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View Emmanuella Lambropoulos Profile
Lib. (QC)
Thanks, Madam Chair.
Mr. Schaan, thank you for your responses.
One of the questions I have had since the last meeting, but did not ask until now, is what the major difference is between smaller and bigger businesses. Is there actually a difference when it comes to this bill? How would they be impacted differently, or does it impact everyone pretty much the same?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:45
There are probably two contemplations of that. One is the small employers that are plan sponsors. Those are increasingly infrequent. Then there are large employers for which we see the vast majority of defined benefit pension plans being the norm. Those, obviously, are on offer for all.
It's worth noting that there are two considerations for a small and medium-sized enterprise that are different from a large employer. Obviously, if a small or medium-sized enterprise was a provider of a service or other economic transaction that was not paid at the time of a restructuring or a liquidation, this would see them moved to become an unsecured creditor and would be behind the superpriority. If there's nothing left by the time we get to unsecured creditors as a function of superpriority, we might see small and medium-sized enterprises significantly asymmetrically impacted as a function of the role that might play within their overall well-being.
The second is that severance, which is the third component of this, is a superpriority regardless of enterprise size. While we might not see small and medium-sized enterprises have a pension, they may have either benefit plans or severance pay. That would now have superpriority over all other unsecured creditors and potentially secured creditors.
That severance or the benefit plans.... If people were being very worrisome, they might say that a small or medium-sized enterprise that was offering something like a health or dental plan, now potentially, knowing that's a superpriority, may see increased cost of credit because lenders will now need to factor that into the considerations they have when lending. There's similar things on the severance side.
In terms of size of firm and the potential impacts, it would vary based on the three categories, which are unfunded pension liabilities, group insurance plans and severance pay. We'd have to think about it from both their role as sponsor and also, potentially, as creditor.
View Emmanuella Lambropoulos Profile
Lib. (QC)
With regard to severance pay, [Technical difficulty—Editor] priority. Obviously, pension plans are different because that has to do with interest. People do receive a severance regardless and this is already being done.
Can you correct me if I'm wrong or if you have anything to say about that?
Mark Schaan
View Mark Schaan Profile
Mark Schaan
2021-06-15 12:47
Unpaid wages are currently a superpriority. Unpaid wages that go essentially up to a maximum are automatically provided a superpriority in both a restructuring and a liquidation context. As I indicated last week, for unfunded wages, in the case of a liquidation or a restructuring, the federal government actually takes the spot of the employee to be able to pay them out immediately and then allow for the restructuring or liquidation to continue. Ultimately, the government would be recouped the portion that's currently a superpriority, which is $2,000.
I'm looking at Mr. Morrison to make sure that I'm correct on that. He's nodding yes. That's excellent.
Under the wage earner protection program, the employee is able to get paid severance up to $7,200. As I said, it's a superpriority.
This would essentially take severance more generally and apply a superpriority to it. Severance goes well beyond unpaid wages. It also includes potential severance payments and things like separation payments. In some cases, as we've indicated, that may actually be subject to that of executives. If the severance is actually a very large portion of the employee pay packet in terms of a separation piece, that would now be subject to a superpriority.
There's no delineation in this piece of legislation between the two. There's no cap on it. There's no discussion of that in severance pay.
Tom Laurie
View Tom Laurie Profile
Tom Laurie
2021-06-08 11:12
Thank you.
GENMO is an organization that advocates on behalf of over 7,000 of GM Canada's salaried retirees, and we thank you for the opportunity to speak to you this morning.
Like most people, we thought government regulations protected pensioners. After all, defined benefit pensions are supposed to be guaranteed for life. Then, in 2008 and 2009, GM Canada came perilously close to bankruptcy. In fact, GM in the U.S. and Nortel both did file for insolvency. A vague potential pension problem became too close to being real for us.
Out of this situation, GENMO was born in May of 2010. We discovered that pension advocates are the only stakeholders making proposals to solve this problem. While other stakeholders all profess to understand that pensioners are unfairly treated and should be better protected, they haven't brought forward a single credible solution. We have to thank Madam Gill and Mr. Duvall for joining with pension advocates to try to correct this inequity.
The only credible solution on the table today is Bill C-253. It is opposed by some stakeholders. They claim it would put companies with defined benefit pension plans at risk by facing lending premiums that would lead to insolvencies. However, the Ontario Indalex ruling, which made pension deficits a deemed trust, stood for two years without any resulting wave of insolvencies.
Companies will operate within the legislative environment that governments set. Change this environment and companies will change their behaviour. Implementing Bill C-253 will likely have two major impacts on corporate behaviour towards pensions.
First, the pension obligation will be real, not something that disappears during an insolvency. Companies will better fund their pensions to maintain a good standing with all of their creditors. For example, when boards consider dividends, share buybacks and executive bonuses, they will consider their pension obligation more seriously.
Studies have shown that companies with defined benefit pension plans pay out far more out of the company than would be required to address their pension obligations. Sears, as an example, literally took hundreds of millions of dollars out of the company, while leaving behind a pension obligation in the millions.
Secondly, companies would improve their pension fund risk management. Company pension contributions come from two sources: cash from their continuing operations and money earned on the assets within their plan. There is an incentive for companies to take risks with pension assets to try to generate higher returns, thereby reducing the contributions from their operations. If they lose or miscalculate on this bet, what is the downside? They may get five, 10 or 15 years to make it up, and if worse comes to worst and the company goes out of business or fails, the debt literally vanishes.
In my case, in 2009, when GM Canada told salaried employees their pension was 95% funded, the reality was that after the market crashed, the pension fund was probably in about the 50% funded range. Was GM taken by surprise? Certainly. Was GM too heavily invested in higher-returning equities? Absolutely.
Under the tighter controls that followed, GM Canada reduced significantly the risks in its pension fund and actually brought it to over 100% funded. This is possible with the right motivation.
We hear lots of speculative claims about the consequences of superpriority. How would small businesses get financing? Who would be impacted? In fact, very few, if any, small businesses have defined benefit pensions.
What about other stakeholders during insolvency? If businesses make the adjustments I have discussed previously, there should be little impact. In any case, every other stakeholder has negotiated their risk. They have at risk only the unpaid portion of their contract. Pensioners actually have 20, 30 or 40 years on the table.
We also hear about deflection. You will likely hear witnesses say the solution is elsewhere, in tighter solvency regulations, limits on dividends, etc. However, these things are very difficult to deal with. The point is that while some of these ideas sound reasonable, they are a jurisdictional nightmare. They involve three areas of legislation—pension, business and tax—and they cross provincial and federal jurisdictions. It would take a lot of effort to do this.
The single point at which to address protection in Canada is insolvency legislation. Bill C-253 provides a reasonable solution.
Thank you.
Kenneth Eady
View Kenneth Eady Profile
Kenneth Eady
2021-06-08 11:23
Thank you very much.
Good morning, everybody. My name is Ken Eady. I am a Sears retiree and a court-appointed representative for the 17,000 Sears retirees who were affected by the bankruptcy of Sears.
Most of you know the story of Sears, which was a long-time Canadian company, 65 years, and for decades a trusted company in Canada, with employees who worked at Sears for a full career—40 years, sometimes 50 years.
Sears made promises to its employees that, quite frankly, we all believed and accepted as true, that we would have a guaranteed retirement income when we retired, and that we would have health and dental benefits and group life when we retired. That pension was a condition of employment at Sears, and it was a contributory plan. The employees contributed every month to that plan—our money, our wages.
Then, in 2005, the takeover of Sears U.S. threw the control of Sears Canada into the hands of a hedge fund. You've all read the stories of how that unfolded, and it was mentioned here this morning as well. We'll let you draw your own conclusions about the practices that were held there. It's enough to say that in 2017, the company sought creditor protection.
That's when things changed. It changed for everybody who worked at Sears who was a retiree. The pension plan lost 20% of its value right away.
Now, with 20%, people can say, well, maybe that's not so bad, but if you have a small pension and you lose 20%, that can make an enormous difference in how you live. Think about losing 20% of your current income and trying to maintain your lifestyle. Health and dental, group life, all disappeared, and it's hard to replace when you are 85 years old. You can't possibly buy group life, and health and dental are very difficult to replace.
Of all the creditors, the retirees are the ones who have the least likelihood of mitigating their losses. Others can continue to stay in business and can change their business. In fact, the employees can go out and get another job if they are lucky, but the majority of retirees can't mitigate that loss. That money is gone, and gone for good.
The real story here is that Sears broke that promise, a promise that, as a management person, I participated in making to employees, because I believed it was true as well. Sears broke that promise after making it over and over again. As well, after repeatedly being informed—repeatedly told—the federal and provincial institutions that would or should protect vulnerable seniors failed to protect them. They didn't protect them. There was absolutely no protection.
The real story is about the thousands of retirees who lost their pension and lost that income. A guy like Don, retired at 77 years old, has had to go back to work at Home Depot as a greeter so he can afford the medication for his wife's illness and so they can stay in their home. Doris, a 50-year employee of Sears, worked to the last day but lost 20% of her pension. The plans that she and her husband had for retirement changed substantially. Jack is 82, but Jack has to use his line of credit to subsidize his income so that he and his wife can stay in their home.
My colleagues have made a lot of really great points today, with real meaning, but I want to leave you with one important thought: Is it just and is it fair that in Canada, banks receive more protection under bankruptcy laws than seniors? Is it just and is it fair that in Canada, banks receive more protection than vulnerable seniors do? I believe it is not.
You're the ones who can make a difference here, folks. The MPs on this committee can vote in favour of this bill and help protect seniors. I suggest you do.
Thank you very much.
View Pierre Poilievre Profile
CPC (ON)
We've now heard all the arguments for and against the bill. What I need is some technical information. My first question is this: In the event that this bill were to pass, how would it be possible for a business to collateralize assets in order to get loans for expansion and new hiring?
Perhaps Mr. Powell would be the right person to address that technical question.
Michael Powell
View Michael Powell Profile
Michael Powell
2021-06-08 11:29
Yes. I think the answer to that is that if you assume that businesses make no change to their behaviour, then that's going to be a problem, absolutely. However, I see that as a false assumption. Businesses will adapt and adjust, just as they did when Ontario ruled in the Indalex case that the unfunded pension liability was a deemed trust. There was not a wave of insolvency. We did not read in the papers that companies were failing left, right and centre.
As Tom pointed out—
View Pierre Poilievre Profile
CPC (ON)
I'm not so much suggesting that they would fail. I'm just wondering about the legal question: How would you write a collateral agreement that says that the lender will lend money to the business, that the business will expand, and that, in the event of default, then the lender has recourse to the collateral? How would you write that, with this bill in place, which removes collateral primacy and replaces it with pension primacy?
Michael Powell
View Michael Powell Profile
Michael Powell
2021-06-08 11:30
Yes, and pensions become another.... There is superpriority already in insolvency today—
Michael Powell
View Michael Powell Profile
Michael Powell
2021-06-08 11:30
—for things like that. This becomes another one. That would be a risk that would be evaluated as they make those loans, as they do today. Again, I would suggest that businesses would be much more careful about the pension deficits they build up, just as—
View Pierre Poilievre Profile
CPC (ON)
Yes, that's a strong argument for the bill. Many businesses should be forced—in the present tense—to get their pensions in order so that they can raise money in the markets. You make a good point.
I don't want to be convinced anymore on anything. I just want an explanation. Is there anyone else who has technical insight on how that would work: a collateral agreement if this bill is in place? Is there anyone else who can jump in on that narrow question?
It looks like we don't have anyone on that point.
My next question is this: Do we need a transition period for the coming into force of this bill? If the bill just dropped like a brick today, it would reorder the priority of creditors in the event of an insolvency or a bankruptcy. It would do so midstream. Creditors that made loans under the existing regime would suddenly have new rules of the game halfway through it.
I see Laura Tamblyn Watts nodding.
Do you want to jump in on that question?
Laura Tamblyn Watts
View Laura Tamblyn Watts Profile
Laura Tamblyn Watts
2021-06-08 11:32
Thank you.
It actually folds into the last question as well. In order to ensure that the books are in the proper order and that risk mitigation and management are able to be overseen by corporate governance, in my respectful view, we need a roll-in period. That can start with companies that are starting up now starting with the new rules and with having a roll-in period of approximately three years. That's enough time for foresight of corporate governance to make sure that they are able to change the contractual obligations, that the pension funds are more fully funded, and that on external loan guarantees these new particulars are put in.
