I call this meeting to order. This is the 89th meeting of the Standing Committee on Finance. Orders of the day are pursuant to the order of reference of Tuesday, October 30, 2012, continuing our study of Bill .
Colleagues, we have two panels with us this afternoon. In our first panel, the first organization we have is the Bank of Canada. The second organization is Canadian Manufacturers and Exporters. We have the Certified General Accountants Association of Canada, the Public Service Alliance of Canada, and we have TSGI-Chartered Accountants.
Welcome to all of you. Thank you for being with us this afternoon. You each have five minutes for your opening statement.
We'll start with Mr. Turnbull and we'll work our way down the row. Then we'll have questions from members after that.
I guess I'd better hurry. Thank you very much, Mr. Chairman, and honourable members of the committee. The Bank of Canada is very pleased to appear before the committee today. What we've been asked to talk about to assist the committee are the amendments in part 4, division 3 of Bill . These are the amendments to a piece of legislation that I'm sure keeps you up late at night called the Payment Clearing and Settlement Act .
What I'd like to do is deliver a fairly brief opening statement. It is a fairly technical topic. I tried to be as clear as I could. Then I'd be pleased to try to answer your questions about these particular amendments.
I will begin in French.
At the 2009 G20 Summit in Pittsburgh, the leaders agreed that standardized over-the-counter derivatives contracts should be cleared through central counterparty clearing systems, by the end of 2012.
A central counterparty is a financial market infrastructure that stands between buyers and sellers in financial transactions, ensuring that obligations will be met on all contracts cleared through the CCP.
By managing and mitigating counterparty credit risk, central counterparties have the potential to reduce systemic risk, both globally and in Canada. They reduce the potential for financial shocks to be transmitted through the financial system and enable markets to remain continuously open, even in times of stress.
About a month ago, Canadian authorities reconfirmed their G20 commitment to central clearing and indicated that Canadian participants in the derivatives market can respect this commitment by clearing derivatives contracts through the global, cross-border clearing systems that are currently being developed in the United Kingdom and the United States.
Regardless of whether derivatives are cleared through a central counterparty in Canada or abroad, Canadian laws will be applied to determine the rights and obligations of Canadian participants and their customers. It is therefore important for financial stability in Canada that the transfers of assets among central counterparties, Canadian participants and their customers for the clearing and settlement of derivatives transactions be protected from possible legal challenges in the event that a Canadian participant were to become insolvent.
The main statute in Canada for protecting clearing and settlement systems from legal challenges in the event of the failure of a participant is the act that we're dealing with here, the Payment Clearing and Settlement Act, or as we call it, the PCSA. The PCSA gives the Bank of Canada responsibility for the regulatory oversight of clearing systems that could pose systemic risk. The PCSA also provides a number of important legal protections for these systems. In particular, it ensures that the rights of a clearing house to be paid, to settle transactions and to deal with collateral deposited by participants will not be stayed or unwound under the insolvency statutes if a participant defaults.
The purpose of these protections is to ensure that a clearing house will be able to exercise its legal rights to settle the system within a reasonable timeframe following a default and that it will have sufficient rights in the assets deposited by participants to ensure that the clearing house itself is not brought down by a failure of one or more participants, thereby propagating systemic risk.
The PCSA was enacted in 1996 primarily to address systems that settle payment obligations. While it's been updated since that time to provide for the clearing of securities and derivatives, many of the legal protections in the act are worded in a way that they simply do not apply to the clearing of derivatives contracts. For example, the protections for enforceability of settlement rules in section 8 of the act are limited to clearing house rules that provide for the calculation, netting or settlement of payment obligations. It's doubtful whether these necessary protections extend to the clearing of derivatives contracts and the transfers of collateral and other assets that support derivatives clearing systems.
To sum up within the time that I have, the purpose of these amendments is simply to fix up the wording of the PCSA so that the legal protections that it provides clearly apply to the type of clearing that goes on in these now all-important central counterparty systems for clearing derivatives.
I'll add one final point. This has a competitive aspect as well, because currently Canadian banks that were very active in the derivatives markets are restricted from participating in some of these offshore CCPs because of the concerns of those CCPs and their regulators about potential gaps in Canadian law.
Thank you very much, Mr. Chair, and members of the committee. Thank you for inviting us to appear today on Bill .
CME represents about 10,000 manufacturers and exporters across the country who account for 80% of Canada's manufacturing production and over 90% of all exports of goods and services. Innovation and productivity are obviously two increasingly important drivers of manufacturing growth in industrialized countries, and Canada is not an exception.
In the last 10 years, Canadian manufacturers have had to cope with increased competition from developing markets combined with a very rapid appreciation of the Canadian dollar. The only sustainable strategy in the long term is a stronger focus on innovation and productivity. From that perspective, I'll focus my remarks today on the proposed changes to the scientific research and experimental development tax credit, the SR and ED, which is, for our members, the most important issue in this legislation.
The Canadian manufacturing sector, despite representing now about 14% of Canada's GDP, accounts for 55% of all business R and D expenditures in Canada. It is by far the most R and D intensive industry in the country. Roughly half of SR and ED users are actually manufacturers.
Last week, CME published a special report on the economic impact of the proposed changes to SR and ED on business innovation in Canada. The first conclusion is that proposed measures will result in a net diminishment of R and D performed in Canada. We estimate that all proposed measures by the government will reduce R and D tax incentives in Canada by $750 million a year starting in 2016-17. To give you an idea of the size this amount represents, it's 5% of all business R and D expenditures in Canada last year. In our sector, according to our latest management issue survey, 69% of manufacturers will reduce R and D spending while another 20% will start looking at other jurisdictions to conduct R and D activities as a result of these changes. We estimate that the full impact of these changes on actual business R and D expenditures in Canada will be approximately $1.5 billion every year.
Our report also compared the generosity of the R and D tax credits for large companies in different countries. The international competitiveness of our R and D tax credit will fall from number 13 to number 17 in the OECD as a result of the 5% proposed reduction in the tax credit.
The budget also proposes to completely eliminate capital expenditure from the tax base. Again, no other sectors of our economy will be impacted as much as the manufacturing sector, which tends to have more capital intensive R and D activities. While on average in the overall economy only about 5% of all R and D expenditures are related to capital, in our sector it is more than 30%.
Our report compared the fiscal treatment of capital expenditures related to R and D in other countries. The vast majority of countries studied provide either a tax credit or a rapid depreciation rate, such as the U.K., for example, for capital expenditures related to R and D. Again, our international attractiveness as a destination for R and D will decrease.
