Good morning and thank you, committee members, for giving me the opportunity present on behalf of the Canadian Convenience Stores Association. My name is Alex Scholten, and I'm president of the association.
The Canadian Convenience Stores Association is a trade organization that represents over 26,000 convenience stores operating in Canada that employ over 230,000 people from coast to coast to coast. Many of these stores may be small businesses, but together we contribute significantly to Canada's economy and serve at the centre of many communities. To give you an idea of our economic footprint, Canadians purchased over $51 billion in goods and services from members of our industry last year alone. These sales resulted in over $18 billion in taxes collected for both the federal and provincial governments. We're also significant employers to new Canadians, providing newcomer entrepreneurs an opportunity to own and operate their own small business.
When I presented to this committee during the pre-budget period, I highlighted two priority areas for our association that fall under the purview of the Minister of Finance. The first was the impact of excessive merchant credit card fees and the second was the persistence of illegal untaxed tobacco that is sold throughout Canada. These are two very important issues for our retail members.
Lower credit card merchant fees will have a positive impact on small businesses, allowing them to employ more people and make capital improvements in their businesses. It also offers a potential benefit for consumers, as it will allow these businesses to offer more competitive pricing. Conversely, the persistence of illegal tobacco in Canada undermines the work of our law-abiding retailers who sell legal tobacco in a controlled, regulated manner to consumers who are of age. We are government's partner in the controlled and regulated sale of these products.
We're very pleased to see mention of both of these issues in the report tabled by this committee ahead of the budget, and we would like to thank committee members for their attention to our issues during these consultations. Admittedly, we were disappointed that there was no mention of these measures to fight illegal tobacco or cap merchant credit card fees included in the 2016 budget.
As Canada's tobacco landscape continues to change, addressing contraband and counterfeit tobacco products is critically important for our law-abiding retailers, for governments that benefit from the taxes on these products, and for Canadians in general because the contraband and counterfeit markets support organized crime and undermine Canada's tobacco control strategies. In the face of additional proposed changes to tobacco regulation, including flavour restrictions as well as plain packaging, more must be done to address the already robust illegal tobacco industry operating in Canada.
It is very important that members of this committee understand the impact that changes to these regulations will have for our retailers, for government tax revenue, and for the safety and security of Canadians in general. For example, our association is aware of several illegal tobacco outlets operating in Canada that are retailing at least 30 different types of menthol tobacco products that are now restricted in many provinces. These products are sold without required taxes and are non-compliant with Health Canada regulations. The variety available is actually far greater than the amount of legal, taxed menthol tobacco products available for customers in our stores across the country.
As the government considers banning menthol tobacco products in Canada, it is important to draw attention to the lack of resources present to fight Canada's robust illegal tobacco trade. Banning these products for our retailers will not remove them from the store shelves of illegal retailers. This, ultimately, undermines the intention of the ban to begin with. We are hopeful that situations like this will be taken into account in future budgets.
Since the tabling of the budget, there has been productive movement on the issue of credit card merchant fees. It is no secret that merchant credit card fees in Canada are amongst the highest in the world and have risen sharply over the past number of years. As committee members may be aware, there is presently a private member's bill before the House of Commons that proposes to lower or cap merchant credit card fees.
The Small Business Matters Coalition—a group of 24 business trade associations, including the Canadian Convenience Stores Association, which represents in excess of 98,000 small businesses operating in Canada—is supportive of this bill.
We're hopeful that members of this committee will consider lending their support to this bill once it comes up for a vote in the House.
As a final note, I'd like to draw attention to the commitment made to lower the small business tax rate to 9%, which is slated for budget 2017. This is a measure that Canada's convenience stores would greatly benefit from. Having lower business taxes would free up revenue for our stores to invest in improving their business, training employees, and offering the best possible service to customers. We look forward to seeing this change made as part of the next federal budget.
We appreciate the opportunity to present to this committee and look forward to continuing to work with you on behalf of small businesses in Canada.
I'll gladly take any questions from the committee members.
Thank you so much for the opportunity to be here. We are thrilled to be in front of the finance committee to share with you a few views from small and medium-sized firms about the budget and the budget implementation. Just as a reminder, CFIB has 109,000 members across Canada. All of them are small and medium-sized independently owned and operated businesses, none of them publicly traded corporations. Of course, we represent our members on a variety of public policy issues; finance is obviously quite high on that list.
The total tax burden is right at the top of our members' priorities. That is followed by government debt and deficit, and then government red tape and regulations. Progress has been made on some of these issues, but more progress is needed definitely on others.
I did want to start with the small-business corporate tax rate, because I represent a lot of very puzzled small-business owners right now. We were thrilled, in the election campaign, when all four national political parties, starting with the NDP, committed to reducing the small-business corporate tax rate from 11% to 9%. After the NDP first made the promise, the Tories then put it in the budget and legislated the commitment to the 9% rate. We were thrilled when now endorsed that policy and committed to that policy dozens and dozens of times on the campaign trail. , the leader of the Green Party, also committed to do the same. So you can imagine our surprise on budget day when we heard that, “Budget 2016 proposes that the small business tax rate remain at 10.5 per cent after 2016”. We're very pleased that the new government did move forward on the first quarter of that commitment to reduce it to 10.5%, but many small-business owners are deeply upset that the government has now chosen to abandon that promise with no prospect for reinstituting it whatsoever. In fact, as you see on slide 5, the very best advice that small-business owners give the government in terms of what would help them strengthen their own business performance at this rocky point in our economy is to reduce the current federal small-business corporate income tax rate. That was the number one suggestion from small-business owners in advance of the budget.
We've been trying to figure out why the government did this. Some reasons have been floated. I have to say, after meeting with several cabinet ministers, and many MPs of all parties, there has been no suggestion as to why the government chose to take this action. Some have suggested that small businesses are now categorized in the mind of the government as being in the category of the rich. I just wanted to draw your attention to slide 6 that shows that the average income of small-business owners resembles very much that of the general public. There are four times more small-business owners earning less than the low-income cut-off than there are those earning $250,000 or more, a definition of the rich.
