Proceedings of the Standing Senate Committee on
National Finance
Issue No. 11 - Evidence - June 7, 2016 (11:48a.m. Meeting)
OTTAWA, Tuesday, June 7, 2016
The Standing Senate Committee on National Finance met this day at 11:48 a.m. to examine the subject matter of all of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016, and other measures.
Senator Larry W. Smith (Chair) in the chair.
[English]
The Chair: Welcome to the Standing Senate Committee on National Finance. Colleagues and members of the viewing public, the mandate of this committee is to examine matters relating to federal estimates, generally, as well as government finance.
Today, for the first time since the beginning of the session, the committee is pleased to welcome the Minister of Finance, the Honourable Bill Morneau.
Minister, we thank you very much for being with us today. We appreciate that you have a busy schedule, as does the team that is with you both at the table and behind you.
[Translation]
Today we are continuing our study of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.
[English]
We have already had three interesting meetings in May on the subject of Bill C-15 with a number of your officials and officials from a few other departments. We are anxious to hear what you have to say about Bill C-15. We will, of course, have a question period after your opening statement.
Minister, the floor is yours.
Hon. Bill Morneau, P.C., M.P., Minister of Finance: Mr. Chair and honourable senators, I'd like to start by saying it's my pleasure to be here today. I'm pleased to be able to be with your committee to speak about the measures in Bill C-15, which, as you know, is our government's first budget implementation act. Thank you for having me, and I'm certainly looking forward to taking your questions after my brief remarks.
I'd like to start by providing you with a brief overview of this bill that we believe takes very important steps toward our goal of strengthening the middle class and growing the economy by making smart, necessary investments in our country's future.
First and foremost, our plan is about people. We began by reducing taxes for middle-class Canadians while raising taxes on the wealthiest Canadians to help pay for that measure. Nearly 9 million Canadians are already benefiting from this tax reduction, which, as you know, took effect on January 1 of this year.
With Budget 2016, we're taking an even bigger step to put money directly in the pockets of middle-class families and those working hard to join it with the introduction of the Canada Child Benefit. This benefit will be simpler, tax-free and it will be better targeted for those who need it most. It will also be more generous than the child benefit system that it's replacing.
Mr. Chairman, I know you will have heard me say before that 9 out of 10 families will receive more under this Canadian Child Benefit than under our current system — $2,300 a year more on average for Canadian families that are getting the benefit. This will obviously help with the kinds of challenges that families face as they are raising children, and it will measurably improve family situations.
We know that that's real, meaningful help for Canadians, but we also know that the plan we're putting in place will help more than just young families with children. The budget implementation act will make significant new investments also to support seniors during their retirement years. One important example is the increase in the Guaranteed Income Supplement top-up benefit. We've improved that by up to $946 annually for the most vulnerable single seniors who are receiving that benefit. This enhancement more than doubles the currently maximum top-up and improves the financial security of about 900,000 single seniors living across Canada today.
The bill will also help Canada's veterans. We obviously know that these are the people who have dedicated their lives to the defence of our country. We also respect and understand that they deserve our gratitude and our support.
Budget 2016 honours the promise of our obligation to these selfless men and women in uniform; it enhances services and benefits for veterans in clear recognition of the sacrifices they've made on our behalf. First and foremost, to better support veterans where they live in Canada, the government will re-open and staff nine service offices across Canada, from Charlottetown to Kelowna, and we'll also open an additional office in Surrey, while expanding outreach to veterans in the North by working with local partners in that region of our country. We know this will make it easier for veterans to access services across the country when and where they need it.
To ensure that they are served with the dignity they deserve, the government will hire additional case managers to help veterans in their rehabilitation process and to help them make successful transitions to their civilian life.
Since the creation of the New Veterans Charter in 2006, we know that the range of programs, services and benefits under the charter have been gradually updated over time. We also know that veteran groups as well as the Veterans Ombudsman have noted that the charter needs to be enhanced to meet the needs of modern-day veterans.
That's why today's legislation will also enhance financial benefits for modern-day veterans. The investments include increasing the disability award, expanding access to higher grades of permanent impairment allowance and increasing the earnings loss benefit. These measures represent a significant investment that would greatly improve income support for disabled veterans, including both veterans transitioning to the civilian work force as well as those with injuries preventing them from suitable and gainful employment. The measures will also ensure that disabled veterans who are unable to return to the workforce because of their injuries will receive higher life-long financial support.
These are measures that we believe are needed, fair and right, but we know that we need to continue to do more to help middle-class Canadians and those working hard to join them. We need to make smart, strategic, long-term investments that will grow the economy over the longer term and better position our country for the future.
