:
I will call the meeting to order. We are dealing with the budget implementation act, Bill . We have with us today a number of individuals from Finance Canada.
Sometimes we deal with each part, and then go to questions. We'll have the presentations on part 1, then the presentations on part 2, then the presentations on part 3, and then we'll go to questioning of all of the witnesses.
Are people okay with that?
Starting with part 1, we have Mr. McGowan, Mr. LeBlanc, and Mr. Greene.
I don't know if in your opening statements you want to mention your areas of responsibility, because I don't have that information in my documents.
Oh, yes I do.
I'll give your title, Trevor. Mr. McGowan is the senior legislative chief, tax legislation division, tax policy branch. Mr. LeBlanc is the director, personal income tax division, tax policy branch. Mr. Greene is the director, tax policy branch.
Welcome. The floor is yours on part 1, amendments to the Income Tax Act and to related legislation.
As you said, I'll be providing the introductory remarks relating to part 1, the income tax amendments. My colleagues, Pierre and Gervais, will discuss part 2 and part 3 respectively.
To provide a brief overview of the measures, the first are some measures relating to veterans and veterans' benefits. They would ensure the non-taxability of the new caregiver recognition benefit, which replaces the previously non-taxable family caregiver relief benefit.
These amendments ensure that the new benefit has the same tax exempt character as the previous one. These substantive amendments are contained in the bill in division 12 of part 4. These are in the bill in clauses 2, 6, and 29.
Also, as a result of the tax expenditure review, it eliminates the investment tax credit for child care spaces. This is a 25% non-refundable tax credit for employers, with a maximum of up to $10,000 per eligible child care space created. This would be eliminated with regard to expenditures incurred after March 21, 2017. However, transitional relief is provided so that expenditures incurred under an agreement that was entered into before budget day would have until 2020 to conclude the work and obtain the credit. That can be found in clauses 3, 4, and 23 of the bill.
Next is the elimination of the deduction for eligible home relocation loans. Again, this is a part of the tax expenditure review. When an employee obtains a loan at below market interest rates, the difference between the market rate and what they pay is a taxable benefit. This deduction offsets that benefit for qualified employees up to a notional $25,000 loan.
Next is the elimination of the tax exemption for non-accountable allowances for members of legislative assemblies and certain municipal officers. To reiterate, that eliminates the non-accountable tax exemption for them. Of course, as with every employee, reimbursements that are accounted for would remain tax exempt. So if you have a taxi ride from an airport to the hotel on a business trip and you submit that and you get a reimbursement for it, that would, of course, be non-taxable. The non-taxability is being eliminated on the non-accountable allowances.
Next, again as part of the tax expenditure review, is the elimination of the tax exemption for insurers of farming and fishing property. This tax exemption is based on the premium income that qualifying insurance companies earn from insuring farming and fishing properties. That would be eliminated for the taxation years beginning after 2018—so, starting in 2019. That is in clauses 7, 24, and 33 of the bill.
Next is the elimination, again as part of the tax expenditure review, of the additional deduction available for corporations with regard to gifts of eligible medicines to a qualifying donee charity. This deduction is available in addition to the existing charitable tax credit or charitable deduction that's available with regard to gifts of medicine, which would apply to the fair market value of the medicine donated. That is in clauses 9, 25, and 32 of the bill.
Next is a simplification measure, again, in the context of the tax expenditure review. It replaces the existing caregiver credit, infirm dependant credit, and family caregiver tax credit with a new Canada caregiver credit. It's available for the 2017 and subsequent taxation years, and it can be found in clauses 11, 12, and 14 of the bill.
Next, as part of the tax expenditure review, is the elimination of the transit pass tax credit. It would eliminate the tax credit for public transit use, with regard to transit use after June, 2017—so, starting July 1, 2017. That is in clauses 13 and 23 of the bill.
Next is an amendment to the medical expense tax credit. It ensures that certain costs relating to the use of reproductive technologies to conceive a child are eligible for the medical expense tax credit, even though the underlying cause for the treatment is not related to an underlying medical condition. An example of that would be for same-sex couples needing this treatment to conceive a child. That can be found in clause 15 of the bill.