Another theory that we explore on slide 7 is that the small-business deduction sometimes traps small businesses and they don't want to grow beyond that $500,000. When you look at the number of medium-sized firms in Canada, that might stand as a theory. But what slide 7 shows is that while there is a little bit of a crystallization—a small bump of businesses around the $500,000 threshold—the vast majority of businesses are way under that threshold, many of them earning under $50,000 a year in their business. We remain puzzled by this, and we would love if through the committee presentation we could explore why the government chose this action.
I will say a second issue that we're very serious about right now is the passive income rule. Right now we have members—campgrounds and self-storage facilities in your ridings across Canada—that are losing access to the small-business corporate tax rate because they have fewer than five employees. Through a weird interpretation, the government is now considering small firms with fewer than five employees in these sectors as being too small to access the small-business corporate tax rate. We did get the previous government to commit to reviewing this policy in the 2015 budget. The 2016 budget says that the review is over and the current rules stand, and now we have campgrounds and self-storage facilities that are being audited. Many of them suggested they will go out of business because they are being reassessed by the CRA. We need some help in terms of clarification on those issues.
The third issue I wanted to raise is the cancellation of the youth hiring credit. One of the things we loved about the government's platform was the idea that small businesses would have employer premiums on EI waived for 2016, 2017, and 2018, and that would help them hire youth between ages of 18 and 24. That was the promise.
That too appears to be scrapped and replaced with a committee to study youth employment. I'm not sure that we're going to get any new youth hired in Canada by creating yet another committee. I do want to remind the committee that small businesses will in fact see their employment insurance rates go up slightly in 2017 at about the worst possible time that one could imagine.
Finally, we are very worried that the finance minister has made a personal commitment to increase the Canada Pension Plan in the year ahead and said that 2016 will be the year that a deal is delivered.
I do want to say, though, that we really do encourage you to resurrect the Emmanuel Dubourg's private member's bill on business succession. That was a bill that he introduced in the last Parliament as a PMB. We love that idea. Bill would allow small-business owners to transfer their businesses to their children without incurring huge capital gains. In fact, many businesses say that it is more cost effective for them to sell their business to a stranger than it is for them to pass it on to their kids, and we provided some background in our document to explain why that's so powerful.
So I do urge you to reintroduce Emmanuel Dubourg's bill at the earliest possibility.
Thanks so much.
Good morning, Mr. Chair and committee members. I thank you, on behalf of the Canadian Wheat Board Alliance, for the opportunity to be here this morning. I can say that it is a special honour for me to appear before a committee that my own member of Parliament, Mr. Ouellette, is on. I appreciate that. Thank you very much.
I make this presentation on behalf of the Canadian Wheat Board Alliance, a voluntary prairie-wide group of farmers, in place of Mr. Ken Sigurdson, who was invited but is unable to attend.
Farmers continue to deal with the fallout from the dismantling of the Wheat Board.
Section 38 of Bill , budget implementation act, 2016, gives us a window into that process. Now, if you have had a look at section 38 and the provisions relating to the tax treatment to be accorded to certain instruments that are being issued in relation to the Wheat Board, you will understand my next comment.
Section 38 is a tangled mess of verbiage, maybe the most tangled I have seen in the 40-plus years since I started law school, and I say that with the greatest respect for the drafters in Justice, the Canada Revenue Agency, and so forth who crafted this. I am sure the provision does what it is intended to do in a competent and efficient way, but I want to get on to talking about the underlying units that whole section deals with.
On November 2, 2011, the then Minister of Agriculture, Gerry Ritz, appeared before the legislative committee on Bill , which had just been introduced in October, and proposed to dismantle the Wheat Board, effective the following August 1.
At that time, Mr. Ritz stated, in answer to a question from Mr. Valeriote, “Mr. Valeriote, I fully believe in the strength of farmers. Yes, they will elect their own board after the interim period. After the interim period, where we control it as a government, yes, they will elect their own board, should they decide to do that.”
I have a copy of the transcript from that portion of that hearing, if anyone wants it.
Much has transpired since that date.
The government removed the farmer-elected directors a few weeks after Mr. Ritz made this statement, in mid-December, 2011, and the former government operated the Wheat Board behind that veil since. No financial information relating to the operations of the Wheat Board after July 31, 2012 has ever been released. Nothing has ever been released.
The government-controlled board even had a hand in finalizing the Wheat Board's annual report for the 2010-11 crop year.
Then, on April 15, 2015, Minister Ritz announced that the Wheat Board was to be transferred to a joint venture of Bunge Canada and Saudi Agricultural and Livestock Investment Company (SALIC), called G3. You can see their website, g3.ca.
This brings us back to section 38 of Bill .
G3 has promised to issue to farmers delivering to it wheat, in addition to the purchase price that is negotiated, $5.00 in trust units for each tonne of grain delivered to it. G3 will pay nothing for the Wheat Board and its many assets to government or to farmers, except for these trust units. That's it. That is all. There is a lot of value there. That is all anyone in Canada is receiving.
Section 38 deals with the applicable tax laws governing these trust units.
Now, what are these trust units?
A portion of order No. 7163, issued by the Manitoba Securities Commission on July 24, 2015, is attached to this submission. I have just taken pages 20 to 23 and attached them to the submission I have made to members. I have a copy of the entire order here, if anyone wants that.
This is all that farmers are getting. Not only are these trust units exempt from security laws, but farmers receiving the units must agree that they “will not have any statutory rights of action in the event of a misrepresentation”.
The only thing we're getting are these pieces of paper and, if there's a misrepresentation made somewhere along the line that induces someone to do business and they get this piece of paper and it doesn't pan out well, they have no statutory rights and no securities law protections with respect to these pieces of paper. The whole thing with these trust units is that they're exempt from registration. See section (j), which is on the second page of that attachment.
It is because of this total veil of secrecy relating to the operations of the Wheat Board—not a single number since August 1, 2012—and the uncertain value of the trust units—remember, you have no right to sue even if you're fooled into a transaction that gives you one of these things—that we recommend and urge in the strongest possible terms recommendation 48 of the final report of the House of Commons Standing Committee on Finance regarding its consultations in advance of the 2016 budget, and that recommendation reads:
||The federal government provide Western Canadian grains and oilseed farmers with a full and transparent accounting of the disposition of the Canadian Wheat Board’s assets since the Marketing Freedom for Grain Farmers Act received Royal Assent, and of the effects on the grain handling and marketing system since that time.