We know that as a country we're strengthened in many ways by our shared experiences, by the diversity that inspires both Canada and the world and by the way that we treat each other. Our plan considers diversity, clean technology, business growth and innovation as harbingers of economic success. We need the resolve to follow through on sustained strategic investments, guided by a vision of the future in which all Canadians will have a real and fair chance at success. That's our government's central mission.
Our growth strategy will need to build on key growth-related initiatives, including importantly our innovation agenda. In this regard, it's clearly a team effort. Involving partners from within government, the provinces, territories, municipalities and the private sector will be critical to our goals.
We know that to become the innovation leaders of tomorrow, we must equip Canadians today with the skills that they need to succeed. Our budget takes important steps toward preparing Canada for the global economy of tomorrow.
We believe Canada is at its best when each of us has the opportunity to reach our full potential and our contributions are recognized and valued. This spirit extends to Parliament and its role in ensuring oversight of the government's borrowing plans.
I'd like to highlight the advocacy of former Senator Lowell Murray and thank Senator Moore for carrying on his tireless work on this particular issue. I'm proud to say that we've heard you, and you'll find provisions in the bill we're discussing today that provide greater accountability and transparency for how the government finances its activities.
In conclusion, as I've said, this bill is about providing real help for real people across our country. The example of the Canada Child Benefit, as I mentioned, is a critically important one. For a single mom with one child under the age of six and earning $30,000 a year, the annual benefit will be as much as $6,400 per year, tax-free.
We know that can go a long way for people in a very challenging situation. We estimate that our plan will lift 300,000 children out of poverty in our country. As I said earlier, our Guaranteed Income Supplement top-up will help about 900,000 single seniors across our country. Honourable senators, it's my sincere hope that parents and seniors can begin receiving this increased assistance in July as we know they're expecting to do.
Today, I'm here to listen to your points of view and answer your questions. We want to work with you to ensure that families start receiving those cheques as soon as possible. We know that Canadians are counting on us to provide them with the help that they need to make ends meet.
Again, I'm looking forward to working with you, and I'm pleased to be here. I'll stop there, and we can have some dialogue.
The Chair: Thank you very much, minister. From a time perspective, are we good for another 40 minutes?
Mr. Morneau: That's good with me. If you want to end early and you force me to do so, I will be willing to take your counsel.
The Chair: We wouldn't want you to run too quickly.
Miodrag Jovanovic, Nicholas Leswick and Rob Stewart are also here to support the minister, and we have the minister's support team behind, so we should be able to get answers to all the questions we ask.
Senator Lang: I want to extend a special welcome to the minister here this morning. I appreciate you coming.
As you know, there's been an ongoing issue in Yukon, Northwest Territories and Nunavut, and it has to do with the transfer of payments from the Government of Canada to the various territories. First of all, I want to say that I appreciate that when the issue first came up, you made your office available and sat down with the three territories.
But at the end of the day, for the transfer payments, all three territories received a shortfall, because the agreement that first called for the transfers wasn't fully reinstated. That's a $6 million a year shortfall for the territory. In five years, it will be $30 million if that number were to stay the same. That amount to the Yukon is a lot of money — for our population — because it's quite small in comparison to other jurisdictions.
I'll move to my first question. I don't quite understand why the full amounts weren't reinstated for the purposes of the longevity of the balance of the financial agreement that was in place for all three territories.
Mr. Morneau: Let me start by saying we understand how important this is to the territories. We certainly understand how significant the transfer is to the budgets of the territories. I found it to be a very cordial and good discussion when we talked about the challenge that we faced.
As you probably know, the reason for the change was a calculation change in terms of how we were calculating the transfer to the territories. That put them in a situation where the appropriate amount was actually less than they had expected.
Senator Lang: Substantially less.
Mr. Morneau: I understand.
We worked out a conclusion that we thought was appropriate. I know that when transfers are different than people expect, it's always a challenging situation for them to manage their budget. But I do think we got to a place that made sense in terms of the way that we are calculating the transfers.
Perhaps we can describe the issue that brought us to the change and how we got to the conclusion.
I'll ask Tom McGirr to explain.
Tom McGirr, Chief, Equalization and TFF Policy, Federal-Provincial Relations Division, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: The amounts that were calculated in December 2015 were about $88 million less than what territorial expectations were. The reason for the shortfall, according to the territorial expectations, is that Statistics Canada, as part of its process of modernizing a system of statistics, made an important change in the provincial and territorial economic accounts. This affected the provincial and local spending data that feeds into the formula that we used to calculate territorial formula financing payments. There was also a requirement in the program to restate all of the growth rates that we use all the way back to 2013-14.
