Galvez: Yes, because I’ve been reading that it’s very low not only for oil and gas but also for minerals. For everything that we extract here in Canada, the royalties are very low.
You did a report on some expectation of revenues if we had a windfall tax on big oil. You can correct me, but I read somewhere that it was around $4.5 billion per year. These are not negligible revenues. If I look at what we are spending every year on construction, it’s higher than that, but it would match what it’s costing us versus this revenue.
Mr. Giroux: I’m not sure I understand the question. We did a costing at the request of, I think, a member.
Senator Galvez: Somebody in the other place?
Mr. Giroux: That’s a good way of putting it. The costing involved the possible result if the government was to introduce a windfall tax on oil and gas corporations. I don’t remember off the top of my head the numbers we arrived at, but it sounds like what you just mentioned.
Senator Galvez: It’s close to this; okay.
My last question is about Normal Wells in the Northwest Territories. I met with Indigenous people and with the mayors from Norman Wells and from other communities. They told me that during the devolution of the Northwest Territories, these wells that produced gas were going to be left to the administration of the new Government of the Northwest Territories. However, the federal government never agreed with that, so the federal government remained in charge of Norman Wells production of gas.
By pushing that inquiry and research on this issue, it appears that this gas is sent to the oil sands for oil sand extraction. Am I right? Are we using cleaner energy to produce dirtier energy? At the same time, we are having difficulties sending diesel to northern communities because there is no longer river transportation possibilities and less and less ice transportation. We have gas there, and we’re bringing it down. That is not efficient.
Mr. Giroux: If that’s indeed what’s happening, it doesn’t sound very efficient. Unfortunately, I’m not familiar with Norman Wells and its operations.
Senator Galvez: Yes, because there are royalties again, and you said the federal government has only the offshore royalties. I’m trying to understand if there are exceptions to that rule.
Mr. Giroux: I know the territories have a different regime when it comes to natural resource revenues. That’s why there are agreements that have been negotiated and signed with some if not all of them when it comes to the sharing of revenues. A different regime applies in the territories when it comes to onshore oil and gas or resource revenues.
Senator Galvez: Are we shifting the transition to the low-carbon economy as fast as we should?
Mr. Giroux: That’s a good question. It depends who you ask.
Senator Galvez: I’m asking you.
Mr. Giroux: I will abstain. If we were south of the border, I’d plead the fifth.
Senator Galvez: Thank you.
Senator Loffreda: Welcome, Mr. Giroux and your team. It’s always a pleasure and treat to have you here with us. I guess it’s a pre-Valentine’s Day gift for this committee, so thank you.
On a serious note, housing affordability is a priority for many. I do know that when it is a priority, you’re always on top of it. Given your analysis, research and experience, I’d like to have your thoughts on the following: The department of housing infrastructure and communities act, Division 11 of Part 5, seeks to enact a department of housing and infrastructure communities, thereby creating a new department whose aim is to advance public infrastructure and housing outcomes. I think we can all appreciate the challenges Canadians are facing with respect to affordable housing. On the surface, this policy seems to be a good one. Do you share that optimism? Is this a good decision that will help to streamline decisions and accelerate the rate of new construction projects? Based on your experience, analysis and research, how confident are you that this new department will reduce red tape? Any other comments would be welcome at this point in time.
Mr. Giroux: That’s an interesting question that I did not expect, like many of your colleagues’ questions.
On this one, I’ve never been a big fan of structure changes or machinery-of-government changes for the sake of making changes. I believe that if you have the right persons, with the willingness to make good policy — regardless of the program, where it’s housed, which department is responsible for it — it will happen. Creating a department is not necessarily a bad thing, a department that focuses on an issue, but it can be done regardless of where the responsibility is housed, not to use a strange choice of words.
On a couple of occasions, we looked at the multiple programs for housing. We found that there is a plethora of programs, a long list of different programs, that target slightly different clientele: rental housing, affordable housing, provinces and territories, Aboriginal housing. There is a long list of programs, each and every one of them with their slightly different eligibility criteria. Some are loans, some are grants, and some are cost share with provinces. Some define affordability one way and some define it a different way, such as the median rent in a city. If you look at the median rent in Vancouver or Toronto, it can easily be above $2,000, and if you define affordability as 80% of that, an affordable apartment can be $1,800. I don’t consider that very affordable, and someone working at minimum wage would certainly not find it affordable. There are various issues with the long list of programs with respect to housing, but I think having one department in charge of it is probably not the silver bullet that will change things. That is my observation.