I submit to you that this review needs to be done externally, and it needs to be done by people who know what they're looking at. It almost needs to be a forensic sort of review; it cannot be the typical whitewash review.
Thank you very much, Mr. Chair and committee members.
It's such a pleasure to be here with you today on behalf of the Chamber of Commerce, a network of 200,000 businesses across the country that have a lot of interest in the budget and a lot of questions about it. I think business is really excited about the budget, and it's because a lot of the things that they're most interested in are soon to come. The infrastructure phase two and the export corridors are absolutely critical to getting our products to market. We've seen a big surge in exports in the last year in manufacturing, and a lot of Canada's road supports, airports, and infrastructure are under pressure. We really appreciate that.
The innovation agenda that's soon to come is an amazing opportunity that we're excited about. Canada already has high public expenditure on R and D. We're one of the highest in the OECD, but where we lag is in commercialization, and that's why there's a role for private sector innovation through venture capital incentives and maybe through a patent box where, if you develop a patent here in Canada, you would be taxed at a much lower rate.
Other things that were soon to come in the budget that we talked about were the review, reform, and re-examination of tax credits. That line in the budget caught our attention. We think it's a great idea. We've been talking about tax simplification for years. I remember tax accountants telling us that the tax code is very complicated, and when tax accountants are telling me that things are complicated, probably it's a challenge.
I want to definitely emphasize Mr. Kelly's comments on the tax rate for small business, the deferral of that. A great way to stimulate the economy is putting more money into the pockets of Canadian businesses. When they have extra cash left over at the end of the year, that's when they invest. It's absolutely critical to a strong economy to have more money in the pockets of Canadian business. We've heard about from members across the country how important that is.
The other one that's really of interest to members is Canada Pension Plan reforms. The challenge is whether Canadians don't save enough. It's not a universal problem that requires a universal solution. There certainly are Canadians perhaps who probably.... Various studies point to about 15% to 20% of Canadians who will see a sharp drop-off in income on retirement. So what we would say is that really we need to target those particular Canadians rather than having across-the-board increases because we know absolutely that it would be a dead weight on the economy to have taxes across the board. Effectively CPP contributions act like a payroll tax, so that's why pulling more money out of employers' resources or out of employees' cheques will be detrimental to the economy. We think there are really an interesting targeted measures that would work.
Finally, on EI reform, we would like that to go down to the break-even rate, and lowered EI premiums are critical for our members.
Those are some of the key issues that came to us from our members.
I'm happy to answer any questions. Thank you.
I would like to thank all the witnesses for being here today for the consideration of the Liberal government's important first budget.
Although we are considering this first budget, we are always thinking about preparing the second budget and the subsequent budgets, which will define this Parliament and this government. I would like to think that some of the issues that you have all listed and mentioned will be effectively addressed in this government's future budgets.
I will speak to the points made by Mr. Brakel, of the Canadian Chamber of Commerce, and by Mr. Kelly. I am referring to simplifying taxation in Canada, whether income tax or tax in general. This has often been a topic of discussion in this committee during the preparation of the budget and in response to it.
I would like to hear more about the kind of reforms or simplifications that you would like us to make. Where would you start? Mr. Sholten might have some thoughts on this. I would like each of you to comment on simplifying taxation and the benefits of doing so.
This is a tricky one for us. We certainly are supportive of the idea of tax simplification. There's no question that a plethora of new credits have been created, some of which do need to be analyzed as to whether or not they're accomplishing the public policy goals they were set out with. There is no opposition whatsoever from us with respect to tax simplification.
However, in our experience at CFIB over 45 years, most governments that embark upon large tax simplification studies and measures end up using that to delay any tax reductions, so that we spend a lot of time studying the tax code and what can be simplified and very little time studying what can be done to actually inject more of businesses' or consumers' own dollars back into their own pockets.
For tax simplification, we would prefer that it be focused on working with the Canada Revenue Agency and some good momentum in previous budgets. I will say that one of the elements of the 2016 budget that we did like is that there were some measures taken with the CRA to simplify and help better interpret tax policy for small business owners. Those are good measures, very practical measures, to help small businesses—and to help any Canadian, really—in dealing with the very complicated tax code.
I have to say that would be probably our first choice: focusing on CRA as opposed to a global review of every credit that exists.
Thank you very much, Mr. Chair.
Thanks to all of you for coming.
I'll start with you, Mr. Kelly. You talked about the hiring of students and young people, but you didn't actually talk about the fact that with regard to the Canada summer jobs program, we more than doubled that investment. In my riding, for example, there were over 230 positions in 30 businesses.
When you talked about the hiring of young people, why did you not mention how successful it was and how helpful it was that small businesses could hire young people? For example, in my riding, it equalled $1.1 million. Why did you leave that out of your testimony when you were criticizing the lack of hiring of young people?
We are fans of the Canada summer jobs program. Thank you very much for raising that. Obviously, a five-minute testimony doesn't leave you with an awful lot of time to go through every issue exhaustively.
We are fans of the Canada summer jobs program. I will say, though, that small firms find that it is often very difficult to access. It does tend to be focused more heavily on larger businesses and community groups and organizations.
Small firms say the most stimulative effect they could have to help them create more jobs is to reduce the payroll tax burden. That's why we were big fans when Liberal governments in the past introduced a youth hires program. It was a terrific program that was well received by small business owners and had light paperwork requirements.
We were so excited when your party committed, as the centrepiece of your youth employment strategy, to introduce an EI holiday for 2016, 2017, and 2018. In fact, the budget didn't even talk about the fact that this had been cancelled. They didn't even tell us that it was cancelled, but as we found out later, it was replaced with an expert panel to study youth employment.
The Canada summer jobs program is a good one. It would have been far more powerful, and far more employees—youths—would be back in jobs right now, had you gone ahead with your own election promise to introduce the EI credit.
