Order, please, members.
This is meeting number 90 of the committee. We're approaching 100. Will we get to 150?
Pursuant to the order of reference of Tuesday, May 9, 2017, our hearing today is about Bill .
We have five witnesses, including Mr. Luke Harford, president of Beer Canada; Mr. Murray Souter, board member, Canadian Vintners Association; Mr. Carl Sparkes, president and CEO of Devonian Coast Wineries; Ms. Joyce Reynolds, executive vice-president, government affairs, Restaurants Canada; and Mr. Jan Westcott, president and CEO of Spirits Canada.
I know that a couple of people went out of their way to change their travel arrangements.
I believe one person was supposed to be in Spain, so we appreciate that effort, Mr. Sparkes, to get here to give your information to the committee.
Try to hold your comments to about five minutes. Then we'll go to questions.
We will start with Mr. Harford.
Thank you very much, Mr. Chair and members of the committee.
I really appreciate the opportunity to participate in the legislative process on behalf of the 45 Canadian beer companies I represent. My members are large and small domestic brewers from all 10 provinces and one territory.
My members have two concerns with budget 2017. First, it imposed an immediate 2% increase to excise duty rates on beer. The abruptness was very disruptive to normal business operations. The second and most serious concern is the escalator, the mechanism that will increase excise rates automatically every year with no requirement to check on the health of the domestic brewing industry. The immediate 2% increase is not helpful, but it doesn't compare to the damage the escalator will do to our domestic brewers.
I will use the few minutes I have to offer four reasons for removing the escalator from Bill . First, tying the consumer price index to excise duty rates is too rigid and ignores regional economic differences. Second, the escalator bypasses Parliament's role in approving tax increases. Third, Finance Canada has acknowledged that it did not analyze the economic impact of the escalator or what effect it would have on our industry. Finally, there appears to be a large discrepancy in Canada's public accounts that would make it difficult for policy-makers to say anything about the effectiveness of excise duties.
The consumer price index reflects the cost of a fixed basket of commodities over time. It tells policy-makers nothing about what is going on in our sector or in a particular region of the country. I'm going to use Atlantic Canada to demonstrate why linking excise duty rates to the CPI is too rigid and insensitive to regional differences.
Over the last five years, the total volume of beer in Atlantic Canada declined by 3.3%, while the CPI, or consumer price index, increased by 5.5%. If the escalator had been in place, the government would have increased the tax on beer every year while Atlantic-based brewers struggled to adjust to lower demand. The escalator would have made a difficult situation in Atlantic Canada worse.
The escalator means annual tax increases on Canadians and Canadian businesses with no parliamentary oversight. The escalator will run in the background, resulting in higher beer taxes every year. Section 53 of the Constitution Act, at least in principle, should cause the government to pause on introducing a tax policy like the escalator. It requires that bills for imposing any tax originate in the House of Commons. Finance Canada advised this committee last week that it did not analyze the impact that higher excise duties would have on the domestic beverage alcohol industry. It likely did not consider the impact on the hospitality industry, either. It reasoned that the tax increase would be small on a per case or per bottle basis. The department has ignored the compounding tax-on-tax implications of the escalator and the fact that Canadians already pay the third highest beer taxes in the world.
There's a bigger point. The budget plan highlights that the government anticipates taking an additional $470 million in excise duties over the next five years because of the automatic increases. I can tell you with absolute confidence that there is no one in the domestic beverage alcohol industry that agrees with Finance Canada's forecast that the government can anticipate the status quo holding while it takes an additional half a billion dollars out of the productive use of the Canadian beverage alcohol producers.
The 2016 public accounts report that excise revenues from beer were $584 million for the fiscal year. This appears to be an under-representation of what actually is collected in excise on beer. It's like this every year. For fiscal 2016, Statistics Canada reported total beer sales for the country at 22.9 million hectolitres. With excise rates at $31.22 per hectolitre, the total revenues should be closer to $713 million, a $130 million gap from what is reported in the public accounts. Budget 2017 talks about excise rates not having increased since the mid 1980s, and it rationalizes the escalator as a way to maintain the effectiveness of excise duties.
There is no explanation of what constitutes effectiveness, but looking at the volumes of beer sold and the rates of excise in place from 1985 to 2016, the amount of excise remitted to the federal government has increased from $385 million to $713 million, an 85% hike. Over this time period, per capita consumption of beer declined from 103 litres to 76 litres, a 26% drop.
The domestic brewing community is counting on the honourable members of this committee to remove the escalator and demonstrate that by “effective” the government does not mean higher taxes at the expense of a healthy domestic brewing industry.
My plan for this afternoon was to provide the committee with four reasons for removing the escalator from budget 2017. I appreciate the opportunity to present these arguments on behalf of my 45 brewing members and, indeed, the broader brewing industry.
Thank you, Mr. Chair and MPs.
I am grateful for the opportunity to appear here today and present the Canadian wine industry's perspective on Bill , the budget implementation act.
My name is Murray Souter. I sit on the board of directors of the Canadian Vintners Association. I am also the president and CEO of Diamond Estates Wines & Spirits, located in Niagara-on-the-Lake, Ontario.
Diamond Estates is the home of a wide selection of top-selling VQA wines, including Lakeview Cellars, EastDell Estates, 20 Bees, FRESH, and the wines of Canadian acting legend Dan Aykroyd.
In the few minutes I have, I want to provide you with a snapshot of our national wine industry and Ontario's economic impact within it, as well as explain what the excise duty is and why the excise duty and the CPI should not be linked.
First, let me highlight some facts at the national level. The Canadian wine industry is made up of almost 700 wineries and 1,300 independent growers, contributing $9 billion to the national economy. We produce two types of products: premium 100% Canadian VQA wines, which contribute $4.5 billion in economic impact, and value-priced international Canadian blended wines made from imported and domestic content, which also contribute $4.5 billion.
In Ontario, specifically, the economic impact of the grape and wine industry equates to $4.4 billion, with Ontario being the largest wine grape-producing province in Canada. In 2015, it generated 18,000 jobs and over $750 million in federal-provincial taxes and liquor board markup. This is up from $600 million in 2011. For every dollar spent on Canadian wine in Ontario, almost $4 in GDP is generated across the province.
Budget 2017 is sending a mixed message to Canadians. On the one hand, it draws from the Advisory Council on Economic Growth, which identifies Canada's value-added agrifood industry as an engine for growth, but at the same time it proposes a 2% increase in the excise duty on one of Canada's highest value-added products, wine.
The government is proposing in the budget bill to amend the Excise Act, to legislate the annual indexation of the wine excise duty to the consumer price index, effective April 1, 2018, meaning that the rate is set to increase every year.