Senator Loffreda: Thank you for that.
If we look back, this is not a new issue. I know that you have many years of experience. If we look back to the 1980s, we had the same issues. High interest rates and affordable housing were huge issues. The MURB, or multi-unit residential building program, saved many, where you used the depreciation class to create losses. There is supply and demand, but at this point there is also demand and supply. The cost of owning a property, with high interest costs, has made the demand almost impossible. Although we need affordable housing, it’s difficult for the consumer, for the average Canadian, to acquire affordable housing.
Do you or your team see any incentives, based on your experience and your analysis in the past? We don’t need a silver bullet. I don’t think there is one. If there were one, we’d already have it, obviously. Should there be more tax incentives for the developer, for the person acquiring the property or rental property? Or is owning a home maybe just a dream of the past for Canadians, and affordable rentals should be something to aspire to?
Mr. Giroux: I hope that owning a home or a condo is not a thing of the past. I don’t think that’s the case. There are experts in the field. I’m not an expert. Based on what I’ve heard from experts in the field, to solve the affordability crisis, many things need to happen.
Cities need to be more agile in granting building permits. That’s an issue that the government is trying to tackle. It’s not easy because bureaucracies have a way of justifying their own existence, sometimes for good reasons but sometimes just for the sake of existing.
Builders and promoters have to be able to build more easily. The cost of building materials is an obstacle, but so is the labour shortage that is the sector is experiencing. God knows, it’s not easy to plug the gap when there are staff shortages in skilled trades.
There needs to be more affordable housing, which is not an easy thing to fix. It’s a bunch of private and public sector, but public at the provincial, municipal and federal levels. As you said, there is no silver bullet. I’m not an expert in that sector. If I were, I think I’d be richer in terms of finding a solution to the housing crisis.
Senator Loffreda: It is a difficult situation, and we’re all looking for answers, obviously. As we said, there’s no silver bullet. We can learn from the past. In the 1980s, tax incentives helped. Maybe we should have more tax incentives. Maybe in the future we can look at that. Although policy is government, maybe we can analyze some of those tax incentives that made it more affordable in the past. Thank you.
Senator Kingston: Thank you for being here this morning.
I’m also going to ask about housing but with a bit of a different slant. First of all, the Reaching Home funds, which assist in the homelessness file for communities in this country, were managed at one point by Employment and Social Development Canada and then moved in this enactment of the department of housing, infrastructure and communities. Can you tell me why? Do you have any thoughts on why that was done in particular? I’m not just looking at infrastructure, bricks and mortar; I’m thinking about social infrastructure. Was that part of the discussion and thought behind what things were done in terms of this act being put together?
Mr. Giroux: I can’t speak to why the government decided to make a change. They rarely tell me why they make changes. I’m from the outside, so they don’t bring me into the tent. Based on public comments, the decision to move that program from ESDC to the newly created entity is to ensure that all the programs related to housing are managed in a consistent manner, in the hope of making it more seamless and more integrated to move from homelessness to housing to affordable housing. That’s what I gather from public comments.
I think it probably makes sense to move it there. As I said to your colleague, the structures have a level of importance, but the willingness to do the right thing and having competent people in charge of these programs matter much more than who is responsible and which department is responsible. I think it makes sense to have these programs under the same leadership.
Senator Kingston: Reaching Home speaks to Housing First, and Housing First speaks to supports for people — not only the infrastructure they need to live in but the supports they need to be successful in their housing. Does Infrastructure Canada hire people with the necessary expertise to think about — when they’re deciding about how their grants will be structured, for instance — what they’re going to support? Are they going to support those supports to housing for the communities that are absolutely necessary? I’m thinking about policy development and the 5% to 15% of people who are homeless and who will not be successful without those supports. That requires departments working together to have that happen. Have you seen Infrastructure Canada be seized with this issue, wanting to continue with Housing First objectives and giving communities the means to move forward with the Housing First approach?
Mr. Giroux: Based on my experience with ESDC, which used to be responsible for homelessness, they have a good social lens that they apply to programming. That’s probably why homelessness programs have been with ESDC for a number of years, because they have that lens and they have these contacts with the provinces and territories.
With the program being transferred from ESDC to Infrastructure Canada, usually what happens is that the staff also get transferred. I would hope — and I have no reason to believe otherwise — that the staff who managed Reaching Home at ESDC will also be the same people managing the program under the Infrastructure Canada departmental umbrella. However, I have not looked at that specifically.