I wanted to drill into the effects of the tax changes, the small business tax changes, of not fulfilling the promise the government made during the election campaign to take it to 9%. There were many broken promises, as we know—$10 billion, a balanced budget in this term, and those such things.
I think there's an elephant in the room, and I'd like to ask you, Mr. Scholten, to tell us the name or names of the individuals who gave you the information to bring testimony here today that you.... Through your initial remarks, you said that in the second budget, I believe, they would be reducing this to 9%.
Okay. My observation from Ms. O'Connell's questioning and assertion that the Canada summer jobs grant has a wide swath of small businesses that benefit, is that my experience over nine years now of reviewing the documents is that in the initial phase I have had fewer than 10 small businesses approved, and probably 90% or more of the organizations that are recommended for approval are public institutions, cooperatives, not-for-profits.
I would ask this, without putting forward a motion, which I think would be fair, because I can go back in the records and show you my documents. In fact, this year there were 26 small businesses not recommended, a handful that were, less than 10, and I, as you know, as a parliamentarian can say I would like those to be reconsidered and put into the mix and they were and every one of them got a student. I believe that for every one of those 26 individuals, although they didn't fill out the application as well as some other professional organizations are able to do and they were not recommended, I made sure they got that.
I think it would be appropriate, and I would very much like to see, the members of this committee submit their summers jobs grant lists of individuals to verify what your comments were today. I have not seen it under my term here under our government and this year as well.
Alex, you didn't comment on the voluntary agreement that came into effect last year between the card issuers and the Government of Canada. It's been in effect maybe just over a year. You commented on the regulation that came into effect in Australia. It was regulated and then it was re-regulated, and now it's re-regulated again because the measures put in didn't work. Also with regard to the service charges that are interchange fees, those are actually different components. So not just card issuers but also other processors are involved, and that involves costs. You failed to acknowledge that.
I don't want you to comment, but I do want to point that out.
I want to talk to Mr. Kelly.
One thing you mentioned has, in my view, a lot of credence. It is with regard to succession planning.
Some prior witnesses commented that in Germany, if a family-run business is transferred to the next generation, the tax implications aren't the same as the tax implications here in Canada. Anybody here can jump in on this. I think we as a committee should look at tax simplification, because I think that also ties into productivity. People are spending time with their accountants and their advisers when they should be focusing on the successful running of their businesses. Being able to transfer is analogous to owning a home. If a parent owns a home and passes away, if it's their first property, they can actually transfer that to their children with no tax implications. I want to get your view on that.
That's very interesting. I've also heard, Mr. Bruun, that in fact some of the railcars were actually mortgaged by the Canadian Wheat Board, as well as the building, and there was very little value left. But, as you have said, I believe the federal government should provide western Canadian grain and oilseed farmers with a full and transparent accounting of the dispositions of the Canadian Wheat Board assets since the act was enacted and make sure that you are satisfied, and that it's done openly and publicly. I agree with recommendation 48 and I hope the government carries it out.
I have a few questions for Mr. Scholten from the convenience stores.
We talk about the high price of credit card rates that are often charged to convenience stores. It adds to the cost of doing business. It adds to the cost of consumers. You represent 26,000 members. We had a discussion about this previously. You have a large base to use to create perhaps your own form of a credit card.
One of the problems with regulation is that it actually stifles innovation. It's very inefficient in an economy. It's sometimes not always best to run an economy through regulation, because how do you determine how much profit someone should make? Sometimes market forces are the best ones. If you were in the market providing your own form of credit—and Canadian Tire, I believe, does this, and Hudson's Bay has their own form of credit, they set up their own bank—perhaps, with your 26,000 members, you could cut yourself a better rate and challenge the credit card companies, MasterCard and Visa, as well as Amex to a smaller extent, and provide a better service.
Mr. Chair, I first of all want to thank the witnesses for coming here today.
You've come in a spirit of constructiveness and have done a very good job of advancing your point of view. I regret that we've been tied up in procedural knots.
I suspect the Liberals on the committee will be voting against the motion. I certainly will be. The budget I have in front of me on the small business income tax rate says, “Budget 2016 proposes that further reductions in the small business income tax rate be deferred.”
If I look up the definition of “deferral”, it says it is the act of postponing to another time or place. I can only conclude, then, that having been postponed, it will be revisited at a certain point, and that the government will be considering that on a more or less ongoing basis. As such, I don't know if Mr. McColeman thinks he's found who shot J.R. or has solved one of the other great mysteries of life, but I regret this kind of procedural wrangling and hope we can move to the question.
Thank you very much, Mr. Chair.
Mr. Scholten, hope you realize this isn't about you. It's about a statement you made today that indicated our concern of whether or not you had been told something that MPs haven't been told. The budget document is silent on when the deferral is over, and indeed the parliamentary budget officer had to ask for more data from Finance Canada to get a better picture of what was in the budget.
It's very concerning to hear that something may be coming in 2017 that didn't appear in here, or in the PBO. I think it's a valid use of the committee's time to determine whether or not there's any correspondence out there that may put us in the direction of understanding whether or not there is a plan to put it in because it is material to the analysis of the projections for income, and to the costing of the deficits and the debt to this country. It's a material fact that we should have, and if indeed it is the plan of the government then they should inform MPs as they seem to be informing stakeholders.
If you have written documentation...my understanding was that you had said a year. If you had said it was deferred then we wouldn't have perked up our ears. You said 2017 and that's what got our attention, so I think it's a valid use of our time. The Liberal members are going to try to say we're being mean. We're not being mean, sir. We just want to get some information for Canadians and we're doing it in great spirits.
You don't get to respond, but I want to let you know to come in and see us on a non-partisan, non-political basis any time you want to talk about Canadian convenience stores because we're here to listen and to help. On this matter we want to understand whether or not the Minister of Finance's office is providing insight into other stakeholders as to what's happening in the future.
Thank you for your time. Thank you for your presentation, everybody else's as well.
Thank you for inviting me, Chairman Easter.
I'm a tenured associate professor at Carleton University's Sprott School of Business. In the past 24 months, I've authored two peer-reviewed publications on Canada's retirement system, one in Carleton University's How Ottawa Spends, and one in an American pension journal with my colleague, Chancellor Professor Vijay Jog. I've also co-authored two monographs this year on the pension system in Canada, at the Macdonald-Laurier Institute think tank.
