FINA Committee Report
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Chapter 1: Introduction
In 2019, growing concerns about climate change risks spurred demonstrations across the world and prompted parliaments in Canada and many other countries to declare a “climate emergency.”
It was within this context that, in Summer 2019, the Standing Committee on Finance from the 42nd Parliament invited Canadians to share their proposals for the 2020 federal budget, notably in relation to the “required transition to a low-carbon economy.” On 29 January 2020, the Standing Committee on Finance of the 43rd Parliament (the committee) adopted a motion to consider these proposals as part of its pre-budget consultations in advance of the 2020 federal budget.
Following presentations from nearly 70 organizations and individuals during the pre‑budget hearings in Ottawa from 3–6 February 2020, and after having received more than 270 briefs submitted in Summer 2019 or in support of testimony in 2020, the committee presents its report on the proposals that should be included in the 2020 federal budget.
Chapters Two, Three, Four and Five highlight the themes of the proposals related respectively to the environment and climate change, people, communities and businesses made by the organizations and individuals who appeared before the committee. These chapters also contain the committee recommendations in each area.
Chapter Six highlights the themes of the proposals concerning the government’s fiscal policy and regulatory framework, and presents the committee recommendations in these areas.
The proposals that organizations and individuals made through presentations before the committee and briefs are categorized in Appendix A. The topics that were addressed in the briefs received during the summer of 2019 are presented in Appendix B.
Chapter 2: Environment and Climate Change
According to the United Nations’ Intergovernmental Panel on Climate Change (IPCC), increased concentrations of greenhouse gas (GHG) emissions are negatively affecting people and the environment around the globe. This includes altering ecosystems beyond the survival capabilities of their natural inhabitants, increasing the frequency of dangerous weather events, and creating food and water shortages. Figure 1 shows the GHG emissions of G7 countries on a per capital basis. In 2017, Canada had the second highest per capita GHG emissions of the G7 after United States.
Figure 1—Per Capita Greenhouse Gas Emissions, G7 Countries, 2007 and 2017 (tonnes of CO2 equivalent per capita)
Note: Organisation for Economic Co-operation and Development’s data on GHG emissions excludes land use, land-use change and forestry (LLCF).
Source: Figure prepared using data from: Organisation for Economic Co-operation and Development, Greenhouse gas emissions and International Monetary Fund, World Economic Outlook Database, October 2019, Population, accessed 12 February 2020.
On the topic of the environment and climate change, witnesses focused their testimony on issues surrounding climate change policy, carbon pricing, environmental assessments, transitioning to a low-carbon economy, specific federal supports and Canadian land, parks, and waters.
With respect to climate change policy, witnesses highlighted a national climate change strategy, funding to municipalities, various energy efficiencies, international climate financing, model farms, agricultural approvals, a low-carbon building workforce, energy sector transitioning, circularity in Canadian economy, the low-carbon economy fund, single-use plastics, and Article 6 of the Paris Agreement.
Speaking on the Canadian Carbon pricing regime, witnesses focused on revenue use, fuel exemptions, farming activities, Canadian imports, large emitters, and northern challenges. Topics put forward with respect to environmental assessments included external expert advisory panels, Canada’s environmental assets, and collaborations with Indigenous and First Nations peoples.
Witnesses who spoke on transitioning to a low-carbon economy discussed sustainable finance, climate-related data analytics and emission inventories, zero-emission vehicles, farming practices, infrastructure retrofits, plastic packaging, fuel subsidies, Canadian shipping, and related legislative proposals.
The committee heard a number of requests for specific federal support and/or funding for green infrastructure projects, transit, heavy-duty vehicle de-carbonization, the Greenhouse Gas Reduction Fund, the Waterfowl Management Plan, zero-waste business investment, pest control, geospatial data, Statistics Canada’s environmental statistics, the Chemicals Management Plan, “agri-environmental” programs, and the efforts of territorial governments.
With respect to Canadian land, parks, and waters, witnesses touched on protected area management such as Indigenous and marine protected areas, a “Nature-Based Solutions Fund,” wetland and grassland restoration, geographic data collection, abandoned fishing equipment, water monitoring, Great Lakes’ initiatives, ministerial responsibilities, bird migration, and the enforcement or enhancement of the Canadian Environmental Protection Act, 1999, the Fisheries Act and the Species at Risk Act.
Adopt the recommendations of the Expert Panel on Sustainable Finance that are within federal jurisdiction and support other jurisdictions and the private sector to do the same.
Adopt a transparent environmental framework with legislated five-year GHG reductions targets to achieve net-zero emissions by 2050, and publish the government’s ongoing progress in mitigating the impacts of climate change.
Develop and implement a fully funded strategy to transition to a low-carbon economy, which would limit some of the most devastating impacts of climate change for our generation and those to come while putting justice for Indigenous people, workers and the least fortunate at the heart of the transition to a green economy.
Expand the network of rapid charging stations for electric vehicles.
Examine ways to encourage more Canadians to transition to zero-emission vehicles and manufacturers to produce and sell a greater number of such vehicles.
Create a rebate for used electric vehicles.