Another change in the budget was the reduction of the proxy used for claiming overhead costs under the SR and ED program. By proposing to reduce the proxy from 65% to 55%, the government estimates that the proxy is too generous, and that reducing it would best reflect the actual overhead costs of companies. We have not seen any evidence or analysis provided by the Department of Finance that suggests this is really the case. We rather believe that the use of the proxy has to do with the simplification of the claim process, as suggested by the Jenkins panel in their report. Therefore, the government should proceed with a full analysis before making a change that will make more companies turn to the traditional method of claiming overhead instead of using the proxy. We think this will increase compliance costs for companies, and it will also add a burden on CRA's auditors. That was also a key recommendation of the Jenkins report.
In conclusion, there are three ways of looking at the impact of these proposed changes on business R and D. In terms of actual dollars, as I said, changes would reduce business expenditures in R and D to an estimated $1.5 billion a year once all the measures are implemented. In terms of taxation of large companies, the negative impact of the 5% reduction in SR and ED exceeds by far all the benefits that resulted with the corporate income tax, CIT, cuts that have taken place at the federal level since 2008, if you look only at the large manufacturers.
In terms of international competitiveness and our capacity to attract foreign investment from large R and D performers, our ranking would decrease from number 13 to number 17. Even more importantly, all the major developing countries such as India, China, Turkey, and Brazil will now offer more advantageous R and D tax credits, according to our report.
We are making three main recommendations that will mitigate the negative impact of these proposed changes.
The first one is to provide more direct support to large companies by way of a partially refundable tax credit that would be targeted at projects related to enhance productivity. The second one is to allow companies to more rapidly depreciate the cost of machinery and equipment used for R and D purposes. The third one is to conduct a more detailed analysis of overhead costs and the use of the proxy before implementing the 10% reduction.
Thank you very much for your time. I'm available to respond to questions.
Mr. Chair, members of the committee, my name is Carole Presseault. I am the Vice-President of Government and Regulatory Affairs of the Certified General Accountants Association of Canada, an organization that represents over 75,000 CGAs across Canada. We are happy you invited us to participate in your study on Bill .
This is a very large bill. Much of its content is of considerable interest to our members. However, my comments today will focus on two main aspects—the Agreement on Internal Trade, which is covered in division 14, and the tax system.
Our comments today will concern two specific measures related to the Agreement on Internal Trade contained in division 14 and measures regarding the tax system. The measures included in division 14 implement financial penalties and enforcement provisions to support the decisions of panels that are formed to adjudicate disputes between parties to the Agreement on Internal Trade.
I've skipped a page, I'm sorry. I'm going to come back.
These measures implement changes to the Agreement on Internal Trade, which were agreed to by federal, provincial and territorial governments over the past few years. Let me remind you that the purpose of the Agreement on Internal Trade is to reduce, and where possible, eliminate unnecessary barriers to interprovincial trade and labour mobility.
It's not a perfect agreement and the Committee on Internal Trade was formed to ensure the agreement continues to meet its objectives and to improve the agreement that was signed more than 12 years ago. Implementing the measures in division 14 is a demonstration of the federal government's commitment to comply with the obligation under the agreement.
The measures contained in the bill before us implement financial penalties and enforcement provisions to support decisions of panels that were formed to adjudicate disputes between parties. These measures address a serious flaw. Prior to this, there was little incentive for governments to comply with panel rulings, as we discovered through our own experiences.
By the way, it's also worth noting that until the measures in division 14 are enacted, the Canadian government has lost its right to access the AIT's dispute resolution provisions. We support the measures contained in the bill, but we know there's so much the Committee on Internal Trade can do to further improve the agreement, particularly to improve the efficiency and accessibility of the dispute resolution process.
The process is a long and costly one, and citizens cannot access the process independently of government. Also needed are improvements to the AIT governance that would enable more stakeholder engagement and improved transparency. However, we are encouraged that ministers have agreed to develop a chapter on technical barriers to trade. This is a problematic issue in the approach to trade both interprovincially and internationally, and success in this area would help advance two of the government's priority issues in increasing international trade and reducing red tape.
The timing couldn't be better to address these issues. In December, the federal government will become chair of the Committee on Internal Trade and will have the opportunity to drive the agenda. We encourage the government to seize this opportunity to make the agreement a truly effective tool for strengthening the economic union.
Committee members won't be surprised to hear us talking again about taxation. We note with interest that part 1 of Bill implements a number of income tax measures and related measures proposed in the March 2012 budget. Measures that we've had the opportunity to comment on in previous processes include the registered disability savings plan, and as my colleague Mr. Lavoie mentioned, the SR and ED tax credit, and of course, international taxation. Many of these measures stem from the work of advisory panels, for example, the Canadian System of International Taxation, and the SR and ED measures from the Jenkins panel.
This leads me to highlight once again the importance of expert advisory panels in advancing change to public policies. I'm confident that members would agree with us, given the recommendations in last year's pre-budget consultations.
I want to talk about a measure that we did not see in the 2012 budget which continues to be a priority for our members and for taxpayers everywhere. It is the issue of a sunset provision to ensure that tax changes are enacted within a reasonable period of time after being introduced in a budget.
Today, you focus your efforts on improving policy changes announced in budget plan 2012, but we need to remember there are still hundreds of tax measures from previous federal budgets that still have not been enacted. We would encourage the consideration of the application of a sunset clause to ensure the coming forward of these amendments in a reasonable period of time.
I'd like to remind you that the short title of the bill is the jobs and growth act, 2012. We submit that removing barriers to internal trade and mobility and taking steps to simplify Canada's tax system are critical to jobs and growth, and Canada's long-term prosperity.
Thank you. I would be happy to answer any questions.
Mr. Chair and committee members, thank you for allowing me the opportunity to present to you this afternoon.
My name is Chris Aylward. I am the national executive vice-president of the Public Service Alliance of Canada. We represent approximately 170,000 federal public sector workers.
The Public Service Alliance of Canada has major concerns with the latest budget implementation bill, Bill . Many of these legislative changes will have a drastic impact on Canadians and should not be rushed through Parliament without time for careful consideration, scrutiny, and debate.
My first comments are on the proposed changes to the federal public sector pension plans. These unilateral changes include increasing the normal retirement age from 60 to 65 for new hires beginning in 2013. PSAC opposes Bill because it is an attack on younger generations who make up the majority of new hires in the federal public sector. The increase in the retirement age will generate a two-tier system, creating inequities between young and older workers in the public service, forcing younger workers to retire at an older age. The public service pension plan is sustainable, and there is no reason to penalize young workers. Members of this committee should also be aware that the Canada pension plan and Quebec pension plan payments are integrated with federal public service pensions, and that the average annual pension received by retired federal public sector workers in 2011 was $25,991. PSAC calls on the government to focus on strengthening pensions for all Canadians, instead of weakening pension plans and retirement security for those dedicated to public service.