View Pierre Poilievre Profile
CPC (ON)
You said three years. Is that for existing businesses, and then it would be immediate for new businesses?
View Sébastien Lemire Profile
BQ (QC)
Thank you, Madam Chair.
Thank you for your statements. Thank you very much, Mr. Eady, for your very compelling testimony. I understand the emotional charge associated with this issue.
I also thank my colleagues for reflecting on these concerns and doing so outside the box. Refocusing the issue of fairness is important to me.
Maybe we could take a cue from White Birch Paper, for example.
Mr. L'Italien, you have studied this particular case. What can we learn from this saga?
François L'Italien
View François L'Italien Profile
François L'Italien
2021-06-08 11:42
Thank you for your question.
In fact, we did a thorough economic analysis based on the documents that were made available by the financial comptroller Ernst & Young at the time of the restructuring, in 2010. We were able to reconstruct the owner's financial strategy by getting hold of the annual reports, as well as reports produced by independent auditors.
We should have investigated further, but due to lack of resources and time, we were unable to pursue this avenue. However, we came to the conclusion that behind the exorbitant indebtedness of the Stadacona plant in Quebec City there was a corporate scheme. Given the maturity of the defined benefit plan for the plant's employees, given also that the bulk of the management costs and all the variable capital, i.e. the expenses associated with salaries and the pension plan related to this plant, were disproportionate in the eyes of the owner, there was a strategy of excessive indebtedness; this led the owner to place himself under the Companies' Creditors Arrangement Act, the CCAA.
In our view, what emerges from this case is that, while the CCAA was originally intended to enable companies in real financial difficulty to get back on their feet, over time it has enabled some employers to develop stratagems.
There really should be thorough economic investigations. We know that the case of Sears Canada in Ontario pointed in the direction of improper payment of certain revenues to the company's shareholders at a time when it was known that the company was in financial difficulty. So we see that the argument in the CCAA that creditors must be protected from default or business risk does not hold up in a systematic way. We need to look at these cases. We have been seeing repeated restructurings for several years now, and we think the time has come to at least take stock of the restructuring cases and adjust the focus.
In our view, raising the level of protection for pension plans is a step in the right direction to take stock and improve pension protection.
View Michael Chong Profile
CPC (ON)
Canada has been listed in the State Department's reports, as well as in other reports, as being a laggard on money laundering, and has also been criticized for its opacity around beneficial ownership.
What measures should be put in place by the Government of Canada and the provinces to move us from being laggards in this area to being world leaders?
Peter M. German, Q.C.
View Peter M. German, Q.C. Profile
Peter M. German, Q.C.
2021-06-07 20:51
I'll deal with the second part of it first.
In terms of beneficial ownership, we always have to keep in mind that there are two aspects to it. There's beneficial ownership of corporations and there's beneficial ownership of land. Land being a provincial responsibility, it falls to the provinces to deal with that. British Columbia now is the first province to create a beneficial ownership registry for land. We will hopefully find the ultimate beneficial owner of all the land in our province.
Unfortunately, or fortunately, if we are looking at beneficial ownership of corporations, that has to come from the federal government. We know the federal government has made an announcement that it's looking at a federal beneficial ownership registry for corporations, I believe, in 2025, simply because you can incorporate both provincially and nationally.
Somehow you have to bring this together. I certainly favour beneficial ownership registries for both land and corporations. The important thing, however, is.... There are a number of factors, but without belabouring it, there are two important factors that I see. The first is “garbage in, garbage out”. You have to make sure there is some verification of what is going in or else it's worthless. There has to be a bit of a checking process—
View Shannon Stubbs Profile
CPC (AB)
View Shannon Stubbs Profile
2021-06-07 11:14
Do you also believe that companies must be more responsible for ensuring that the content they are publishing does not contain minors and has the express and explicit consent of the individuals depicted?
View Steven Guilbeault Profile
Lib. (QC)
Companies should abide by Canadian laws. Whether they're online companies or physical companies, there should be no distinction. As I said earlier, the challenge we face now is that the tools we have to deal with these online harms just aren't adapted to the virtual world.
Melissa Lukings
View Melissa Lukings Profile
Melissa Lukings
2021-06-07 12:25
No worries.
The committee is dealing with a Canadian-controlled private corporation, a CCPC, which is a private commercial organization based in and operating with headquarters located in Canada. It is a Canadian company. We know this, and that's fine. Commercial organizations in Canada are bound by the Personal Information Protection and Electronic Documents Act. PIPEDA outlines the rules and remedies, including the fines and other penalties, for corporations that fail to abide by the provisions specified in the act.
Beyond the corporate level, we also have the Criminal Code of Canada, which outlines the criminal offences and punishments for committing such offences. We have these. We need to apply them. Everyone is bound by the Criminal Code of Canada.
Why, then, do we need additional regulations? Why do we need more oversight when we have not yet tried to simply apply the law we already have? We have these laws. We can use them, so let's use them. That's what they're for. What's the point in even having these statutes if you're not going to apply them when they're needed? What are we doing here?
We're here because a portion of those involved have decided to conflate the issue of corporate negligence with highly sexualized and emotive criminal activity—read again, child rape porn testimony. It elicits an emotional response—the sympathetic nervous system and all of that. It doesn't matter. This is about a corporation and user-generated content. It does not matter what is depicted in the content as much as it matters that the content, whatever it may be, should not have gotten past the corporation's screening system before being made live on the site. When the issue was brought to its attention, the corporation responded inadequately at first, so we need corporate law. We need to look at liability and feasibility standards.
Why has this become a forum for grandstanding religious ideologies? I'm sure you've all heard about Exodus Cry in the news, if you've been following it. Exodus Cry is a fundamental Christian organization founded on religious ideologies stemming from the United States. Why is it relevant to a question of corporate liability in Canada? It isn't. It doesn't make any sense.
Why are we arguing about exploitation? Why are we discussing mass censorship? Is that not a massive overreaction to a simple corporate negligence question? It seems glaringly obvious to me, so why are we not discussing reasonable options for encouraging corporations to better serve their users?
Also, I have some opinions about the genderedness of this. You can read about it in my notes.
When it comes down to it, you can't eliminate sex. We're humans, and there is always going to be a demand for sex. You can't eliminate sex work because the demand exists. You can't eliminate extramarital sex or porn or masturbation or demand for sexual services, but sexual assault is illegal, even when that person is your spouse. We need it to be that way. We want to protect people. If you're saying you can do certain things only within the context of marriage, you're setting yourself up for failure. It's true.
Yes, I said “masturbation” in a hearing. Oh my God.
You cannot eliminate base human desires, so you can't eliminate sex. That would be silly. It's okay to not like these things, and just because you don't like a thing or you feel that a thing is not for you, it doesn't mean it's inherently evil and should be eliminated. It doesn't work that way. It's not about and should not be about pornography or the actual content of online material here. This is about creating reasonable laws that work for Canada, Canadian corporations and everyone residing within Canada. We don't need new regulations; we don't need a new regulator, and we don't need online censorship. We need to use the tools we already have, which were designed for a reason. Why be redundant?
That is my diatribe.
Thank you for having me. I will take any questions you throw at me.
View Shannon Stubbs Profile
CPC (AB)
View Shannon Stubbs Profile
2021-06-07 12:30
Thanks, Chair.
Melissa, thanks for your testimony and for being here today.
I share your perspective that it is crucial to distinguish between the hosting and distribution of child sexual abuse material and of material and images that don't have the explicit consent of the people depicted in them.
I think you'd agree—or let me know if you do—that people have a right to own their own images and content that include them, and also the right to withdraw that if they so choose. This is the thing that I think all of us are grappling with—your very strong point about the Criminal Code already being in place and the laws and the regulations that already exist to provide these protections for children and for others who do not give their consent.
What do you make of what the actual problem is, then? What is the enforcement issue, the lack of enforcement and the lack of application of the existing law?
Melissa Lukings
View Melissa Lukings Profile
Melissa Lukings
2021-06-07 12:31
I think the current issue is that perhaps the penalties that currently exist in PIPEDA are not strong enough to deter corporations. I'm not saying to put in new regulations—I'm not saying that—but when you're going to do the digital charter implementation act and you're discussing things like Bill C-10 and Bill C-11, it's important to remember that.
I think there is room for improvement. Because we've found that financial penalties don't really seem to impact companies that make a lot of money, fines could instead be based on percentages. The key here is that we need to not have increased regulation. If what we're trying to do is in fact what we say we're trying to do, which is to reduce human trafficking and harm to young people, additional regulations are not going to help that.
Did I answer your question?
View Shannon Stubbs Profile
CPC (AB)
View Shannon Stubbs Profile
2021-06-07 12:32
Yes.
On April 19 you mentioned a couple of possibilities related to the digital charter implementation act. You touched on the possibility of fines for companies that host and distribute already illegal content. The Minister of Heritage was just here, as you know, so I just wonder if there is.... I understand that you got cut off in your testimony last time, so I just want to see if there are any other details or recommendations you wanted to add in terms of that work.
Melissa Lukings
View Melissa Lukings Profile
Melissa Lukings
2021-06-07 12:33
In terms of the digital charter implementation act?
Melissa Lukings
View Melissa Lukings Profile
Melissa Lukings
2021-06-07 12:33
For corporations the question here is, how much responsibility do they have to have in order to cover their own selves from liability for negligence? That needs to be specified. It needs to be put in words.
Other than that, we really need to work on applying the laws that we have, so if there's something standing in the way of that and that can be remedied through the new digital charter implementation act, that should be discussed, absolutely. That is my recommendation.
Cody Cooper
View Cody Cooper Profile
Cody Cooper
2021-06-03 11:16
Thank you.
I'm the president and chair of the CCRetirees organization for the non-represented salaried retirees of the former Chrysler Canada. As well, I'm the vice-president of the Canadian Federation of Pensioners.
The 23 member groups of the Canadian Federation of Pensioners total over 300,000 individuals, and with our alliances with CARP, CanAge and the National Pensioners Federation, we represent the voice of millions of Canadian pensioners.
The two decades of this century have been notable, with the carnage inflicted on pensioners and the ongoing lack of meaningful measures taken to protect the income security of those who have retired with a defined benefit pension.
In the press these pensions are often referred to as “guaranteed”. That would be news to those from Nortel, Sears and others, who have seen their retirement security eroded as they were left unprotected because of the legislative scheme.
Pensions are deferred wages, earned while working and payable upon retirement. The scope and the terms of the pensions are within the realm of the employer. No one forced the employer to make such arrangements.
Pensioners deserve the pension promised by their employer. Unlike others involved in bankruptcy, pensioners' loss is forever, as opposed to a note or a supplier credit from a contractor or plumber.
The responsibility to ensure pension protection falls upon the government. Pensioners have no control, input or approval over changes to their pensions. Several countries do a better job of protecting pensions than Canada—the United States, the United Kingdom and Germany come to mind—and somehow their economic activity continues.
There have been numerous consultations and submissions, including a request from the Canadian Federation of Pensioners, to study the best solution to ensuring full protection of pensioners in insolvency. To the best of my knowledge, there has been no response from government.
The current government touts its whole-of-government approach, issued after the latest consultations. This is the equivalent of rearranging deck chairs on the Titanic.
Bill C-253 represents the only credible solution on the table. This is a solution with zero cost to the taxpayer. There will be, and always has been, those who claim such measures would lead to more liquidations instead of restructuring. That Indalex was the law of the land and the business world continued indicates that this is just spin at best. Many of these opponents issued recent profit statements which belie the need to protect their interests at the expense of pensioners. Their assumption seems to imply that management would not alter its behaviour and treat seriously pension obligations and deficits.
Corporations make decisions and act within the law. The law enacted by government has generated ongoing hardship on pensioners and their families. It's your role to address the problems which have arisen from your legislative scheme. Please, no more studies, consultations or promises. A transition period is inevitable, but make sure it's not undue.
This is Seniors Month. Do something real, and do it now. Failure to act in a timely manner is the equivalent of senior financial abuse.
Please support and enact Bill C-253. Thank you.
Gordon St-Gelais
View Gordon St-Gelais Profile
Gordon St-Gelais
2021-06-03 11:20
Good morning, my name is Gordon St‑Gelais in Sept-Îles. I am president of the Comité des retraités de Mines Wabush with a company called Cliffs Natural Resources.
In May 2015, Cliffs put Wabush into bankruptcy. This resulted in the retirees losing their benefits, their drug and life insurance. Many pensioners, when they retire, stop paying for insurance because it costs more. So they keep the company insurance.