Budget 2017 states that “[e]xcise duty rates on alcohol products have not effectively changed since the mid-1980s.” This, in fact, is not true. The last increase was in 2006, when the excise duty increased 21%, by 10.8¢ per litre, to 62¢ per litre.
Our industry is concerned that over the next five years, assuming a moderate, 2% inflation rate, the excise rate will increase by a cumulative 11%. Since the excise duty is a cost at the front of the price chain, the impact is cumulative, with ad valorem liquor board markup, GST, and PST adding to the consumer impact. The GST already picks up inflation on the producer price. By indexing excise, the price chain would pick up double inflation and multiply it through the price chain.
The impact on domestic wine pricing of adding the excise tax at a rate of 63¢ per litre is to add 90¢ to the retail price in an already price-sensitive, highly competitive market.
This legislated annual tax increase is also too rigid. It will tie the hands of future governments, and it fails to account for non-inflationary impacts facing the industry. It does not allow Parliament to do its job to ensure that all measures are considered for all future tax increases.
Wine is among the highest value-added agricultural products in Canada, yet many of our grape growers would face economic hardship due to this tax increase.
My company, Diamond Estates, is one of only two publicly traded wine companies in Canada. As such, we depend on the public markets in order to raise capital for expansion and growth. Just six months ago, our organization was able to conclude a significant capital raise to support our winery capacity expansion. This expansion was necessary to ensure continuity of supply for our fast-growing retail and export businesses.
However, today's capital markets have both well-informed and very savvy investors, and the contemplated changes in the excise tax regime are creating uncertainty and risk. That uncertainty is jeopardizing future capital raises necessary to support the planned doubling of our business over the next five years. More importantly, it jeopardizes the jobs that accompany that growth.
Imports represent 70% of wine sales in Canada, and with import tariffs soon to be eliminated under CETA, the proposed annual excise tax escalator would seriously damage our ability to compete.
With the recent challenge against Canada at the World Trade Organization, regarding the B.C. wine sold in grocery stores, and the renegotiation of NAFTA, it is clear that imports want more of our market and are willing to challenge us on all fronts.
Our industry is rooted in Canada, literally. We simply cannot uproot and take our business elsewhere. Wine is one of Canada's signature industries, which should be supported and promoted by our federal government, not selectively targeted.
Recommendation 54 in your committee's 11th report, entitled “Creating the Conditions for Economic Growth”, presented December 7, 2016, is as follows:
That the Government of Canada support innovation in the Canadian wine sector through improved operational and infrastructure investments.
The wine industry can be a strong contributor to the agrifood powerhouse that Canada is creating, which would strengthen our competitiveness domestically and abroad. However, this escalator will put economic growth on pause.
The Canadian wine industry can help the government to create more jobs, more wealth, and opportunities, but this starts with eliminating the excise escalator tax under budget 2017.
Thank you, Chair Easter, and members of the committee.
Ladies and gentlemen, I'm here today representing my company, Devonian Coast Wineries, the largest winery in Atlantic Canada and the seventh-largest in Canada, as well as the Winery Association of Nova Scotia and its growers—in all, approximately 125 farm-based businesses. We appreciate the opportunity and invitation to share our perspective on Bill .
The wine industry of Nova Scotia has been a shining light contributing to the revitalization of several rural communities in the province. The immensely positive contribution to the region is manifest across the agriculture, manufacturing, retail, and tourism sectors. Indeed, a recent study in 2016 revealed that the annual economic impact of the wine industry on the province has surpassed $216 million and is growing. That's massive for our region.
We are the newest but fastest-growing wine region in the country, attracting investment and excitement in parts of the province where agriculture and tourism had long been in decline.
With the level of upfront investment required and the long gestation period for vineyard, wine, and market development, many of our business models would be fragile if burdened with additional costs and regulation.
The decision to increase federal excise duty rates on beverage alcohol undermines the government's own objective of creating a business environment where manufacturers, particularly agrifood processors, can thrive and export abroad successfully.
The budget proposal to automatically adjust federal excise duties to CPI is a return to the failed policies of the past. Between 1981 and 1986, annual automatic adjustments to alcohol excise duties resulted in massive job losses and plant closures across this country.
We elect MPs to protect us and debate tax increases. This budget proposal takes their ability away and risks other taxes being implemented in a similar fashion.
The logic of attaching an annual increase to consumer price index is also fundamentally and particularly flawed, as this excise is an input tax and not a sales tax. This means that the real inflationary impact of applying the excise escalator on the raw material would translate into making our industry sectors' inflation rate approximately five times that of the national CPI every year going forward.
Domestically alone, this rampant indexed super-inflation would seriously damage our industry, as consumers would shift to lower-priced imports and away from Canadian-made wine. Canadian producers like our company would be faced with the choice of increasing prices to offset the input-cost increases or absorbing the increase in order to hold market share. Neither option is sustainable for any manufacturer, let alone one that deals with the inherent variability and uncertainty of agriculture. But that's far from the biggest threat to the Canadian wine industry.
International trading partner countries that have supported the 100% Canadian content exemption since 2006 are now giving notice that while the exemption is perfectly legal, if this escalator goes into legislation it, as well as other industry measures, would be challenged at the WTO level. Should the outcome be the likely reinstatement of the excise tax for 100% Canadian wine, almost immediately there would be operations shuttering, as the tax on the finished wine would be the equivalent of a 50% increase in the cost of our grapes. That is massive. Layoffs would be abundant throughout, planting would come to a halt, and the industry would end its tremendous growth trajectory.
In the case of my own companies' operations, I would likely lay off about 30% of our collective employees, terminate many grower contracts, and try to sell two of my three wineries—if there would be any buyer available under these conditions. In Atlantic Canada one of our few successful agricultural industries would be crippled. Having made a sizeable investment to enter into this industry five years ago, acquiring the largest winery in the region, we continue to invest every year and have doubled our volume in those five years.
We compete in our own backyard with global wine corporations whose governments do not tax them at home, but instead subsidize them to the hilt. At the same time our provincial monopolies' retail markups, along with the HST and excise, make us the highest domestic tax jurisdiction in the world. The only subsidy in our wine industry is coming from the owners themselves—owners like me.
The data supports the known fact that the Canadian wine industry punches well above its weight class in economic, cultural, and overall quality of life in Canada. Our growing presence abroad not only represents the best example of value-added agriculture, but it also enhances the perception of the entire Canadian brand. Our economic impact now tops $9 billion.
For our federal government to unwittingly place our industry at such risk is disturbing, to say the least; but to persist in legislating an annual indexation on our costs after learning of those risks would be unconscionable.