Senator Kingston: Thank you.
Senator Ross: I’m interested in hearing some perspective on the digital services tax — the 3% that’s going to be implemented and potentially retroactive. I’m interested in knowing how much of an impact you think that will have on Canadians, given the revenue that’s projected from it.
Mr. Giroux: Thankfully, my colleague Diarra worked on that. She can probably speak to it much better than I can.
Diarra Sourang, Director, Economic Analysis, Office of the Parliamentary Budget Officer: Thank you for your question.
With the digital services tax, one impact on Canadian consumers we noted is the potential for businesses to eventually increase the prices of their services. Typically, what we see is that whenever there is a tax on a service or good, businesses tend to pass it through to consumers 100%. That is a risk we flagged in our costing notes, but I would say the majority of the impact would be mostly on the business side itself and not necessarily transferred to consumers. Again, as we noted in the report, there are ways for businesses to reallocate their profits. They’re large corporations, so they have more latitude than smaller businesses as to where they declare their revenues and how they consolidate them to be declared as per the digital services tax act. I would say the impact would be more on the business side — so on the revenue side — for the Canadian government. The impact on the consumer would be a bit less if we look at it on that front.
Senator Ross: As a follow-up, how do you think it would impact the investment climate here in Canada if not every other country has this?
Ms. Sourang: Well, when Canada decided to not take part in the Organisation for Economic Co-operation and Development, or OECD, consultations anymore, that was a risk. There was also a reason why they decided to do that, because talks were being dragged out and Canada wanted to have its own act. However, it is not the only country that has it. The U.K. has implemented it successfully in the sense that it has been implemented. They did follow-up reviews, and it didn’t seem to have affected the investment climate in the U.K. We don’t have any reason to believe that that will be the case in Canada.
Senator Ross: Thank you.
Senator MacAdam: Thank you for being here.
I’m wondering if there is any detailed information available on the pollution pricing framework showing the carbon tax proceeds received and the incentive payments and rebates. I noticed in the Fall Economic Statement that the proceeds in 2023-24 were projected to be $10.4 billion and the proceeds from pollution pricing that would be returned are $11.2 billion. Maybe you’ve done this kind of costing and you have detailed information on this. I’m wondering where that’s available.
Mr. Giroux: The government releases information on a quarterly basis — if not more often — on the proceeds it collects and the rebates it sends to Canadians. I think they do that by jurisdiction. We will certainly have updated projections in our economic and fiscal outlook which we’ll release next month.
Senator MacAdam: Is this a detailed breakdown? It obviously shows businesses and individuals, but does it show the types of businesses? Can you see for the farming sector or the agriculture sector or things like that?
Mr. Giroux: In our analysis, in our EFO, no, it’s the aggregate amounts. I don’t know if the government releases that specific level of detail. I don’t think so. We’re all shaking our heads no, so probably not. Maybe Statistics Canada will release that information later on once the information is available to Statistics Canada, but to my knowledge, it’s not being provided publicly at this time.
Senator MacAdam: Thank you.
The Chair: Honourable senators, we will now move to a second round of three minutes each.
Senator Marshall: Mr. Giroux, several of my colleagues this morning have asked questions about revenues. Personal income tax revenues went from $181 billion in 2015 to $315 billion last year. It was a 74% increase. However, the corporate taxes went from $39 billion to $93 billion, but that increase was 141% — almost double the personal. Is there a breakdown available anywhere as to the source of the revenues? One of my colleagues here this morning was asking about the luxury tax that was imposed and how the government projected a certain amount that they would collect, but we don’t know if they actually collected that. Is that information available? I thought I read somewhere — maybe it was in the public accounts — that part of the increase in the tax revenue was from the resource sector, which comes back to a question that Senator Galvez asked. Is there a breakdown somewhere? I’d be interested in what they collected from the banks, because there have been a number of new taxes imposed on banks and financial institutions, and I think there is another new tax being imposed on the banks. We see the corporate income tax revenue as an aggregate, but there is no breakdown. I think the breakdown would be really helpful. Is that something you’re aware of that’s publicly available? I haven’t seen it. Do you do any work on it? Maybe it’s something for Statistics Canada. I don’t know.
Mr. Giroux: We don’t have that breakdown per se. We take the aggregate amount of corporate income tax. I heard the same thing in discussions with provinces — notably — and federal officials. Maybe Statistics Canada has profit by sector from which we can infer the corporate income tax, but it’s always tricky with corporate income tax because there are backward and forward credits that you can apply — losses, notably. I’m not aware of any publicly available sources of information that would provide that type of breakdown.