Continue to help establish and maintain Indigenous protected areas and conservation areas so that Canada fulfills its international commitments to protect biodiversity by 2020 and beyond.
Chapter 3: People
Canadians collectively embody a rich mosaic of various cultures and traditions. And, like Canada’s vast geography, they personify the regional character of their respective communities as well as their province or territory. Given the wide range of their individual realities, federal programs and services seek to meet the diverse needs of Canadians.
During its 2020 pre-budget consultations, the committee heard from witnesses who proposed various measures to improve the lives of Canadians. These topics ranged from improving health services, making education more accessible, modifying the personal income tax regime, and implementing measures for childcare and caregiving. Specific measures for Indigenous communities, seniors and under-represented groups were also proposed.
According to the Patented Medicine Prices Review Board, Canadian public drug plan expenditures represent a significant portion of the overall healthcare budget. It concluded that “the total cost of prescription drugs in Canada was $33.7 billion in 2018, with the largest component (42.7%) financed by the public drug plans and the remainder paid by private plans (36.6%) or out of pocket by households and individuals (20.7%).” Relative to the other G7 members, pharmaceutical spending stood at $794 USD per capita in Canada in 2016. As demonstrated in the Figure 2, this is in line with the G7 average of $761 USD.
Figure 2—Per Capita Pharmaceutical Spending, G7 Countries, 2016 (USD)
Source: Figure prepared using data from: Organisation for Economic Co-operation and Development, Pharmaceutical Spending, accessed 12 February 2020.
Witnesses made proposals which focused on a range of public health initiatives. These items included proposals relating to health research, homecare, pharmacare and mental health. Furthermore, propositions for funding were requested for a variety of charitable organizations involved in the promotion of health-related initiatives.
Proposals regarding health research focused on providing support to initiatives that examine the health impacts of climate change on individuals, communities and businesses. Other recommendations included modernizing the health care system through innovation and providing targeted investment in pediatric cancer research and aging.
Invest $10 million annually over three years towards paediatric cancer research.
With regard to mental health, propositions focused on adapting existing programs to deal with the psychological impacts of climate change, additional resources be made available to prepare communities to adapt and cope with the consequences of climate change, funds be put towards the development of new programs and services, and funding be earmarked to modify the delivery model for dementia patients.
Invest $2.5 million to provide all firefighters with mental health awareness training.
Consult with industry stakeholders and healthcare providers to help address funding needs to coordinate mental health services across the country.
Invest $16 million over four years to enable Inuit, Métis and First Nations communities and organizations to foster Indigenous leadership and involvement in mental health care, and to effectively respond to the disproportionate impacts of climate change on the mental health of Indigenous peoples and communities.
Multiple organizations called for the establishment and implementation of a universal pharmacare program. Witnesses also testified that funding for vaccines and various types of insulin should be part of the program.
Implement a universal, public, national pharmacare program.
Public Health Initiatives
Witnesses proposed the implementation of a national diabetes strategy, that investment be put towards diabetes research, and that the strategy be tailored to facilitate Indigenous specific approaches regarding its implementation. There was also a call for the creation of a national registry for patients with type 1 diabetes. Other witnesses recommended the implementation of an annual cost-recovery fee on the tobacco industry, increased funding towards the improvement of cardiac-related health services, and continued support be put towards the federal framework for post-traumatic stress disorders.
Increase the federal tobacco tax, which has proven effective in reducing tobacco use among youth.
Support the existing work of the Canadian Cardiovascular Society (CCS) on cardiac benchmarking in Canada to create a permanent national cardiac benchmarking program in accordance with the CCS plan, by making a three-year investment of $2.5 million each year to enable the CCS to sustain the program.
Support the implementation of a new national diabetes strategy based on the Diabetes 360˚ framework and facilitate the creation of Indigenous-specific strategic approaches led and owned by Indigenous groups.
The government move forward with dedicated funding to improve access to rare disease treatments in the upcoming fiscal year.
Other Health-Related Proposals
Witnesses discussed the importance of a transparent and equitable process regarding federal funding programs for health organizations. They also suggested that additional funding be allocated towards the Strategic Innovation Fund, the CAN Health Network, digital platforms in health organizations and home care.
Invest in comprehensive home care for people who cannot keep living in their homes.
Education and Training Skills
According to Statistics Canada’s publication Education Indicators in Canada: An International Perspective 2019, the majority of international students in tertiary education in Canada for reference year 2016-2017 were registered in Bachelor’s or equivalent level programs. Figure 3 presents the number of international students by region who have crossed a national or territorial border for the purpose of education and are enrolled in Canada. For the academic year ending in 2017, figures from the UNESCO Institute for Statistics show that over 124,000 students came from Asian countries (82,310 students from East Asia and Pacific countries and 42,113 students from South and West Asian countries).
Figure 3—Number of International Students by Region of Origin Enrolled in Tertiary Education Institutions in Canada, 2017
Source: Figure prepared using data from: UNESCO Institute for Statistics, Inbound internationally mobile students by region of origin, accessed 12 February 2020.