In December 2015, the actuary for the pension fund closed the fund because there was no more money coming in. Union retirees then lost 21% of their pension fund, and management lost 25%. People usually retire at about age 60 and normally have maybe 25 to 30 years to live. So the loss is huge because there's no more salary increase. Their pension is reduced by 21% or 25% all of a sudden for the rest of their lives. They also lose benefits. They have to pay more for medication and life insurance. The spouses are also affected. It's a big problem.
Since Sept‑Îles is a remote community and everyone thinks we live at the North Pole, we set up a committee in May 2015 to make representations. We had the support of the United Steelworkers. In October 2017, we went to Ottawa to support the previous bill sponsored by our member of Parliament, Marilène Gill. I hope that this time it will go further, because it's hard for retirees to live on a small pension, which is reduced and never increases.
We went to Ottawa and made representations. Several MPs certainly saw us and heard our arguments. This trip was beneficial for us because Cliffs saw us. We were invited on television and we made some noise to show that we still existed. In fact, the Cliffs people didn't believe that a group of retirees, ranging in age from 65 to 85, could travel by bus to Ottawa to make representations.
As a result of that event, Cliffs contacted us to begin negotiations. This was beneficial to us as we were able to recover some of our benefits and some of our pension fund. We were looking at a 21% loss to the union members and it went down to 7%. You may say that's a lot, but you have to remember that the pension amount is still fixed and the life expectancy is 30 years.
Retirees contributed to their pension fund. As Mr. Cooper was saying, it's part of the workers' salary that they didn't get. Normally, in a negotiation process, the employer says it's a salary that the employees receive, but in truth it's money that the company invests. They don't contribute to the fund when they are in trouble. These companies are still rich. Cliffs Mining is not poor.
We are constantly fighting to get the most for our retirees so that they can live with dignity, despite their medical or family problems.
Thank you for your attention and have a good day.
View Pierre Poilievre Profile
CPC (ON)
Thank you very much, Madam Chair, although there is a new study out from Harvard showing that too many birthdays is the leading cause of death, and I know you don't wish that upon me.
Mr. Thornton, you gave a fantastic presentation, very well reasoned. I'm going to challenge you on it, though, because I think we get to better answers when we have a good debate.
Your first point was that if we prioritize pensions over other liabilities, distressed companies could be forced more quickly into bankruptcy. Can that not be solved by simply having a transition period for the coming into force of this bill, during which time companies that are sub AAA and that have defined benefits could prepare themselves and repair their balance sheets in order to avoid that problem?
Robert I. Thornton
View Robert I. Thornton Profile
Robert I. Thornton
2021-06-03 11:32
At the end of the day, it's a question of fairness. This bill does nothing to create value. When you put somebody artificially on top of the capital stack, it means that there is somebody who is a loser. This is not a balanced bill. It's not a give-and-take situation. It's a take situation.
Imagine, if you will, a stack of bricks in a tub of water. If you take one of the wet bricks out from the bottom and put it on the top, it doesn't mean that you suddenly have fewer wet bricks. It just means that someone else's brick has gone down under water. What's happening here is that this bill will crush recoveries for unsecured trade creditors, and they're the really vulnerable ones.
View Pierre Poilievre Profile
CPC (ON)
Right. I'm sorry but for those kinds of companies that are in a vulnerable position, could we not just have a transition period during which time they could get their balance sheet, including their pension viability, in order to comply with the bill and avoid bankruptcy?
Robert I. Thornton
View Robert I. Thornton Profile
Robert I. Thornton
2021-06-03 11:33
Everybody tries to create value but not every company is successful at it. A period of time, while it might be beneficial, really does nothing to alter the fundamental mechanics of this bill.
View Pierre Poilievre Profile
CPC (ON)
Second, you said that the cost of capital will go up for companies that have defined benefit plans. This is actually, to me, a virtue of the bill, and let me tell you why.
I worry about the fact that CEOs have underfunded their pensions for a long time and have said that problem is for the next CEO or another CEO down the line. Then when the pension problem emerges, the CEO who caused it in the first place is long retired and on his yacht in the Caribbean while the workers are left holding the bag.
Doesn't this bill bring the real cost of underfunding a pension into the present by making it more expensive for companies that don't properly fund pensions to raise money?
Robert I. Thornton
View Robert I. Thornton Profile
Robert I. Thornton
2021-06-03 11:34
At the end of the day, greater cost to capital simply means the company is going to be less competitive in a competitive world. My point—
View Pierre Poilievre Profile
CPC (ON)
Mr. Thornton, shouldn't that be the case? If I have a company and I'm not funding my pension plan and I'm leaving possible problems for a future management to solve, then shouldn't I take a whupping from the debt market? Shouldn't they say to me in the present, “Mr. Poilievre, you haven't funded your pension so we're not lending you money.” Wouldn't that create an incentive for me in the present to get my pension properly funded?
Robert I. Thornton
View Robert I. Thornton Profile
Robert I. Thornton
2021-06-03 11:35
Possibly, but the solution I have proposed would do that even more directly and wouldn't risk putting the company in an uncompetitive situation to do it.
Right now the deficits are measured annually and sometimes only over three years, and then you're given five years to fund it. If you measure that quarterly as you can now, you can identify the problem while it's small and not this ogre that comes along to crush pensioners at the end. When it's small, you also put in tight timelines to fix it, so you bring the whole solution into the present.
View Bernard Généreux Profile
CPC (QC)
Thank you very much, Mr. Poilievre.
Mr. Thornton, you are proof that there are always two sides to a coin. We have heard from a number of witnesses on this bill, and I agree with most of them. I am a businessman and I own a small business with 25 to 30 employees.
The pension funds of large companies are often undervalued. As I understand it, you are saying that, when the banks are deciding whether to finance a company, whether it is for day‑to‑day expenses or as part of the revival of a company that is doing poorly, they look at the facts. However, when it comes to pension funds, they would have to rely on an actuarial valuation, and there is a real difference between the two.
What could we fix and improve in this bill to ensure that pension funds can be better funded?
Robert I. Thornton
View Robert I. Thornton Profile
Robert I. Thornton
2021-06-03 11:36
Yes. I am proposing that you do three things. Actually, there's a fourth as well, which my friend from Canadian Bankers Association mentioned.
The first thing is to put the measuring process into as close to real time as you can. It takes weeks to do the actuarial assumptions to figure out whether your pension is in deficit or not, but you do that quarterly, not annually. Then you identify shortfalls and tell the affected stakeholders—the pensions, the union groups and the regulator. Then you make the company fund it over a quicker period time.
You build that right into your pension legislation and inspire the provinces to do the same. In Ontario, FSRA is already looking at this kind of solution. It's a good fix for the problem without affecting the priorities.
View Ali Ehsassi Profile
Lib. (ON)
View Ali Ehsassi Profile
2021-06-03 11:38
Thank you, Madam Chair.
Thank you to each of the witnesses. I found your testimony to be very helpful.
I will start off with Mr. Zigler.
Mr. Zigler, you did say that Bill C-253 can be problematic. However, you did offer some solutions.
We have heard that, should Bill C-253 be adopted, it will effectively discourage companies from having defined benefit plans going forward. What would you say to that?
Mark Zigler
View Mark Zigler Profile
Mark Zigler
2021-06-03 11:38
I would say that horse left the barn three decades ago. Most new pension plans are defined contribution arrangements or a group RRSP. The problem is that you have hundreds of thousands of people, if not a million people, in private sector defined benefit plans in this country. This is the regime that we have.
I'm not worried about new plans. I'm worried about protecting the people in the current plans. I'm worried about the fearmongering, frankly, that says all lending will dry up, that everything will dry up if you create some kind of priority.
We created a superpriority for wages, a small one, 15 years ago. Guess what? They are still lending.
Lenders know how to study actuarial reports. They know how to study all aspects of a business that are problematic and depend on future sales, future developments, future interest rates or future mortality, which is what pensions are about. They are sophisticated. They can protect themselves. Other suppliers can protect themselves because they can spread their losses. Even workers can protect themselves to a degree: They can get another job.
Pensioners can't do anything. If their pensions get cut, there's finality. So you have do something here. At least put a cap on this priority and really study the solution that even Mr. Docherty recommended. Create a viable guarantee fund. That's how you protect pensioners.
To do nothing, just because this bill creates a superpriority over everyone, is to ignore the problem and to let down the pensioners of this country.
View Ali Ehsassi Profile
Lib. (ON)
View Ali Ehsassi Profile
2021-06-03 11:40
Mr. Zigler, you said that the horse has left the barn, but is it not accurate to say that certain companies now have two-tiered systems where they have defined benefit plans for some employees, but they are now grandfathering those and for new employees they have undefined benefits plans?
Mark Zigler
View Mark Zigler Profile
Mark Zigler
2021-06-03 11:40
Yes, that's true. Many have hybrid plans where they create defined contribution benefits going forward. In fact, that's what Nortel did during the last seven or eight years of its existence, but the vast majority of their liabilities were defined benefit ones.
View Ali Ehsassi Profile
Lib. (ON)
View Ali Ehsassi Profile
2021-06-03 11:41
Mr. Zigler, we have heard from Mr. Thornton. He has put something on the table, if you will.
What would your reaction be to the suggestions that Mr. Thornton presented today?
Mark Zigler
View Mark Zigler Profile
Mark Zigler
2021-06-03 11:41
I believe, frankly, that they are not cognizant of what we have in this country.
Pension plans are already very strictly regulated. Valuations can be required more often than every three years if there are problems. We have pension regulators in this country in all provinces that try to make sure that pension plans are properly funded. What Mr. Thornton suggests is already being done.
The problem with insolvency is that a tsunami hits. Interest rates go crazy. Companies go out of business because their sales drop and their workforces drop. People live longer than the actuaries predicted. You will have a bankruptcy. There's no fixing this by looking in the rear-view mirror. You have to deal with the problem when the bankruptcy occurs.
Pension regulators already try to fix it. The solution Mr. Thornton has given you is a non-solution. At least Mr. Docherty mentioned a guarantee fund. That is a solution. Quarterly evaluations make no sense. It costs a fortune to have an actuary value a pension plan. They get done annually in many pension plans because the regulators order that. That's their job. That's a provincial responsibility. That's not something for this committee to do. This committee has to protect people once the bankruptcy occurs.
View Ali Ehsassi Profile
Lib. (ON)
Cody Cooper
View Cody Cooper Profile
Cody Cooper
2021-06-03 11:42
I would tend to agree with a lot of it, but I also share Mr. Zigler's focus that this is why we're here. It's what happens when the shit hits the fan. Pardon me.
On the same point, the three people in the middle of my screen are also not telling you that every province basically is heading towards an 85% solvency level, which means that you're capped at 15% loss going in and you're still covering all the laws. Ontario did not increase its $1,500 payment at all, even though it should be almost $3,000 now, given inflation from when it started.
All of this arguing about the solutions has been going on for decades, but no one has ever implemented them, and when they go to the other forums they say that instead of 100% , we should have 85%, which is now basically the norm. I'm tired of hearing it from both sides of the mouth.
Michael Powell
View Michael Powell Profile
Michael Powell
2021-06-01 11:07
Good morning.
My name is Mike Powell. I am the president of the Canadian Federation of Pensioners.
CFP's 23 member organizations advocate directly for over 300,000 defined benefit pensioners, and our allies represent millions more. We support Bill C-253 and the extension of superpriority to pension deficits. This is the simplest solution to meaningfully improve pension protection for Canadian seniors.
In our Canadian regulatory environment, the only single place to protect pensions is within insolvency regulations. This committee and Parliament face a decision between the status quo—which leaves seniors' future financial well-being at risk and perpetuates an unfair system designed to exclude seniors from protecting their own financial interests, an unfair system that has been proven to significantly harm older Canadians—and a new future that offers protection to vulnerable seniors.
I'd like to address five concerns that stakeholders in insolvency may raise.
The first is that lending rates would increase for companies with defined-benefit plans, leading to more insolvencies. This argument was central in 2010 when a similar bill, Bill C-501, was debated. In 2011, though, the pension deficit was ruled a deemed trust by the Court of Appeal for Ontario in the Indalex case. A deemed trust is the highest priority in insolvency, above the superpriority envisioned in Bill C-253. This ruling stood for two years before it was overturned.
It is critical to note that there was no fallout from this decision. The wave of insolvencies of companies with DB plans that was predicted did not occur. Borrowers and lenders made accommodations, and business continued.