The next amendment relates to the disability tax credit. In order to qualify for the disability tax credit, a disability must be certified by a qualifying professional—for instance, doctors or certain enumerated specialists. This would extend the list of medical practitioners who can certify eligibility for the tax credit to include nurse practitioners, who, for many Canadians, are a significant point of contact in the health care system. That can be found in clauses 16 and 17 of the bill.
Next we have amendments to the tuition tax credit. These fill a gap in the currently existing tuition tax credit rules as they relate to fees paid for skills training courses. Currently, post-secondary courses taken out of post-secondary education are eligible for the tax credit. Job skills courses taken out of a qualifying educational institution, second-language skills, and things like that are also eligible for the tuition tax credit, but if you take one of those job skills courses at a post-secondary educational institution, like a university, there is a gap in the rules and you couldn't get a credit, even though one would expect it to be available. This amendment would fill that hole for the 2017 and subsequent taxation year. Those can be found in clauses 18 and 19 of the bill.
The next measure would extend for one year the mineral exploration tax credit in respect of certain grassroots mineral explorations. This extends the credit to be available in respect of so-called flow through share agreements entered into on or before March 31, 2018. This would support exploration for these qualifying minerals to the end of 2019. That is in clause 23 of the bill.
Next is the elimination of the tobacco manufacturers' surtax. This amendment to the Income Tax Act would eliminate the surtax that applies to Canadian producers. It's made in conjunction with amendments to the excise duty rates in part 3 of the bill, which are intended to maintain the intended tax burden on tobacco products.
Next are amendments permitting employers to distribute T4 slips to their employees without first having to obtain consent from the employee. That sets a new default for the distribution of T4s, subject to some important safeguards. First of all, appropriate privacy safeguards have to be in place. Second, it must be reasonable to expect that the employee would be able to have access to these T4 slips, and third, if the employees say they want paper slips they have to get paper slips. That is in clauses 28 and 31 of the bill.
Lastly is extension for one year of the repeal of the national child benefit supplement. That is found in the calculation of the Canada child benefit, even though it does not affect the calculation of the Canada child benefit. A number of provincial programs refer to the former national child benefit supplement for their calculation, and specifically to the variable in the Canada child benefit that contains the NCBS, so it was left in and scheduled to be repealed effective July 1, 2017. This repeal is being moved back to July 1, 2018 to give provinces additional time to update their rules.
That's the end of part 1.
:
Good afternoon. My name is Pierre Mercille. I am the Senior Legislative Chief in the sales tax division of the Department of Finance.
Part 2 of the bill implements measures involving the goods and services tax, as well as the harmonized sales tax.
There are three different GST and HST measures in part 2 of the bill.
[English]
The first GST/HST measures restore the GST/HST-free treatment of the drug naloxone when it is supplied without a prescription for emergency use to treat opioid overdose outside hospital settings. This amendment generally comes into effect on March 22, 2016.
The second measure amends the definition of “taxi business”. Under the GST/HST, all taxi operators or independent drivers are required to register for the GST/HST and charge tax on their fares, irrespective of the level of their sales. These rules have been put in place since the inception of the GST and ensure that all taxi operators are treated the same way.
Commercial ride-sharing services facilitated by web applications provide passenger transportation services that are similar to taxi services. However, such ride-sharing services may not be subject to the same GST/HST rules as taxi businesses because they may not fall under the current definition of “taxi business”. To ensure that the GST/HST rules apply consistently to taxi services and ride-sharing services, the definition of “taxi business” in the GST/HST legislation is amended to require the providers of ride-sharing services—we're talking here about independent drivers—to register for the GST/HST and charge tax on their fares in the same manner as taxi operators. The amendment will be effective as of July 1, 2017.
The last measure in part 2 of the bill repeals the GST/HST rebate available to non-resident individuals and tour operators for the GST/HST that is payable in respect of the Canadian accommodation portion of eligible tour packages. This rebate is complex, it's costly to administer, and it benefits only a narrow segment of the tourism industry. Therefore, it was considered an inefficient tax measure.
The repeal will generally apply in respect of supply of tour packages or accommodation made after March 22, 2017, which is the date of the budget. There is also a transitional measure, in that the rebate will continue to be available in respect of supply of tour packages and accommodation made after March 22, 2017 but before January 1, 2018, if all of the consideration for the supply of the tour package is paid before January 1, 2018.
