Third Reading of Bill C-47, Budget Implementation Act, 2023, No. 1

By: The Hon. Clément Gignac

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Hon. Clément Gignac: Colleagues, I rise today to share my thoughts on Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023. Given that we are at third reading stage and about to rise for the summer, I will keep all of my thoughts on the state of the Canadian economy to myself. I also want to thank Senator Loffreda for his restraint because it means I will be able to give my speech before dinner. We will wait until we come back in the fall to talk about the economy.

As our colleague, Senator Mockler, already mentioned, the Standing Senate Committee on National Finance, of which I’m also a member, held eight meetings and devoted nearly 14 hours to an in-depth study of the bill. We heard from some 74 witnesses. That may seem like a lot, but this is a huge bill with dozens of regulatory tax initiatives, some of which, quite frankly, should have been introduced in separate bills. In fact, an observation to that effect was made by the committee, which finds the practice to be unacceptable.

Before addressing my discomfort with the retroactive tax measure contained in this budget, let me share with you my concern about the rapid increase in the size of the federal government in recent years.

The best way to illustrate this rapid expansion of the federal government is to point out the actual number of employees in the public service. From 2016 to 2023, the public service workforce grew from 340,000 to nearly 425,000 full-time equivalent, or FTE, employees. That means it grew by 25%. Even more troubling is the increase in payroll, which has risen by 70% over the past seven years. As Parliamentary Budget Officer Yves Giroux pointed out, this dramatic rise can be attributed to the growing number of programs brought in by the federal government in recent years.

Another way to illustrate how the federal government has grown in size is to express budgetary expenditures as a percentage of gross domestic product, or GDP. As an economist, I find this method even more relevant because it offers the advantage of taking into account population growth and inflation, and it facilitates comparison over time. If we exclude debt servicing, budget spending can be grouped into three broad categories. The first is transfers to individuals, such as Old Age Security, or OAS, and EI. The second is transfers to the provinces, and the third is government operating expenditures, also known as direct program expenses.

In my opinion, the category we ought to pay the closest attention to when referring to the increase in the size of government is the last one, operating expenditures. Indeed, these expenditures increased from 6.6% of GDP in 2016 to 8.1% of GDP in the last fiscal year. However, during this same period, transfers to individuals and to the provinces remained relatively stable, about 4.1% to 3.1% of GDP respectively.

It should also be noted that the national defence sector included in the federal government’s operating expenditures is not the cause of the increase of the size of the federal government since 2016 since the ratio of military expenditures to GDP has remained relatively flat for seven years, around 1.3% — a figure still very far from the official 2% target recommended by the North Atlantic Treaty Organization, or NATO.

On this subject, despite a full chapter in the budget dedicated to Canada’s leadership in the world, I was very surprised to find out last spring, after examining the budget document, that the national defence budget will still be around 1.3% of GDP five years from now. As a member of the National Security, Defence and Veterans Affairs Committee, I find this a little awkward, especially with the new geopolitical context since the invasion of Ukraine by Russia.

Honourable senators, I am also very disappointed with the absence of a budgetary anchor in the 2023 budget. Contrary to what was observed after the 2008-09 financial crisis, the current government has not committed yet to return to a balanced budget or shared any precise calendar to return to the previous federal debt-to-GDP ratio seen before the pandemic. More disturbing is the fact that the federal debt-to-GDP ratio will increase from 42.4% to 43.5% over the next year despite an economy running at full capacity. The government is content to reiterate its intention to reduce the debt-to-GDP ratio over the medium-term.

According to several experts, the federal government’s lack of fiscal restraint has helped stimulate economic activity, making the Bank of Canada’s job of controlling inflation more difficult. Honourable senators, the government and certain other observers have argued that Canada has the lowest ratio of net public debt to GDP of all G7 countries and a triple-A credit rating. That’s right.

However, senators should know that this top position is largely due to the significant financial assets held by our public sector pension plans. Here in the Senate, we keep hearing over and over that their operations, including those in tax havens and in certain autocratic nations, are at arm’s length from the government.

Colleagues, I don’t want to linger on these two concepts of net public debt and gross public debt, because that might eat up the rest of my speaking time. I’m sure that, with Senator Marshall and Senator Loffreda, I’ll have the great pleasure of doing so in the fall.

However, everyone agrees that one notion illustrates the weight of public debt, that of debt servicing, which has gone from seven cents per dollar of recorded revenue before the pandemic to roughly 12 cents for this year. What’s more, this rate will likely go up since it’s based on the assumption that the interest rate will be lowered below the 3% mark as early as next year. Fortunately, we’re far from the 38-cent rate we saw in the mid-1990s, a time when Canada was at risk of being placed under the stewardship of the International Monetary Fund, the IMF. However, that shouldn’t be an excuse for being complacent or nonchalant.