The second is that there would be fewer restructurings and more liquidations. This is also an old and flawed argument that would get a failing grade in a first-year business policy course. Envision submitting a paper whose key assumption of your argument was, “Given a significant change in a regulatory environment, business management would not change their critical strategic decisions; therefore, I will use past results without adjustment in my future model.” Along with a failing grade, there would likely be a comment that basing your argument on inept company management is not recommended in policy development.
The third concern is that this would discourage new DB plans and lead companies to close existing plans. The harsh reality is that DB plans have been on the decline for many years, despite actions taken by governments to reduce costs for companies.
The fourth is that other creditors would be disadvantaged. This is based on the false notion that stakeholders are treated equally today. The impact of insolvency is much greater on pensioners than on other creditors. Pensioners lose a significant portion of their income for the rest of their lives; other stakeholders only lose a portion of the money owed them at the time of insolvency, not their entire contract, nor do they face future reductions in revenue due to the insolvency of one of their customers.
There's also a difference of control. The other stakeholders at the insolvency table have all negotiated their financial exposure. They've made conscious decisions to address payment terms, prices, interest rates and contract conditions. Government treats seniors as wards of the state. Pensioners have no ability to control, approve or even influence their financial risk in insolvency. Pensioners are not even ensured a seat at the insolvency table.
The fifth is that changes made in the 2019 budget have levelled the playing field. Pension protection in 2019 is the proverbial bailing of the Titanic with a teacup. You can measure progress, but it won't change the outcome. We need to ask this: Would the changes in budget 2019 have protected the Sears pensioners? The answer is no.
In summary, government has appointed itself as sole guardian of the vulnerable seniors' future financial well-being. Government legislation precludes pensioners from any form of control or even influence over their pensions in insolvency. Bill C-253 addresses this imbalance.
This committee and Parliament are faced with a decision. You know of the real price paid by seniors left in collateral damage in an insolvency. This is fact. You will hear concerns raised by other stakeholders of theoretical harms. This is speculation. The choice is yours to make. Our 300,000 members strongly urge you to stop treating pensions as piggy banks in insolvency and support Bill C-253.
Thank you.
View Scott Duvall Profile
NDP (ON)
Thank you.
One of the things that Mr. Yussuff said—and I feel it's outrageous that this could actually happen—is that when Sears paid $500 million to dividends in 2013, they still had a $313-million pension deficit. How can we prevent companies from doing this in the future? They're the ones that plan going into CCAA. How do we stop this paying of dividends when there is a huge debt in the pension fund?
Maybe Mr. Lemieux wants to answer.
Dominic Lemieux
View Dominic Lemieux Profile
Dominic Lemieux
2021-06-01 12:24
This amounts to taking money out of our pensioners' pockets and redistributing it to shareholders, who are well off, for the most part.
I would come back to my initial proposal. First, Bill C‑253 has to be passed. In addition, the provinces have to ensure that pension funds are 100% funded. It is indecent for a company to give money to its shareholders when it is not paying its contribution to the pension fund. That is the same thing as me, as a head of household who is about to retire, being in debt and my credit cards being maxed out, but deciding to head south for two weeks. It would make no sense to leave my children like that, in a vulnerable position. Well, that is exactly what we allow, in Canada: taking money from pensioners' pockets, from the most vulnerable people, and distributing it to company shareholders.
Melanie Sonnenberg
View Melanie Sonnenberg Profile
Melanie Sonnenberg
2021-05-31 16:21
Thank you, Mr. Johns.
The threshold, when corporations come to purchase fish plants and access and so on, it's a high bar. For our country I believe the number is $480 million. That catches the attention of Industry Canada. It's in that range, and a corporation coming in at $1.2 million catches their attention.
Sometimes what happens in coastal communities, and perhaps if Mr. Mallet might have been able to be on.... We've seen in New Brunswick where smaller plants are being, I won't say gobbled up, but being purchased. This is being done in a very systematic way so at the end of the day we now have a conglomeration owned by one entity, which perhaps, if they continue on, could make the threshold.
These things are concerning. It's not making the radar and that is a problem in itself. On the west coast—and you know this probably better than I—there is a lot of foreign ownership and it's not clearly understood. The committee raised it in the report in 2019, I believe, as a recommendation to have some public registry. We need to understand who is owning our resource on the west coast and we continue to advocate for that recommendation, and again, it's a public resource for [Technical difficulty—Editor] the country [Technical difficulty—Editor] I can compare to elsewhere.
I'm breaking up.
Andy Olson
View Andy Olson Profile
Andy Olson
2021-05-26 17:36
Good afternoon, committee members and Chair.
Thanks for having us to speak about this issue today. My name is Andrew Olson, and I am the executive director of the Native Fishing Association. We're an aboriginal financial institution based in West Vancouver that serves aboriginal indigenous fishers all over B.C. through loans, licences and other business assistance, as we can.
Previously, before I took my job at the Native Fishing Association, I worked for the Tseshaht First Nation in Port Alberni as a fisheries manager and fish biologist for 10 years. In that role, I served as a first nations representative on the prawn advisory board for many years and worked with the prawn advisory board and prawn advisory committee, which is what it was before it became the prawn advisory board. I participated in many of those discussions and much of that work, and I never heard of undersized prawns being an issue. This is an issue that to me points to some of the other concerns in the Pacific region, in that DFO is being manipulated and used by business, industry in particular.
When they talk about industry, they talk about the PPFA. They are not the industry. That is the commercial processor group of representatives, not the representatives of the independent commercial fishers, who are represented by the Prawn Industry Caucus. That's one thing we need to be clear about. When they're talking about industry, they're referring to the Pacific Prawn Fishermen's Association. Those are two different groups with different participants, and in many instances, that larger organization represents the processing companies that are taking live prawns and shipping them to Asia for a lucrative market.
This shift for fishers wasn't just into tailing and tubbing prawns. It's been a shift to live prawn sales at the dock, which has turned the market around for these guys. Their opportunity to fish.... Even with a strong foreign market to ship the seafood to, the fishers were not getting the benefit of that strong foreign market price. The fishers haven't been making a high living off of that market and then having to shift to a lesser market domestically. The domestic market has proven to be able to bear the prices that are potentially higher than what the international market is providing to the fishers, so it's not just a temporary shift. I think it's a long-term shift.
One of the things I heard in the earlier panel discussion was a lot about sustainability and size issues and those kinds of things. It's clear that the committee understands all of those things and is trying to understand what's at the root of this issue and how we can work to support fishers to make a living and to protect the resource—which I think we all think is important—so that they can keep fishing.
We know that the size of the prawns is more of a marketability issue than it is a conservation issue and that there is not a sustainability concern in harvesting undersized prawns, because they're all males. Knowing that, we start to look at what's behind all this stuff, and that's what concerns me the most. We've seen processes and even enforcement programs manipulated by large shareholder corporations again and again in the Pacific region, many of them foreign-owned. They use their levers and the people they have influence with to change policy and change the way that the fisheries are managed through enforcement action, causing things to essentially shift immediately.
They realized they were going to lose access to all these prawns because fishermen saw that they could sell the prawns domestically and make more money selling prawns to their neighbours and friends than selling prawns to a commercial fish plant that is going to pack them into a box and send them to China. All of a sudden, when fish companies started to see that they were going to lose access to a product that was making them millions of dollars when they sent it overseas, they had to do something.
That's my concern. It's that this change points to that kind of thing and that kind of corruption in the Pacific region. We need to get to the bottom of this and we need to make sure that the fishermen have an opportunity to make a living. That's critically important.
Andy Olson
View Andy Olson Profile
Andy Olson
2021-05-26 17:59
Yes. I think that plays a significant part in the challenges.
Fishing companies are the ones calling people to lease licences. It's often not fishermen. The goal is to control as much access to product as possible. Their interest is not in supporting fishermen.
View Ed Fast Profile
CPC (BC)
View Ed Fast Profile
2021-05-17 11:17
Ms. O'Brien, can you clarify the definition of “large businesses”? Those are ones that have authorized credit of more than $1 million, more than 500 employees, and annual revenues of more than $50 million. Is that correct?
Erin O'Brien
View Erin O'Brien Profile
Erin O'Brien
2021-05-17 11:17
That's correct. That's the definition that currently exists in the Bank Act.
View Brenda Shanahan Profile
Lib. (QC)
You do mention the requirements and the difference between corporations and organizations. I believe that is in your recommendation 3, and that's what my colleague, Ms. Lattanzio, was curious about.
Can you talk about what your thinking is there?
Nancy Bélanger
View Nancy Bélanger Profile
Nancy Bélanger
2021-05-14 14:58
Recommendation 3 is making the requirements the same, I believe.
Nancy Bélanger
View Nancy Bélanger Profile
Nancy Bélanger
2021-05-14 14:58
I don't always have the order of them perfectly in my mind, but yes.
The problem right now with the registry is that corporations do not have to list employees who lobby less than 20%. In other words, in the registry, an organization has to list everybody who lobbies, but a corporation does not have to list those who lobby less than 20%. What that means, the impact of that, is that those individuals who are not in the registry are not subject to the code of conduct of lobbyists, and that's a problem.
It's not difficult. It's just this: List all of the names of those who lobby on behalf of the corporation and organization. The organizations have to do that. I don't know why corporations don't. That's not a very difficult change to make.
James Cohen
View James Cohen Profile
James Cohen
2021-05-06 15:58
Mr. Chairman and members of the committee, thank you for inviting me back to speak to you today. My name is James Cohen, and I am the executive director of Transparency International Canada. TI Canada is a registered charity and is the Canadian chapter of Transparency International, the world's leading anti-corruption movement.
The release of the Panama papers in 2016 was an explosive look into how the world's secrecy jurisdictions and an army of enablers hide illicit funds from crimes like tax evasion, corruption and fraud. One revelation that came out of the trove of leaked documents is that Canada was being happily marketed as a secrecy jurisdiction by Mossack Fonseca, the firm at the heart of the Panama Papers.
The Toronto Star and CBC journalists found that Mossack Fonseca was marketing Canada to clients as a desirable place to store dirty cash, based on our generally positive reputation but also, importantly, on our weak disclosure laws and enforcement. The correspondences the media published showing this advice were from 2012. TI Canada is currently re-examining this phenomenon of overseas incorporation agencies marketing Canada's opacity, and we are finding that nothing has changed. The term that came out of the Panama papers for money laundering and tax dodging in Canada, “snow washing”, is alive and well.
However, as of April 19, Canada is in a better position. TI Canada and our civil society partners enthusiastically applaud the government's proposal to establish a publicly accessible registry of beneficial ownership in the 2021 budget. Canada has been slammed by international organizations, civil society and peers for years, and now we have taken a large step out of that shadow.
Of course, the federal government cannot establish corporate beneficial ownership transparency on its own and expect the problem to be resolved. The provinces and territories must come on board with this initiative. Thankfully there is already momentum, as we see Quebec on the cusp of making corporate beneficial ownership information public via Bill 78, and the British Columbia Land Ownership Transparency Registry went online last week. We hope this will be followed by a public corporate beneficial ownership registry too.
The world is shrinking as a place for tax dodgers, kleptocrats and fraudsters to hide. In 2016 the United Kingdom was the first country to have a public beneficial ownership registry. The U.K.'s overseas territories and Crown dependencies, which include some of the best-known secrecy jurisdictions, such as the Isle of Man, have also agreed to establish publicly accessible registries of beneficial ownership. In a joint statement, the crown dependencies cited their need to co-operate by 2023 with European Union anti-money laundering directive 5, which requires all EU members to establish a public beneficial ownership registry.
From this trend we see that after years of being regarded as a laggard, Canada has the chance to move up to the head of the class on beneficial ownership transparency. While I would never say that any tool is a silver bullet for solving tax evasion and money laundering, a publicly accessible registry will be a powerful tool. It needs to be set up correctly, though. We can learn a lot from our peers in the U.K. and the EU and make sure that our registry has verified data and harsh consequences for those trying to falsify information. Canada's registrar should also have a staff that can conduct proactive investigations and a tip line for people to provide information on suspected tax evaders so proper investigations can be conducted.
This will be a big year for international forums to address beneficial ownership transparency, corruption, money laundering and tax evasion. There will be the G7 hosted by the U.K., the UN General Assembly special session on corruption, the open government partnership summit in South Korea and eventually the Summit of Democracies hosted by U.S. President Biden. This year the Financial Action Task Force, the global standard-setting body on anti-money laundering, will also review recommendations on beneficial ownership transparency, possibly making public registries a new standard. Canada now has a foot to stand on in these forums for calling for greater transparency from others to continue to close the space for tax evaders, kleptocrats and crooks to hide in.