We ask that you repeal the indexation of the excise tax from the budget implementation act, 2017.
Thank you, Mr. Chair and committee members, for your time and attention today.
Thank you, Chair Easter, and committee members. I really appreciate the opportunity to speak to you this afternoon about part 3 of Bill , on behalf of Canada's $80-billion restaurant industry.
This industry is a vital part of the country's economy. Canadians operate restaurants in every corner of Canada, from large metropolitan centres to remote communities. We are the fourth-largest private sector employer in Canada, with 1.2 million employees who interact with 18 million Canadians daily. A significant number of these jobs are derived from the sale of wine, beer, and beverage alcohol in licensed establishments. We are most proud to be the number-one, first-time creator of jobs in the country. We open the door of opportunity to youth, new Canadians, and those facing barriers to employment. Every dollar spent at a restaurant generates an additional $1.85 in spending in the rest of the economy—well above the average for all industries in Canada.
We indirectly employ more than 250,000 Canadians. More than two-thirds of Canada's restaurants are locally owned and operated by independent entrepreneurs. Our 95,000 restaurants, cafeterias, coffee shops, and bars are gathering spots for people from all walks of life to celebrate, to do business, to spend time with family and friends. Restaurants are also one of the top three reasons for tourists to make Canada their chosen destination.
However, you also need to know that we are an industry with razor-thin profit margins. The average restaurant in Canada takes home a mere 4.3% before taxes. According to Stats Canada, drinking places—that would be the bar and pub sector—have experienced sales declines in six out of the last eight years. Since 2000 the number of drinking places has plummeted by 40%. Beverage alcohol is an important input for restaurants and food service operators, who purchase approximately $3 billion of these products each year, but alcohol prices in Canada have reached the point of diminishing returns with stagnating sales to licensees.
What most Canadians don't know is that licensees often pay more for a case of beer, for a bottle of wine, or a bottle of spirits than consumers purchasing them at their provincial retail store. Once restaurants include the cost of service, glassware, overhead, rent, staffing—and staffing includes training on all service and responsible service of alcoholic beverages—it becomes very expensive for the average Canadian to enjoy a glass of wine, a pint of beer, or a cocktail with their meal.
You can't imagine the surprise of our members when government elected to add more taxes, not less, to alcohol, one of the highest tax commodities in the country, and to increase the tax in perpetuity. We've heard from small-town restaurant and pub operators who are struggling to keep their businesses afloat with rising labour, food, utility, and rent costs. The cumulative effect of the new excise duties will take another big chunk out of their businesses. These are real dollars that cannot be used for hiring staff, investments in innovation and refurbishing their businesses and, in some cases, remaining viable.
Last week we heard from Mr. Coulombe from the Department of Finance during his testimony to this committee. I know that restaurants were disheartened to hear that the department believed that the excise taxes would be so small that it wasn't necessary to analyze the economic impacts. A tax increase from $30 million to almost half a billion dollars in five years is not insignificant, particularly when you consider that the tax will be part of the base price to which all other fees, levies, markups, and provincial and federal taxes will be layered on. The cascading nature of provincial markups and PST, GST, or HST application will mean price increases of up to three times the amount of the federal excise tax for those who purchase alcohol.
This year's federal budget identifies agrifood as a potential growth sector, but a very broad swath of agrifood industries will be hurt by this compounding tax. The hospitality industry, together with the vintners, the brewers, the distillers, the grape and grain growers, and our related supply chain partners, is seeking this committee's support for the repeal of the annual excise duty escalator in Bill to ensure that all tax increases have oversight by parliamentarians, and that the economic impacts and considerations are factored in.
Thank you, Mr. Chairman and members of the committee.
My name is Jan Westcott, and I'm the president and CEO of Spirits Canada.
Spirits Canada is the sole national organization representing Canadian spirits manufacturers, exporters, and consumers. My remarks today are expressed not only to these affected parties but also to the thousands of Canadian SMEs providing critical goods and services to spirits producers. I am also addressing Canadian farmers of cereal grains such as barley, corn, rye, and wheat, which are intrinsic to the domestic production of distilled spirits.
Given the limited time today, I'm going to focus my comments on the ill-conceived suggestion that we return to the failed policies of the past and reintroduce the automatic indexing of excise duties on liquor.
As my colleagues have said, members have heard testimony from the finance department that no—and I underline no—economic analysis or modelling was undertaken to support the indexing of excise duties on beer, wine, and spirits, since in their view the changes were too minor to warrant such an effort. Thankfully, it's extremely rare that we hear such misguided hubris from public officials here in Ottawa.
The department's own supplementary budget information indicates that these measures will expropriate in excess of $470 million between now and 2022, a calculation based solely on the direct increase in excise duties. In what bubble is an additional $470 million lifted from the wallets of hard-working Canadians, trivial or de minimis?
The department, however, has provided no estimate of the overall impact on Canadian consumers of the proposed indexing measure, taking into account the compounding effect of a subsequent cascading of ad valorem provincial and federal taxes such as the GST.
Finance has a worrisome penchant of looking at liquor excise duties in isolation, disregarding liquor taxes imposed by other levels of government and their impacts on employment and investment, while ignoring the ultra-competitive nature of the international whisky trade and dismissing the windfall gains to the treasury thanks to the GST, particularly on sales through on-premises channels like bars and restaurants. By the way, the excise in Canada is 67%—that's right, 67%—higher than the excise on spirits in the United States.
Best practices in other jurisdictions include the issuance of white papers, consultation papers, transparent decision-making processes and, above all, rigorous economic analysis. All these best practices have been noticeably absent from the process of introducing the automatic indexing of excise duties on Canada's liquor.
Our own internal analysis indicates an overall impact in excess of $1 billion by 2022—not the $470 million you're hearing. That's more than double the amount identified in the supplementary budget papers. It amounts to $1 billion hijacked from your neighbours' pockets, whether they enjoy an occasional drink at home or in the tens of thousands of licensed bars, restaurants, and lounges in every city, town, and village in Canada. However, it's still not worthy of a formal impact statement, because—stunningly—it's viewed by some as too small.
Perhaps it's more accurate and to the point to state that no formal analysis is required, since we already know the impact. We have lived through this same nightmare before. Canada experimented with automatic indexing of liquor taxes between 1981 and 1986, with devastating consequences for Canadian workers. The spirits industry alone shuttered a dozen production facilities across the country in that decade, putting those Canadian workers out of jobs.
Those plants never reopened and those jobs never returned to Canada. We downsized our businesses, reduced our grain purchases, scaled back our investment in foreign markets, eviscerated our innovation budgets, and tried to hold on for survival.