I also want to touch on a change to the Canada Revenue Agency Act contained in Bill . I speak from a very personal advantage on this. This change will put the agency back under the authority of Treasury Board to oversee CRA's negotiating mandate, as well as certain terms and conditions of employment. This is a serious step backwards. Not only does the change in authority contradict some of the very reasons for creating the agency in the first place, it undermines a decade of hard work by the PSAC and the agency that have been put in place to develop effective labour relations. In fact, during the last two rounds of negotiations, both parties put considerable effort into reaching a settlement with the agency before the current collective agreement had expired. This is a first in the federal public service.
The PSAC has other concerns about Bill that echo much of the criticism being expressed by environmental, scientific, and aboriginal groups, and individual Canadians. I will not address these other concerns due to time constraints today; however, I will be providing the clerk of the committee with a short summary of our additional concerns for your information.
We believe Canadians are not well served by omnibus bills. Bill should be broken down into individual pieces of legislation so that parliamentarians and all Canadians have ample opportunity to study and understand the consequences of the proposed changes.
Before I close, I will take a few moments to reiterate our concern about significant changes to programs and services that affect the livelihoods, environment, and safety of Canadians, changes that are being made without transparency, and without hearing from those who depend on the services. Search and rescue and coast guard stations are being shut down, despite the pleas to reconsider coming from coastal communities. Veterans Affairs district offices are being closed across the country, including the one and only office in Prince Edward Island, located in Charlottetown. Case loads are almost doubling, despite the desperate situation faced by our veterans. The Department of Fisheries and Oceans' budget and fisheries habitat staff are being cut, yet the recently issued report of the Cohen Commission of Inquiry into the Decline of Sockeye Salmon in the Fraser River reaffirmed the importance of restoring the Department of Fisheries and Oceans' mandate and resources to protect fish habitat.
We believe there is a need for more transparency about the scope and impact of all planned cuts to federal services and programs, and a need to listen to Canadians being affected.
Thank you very much. I look forward to your questions.
Good afternoon, Mr. Chairman and committee members.
By way of introduction I'd like to make a few comments about my background as it relates to SR and ED and R and D funding.
I have more than 30 years as a chartered accountant, with a computer science degree and an MBA. In the past I was a full-time faculty member at the University of Calgary and taught the most recent SR and ED courses for the Institute of Chartered Accountants of Alberta. For the past 10 years my practice has consisted of about 10 qualified scientists and CAs who focus solely on the SR and ED area, serving multinational corporations as well as small corporations, mostly in western Canada.
I believe I have a unique multidisciplinary outlook on SR and ED. I am from the trenches. I've also worked with the National Research Council's industrial research assistance program, IRAP, and our firm was the company that submitted the first successful shale gas technology claim in Canada. I've served as the inaugural chairman of the joint CRA and industry information technology oversight committee for the SR and ED prairie region. I am an active participant as an angel investor in western Canada, both through direct investments and also through membership in Venture Alberta, which is reputed to be one of the most active venture forums in Canada. This provides me with further insight into the technology start-up community.
To begin, I would like to summarize the overall impact that we anticipate the changes proposed in Bill will have on SR and ED performers at the ground level.
Our company has gone through a detailed modelling process to simulate the SR and ED impact of the 2012 budget on our clients, who should be considered to be a cross-section of western Canadian companies. We did this because the microeconomic nuances of how policy decisions affect individual organizations are not always visible from a macroeconomic viewpoint. Our conclusion is that Canadian-controlled private corporations, or CCPCs, are likely to experience a 5% to 10% reduction in investment tax credits, whereas non-CCPCs—those are the big ones—can expect more drastic reductions, on the order of 30% to 40%.
The industry consensus communicated to us both by our clients and by contacts is that the reductions in the SR and ED benefits will unquestionably reduce their overall ability and willingness to conduct research in Canada and will reduce jobs. This should be a concern for all Canadians.
I am also particularly concerned about the impact of the proposed changes on the energy industry, which will have effects nationwide. The implications can be extrapolated to numerous industrial sectors in Canada over the long term.
The primary story of oil and gas in Canada is no longer a story of wildcat wells and exploration uncertainties. It is primarily a technology story, that is, of using new technology to unlock unconventional resources that were previously inaccessible. This fundamental shift is highlighted by the fact that in 2010 oil sands production overtook conventional oil as the leading production method in Canada, with 51.9% of production. The technology needed to turn unconventional resources into producible reserves and a contribution to our GDP is extraordinarily sophisticated and extraordinarily expensive, with sourcing requirements that reach beyond Alberta's borders.
Every day we see Canadian energy companies taking enormous risks to develop new technology. The largest spenders in oil and gas research are most commonly in the non-CCPC category, and they will be the hardest hit by the reduction in investment tax credits. In particular, the reduction in the general ITC rate from 20% to 15% and the elimination of capital expenditure deductions will severely impact these organizations.
In our view, the impact these changes will have on the energy industry warrants re-evaluation of the proposed policy changes. We believe that public innovation policy is best delivered in an indirect form that organically results in leveraging industries in which Canada has a natural advantage in developing, commercializing, and exploiting technology.
There are few other industries in Canada that have advantages such as we have in the energy sector. We are world leaders now and we need to stay there to protect Canada's economic future. We need to enhance our competitiveness in this increasingly technological field to build world champions. Reductions to the SR and ED program will dramatically alter the positive path that we are currently on in the energy industry along with many sectors upon which the industry impacts.
Lastly, I would like to comment on the critical issue of how the proposed changes will affect jobs in Canada.
R and D performers in western Canada tell us that they will react to the concerns outlined above by reducing their research efforts in Canada. This has already started to happen. Research capital is highly liquid, and these companies are not afraid to redistribute their funds to other jurisdictions. They also recognize that we are locked in a global war for talented innovators and that they must either initially attract and then keep our innovators in Canada or go to where these individuals are.
We are deeply concerned that the net effect of the proposed SR and ED changes will be the loss of high-value innovation jobs. This will have significant and long-term negative effects upon our global competitiveness.
Thank you for this opportunity.
I want to do a brief summary of the SR and ED, but then I have some specific questions for Ms. Presseault.
I was on the Red Tape Reduction Commission. To be quite frank, as we travelled across the country, I don't think there was one table where we sat that people didn’t complain about the complexity and onerous requirements of the SR and ED credit. It was a whole market industry in itself.
Certainly, the Jenkins report was a very important one. It was an expert panel. I understand they're going to be taking some of the money that was in this program that is complex and very difficult to weave one's way through. It's not being taken out of innovation and that area, it's just being redirected.
Ms. Presseault, in the past, did your members have any comments and concerns on the complexity of this particular program? It’s funny to hear now that it's such a great program when I heard everywhere that it was flawed and had many challenges.