Senator Marshall: Would that fall within your mandate, or would that be someone else? Is that something you can get if you were requested to do so?
Mr. Giroux: Yes, we can look at that. We can request the information from the Department of Finance and the Canada Revenue Agency if asked to do so.
[Translation]
Senator Forest: On August 4, 2023, the federal government published an early version of a bill designed to establish a minimum corporate tax regime. It was part of a commitment to the OECD and the G20 to prevent base erosion and profit shifting. Although consultations ended in the fall of 2023, I understand that measures to make sure businesses pay a 15% minimum tax are not part of Bill C-59. Is that indeed the case?
Mr. Giroux: Yes, that is indeed the case.
Senator Forest: Do you think this measure to set a 15% minimum tax is promising?
Mr. Giroux: Yes and no. This measure could be promising as long as other major jurisdictions do the same thing. If Canada ends up acting alone or almost alone, there is a significant risk of tax leakage, especially for large corporations that transfer a significant part of their profits outside the country to take advantage of lower tax rates. It’s possible in the case of businesses with a lot of intangible assets, with revenues unrelated to the sale of goods.
Senator Forest: Since it’s a commitment to the OECD and the G20, I was under the impression that this measure was shared or implemented in many other international jurisdictions.
Mr. Giroux: An international commitment to do so does indeed exist. When we come to its implementation, that’s where we see many delays or many exceptions when plans are implemented. That explains why there’s not a lot of incentive to be the first administration to implement a minimum tax with some bite; there’s a risk of tax leakage.
Senator Forest: I see, thank you. Just for the record, regarding the luxury tax, the HEC published a very interesting study showing that we lost over $1 billion in the aerospace industry alone since the luxury tax was implemented.
Mr. Giroux: That’s a good point that highlights once again the importance of concerted action when implementing minimum taxation for big companies, because we’re at risk of facing the same type of situation.
Senator Forest: At the time, we heavily insisted on the importance of assessing the cost benefit of certain measures, going beyond the ideological scope intended to make a certain category of voters happy. Thank you.
Senator Gignac: Mr. Giroux, I will move on to another subject with you. For some time now, immigration has been the talk of the town. In fact, yesterday, in the House of Commons, opposition parties unanimously backed a motion demanding that the government review its immigration targets. It seems to have failed to take into account foreign students, temporary workers and asylum seekers, and the whole situation is exacerbating the housing crisis. Unless I’m mistaken, on January 12, you published a document entitled Income dynamics of new immigrants to Canada. Some very positive aspects came out of changes we saw in immigration. There were also negative impacts on productivity growth. Can you summarize the essence of your study?
Mr. Giroux: Senator, I see that you and your colleagues like to talk about subjects that are not controversial at all, like the carbon tax, immigration and housing.
To come back to your question, we did indeed publish a study on the subject. We looked at the immigration dynamic, especially immigrant working income from a mostly historical perspective, to see how immigrant work income compared with the Canadian average. We observed a very significant gain in terms of immigrant income, especially since 2014-2015. They went from approximately 58% of the Canadian average to nearly 80%. A very significant gain occurred in just a few years.
We have not yet conducted an in-depth study to find the exact cause, but we considered the fact that it corresponds more or less with implementing programs authorizing the entry of immigrants with previous work or study experience in Canada. It clearly shows that when accepting immigrants or permanent residents, their integration is significantly facilitated—at least into the labour market—, when there is an attachment to or previous experience with a country, as well as a previously established network in Canada.
In terms of productivity, having a significant cohort of immigrants negatively impacts productivity. It’s noted, but it’s not necessarily pejorative. It’s probably the temporary effect of adapting to a new country, ways of doing things, new machinery, new equipment, new standards, new legislation. It means there is a temporary decrease in productivity. In two minutes, that’s the summary of our study.
Senator Gignac: In 15 seconds, are there disparities from one province to the next? You did a breakdown by province. Do you have any comments to make?
Mr. Giroux: Of course. Ontario seems to benefit significantly from immigration. That’s where a significant contingent of immigrants settles. There’s also the provenance of immigrants, the source country. Immigrants from India and China seem to have benefited the most from gains in income compared to the Canadian average.
Senator Gignac: Very well, thank you.