Honourable colleagues, I’m also very skeptical about the fiscal projections set out in Budget 2023 regarding a gradual reduction in the deficit and the size of government. First, unlike the good governance practices put in place by former Liberal finance minister, the Right Honourable Paul Martin, and maintained almost every year by the various Liberal and Conservative finance ministers who followed since the mid-1990s, this budget doesn’t set out a contingency reserve. Simply put, if the Bay Street economists, who all agree, are wrong about the direction of the Canadian economy and the country goes into a recession, then the budget deficit for the current year will go up because there’s no emergency cushion or contingency reserve.

Second, Budget 2022 created expectations by announcing the launch of a comprehensive strategic policy review to assess program effectiveness and identify opportunities to save, but, oddly enough, there’s no further mention of that in Budget 2023. As the Parliamentary Budget Officer said, and I quote:

Aside from proposing to reduce spending on consulting, other professional services and travel, Budget 2023 does not identify opportunities to save and reallocate resources “to adapt government programs and operations to a new post-pandemic reality” . . . .

In the absence of any exhaustive review of programs by the Treasury Board, I have some doubts about the projected spending reduction five years from now to get back to the 2016 level of 6.6% of GDP. I believe that this figure will be revised upwards with the implementation of the future dental insurance and drug insurance programs, not to mention the pressure to be exerted by the Pentagon and our other NATO allies to finally commit to the 2% of GDP target for military spending.

Colleagues, as a final point, I’d like to talk about the tax measure — which is retroactive to boot — that really upset me. Senator Loffreda has already spoken about it. It has to do with certain provisions in clauses 114 to 116 of Bill C-47 that make payment card clearing services subject to GST retroactively. This is a technical measure that hasn’t won much sympathy from the public, because it affects financial institutions.

As pointed out by the Canadian Bankers Association, the Desjardins Group and even the Canadian Bar Association, the legitimacy of the government’s decision to introduce new tax rules in the budget isn’t in dispute. Rather, it’s the retroactive nature of this measure that’s problematic.

This saga began in 2015, when CIBC decided to formally challenge, before the Tax Court of Canada, CRA’s interpretation that these clearing services were administrative, not financial, in nature. Accordingly, these services would be subject to the GST. Based on the testimony we heard, the fact that the federal government lost in Federal Court in January 2021, didn’t appeal to the Supreme Court and came back 26 months later with a retroactive measure is unprecedented. This sets a dangerous precedent, as mentioned by the bill’s sponsor, Senator Loffreda, whose perseverance and leadership I commend.

Honourable senators, despite everything I told you, despite my reservations and my disappointments, I will support Bill C-47. My discomfort with the last fiscal measure I talked about earlier was the subject of an observation presented by the committee, and not an amendment.

Let’s clarify, for new senators, that bills related to the budget, unlike other bills, are rarely amended.

The last time an amendment to a budgetary bill was accepted was in 2016. My colleague Senator Harder must remember, since one of the measures clearly interfered in Quebec’s jurisdiction with respect to the Consumer Protection Act. It was the government representative in the Senate who proposed this amendment on the suggestion of the Minister of Finance following pressure from Senator Pratte and the Government of Quebec. It is possible, but rather rare, for amendments to be made to budget implementation bills.

In conclusion, honourable senators, I’d like to take this opportunity to put both current and future governments on notice: my support for budget bills is not unconditional. During the pandemic, I supported this government’s emergency measures to keep the country from sinking into a recession because I felt it was the right thing to do.

However, I believe that the authorities would be well advised to adopt fiscal anchors soon to avoid fuelling inflation before they implement expensive new social programs like pharmacare and dental care, especially since these are under provincial jurisdiction.

As a former politician whose face once appeared on campaign signs, I’m well aware that we, as senators, don’t have the same legitimacy as representatives in the other chamber. I accept that. I don’t miss it. However, the Senate is an institution of sober second thought that is now made up mostly of independent senators from all walks of life. Their qualifications are the envy of the boards of directors of many large Canadian corporations.

Moreover, we now have a minority government holding on to power thanks to an alliance with a third party. This situation demands vigilance on our part because many initiatives didn’t necessarily get the support of a majority of Canadians in the last election. In fact, some weren’t even on the governing party’s platform.

This independence from a political party and this freedom of speech prompted several of us to apply to join the Senate to work together in the interest of Canadians. In my humble opinion, the current or future government and Canadians in general should be delighted with senators’ intellectual independence, even if it sometimes causes delays because of in-depth studies by committees and proposed amendments. After having heard the wise comments made by Senator Shugart in this chamber, I recognize that we’re definitely in uncharted waters. I’m counting on him and all of you, esteemed colleagues, to guide me in carrying out this role of second sober thought, while believing that there’s added value in my sitting in the Senate and commenting on Bill C-47.

Thank you for your attention.

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