Eventually, after the imposition of devastating harm by our own government and the loss of the only livelihood available to thousands of Canadian families, it was recognized—even here in Ottawa and in Parliament—that the automatic indexing of excise duties on alcohol products, in accordance with a rigid formula such as the CPI , was completely inappropriate, and indexing was abandoned.
The automatic indexing of excise duties on alcohol, in accordance with a rigid formula such as CPI, was not appropriate then and it is not appropriate now.
It is said that only a fool learns from his own mistakes, and it is a wise man who learns from the mistakes of others. I have little doubt as to the wisdom of the honourable members present, and I hope we can count on your support for an amendment to repeal the proposed automatic indexing of excise duties.
Thank you for your attention.
Thank you, Mr. Chair. Welcome, everyone. Happy Monday, I guess.
To give my view of the landscape, I look at the wine industry in Canada as a Canadian success story. Call it what you may, it's bigger than that. It's about culture, tourism, engaging people, and having U.S. visitors come to Canada. From my vantage point in Vaughan, driving down to Niagara-on-the-Lake for the weekend—which I probably did before I had kids; after you have kids it changes a little—I understand the importance of the industry and such.
You've expressed some fears and concerns about the impact the the escalator would have on the industry. I specifically want to zero in on what the investment environment would be, because people are making decisions to employ, whether it's your grape growers, your bottlers.... We know that the Ontario food and beverage industry is the largest manufacturer and employer in the province, even larger than the automotive sector, so we know it's a very important industry. I'd like to get a sense of what you think would be the impact on investment and employment from the escalator.
I'll put that out there, please.
Thank you very much for the question.
As you know, it is a huge economic driver in our province. You mentioned Niagara-on-the-Lake, near Niagara Falls, which is where I am from. The number one tourist attraction now in Niagara-on-the-Lake or Niagara Falls is no longer one of the natural wonders of the world, but the wine industry that people are touring.
We see the escalator as having two impacts. One is when it would be applied against the ICB business, which is about 50% of the sales in Ontario of domestically produced wines. It would make them uncompetitive in a highly competitive market. We face importers who flood into the country, who are subsidized by their governments, and we see very little support when you have an escalator at this level.
It waves a red flag in front of the importers who already have 70% of the market share in our province, as I said in my remarks. They would go after the subsidy or the excise exemption we have for VQA wines. If that were to happen, it would wipe out our business. In Nova Scotia, as Carl said, but in Ontario as well, we would be forced to significantly reduce employment. I'm one of the few publicly traded companies and my public market would not be able to sustain the working capital growth we need to be able to grow our business beyond where it is. It's in the public domain right now. We plan to double the size of our business over the next four to five years.
Yes. I understand that both the EU and the U.S. in particular, along with a couple of other countries, have made that statement, but to add a little weight to my colleague's comments, we're a highly leveraged industry. I grew up on a farm myself, and this is farming at its roots. It's value-added nonetheless, but we are asset rich, if you want to call it that, but cash poor.
Given that my businesses are leveraged, if the WTO infringement challenge resulted in the excise tax being applied against 100% Canadian wine, my bottom line would be cut in half. I would be breaching bank covenants immediately. I would be in serious turnaround mode to really correct my business from being in serious jeopardy.
Two of my three wineries are 100% Canadian, 100% Nova Scotia wine, but the largest of the three, which really helps fund the development of vineyards.... Vineyards have about a 10-year payback. It's not a really smart industry to be in for a lot of investors. We have a lot of patience; banks do not. At the end of the day, if our business model gets challenged to that degree, the whole game changes.
My largest winery is fifty per cent 100% Nova Scotian or Canadian, and the other 50% is actually the blends. This really keeps the lights going and keeps the overheads intact. For us to have an escalator against that excise on that part of the business with an indefinite period, the banks won't look at us very favourably going forward. So investment in the industry—not just from investors, but the actual ability to secure funding—would dry up.
Thank you very much, Mr. Chair.
I appreciate the opportunity to speak today.
Thank you very much to our witnesses as well for bringing forward some very eye-opening testimony.
Mr. Sparkes, you kind of mentioned something briefly, and I'm only going to ask our witnesses to touch on it a little bit more. My riding is in rural southwest Alberta. Unfortunately, we don't have any wineries, but we have a couple of meateries that have been started, and I do have six craft breweries that are under construction. I have two distilleries under construction.
These have brought amazing new economic opportunities to rural communities. You touched a bit on what the impact has been in Nova Scotia. These are economic opportunities in these rural communities that would just not have been there. They're jobs. They're filling up real estate, but they're also bringing tourism to these communities.
Luke, I'm going to ask you this first. Jan talked a little bit about it, but we're seeing this great growth in the beer industry across Canada. We tried this tax regime in the 1980s and it was a disaster for the spirits industry. Jan and I have talked about that before. Can you maybe elaborate a little bit on what the impact was on the craft beer or beer industry and what you see as the possible ramifications of this escalator tax on the beer industry in Canada, especially for the craft brewers?
I would like to comment on that as well.
One of the challenges, as my colleague mentioned, is the new U.S. administration. It is focusing on tearing up NAFTA, or renegotiating it. But three industries have been singled out: dairy, softwood lumber, and wine. The United States covets market share in Canada. We are among the fastest growing wine markets in the world, and as a destination for U.S. wine, it's a big deal.
The problem is that within Canada, we get into a trade negotiation. Softwood lumber is about $19 billion, I believe. The dairy industry here is $21 billion. Our industry on a revenue basis, while we punch above our weight class—we're $9 billion in terms of economic impact—is slightly under $1.5 billion in revenue.
As an industry going into this fight, who's going to be sacrificed? We could be a pawn in this whole negotiation with the United States, and that scares the you know what out of us.
This is going to make it even more difficult. As people have alluded to, we're facing a series of challenges on the trade front and on the internal agreement. As you said, alcohol is left out. We're seeing an increasing balkanization of the country. You have to remember that, as Canadian businesses, we need a strong, vibrant, domestic market, because the people who we're competing with come from much larger companies, which gives them huge economies of scale and opportunities. If we can't have free trade inside Canada, we're shooting ourselves in the foot.
We're optimistic. We hope that the structure that's been set up to look at alcohol will pay some dividends, but at the moment it's getting worse and worse as the country continues to put barriers in place to products from one province to another province.
We're starting to see the emergence of small distillers. That's a great thing, right? Innovation, as you say, economic development and investment, by those small players, is a great thing. It doesn't matter whether they're a vinery, a brewery, or a distillery, because they will be the hardest hit by government reaching in and taking the money first. So, as I said, we are contending with all different kinds of challenges right now.