Witness proposals focused on improving the accessibility of Canada Student Grants to graduate students and supporting projects to improve energy efficiency on college campuses. With respect to skills training, proposals included the promotion of skilled trades nationwide and supporting skilled trades in industries that minimize their environmental impact. Other recommendations included supporting private sector organizations who provide skills training with additional tax credits and granting additional access for international students to obtain work experience during their studies.
Invest in a national campaign to promote skilled trades as first-choice careers and provide funding for data collection of local and regional labour market information, so that all levels of government, employers, and other relevant organizations are able to better match Canadians with available job and career opportunities. This will also allow governments to manage future labour skills requirements.
Employment and Labour
The Organisation for Economic Co-operation and Development (OECD) stated that “employment growth in Canada has increased markedly, along with strong rises in population and labour force participation in 2019.” Moreover, the OECD indicated that the “unemployment rate has continued falling to record lows in Canada.” Figure 4 below presents the unemployment rates in G7 countries in 2019. Once again, Canada’s unemployment rate was similar to the G7 average.
Figure 4—Unemployment Rate in G7 Countries, 2019
Note: International Monetary Fund’s estimates for 2019.
Source: Figure prepared using data from: International Monetary Fund, World Economic Outlook Database, October 2019, accessed on 12 February 2020.
Organizations stressed the need to improve employment insurance by expanding benefits, changing eligibility requirements, and implementing projects to assist seasonal workers. Other proposals included sector specific initiatives to deal with labour shortages as well as support for initiatives directed towards youth and experienced workers.
Undertake a comprehensive review of the Employment Insurance system, including the “black hole” and to guarantee the independence of the fund.
Increase the duration of EI sickness benefits from 15 weeks to 50 weeks.
Work with the various hotel and tourism associations in Canada to develop and implement a program to address seasonal labour shortages.
Replicate the new three-year immigration pilot program for the agri-food sector, which gives temporary foreign workers the option of becoming permanent residents, in the hospitality industry in order to mitigate the negative effects of the labour shortages that industry experiences.
Review and update the Temporary Foreign Worker Program by reducing application fees, simplifying the process for workers submitting new applications and creating a path to permanent residence.
Establish measures that will encourage recent graduates and immigrants to accept jobs in rural regions.
Personal Finances and Taxation
According to a publication of the Library of Parliament, “personal income from almost all domestic and foreign sources is taxed, including labour income from employment or self‑employment, pension income, capital income, real and intellectual property income, and most government benefits.” This publication also explains that “Canada’s personal income tax system is progressive, and individuals with higher incomes pay more in taxes and pay a greater percentage of their incomes in taxes.” Figure 5 compares the combined federal and provincial income tax rates for the 2019 tax year.
Figure 5—Combined Top Federal and Provincial Income Tax Rates in Canada, 2019 (%)
Note: The combined top federal and provincial income tax rate for Quebec includes the Quebec Abatement, which provides a reduction of 16.5 percentage points of federal personal income tax for all tax filers in Quebec.
Source: Canada Revenue Agency, Canadian income tax rates for individuals - current and previous years.
Proposed measures on taxation included no increases to the personal income tax rates and the capital gains inclusion rates. There were also suggestions to freeze planned changes to the taxation of stock options and amend measures related to income splitting. Proposals were made on existing tax credits and deductions which included changes to Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) withdrawal rules, medical expenses, and incentives for home ownership. Moreover, changes to business succession provisions were also recommended in order to facilitate the transfer of ownership within families.
Concerning proposals on consumption taxes and excise duties, sector-specific proposals were made relating to duties being applied in the alcoholic and non-alcoholic beer, automotive, and short-term rental accommodation industries. Furthermore, measures relating to the taxation of tobacco and e-cigarette products were presented.
Make changes to the succession planning measures related to family business and farms to ensure fairness and certainty in intergenerational transfers, and that such transfers are done in an equitable way.
Indigenous organizations made a series of proposals that touched on supporting education and skills training in First Nations communities. These initiatives called for financial support for all educational levels. This includes reinforcing regional education models with additional financial support. Moreover, proposals were made to support Indigenous children by reinforcing the need to financially back the implementation of the following legislation: An Act respecting First Nations, Inuit and Métis children, youth and families and Indigenous Early Learning and Child Care Framework. There were also recommendations to support language instruction and industry-specific skills training relating to employment, entrepreneurship strategies for Indigenous women and economic development programs.
Public security is also a priority to Indigenous communities and organizations called for the creation of new initiatives. These proposals included providing additional investment to police agencies, supporting the existing security infrastructure, and implementing restorative justice programs in indigenous communities across Canada. Furthermore, providing financial backing to develop institutional governance was addressed as well as the establishment of an Arctic infrastructure bank.
Infrastructure priorities for Indigenous communities included improving road networks and water infrastructure. Other proposals focused on low-cost housing, housing affordability and income assistance.
Address the backlog of land claim and self-government negotiations with Indigenous organizations by increasing the staffing levels of federal negotiators.
Increase its support for Indigenous housing, including dedicated funding for northern communities.
Speed up work to improve Indigenous communities by:
- Providing clean drinking water;
- Renovating existing housing and building new housing;
- Implementing Bill C-92, which addresses child and family services.