Before I go into my comments, I have a shout-out to your support staff, who have been extremely helpful. I didn't get the documents to them until yesterday, and yet they managed to pull it off and get them translated and printed. I give them my very gracious thanks.
First my disclosures, and then I'll get right into it. I don't consult to anyone or anything anywhere in the world. I'm not a paid or unpaid or registered or unregistered lobbyist. I don't belong to or donate monies to any political party or NGO anywhere. Finally, I only source empirical data in my research from OECD countries' government departments and IGOs such as the OECD, the IMF, and other international bodies. I do not source data from political parties or elected officials, or from NGOs or unions, because they're political or social activists with an agenda.
I'm going to focus on pension reform for both OAS and CPP in my short five minutes.
One of the great urban legends in Canada today is the story of large numbers of impoverished senior citizens possibly reduced to eating cat food due to mean-spirited social policies.
Never let it be said that we baby boomers are terrible marketers. We have managed to convince large numbers of Canadians, in concert with some NGOs, such as CARP, of this false urban legend, yet Stats Canada shows that the wealthiest of cohorts in all of Canadian society are our seniors—and I will disclose that in 18 months from now, I become one of them—while the cohort with the least amount of assets and income is our young people, who we refer to as the “millennials”.
In a book published in 2012, which every member of Parliament and senator should read, the following was said. This is a direct quote: “Crisis? What crisis? There exist persistent myths about the Canadian retirement situation. We think of our seniors as living in near poverty when the elder poverty rate is half that of working Canadians.”
The book was called The Real Retirement. The author was Bill Morneau, the current finance minister, and the 2012 data in that book was and is correct. Demography changes very slowly. A country's demography does not change in 48 months. I say that for anyone who argues that circumstances are different today than in 2012.
In fact, since OAS, GIS, and CPP were introduced in the fifties, elder poverty in Canada has crashed and collapsed in Canada, not skyrocketed, as some have alleged. Per OECD Pensions at a Glance, Canada has one of the lowest rates of elder poverty, with 7.2% of elders below the poverty line. Remember, the OECD countries are the richest countries in the world. This means that we have one of the lowest rates of elder poverty on the planet earth—11th lowest.
Can we do more to address the 7.2% of elders below the poverty line? Absolutely, by targeting them through an increase in the GIS, which your government did in this budget and which should be strongly supported—and indeed I do—and by providing 100% survivor benefits on CPP to those seniors, who are, typically, the “elder” elder females, and who lack their own CPP. When their husband dies, the benefits drop.
Let's turn to those not yet retired. The McKinsey study on retirement readiness of Canadians showed that approximately 85% of Canadians not yet retired are pension ready, meaning 15% are not. Also, do note, because some may dismiss this as as a consulting firm, that this research largely duplicated and confirmed the peer-reviewed research of Professor Kevin Milligan at UBC, Professor Jack Mintz at Calgary, and Mr. Baldwin, formerly with the Canadian Labour Congress.
To summarize these researchers, first, the bottom quintile of Canadians experiences a significant increase in retirement of some 25%, because they were previously low-income workers and the OAS, GIS, and CPP lift them up.
Second, most Canadians are pension ready, while a minority of 15% are not. This suggests three startling conclusions: one, the lack of pension readiness lies amongst some in the middle and upper middle class, not the bottom quintile; second, pension reform should focus on targeted policies, not universal policies such as universal CPP reform, to address the 15% who are not pension ready in the middle and upper middle classes; and finally, this suggests very strongly that universal CPP reform is completely unnecessary, because 85% of Canadians are pension ready.
I have a final issue, and then I'll wrap up, and that's the reduction of OAS eligibility back to 65.
Several analysts argued in op-eds in The Globe and Mail that this was a terrible decision because it was not evidence-based. For those who read OECD regularly—and I certainly do—it has for several years urged OECD countries to increase the age of pensionability as we're living much longer. To deal with the canard that's been alleged that critics such as myself are suggesting that the pension system will bankrupt Canada, this is absolute nonsense. Canada is one of the wealthiest countries in the world, with one of the highest GDPs per capita in the world. I think this was a straw man concocted to obscure the real issue: all resources are scarce and finite, not unlimited, and this means that decision-makers such as you, as parliamentarians, must economize scarce resources by not squandering those scarce resources on less critical wants instead of more urgent needs. Indeed, I'll go further.
Hello ladies and gentlemen, members of the committee.
Madam Clerk, thank you for this invitation and for your team's support.
I'm a fellow at the Centre for International Governance Innovation, and I've published this year two peer-reviewed policy briefs on the global clean technology industry, as well as on matters to do with innovation. I'd like to ask that the two synopses, which we submitted in advance of today's hearings, be read into the record. They have been submitted in both English and French in advance of this meeting.
On April 19, I reported the findings and recommendations of Analytica Advisors' 2016 report on the global and Canadian clean technology industry, our fifth annual report. The global market for clean technology goods reached $1.1 trillion in 2005, up from $555 billion in 2004, representing a 7.5% annual growth rate. The industry is now globally worth two-thirds that of the automotive industry.
From 2005 to 2014, the market for clean technology goods nearly doubled.
Canada is losing global market share. In that same period Canada's ranking as a clean technology goods exporter fell from 14th to 19th place in the table of the top 25 global exporters.
During that period, our market share shrank by 35%, placing us third from last among exporters. For the first time in six years, we have noted a decline in revenues for the industry as a whole.
Up until two years ago we reported growth of four times that of the overall Canadian economy, but that growth has now stopped.
Let me just briefly say that the clean technology industry added another 5,000 jobs last year, and it now directly employs 55,000 people, in almost 800 firms. Many of these people are young people working at the start of their careers in positions that range from finance to engineering to manufacturing and global sales. People in this industry are working in companies that are creating and scaling up technologies that protect our environment.
By 2030, clean technology enterprises will enable Canada to reduce emissions by 30% in relation to 2005 levels, which Canada committed to doing in the Paris Accord.
We'd like to make some specific recommendations in regard to Bill .