[Translation]
That concludes the description of the measures in part 2 of the bill.
[English]
I'm here today to discuss the two proposed excise measures that were included in budget 2017 regarding tobacco and alcohol taxation, which are included in part 3 of the bill in front of you.
[Translation]
The first measure deals with tobacco taxation. You will find it in the following clauses: clauses 45 to 48, clause 51,clause 54, clauses 58 to 63 and clause 66.
[English]
In order to maintain the intended total tax burden on tobacco products, and in conjunction with the repeal of the tobacco manufacturers' surtax, the first excise measure proposes to adjust the rate of tobacco excise duty to ensure that the peak level of revenues collected under the surtax in the early 2000s will be collected under the excise duty framework. For example, the excise duty rate on cigarettes will increase by 53¢ per carton of 200 cigarettes, rising from about $21.03 per carton to $21.56 per carton.
To ensure that the increase is applied in a consistent manner to all cigarettes at different trade levels, an equivalent inventory tax will also apply to inventories of more than 30,000 cigarettes held by manufacturers, importers, wholesalers, and retailers as of the end of the budget date.
[Translation]
All these measures generally apply as of March 23, 2017.
The proposed change to tobacco taxation should generate an additional $55 million in revenue in the 2017-2018 year.
The second measure that I am responsible for and that you are studying today is the federal excise duty on alcohol. You will find it in clauses 42 to 44, 49, 50, 52, 53, 55 to 57, 64 and 65.
[English]
It is proposed to increase the excise duty rates on alcohol products by 2% and to automatically adjust these rates to account for inflation on April 1 of every year, starting in 2018. The government generally applies an excise duty on alcohol products such as beer, wine, and spirits that enter into the Canadian duty-paid market. Alcohol excise duty rates were effectively last adjusted in the mid-eighties, so therefore, their effectiveness in real value has eroded over time.
In 2017 the proposed measure represents an increase in excise duty of 5¢ per case of 24 bottles of beer, less than 1¢ per bottle of wine, and about 7¢ for a typical bottle of spirits. The proposal is expected to generate about $30 million in additional revenue in 2017-18.
[Translation]
This measure also goes into effect generally on March 23, 2017, the day after the budget was tabled.
That completes my summary of part 3.
Thank you.
I want to preface my question with a little history lesson.
I come from Alberta. I know we have a few of our friends across the aisle here who weren't in elected office at the time we had a thriving Canadian economy based on a strong oil and gas sector.
An hon. member: Hear, hear!
Mr. Ron Liepert: All of the country benefited. We had a huge trade surplus. Manufacturers in central Canada were doing record business in the oil patch. Then, of course, as we all know, the world price of oil collapsed. During that collapse, we had probably three-quarters to maybe even 80% to 90% of the rigs idle because nobody was spending any money.
Now that the price has started to climb back up and companies have started to engage drilling companies to go out and explore for conventional oil. In this particular budget, the government has slapped the oil industry by proposing to reduce the petroleum drilling incentive. What justification would that have from Finance officials, or is it purely political?
:
Okay, thank you very much.
To finish, I would like to discuss T4 slips.
I know that people really like to use electronic ways of doing things. However, I think that a lot of people still do not have access to them. Even the army, at one point, assumed that all soldiers had access. I remember once when I was in the field, my employer assumed that I had access to a computer, but that was not so. Sometimes, I did not even have access to the orderly room on the base, the administration offices, that is, from which I could have made the proper requests.
Sometimes, the electronics are fine, but I still prefer the paper version because it is something concrete. It also reminds me that I have to do my tax return. We must not forget that. I hope that this measure will not have the long-term effect of increasing the number of people who do not fill in tax returns, especially those who more easily forget to do so.
That is just a comment about the T4s. The matter deserves a lot of attention.
:
Thank you so much, Mr. Chair.
Gentlemen, welcome to the House of Commons.
[Translation]
As a Quebecer, I am clearly proud to see that four of the six officials from the Department of Finance here today are francophones. That's something to write home about, as they say.
Mr. Chair, I would now like to have a conversation with Mr. Coulombe. In my little segment, we are going to talk about the excise duty on alcohol and tobacco.
Let's talk first about the tax on alcohol.