Recognize Indigenous police services as essential services under the law to ensure they can obtain stable long-term funding like other police services, and expand these services in northern territories.
Include stable, predictable and sustainable funding in its next budget to implement the provisions of the Indigenous Languages Act.
Implement the Truth and Reconciliation Commission’s 21st Call to Action by providing “sustainable funding for existing and new Aboriginal healing centres to address the physical, mental, emotional, and spiritual harms caused by residential schools, and to ensure that the funding of healing centres in Nunavut and the Northwest Territories is a priority.”
Provide incentives for hiring, retaining, and training Indigenous workers.
Child care and Caregiving
Organizations proposed the development of legislation on child care, the creation of a secretariat to coordinate the work at the federal and provincial levels, and increased funding towards child care programs to be in alignment with existing international benchmarks. Other proposals included raising the quality of child care services and ensuring its affordability.
Caregiving proposals focused on providing additional resource support to communities to provide such care. These supports came in the form of aligning and improving employment standards between the federal government and the provinces, making amendments to existing tax credits such as employment insurance and the Canada caregiver credit, and extending the maximum period for caregiving benefits.
Continue to negotiate bilateral funding agreements with the provinces and territories to enhance the quality of child care services by improving wages, working conditions and training for workers; to improve access by significantly increasing the number of quality, licensed child care services that offer inclusiveness and flexibility for all age groups, based on a planned and publicly managed approach; and to make child care affordable for parents.
Poverty, Seniors and Under-Represented Groups
According to the Organisation for Economic Co-operation and Development, “long‑run increase in income inequality does not only raise social and political but also economic concerns: income inequality tends to drag down GDP growth, and it is the rising distance of the lower 40% from the rest of society which accounts for this effect.”
Figure 6 compares the level of income inequality in G7 countries using the Gini coefficient, the most commonly used measure of inequality. In 2015, Canada had a lower level of income inequality than the average of G7 countries. The United States was the most unequal country of the G7, while Germany was the most equal one.
Figure 6—Income Inequality, G7 Countries 2015 (Gini Coefficient)
Notes: A Gini coefficient of 0 means complete equality, while a Gini coefficient of 1 means complete inequality. 2015 is the most recent year for which Gini coefficients are available for all G7 countries.
Source: Figure prepared using data from: Organisation for Economic Co-operation and Development, Income Inequality, accessed 10 February 2020.
Proposals aimed at individuals with disabilities focused on the accessibility of programs to ensure that there are no barriers to access. This included increasing access to Health Canada approved treatments. Moreover, it was demanded that the recommendations made by the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities’s report on Canadians living with episodic disabilities be implemented. Some of the measures mentioned were amendments to eligibility criteria for the Canada Pension Plan Disability benefits and making the disability tax credit fully refundable. Other measures considered were simplifying the tax system to consider individuals with disabilities and the automatic qualification of the disability tax credit for individuals with type 1 diabetes.
Proposals aimed at the LGBTQ2 community called for policy reforms to ensure discriminatory practices in governmental programs and service delivery are eliminated. There were also calls to improve data collection and research on the LGBTQ2 community as well as Indigenous women, and to fully integrate gender-based analysis in the research process.
Measures aimed at improving programs for seniors were also recommended. Organizations called for the creation of a federal pension insurance program, insolvency legislation to extend pension liability in the event of corporate insolvency, increasing the benefits of existing programs such as Old Age Security, the Guaranteed Income Supplement and the Canada Pension Plan survivor benefit.
It was also proposed that a new indicator be created to measure poverty in Canada in order to replace the existing market-basket measure.
Modify the eligibility criteria for the Canada Pension Plan disability benefits and the disability tax credit to include people with episodic disabilities under the new definition of disability in the Accessible Canada Act.
Amend the requirements for the disability tax credit by reducing the hours to qualify and institute automatic qualification for all Canadians who require life sustaining therapy.
Amend the disability tax credit to make it refundable.
Eligibility for the disability tax credit (DTC) and a registered disability savings plan (RDSP) be uncoupled so that individuals who are denied the DTC do not have their RDSP government co-contributions clawed back.
Include withdrawals from Registered Retirement Savings Plans and Registered Retirement Income Funds that are made for medical reasons among the income exemptions for the Guaranteed Income Supplement.
Establish measures for employers to support employee training and retention for those age 65 and over who want to work, and raise the maximum income that seniors can earn before losing part of their Guaranteed Income Supplement payment.
Increase the Canada Pension Plan and Quebec Pension Plan survivor’s benefits.
Extend to three months the duration of the period during which Old Age Security benefits are paid to a deceased individual for the benefit of the surviving spouse.
Introduce a fund to support community organizations that advance the human rights of LGBTQI2S Canadians.
Invest in veterans issues, particularly to eliminate the delays veterans experience while awaiting a decision regarding their request for financial support.
Chapter 4: Communities
Canadian communities play their own role in our country’s economy and have requirements that are distinct from the individuals and business who live and work within them. In order for communities to flourish, they must be safe, secure, and equipped with the infrastructure that enables their economic and social activities. Charities, not-for-profits and social enterprises also play an important role in our communities, as they provide a public benefit that can meet the specific needs of their regions.