The change that's being made is recognizing that, unlike other transfers, we had to restate these growth rates. The changes made were simply to restate the growth expenditure base in 2015-16 to the amount that was calculated in December 2014 to continue using the data as specified in the regulations and the legislation governing the program. We will no longer have the requirement to recalculate going backward to the provincial and local spending growth rate that's so important in the calculation of territorial formula financing payments.
As a result, the territories are going to receive $67 million in total, more than what was calculated in December 2015.
Senator Lang: Very quickly, I have to take exception to the idea that they're going to get $67 million more. They were supposed to get $88 million. They're getting $24 or $25 million less than what was committed during that agreement.
When you have an agreement, you don't change the terms and conditions of the agreement in the middle of the agreement; you normally change it at the end, and you negotiate those terms. That was not done at that time.
I also want to go on the record — and since Mr. McGirr is here, and I quoted him earlier — he stated here that the territories have taken positively to the change. That is not correct. Northwest Territories is experiencing significant cutbacks in their day-to-day operations in their government. Our premier was on earlier. They have had to make adjustments in their budget to be able to accommodate the significant change.
This is just for the record. I don't want to go into specifics, because we're talking about Canada here, but I want to make this point to the minister. My hope is that over the course of this coming year, looking forward, not backward, in the age of transparency and the era of collaboration, I would ask that your department sit down seriously with the three territories and see what they can do to try to make up this shortfall, because it is having an effect, and I don't think we should be having to endure this in view of the fact they did sign an agreement between two parties. There were some understandings of what that agreement was.
I'll leave it at that.
Mr. Morneau: I appreciate what you are saying. We made an effort to work together with the territories. The agreement that was signed required us to use Statistics Canada as our basis for determining the payments. In using that agreement and in using the Stats Canada information, the result was the $88 million difference. So that was the outcome.
The conclusion from that $88 million negative to the position where we came to a different conclusion — while I recognize it's challenging, it was sort of a "refreshment'' of that agreement, if you want to call it that, because we recognized the challenge that we were put in, collectively, because of the change in the data that we're using.
I appreciate the issue, and I know that we will have ongoing discussions with the territories; it goes without saying. They will be at the finance ministers' meeting in a few weeks from now with me. As always, we'll be open to continuing a dialogue with them to ensure that we maintain a strong and open relationship.
Senator Patterson: I have a supplementary. I appreciate the efforts that have been made in the commitment to an ongoing dialogue.
I'd like to point out one fundamental problem relating to Canada's newest territory, and that is that the gross expenditure base has never been calculated for Nunavut. When Nunavut was established in 1999, the gross expenditure base for the N.W.T. was simply applied without consideration of the unique challenges and circumstances faced by Nunavut. This is a fundamental problem that I'd like you to address, sir. I wonder if your official would confirm that Nunavut has never had its own unique gross expenditure base calculated. It exacerbates the changes that were made in the past year, in my opinion.
Mr. Morneau: Well, let me confirm that we will get back to you on this subject and confirm the situation that we're currently in. We would be happy to discuss it with you.
Senator Patterson: Thank you.
The Chair: Just a quick summary from our meeting with the Premier of the Yukon today. Basically his call on it was he's not happy with getting less, but he saw it as an interpersonal issue, that you folks didn't let them know before you gave them the message. Sometimes in business things happen. You know it, I know it. You've been very successful. I've been less successful but I'm still alive. I've been hit in the head more than you, potentially.
It's important that the department makes sure you're proactive with your partners, because I think the biggest frustration we had from the premier today was the fact, which he repeated three or four times, "We would have appreciated knowing earlier.'' When adjectives are added that support that, it's a point that is there to help you, not to be critical, just to help you.
Senator Marshall: Thank you, minister, for being here.
I have a question relating to the middle class because a number of your budget initiatives are focused on the middle class. In fact, the title of your budget is Growing the Middle Class.
Who's in the middle class? What criteria do you have to meet in order to be in the middle class right now?
The government is focused on results. They're trying to measure the impact of their programs, which I think is a good thing. So I'm looking at who's in the middle class now. What criteria do they have to meet and how many are in there?
Then I want to look at next year. How many more will be in the middle class? I'm trying to see if there is actual growth in the middle class, and I'm sure you would be interested in that, too. Who is in the middle class? Is it based on taxable income?
Mr. Morneau: Well, first of all, I appreciate the question. Maybe I can step back and give you a sense of what we're trying to achieve and some ways that we believe will be appropriate to measure it.
Our starting point is clearly a sense that incomes in Canada have been stagnant for a large cross-section of Canadians for the last generation, where real incomes have been slow to rise. The discussions that we had in focusing both our campaign program and our budget were on those Canadians who are finding an increasing level of stress in managing in that stagnant environment or not growing in real economic terms for their families, with challenges in places where there are real and growing issues. For example, student tuition that families are trying to provide for, or retirement challenges with increased longevity and decreased investment returns, the ability to save enough is constrained.