[English]
Senator Smith: Mr. Giroux, in the Fall Economic Statement, the government reiterated its commitment under its spending reviews with the federal administration to refocus spending and eliminate unnecessary spending. The government identified just under $2.5 billion over the next seven years. Given the already inefficient state of the federal public service, where many departments continue to fail to meet their self-imposed targets, an issue you have highlighted on several occasions, I’d like to have your thoughts on whether these exercises risk making the situation worse.
When the pandemic was on, people accepted all the moves that the government made. It seemed to be a positive to support Canadians. How do we readjust ourselves? It looks like we’re at a point where, in the next few years, there is an opportunity to stand up and figure it out. How do we realign ourselves? We seem to be out of balance. Am I reading it incorrectly?
Mr. Giroux: I will try to answer your first question first. Is there a risk that spending cuts will make things worse when it comes to public service delivery? It depends on how a spending reallocation or spending reductions exercise is conducted. If you tell departments to cut 5% or 10% and you let them do it, there is a chance that some of it will do what we call the musical ride in reference to the spending reduction of a few decades ago where the RCMP offered to cut the musical ride, which was very popular, to avoid cutting services or expenditures that were seen as inefficient. That’s a well-known phenomenon within the public service, namely, offering a musical ride. That’s why you have to have clear parameters when you launch a spending review or a spending cut exercise to ensure that items that are of importance to the government of the day are not put on the chopping block unnecessarily to avoid bad outcomes.
There are ways to improve or at least maintain services while reducing expenditures by looking at how things are done as opposed to same-old same-old and we just cut. Would spending cuts make service delivery worse? Not necessarily. It could lead to improvements in services if, for example, it is an opportunity seized upon to improve the way services are delivered or the way they are managed.
I forgot the second aspect of your question.
Senator Smith: I got so excited I forgot it too. Why don’t we give someone else an opportunity now? You’re doing a great job.
Senator Loffreda: We’ve covered many areas this morning, as you have said, including some you weren’t expecting, but we haven’t touched on the Competition Act and competition, which is essential and key for our economy and for our consumers. We’ve seen this all industries. It would solve many concerns. More competition would help to solve those concerns such as inflation, an area in which the government is trying to solve those issues.
Based on your experience and your research analysis, your thoughts are always valuable, as I mentioned. Division 6, Part 5 of Bill C-59, seeks to amend the Competition Act to strengthen the enforcement framework against abuses of dominance by big companies and empower the Commissioner of Competition to review and expand its selection of anti-competitive conduct. I have no doubt this is welcome news for most Canadians, and I know you are familiar with the Competition Act and the importance of having a business environment that is fair and encourages innovation and competition that can benefit Canadians and make life more affordable. What, in your opinion, are some of the changes that may be needed beyond what is suggested in Bill C-59 that might help fuel more competition in Canada, or what are your general thoughts on what has been put forward? What more could be done? Are you confident that we will solve those issues?
Mr. Giroux: The provisions in Bill C-59 regarding the Competition Act seem to give better tools to the surgeon that will operate on the patient, so it is giving more tools to the Competition Bureau to fight abuse and dominance of a market. As I said, that’s kind of like the surgeon operating with better tools on the patient.
However, that still doesn’t get at opening up some sectors to competition, which is prevention of the abusive market power that could lead to these remedies. For example, we have some sectors that are shielded from competition from abroad. There are very good reasons for that, but when you have internal monopolies or oligopolies, it is bound to be that you will have sectors being shielded from competition where there will be doubts as to whether they’re abusing their dominant position in the market.
There are also natural monopolies, for example, digital giants. It’s natural to have monopolies because people want to be on Instagram or Facebook or whatever, so the more people on these networks the bigger they become because that’s where you want to be.
But, for example, the airline sector — not to pick on any specific sector — is a good example of it being very expensive to develop an airline, from a capital investment perspective, so it’s natural, in a small country like Canada, that there are not that many domestic players. Opening up the sector and any other sector to competition would probably make it so there is less need to have a strong Competition Bureau because there would naturally be more competition.
I know time is limited, and the chair is probably looking at me to wrap it up.
Senator Loffreda: There is a lot to discuss there.
Mr. Giroux: Yes.
Senator Loffreda: Thank you very much.
Senator Kingston: I want to come back to what I was talking about before. You said that the staff moves over, for instance, from Employment and Social Development Canada to Infrastructure Canada, but are they integrated as part of the senior management of Infrastructure Canada? What I’m trying to get at is, when you are talking about how things are done, how grants are put together, whether they are looking at this through a social lens, or are they being directed to look at it through a social lens thinking about the social determinants of health and other things that need to happen in terms of housing for some people. I would like your thoughts on that.