Safety and Security
Levels of criminal activity are an important factor in the safety of a community, and correspondingly, its economic activity. Figure 2 shows the rates of Criminal Code violations, including traffic violations, across Canada. In 2018, the rates of Criminal Code violations of the three territories and the four western provinces were significantly higher than the Canadian average.
Figure 7—Rates of Criminal Code Violations Including Traffic, by Province or Territory, Canada, 2018 (violations per 100,000 population)
Source: Figure prepared using data from: Statistics Canada, "Table 35-10-0177-01: Incident-based crime statistics, by detailed violations, Canada, provinces, territories and Census Metropolitain Areas," accessed 11 February 2020.
With respect to the safety and security of Canadians, witnesses highlighted issues surrounding flooding, flood mapping, earthquakes, national fire advisors, firefighting and firefighter mental health initiatives, the Joint Emergency Preparedness Program, Heavy Urban Search and Rescue task forces, Project Lighthouse and cyber security capabilities, beneficial ownership registries for property, high-risk insurance, and the Royal Canadian Mounted Police’s recruitment and staffing.
Work with the provinces and territories to create a national public registry of the beneficial owners of corporations operating in Canada.
Partner with the provinces and territories to complete all flood maps in Canada to ensure citizens have a fuller understanding of the risks faced when purchasing a home and introduce a national flood insurance program that recognizes the varying levels of risk faced by Canadians depending on their location and relevant demographic factors.
Commit additional funding for the Disaster Adaptation and Mitigation Fund.
Increase funding for the Royal Canadian Mounted Police to strengthen its capacity to recruit and train more officers.
Housing and Infrastructure
Certain witnesses touched on housing issues related to the mortgage “stress test,” 30‑year amortization periods, the National Housing Strategy, the National Housing Co‑Investment Fund, land write-downs, long-term rental assistance, co-operative housing, retrofit subsidies, protections for seniors, regional requirements, affordable housing, provincial/territorial funding partnerships, and the National Building Code.
Witnesses who spoke about Canadian infrastructure requested that the Committee consider proposals on public transit electrification, funding and partnerships with municipalities, the Disaster Mitigation and Adaptation Fund, the Canada Infrastructure Bank, the National Trade Corridors Fund, 5G infrastructure, a climate adaptation fund for critical energy infrastructure, the use of the Gas Tax Fund, the Trade and Transportation Corridor Initiative, flood defence, data collection, and rail connectivity.
Speaking specifically on rural and/or northern regions, witnesses focused their testimony on issues surrounding rural broadband, a pan-territorial infrastructure strategy, a dedicated northern infrastructure fund, all-season road networks, a long-term infrastructure plan for agriculture, regional fiber internet feasibility, telecommunications, and energy needs.
Maintain current subsidies for social housing agreements while increasing budgets for building, renovating and remodelling social and affordable housing.
Launch a national housing forum that would bring together provinces, territories, municipalities and the federal government to analyze municipal and regional housing requirements and coordinate action on key solutions to affect housing affordability, including both demand and supply-side measures, as well as rental housing and supply and data gaps.
Establish a program to provide home energy audits for homeowners and invest in home energy retrofits.
Examine the impacts of any plans to make Energy Star Certification mandatory by 2022.
Exempt mortgage renewals from the stress-test where the mortgagor has already met the obligations of their original mortgage.
Introduce a dedicated fund to assist municipalities that wish to electrify their transit fleets in partnership with the federal government. Investments would be focused on buses and the required infrastructure needed to keep them operational. Because of the difficulties inherent in switching en masse from a diesel system, a pilot project model offers the best path forward from a technical and financial perspective.
Make the investments necessary to significantly reduce the northern infrastructure gap to address the transportation, connectivity, energy, and climate-based challenges Northerners face.
Create a green renovation program with a commercial building component providing fiscal support that would cover both energy efficiency renovations and heating system electrification.
Allow hospitals to be eligible for green retrofitting funding through various existing and new funding streams, including disaster mitigation funding.
Implement the second phase of the Connect to Innovate program and release the funding rapidly.
Render small regional airports eligible for the same funding available to large airports.
Charities, Not-For-Profits and Social Enterprises
Witnesses underscored certain topics related to Canadian charities, not-for-profits and social enterprises. These topics included support for the Canadian Juries Commission, the Vanier Institute of the Family, Statistics Canada’s charitable sector data collection, a National Inuit Strategy on Research, and the need to ensure that these types of organizations are eligible for business subsidies aimed at reducing their climate impact.
Provide $20 million in funding over 10 years to the Canadian Juries Commission to support juror mental health.
Chapter 5: Businesses
Businesses are the means by which Canadians get most of the goods and services that they, as consumers, need or want. Businesses also employ the majority of Canadians and corporate income tax is the second largest single source of federal revenue after personal income tax. Corporations that are resident in Canada are required to pay tax on all taxable income earned worldwide, and some are eligible for size and/or sector‑specific corporate income tax rate reductions. Capital cost allowance rates also reduce the amount of tax payable as the cost of certain assets is deducted over their economic life.