We support the addition of $50 million, over four years, allocated to Sustainable Development Technology Canada for the SD tech fund and $82.5 million, over two years, to Natural Resources Canada to support research, development, and demonstration of clean energy technologies. However, we strong urge this government to implement programs for financing clean technologies where support is lacking for the rollout of the first commercial facilities. Addressing this financing gap is essential to stimulate the investments and create significant job opportunities, directly contributing to meeting the government's goal of generating economic growth through expanded green infrastructure while reducing greenhouse gas emissions.
We also support the expansion of eligibility criteria for accelerated capital cost allowances to include electric vehicles' charging stations and electric energy storage, but recommend that other sectors, including the advanced biofuels equipment and other carbon-reducing equipment, be included so that there is a level playing field.
We also support the fact that regional development agencies will double their annual aggregate support for clean technology to $100 million per year from existing resources starting in 2016-17 and urge that this government increase the overall funding allocated to these agencies to support clean technology. We'd like to note that the OECD has assessed Canada's subsidies to fossil fuel industries at about $3 billion per year, making quite a significant support to an industry that contributes 27% of Canada's greenhouse gas emissions. We note also that this budget does not establish a date for the phase-out of those subsidies to the fossil fuel industries.
With that, I'd like to conclude my remarks.
One of the most important and thorny policy issues I have had to face in my long career is indexation, whether full or partial.
In 1998 I wrote a report called “No Taxation Without Indexation”. It explored the impact of partial de-indexation of the personal income tax system, the refundable GST credit, and the federal child benefits.
Introduced into the tax transfer system in 1986 by the Mulroney Conservatives, partial de-indexation is instrumental to what I call social policy by stealth. It's the use of arcane and poorly understood technical changes to public policy, which were imposed on Canadians without their knowledge, consent, or understanding.
Partial de-indexation steadily and surreptitiously lowered the federal tax bank threshold, imposed an annual inflation-induced hidden income tax hike on taxpayers at all income levels, weakened the GST credit, and eroded the value of child benefits, especially for low- and modest-income families.
The following year, I did another piece that looked in more detail at what I called credit creep and explained how partial de-indexation has affected all aspects of the tax transfer system.
At that point, I had declared that we'd never get rid of partial de-indexation, but thank God I turned out to be wrong. In the 2000 budget, Ottawa re-indexed the tax transfer system. So far so good. De-indexation faded from view. Even the Harper government didn't try it, with the notable exception of its pet social program, the universal child care benefit, which was not indexed, although nobody seems to understand that.
Next, indexation popped up again from an unusual source: the new Canada child benefit. This is the last place I would expect to see stealth in operation. What happened was that, in launching the program, there was no indication that it will be indexed until it will be finally indexed in the year 2020.
Why did the federal government decide to do defer indexation until 2020, especially since it's a policy that goes against its whole view of transparency in public policy?
Cost is the only plausible explanation we can come up with. The Canada child benefit likely ended up being more expensive than originally estimated, and therefore the de-indexation of it over the five years it will be implemented will save a lot of money.
There are some remedies to this problem. The best is to index the program the way it should be, and another would be look at the leakage of revenues through boutique tax credits that favour the wealthy, and get money out of that.
To make up for lost ground, we've recommended the federal government super-index the Canada child benefit starting in 2020. The maximum benefit would be fully indexed, and another amount layered on, so the total value of the program would be more than inflation. Ottawa did this, by the way, back in the 1990s when it grew the Canada child tax benefit.
Caledon strongly supports the Canada child benefit, a program we have advocated and worked on for many years. Its overt architecture is strong, but deferring indexation, although not the end of the world, makes it sad the program has to start its life with this Achilles heel.
Ladies and gentlemen of the committee, thank you for inviting us here this lovely sunny afternoon. It is a pleasure to spend the afternoon with you.
I am here to present Fondaction CSN, which was created in 1995 by enabling legislation of Quebec's National Assembly. The fund began operations in 1996 and it is now the second largest labour-sponsored fund in Canada.
Our mission is to promote economic and sustainable development, to create and retain quality jobs, and to encourage retirement savings, of course. I want to emphasize how important it is that the tax credits afforded to Fondaction shareholders have been completely restored.
We are an innovative financial institution. Since our inception, we have established the strictest governance and transparency requirements, and we have met these requirements for 10 years. We produce sustainable development reports consistent with the exhaustive criteria of the Global Reporting Initiative. We were the first financial institution to do so.
Our institution subscribes to the principles of responsible investment. Since 2007, we have been members of the United Nations Global Compact relating to the various principles for the attainment of millennium development goals.
Our goal is to focus increasingly on social impacts. When we invest in companies, we look not only at economic development. We also analyze the socio-economic impacts, and socio-economic training is given to the various companies we invest in.
Sustainable development has always been at the heart of our mission. We have decided not to choose among social, environmental and economic development, but rather to support all three at the same time.
Our business is very profitable to the government. A study released on May 31, 2015, of which you will soon receive a copy, shows that the tax and tax-related revenues directly attributable to Fondaction, relative to the cost of the tax credits, benefit all Canadians. The study shows a cost-benefit ratio of $1.08 for each dollar spent. So the impact is positive. We came up with a ranking in this regard: the ones we invest in and in which we are are the only ones who can invest, those in which other partners could invest, and those in which all businesses could invest.
We maintain and create jobs, over 30,000 for our entire portfolio. The various statistics I just mentioned pertain to 150 companies, while our portfolio has 800.
Tax credits enable Fondaction to carry out its primary mission, which is to promote retirement savings and create quality retirement capital.
The average annual income of our shareholders is $48,000. Without Fondaction and without labour-sponsored funds, they would not have access to the retirement savings they currently do. We have 128,000 shareholders, 51.4% of whom are women, and annual dues are $2,840, while the maximum is $5,000. We have shown that most shareholders of Fondaction CSN or of another labour-sponsored fund only have access to retirement savings through the type of vehicle we offer.
Fondaction can offer savings to middle-class retirees thanks to the support provided by federal tax credits. According to data from the Régie des rentes du Québec, in 2012, 47% of workers in Quebec, or nearly two million people, had no pension plan.