We have been big supporters of CETA. This is happening on the eve of CETA, which is critically important to Canada, because it is the first time that Canada will have a distinct tariff advantage over the United States in a huge market. So here we are going into this, trying to finalize this when some are balking about it in Europe, and we're likely going to have a trade fight because of it, and you could not have worse timing. There are a number of factors that we're all trying to contend with. Stripping investment out of the business—it doesn't matter which one—is going to be extremely counterproductive.
As I said, we had this experience in the 1980s. Before we had indexation in the 1980s, Canada was the second-largest producer and supplier of whisky to the world—second only to scotch. That last decade of the eighties is when we took our eye off the international market and stopped investing, and we're now number four and are becoming a distant fourth. More pressure on us isn't going to turn this around.
My riding is Huron—Bruce, and we've had a number of breweries and some wineries come on board.
My private member's bill was on excise tax. When I talked to one of Mr. 's staff about it, he said, “You know, you're lucky we don't raise the excise tax instead of lowering it.” I thought he was kind of kidding, but I guess it was true. I couldn't believe it when I heard that he was going to raise the tax. This is going back quite awhile ago.
These businesses face costs: the fire codes that they must meet, the rules and regulations, the effluent that comes from their facilities, and so many things. I know one of the breweries in my riding spent about $5 million, and they figure it probably cost them $2 million more to build it in rural Ontario than in the city.
Jan, could you talk about some of the massive costs—forget the taxes—of doing business here, and the red tape, let alone having to face an escalating excise tax? It's incredible to think about it.
There's no question that Canada is a complex market, and there are many, many rules around our different businesses that add to the cost of doing business. The one thing I would mention to the committee to keep in mind is that Canada, before all of this happened, already had the highest taxes on alcohol in the world—the highest. So someone suggesting that this is just a little bit more, when you already have the highest taxes in the world...?
Our biggest emerging competitors lately are in fact bourbon distilleries and straight whisky distilleries in the United States. They're not facing this kind of issue. They're not facing carbon taxes. They have free access right across the 50 U.S. states with no impediments, and if there are impediments, they get them sorted out very quickly.
While we're all celebrating Canada's 150th birthday, I would just mention that two of our brands, Wiser's this year marks 160 years of continuous production and sale, and next year, 2018, Canadian Club will be celebrating 160 years. We have a long proud history of making whisky in this country. I'd also mention, by the way, that a Canadian whisky was picked last year as the best whisky in the world by the Whisky Bible.
We know that we make these fantastic products. The single largest challenge facing the spirits business in Canada, because we operate in a global industry, is attracting investment to the Canadian marketplace and the Canadian business.
Imagine yourself as an investor. Where are you going to put your money? Are you going to put it into a business that every year faces an unceasing tax increase that you can't do anything about and it's going to take more and more money, or are you going to look for another opportunity? I think what we're going to see is people voting with their feet, across all of our businesses, not just the spirits business.
Thank you very much, Mr. Westcott.
In budget 2017, we also look at cigarettes. The excise tax is going from $21.03 to $21.56, which is the actual effective charge for cigarettes. When I get into some greater detail looking at the excise tax for distilled alcohol, it's going from $11.696 to $11.930, which is about a 20- or 21-cent increase in retail, at sale. According to The Toronto Sun, it's a 5-cent increase for a case of 24 beers. This doesn't sound like a lot to someone like me who might enjoy a bit of alcohol once in a while.
When I look at the escalator, this actually reduces the long-term political questions related to it. For instance, if you're a business, you'd like to have a long-term, stable environment in which where you can predict how much something is going to cost in the long term. When you look at an escalator, it actually removes the politics from it, so you don't have a government that comes in and says they're going to increase it by this amount or reduce it by this amount, according to how much lobbying you're able to do. It says that every year, the excise will be aligned with the consumer price index, because everything increases in price in this country. The tax officials, who have to go out collecting from and monitoring the distilleries, make sure that this is actually occurring. This all costs money.
I am interested in one other, final thing before I'll let you go. I was reading something from the British Columbia Chamber of Commerce, which was looking at the federal excise tax review for distilled spirits. Apparently, there's actually a difference in the raw material, origin, and size requirements in duty rates. For beer, if you get the raw material from anywhere, there's a size requirement. It's tiered at $0.06 per litre. It's going up a little bit from last year. When you look at wine, if your raw materials, meaning your grapes, are produced in Canada, and.... I'm not sure of the term in English. It would be distilled, I guess?
I'm not sure where the question was in there because we started with tobacco and ended with wine.
On the issue of the excise tax for domestically produced 100% VQA wines, it was negotiated in 2006 that it would be excise exempt. The federal government brought that in at that time and it benefited the industry. The industry saw very strong growth, particularly in British Columbia, where they have a different regime in terms of the provincial legislation there. They saw a significant increase in business there.
ICB brands, which represent 75% of our domestic sales, do attract federal excise. They do pay excise, including the proportion that is domestically produced, so it's a significant part. We do pay the excise. However, the issue is that right now, we have a negotiated agreement with Europe with regards to the exemption of VQA wines from excise. They have gone on notice and said that, if we go ahead with the increased excise tax and the escalator, tying it to the CPI, they will challenge the exemption for VQA wines.
That will add several dollars to the price of one of my bottles of wine and literally put us out of business. We will not be able to compete. We're competing in a marketplace that has billion-dollar companies located in France, Italy, Spain, and the United States, which want our market. The LCBO is the largest buyer of spirits and alcohol in the world, and those companies really want our business. They have 70% of the market and they want more. They've already told us that they will go up against us and they will file a trade complaint in that regard.
First, thank you all for being here. We've now heard the Liberals' latest justification for the tax. It's a health tax now, according to the member over there. I'm wondering how they're going to sell the notion that on the one hand we're taxing alcohol because it's a health hazard, but we're legalizing marijuana because it's okay to smoke marijuana. This is the rationale that we deal with on a daily basis, guests.
I want to take a couple of minutes and ask a few questions of Ms. Reynolds in the restaurant business. I'm from Alberta where not only has the economic downturn substantially impacted the restaurant business there, with restaurants closing left, right, and centre, but we've also had a carbon come into effect on the first of the year. We now have a minimum wage that is going up to $15 by next year. There might even have been some alcohol taxes in the provincial budget and now we have the excise tax. Obviously, the restaurant business is going to be one of the hardest hit by this tax.
Have you run the numbers, if you will, as to what the bottom line impact will be? I'm not in the restaurant business, but I think the largest margin is one the alcohol side of the restaurant business.
Thank you, Mr. Chair, and thank you very much to all the witnesses.