During this year’s pre-budget consultations, witnesses focused their testimony on various aspects of corporate taxation, trade and tourism, mining, the energy sector, agriculture, fisheries, and supports for business innovation.
As shown in Figure 8, the corporate tax rate on general income decreased by 21 percentage points from 36% in 1980 to 15% in 2020, while the corporate tax rate including the small business deduction decreased by 6 percentage points from 15% to 9% in 2020.
Figure 8—Federal Corporate Tax Rate on General Income and Corporate Income Tax Rate Including the Small Business Deduction, Canada, 1980 to 2020 (%)
Note: The Corporate Tax Rate on General Income does not include the corporate surtax that existed between 1970 and 2007.
Source: Figure prepared using data obtained from: Income Tax Act, various years.
On the topic of corporate taxation, witnesses presented proposals on various subjects, including taxation of the digital economy, tax avoidance, provisions regarding the interest deduction, the employee stock option deduction and the reduction of the corporate income tax rate.
Furthermore, some witnesses suggested amending the Income Tax Act to extend the accelerated capital cost allowance eligibility provisions.
With respect to the taxation of the digital economy and corporate tax avoidance, witnesses argued for the taxation of the revenues generated by large foreign e-commerce companies in Canada. Other witnesses focused their testimony on issues surrounding the use of offshore corporations, the taxation of Internet platforms and the collection of sales taxes by non-resident vendors.
On the topic of interest deduction, witnesses spoke about the recent interest deduction limitation rule proposed by the federal government, offshore subsidiaries and the need for more government consultations with the business community.
With respect to the employee stock option deduction, witnesses focused their testimony on the draft legislative proposals that were tabled in June 2019 and the use of stock options by small and medium-size enterprises (SMEs).
Certain witnesses advocated for a reduction in the federal corporate tax rate to maintain the competitiveness of Canadian corporations following the recent corporate tax rate reduction in the United States.
Regarding capital cost allowances, some witnesses expressed concerns about eligible types of investments, particularly in the aluminum and the mining sectors.
The committee also heard a number of specific proposals about small business reorganizations, the flow-through share tax regime, the withholding tax, assistance to print news media and reforms of large corporation tax administration.
Ensure all corporations operating in Canada through a digital medium pay corporate income tax on their Canadian operations.
Amend the Income Tax Act to clearly define that income earned by private campgrounds who employ less than five full-time employees year-round be considered as “active business income” for the purpose of determining their eligibility for the small business deduction.
Examine the potential use of a tax credit for rural development similar to the Atlantic investment tax credit.
Review the rules defining passive and active business income, including the five‑employee rule for small businesses.
Examine the use of flow through shares to raise market capital for green tech companies/start-ups and beyond the green tech sector
Examine the use of fiscal tools, such as a flow-through share instrument similar to the Canadian Exploration Expense, to incentivize and facilitate capital investment for decommissioning inactive wells, facilities and pipelines.
Encourage Canadians to lead healthy lifestyles by reducing the excise duty rates applicable to beer products at or below 3.5% abv and exempting non-alcoholic beer products from excise duties in order to stimulate growth and investment in this underdeveloped space of Canada’s beer market.
Trade and Tourism
On the subject of trade and tourism, the committee heard proposals on topics such as funding for specific programs support for Canadian exporters, trade and investment agreements and border and customs issues.
Witnesses requested specific federal support and/or funding for Destination Canada, Canadian Experiences Fund, renewable energy solutions and clean-tech investments.
With regards to trade and investment agreements and support for Canadian exporters, witnesses focused on Export Development Canada, the Trade Commissioner Service and the Canada-United States-Mexico Agreement. Figure 9 shows that 75.4% of total Canadian exports went to the United States in 2019, 3.9% to China, 3.3% to the United Kingdom, 2.1% to Japan, 1.2% to Mexico, while the 14.0% remaining went to other countries.
Figure 9—Share of Total Canadian Exports, by country, 2019 (%)
Source: Figure prepared using data from: Government of Canada, Trade Data Online, accessed 12 February 2020.
The witnesses who spoke about border and customs issues highlighted problems with the visa application process, the Electronic Travel Authorization program for temporary residents and they requested more investments in the Canadian transportation infrastructure.
Continue and enhance investments through both the Canadian Experiences Fund and Destination Canada to support the diversification and international marketing of Canada’s tourism sector.
Further reduce internal barriers to free trade.
Ensure the continued integrity of the labels “Product of Canada” and “Made in Canada” by maintaining the current level of Canadian content and continuing to require the imported content of dairy products to be indicated.
Ensure that export duties under the Canada-United States-Mexico Agreement, which are imposed after a specific threshold on certain dairy products—milk protein concentrates, skim milk powder and infant formula—apply only to the exports of CUSMA signatories.
Provide the Canada Border Services Agency and the Canadian Food Inspection Agency with the resources they need to properly enforce regulations and standards regarding dairy imports at the Canadian border.
Meet its commitment to fully and fairly compensate dairy farmers in order to mitigate the impacts of the Canada-United States-Mexico Agreement.