Tax credits enable us to achieve our primary mission. We can invest the savings for the long term with venture capital, which benefits SMEs. This enables us to expand, modernize, make acquisitions, merge companies, and, above all, to support business continuity by managing succession and transfer programs.
The elimination of the tax credit would have led to a withdrawal from Fondaction and from venture capital, as well a drop in development capital. Considering the leverage effect, the withdrawal of labour-sponsored funds would have reduced businesses' access to substantial amounts from private investors.
I would like to thank the government for fully restoring these tax credits in the budget.
Thank you, Mr. Chair.
Thank you, Mr. Chair, and my thanks to our witnesses for appearing today.
Madame Bak, our government has made a commitment that the economy will grow not at the expense of the environment but hand in hand with it. A strong environment will lead to a strong economy and vice versa. Recently, the Minister of Innovation, Science and Economic Development had an op-ed in theToronto Star saying that innovation should be a Canadian value, that innovation should be at the core of every aspect of economic decision-making .
In a Toronto Star article that you wrote, you made an interesting point. You said there was a “need...to connect the dots, because if we just do more innovation, we will get the same results as we did in the past, which is lots of promising companies, but none that grow up here.” I thought that was a really interesting comment, saying that the whole purpose of innovation is to grow companies, to change the way that we're doing things. You're saying that we also have to recognize that we may be innovating a ton but we are not getting empirical results in the long term. If you could comment on that, it would be great.
Canada has been thinking for some time about productivity and why Canada's productivity figures are not at the level we would like them to be in OECD rankings. This has led to some fairly serious consideration about matters to do with innovation.
Productivity is a result of investment in new ways of doing things. This may be technology or it may be management processes or it may be capital. In Canada we have a fairly concentrated economy, and we also lag in a number of ways in terms of regulations. The competitive forces at play are relatively low and our regulatory framework is not as robust as it is in some other countries. A rising price on carbon is an example of that. Absent robust, competitive forces to stimulate innovation, and absent, where there are market failures, regulation to stimulate the take-up of innovation, we will not have all the benefits of the investments we're making in innovation.
I would also say that other countries, Israel included, have very good economic information on the role that relatively small firms play in their global competitiveness through exports and other things. I would suggest that we may want to consider reporting on R and D, and exports as well, by size of firm so that we have the macroeconomic information to improve the formation of capital markets and our decision-making in the private and public sector.
Yes. Thank you for your comments. It's nice to hear that people read our work, and that we are non-partisan.
Let me just give a specific example to answer your question. But first, the failure to index the new child benefit blew me away. I never could have thought that a new government would do that, which is I think is quite critical, since we've seen over the years when governments of all political stripes have tried indexation or de-indexation, that it ends up with pretty bad results.
But the one about the new child benefit, though, is very powerful. Let me give you an example; it's just simple arithmetic. In July 2016, when it starts, the Canada child benefit will pay a maximum of $6,400 a year to a low income household. That's a very hefty amount of money.
If inflation were to run at an annual rate of 2%, which is does these days, the purchasing power of that benefit will fall in the second year to $6,272. By 2020, the real value of the benefit will be only $5,903 in constant 2020 dollars. It doesn't sound like much to people, but it really adds up. That's the problem with indexation. It's quite sneaky.
The only reason that governments do that is to save money. So we were not happy about that aspect of it, and what we've asked for is an explanation of how the child benefit will be rolled out—
It's interesting, and I appreciate you telling us that you did have these phone calls with the PMO and that assurances were given, because I did take a look at the supplementary information that's on the budget.gc.ca website and it is silent on the issue of whether or not it's indexed, but it only has two years. Then I turned to the PBO report and found that's very clear. Even in 2020-21—sadly for you—there's no indexation, and the PBO is actually relying upon that in order to show that the government's books are in good stead over that period of time.
I appreciate you sharing with us the information. We may be following up on that somehow, in some fashion at some point.
Mr. Chair, I'll give you some notice that we may be asking for some PMO folks to come in and talk to us about what kinds of assertions they're giving with respect to indexation on the child care benefit. I do appreciate the work.
I do have a question for Dr. Lee. I have to say you did put out something very controversial; it is on your deck. You said that perhaps what we should do is amend the concept of universality and move towards more targeted measures. In other words, get rid of everybody getting it, you only get clawed back at about $70,000, and move it into more along the lines of.... You also said not to believe that the CPP is going bankrupt, that the Canada Pension Plan fund is in good stead.
I guess I'm wondering. The Liberal government has decided to move away from universality on the child care side. Can you tell me why they should do the same thing on the senior side?
I was making reference to the criticism of the criticism, because the PBO said he didn't know what people were talking about, that the OAS is sustainable. Well, people like me and Jack Mintz never said it was unsustainable.
The issue is not whether it's going to bankrupt Canada. Of course it's not going to bankrupt Canada. We're an enormously wealthy country. I'm saying that as someone who travels around the world teaching over 100 times in developing countries. I'm going to be in Poland in August and China in October. We are fabulously wealthy.
My point was that it obscures the fact that resources are scarce and when you, the decision-makers and the parliamentarians, have a choice between using—and I called it “squandering”—public resources on something that's less essential versus more essential, you should always focus on the more essential and not the less essential. That was my fundamental point.
Again, I do want to thank the clerk of the committee for being able to get these slides to you. Take a look at page 9. It's from Jack Mintz, but in turn it is based on Finance Canada's income replacement percentages. In my paper on how Ottawa spends—which hasn't yet been physically published—I argued that there are really two pension systems in this country and people don't really realize it. We think this is one big pension system. I've said that we have a public pension system for people in the bottom two quintiles. I said that empirically and statistically they receive most of their income in retirement from OAS, GIS, and CPP.That's an empirical statement, whether we like it or not, whereas the top three quintiles, which is the top, the upper-middle, and the middle, receive declining.... Look at that graph on page 9. You get down to people in the top quintile and it's 10% of their income.
My point is that we have de facto—not legally but de facto—two different pension systems. One is for low-income people, which I define as the bottom two quintiles, who absolutely need the public system. I'm not suggesting taking away it from them. In fact, I'm suggesting giving them more, and taking it away from university professors, NGO, union and corporate leaders, and Conrad Black, and high-income people, who shouldn't be getting OAS.