Thank you, and I am happy to take any questions from the committee.
View Wayne Easter Profile
Lib. (PE)
Thank you very much, Mr. Cohen.
The public registry was one of the key recommendations from this committee in our study on money laundering, which was, I think, one of the best studies we've ever done, so we're glad to see that out there too.
I forgot to mention, Ms. Daviau, that yes, we would like you to please send that information in those reports that you mentioned to the clerk. It will be helpful to the committee.
View Sean Fraser Profile
Lib. (NS)
View Sean Fraser Profile
2021-05-06 16:12
Thank you very much, Mr. Chair.
Before I get to my questions, I want to begin by thanking Ms. Watson for being with us today. Her story is a powerful one. I believe she wanted to remind us that this is not a victimless crime.
Although there are certain individuals who are impacted very directly, I would argue that the classes of victims are almost limitless [Technical difficulty—Editor]. Anybody who doesn't have a family doctor, can't afford to pay for school or suffers from a lack of access to services is a victim of those who choose to evade paying taxes that they properly owe, and the quality of life that we all enjoy is diminished as a result.
My first question is for Mr. Cohen.
You spoke with some enthusiasm about the announcement to establish a registry for beneficial ownership. This is useful in this audience of people who study the budget, but I'm curious as to whether you can put into plain language, for Canadians who may be watching, the importance of having a publicly accessible registry so folks know who's behind some of these shell corporations or organizations that might be used to hide the beneficial owner who might be benefiting from those who evade taxes.
James Cohen
View James Cohen Profile
James Cohen
2021-05-06 16:13
As you say, it's a publicly accessible beneficial ownership registry to identify the true individuals. For anybody not familiar with beneficial ownership registry and shell companies, company ABC might be owned by company 123, which is owned by company Ontario 456, which was opened by...Bob. Who's Bob, at the end of the day, and why the level of secrecy?
Bob could be an entirely legitimate business person, but there is no precedent for anonymity behind all those layers. Bob could also be somebody who is evading taxes, denying Canadians revenue for various services that you discussed, such as health services or the environment. Bob could be a kleptocrat from overseas, stealing money from some of the most vulnerable people around the world and hiding it here in Canada. That individual could also be a criminal perpetuating the fentanyl crisis in Canada and facilitating gang activity. He could be a sanction-buster trying to move money around to allow weapons to go into countries like Syria. There's a whole host of people.
As Ms. Watson alluded to, this is not victimless. When we talk about these grand numbers that are being moved around through the shell companies, we should know that there's a precedent crime underneath them. Whether it's undermining Canadian society through sapping resources that should fund our public services, allowing criminals to continue to operate within Canada for crimes in Canada or overseas, or ruining our good name abroad while we give foreign aid money but have stolen money from those very same countries wind up back in mansions in Montreal, Toronto or Vancouver, this all has an impact, and it all should matter to everyday Canadians.
View Tamara Jansen Profile
CPC (BC)
Thank you.
Mr. Cohen, how could transparency assist in the fight against tax avoidance and money laundering in our country?
I understand there are legal loopholes that allow for some entities to accept large overseas transfers without reporting them to FINTRAC. There are lawyers who talk about lawyer-client privilege. Some say they are the worst offenders. Would the beneficial ownership registry tackle that problem in any way?
James Cohen
View James Cohen Profile
James Cohen
2021-05-06 16:55
Yes, a publicly accessible registry would do a lot to fight tax evasion and money laundering in a number of ways.
Currently, only financial institutions are required to do beneficial ownership due diligence by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Thankfully, we are seeing the amendments come into force in June, when all designated non-financial businesses and professions will need to do the same due diligence. That will include accounting agencies, money service businesses and real estate agents. Legal professionals do have to do that due diligence. Due to the Supreme Court ruling, they do not need to file suspicious transaction reports.
It does put a lot of pressure on all the professions to conduct the due diligence and now have the data. They can't say, “Well, I've tried with a client; I don't know.”
Once we have the registry in place it's very important that this data be verified through various methods so that all the various bodies that need to report, and even people looking to invest, like Ms. Watson, have the ability to do their own due diligence as well.
In a lot of ways, this will deter those bad actors from coming in the first place. Hopefully those who still want to game the system will be caught.
View Peter Julian Profile
NDP (BC)
Thank you very much, Mr. Chair.
I beg to correct you. The beneficial ownership registry was supported by the other two parties. The NDP pushed for a publicly accessible beneficial ownership registry, and as we can see from the report on snow washing, it was declined by the other parties, so I'm very glad to see that the idea of a publicly accessible beneficial ownership registry has now come back.
I want to come back to Ms. Iacovelli.
There are two directors for Parrhesia. Nigel Glazier Scott and Paul Joseph Valentine Dougherty were directors of Parrhesia, which was incorporated by KPMG and, as I mentioned, was summarily dissolved 43 days ago. They are the same directors for the “sword” companies.
Could you tell us if there's a connection between these two individuals, Nigel Glazier Scott and Paul Joseph Valentine Dougherty, and KPMG?
Céline Bak
View Céline Bak Profile
Céline Bak
2021-04-29 11:05
I would like to begin by stating that my home is on the unceded territory of the Algonquin Anishinaabe Nation, and that this land has contributed to my privilege.
I want to thank those who are working to protect and care for us during this pandemic.
Distinguished members of the Standing Committee on Industry, Science and Technology, thank you for this opportunity to participate in the committee's work.
As people who believe in the importance of government and public policy, we are compelled to think about how we can build back better after this pandemic.
My name is Céline Bak, and I am president of Analytica Advisors. I work as a global management consultant on ESG projects for large and small companies, and as an expert in sustainable finance policy.
Achieving a 45% reduction in Canada's greenhouse gas, GHG, emissions by 2030 is an important part of building back better. We must also ensure that we take care of the young and the old, and enable everyone to contribute fully to our society.
In regard to innovation, science and technology, the Government of Canada's recent budget signalled its intent to build an equitable society that works within the planet's boundaries, that is to say, an intent to build back better. This committee is undertaking its work at a time when an important consensus is forming and policies are coming together on how to build back better.
I will speak of three threads: one in Canada, one in the European Union and one in the U.S.
The first thread, from Canada, is that clean technology was one of nine economic sectors analyzed as part of innovation, science and technology's Industry Strategy Council . The council's report, “Restart, recover and reimagine prosperity for all Canadians”, was published in December 2020.
One of the council's recommendations called for an industrial strategy that included deployment of made-in-Canada clean technology within each of these four pillars: first, become a digital and data-driven economy; second, be the ESG world leader in resources, clean energy and clean technology; third, build an innovative and high-value manufacturing sector where we can lead globally; and fourth, leverage Canada's agri-food advantage to feed the planet.
These are important conclusions, which I recommend for the committee's consideration.
The second thread, from the European Union, is its industrial strategy, which overlaps with the council's recommendations and signals a strong consensus on the opportunity for zero-carbon and digital industries. In fact, half of Europe's 673-billion euro recovery and resilience fund, to be invested before 2024, is directed at stimulating private sector investment. If adjusted to Canada's GDP, this stimulus would be equal to $13 billion in annual public stimulus over the period 2021 to 2023, about $3 billion a year more than what was recommended in the building back better Canada plan published last summer.
I recommend that the committee consider that to be awarded EU recovery and resilience funds, private sector proponents must propose projects that meet the following criteria: first, ensure a three- or four-to-one leverage of private sector investment to public sector stimulus; second, advance the EU's goal of a 55% reduction in GHG emissions by 2030; and third, for projects led by large firms, engage as partners, at least four SMEs, to ensure that companies that are scaling up have access to large and growing markets and can participate in high-growth digital and zero-carbon industries.
In Canada, we have many firms that are ready to deliver fully commercial, sustainable products. We invested in them many years ago through globally leading technology organizations, such as GreenCentre Canada, Emissions Reduction Alberta and Sustainable Development Technology Canada.
For example, since 2009, ERA has committed $646 million to 204 projects worth over $4.5 billion to support the development and adoption of technologies to reduce emissions.
We can expect the same from our neighbours to the south, which is the third thread in the consensus that I wanted to speak to today.
In the U.S., I suggest that the committee keep a clean eye on the clean future act, the act which directs each federal agency to develop a plan, using existing authorities, to achieve the U.S.'s national climate goals in combination with all other agencies. It creates a process for public review, as well as review by the EPA, before each federal agency submits its plan to Congress and begins implementation. It further requires each agency to review its plan at least every two years and to submit an annual report to Congress.
If Canada took the same approach, the Standing Committee on Industry, Science and Technology would be asking the Minister to present the department's plan to reduce emissions by 45% by 2030 in his areas of jurisdiction. In addition to the Net Zero Accelerator fund announcements, the Minister's plan would include a report on emissions from all industries under his jurisdiction, including the automotive, aerospace, rail, pharmaceutical, defence and telecommunications sectors.
Thank you for your attention.
Patrick Sullivan
View Patrick Sullivan Profile
Patrick Sullivan
2021-04-15 17:09
Thank you very much, Mr. Chair, and thank you very much to the committee.
Good evening. I apologize in advance; I have a cold. It's just a cold. I've been COVID tested a number of times. I apologize if I cough during my presentation.
I've decided to make my presentation rather short tonight, so I don't believe I will take anywhere close to five minutes. I just want to make a very firm point.
My name is Patrick Sullivan. I'm the president and CEO of the Halifax Chamber of Commerce, which is a best-practice business advocacy organization that continuously strives to make Halifax an even more attractive city in which to live, work and play. Together with approximately 1,700 member businesses that represent over 65,000 employees, the chamber acts as a single powerful voice to promote local business interests.
I want to thank the federal government for its prompt and meaningful support for our business communities throughout the pandemic. Programs like the Canadian emergency business account, the Canadian emergency wage subsidy—which we utilized to retain our full-time staff—and the Canadian emergency rent subsidy were all crucial to the survival of many businesses, both large and small.
It's apparent, though, that while vaccines are rolling out throughout the country, many of our hardest-hit sectors, like tourism and hospitality, will once again feel the impacts of COVID-19 throughout the balance of 2021.
Businesses need predictability. They need a view of what that business can look like or will look like in order to plan for the coming months. We ask that the Canadian emergency wage subsidy and the Canadian emergency rent subsidy be extended until December 2021 so that those highly affected sectors can remain viable and return to full capacity in 2022. With over $1 billion lost in revenues in Nova Scotia during the 2020 tourism and hospitality high seasons, we must keep these sectors and businesses afloat, not only for the employment of many Canadians but also for our continued economic growth and recovery from COVID-19.
Thank you very much. I'd be happy to answer any questions you may have.
Trevin Stratton
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Trevin Stratton
2021-04-13 17:29
Thank you, Mr. Chair and members of the committee. It's a pleasure to be here today.
The Government of Canada and, indeed, all members of Parliament must be recognized for the work that they have done in providing support to businesses and Canadians during this unprecedented and very uncertain time.
The emergency supports that have been provided have spared many Canadian businesses from economic disaster and will help many Canadians through another challenging year. These pandemic-related fiscal supports have also come at an enormous price, and their cost will continue to mount for the coming months and beyond. Focusing government spending on the programs and policies that will encourage growth, create jobs and help businesses recover will provide the greatest return on investment for all Canadians. Doing so will allow us to produce the revenue needed to offset the extraordinary amount of public spending we have incurred and will help Canada achieve an economic recovery that is fiscally sound.
All of us understand the need for emergency spending to support people and businesses through the crisis, but we must avoid creating structural deficits that will mortgage the future of the next generation of Canadians. Despite the recent third wave of the pandemic, our strong GDP growth this year gives Canadians a taste of the economic rebound to come once vaccines are widely available.
Robust government stimulus spending to jump-start growth in the short term will likely be unnecessary, since pent-up demand is ready to be released once the pandemic subsides. That doesn’t mean the government needs to turn off the taps or start cutting critical programs, but this is not a typical recession that is a result of problems with economic fundamentals; therefore, it will not require traditional stimulus injections to help spur growth.
Instead, our economic recovery plan, including next week’s federal budget, should focus on addressing Canada’s competitiveness, such as our issues with productivity, business investment, and interprovincial trade and regulatory barriers. Addressing these issues will be the key to transforming our high growth rates from this year’s initial rebound into longer-term prosperity, job creation and an inclusive economic recovery.