In thinking about that and in recognizing that we're trying to help a broad cross-section of Canadians, we targeted some measures that we know will help many Canadians. The target around the $45,000 to $90,000 tax bracket clearly helps anybody earning over that $45,000 mark by reducing that tax bracket.
Senator Marshall: So is that the middle class? Is that the definition, those that fall into the $45,000 to $90,000 taxable income bracket?
Mr. Morneau: Well, we think that's an important measure that will help people who are in middle income in Canada, yes. That measure is an important one.
Additionally, the Canada Child Benefit, which will really help Canadians at lower incomes right up through to a higher income zone — and obviously will get means tested — will have a significant impact on helping people with children at what are likely to be the middle part of their lives at a time when they've got the biggest challenge in terms of expenditures.
It's really about moving people who are struggling into the next income bracket through that program and in improving the situation of a broader group of Canadians by changing that tax bracket, which will help people not just in that tax bracket but, in fact, in that tax bracket and above.
Senator Marshall: So would you know today how many people are in that bracket? The objective is to grow the middle class. The government is focused on results. This time next year, after everybody has filed their income tax returns, will you be able to say that the initiatives that you took in this year's budget were successful because the middle class has grown?
Mr. Morneau: One of the key things that we're focused on is developing metrics that we believe will be able to demonstrate success. There are some that are pretty clear, that we've already identified. We know that about 9 million Canadians will be impacted positively by the reduction in the tax bracket.
Senator Marshall: Are they the middle class? Is that the number, 9 million, that are in the middle class?
Mr. Morneau: That's not what I said. What I said is 9 million Canadians will be helped through that change in the tax bracket, so it will help a very large number of Canadians by reducing their taxes. Clearly that's going to be a measurable conclusion that we can verify.
We also expect that the Canada Child Benefit will raise 300,000 children above the low-income cut-off, so that's a significant and important measure that we'll be able to verify.
Senator Marshall: Yes, I saw that. Okay.
Mr. Morneau: We also know that about 900,000 seniors will be impacted by the Guaranteed Income Supplement top-up.
I won't tell you that we've concluded on every measure that we use in order to determine success, but those are three, to us, very important metrics to start with. Of course, with the Canada Child Benefit, it's more than the 300,000 children out of poverty; it's also the measurement we look at that 9 out of 10 families with children who receive the benefit will be better off by an average $2,300 annually.
Having those measures will give us clear indicators that, in fact, what we've done has measurably improved the outcomes for a large number of Canadians.
Senator Mitchell: Thanks, minister. Thank you for being in Question Period recently; we appreciated it greatly.
I'm interested in the credit union initiatives in this bill. Being from Alberta, credit unions have been very important to our capital markets and people's savings and so on.
Is the driving force behind this facilitation of transition from provincial jurisdiction to federal jurisdiction the ability for credit unions to diversify further? Or are there other public policy objectives that are going to be captured in those other advantages?
Mr. Morneau: I will let Rob answer the question more broadly. Clearly, our broad view of the market is that we have a highly competitive and effective banking system, but it is concentrated among a number of large and very important banks. And creating additional competition we think is a positive outcome to the extent that we can be an enabler for that. We want to ensure that we create the conditions for potential success for other competitors in the market.
In the case of the credit unions, that possibility exists, but there are constraints that make it more challenging for them actually to move to that new situation. We've looked at some of those constraints and believe there are ways that we can enable people to get there. Maybe Rob could add more specifics.
Rob Stewart, Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance Canada: I would add to what the minister said, that in following up on the creation of — from a legal point of view — the federal credit union concept, we are entertaining credit unions that want to grow and compete on the national scale outside the regions in which they were first created. Through this bill, we're adding to the framework the ability to do so and to manage the transition risks that occur when you move from a regime, for instance, with higher levels of deposit insurance.
Senator Mitchell: Thank you. A second question, different topic: One of your predecessors, Paul Martin, once said that there were two people in Canada who actually understood equalization payments and they were both dead, so now I'm hoping that you and Mr. McGirr are the next two.
I'm wondering, being from Alberta, given the downturn, is there a simple way to describe how that will be reflected in the equalization regime?
Mr. Morneau: I heard there were 15 people more recently, and I wasn't yet counting myself one of them when I heard that.
In fact, during my campaign, I realized this might be a subject I needed to learn something about, so I asked if I could get some information and I immediately regretted it when it came to my office because the documents were about this high. Suffice it to say it's a complicated system that obviously has a transition that takes time because of the three-year averaging of the system.