Wonderful. Thank you very much.
Thank you to our witnesses for coming today.
I want to spend a few moments talking about something that didn't come up in any focused way in the presentations, and that's the changes to EI in Bill . This is obviously something we've heard quite a bit about. While there are some very welcome changes, they don't go far enough in terms of making a difference for many working Canadians.
I'd like to direct my first question to Mr. Battle. I'm familiar with some of Caledon's work around the ineligibility surrounding EI, and the fact that fewer and fewer Canadians are eligible. I'm thinking about the report you put out in December 2011, entitled “Fixing the Hole in EI”. Specific to Bill , the concern has been raised that there are regions that have suffered significant unemployment in the last two years and that are excluded. We hear today that finally the Liberal government is seeing the need to include Edmonton as one of those regions. We're hearing some different reports in terms of southern Saskatchewan, which has also been hit hard by the drop in the extractive sector. But we still know that many regions that depend on seasonal work, including in Quebec and the Atlantic, are still ineligible, and it creates the black hole, or le trou noir, that we know of.
Many Canadians who are hurting have paid into EI and aren't able to access it. In your report you talk about 55% eligibility; I guess that was in 2011. Now we're down to about 40% eligibility. I'm wondering if you could speak to this. Is this a serious issue? Should we be taking it more seriously? Should we be fixing the EI program to make it more responsive to current crises that Canadians are facing but also a shifting job market, particularly the rise of precarious work? Any thoughts on that would be welcome.
Mr. Battle, in the mid-1990s, under former finance minister Paul Martin, we got rid of what was called inflation creep.
I do recognize your concern with the CCB. I also think the CCB is a very powerful instrument in eliminating child poverty. Three hundred thousand children will be taken out of poverty by 2016-17 versus the number in the last fiscal year, so I do recognize your comments on inflation creep.
When Mr. Martin brought it in through his budget in, I think, 1996 or 1995, it was one of the largest tax cuts for Canadians ever with the introduction of “inflation bracketing”, if you want to call it that, and so I do recognize that.
To your mind, is there anything else we could do quickly to pull even more children out of poverty?
Thank you, Chair, and thank you to the witnesses.
First for Mr. Battle, I'm just on the Caledon Institute of Social Policy website, and I'm just going to read from one posting here, and it's talking about the Canada child benefit. I'm just following up on what my colleague was asking you about. It says, about the Canada child tax benefit, “It won’t be indexed to the rate of inflation until 2020.” That's posted on your website.
Just following on the questions of my colleague, you explain that this is a result of a news report and then further conversations with persons at the PBO on this matter, so would it be possible for you to give us the names of the individuals at the PBO you spoke with?
A voice: PMO.
Mr. Phil McColeman: PMO, sorry. PMO, not PBO.
In layman's terms, it's scientific evidence you've provided through your testimony today.
Further to that, I'm a resident, and I represent a riding in Ontario. This urban myth you talk about.... I was on a Chamber of Commerce panel locally, and this issue came up in questions about the Ontario pension plan being devised right now by the Liberal government of Ontario. When I presented the numbers—because I used some of your numbers that I had researched before going in— I used the 85% number, the 85% of people who are pension ready. They've prepared themselves for their retirement, and they're ready to go. You further subdivided that group down to about 7.5%.
It was not received by the person who had to defend the Ontario government's position on this matter as being at all reliable, and I wasn't asked where that information came from. I'm going to be pleased to provide him with this information you've provided today.
The question I want to ask is, can you give us your candid views on why this urban myth is being received and believed at the level it is in this country?
Absolutely, thank you for the question.
I mentioned the idea of public backstopping through institutional mechanisms like CMHC for the recovering economy. That's a domain called blended finance. Blended finance is like what the World Bank does when it stands to take up the part of the risk the private sector will not take. In developing countries, the World Bank provides that mechanism, and there are countries that have for years done an excellent job at mitigating the part of the financing the private sector will not take up.
Examples of countries that do that really well are Germany, Japan, and to some extent the Netherlands. These are all countries that have institutional mechanisms. In Germany, there is the KFW, which is like a combination of CIDA, EDC, BDC, and what some people call a development finance institute. It brings all those things together, and it's one of the reasons why Germany is so successful as a major exporter of solar panels and other forms of clean technology.
Denmark is a country that has also realized that one of the specific characteristics of clean technologies is very high capital. Denmark has developed a program within its export credit agency, our equivalent of EDC, whereby it will backstop what the private sector will not be able to backstop.
That's a lot. I have just a couple of points.
One comes from my colleague, Professor Lee. Pension reform goes in waves. About every 10 years there is a push for pension reform, and then something moderate is usually done.
One of the proposals we made some years ago was for a seniors benefit. The idea here was that we would integrate existing seniors benefits into a single income-tested program, so it would be old age security, guaranteed income supplement, the age credit, and pension income credit. They would all be put together based on a measure of net income. Then you would have a very strong program that could adjust to changes in the economy. It's also a very fair program. Compared with the current one, it's simpler to operate.
Anyway, it didn't go anywhere, and that was the last big push for reform.
The other one we've called for at Caledon is a 50% increase in the CPP so that it would better meet the needs of seniors, especially middle-income seniors.
I have a fairly brief question predicated by a very brief comment to Professor Lee. I'd like to ask you some questions, but I'd be doing that for sheer political purposes only, because everything you said today is exactly what I said in my budget speech, including the real retirement and the fact that the old age security was not science based as this government....
My question is actually for Ms. Bak.
We've had several green outfits come before this committee that have made a statement that I want to pursue just very briefly. It's a blanket statement—sort of like “the sun comes up in the east”—that there's a $3-billion annual subsidy provided to the fossil fuel industry. I see here in my favourite Google website that it says a subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.
Can you give me three or four examples of something that would fit that description that is in that statement you made today? Because if you can't give me examples, I'd like to know if that's something that is fair to continue to say. I'm not talking about tax incentives. I'm talking about exactly what Google says a subsidy is, a handout of government money to the oil industry.
So give me two or three examples.