At the same time, we cannot lose sight of the fact that more than one year into the pandemic, businesses, especially small businesses and those in the hardest-hit sectors, continue to struggle. These sectors will require continued support to ensure they can help propel job creation going forward.
I am joined today by my colleague, Alla Drigola, director of parliamentary affairs and SME policy, who will speak to the types of targeted support that will help businesses that need it most.
Alla Drigola
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Alla Drigola
2021-04-13 17:32
Thank you, Trevin.
Good afternoon.
If the Canadian Chamber can leave committee members with just one message today to help businesses that are still struggling, it’s this: COVID-19 business support programs must remain in place for as long as businesses, particularly those in the hardest-hit sectors, are not allowed to operate without restrictions.
The wage subsidy, the rent subsidy, the liquidity programs, BCAP and HASCAP, and the partially forgivable small business loan, CEBA, are all excellent programs that are necessary for the survival of business and that are working well for the most part.
The government’s initial focus was rightfully on creating business support programs that would be as widely accessible as possible; however, it is time to start taking a more focused approach to COVID-19 support programs and spending, and that requires a plan.
For all of the subsidy and spending that Canada has seen and will continue to see, the only path to real, sustainable growth is job creation and business investment. In the upcoming budget, which will be released just six days from now, the Canadian Chamber expects to see a clear plan from the government. This plan will need to be twofold.
On the one hand, we need to see continued support for the hardest-hit sectors. Sectors that depend on face-to-face interactions such as tourism, travel, hospitality and events are experiencing immense difficulties and are widely expected to be among the last to recover. They will need targeted policies to assist their longer recovery period.
CEWS and CERS need to continue to be available beyond their current June expiry date, with a few improvements, such as increasing the CERS multi-entity cap to ensure that struggling medium-sized businesses are treated fairly.
Relying on the growth of only a few sectors will not get us to recovery. We need a plan that lifts everyone up and that grows all businesses, large and small, from coast to coast to coast.
Thank you for the opportunity to meet with you this afternoon. We look forward to our discussion.
Yelena Larkin
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Yelena Larkin
2021-04-13 11:07
Thank you so much.
Good morning, committee members, fellow witnesses and everyone else. I appreciate the opportunity to present my views at this committee.
All of the statements I am about to make are based on the draft of a research paper that my co-author Ray Bawania and I completed in 2019. In this paper, we asked whether the nature of the Canadian economic environment has changed over the past few decades. Our research question was motivated by the trends revealed in the U.S. markets, as well as academic articles that argue that product markets in the U.S. have become more concentrated over the past two decades.
In the project that underlies this statement, my co-author and I examined the business environment in Canada from the standpoint of financial markets. By analyzing the data that is typically used in corporate finance research, my work provides some descriptive statistical analysis of Canadian financial markets that potentially can serve as a starting point for future and more detailed research.
In the centre of our analysis are Canadian publicly traded firms. We first focus on the number of firms traded on the Toronto Stock Exchange, the TSX. Since publicly traded firms are typically the key players in the economy and tend to be much larger compared with private firms, the falling number of public firms could be the first sign of a structural change.
This is what we found. The number of non-financial firms—that is, firms that are not set up as an investment vehicle, such as investments funds, mutual funds and so on—have indeed dropped, by around 30%, since its peak around 2006 to 2008. To ensure that the trend could not be due to industry composition, we also split the overall number of firms into major sectors, and found that the decline in the number of firms is not limited to a specific sector but rather has affected firms across the entire spectrum of Canadian industries.
Next we turned to examining the size of public firms, measured as the market capitalization in constant Canadian dollars of 2002. Market cap measures what a company is worth in the open market and, therefore, serves as the most updated indicator of its perceived value. In addition, it reflects the market's perception of the firm's future prospects and incorporates both tangible and intangible components.
We found that the mean firm size has been persistently rising over the last 35 years. However, the growth has not been equal. Large firms have essentially grown at a much steeper rate over the past 10 or 15 years. For example, the inflation-adjusted market cap of firms in the top quartile of size distribution has swelled from a quarter-billion dollars in 2008 to almost $1 billion in 2016.
We also explored the combined effects of firm number and firm size by constructing a measure of concentration, the Herfindahl-Hirschman index, which is defined as the sum of squared market shares of all the firms within the same industry. We found that concentration has increased in most industries and this increase has been economically significant. Further, consistent with the increase in concentration, we found that the largest firms in each industry have become more dominant. The share of sales by market leaders compared to the total industry sales has also increased substantially over the same period.
In the second part of the paper, we examined possible implications of the systematic increase in concentration along with the decline in the number of publicly traded firms. It is possible that the increase in dominance of large firms could reflect barriers to entry. In general, barriers can be driven by a number of various factors, which include economies of scale and large capital requirements, regulatory changes that potentially discourage new firms from entering the market, and the increasing role of technology behind all this.
To examine the barriers-to-entry explanation, we performed several tests. First, we looked at the link between concentration and profitability. If markets are becoming more concentrated due to greater barriers to entry, we should find evidence that profit margins are increasing in those industries. Consistent with this argument, our analysis showed a positive and significant link between accounting measures and concentration.
It looks like I am running out of time.
In this case, let me mention that, going forward, I would like to set this result into a large frame and consider the relevance of Canadian public firms becoming more valuable and obtaining better investment opportunities. More research is needed to understand the reasons behind the secular decline in the number of firms, which is accompanied by an increase in size and vibrant M and A activity.
I hope these findings can provide an opportunity for policy-makers to further examine the trends of the increased concentration.
Karen Hogan
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Karen Hogan
2021-04-13 12:09
Madam Chair, I am pleased to be here to discuss our audit reports, which were tabled in the House of Commons on March 25. I am accompanied by Carol McCalla, Philippe Le Goff, Chantal Richard, Jo Ann Schwartz and Nicholas Swales, the principals who were responsible for the audits.
The reports presented were the first of many audits that my office will conduct on the government's response to the COVID-19 pandemic. I also provided Parliament with our report on the Investing in Canada plan.
There is no doubt that the COVID-19 pandemic was an all-hands-on-deck emergency the world over. Governments had to mobilize quickly to respond to the public, health, social and economic effects of this pandemic. Canada was no exception.
While we found that the government was not as ready as it could have been for a pandemic of this magnitude, the public service mobilized, prioritized the needs of Canadians, and quickly delivered support and services. We did not observe the same service mindset and interdepartmental coordination in our audit of the investing in Canada plan, which I will turn to first.
The investing in Canada plan is important because the government is investing $188 billion to generate long-term economic growth, improve communities' resiliency, support the transition to a green economy, and improve social inclusion and socio-economic outcomes for all Canadians.
Infrastructure Canada is unable to present a full picture of results achieved and progress made under the investing in Canada plan. We found that the department's reporting excluded almost half of the government's investment because it did not capture more than $92 billion of funding that was committed before the plan's creation in 2016.
In addition, Infrastructure Canada's reporting captured only some programs each year, making it impossible to compare results year over year. The clarity of reporting was also impacted by inconsistent information received from federal partners in the plan. The absence of clear and complete reporting on the Investing in Canada plan makes it difficult for parliamentarians and Canadians to know whether progress is being made against the intended objectives.
The issues affecting the Investing in Canada plan are not new. We have seen similar problems in many past audits in areas that require cross-departmental or cross-jurisdictional collaboration, such as indigenous issues and climate change. This audit is yet another example of the need for the government to act on known issues—in this case, the need for broad collaboration and clear reporting on results for this large initiative.
In contrast, we observed nimbleness during our audits of the government's COVID-19 response.
I am going to turn first to the Canada emergency response benefit.
With this benefit, the government wanted to quickly deliver financial support to eligible individuals.
We found that the Department of Finance Canada, Employment and Social Development Canada, and the Canada Revenue Agency rose to the challenge and quickly analyzed, designed and delivered the Canada emergency response benefit.
To simplify the process and get support to people quickly, Employment and Social Development Canada and the Canada Revenue Agency took the approach of relying on personal attestations and automated prepayment controls to validate applicants' eligibility. Once the benefit was launched, they introduced additional prepayment controls to limit potential abuse.
With the decision to rely on personal attestations, host payment verification becomes very important. Employment and Social Development Canada and the Canada Revenue Agency are working to start their post-payment verification efforts related to the Canada emergency response benefit later this year. Their work in this area will be the subject of a future audit.
I will turn now to the Canada emergency wage subsidy. We observed a similar focus on getting help out quickly, in this case to businesses. Once again, the Department of Finance Canada and the Canada Revenue Agency worked together within short time frames to support the development and implementation of the Canada emergency wage subsidy.
The design and rollout of the subsidy highlighted pre-existing weaknesses in the agency's systems, approaches and data. These weaknesses will need to be addressed to improve the robustness of Canada's tax system.
To prioritize issuing payments, the Canada Revenue Agency made decisions about the information it would ask for and the prepayment controls it would use.
For example, the agency decided that it would not ask for social insurance numbers, though this information could have helped prevent the doubling up of applications for financial support. This decision limited the agency's ability to perform prepayment validations, as did the absence of complete and up-to-date tax information that would have helped it efficiently assess applications.
I am going to now turn to our last audit, which focused on pandemic preparedness, surveillance and border control measures.
In this audit, we found that the Public Health Agency of Canada was not as well-prepared as it could have been to respond to the COVID-19 pandemic. Not all emergency and response plans were up to date or tested, and data-sharing agreements with the provinces and territories were not finalized.
The Public Health Agency relied on a risk assessment tool that was untested and not designed to consider pandemic risk. The agency continued to assess the risk as low, despite growing numbers of COVID-19 cases in Canada and worldwide. In addition, the Global Public Health Intelligence Network did not issue an alert about the virus that would become known as causing COVID-19.
I am discouraged that the Public Health Agency of Canada did not address long-standing issues, some of which had been raised repeatedly for more than two decades. These issues negatively affected the sharing of surveillance data between the agency and the provinces and territories during the pandemic. While the agency took steps to address some of these problems during the pandemic, it has much more work to do on its data-sharing agreements and its information technology infrastructure to better support national disease surveillance in the future.
We also found that the Public Health Agency of Canada and the Canada Border Services Agency implemented restrictions at the border as well as quarantine measures. They provided guidance and tools to inform travellers and essential workers coming into the country of public health requirements.
However, the Public Health Agency of Canada had not contemplated or planned for a quarantine on a nationwide scale, from the collection of travellers' information through to all enforcement activities, including following up on those identified to be at risk of non-compliance. As a result, the agency does not know if the majority of travellers properly quarantined.
These audits looked at programs that were rolled out in record time. Faced with a pandemic, the public service focused on the pressing outcome: helping Canadians.
In its first year, the pandemic has shown that when the public service must, the public service can. This crisis has highlighted the importance of dealing with known issues, whether it's agreeing on which organization has the lead; who will do what, and when; who will report what, and to whom; or replacing outdated systems or processes and addressing issues in data quality.
These are not problems that you want to have to deal with at the same time that you are focusing on helping people, because this is not an efficient way of working, nor is it a productive way to serve Canadians. Government organizations need to do collaboration better.
Madam Chair, this concludes my opening statement. We are now pleased to answer questions that you may have.
Thank you.
View Len Webber Profile
CPC (AB)
Thank you, Madam Chair.
Ms. Hogan, I need further clarification on some comments you made in your opening remarks, particularly with regard to the Canada emergency wage subsidy.
I know it was important for Finance Canada and the Canada Revenue Agency to get the help out quickly to these businesses throughout our country. It was vital, absolutely. However, you indicated some concerns, particularly with the subsidy applications and the way businesses were filling out these application forms to get their funds. You said, “To prioritize issuing payments, the Canada Revenue Agency chose to forego certain controls” that could have been used “to validate the reasonableness of subsidy applications.” Then you gave an example—that they decided not to ask for social insurance numbers—and you say that “this information could have helped prevent the doubling-up of applications for financial support.”
My question is this: Why did they choose to not ask for social insurance numbers? What did they use, then, to prevent the doubling up of applications for financial support?
Karen Hogan
View Karen Hogan Profile
Karen Hogan
2021-04-13 12:48
What we did find here was that the Canada Revenue Agency and the Department of Finance worked in really tight timelines to design a wage subsidy, one that's never been seen in Canada before. The goal of that subsidy was to try to maintain the employer-employee relationship, to keep individuals working and to allow businesses to be better prepared for the reboot of the economy.