I'm not sure that there's an easy answer to the challenges that significant changes and economic outcomes in provinces present to the equalization system. Clearly the system as it works now has some real positives and it will present challenges in times of volatility. We're going to remain open to these discussions with provinces, but we recognize that any significant change in this regard would be an important and challenging discussion that would have to be had in a collaborative way around a pretty big table.
That's not something that's on our immediate agenda, while we do recognize it will present challenges along the way.
[Translation]
Senator Mockler: Thank you, Mr. Minister. First, I would like to congratulate you, then ask you two quick questions. My first question concerns the volatility of the markets in the global economic sector, and my second question will be about old age security.
[English]
My question, minister, is that I want to talk to you about what could happen if England left Europe and about that scenario. Some will say that the lower pound is good news for exports. Others will say that a weak pound makes imports more expensive. You cannot have it both ways, I guess.
[Translation]
We know what market volatility means for a budget, be it at the local, municipal, provincial or federal level. I like your idea.
[English]
You say that Canada has to be part of the global economy of tomorrow and I agree 100 per cent.
The Bank of England is reported to be stepping up its contingency plans to prevent a liquidity crisis in the banking sector.
What impact will it have, or have you prepared a scenario in the event, because we're in the Commonwealth, that England would leave the EU and the impact it would have on transactions with North America and especially Canada?
Mr. Morneau: Clearly for us the volatility of the global markets was something that we had our eye on when we presented both our update to the financial situation — well, in fact the early one we did right after we got into government and the one we did in February, and it was a key factor in our budget.
So we've seen, just since we've come into power, a couple of markdowns of expectations of global growth from the IMF. We've seen a heightened amount of volatility with changes downward and then upward in the price of oil. So I think it would be reasonable to expect that volatility is likely to be a continuing part of our challenge as we forecast our outcome.
The potential of Britain leaving the European Union is another factor that clearly can influence the level of global volatility. In particular, it's something that's challenging for the European Union. So at the G7 meeting that I was at recently, that was a subject of important discussion, the fact that we all have a concern that that is one potential outcome.
Certainly our Prime Minister has expressed, and I am happy to express here, a sense of the positive value of the United Kingdom staying in the European Union from the standpoint of the global economy, from the standpoint of the continuing success of that union, and that would obviously be good for us as we endeavour to sign the Canada- Europe Trade Agreement. So we recognize that it's positive for Canada and positive for the United Kingdom.
We're not in the position right now where we need to do considerable work around contingencies. We've already in our budget taken care to be sure that we have taken a prudent line in terms of what our growth will be. It recognizes that there are potential global challenges in terms of growth. You will have seen in our budget that when we estimated the growth in the economy we take a look at private sector economists' forecasts. We then took a look at the amount that those forecasts have been marked down in each of the last three years in order to come up with a factor for prudence, and that's where we started.
So we believe that the line for expected growth is one that is a good starting point and a good starting point from which we can make investments. And there will be issues that will move that line up or down. This potential being one of them, and when we've had other more obvious issues, like the real challenges people are facing in Fort McMurray that present more real and immediate issues obviously for people but also for our economy in this quarter.
We believe we've taken some prudence factor to start with and we'll continue to stay attuned to the volatility of the market.
Senator Eaton: Minister, welcome and, as you know, we're now agonizing through Bill C-14. Over the past several weeks the Minister of Health has spoken twice about there being $3-billion funding, if necessary, for palliative care. I'm struck that there's nothing in the budget and there's nothing in the supplementary estimates that would say that.
Would there be, if we passed the bill, more money for palliative care across Canada?
Mr. Morneau: Thank you very much, Senator Eaton, for the question. In our campaign we made it clear to Canadians that we believe that our health care system would be improved if we had an improved situation around home care and around palliative care and that was why in our campaign we talked about a $3-billion commitment to those amounts.
In the budget, we take a look at measures that we've already concluded in order to put them into our budget, things that we've already gotten through discussions so that we can say that we know that these are measures that we're actually going to put into our budget and our forecasting because they're already firm. For that reason, the financial numbers around home care and palliative care aren't in there.
It's not a question of our intent. It's a question that we recognize that, for us to get to the appropriate conclusion around health care, we need to be talking to the provinces and municipalities. Those discussions haven't yet happened. Minister Philpott is beginning those discussions with provinces. She's starting down that path. She and I have had numerous discussions about how those discussions between her and the health ministers provincially are going and likely to go, but we're not at a stage where we can yet say we know exactly what, how and when that should be put into our budget.
I can reconfirm here that it is in fact our intent to move forward on those discussions and to get to a conclusion that will consider the importance of home care and palliative care, obviously delivered in collaboration with the provinces.
Senator Eaton: I'm hoping to put an amendment in at third reading making it part of someone's assessment who is requesting MAID that they be given a palliative care assessment. Perhaps that will encourage the minister and you, minister, to give us the money as Bill C-14 takes effect.