Continue to provide dairy farmers with the remaining seven years of compensation, in the form of direct payments, to mitigate the impacts of agreements with transpacific countries and the European Union and include the total amount in the estimates for the upcoming fiscal year.
With respect to mining and energy, the committee heard proposals on various topics, including renewable energy, energy efficiency, the oil and gas sector and different specific requests for support and/or funding.
On the topics of renewable energy and energy efficiency, witnesses talked about technology, regulations, financing, tax incentives and the transition to a low-carbon economy.
Regarding the oil and gas sector, witnesses focused their testimony on innovation, regulation, the environment and taxation.
Witnesses also talked about mineral exploration, market development, value-added production and Natural Resources Canada.
Create a rare-earth minerals strategy.
Enhance resource shipping capacity in western Canada by approving new pipeline projects to safely transport oil to new markets, and within Canada.
Examine allowing businesses to use Qualified Environmental Trusts to set aside funds for the future remediation of oil and gas wells.
Launch a major initiative to modernize the forest industry by:
- Extending the production chain through a program supporting investment in wood processing businesses;
- Supporting research and development in the forest industry;
- Supporting projects involving biomethanation of forest waste;
- Supporting local initiatives that produce added value from forests: foraging, tourism, recreational fishing and hunting;
- Funding the battle against invasive species in all affected regions.
Agriculture and Fisheries
On the topics of agriculture, food and fisheries, witnesses presented proposals related to fisheries management, the dairy sector, as well as specific requests for support and/or funding.
Speaking about fisheries management, witnesses focused their testimony on stock assessment, monitoring capacity and data transparency.
Witnesses who spoke on the dairy sector focused on the content threshold, regulations, and the Canada-United States-Mexico Agreement.
Witnesses made specific requests for support and/or funding respecting sustainable agricultural practices, risk management, competitiveness, innovation, research and the environment.
Comply with our bi-lateral treaties with the United States regarding the Great Lakes and honour these commitments by increasing funding to the Great Lakes Fisheries Commission, starting with $13.15 million for fiscal year 2020–2021 and $19.44 million in fiscal year 2021–2022 and every year thereafter.
Provide funding for Agriculture and Agri-Food Canada with the objective to enter negotiations with the provinces to improve farm safety nets.
Research and development (R&D) is one of the key drivers of innovation, which in turn is a key driver of economic growth. In addition, innovation could be leveraged by countries to meet complex global challenges such as climate change while at the same time continuing to improve the economic well-being of their citizens.
According to the Organisation for Economic Co-operation and Development, “R&D expenditure is one of the most widely used measures of the innovative efforts of firms and countries.” Figure 10 compares the gross domestic expenditures on R&D as a percentage of gross domestic product (GDP) of G7 countries. In 2017, Canada had the second lowest gross domestic expenditure on R&D as a percentage of GDP, 1.6% compared to the G7 average of 2.3%.
Figure 10—Gross Domestic Expenditure on Research and Development, G7 Countries, 2017 (% of Gross Domestic Product)
Source: Figure prepared using data from: UNESCO Institute for Statistics, GERD as a percentage of GDP, accessed 10 February 2020.
On the topic of innovation, the committee heard proposals related to support for businesses, research and development, tax incentives and specific requests for funding.
Regarding support for businesses and research and development, some witnesses raised the issue of access to venture capital, grants and contributions, while others talked about industrial sustainability, environmental protection and the silver economy, which refers to the production of goods and services dedicated to the needs of seniors.
With respect to tax incentives, witnesses talked about tax credits for scientific research and clean tech companies, corporate tax rates for income derived from patented inventions and the flow-through shares tax regime.
The committee heard a number of specific requests for federal support and/or funding related to the Strategic Innovation Fund, the digital economy, the plastic industry, agriculture, steel, the mining and coal sectors, artificial intelligence, 5G networks and the transition to a low-carbon economy.
Urgently assemble an Economic Strategy Table on Creative Industries to unlock the full innovative potential of these sectors, produce world class content, and share its creative works both at home and abroad.
Chapter 6: Federal Fiscal Policy and Regulatory Framework
Fiscal policy can be described as the way the government spends public funds, such as through transfers and programs, and the way in which it raises revenues, such as through personal and corporate income taxes or other taxes, in order to influence economic activity and achieve policy objectives.
The government may also implement policy objectives by adopting regulations, which impose substantive or administrative requirements on businesses. To minimize the compliance costs for businesses, federal regulators must comply with the One-for-One Rule, which requires that any new regulation be offset by the removal of an existing regulation, and apply the small business lens to ensure their particular needs and circumstances are considered when regulatory changes are made.
Witnesses invited by the committee to present their priorities for the next budget spoke on various topics related to the government’s fiscal policy and regulatory framework.
Federal Finances and Public Service
As shown in Figure 11, the net debt of all levels of Canadian government as a percentage of gross domestic product (GDP) in 2019 was 26.4%, the lowest among G7 countries. The G7 average in that year was 84.1%.