I could go on for many hours, not on SR and ED as much as on the internal trade agreement. We have a lot of experience. We've been directly involved with three challenges brought under the dispute resolution procedures of the Agreement on Internal Trade. Two were person-to-government challenges, and one was government-to-government, where the provinces of B.C., Alberta, Saskatchewan, and led by Manitoba, took a dispute on our behalf against measures in Ontario. To summarize quickly, it prevented our members from being mobile across provincial jurisdictions. In our experience, until these changes were proposed, there was no enforcement mechanism. There was no hammer. There was nothing to make the government that was found to be in contravention of their engagement to internal trade to be brought to account, and implement the panel findings.
Over the last several years, I mentioned that the committee on internal trade made a number of improvements. That was essentially around the issue of monetary penalties, which are on a sliding scale for smaller provinces like P.E.I., for example, with a $250,000 fine, to large provinces like Quebec, Ontario, and B.C., with fines in the $5-million range.
We think now we have a stick. There's another stick that is less mentioned because the focus is always on monetary things. It's one of loss of dispute resolution privileges if one fails to implement panel findings. We find that to be an equally important stick. In June, the committee brought those changes forward to the other aspect of person-to-government challenges. There are still a lot of issues around accessibility of the agreement for citizens, for parties, to be able to take disputes forward without government's approval.
Generally, this is a positive move. Enforcement was the key thing. We still have to resolve things around the issue of accessibility.
I want to say, Ms. Presseault, that the intervention and need for tax reform is clear and should be something—you've intervened previously in our pre-budget consultations—that we take very seriously. Plus, the grey areas in our tax system that are created by this space in time between the introduction in a budget and the actual implementation through legislation I think are very important. This is something that we should consider as part of our pre-budget consultations.
Monsieur Lavoie and Mr. Cudmore, you've made compelling interventions today on the importance of SR and ED. We have with us today Ted Hsu, who is the member of Parliament for Kingston and the Islands and is also the Liberal critic for science and technology and an expert in all things SR and ED.
I was interested, Mr. Cudmore, in your remark that you had done some simulations on the effect of the changes in SR and ED on your client base, and also in your statement that a lot of the view from the ground out west often isn't seen in Ottawa. It seems, if I have it right, that you're telling us that folks here in Ottawa are not seeing that jobs in oil and gas companies will be affected because the cuts in SR and ED will reduce the incentive to do research and development. Also, because that is a world-leading sector of Canada's economy, indirectly that will affect jobs in all of Canada.
I think I have it right, but I want to ask, are you sure? You have a limited client base; it's mostly companies in western Canada. Do you have any evidence, other than what you find from your client base, that would apply more generally?
To follow up on Ms. Nash's questions, I will address Mr. Lavoie.
You mentioned in your analysis that, for businesses, the cost of the changes to scientific research and experimental development tax credit would be about $660 million. However, when department representatives appeared before us, I compared your figures with those they gave us. They said the cost would be about $500 million.
What is that $160-odd-million difference due to?
I have had a number of meetings with your organization. As a matter of fact, I had a meeting with four of your associates, and I have to say that really wasn't brought up. I understand that is an area of concern, but for instance, it's been mentioned that the lack of SR and ED will have an enormous impact, and I'm sure Mr. Jean will deal with that, on the oil sands, but most of our testimony does not show that as being the biggest issue.
The biggest issue is workers and the fact that there's an incredible lack. We've heard that not just from the organizations involved in pipelines and oil extraction and all those things but also from the colleges. I'm looking for the quote, but I know that the Association of Canadian Community Colleges said that attracting skilled workers would be our greatest challenge.
The other thing we heard from your organization was that ACCA, the accelerated capital cost allowance, was paramount and seemed to have a great impact for success in your industry.
I could go on. There's more. I was just looking for some more quotes. I think we heard mention too about red tape reduction. Again, I know the bill deals not only with that, but those have been the measures that our government has been most active in pursuing. I have found that your organization has been most supportive of that, and although SR and ED is an issue and it is something we're struggling with, it wasn't the primary issue. Could you elaborate on that discrepancy?
Thank you for your question. I'll speak from personal experience because I've sat on five bargaining teams with PSAC across the table from CRA.
Since the inception of the agency in 1999, the labour relations have been steadily increasing in a very good way to the point that, when we come to the bargaining table with the agency, we know that we're negotiating with the agency and not some faceless, nameless person down the street. When we sit across from the representatives from the agency, that bodes very well in respect to the trust, as well as to the union-management relations that we take away from that.
As I said, during the last two rounds of bargaining, in 2007 and 2010, we reached tentative agreements prior to the expiration of that current agreement, and that's hardly ever seen. It was the first in the federal public service and it hasn't been seen since. Unfortunately, what's happening now, or what's going to happen, is that the staff relations, the union-management relations in the agency are going to deteriorate for sure.
Thank you, witnesses, for attending today.
I'm very interested in talking a little more about SR and ED.
I have done some research online and I have actually come across some people who indicate that they are experts at SR and ED. R&D Partners, for instance, say that they have a reputation and track record as a leading Canadian independent R and D tax adviser that has been in business for over 10 years, has successfully filed over 1,000 projects and $100 million in R and D tax credits, has a comprehensive and thorough understanding of the current R and D tax rulings, and an excellent relationship with federal and provincial tax authorities across Canada.
Are you individuals familiar with this particular company, R&D Partners? It's on the web. It's one of the first three hits that come up. I just wondered. They seem to indicate that they have an excellent track record. They have successfully filed over 1,000 projects and $100 million in R and D tax credits. It seems to me that there are experts out there who seem to know what they're doing, and I am not one of those people.
I want to confirm my understanding of the changes to the SR and ED program. The total pot of money is going to remain the same. In fact, my further understanding is that some of your groups have lobbied for more direct funding before and fewer SR and ED credits. Is that fair to say, Mr. Lavoie, that there's more money going to direct funding? My understanding is that any savings from the SR and ED program will not go back into general revenues. They're going to be used to directly fund initiatives that SR and ED would have gone for. Is that fair to say? The money is not being reduced.
Also, the cost effectiveness of the program is going to be improved through a number of actions. For instance, the SR and ED overhead expenditures will be reduced from 65% to 5% of the salaries and wages of employees.
That's correct. I see you nodding your head, Mr. Lavoie.
In fact the profit element will be removed for arm's-length third party contracts for the purpose of calculation of SR and ED tax credits. That's correct. You are nodding your head again, Mr. Lavoie.
Finally, the general SR and ED investment tax credit will be reduced to 15% from 20%. That's correct.
There are some measures that have been moved. In fact the predictability of the SR and ED program will also be enhanced with some things I don't have time to talk about today, but you're obviously familiar with some of those.
Wouldn't you suggest that the government is moving in the right direction on the initiatives that you're asking for?