We had the municipalities in front of us as witnesses. I know your infrastructure program is going to be very generous to cities and municipalities. Instead of having a pot of infrastructure money, what if you simply raised the gasoline tax or you gave them more of the gasoline tax so that they could define their own priorities and it would be a stable base of funding for years to come?
Mr. Morneau: I'm not surprised that that question would come up in the meeting with the municipalities. I understand the importance from their perspective both of having control over the projects and control over the funding. We are trying to work with the provinces and the municipalities, and certainly trying to work with the municipalities in a way that's unprecedented. We do want to make sure that we collaborate together but that we continue to create the conditions for really significant success.
I say that by way of indicating that we don't want to lose sight of the fact that we don't really want just the amount of money that we've put aside to go into infrastructure. We want to make sure that that money is amplified through additional funds from provinces and/or municipalities. We'd like to go further, to think about ways and means that we might be able to invite institutional investors, private sector investors, into infrastructure spending.
We're thinking through a mechanism to make that happen. It will include working together to figure out projects that are most appropriate to invite institutional investors in. Some clearly won't work in that regard, others might. For us, that's about the phase 2 of our infrastructure planning which we're hoping to have more to say about in this calendar year as our goal. We're working toward that.
We want to make sure that we don't make commitments with regard to exactly how that money is delivered before we think about the outcome we want. The outcome is the maximum impact on better infrastructure, long-term better productivity and economic growth in the short and long term.
Staying true to those objectives means we want to keep our ability to work together to make those things happen.
[Translation]
Senator Bellemare: Thank you for being here, Mr. Minister. I have two questions for you, but I will start with the one about public policy.
Your brief contains many aspects relating to the Old Age Security Act. Furthermore, your government intends to review the frameworks and parameters of old age security as a whole. Could you provide more details on your program with respect to the public policy on retirement? Many provinces have indicated that they want to review the Canada pension plan. Old age security, private plans, the public contributory plan, they are all part of a whole. We know that you are open to these changes, but do you have a specific program and can you share it with us?
Mr. Morneau: Of course. I will try to summarize our program and our policies on that. We want to make sure that our country's retirement system maintains a high quality level. In the past 50 years, we have improved the situation of our seniors by strengthening the Canada pension plan and the old age security pension, and by creating the guaranteed income supplement. However, we are aware that a large number of Canadians still do not have a private retirement plan. As a result, the number of individuals who will be in a precarious situation will increase in the future, unfortunately, so we have taken steps to address that.
As you know, we have increased the benefits of our guaranteed income supplement. Approximately 900,000 seniors will now receive additional amounts of up to $947 a year.
We have also improved our old age security pension system by bringing the legal retirement age back to 65 from 67. It is our opinion that the previous government made this change without consulting Canadians. We are well aware that life expectancy has increased, and we believe that this would become too much of a burden for individuals in a precarious financial situation.
Lastly, we think it will be necessary to strengthen our Canada pension plan. We are currently working with the provinces, and I think we will succeed.
Senator Bellemare: It will not be for next year.
Mr. Morneau: I do not know. We plan to hold a meeting on June 20 with the provincial finance ministers. I am cautiously optimistic. There is still work to be done.
Senator Bellemare: My second question is about increasing employment insurance benefits. We know that there are surpluses in the fund for Canada's employment insurance system, but are you still planning a deficit? Do you plan to increase employment insurance rates? Do you plan to increase contributions?
Mr. Morneau: Right now, we think that the rate will decrease.
Senator Bellemare: The rate?
Mr. Morneau: Yes. The rate is currently at $1.88 and it will fall to $1.61. As you said, there is a surplus at the moment. We made changes to the program, and we now think that the rate will fall to $1.61. With our changes, we are expecting a report from the actuary for the program in order to project the future rates. But right now, we think we would proceed with the reduction.
Senator Bellemare: Thank you. This is good news for businesses.
[English]
Senator Patterson: The increase in the amount to use to calculate the Northern residents tax deduction is greatly appreciated. It had not yet kept up with inflation, and that measure was welcome in your budget.
I wonder if you could, either now or later, give us the impact on the territorial tax take, since the tax points are split between the territories and Canada. The Northern residents tax deduction is going to cost Canada lost tax revenue, and it will also cost the territories, proportionally, lost tax revenue. That will help us to determine the cumulative impact of the territorial funding formula changes, as well as the Northern residents tax deduction.
I want to make it clear that that is a welcome measure, but it does have financial implications in loss of revenue for both Canada and the Territories.
Mr. Morneau: Perhaps, senator, I could repeat your question. We'll get back to you with a response. What you're asking us to do is to understand the change in the amount of revenue that will accrue to the territories as a result of the change in the Northern residents deduction and in the equalization payments.