The focus in this case, as well as for the Canada emergency response benefit, was on getting payments out in a timely way. The government chose what is known as an international best practice in emergency situations: to focus less on prepayment controls—which it typically would do to vet eligibility and applications—get money out in order to provide support, and focus on post-payment controls. That just underscores the importance of the post-payment work and why, for both of these programs, my office will go back and do audits to look at that post-payment work.
When they chose not to ask for those social insurance numbers in the example you asked about, it was for a few reasons. One reason that this decision highlighted was the fact that their IT systems had some weaknesses, and they couldn't handle some of the data and the cross-comparability. Another was a lack of timely tax information, in that they weren't able to vet revenues from the prior years beforehand since so many filers had not filed, for example, their GST returns, which would have provided evidence of revenues the year before in order to demonstrate a decline in revenues.
Really, the decision was made by the Canada Revenue Agency to prioritize support and to deal with all of these potential issues through post-payment verification work. They've noted that it will take several years to get through this work, and that is why we will be auditing it early on to make sure that it has some good controls and some good mechanisms in place.
View Len Webber Profile
CPC (AB)
I see.
Are you saying that the agency did not do any type of control at all with respect to these applications? They just basically gave what was asked for on the application?
Karen Hogan
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Karen Hogan
2021-04-13 12:50
No, they did have some automated prepayment controls up front. Both the wage subsidy and the Canada emergency response benefit had a few up front, but not the typical stronger due diligence they would have done normally when handing out subsidy payments. It means there is the potential that some payments were made in error or to ineligible applicants, so those payments will have to be identified and then recovered.
View Brian Masse Profile
NDP (ON)
View Brian Masse Profile
2021-04-08 16:54
Some of the infrastructure projects over here, like the Gordie Howe bridge, are something I've been after since 1997.
At any rate, the U.S. has provisions to allow for access to minorities, women and others who are disenfranchised historically through the economic system, so that they get a portion or a carve-out. I guess you're saying the same type of thing in some respects. That wouldn't violate our policies because they're already doing it there.
Stuart Trew
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Stuart Trew
2021-04-08 16:54
It wouldn't strictly. We didn't seek, within the GPA or the WTO, a carve-out for those policies like the U.S. has. We don't have a carve-out or set-asides for minority-owned businesses or women-owned businesses. I don't see that as a reason not to pursue them. I don't think we should be avoiding risks like that for good policy.
View Mario Simard Profile
BQ (QC)
View Mario Simard Profile
2021-03-26 13:54
My next question is for you, Dr. Godbout.
From the answer you gave to my colleague, Mr. Lefebvre, earlier, I understood that in other sectors there is a partnership research model whereby businesses are investing a third of the missing funding.
Is it true that it's harder to establish these kinds of partnerships in the critical minerals sector?
Jovette Godbout
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Jovette Godbout
2021-03-26 13:55
Yes, this Canadian model is envied around the world, because it allows industry to be involved in R & D. It also allows universities to conduct research that is applied to the sector in question.
In the critical and strategic minerals sector, at the moment there are no lithium mines or rare earth mines in operation, for example. This industry does not have the same financial means to support research. It is therefore true that we are not at all at the same level in terms of research capacity.
On top of that, since we live in a market-driven world and are competing not with each other but with countries that have a monopoly on the market for these substances, intellectual property and patents—in other words, confidentiality aspects of the research results—will be important issues to consider.
View Jack Harris Profile
NDP (NL)
Thank you, Mr. Chair.
Mr. Parsons, I have lots of questions for you but not very much time to ask them.
One very important one is that you make six recommendations regarding what companies should be required to publish with respect to their social media platforms, including publishing guidelines explaining the way they're subject to state mandate and surveillance, that they make their algorithms available for government audits, that they provide transparency reports, and so on.
Do we have the means to actually force companies to do those things in order to be able to operate in this country?
Christopher Parsons
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Christopher Parsons
2021-03-22 20:34
For some of them, we certainly do. As one example, I think we could compel Facebook and other companies to explain how they interact with perhaps Chinese companies as well as Canadian companies.
In other cases, I believe we would have to work with our allies—the United States, Europe and other jurisdictions—to put pressure on the companies and/or pass legislation in the countries out of which they operate.
View Jack Harris Profile
NDP (NL)
Is there any activity coordinated to do that work, or is that something you're recommending we should start to do? Is it happening already?
Christopher Parsons
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Christopher Parsons
2021-03-22 20:34
I think we're seeing pieces of that in the United States and the European Union, but it isn't something I would say is an agreed-upon position by respective governments. It's a place where Canada can participate with our closest allies to make movement on this.
View Jack Harris Profile
NDP (NL)
We'd better get cracking if we're going to have any control over this monster.
Christopher Parsons
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Christopher Parsons
2021-03-22 20:35
We certainly hope this will be something the government looks at.
Charles Milliard
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Charles Milliard
2021-03-17 14:38
I'll do my best.
Happy St. Patrick's Day to everyone.
My name is Charles Milliard.
I am the CEO of the Fédération des chambres de commerce du Québec. The FCCQ is an organization that includes both 130 chambers of commerce from across Quebec and 1,100 member companies. We are the largest group of business people in Quebec and we represent all sectors of activity in Quebec.
Thank you for inviting us to testify before you today on Bill C-14, which is a follow-up to the economic statement that was introduced on November 30.
The FCCQ welcomed many of the measures that were presented in this budget update. These include the increase in the wage subsidy rate and its extension to March 13, and June 5 thereafter, as well as significant investments in infrastructure, particularly at major airports. This is noteworthy. However, today we want to focus our comments on the Canada emergency rent subsidy and add some editorial comments on the tourism and pharmaceutical industries.
The Government of Canada has a number of excellent programs in place that are having a major impact on the ability of individuals and businesses to weather the current crisis. These include the Canada emergency commercial rent assistance, CECRA, a program that was put in place quickly and addressed a real and very concrete problem, the difficulty for commercial tenants to pay their rent due to health-related restrictions.
However, problems arose very quickly, and we heard a lot about this at the federation, because it was the building owners who had to apply directly. This proved to be ill-suited to the crisis environment, which complicated the relationship between many tenants and landlords and therefore limited the appeal of the program.
For example, according to a survey conducted by Restaurants Canada, 20% of restaurant owners, or one in five, were not allowed by their landlords to defer rent during the first wave of COVID-19, a criterion that was required to qualify for the CECRA. This made it imperative to change the program. Fortunately, the new Canada emergency rent subsidy, or CERS, addresses this challenge by now providing financial assistance directly to the tenant company, up to and including a 90% subsidy rate. This is major and it was very much appreciated.
On the other hand, it seems unacceptable to us, at this time, to penalize businesses that have not been able to benefit from the CECRA because of its particular mechanics, even though they would have been entitled to it since March 2020. The federation therefore recommends that commercial tenants be allowed to receive the CERS for all months in which they would have been eligible for it since the beginning of the crisis and for which they did not receive the CECRA.
As we all know, government programs are rarely retroactive, and that's fine. However, we are in a more than exceptional situation. Let's be clear: thousands of entrepreneurs were eligible for the CECRA, but they were not able to benefit from the program for reasons that were totally beyond their control. In this case, for us, making the program retroactive would correct an injustice that has been experienced by far too many medium-sized business owners in Quebec and the rest of Canada.
On another note, the FCCQ also looks favourably on the assistance that was announced in the economic statement for the events and arts sector. I know that my colleagues the other witnesses will talk about this at length, so I won't go into detail. However, it should be remembered that the major Quebec and Canadian hotels have seen their clientele of international travellers and conventioneers virtually disappear since last March.
For us, this tourist accommodation sector is important and is still too often left out of the current crisis. For now, unfortunately, the assistance promised by Ottawa is limited to loans, when it is clear to us that hoteliers and tourism businesses still need direct and most concrete assistance, as does the cultural sector, for that matter.
I'll close by quickly talking to you about the pharmaceutical industry, because Bill C-14 is preventing and alleviating shortages of therapeutic products, including drugs and medical equipment, in Canada. This is a great opportunity to remind ourselves of the importance of the health and life sciences sector in Canada. Prior to the pandemic, the FCCQ had recommended a massive investment in this sector, and I believe that the federal government has a role to play, among other things, in the local production of manufacturers and, above all, in the rapid review of the proposed reform of the Patented Medicine Prices Review Board, the PMPRB. The crisis has revealed the importance of having a strong pharmaceutical industry in Canada, and I think you have an opportunity as parliamentarians to improve the situation at this time.
In conclusion, the federation recommends the passage of Bill C-14, while reiterating the importance of making the Canada emergency rent subsidy retroactive for contractors who were unable to obtain emergency assistance.
Thank you. I would be happy to answer any questions you may have.
Marcel Groleau
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Marcel Groleau
2021-03-09 15:37
Thank you, Mr. Chair.
Good afternoon, members of the committee.
My name is Marcel Groleau, and I am the general president of the Union des producteurs agricoles, or UPA. With me is Marc St-Roch, a specialist in agricultural taxation. He has the expertise to answer more technical questions.
The agriculture and agri-food sector is responsible for one in eight jobs, generating more than $112 billion in annual revenues and exporting more than $60 billion worth of products every year. The backbone of many rural areas, the sector is also vital to the food security of Canadians.
Some 98% of the country's farms are family owned and operated. That business model is a source of pride for Canadians. Family farming promotes sustainable growth, environmental stewardship and reinvestment in local economies.
The legal structure of farm operations has changed in recent years. According to the 2016 Census of Agriculture, the percentage of incorporated farms more than doubled in 20 years, going from 12% to 25%. As the number of farms dropped by approximately 83,000, the number of incorporated farm operations continued to grow in Canada, increasing from 32,700 to 48,600.
As has been pointed out, farmers are getting older: the average age of farm operators is now 55, seven and a half years older than the average age in 1991.
With rising asset values and, by extension, debt, farm operators have turned to incorporation to help finance investments, since corporate tax rates allow operators to pay back borrowed capital more quickly.
According to a 2017 study by the Business Development Bank of Canada, nearly 40% of small businesses will be transferred or sold by the end of 2022 as owners near retirement. More than $50 billion in agricultural assets is expected to change hands in the next decade.
Unfortunately, Canada's tax system treats the transfer of family businesses unfairly. Under the current rules, it is usually much more expensive for a farm owner to sell their business to a family member than to an unrelated buyer. By penalizing retiring farmers and young farmers hoping to take over the business, the tax rules put the country's family farms in financial jeopardy.
Pursuant to section 84.1 of the Income Tax Act, if, in order to finance the sale of a business, a person sells the shares of their corporation to a related party, the capital gain triggered by the sale is deemed a taxable dividend. That means the seller cannot claim the capital gains deduction in relation to a qualified farm property. Conversely, if the owner sells the corporation to a corporation controlled by an unrelated third party, the capital gain realized can be tax-exempt. That is unfair. Consequently, on a $500,000 gain, the taxable portion can vary by $225,000 when it should be tax-free in both cases.
In order to facilitate financing in relation to the sale of a family corporation between related persons and to allow sellers to take advantage of the capital gains deduction, the Quebec government amended its Taxation Act to include an exception to the application of the provincial provision corresponding to section 84.1 of the federal legislation. The Canadian government should follow Quebec's lead.
Canada's Income Tax Act is out of step with the realities and demographic pressures facing family farms. The UPA believes that Bill C-208 would help level the playing field by eliminating the significant costs that put farm and small business owners at a disadvantage when they wish to sell the business to a family member.
In addition, disputes arise from time to time, and as a result, owners of multi-family farms prefer to operate their businesses separately. Section 55 of the Income Tax Act sets out a mechanism whereby the assets of an incorporated business can be shared among the shareholders tax-free as long as the assets are distributed in a proportional manner.
However, the proportional distribution of assets may not be possible. Assets like farmland cannot be separated. In order for the value of the assets to be distributed equally, a shareholder exiting the business may receive more money instead of a corporation asset. In that case, if the assets of the corporation are not distributed equally, they may become taxable in the form of a non-tax-exempt capital gain.
When the business is transferred between related parties, the requirement for proportional distribution does not apply and the cash payment may not be taxable. However, under section 55 of the Income Tax Act, siblings are deemed to be unrelated for the purposes of the section. As everyone knows, these types of businesses are usually divided among siblings, meaning that section 55 penalizes parties when assets cannot be split proportionally, because it triggers taxes. As a result, the viability of each owner's business is undermined.