The concern of the official opposition is the impact that will have on young people, because they are facing two-tier pensions. It won't be long before they're facing two-tier wages, I would suspect, sir.
Mr. James Infantino: That's correct. It wasn't too long ago that we used to pay women differently for exactly the same work. As I say, that seems to be a direction that perhaps we're going in with respect to this in terms of young people.
Mr. Wayne Marston: I already have significant concerns about young people and the crippling debt they're coming out of university with now.
Mr. James Infantino: Absolutely.
Mr. Wayne Marston: That's really all I have on pensions.
Mr. Turnbull, I'll turn to you for a second, sir.
When you were referencing derivatives in 2008—I am far from expert on that situation—it struck me that when the catastrophe happened in the United States, there was kind of a free-wheeling attitude going on down there. They were bundling derivatives and they knew the mortgages were not good. They knew in back of all of this....
Canada did very well during that time. Was that because we weren't invested in derivatives? What was the reason?
Thank you, Mr. Chair, and welcome to the witnesses.
I'm going to start by asking about a few measures we haven't talked about that are in Bill . I think it's important that we get your input on those as well.
I'll start with Mr. Lavoie. You and I have had an opportunity to talk about some of the things our government has done in the past, in the hopes of creating jobs and helping businesses. These are things like the decrease in the GST, the corporate tax decreases, limiting the EI premium to 5¢ instead of 15¢, not opting for doubling of CPP as proposed by the NDP, not going to a 45-day work year that would cost businesses. For the most part, I know that your organization was very supportive of those measures to help your businesses. I appreciate that. I see you nodding your head. Hopefully that means it is still the case.
In this bill, there are a couple of measures I haven't heard you speak to, so I would like to give you an opportunity. On the accelerated capital cost allowance for clean energy generation equipment, I'm wondering if you can tell us how that investment would help your businesses. Is it a good measure in Bill ?
Actually, we had officials in.
I was quite surprised to hear that 534,000 companies took advantage of the hiring credit that was in place before, and so we're extending that. It saved them about $205 million which they were able to obviously reinvest in other places: R and D, innovation, or anything else. It's up to them, but it's money saved.
As for the PRPP measures, there was a lot of discussion when the PRPP bill first went forward. Now that we're trying to finish up with the PRPPs, have your companies voiced an opinion on that? Do you have any stories to tell about whether you think that's a great measure or not?
We think the RDSP is excellent. We've participated in consultations leading up to the proposals included in budget 2012, and absolutely, on the surface, we think this is a very positive impact. Of course, we would like to see things go a bit further. We recommend, for example, rollover options for RSPs. Right now, our rollover options are just for RESPs. We've heard back from some of our members who serve that community very well.
As constructed now, the RDSP poses some challenges. It is inaccessible, I would say, for those individuals who become disabled at an older age in life. For example, for those who are
living with multiple sclerosis or
muscular dystrophy, it would not be helpful, but on the surface, yes, it's a good step.
That's certainly what I hear universally from businesses.
I want to read a couple of statements from the budget document with respect to the findings of the Jenkins panel which found:
||Relative to peer countries, Canada has an over-reliance on tax incentives in the mix of federal support for business research and development compared to direct expenditures that support innovative firms and public-private research collaborations.
The budget document set out the key recommendations of the Jenkins report, one of which is:
||Shift resources from indirect support through the Scientific Research and Experimental Development (SR&ED) tax incentive program to direct forms of support, including the Industrial Research Assistance Program.
The budget document went on to state:
||Economic Action Plan 2012 begins to deliver on this commitment, announcing $1.1 billion over five years for direct research and development support and making available $500 million for venture capital.
The logic here is fairly clear. We have a program. The single largest federal program supporting business R and D in Canada is the SR and ED program. It provided over $3.6 billion of taxpayer funds in 2011. The rationale is to move some of that taxpayer support to more direct funding programs like IRAP.
As both of you gentlemen know, governments have to make decisions in terms of opportunity costs. We can't fund everything. Money doesn't grow on trees in Ottawa. We have to make decisions. The decision was made to move some of that very generous taxpayer support for R and D from indirect support like SR and ED into direct programs like IRAP.
Do you disagree with that overall approach? Give me your reaction as an organization and as an individual.
We'll start with Mr. Cudmore and then go to Mr. Lavoie.
Could you do the same, Mr. Cudmore, if you have any information the committee could consider? Of that big, broad public policy debate, we as parliamentarians have to justify to taxpayers, including the Canadian Taxpayers Federation which is in the room right now. The $3.6 billion is an awful lot of taxpayer money. The Jenkins panel came out with a specific report, which you two disagree with, but then you have to argue your case with very specific examples in terms of what types of innovations have actually happened as a result of business investment, as a result of the SR and ED program.
I'd like that information from both of you, okay?
I call this meeting back to order.
This is the 89th meeting of the Standing Committee on Finance. We are continuing our study of Bill .
For our second panel this afternoon, I would like to welcome four individuals.
First of all, representing the Canadian Federation of Independent Business, Ms. Corinne Pohlmann, welcome to the committee. We also have a second organization, the Canadian Labour Congress, with Ms. Angella MacEwen. Welcome to the committee. We have Mr. Gregory Thomas from the Canadian Taxpayers Federation. Welcome. We are expecting Mr. Albert De Luca, partner with Deloitte & Touche.
You each have five minutes for an opening statement, then we'll have questions at the end of the last statement.
We'll start with the CFIB.
Thanks for the opportunity to be here today. CFIB is a not-for-profit, non-partisan organization representing more than 109,000 small and medium-sized businesses across Canada who collectively employ more than 1.25 million Canadians and account for $75 billion in GDP. Our members represent all sectors of the economy and are found in every region of the country.
The focus of my remarks will be on three provisions of Bill that are important to small business owners. They are the EI hiring credit, pooled registered pension plans, and changes to public sector pensions.
You should have a slide deck in front of you that I would like to walk you through in the next few minutes.
Measures that address barriers to small business growth are very important as they, more than anything, will help Canada's overall economy and job creation.
As you can see on slide 2, payroll taxes have, by far, the greatest impact on growth. Why? Because they are a tax on jobs. It must be paid regardless of any profit. This is why EI remains a key issue for us and it is why we continue to push for the extension and expansion of the EI hiring credit for as long as EI rates continue to go up, as they did in 2012 and will again in 2013.
Very recently, we asked specifically about the EI hiring credit and found that almost two-thirds said it was somewhat or very effective in helping to—
I did provide a presentation to them.
The EI hiring credit was seen by 64% as being somewhat or very effective in helping them to maintain or strengthen business performance. It does this by offsetting at least some of the EI premium increases when businesses grow their payroll. This is especially important for smaller firms who tend to be more sensitive to these kinds of cost increases. While small business would prefer to see EI premium rates frozen, the EI hiring credit does provide some relief to the smallest firms.