On the innovation, I understand that the beverage manufacturers would be eligible for the $1.26 billion in the strategic innovation fund. I have to say, coming from a riding that is considered the wine capital of Canada.... In Mississauga East—Cooksville, believe it or not, in 1811, Canada's Vine Growers Association was set up there. They had wineries along the Credit River. That has all changed today, but that is the history of my riding.
We've heard Mr. , Mr. , and others speak about what spirits, wine, and beer mean to our economy in terms of tourism and as an economic driver. At all levels of government, we have different taxes on those products. At the federal level, I've heard different numbers used by the witnesses, and I'm trying to get down to the exact number. Maybe you can help me with these numbers.
What I have here in front of me is that when it comes to a bottle of wine, at the federal level—meaning the changes that have been brought forward—it would mean less than 1¢ per bottle of wine. We heard from Mr. Ouellette that for a case of 24 bottles of beer, it would be about 5¢. For spirits, per bottle, it's about 7¢. What I heard thrown out, I think, was 63¢ or 64¢, and some other different numbers.
Can you break down for me how you came to those numbers? I have different numbers here, and I'm just trying to figure this out.
Thank you. First of all, I want to thank this committee for the opportunity to appear before you.
The Canadian Association of Mutual Insurance Companies is an association of 79 mutual and co-operative insurance organizations operating in Canada. About 75 of our members are what we would call farm mutual insurance companies, i.e., smaller companies created by farmers, for farmers, mostly in the 19th century—several even before Confederation.
We are here to present our concern in relation to Bill which, if adopted, would eliminate the tax exemption for insurers of farming and fishing property originally introduced in 1954. That was at a time when farmers and fishers had little choice other than to obtain insurance from their own mutual insurance company. To this day, in some regions across the country, that need still exists. You have to remember that farm risks and fishing risks represent high values, and oftentimes they are total losses.
While it would appear that the elimination of the tax exemption will affect only the insurance companies, this is absolutely not the case. This tax relief, provided by the exemption, is not retained by the mutual insurance companies. It is passed along to farmers and fishers through lower rates and premium refunds, and it also allows us to tolerate higher loss ratios on farm and fishing risks.
Indeed, the mutual insurance companies of farmers and fishers still exist for one reason: to provide affordable insurance protection to farmers and fishers on an at cost basis, without a profit motive. The large majority of active food producing family farms and fishing enterprises across Canada continue to be insured by their small mutual insurance company. Farmers and fishers still, to this day, make up the majority of board members governing their company.
To qualify for the tax exemption, insurers have to maintain a minimum farm/fishing premium of 25% of their total written premium. According to the Department of Finance, in 2014, some 40 companies were still benefiting from the tax exemption, 37 of which were farm/fishermen mutual insurers, most of them small mutuals.
A number of these farm mutual insurance companies report that their continued existence depends on the tax exemption.
The three non-mutual insurers benefiting from the tax exemption do so through a special tax exemption giving them an unfair advantage over mutual insurers.
Because of the evolution of the rural landscape, and the resulting effect on insurance, the average farm mutual insurance company reports doing 15% of its business with farmers and fishers. In CAMIC's pre-budget submission, we recommended that the qualifying threshold be reduced to 5% of the total written premium, in concert with the elimination of the special tax treatment given to the three non-mutual insurers. The suggested measures would have been cost revenue neutral to the federal government.
While the government has not agreed to bring about the recommended changes, we fear that the elimination of the total tax exemption, as proposed under Bill , will have a very negative effect on mutual insurers of farmers and fishers.
We, therefore, recommend that paragraph 149(1)(p), and subsections 149(4.1) to 149(4.3) of the Income Tax Act be maintained as they are currently exist.
In closing, let me point out that farm mutual insurance companies provide significant benefit to the small rural communities in which they are located. They ensure that insurance is available at all times, even when the market is tight. Mutual insurers are also significant employers in their community. They purchase locally sourced goods and services whenever possible, and participate in the betterment of their community.
Thank you for considering CAMIC's recommendation.
Thank you very much for inviting me to speak.
I'm going to speak about the public transit tax credit. In the past couple of years, I've conducted research to try to understand the effectiveness of the public transit tax credit. Based on this research, as well as research conducted by others, I'd like to make three points.
The first point is that the public transit tax credit has failed to achieve its goals of substantially increasing public transit usage, reducing congestion, or reducing air pollution and greenhouse gas emissions from transport. This conclusion is based on statistical evaluation of the policy that I've conducted with one of my students. The study used data from the 2006 census and the 2011 national household survey and focused on responses to questions asking individuals how they travel to and from work. We established the effectiveness of the policy by comparing travel patterns of individuals who were and who were not eligible for the tax credit. Because the tax credit is non-refundable, only individuals that pay income tax are eligible to receive the tax credit. Individuals who don't pay income tax can therefore serve as a control group, while individuals who did pay income tax and are therefore eligible for the tax are the treatment group. Our study compared changes in public transit usage in the treatment and control groups from before and after the tax credit became available. We statistically controlled for a large number of other factors that could impact transit ridership in order to isolate the effect of the tax credit.
The results of the study suggested the tax credit had only a very small effect on public transit ridership, raising the proportion of individuals regularly using public transit by about 0.25 to 1 percentage point in comparison to a baseline transit ridership of about 12%. While this increase in transit ridership is desirable, it is not a substantial change from the status quo. Importantly, our study finds that the great majority of individuals who claimed the public transit tax credit, between 92% and 98% of all claimants, made no changes to their behaviour. They would have used public transit regardless of whether or not the tax credit was available.
This brings me to my second point, which is that, despite not achieving its goals, the public transit tax credit is expensive. The Canada Revenue Agency reports that in 2011 the tax credit cost about $170 million in foregone revenue. Based on the findings in my study, this suggests that between $1,200 and $4,800 is required to induce one additional person to take public transit. It is also possible to calculate the cost of reducing carbon dioxide emissions using the public transit tax credit. My study suggests that reducing one tonne of carbon dioxide emissions using the tax credit costs between $1,000 and $22,000 in foregone government revenue. This is much higher than the cost of other carbon mitigation opportunities. It leads me to conclude that the tax credit is not cost effective.
The final point I'd like to make is that the public transit tax credit is regressive. Because it is a non-refundable tax credit, many low-income individuals are excluded from the tax credit by design. Further, higher-income households likely have more access to tax planning advice than lower-income households and are more likely to receive the tax credit if eligible. Studies by the Department of Finance as well as studies by academics published in the journals Canadian Public Policy and the Canadian Tax Journal, show that the public transit tax credit is disproportionately claimed by middle or high-income households to the exclusion of low-income households. Overall, the tax credit likely had a small regressive effect on the distribution of income.