According to the notes at our disposal, the increase proposed in the 2017 federal budget should increase government revenue by $30 million in the first year, $60 million in the following year, then $95 million, $125 million and $160 million in subsequent years.
First of all, it must be said that this is very technical. I would like Mr. Coulombe to explain to us how the government revenue can increase so exponentially.
:
There are a number of parts to your question.
In terms of imported alcohol, excise duties generally apply in their entirety. What I mean by that is that a bottle of wine imported from France is going to be hit with excise duty at customs. For a 750 ml bottle, the customs duty will be about 47¢. By contrast, the same product made in Canada with 100% Canadian agricultural products is hit with no excise duty. So many of the products covered under the federal excise scheme are already exempt from excise duty in Canada.
In terms of beer, another product subject to excise duty, small producers pay less duty. Without going into details, I can tell you that, depending on the production volume in hectolitres, microbrewers find themselves paying greatly reduced rates of duty. Those rates will be subject to the future increases. That said, the exemption, or rather the reduced rate structure—I don’t like using the word “exemption”—is maintained in the government’s proposal.
Another part of your question touched on retail sales. In Canada, and most provinces, except Alberta, a monopoly exists; that is to say that the liquor control boards or corporations take care of the revenues. They play a major role in the way in which final prices for products are established. The impact of the measure will therefore depend on the way those organizations adjust to it all.
:
In all sincerity, I really appreciate the quality of our guest’s reply. We really have gotten into a lot of the fine details.
However, it is a concern for manufacturers. Their profit margin has gone down over the years. Once it was 8.4%, now it is 4.3%. Competition plays a role, but the associated taxes, which are now actually becoming escalator taxes, also play a major role.
That is why the restaurateurs association said the following:
[English]
This inflationary approach to beverage alcohol taxes was tried unsuccessfully in the 80s and resulted in sales declines and job losses.... [O]ur future is at risk as is our ability to create jobs and spur economic growth.
[Translation]
When you create an escalator tax, as they are called, it has a direct effect not only on the people on the front lines, but also on the entire industry.
I quote the wine and spirit manufacturers association once more:
[English]
Higher excise taxes will reduce industry investments in our plants and brands, force a scaling back of innovation, depress sales, reduce our grains' purchases from Canadian farms, and lower our new export market development.
[Translation]
My sincere thanks to the witnesses who are here to give us precise explanations. But, in reality, this escalator tax, invented, created and imposed by the Liberal government, is going to have a negative effect on the Canadian economy.
Thank you.
I would like to add one tiny little technical detail.
Mr. Deltell, you mentioned a comparison with a particular adjustment mechanism for the previous excise duties that existed at the beginning of the 1980s. I would like to add a clarification. The automatic inflation mechanism that is being put in place by the government here is based on the general consumer price index. The one at the beginning of the 1980s applied only to alcoholic products. So, as a result, there was a kind of escalating, spiralling effect, so to speak.
That is not what is on the table here. The use of the consumer price index, as proposed in the bill, matches the model currently being used for tobacco products. It is also used in income tax matters to make sure that a number of minimum thresholds are maintained.
The particular feature of using fixed excise duty rates is that they are expressed in current dollars per litre. If you do not adjust them to take into account inflation over time, there is an actual reduction. Often, that reality is not seen in provinces with monopolies, with organizations like liquor corporations, because their profit margins are expressed in percentages.
Thank you.
:
Thank you, Mr. Chair. It's good to see you again. I know we saw each other once in a while on the agriculture committee, but it's good to be here.
I just want to tie into the question of my colleague Mr. Liepert about the carbon tax. We have a letter from a premier of a province in this country, which was released today. It relates to transfer payments being connected to carbon tax. His letter references a document from the finance department and it talks about one of the issues. This is from the finance department's document dated October 14, 2016, and this is how it's relevant to today's discussion of the current budget. I presume the discussion would have been around the time of the budget discussion.
This is in your document:
One of the issues being looked in the discussion ahead of the 2019 renewal of the Equalization program is a change to the treatment of carbon revenues within the program.
That's the transfer payment program.
The premier of Saskatchewan is concerned that this is being tied together in some shape or form. I, along with many other Canadians, am concerned with carbon tax, period, let alone with its being tied to the equalization program. I'll quote the letter from Premier Wall:
I am writing to seek your assurance that there will be no linkage by the federal government between the provincial carbon tax policies and the federal transfer payments or any other type of federal payments to provinces, such as infrastructure funding. Any such linkage would be a serious attack on federal-provincial relations in Canada.