However, I want to mention that we have some concerns with the suspension of the Canada Employment Insurance Financing Board Act and the dissolution of the board. We understand and support the need to cut costs, and it makes sense to suspend the board's operations while it has nothing to do. However, our interest has always been that there be an EI account independent and separate from general government revenues, so that surpluses that accumulated in the past, to the tune of $57 billion, could never again be spent on other government priorities. While we understand the practicality of suspending the board's operations, we insist that EI continue to be treated as an account separate from general revenues.
The next part of Bill that is of interest to small business relates to provisions intended to create pooled registered pension plans. This is important as the majority of small business owners don't have a retirement plan for themselves or their employees. Why is that? Most small business owners will tell you that having a retirement savings plan is too expensive and too complicated to administer.
We believe that PRPPs will start to address some of those issues. We recently asked small business what features they would find most attractive in a PRPP. We found that giving employers a choice, keeping costs low, having no payroll taxes on the employer contributions, and minimizing the paperwork were all equally important. In theory, with this framework in place, PRPPs should address these issues to some degree; however, it will be up to the provinces and financial institutions to make it attractive to small firms. The good news is that just over one-third would consider offering a PRPP and another 30% might become interested once they have more information. Offering more options for retirement planning is welcomed by CFIB and our members.
The last provisions of Bill that I want to focus on are changes to public sector pensions. We welcome these changes, as they start to address some of the unfairness and unsustainability of public sector pensions. Let me illustrate why this is a concern for small business owners. More than half, 58%, of small business owners said they did not feel they had sufficient disposable income to take advantage of the various retirement savings options available to them.
Furthermore, more than half do not believe that they will be able to retire comfortably until they are well past the age of 65. Contrast this with the fact that in the last five years, nine out of ten new federal public sector pensioners retired before the age of 65 with guaranteed retirement incomes. Much of this is being paid for by those very same taxpayers who cannot afford to put money toward their own retirement, partly because they have to pay taxes to help pay for government pensions.
Last year, CFIB launched a pension campaign calling for greater transparency of public sector pension liabilities and fairness for taxpayers. Over the last year we have collected over 55,000 action alerts from small business owners concerned about the state of Canada's public sector pension system. Many of you have likely received these in your offices. These small business owners are particularly concerned with the sustainability of the federal pension plan, as it has an unfunded liability estimated to be somewhere between $140 billion and $220 billion.
We're pleased to see that Bill will start to address these issues by gradually moving federal public sector workers to a 50-50 split in contributions from their current 37% share. This will also bring the federal public service more in line with most of its provincial counterparts. This measure was well supported by small business owners.
We also support the provision of Bill that will move the retirement age to 65 for new employees as of 2013. Many other organizations, including federal agencies like the EDC and Bank of Canada, have also made changes to address their pension issues by providing a different type of pension plan to new employees that includes increasing retirement age to 65. It is good to see the federal public sector is also moving in this direction. We believe that these provisions are a good start in addressing some of these issues.
All the provisions I have discussed here are important to small business. As such, we would want to see them implemented as soon as possible.
On behalf of the 3.3 million members of the Canadian Labour Congress, we want to thank you for this opportunity to present our views regarding the 2012 budget implementation bill.
The CLC brings together workers from virtually all sectors of the Canadian economy, in all occupations and in all parts of Canada.
Bill , division 22, proposes to temporarily suspend the Canada Employment Insurance Financing Board, the CEIFB. The suspension of the CEIFB makes sense, as it was constrained in setting rates by subsection 66(7) of the EI act, which limited rate increases or decreases to 0.05% of insurable earnings.
The CLC never agreed with the CEIFB as it was established, because it failed to include input from premium payers who are employees and employers.
In past submissions to the government and to parliamentary committees, the CLC called for a separate employment insurance account, governed by an EI commission or similar body, established at arm's length from the federal government. Similar to the CFIB, we are concerned with the surplus that was taken. We argued that the EI account and any surplus funds placed in a reserve fund or premium stabilization fund should be used only for EI purposes.
The fact that the EI program is paid for by employer and worker premiums has not been adequately reflected in the governance of EI finances. If we consider the $57 billion that was taken from the account without the consent of premium payers, the account would be in a surplus position right now. The government would be less concerned about cutting back EI programming, and EI would be more effectively performing one of its key roles as an automatic economic stabilizer.
When the CEIFB is reinstated, the premium payers, who are the employees and employers, should have closer input into the premium-setting process, and effective joint control with the government over the management of any reserve funds and the use of any surpluses.
As well, we want to comment on how the EI financing system now in place is not operating in an appropriately counter-cyclical way.
Even though the federal government directly covered the cost of the EI measures in Canada's economic action plan, including the cost of the premium freeze during the recession, training benefits, work sharing, and the temporary five-week extension of regular benefits, the EI operating account went into deficit because of the large increase in the cost of regular EI benefits caused by an increase in the national unemployment rate from about 6% before the recession to a high of 8.6% in 2009 and continuing high unemployment since the worst of the recession. It's been at about 7.4% for the past year.
Premiums were frozen rather than reduced during the worst of the recession, and are now rising during a very weak recovery. While premium revenue is forecast to exceed EI expenditures in 2012, it will have to continue to do that in order to pay off the deficit of $9.2 billion that was in the EI operating account at the end of 2011.
The stage is set for continuing premium increases for several years in order to eliminate the accumulated deficit. Again, this is the case notwithstanding the huge EI surplus that was accumulated before the recession.
We believe the federal government should pay into the segregated EI operating account an amount equal to deficits in the account incurred from 2009 until such time as the account is segregated, and should cover any future deficits incurred in the account until such time as the national unemployment rate falls below 6.5%.
I would also like to speak to an unexpected tax change in Bill . Bill C-45 clarifies the taxation of RCAs, closing an unintended loophole. At the same time, Bill C-45 extends pension-splitting to RCAs.
Budget 2012 states:
||Under the Income Tax Act, a retirement compensation arrangement (RCA) is a type of employer-sponsored, funded retirement savings arrangement. RCAs are normally used to fund the portion of a higher-income employee's pension benefit that exceeds the maximum pension benefit permitted under the Registered Pension Plan (RPP) contribution limits.
This is effectively a tax break for wealthy seniors that will have very little benefit for most Canadians. Pension income splitting provisions do not benefit unattached seniors, who are 30% of all Canadians over the age of 65 and who are those most vulnerable to poverty, and there is no benefit to senior couples whose income is so low that they already pay no income tax.
The amount of tax savings from pension income splitting depends on the income level, so the small proportion of affluent seniors receive the largest reductions, with the majority of middle-income seniors seeing only a modest reduction, if any. This is especially true of allowing pension splitting on RCAs, into which many seniors will not have had the resources to contribute.