Senator Patterson: Just the Northern residents deduction. We know the impact on the territorial funding formula. There's another piece there that does reduce revenues for the three territories that would be useful to know.
Mr. Morneau: Obviously, we believe that the decision around changing the Northern residents deduction is a positive one for people living in the North with, of course, the cost of living there being significant and challenging. We will get back to you with respect to the impact on the revenue in the Territories.
The Chair: If I may ask you a question which follows on Senator Marshall's earlier question: Through the election period, there was a lot of talk about taxing people who earn more than $200,000 to give to the middle class. Through your various speeches, your average is seven times during your speeches that you talk about middle class, and that's why we were asking you for a definition of "middle class.''
We've done a little bit of work because, at first glance, it seems to make a lot of sense that you're going to get the people at the top end to make a contribution so that the people at the lower end can benefit from it.
What we did was a little analysis. From StatsCan, 2013, the median Canadian income was $32,000, probably for a single individual; for families, somewhere between 60 and 65, whatever the definition of family is, three plus.
When we did the calculation of the $200,000 earners and above, there's about $1.9 billion that comes from that money that's collected from the people and then distributed to the various classes.
So we went zero to 45, then 45 to 90 and, through that, 90 to 140, 140 to 200, and over 200.
What was interesting, out of our analysis — and we had the Parliamentary Budget Officer help us — is that, from the people up to $45,000, there's no benefit. From 45 to 90, you have, at the low end, about $261.44, which is like a one-time credit or amount back. Then, at $90,000 you have $696.
What was very interesting is, when you went from 90 to 140, you had $766, and then, when you went from 140 to 200, you had $820. This is why we asked the question of the definition. We're not trying to trick anybody, we're trying to understand. We understand that, by putting in the childcare benefits, the previous government did a similar thing in a different way. So you're putting in a bunch of things to try to add up to the total package of helping people, and we recognize there is assistance.
Here's the question: The concern that appears to us is that, between 45 and 90, if that's the group we want to focus on, why wouldn't we be trying to focus the larger amount of money to the lower end as opposed to the upper end? Because it seems a bit confusing that someone earning $140, $150, $160, $170, $180,000 is going to get the highest amount.
It's not a criticism; it's feedback in that there may be an opportunity, if you deem fit, to be able to refocus the allocation of money. As a simple person, I always like to do things that are revenue-neutral so that we don't have a $1.9 billion deficit that's going to be almost $9 to $10 million after the session or your term ends before the next election.
This question seemed to make sense. This is what we go back to. And we realize you don't want to put too many parameters on "middle class'' because then you're picking winners and losers. But is there some way that we can work with you and give you more information, if you're not already looking at that, to try to help you shape a program that is part of your Bill C-2 but something that can be more focused to the people that really need it the most?
Frankly, if you have $45,000 and are getting $261, it's groceries for the week if you have kids. It depends. If you live in the North, it's half a week. But it is something that's real. It's just a suggestion. We're going to do more work on it, and we'll probably share it with everybody once we get it. But as we make recommendations as a group we think it's important to have a really strong focus on what we are really trying to achieve. You can't please everybody all of the time, but who can you please? Who are the people who are really in need?
The question is: Have you folks taken a look at further refinement of this in terms of the cost with a deficit and the benefit to the actual people who need it the most? There are 7.2 million that fall between $45 and $90,000. So the 9 million includes people in the upper class. I'd sort of look at people earning $150,000, $160 as more upper middle class to upper class Canadians, when there's only 300,000 that earn over $200,000 in the country. I think it's 340 or 350,000.
The question, what do you think? Or what is your first reaction?
Mr. Morneau: Let me start by saying that we would like to work with you. To the extent that you do work and have advice and observations that can be helpful, we're keenly interested in hearing about those perspectives. So please, in doing your work, expect that you'll have an open mind, from our perspective, in terms of working with you.
In terms of reacting to your framework or your analysis, it would be important to consider all of the things we've done together and not any one measure as being the specific measure that you look at in order to consider only the outcomes from that measure.
There were a number of things that we did together in the budget that help Canadians, Canadians that are in the middle class today, that are striving to get into the middle class, those that are in very challenging situations. I would really want to bring people to think about the real impact of the Canada Child Benefit and how that impacts Canadians. It will clearly help a very big cross-section of Canadians.
You then would need to overlay the tax changes, which, as you say, will help people in that tax bracket and above. The definition can't help people underneath that tax bracket, but the Canada Child Benefit will help that group.
Additionally, we put other things in because we believe they're important and helpful for Canadians struggling to be successful. The change in the student grants was quite important in terms of the magnitude of the change for low and middle income families as they're going up by 50 per cent for students.