Mr. Giroux: That’s an interesting question, but I haven’t looked at the organizational structure of the new department as to how they will or have integrated the homelessness programs and the suite of programs under the homelessness program. That’s probably all I can say. That’s a good question for the deputy minister of the new entity.
Senator Kingston: Thank you.
Senator Ross: In some of your reviews, you talked about a realignment of spending. Can give me a sense of where you see that realignment taking place? Is it specific departments or programs? Where do you see that happening?
Mr. Giroux: That depends on where the government wants to shift its own priorities. It could be anywhere from shutting down entire programs, and that could be called a realignment of programs if, for example, they think that a specific program is no longer necessary and shift these resources to other areas of priority, to shutting down or reducing some internal services. It depends on what the government deems to be its shifting priorities. They could look at investments or spending they made or committed to make in 2015 but which are deemed no longer necessary. It depends on the government’s decisions.
Senator Ross: No indications have been made as to what that might be?
Mr. Giroux: When I say no detail, I include that type of very important detail. Certainly, I’m not aware of any clear instructions or direction outside of reducing professional services and travel, which is what the government announced recently and which was a subject of our report earlier this week. There is no clear indication.
Senator Galvez: We talked about expenses and revenues, and that was very interesting. I would like to talk about savings. For me, savings are equal to efficiency and increased competitiveness, which is so important, as Senator Loffreda mentioned.
You did an interesting small report Refocusing Government Spending in 2023-24, and you said you wanted to see whether the $500 million in consulting and other professional services that the government was planning to save produced any impact on services. Correct me if I’m wrong, but you’re saying that it didn’t impact it. From the answers you got, it didn’t impact it. That means efficiency was increased because you cut it, but the services didn’t suffer.
There was a lot of argumentation in the other place about the use of external consultants. In my professional life, I have seen that when we go to these, we can sometimes put these consultants in a conflict of interest. The indicators or criteria that push in the direction of getting rid of the expertise of the government and using the outside are very important. We can show this sometimes. Can you tell us more about your approach and how you did this?
Mr. Giroux: We asked departments where they plan on cutting and what the impact would be on employees and on services. In the responses we got, almost everyone said no impacts on employees and no impact on services because they are going to cut travel and the use of professional services. When it came to which areas and programs will be experiencing these cuts, a good chunk of departments said, “Well, it’s hard to say. It will be cuts across the board or in sectors we have not identified yet.” Or some departments said, “We’ll cut our internal reserve.” That suggests it is money that would have lapsed anyways because every year departments have money that they are authorized to spend that they don’t spend. In the federal civil service, you can never spend more than your allocation. If you are managing a big department or even a smaller department, you always have to give yourself some margin to manœuvre in the case of unforeseen events or a bill that comes at the end of the year that is bigger than you expected, so you can’t blow your vote. There is always money left on the table at the end of the year to avoid overspending by individual departments.
All I’m trying to say is that $500 million is just a small portion of the annual lapse that would have happened anyways, and that’s why we got the answers that we got: no impact on service, no impact on employees. When some departments said, “We don’t know exactly which sectors,” it’s because it was in their buffer, and it’s the buffer that gets saved anyways.
Senator Galvez: Can we do more of this and more frequently?
Mr. Giroux: Oh, yes.
Senator Galvez: So that’s a recommendation to the government.
Mr. Giroux: That’s super easy — $500 million in savings in a big institution like the federal government is like asking you or me to save $50 in a year. If I asked you, “What are you going to cut?”, you would say, “I don’t know, but here is $50,” and that’s it.
An Hon. Senator: That’s coffee for ten days.
Senator Galvez: Thank you so much.
The Chair: To the PBO and your team, thank you very much. I would like to remind you to submit written responses to the clerk by the end of the day on Wednesday, February 28, 2024. Yes, we do have a common denominator with the Senate Finance Committee, which is all about transparency, accountability, reliability and predictability. You might have noticed that I was listening very carefully as chair, like all the other senators around the table, and when you talked about the musical ride, you certainly gave us a lot of food for thought this morning. It was very instructive. We are not on a musical ride, and you have given us a lot of information that will permit us to complete our report on Bill C-59. Mr. Giroux, thank you.
Honourable senators, we will suspend for five minutes in order to prepare for an in camera meeting.
(The committee continued in camera.)