As well, different types of pension splitting have different impacts. Allowing spousal RSPs encourages the higher earning spouse to transfer the funds into the control of the lower earning spouse. Allowing the splitting of pension income for tax purposes reduces the couple's tax burden in the current year, but does not require funds to be shared with the lower earning spouse. An example of where this might matter is in the case of subsequent divorce, or the death of the higher earning spouse. Where pension splitting was encouraged via spousal RSPs, the lower earning spouse is far better off than in other forms of pension-splitting.
A thorough gender-based analysis of the budget and budget provisions, such as GBA+, as outlined on the Status of Women website, would illuminate the differential gender impact of such apparently gender neutral policy decisions.
Mr. Chairman, we appreciate the invitation of the committee to appear today.
The Canadian Taxpayers Federation is Canada's largest taxpayer advocacy group, with over 70,000 supporters from coast to coast, and 22 years of history advocating for less government, lower taxes, and more accountability from our elected officials.
We welcome the reforms contained in Bill as they apply to public sector pensions. We believe that increasing the retirement age for new hires to 65 is a good first step toward making government employee pensions at the federal level more sustainable. We salute members of all parties for taking leadership by reforming their own pensions and speeding that legislation to royal assent. It was a long multi-decade slog for us, and you folks managed to get the job done in 48 hours when the chips were down. That was inspiring to watch.
With regard to pensions, if you look at C.D. Howe Institute's estimates and the public accounts, you see that unlike the Canada pension plan, the government employees' pensions are completely funded out of general revenues. There are no pension funds set aside to secure the retirements of Canada's federal government employees. We believe that Parliament needs to have a serious look at this.
The government was able to put the Canada pension plan on a sustainable basis. Through reforms to old age security, by raising the retirement age to 67, and by giving people an incentive to stay in the workforce until age 70, you're also putting old age security benefits on a more sustainable basis. We think you need to look at this for government employees.
With regard to EI, we have a lot of sympathy for the arguments made by the Canadian Labour Congress. They rightfully feel that to have $57 billion of employment insurance funds snafued by government in order to apply them to deficit reduction is a shocking and upsetting development. The seizing of these notional pension surpluses in the 1990s falls under the same banner. We think that parliamentarians, people with their feet on the ground who have to go home on the weekend and explain all of this to their constituents, need to be very wary of actuarial assumptions and projections, notional surpluses, and these deficits that arise. When you move away from having individuals save for their own retirements, innocent people are subject to the manipulations of government and the financial system, and it doesn't serve anyone.
With regard to the EI funding, we note that for every employee up to the average industrial wage, employers and employees who are fully in the system pay over $2,000 combined into the EI fund each year. Many people will never claim against the EI fund, and yet you have entire regions of the country where people are multiple claimants, claiming more than three times in the last five years. It's particularly unfair in the Ontario labour market, where it's very difficult for most people who are working to even qualify for EI. We ask why you don't set up a plan similar to the Canada pension plan, where employees and employers contribute to a rainy day fund that individual workers can access directly.
I apologize for not having a document handy, but I was invited yesterday to attend. There is a submission from Deloitte, which was filed on September 13.
My opening remarks relate to the R and D incentives program. I am the Canadian leader of the global incentives and investment attraction for Deloitte. I also preside over the board of the Quebec Industrial Research Association, l'ADRIQ. It's in this capacity that we're in contact with industry right across the country. I wish to reflect industry's view on the changes proposed in relation to SR and ED.
We think we need to position the incentives discussion in the wider discussion of innovation investment attraction or preservation. R and D incentives certainly serve to help increase productivity. We would agree with that, but R and D should also serve to increase economic wealth by creating the next generation of technologies.
Canada is attracting natural resource investments. Unfortunately, the related innovation investment is not being made, or at least not entirely. Canada, therefore, is not as attractive compared with the rest of the world in its strategy of attracting, preserving, or creating the next large technology company.
Canada's SR and ED regime has been widely viewed as an important positive factor in encouraging innovation investment in Canada. We believe that the proposals to reduce government support make Canada’s incentive regime less attractive than those of competing countries that are improving their incentive programs. In fact, Canada’s ranking in tax incentive generosity has already declined from third to fifth for small companies, and from ninth to thirteenth for larger ones, from 2008 to 2012.
With the changes announced in the budget, we anticipate that these rankings, especially for large companies, will drop even further. Our recent post-budget survey of Canadian companies confirms that reactions to the reduction in government support through the SR and ED program have generally not been positive and suggest that Canada’s R and D tax regime will be less attractive after the changes.
In our view, the elimination of incentives for capital expenditures does not recognize that capital investments are needed to perform R and D and that certain industries will be put at a disadvantage as a result of this measure. The software industry, for example, requires computers and related equipment in order to undertake R and D. Rather than completely eliminating all capital costs, we recommend that the government distinguish between short-term capital expenditures, such as computers and related equipment, and longer term ones, and treat the short-term capital expenditures in the same manner as material costs would be treated, as eligible for SR and ED credits.
In addition, rather than introducing a broad elimination of eligibility of capital expenditures for SR and ED, we recommend the introduction of a limitation process. For example, an approach similar to that for shared use equipment could be considered. Alternatively, the proposals could introduce a cap on the amount that would qualify.
Should the proposals relating to capital expenditures be retained, we would recommend that the draft legislation be refined to introduce greater certainty. I won't go through the series of notes in respect of the drafting itself, but there are a number of them that create some uncertainty as they relate to the legislation as currently drafted.
As we noted in our pre-budget 2012 submission of October 2011, we believe that Canada’s R and D tax regime should be improved by allowing the tax credits to be at least partially refundable for all businesses, as is the case in many countries and in Canadian provinces. The U.K., for example, has decided not to eliminate the program, but to make the tax credit entirely refundable for all companies. France is doing the same.
I will begin with Ms. Pohlmann.
The tax credit for hiring is an interesting measure. We are talking about $1,000 for each new employee. That money comes from the employment insurance fund. We often heard that about 530,000 businesses took advantage of tax credit in 2011. Yet there weren't 530,000 new jobs created in Canada—if we are talking about net numbers—in 2011. That's what I have a problem with. I asked the department representatives who appeared whether the businesses that took advantage of that tax credit had hired and retained employees over the whole year. They told me that was possibly not the case.
Tax credit is very attractive for businesses, but as far as job creation goes, do you really think that each of the 530,000 businesses who benefited from that measure retained their employees over the course of the whole year?
Our members fundamentally believe that the overall public sector pensions and compensation should follow what's in the private sector. I think when you look at similar positions, especially at the mid-level, there are certain advantages to working in the public sector over working in the private sector. One of the big areas is that of benefits, specifically pension benefits.