For the three reasons I have described, I support the elimination of the public transit tax credit. In doing so, I'd like to make two additional points. First, while I have studied the public transit tax credit and have concluded that it is expensive and ineffective, I have no reason to believe it is uniquely so compared with other tax credits. There exists research that suggests that several other tax credits in the federal system are expensive, ineffective, and regressive. I support the continued examination of tax credits in the federal tax system undertaken by the federal government with a view to improving the transparency and efficiency of the tax system.
Second, while I don't think that the public transit tax credit is a well-functioning policy, I do strongly support the objectives under which it was developed, including reducing congestion and reducing transport sector emissions. Research suggests that the best way to achieve these objectives involves imposing distance-based fees on road users or emissions-based fees on emitters, such as road pricing, congestion pricing, or greenhouse gas pricing. I strongly encourage the further implementation and study of these options by governments in Canada.
Thanks very much for the chance to address the committee.
Good afternoon, Mr. Chair and members of the committee. Thank you for allowing me to speak today.
I'm here to support the amendment to increase the collection of HST/GST from the ride-sharing companies and affiliated drivers.
My name is Marc André Way. I'm the president of the Canadian Taxi Association. I have also been the chief operating officer of Coventry Connections since 2004, operating 1,500 taxis in six municipalities in Ontario. I'm also co-owner of Capital Taxi, a business operating in Ottawa since 1938. My experience in the ground transportation business is extensive in the taxi, limousine, black car, and sedan business.
I'm an active member of the community. I hold a seat on the transportation committee of the Greater Ottawa Chamber of Commerce, and the taxi advisory committee of the City of Ottawa. I'm also a board member of the Taxi, Limousine and Paratransit Association, an international association that will be celebrating its 100th year of service in 2018.
We are presenting today to support the government's decision to address the significant inequity in the application of GST/HST that has a substantial impact on us and our members. The Canadian Taxi Association is the voice of the taxi industry in Canada. Our members consist of the largest companies in most major cities across Canada. We speak for an industry of 30,000 taxi owners and operators and over 50,000 taxi drivers, who undertake over $2 billion in consumer transactions on an annual basis.
All taxi operators in Canada are required to be registered for GST and HST purposes, and to charge, collect, report, and remit HST and GST on their fares regardless of their annual revenue.
Ride-sharing companies such as Uber and TappCar and their drivers should be required to be registered. Typically today they are not registered and do not charge, collect, report, or remit GST or HST. This creates a significant competitive disadvantage for our drivers and members and provides a direct competitive advantage to the ride-sharing companies and their drivers. The recent budget of 2017 levels the playing field for us.
Over time, changes in the economy have made a number of provisions in the Canadian tax statutes less relevant than when they were first introduced. To address these changes, budget 2017 proposes to amend the definition of a taxi business under the Excise Tax Act to level the playing field and ensure that ride-sharing businesses are subject to the same GST and HST rules as taxis.
Our reason for strongly supporting those measures in budget 2017 are to ensure a fair, equitable, consistent application of GST to all suppliers in the private transportation industry, including taxis and ride-sharing companies; to maintain a competitive private transportation industry unburdened by arbitrary tax preferences; to simplify the application of GST in the private transportation industry for both consumers and suppliers; to ensure the stability of the federal government's HST/GST revenues for ride-sharing companies and their drivers, just as our members and drivers collect, report, and remit for the government's benefit; and to improve the operation of GST for the benefit of all Canadians.
In conclusion, the past unfair and inconsistent application of the excise tax's small supplier registration exemption poses a significant threat to the competitiveness of the private transportation industry. Unless amendments to the excise tax are made, small supplier ride-sharing companies and their drivers will have an arbitrary but significant price advantage in the market. Consumers will be forced to seek smaller supplier ride-sharing company drivers in order to receive a lower fare.
As consumers continue to increase their reliance on the services offered by ride-sharing companies and their drivers, the federal government's GST revenues from private transportation companies will steadily decline. Accordingly, we support the Government of Canada and the Department of Finance amendment to the excise tax to address this inequitable application of the GST/HST between our drivers and members and the ride-sharing companies and their drivers.
Thank you, Mr. Chairman.
I thank the members of the Standing Committee on Finance very much for their invitation.
Transport 2000 Québec is a non-profit association whose mission is to contribute to the overall development of public transit in Quebec and improve user services, while ensuring that the users' viewpoint is taken into account. Our vision is to ensure that citizens have access to affordable, high-quality and safe public transit services. With our partners from the various regional chapters, we are members of a Canada-wide network, Transport Action Canada.
Transport 2000 was astounded when it was announced in the last federal budget that the personal public transit tax credit would be abolished. Over the next five years, close to $1 billion will be removed from the pockets of citizens who use public transit.
The 15% tax credit meant that citizens could recover the equivalent of close to two months' monthly fees for using public transit. This compensation for choosing sustainable transport just went up in smoke, and no new incentive has been proposed to replace it.
Among available studies, a study pointing to the weak impact of the tax credit on increasing the use of public transit was mentioned. The study, done by Professor Rivers of the University of Ottawa, showed an increase in ridership of between 0.25 and 1 per cent, which represents a major increase on a Canada-wide scale. So the credit did have an effect on the use of public transit networks. We are talking about 35,000 to 154,000 additional daily users.
Aside from those figures, the tax credit was claimed by 1.7 million Canadians in 2012, which represents $170 million that was returned to the pockets of taxpayers who used public transit. In order to obtain that credit, those same taxpayers in one year spent $1.38 billion in transit fees. Thus, except in Toronto, every Canadian who spends about $1,000 a year in transit fees will be deprived of approximately $150. That is the equivalent of a 15% fee increase.
Econometric studies have shown that any increase in public transit fees leads to a decrease in ridership. Many users decide to change transport modes, that is to say to walk or use the car. Given these facts, we estimate that on a yearly basis, this could mean some tens of millions fewer public transit trips throughout the country.
According to the Toronto Transit Commission, the TTC,
“The [Public Transit Tax Credit] has undoubtedly had a positive impact on TTC Metropass sales and ridership growth”, and the TTC feels that eliminating it “will erode at least some of these gains.”
If everyone starts to use the car, there will be millions more tons of greenhouse gases in the atmosphere every year.
Ms. Plouganou, you have the floor.
Historically and empirically, when there are no incentives to encourage the use of public transit, such as an improvement in services, a freeze on fees or some other measure, public transit ridership remains about stable in Canada.
When economic activity is stable, ridership remains stable. If the economy improves, ridership increases, and if there is a recession, its use decreases. Those are the main factors that affect the level of ridership.