Figure 11—Government Net Debt as a Percentage of Gross Domestic Product, G7 Countries, 2019 (% of GDP)
Note: According to the International Monetary Fund’s October 2019 Fiscal Monitor (see p. 36 of the full text version), for cross-country comparability, the IMF statistics on net debt levels exclude unfunded pension liabilities of government employees’ defined benefit pension plans.
Source: Figure prepared using data obtained from: International Monetary Fund, World Economic Outlook Database, October 2019, accessed on 10 February 2020.
In speaking about federal finances, witnesses made proposals related to intergovernmental relations, fiscal transparency, procurement, the public service and other measures.
Regarding intergovernmental relations, witnesses discussed provincial and territorial transfers, including the Canada Health Transfer and transfers for housing, and federal support for municipalities. Witnesses who spoke on fiscal transparency mentioned the need to disclose all federal support measures to the oil and gas sector and include Inuit priorities in federal budgets. With respect to procurement, the committee heard proposals about Canadian content, low-carbon footprint purchases and the National Shipbuilding Strategy. Proposals about technology adoption by the public service and associated training were also made. Lastly, witnesses urged the government to prioritize income creation rather than distribution and to prioritize targeted rather than universal programs.
Examine changing the formula for calculating the Canada Health Transfer by adding a variable that reflects the aging populations of the provinces and territories.
Continue to prioritize the reduction of government’s debt relative to gross domestic product.
Require the Canada Revenue Agency to publish estimates of tax gaps every three years.
Resolve the problems with the Phoenix pay system.
Eliminate targeted corporate welfare programs. Examples include: $50 million to Mastercard, $40 million to Blackberry, and $12 million to Loblaws, etc.
Tax Reform and Compliance
With respect to tax reform and compliance, witnesses commented on a review of the tax system, compliance issues and the Canada Revenue Agency.
Several of the committee’s witnesses proposed that the government undertake a comprehensive review of the tax system. Some of them also noted that such a review should take global competitiveness into consideration. Regarding compliance, witnesses touched on tax avoidance, voluntary compliance for the short-term rental industry, international corporate taxation and compliance simplification for small businesses. Others spoke about additional resources for the Canada Revenue Agency.
Appoint an expert panel to undertake a public comprehensive review of the Canadian tax system through a ‘made in Canada approach’ ensuring a fair tax system that closes corporate loopholes and strengthens the competitiveness of Canadian business, drives innovation, and reduces the administrative and compliance burden for all users of the tax system which may include, but is not limited to examining:
- Succession of business;
- Canada Revenue Agency and the publishing of information on the number and value of tax deductions and rules;
- Tax information exchange agreements and tax treaties that Canada has signed;
- Interest payments that businesses can deduct from their profits, including foreign subsidies;
- Corporations who transfer profits to their foreign subsidiaries;
- Tax regimes that distributes corporate profits using a formula that reflects real economic activity;
- Tax evasion;
- Taxation of digital giants and corporations with no physical presence in Canada;
- All disability-related tax measures;
- Capital cost allowance and other tax incentives;
- Inflationary excise on alcohol; and
- The application of corporate income taxes and GST/HST to short-term rental platform operators.
Simplify the tax system for people with physical disabilities and mental infirmities.
Require a review of the resources the Canada Revenue Agency has to investigate tax havens and the legislative measures that could force large businesses operating in Canada to pay their fair share of taxes.
In focusing on the regulatory environment, witnesses talked about ways to reduce the regulatory burden, regulatory changes in the financial sector and federal regulators.
The committee heard proposals aiming to reduce the regulatory burden of businesses, including in the utilities sector and in relation to the data-driven economy. Witnesses who spoke on changes in the financial sector focused on the anti-money laundering regime, insurance and the Ombudsman for Banking, Securities and Investments. Lastly, the committee heard about the need for additional resources for federal regulators supervising the use of toxic substances.
Legislate economic growth and competitiveness considerations into regulator mandates, where appropriate.
Review its policies and programs to reflect the need for the modernization of aluminum production in Canada in order to maintain its competitiveness, and reduce the administrative burden on this sector.
Ensure that credit card networks meet their commitments made in 2018 to reduce the interchange and other fees charged to Canadian businesses for the use of their cards.
Eliminate transaction fees charged to businesses on Goods and Services Tax and Harmonized Sales Tax amounts paid by credit card.
Chapter 7: Conclusion
The committee thanks all participants who provided briefs and/or testimony for their valued input in the development of the recommendations presented in this report. These recommendations, which aim to support Canadians, communities and businesses as well as Canada’s transition to a low-carbon economy amidst climate change, will inform the decisions of the government in its 2020 federal budget.
 Standing Committee on Finance, “Canadians are invited to share their priorities for the 2020 federal budget,” News Release, 13 June 2019.
 Patented Medicine Prices Review Board, “Annual Public Drug Plan Expenditure Report 2017/18 Compass Rx,” 5th Edition, Ottawa, September 2019, p. 2.
 Government of Canada, Annual Financial Report of the Government of Canada Fiscal Year 2018–2019.
 Organisation for Economic Co-operation and Development, “Innovation: the path to stronger, smarter and greener growth,” Remarks by Angel Gurría, OECD Secretary-General at a Luncheon meeting with Keidanren, Tokyo, 18 November 2009.