My question to you is this: Has there been any discussion about this particular topic within the discussion of the current budget, considering the time?
Anyone can feel free to answer.
I want to ask, and I think the Chair touched on this as well, about the excise taxes. I have a quote here from 1755 on what excise taxes were about, and I was going to repeat what it said, but I don't want to quote Samuel Johnson, the gentleman's name, on excise taxes. Most times, excise taxes are put in place at the time of production, not at the time of sale, from my understanding. Effectively, excise taxes, when you put [Inaudible—Editor] in our country, you put the HST on it, so you're basically taxing a tax.
Are there any other goods that are subject to excise taxation in Canada? We tax grape production, which is turned into wine, for example. Is there any other product that's grown that is subject to an excise tax?
:
Thank you for the question.
First of all, I must say that I am not a specialist in international trade law. There is another branch in the Department of Finance that deals specifically with these issues. Perhaps they could send a more specific written response to the committee. I do not want to interfere with the trade policy of my country by making a statement on subjects that I am not capable to speak to.
That being said, there is a little technical point that I can raise. The automatic increases to keep inflation under control in future years are inherently the same as the 2% increase proposed in this budget. How would one element be more problematic than the other when it comes to trade policy? That remains a question mark in my mind.
As part of the overall analysis of the measure, the fact that it is relatively small has clearly been taken into account. As I said earlier in my presentation, we are talking about 5¢ per case of 24 bottles of beer, 1¢ per bottle of wine and 7¢ per bottle of 750 millilitres of 40% alcohol spirits. These are relatively insignificant measures, even if inflation were to persist for several years.
I should add that, meanwhile, provinces often seek their money by imposing profit margins expressed as a percentage. They increase automatically, without adjusting to inflation.
Gentlemen, it's always a pleasure to talk to you. A few minutes ago or an hour ago, we had the chance to talk about tax on alcohol. I would like to talk about tax on tobacco. I think Mr. Coulombe will be my counterpart.
[Translation]
It will be my pleasure to speak with you again, Mr. Coulombe. Thank you very much for the specific details you gave us about alcohol tax.
Now, let's talk about the tobacco tax.
We know that Canada had a sad reputation in 1981: we were the country that consumed the most tobacco per capita. Through vigorous awareness campaigns to alert the public, tobacco consumption in Canada has declined nicely. Our country now ranks among the best. We are not the best, but among the best in terms of use. When I say that we are among the best, it means that the less we use, the better.
Obviously, it is not without raising the anger of some who are sad to see that the current government wants to legalize marijuana, but that's another matter. Let's keep to Bill , in accordance with the chair's most pertinent instructions.
Mr. Coulombe, I assume you have assessed the impact of the increase in the excise tax on tobacco. Is it calculated in the same way as for the excise tax on alcohol, meaning it's calculated based on the rising staircase principle, which can also have consequences on the other industries that depend on that?
I want to say right now, that clearly alcohol does not do harm people's health in the same way as cigarettes. As I mentioned earlier, the impact of alcohol in restaurants and drinking places has nothing to do with the impact of tobacco.
:
I am once again going to make a few general comments.
It is clear that potential schemes involving contraband tobacco are reviewed regularly. They factor into the equation when the government, through its budget, reassesses the effectiveness of its suite of tax measures and their impact, every year. It strives to find a balance between the excise tax and the pressures associated with contraband.
As for the fine line, it's very tough to wade into that territory. As you know, Canada is a huge country. The tax base from tobacco products is divided among the provinces. Each one has its own taxation rates, which can vary significantly from one market to another. One province might be dealing with specific law enforcement challenges that are not at all present in other parts of the country. My colleagues at the RCMP and Public Safety Canada would no doubt be better-positioned to discuss the issue in much more detail. I will say, though, that, in past years, we have seen specific problems involving counterfeit tobacco product imports. They were coming from China and truly looked like legitimate products that had been stamped in Canada. Of course, the illegal manufacture of tobacco products is a problem in parts of the country that are farther away from the major import ports. Given the wide range of factors that come into play, I will refrain from commenting on what that fine line is.