Again, families in some situations will not get the benefit of the Canada Child Benefit because their children will be past that threshold. When their children are past the 18-year-old threshold and still being educated, the student grant will help them; whereas others that are working will be on their own.
Looking at those things together would be more instructive than looking at any one of those initiatives individually. For us it's an entire package that will help. The means testing of the Canada Child Benefit, the student grant and the tax bracket changes all serve to use much more budget monies in areas where we believe people really need the support.
The Chair: We understand how you package things so that you're selling different points to the Canadian public, which is the way it works.
Senator Marshall's and my point was that we felt there was an issue of the value for the amount of money required to implement the program and the deficit it would create because your childcare is obviously the biggest engine. You have a total package, which is understandable. Is there a way that it can be refined so you're not placing as great a burden in terms of program cost because there's also a cost for childcare? If you were able to do a revenue neutral gift to people and focus it in areas where they really need it, as opposed to somebody earning $180,000 or $160,000, could that be a benefit and a good sales point for you in terms of people understanding what the real middle class is? It's a risk, of course, because people can then criticize you. Sometimes it's a case of no risk, no reward, and we want to move our country forward.
Senator Marshall: There was a section in the budget that you mentioned in your introductory remarks regarding parliamentary approval for government borrowing. You said there was going to be an amendment in the budget implementation act, and there is. A section in there, which I was surprised to see, speaks to extraordinary circumstances. I call it sort of "an out.'' What would be an extraordinary circumstance? Could you define it for me?
Mr. Morneau: I'd like to step back and obviously talk about why we got here and how we concluded constructing this. As I mentioned in my opening remarks, your colleagues in the Senate have been enormously helpful in pointing out the importance of parliamentary oversight for government borrowings, so that message was important. We believe that parliamentary oversight is important, so that's our starting point.
We looked at how best to implement that and ensure that we absolutely were open and transparent. We wanted to make sure that Parliament could understand the request we were putting forward and would have the opportunity to vote on it. That was our critical objective. We also wanted to ensure that we didn't put ourselves in a situation where we jeopardized our country. In the case of extraordinary circumstances, that would mean it would be challenging to have parliamentary oversight either because of the urgency of a request or the situation that Parliament might be in at that moment in time or other circumstances that we might not be able to predict.
That was a concern and we wanted to ensure that we didn't put Canadians in jeopardy because we didn't have access to borrowing power if there was a critical time, such as a disaster or a financial crisis or something else we were facing.
I don't want to give you an exhaustive list because I'm not that creative and might forget something. Clearly, it's meant to be extraordinary. In the normal course of affairs, we would go to Parliament to ask for the borrowing authority. In an unexpected situation that carried a different level of urgency, we wanted to preserve the ability to have the right to borrow without going through Parliament.
It's really just a level of prudence in terms of how we crafted that part of the budget implementation act.
Senator Marshall: I notice that it would be reported when Parliament resumes sitting. That information would be tabled then?
Mr. Morneau: Yes.
[Translation]
Senator Mockler: Mr. Minister, I know that you know New Brunswick very well.
Mr. Morneau: It is a very special province.
[English]
I'd like to ask you a question about Old Age Security, knowing that New Brunswick has the highest percentage of seniors in the country and that Germany, Australia, the United States, France and other countries in the G20 are looking seriously at increasing the age of eligibility for public pension plans. Given Canada's aging population, could you explain why you have reinstated 65 as the age of eligibility for Old Age Security? Will this have an impact on the long-term viability of that program?
Mr. Morneau: As I mentioned earlier, perhaps clumsily in French, we are of the view that Canadians were surprised by the move from 65 to 67 by the previous government. Clearly, that change has an impact on some Canadians but not all Canadians because the Old Age Security is clawed back at a higher level of income. It has a disproportionate income on those that are of more modest means.
Old Age Security also has a disproportionate impact on people that die at a younger age because they would have less advantage through the Old Age Security system, which makes it regressive, in my estimation, in both dimensions. So we moved it back to age 65. We recognize that the Old Age Security system gets clawed back as people go to a higher income level, so not everyone will be eligible. There is an interrelationship between Old Age Security and the Canada Pension Plan.
Our conclusion was that it was appropriate in the circumstances. We are clear that the Old Age Security system is continuing and viable. There is no fiscal problem with the system, looking out over the long term. Obviously, there are financial implications to this decision, but over the long term, the system is entirely financeable by the Canadian government.
We believe it's the right thing to do in order to protect Canadians who need the program for their retirement.
The Chair: It's one o'clock. We thank you, Mr. Minister, and your support staff. We appreciate that you took the time to be with us.
(The committee adjourned).