In Quebec, there was a program to improve Quebec public transit policy and service from 2007 to 2012.
As an illustration, here are a few figures: during that period in Quebec, nine transport companies expanded their service offer by 28%, and ridership increased by 14%. This happened at the same time as the public transit tax credit was in effect. So it is difficult to separate the effect of the tax credit and of the program on those increases.
We feel that infrastructure programs are important, but the range of measures is more important. That is why we advocate the use of that approach, both for users and for investments and operational costs.
I don't have a formal written motion, but I think we need to ensure, when we do clause by clause as a normal procedure, that we establish parameters to make sure that we understand how long we'll be debating clause by clause.
It's my understanding that previously.... Perhaps I can get assistance from the clerk, but I've highlighted a few key points, which we could discuss, to make sure that we have parameters for our clause-by-clause study.
First is that the committee proceed to clause-by-clause examination of Bill no later than Monday, May 29, which I think is something we already agreed to.
The second is that the chair may limit debate on each clause to a maximum of five minutes per party per clause.
Next is that the committee may sit until 9 p.m. on May 29, 2017, and start again on May 30 at 8:45.
The next is that if clause-by-clause consideration has not been completed by 9 p.m. on May 30, all remaining amendments be deemed moved and the question be put by the chair.
The last would be that after completion or passage by the committee, the chair report to the House as soon as possible. I'm gathering that there would be some more technical language to ensure this scheme, but I think those are the key elements that would be normal in preparation for clause-by-clause study.
The introduces the enabling legislation of the Invest in Canada Hub announced in the 2016 Fall Economic Statement.
This new federal body is to work globally, in partnership with federal departments, as well as with provincial and municipal investment attraction offices, to ensure that Canada makes the most of every opportunity to attract global investment.
Foreign direct investment makes a significant contribution to the Canadian economy—creating jobs, spurring innovation and driving trade. Foreign-controlled enterprises in Canada employed 1.9 million Canadians in 2015, representing 12% of Canadian jobs and 30% of manufacturing jobs. They are responsible for 49% of all of our merchandise exports and 37% of all business expenditures in research and development.
The Advisory Council on Economic Growth noted in its October 2016 report that Canada stands to gain enormously by attracting more foreign direct investment.
The enabling legislation that you're reviewing determines, first, the nature of the entity as a departmental corporation.
Second, its mandates and functions are to create the partnerships required to leverage all of what Canada has to offer; brand Canada as a premier investment location; and to provide a one-stop service to assist investors in navigating the investment landscape; and to actively pursue anchor investment projects and deliver world class after-care services.
Third, the act also determines the governance of the entity where the minister provides directions, the board of directors manages the organization, and the CEO operates it on a day-to-day basis.
Fourth, the act determines the general powers, and its specific authority of the entity over administrative policies.
Fifth, it determines its human resources regime.
Overall, the enabling legislation allows for the creation of an organization able to interact effectively with business while being subject to the necessary oversight and accountability measures.
Is there any other discussion?
I would say this, and you can tell this to the powers that be, Mr. Marcotte. In saying this, I think I would be speaking for all of us here on some of this, that in my view this is a good news story, but it should be a separate piece of legislation and not in a budget bill.
I think we're seeing too much of this. Legislation that could be handled separately is a good news story to profile, but if it's in the budget bill, it's not going to get enough debate. I personally support it, but in any event, it's a problem when we see these areas in a budget bill. Having said that, I know that's not your fault, not your responsibility, but I couldn't sit here and not say it.
With that, thank you very much for your presentation. I didn't introduce you fully. Mr. Marcotte is the director general, investment and innovation, with Global Affairs Canada. André LeBlanc is the executive adviser to the transition team, also with Global Affairs Canada; and Ms. Pellerin is counsel with legal services.
Thank you for your efforts, and thank you for your appearance.
Like most other governments, the federal government charges fees for services that provide recipients with benefits beyond those received by the general public. Some examples of these fees include fees for services, such as icebreaking; inspection of cattle for export; fees for products such as marine navigation charts; fees for the use of a facility, for example, a wind tunnel; and fees for rights or privileges, for example, the right to use a publicly owned or managed property.
It should also be noted that the service fees act will not apply to bridge tolls, as the federal organizations responsible for administering these federal bridges do not fall under the scope of the legislation. For all fees that are subject to the act, the amount charged is normally intended to recover all or part of the product or service that's being provided. In setting the fees, the government must consider the private versus public benefit of the associated fees, in other words, the extent to which a product or service provides a benefit to all Canadians, such as food safety, versus the profits that specific businesses derive from the sale of safe foods.
Under the current legislative framework governing fee setting, many organizations have not changed their fees for years, if not decades. As a result, taxpayers currently subsidize relatively high percentages of products and services, many of which primarily benefit users of specialized government services. A modern legislative framework will support a more cost-efficient delivery of its services. It will also help improve transparency and oversight, and ensure that those who set fees are accountable to Canadians.
Key changes under the service fees act include the fact that all fees will be subject to the legislative framework, improving the accountability regime that would ensure fee payers are reimbursed when performance standards are not met, a streamlined approach for setting fees and speeding up the process, the introduction of an automatic escalator clause to ensure that the fees maintain pace with actual costs, and increased transparency to provide Canadians and parliamentarians with annual information on fees. This includes both mandatory departmental reports that would be tabled annually in Parliament, and the requirement by the president of the Treasury Board to make a consolidated report available.
It should also be noted that introducing new legislation will not increase fees beyond the proposed inflationary escalator. Fees are set under ministerial authority after consultation with interested stakeholders. The modernization of the legislative framework opens the door for departments and agencies to look at rebalancing the burden of costs between general taxpayers and those benefiting from those specialized services.
At this point I'd be happy to take any questions.
I thought we might be able to get through this section, but we have a number of questioners—I can see why—and we won't be able to finish. You'll have to come back again. We will have to hear from you at about 5:30 tomorrow.
Just for the committee's information, we have four witnesses, instead of the six we had hoped for, on each panel tomorrow. We'll have four witnesses from 3:30 to 4:30, four witnesses from 4:30 to 5:30, and then at 5:30 we will have Treasury Board come back. Then we'll go to division 18 on infrastructure, division 13 on the immigration act, and division 14 on the EI Act.
Mr. Ermuth, I have one question for you to think about in the meantime. When the inflationary factor, the escalator, is put in, what incentive is there for a department to do things more efficiently and cut costs? That's a huge concern I have with escalator clauses. How do you create the pressure on the department to create efficiencies on their end and cut costs? You can have that answer tomorrow.
With that, we'll adjourn until tomorrow at 3:30.
We have three minutes to get to the vote.
The meeting is adjourned.