I can tell you, however, that the measure in the bill is intended to maintain the overall tax burden through the taxation policies being implemented. Given the minimal impact on the tobacco taxes collected, overall, I doubt that this increase would have much of an effect on the contraband situation in the country.
That ends our questioning on parts 1, 2, and 3. Thank you all for coming before the committee and answering questions.
We'll now turn to Mr. Halley and Ms. Bourns to look at part 4, division 1, Special Import Measures Act.
Thank you, folks. I believe there are a couple of things to get back to the committee on about part 3.
We have our witnesses at the table. First, we have Patrick Halley, the director of the international trade policy division, international trade and finance branch; and Laura Bourns, the senior economist, trade rules, international trade and finance branch.
The floor is yours for an opening statement, and then we'll go to questions. We're dealing with part 4, division 1, amendments to the Special Import Measures Act.
The floor is yours.
Division 1 of part 4 pertains to amendments to the Special Import Measures Act. This is the primary legislation governing Canada's trade remedy system, which provides for the application of duties to address situations where dumped or subsidized imports cause injury to domestic producers.
The Minister of Finance is responsible for the legislation and policies relating to Canada's trade remedy system, which is jointly administered by the Canada Border Services Agency and the Canadian International Trade Tribunal.
[English]
There are four key legislative amendments being proposed in part 1. The first change relates to the implementation of a World Trade Organization dispute settlement decision, which found that Canada was in breach of its international trade rules. With these changes, Canada's trade remedy system will allow for determination and trade remedy investigation when an individual exporter is found to have an insignificant amount of subsidy or dumping.
The remaining three changes relate to proposals on which public consultations were conducted at this time last year. Two new proceedings will be created related to the enforcement of trade remedy measures.
First, primarily in clauses 87 and 89, there will be new scope proceedings that will provide for binding and appealable rulings as to whether a good is subject to anti-dumping or countervailing duties. These proceedings will enhance transparency and predictability related to the enforcement of trade remedy measures in Canada.
The second set of changes relates to new anti-circumvention investigations. They are primarily in clauses 84 and 89. These new anti-circumvention investigations will provide for the extension of duties to goods from exporters who are modifying their trade patterns specifically to avoid the imposition of duties in Canada. This will provide the Canada Border Services Agency with enhanced tools to address circumvention and more effective enforcement.
Third, CBSA will also be given new powers to respond to situations where market distortions in the country of export make prices unreliable for the purpose of calculating dumping margins, for example, when there are price controls by the government. This will ensure that trade remedy duties are accurately reflecting market conditions in the country under investigation.
Finally, one item that is not in Bill but was in budget 2017 was the proposal that unions be provided with the right to participate in trade remedy investigations. This change is being implemented in a parallel process, namely regulatory amendments. So it is not in this bill, but was announced in the budget.
Overall, these changes will strengthen Canada's response to unfair trade, better align Canada with our major trading partners, and ensure that we are abiding by international trade obligations. They provide important new tools for trade remedy investigators in Canada while maintaining the system's balance of interest between domestic producers, downstream users, and consumers.
[Translation]
That concludes our presentation.
We would be glad to answer any questions you have.
:
Thank you very much for that clarification.
If there are no further questions from members, then thank you both for appearing before our committee and answering questions.
We will call up those appearing on division 2: Mr. Moreau, Mr. Wu, and Ms. David.
While the witnesses are getting settled, I just have a note for the committee. The Minister of Finance has a very busy week next week, and we're trying to see if we can fit him in. He has agreed to appear before committee from 12 to 1 on May 15. The minister is going to take the time to do that next week, rather than on the 29th, so those who are working with the minister can tell him that we appreciate that very much.
Dealing with part 4, division 2, on public debt, we have Mr. Moreau, who's the director, funds management division, financial sector policy branch; Ms. David, who is the adviser/economist, funds management division, financial sector policy branch; and for Mr. Wu, I don't have his information here. I have your name, but not your position, so you can give that to us when you're speaking.
Please go ahead in explaining part 4, division 2.
We're here to present and answer your questions on division 2 of part 4, clause 103 of the budget implementation act, which introduces the proposed borrowing authority act. This act authorizes the to borrow on behalf of the crown and provides for a maximum amount of borrowing.