These changes were a great start, but we would like to see, and we'll need to push for, such things as looking at defined contribution plans, perhaps extending the retirement age to 65 for all government employees over time, similar to how the OAS changes are being implemented. The changes wouldn't necessarily impact people who are close to retirement now, but perhaps would impact those who are still maybe 15 to 20 years away from it instead of only affecting those who start in 2013. Those would be a couple of things.
We also believe things like the bridge benefit might be something to be looked at. Those are some of the things that are just not available in the private sector that perhaps need to be looked at a little more closely in the public sector.
We have about 75,000 supporters.
We note that only about 12% of Canadians outside of government now have a defined benefit pension plan.
We believe that salaries, benefits, and retirement savings should be competitive for government. The government has to hire qualified staff if they want good staff. They want them to be well compensated, but they shouldn't make more than the rest of us do.
We think one of the ways governments have attracted employees is by offering all these back-end benefits that look cheap to government. They say that they will pay people less now, but they'll have pension benefits.
There are over 100 members of the Ontario teachers' pension plan who are at least 100 years of age. There are over 1,000 who are at least 90 years of age. There are 10,000 who are at least 80 years of age. The Ontario teachers have compiled great statistics, but the average retirement age this year was 59. Many of these people will be retired for longer than they actually worked as teachers.
That's the trap government is falling into by offering guaranteed indexed income for life to people starting when they are as young as 55. It's terrific that you're moving to start to deal with that. We think you should put things on more of a cash basis. Maybe pay your staff what you need to get them to work for you, but don't offer them benefits 40 years down the road that the rest of us can't afford.
Thank you, Madam Chair.
I'd like to begin with Ms. Pohlmann. Under Bill , the 2012 hiring credit does not factor in the 2011 hiring credit calculations. The calculation under Bill C-45 is based on employers' 2011 EI premiums before the hiring credit. As a result of that, for instance, a small company with 10 employees, earning $39,000 each in salary, would pay premiums of $9,445 in 2011. In 2012, that would go up to $9,718. Would you acknowledge that small businesses, even those that qualify for the 2012 hiring credit, would still see their EI rates go up by 7¢ per $100 contribution in 2012 compared to what they paid in 2011?
I'm going to be focusing my questions primarily on Ms. MacEwen, but we've had some agreement here that surprised me a little. Ms. Pohlmann, when you talked about how the 2015 deadline for taking care of the deficit should be crowded out to 2017, you publicly agreed with the NDP.
Mr. Thomas, you talked about the need for pensions among your group. I agree with you. Twelve million Canadians don't have pensions. I just want to point out my perspective. That may or may not be accurate in Ms. Pohlmann's case, and I can see my friend here is going to proceed a little further on that.
Going to Ms. MacEwen, the reason I raised the pension issue is we have a national pension plan now that the CLC has been promoting an increase to. That to my mind is a way of addressing the problem with less of a complication than the PRPPs. Ms. Pohlmann's right in that there are concerns about whether or not the industry or the provinces will go forward on the PRPPs. At least one province says they don't want to; I think it was Ontario. That may change with the change of leadership. The issue of pensions is obviously very present on everybody's mind.
Having raised that particular point with regard to the increase of CPP, it is a well-known stated position of the CLC and the NDP as well, so I don't think we have go into that and I'll shift gears. It's just that when I heard what sounded like some agreement, I wanted to raise that. I've heard rumours that some folks in the CLC were concerned about the provisions of EI funding that you see in this bill.
I have a connection going back and I should label it. The CLC has 3.3 million members. It was established in 1883. For 14 years I was a president of the labour council in Hamilton.
My point is that the CLC has had a long history of advocating for workers, and in this case we have concerns about EI that I'd like you to address.
Thank you to all the witnesses for being here today. I have a couple of questions about employment insurance.
EI is a benefit that most people hope they will never have to claim because it's designed to help transition someone when they face the catastrophe of job loss. Sadly, we are in a situation today when only about 40% of Canadians who are in the situation of unemployment are able to get these benefits.
I heard the first three witnesses today, Ms. Pohlmann, Ms. MacEwen, and Mr. Thomas, talk about the money that was shifted from EI premiums that were paid by individuals and employers to government use for general revenue. We had a bit of a discussion about this yesterday. Officials from the government said that this was just an accounting change and it did not mean this money was actually taken out of the EI fund.
I wonder if any of you would like to comment on that. I had a different perspective on it, but that's what the government officials told us.
Ms. Pohlmann, I too am a big fan of your organization. I was a member from 1985 when I first got into business myself. I understand a lot of the things. I filled out all those surveys as well. As Mr. Jean said, I experienced a lot of the frustrations that a lot of business people feel today.
Mr. De Luca, your organization is the third largest in the world. You must do some work for governments. Without asking you to give state secrets, have your actuaries looked at some of the pension plans, possibly not the Canada pension plan, but some in the U.S.A. and other countries to see how viable they are? Is there a running tally on some of these?
Mr. De Luca, a little earlier, a number of witnesses came to talk to us about the scientific research and experimental development tax credit. They said that the measures taken by the government were not beneficial for the manufacturing sector, among others, and that the sector was going to experience job losses because of the loss of investment.
We have also heard from the government side that one of the reasons behind the measures contained in Bill is to reduce red tape.
red tape reduction.
However, as someone said, this does not help to accomplish that.
Can you tell us what the impact is on the manufacturing sector? Why are the people you are representing opposed to the measures taken by the government in terms of the cuts?
Certainly what we heard, too, is that the capital component is most complex.
Mr. Thomas, to move toward pensions, I always remember a conversation I heard as a fairly young adult. I think there was a teacher, a physician, and someone who ran a small business. Certainly the physician was complaining about having to take care of his own retirement. The teacher was making comments regarding both his wages and retirement, having a defined benefit pension plan. I can still clearly recall the small business person indicating that of course he was paying for both, and was struggling.
First of all, in terms of defined benefit programs, how does the federal government pension plan compare to municipal or some of the provincial public service plans?
In government pension plans, when you look at accrual rates, the 2% accrual rate is common.
Many municipal plans permit spiking. They use sometimes as few as the last three years of earnings, so you have what they call a sprint to the finish line where you get 50 police officers suddenly working overtime and doing a lot of court duty. In Ontario they show up on the sunshine list with these big incomes way in the six figures. That plays a big role in establishing the retirement rate they're going to enjoy for the next 10, 20, 30, or 40 years.
The Government of Canada, by taking steps to rein in some of these things and provide for a later normal age of retirement, is going a long way to reducing its exposure. It needs to go further, but I think it's been estimated the reforms included in this bill are going to save Canadian taxpayers a couple of billion dollars, perhaps $2.6 billion. We applaud that.