In budget 2016, the government restored parliamentary approval of government borrowing, which was last in effect prior to 2007. In budget 2017, the government proposed to implement this framework by introducing legislation seeking parliamentary approval of government borrowing.
Under the proposed borrowing act, Parliament is being asked to approve a borrowing limit. A requirement is also proposed for the government to return to Parliament at least every three years to report on the government's aggregate borrowing relative to the limit and potentially to propose a new limit, if needed.
Relative to the current framework, whereby the Governor in Council approves the flow of government debt only for the current fiscal year, the proposed borrowing authority act adds transparency to Parliament by focusing on the stock of debt—the overall level of debt of the government. The new borrowing authority act also amends the accountability to Parliament by introducing the requirement that the reporting be on government debt as well as the crown corporation debt. Basically, we're not only including the federal debt, but also looking at the crown corporation borrowing.
As presented in clause 103, in proposed section 4 of that borrowing act you can see that the limit currently being asked for this year is one trillion, one hundred and sixty-eight billion dollars. Let me explain to you how we got to this number.
Basically, the first number that we take into consideration is the stock of government debt. As of the end of the last fiscal year, the fiscal year 2016, the stock of the federal debt was $691 billion. To this number, we add the agent crown corporation market debt. This number is $276 billion. To this stock of debt, we add the financial requirements set out in budget 2017 for the next three fiscal years. This number is $103 billion. On top of this, we add the expected crown borrowing over the next three years. This number represents $43 billion.
To this number, we add a contingency margin equal to 5%. The 5% is taken from the highest level of the combined government and crown corporation debt over the next three years. The amount we're adding is $56 billion for the next three years.
Overall, this explains the one trillion, one hundred and sixty-eight billion dollars of borrowing approval that we have included under proposed section 4 in clause 103. It should be noted that in terms of increasing borrowing requirements, we're talking here about an increase of $146 billion over the next three years.
This concludes my summary remarks.
:
That's what I thought. Very good. We'll have to be very careful when we refer to you, since the difference between your last name and the minister's is only one letter. We'll have to be mindful of that.
Mr. Moreau, I'd like to start by touching on two issues.
In relation to the debt, you listed a slew of figures that may come as a surprise to some, but not to us. The debt is beyond the billions, if you take into account all the elements.
What kind of strain does an amount like that put on public finances? Keep in mind that, for years, we have repeatedly been hearing that things are going well and that interest rates are low, with the caveat that those rates could eventually rise. What is the risk and danger of having over a trillion dollars in debt? As an aside, I would just point out that the French term for “trillion” is not the same as in English. The right term in French is actually billion. The English term “billion”and the French term billion are often used incorrectly. Be that as it may, for the purposes of our conversation, let's use the word trillion in French.
The debt currently exceeds $1 trillion. According to a Department of Finance study that was sent to the minister on October 10 but not made public until a few hours before Christmas, if the situation remains unchanged, by 2050, Canada's debt will sit at $1.5 trillion, and that doesn't include crown corporation debt.
I'd like you to discuss the risks that such a debt poses to public finances.
:
First of all, I'd like to clarify something about the three-year time frame I was talking about.
The government of the day can decide to adjust the borrowing limit every year, if it wishes. Under the proposed measure, the government would have to return to Parliament at least once every three years to have the limit adjusted, but the government has the discretion to do it every year, if it wants to.
The budget also sets out the strategy for managing the debt. By including those numbers in the budget, the government is accountable to Parliament and the public. Every year, a debt management report is also published; it lays out all the costs associated with servicing the debt.
Turning back to the matter of the economic forecasts, I would say it's far from an exact science and particularly challenging right now, mainly because of market uncertainties. We can't control what happens in the world. We have seen numerous shocks in recent years, and that has complicated the business of economic forecasting.
To arrive at our forecasts, we consult about 15 private-sector economists and take the average. We also ask them to list the risks associated with their projections, from both an upward and downward standpoint. That is why our forecasts include a contingency reserve.
It's not an exact science, and Canada isn't the only one adjusting its budget forecasts, either. All industrialized nations do the same. The IMF and OECD revise their forecasts quarterly.
It bears repeating: it's not an exact science. We do our best, but the market uncertainties make our job a lot more complicated.