The UPA is of the view that the amendment in Bill C-208 to exclude transactions between siblings from the application of section 55 would also be appropriate in cases where the cash and other assets transferred to a shareholder exiting the business are invested in another farm operation. That way, the assets would still be invested in farming despite being split among separate businesses.
In conclusion, farm operations could continue to grow. They often support more than one household and are increasingly being incorporated for tax reasons and estate planning. In this new landscape, good tax planning is crucial for family farmers if family farms are to remain viable for future generations.
Thank you.
View Pat Kelly Profile
CPC (AB)
There's one other point I also want to make or get into the record through witnesses.
There have been criticisms of the whole idea of a corporate entity. We know what's been said in the past and the accusations of tax cheating and that kind of thing. I'll leave this for whichever witness might be best able to answer this, but is it not correct that often the decision for a business to operate through a corporation is driven by pressures that are not really their choice? It could be their bank, for example. In any kind of commercial lending scenario, a bank will normally insist that the land or the building be held in a corporate entity, and often maybe even one separate from the operating entity, but they want both to be corporate structures.
This whole idea of small businesses, family businesses, forming corporations is often not the choice of the business owners themselves.
Andre Harpe
View Andre Harpe Profile
Andre Harpe
2021-03-09 16:35
I'll speak quickly and maybe somebody else can add to it, but I do know that if you look at the business world right now and especially banks, they're very used to the corporate culture. They get very uncomfortable...or they operate a lot more easily when they're dealing with a corporation, whether it's a farmer—
Marcel Groleau
View Marcel Groleau Profile
Marcel Groleau
2021-03-09 16:36
I would like to answer Mr. Kelly's question.
First, the situation is a bit different in the agricultural sector because of the assets' value compared with the return on assets. In agriculture, the rule is that $6 to $7 must be invested to generate $1 of income, while in commerce in general, it is $1 of investment for $1 of income. That is why there are special tax rules for the agricultural sector, including bigger capital gains exemptions for people selling businesses when they transfer their agricultural assets.
Second, banks do not require us to be incorporated. Legislation favours that type of legal structure because tax costs are lower for corporations than for individuals. This leads us to become incorporated or to create companies to run our businesses. Banks don't require this. It is a matter of good management.
View Michael McLeod Profile
Lib. (NT)
Thank you, Mr. Chair.
Thank you to all our witnesses for a very interesting discussion on a very concerning issue.
I'm in the same boat as Pat Kelly; I don't have a whole lot of farms in my riding. We do have some hobby farms and some community gardens and things of that nature.
I have a number of questions. I think I'll start with Mr. Harpe. He made a very good presentation, but I'm not clear on some things he said, maybe because of my lack of exposure to farming. He mentioned that his farm was a corporate farm, but it's not a real corporate farm. I can understand the difference between an unincorporated farm and an incorporated farm, but maybe he could explain to me what he meant. I think his farm is considered a corporate farm, but it's not the same as a real corporate farm. I didn't follow that.
Andre Harpe
View Andre Harpe Profile
Andre Harpe
2021-03-09 16:39
Sorry, I apologize.
Yes, our farm was incorporated in 1972, when my father took over from my grandfather. We feel that the public perception is that when we talk about a corporate farm, we're talking about a corporation with shareholders, like IBM and businesses like that, that type of corporation. When we say “corporate farm”, we mean.... In Canada, it's usually a family farm that has made a business decision to become a corporation.
So yes, we are incorporated, but we consider ourselves a family farm.
Brian Janzen
View Brian Janzen Profile
Brian Janzen
2021-03-09 17:09
Thank you.
Section 84.1 has been a thorn in my side for 25 to 30 years. I was pleased when I saw the Liberal bill in 2015—which did not get passed—and I'm just ecstatic to see what's transpiring so far. There was a brief example given in the earlier session, but I want to quickly highlight what would happen in Manitoba with and without section 84.1 on a sale to your kids versus a sale to arm's-length parties.
Right now, if you have a $1-million business and you sell your shares—in a restaurant, let's say—to your neighbour, you will walk away with after-tax proceeds from a $1-million sale of about $971,000. That's only $29,000 of leakage.
If you turn around and.... There are various ways to sell your shares to your kids under the current regime of section 84.1, but I'll just use the worst-case scenario. The worst-case scenario is that your kid sets up a holding company, or holdco, and buys your shares from you. In Manitoba, that will cost you $466,000 because of the deemed dividend. That's a difference, between the two scenarios, of $437,000. That's just crazy.
There are various other ways to reduce that difference, but there is always a difference when you sell the shares of a small business corporation. I'll just concentrate on the small business corporation during my discussion, because we've talked a lot about farms.
I understand why section 84.1 was introduced. It was introduced to stop internal surplus stripping when there wasn't a real third party sale or any kind of sale. That's totally understandable, but section 84.1 went too far, and Bill C-208 really goes a way to correcting that.
There are a couple of other things. As I said, it really encourages you to sell to a third party and not your kids. I've seen so many cases of that. I have current clients now, and even family members, who are looking at sales. They're pursuing the third party because it's too expensive to sell to their kids. An American company or a multinational is more attractive than their kids. As we've heard from CALU and from everybody, that is not the way to build a great economy.
On the first example I mentioned, where the person retains $970,000 on a $1-million sale, there's been a lot of commentary that it's a loophole and that it shouldn't be: Why should they pay that little? Well, small business people and farmers should be treated differently, because this person who sold their business for $1 million probably had little or no RRSP. First of all, they probably took little salary out. That's their retirement. If they lose half of it to the government.... I don't lose half of my pension when I retire. This is their RRSP. This is why it's so important to retain as much as they can.
I have a couple of other quick comments. In the earlier session, there was commentary that corporations and holding companies are loopholes. Those are not loopholes. A corporation, as somebody was saying, is mostly required by the bank. Even in Manitoba, if you're a small business manufacturer, you need a corporation to take advantage of Manitoba's investment tax credits. A corporation is not a loophole.
The other thing I want to reiterate is that after the sale—let's say a dad sells to his kid and they paid more tax because of section 84.1—that kid is also left in a worse position on an ongoing basis. Depending on how they structured it, he now has to use his after-tax corporate profits to pay personal tax, or pay his dad off, as opposed to reinvesting. The third party who bought from your neighbour gets to reinvest his 90¢ on the dollar. The guy who bought from his dad does not. That puts him at a disadvantage on an ongoing basis as well.
This bill is a great start. It has some caps on value, which is great. This bill is helping the lower end of the small business community. It is not helping the huge, rich companies, even if they're family owned. The impact of section 84.1on them is a drop in the bucket. This is helping the smaller families.
I didn't think I needed to get technical, because Dustin did a great job on that. These are my comments. As I said, I've worked with small businesses for 34 years, so this is a great help.
Thank you.
Jesse Whattam
View Jesse Whattam Profile
Jesse Whattam
2021-03-08 11:25
To name some of our members, they include the Canadian Labour Congress, Unifor, Canadian Union of Public Employees, United Steelworkers, and the Climate Action Network, just to name a few.
The World Trade Organization has failed to serve Canada or create a better, fairer world for all, and the Trade Justice Network welcomes the calls for fundamental reform. For three decades, the regime of hyperglobalized trade investment and supply chains via the World Trade Organization has empowered pharmaceutical, agribusiness, financial and other corporate interests in high-income countries to dominate economies to the detriment of national and local economies, workers, farmers, indigenous peoples, our health and the environment.
In the past three decades, despite increased global economic integration, the numbers of the world poor have increased absolutely and relatively. Without a labour protection floor, we've seen repressed wage growth and increased precarious work. The climate and economic crises have been ignored or needed solutions have been constrained by trade rules. There has been a rise in inequality within and between nations as governments have been stripped of essential tools to pursue the well-being of their peoples.
This is why the WTO is facing an existential crisis. The COVID-19 pandemic has only further exposed the inequality and instability of the current WTO regime. It's time for change.
I'm going to focus my comments on the inequity of power at the WTO, regulatory practices and the dispute settlement mechanisms.
The reality is that while the WTO is supposed to be governed by its 164 members, it's actually managed by its most powerful members. The EU and the U.S., along with most western OECD countries, have remained dominant and set the global rules of importance to multinational capital that have never been mutually beneficial for developing countries. This especially played out when rich countries sidelined the Doha development round priorities while pursuing an explosion of bilateral agreements and plurilateralism at the WTO, which was then foisted on developing countries. The interests of developing countries and the poorest communities and low-wage workers everywhere have been marginalized in many of these new negotiations.
In the realm of domestic regulation, corporate interests have lobbied successfully for deregulation through the current trade regime. Further, dispute settlement mechanisms and other explicit constraints in the WTO and free trade agreements prohibit high standards of public and environmental protection. While claiming that domestic regulation maintains the ability of member countries to regulate in the public interest and facilitate increased trade, in reality there's an inherent tension between the domestic regulatory space and trade liberalization.
While the language in the General Agreement on Trade in Services recognizes the sovereign right to regulate, it does not preclude a challenge against a state on the grounds that it administered a regulation that did not fulfill its standards and the criteria set under international instruments, such as the WTO law. In effect, such questioning of domestic regulations via the WTO dispute settlement mechanisms and based on international disciplines and standards challenges the boundaries of the state's regulatory space and the role of its regulatory authorities.
Since the founding of the WTO, regulatory barriers to trade have been at the top of the priority list for multinational corporations. Developed countries, on behalf of their largest industries and exporters, began to complain more loudly that the food and product safety standards, public health measures and environmental protections were creating market inefficiency. Under this pretense of market inefficiency, it has facilitated a deregulation affecting labour rights, consumer products and environmental protections.
Further, international business lobbies have increased their advocacy of so-called regulatory coherence and co-operation, including a right to intervene in the regulatory process as early and as often as possible, hoping to derail or weaken pro-consumer or pro-environment policies and regulations before they're even implemented, avoiding the need to later challenge them.
Right through the pandemic, this has been clear. Negotiations have continued on limiting domestic regulation of the service sector, even as the concentration of service firms is posing a major impediment to timely and cost-effective procurement and distribution of essential goods. Negotiations to limit regulation and vetting of foreign investors continue, despite a clear need for the production of personal protective equipment and medicines to be diversified.
A fundamental transformation should mean that no country should seek or be required to incorporate the so-called good regulatory practice into binding international treaties, as they've been designed to benefit corporate interests and multinational capital while putting democratic decision-making in a stranglehold.
My next point is on the dispute settlement mechanism within the current form of the WTO and trade regime. One of the biggest shifts of the WTO is that countries that try to restrict foreign trade can be more easily sanctioned, most notoriously by giving foreign investors the ability to sue states under the opaque arbitration process. Previous witnesses have spoken about how this current dispute mechanism has hurt Canadian industries.
Just last week, pharmaceutical companies were asking that countries such as Colombia, Chile and others be punished for seeking to ramp up their production of COVID-19 vaccines and therapeutics without express permission from pharmaceutical companies. Sanctions are being urged by the drug industries, citing alleged threats posed by any effort to challenge basic intellectual property rights. Canada and other high-income nations have refused to sign on to the proposal of the WTO or have delayed approving it. Even in the middle of a global pandemic, the rules of the WTO are prioritizing the profit of multinational corporations over people, especially in the global south.
When it comes to the climate, it is paramount that the WTO and trade rules protect climate policy. WTO trade rules that conflict with climate action should be eliminated to allow communities and governments to advance bold climate protections without the fear of being challenged in trade tribunals. We should not be beholden to agreements, such as the government procurement agreement, that can prohibit, say, renewable power purchasing. A fundamental transformation would align trade policies with climate objectives and enforce commitments to implement international climate accords and to make climate-protecting policy changes.
In conclusion, the WTO has functioned to establish rules for the world economy that mainly benefit large transnational corporations at the expense of national and local economies, workers, farmers, indigenous peoples, our health and the environment. Recently the Trade Justice Network signed on to a global call for WTO reform, which was signed by hundreds of civil society organizations across the world. This call cited the Geneva principles for the global green new deal, where economists, policy-makers, experts and civil society organizations aimed to lay down the foundations of a new multilateralism that builds the rules of the economy towards goals of coordinated stability, shared prosperity, and environmental sustainability while respecting national policy sovereignty.
It's these goals that should shape the WTO reform: people and the planet before profit.
Thank you for having me.
Daniel Kelly
View Daniel Kelly Profile
Daniel Kelly
2021-02-25 15:45
Thank you very much, Chair and members of the committee. It's great to be with you again.
I want to share with you some new data from CFIB—we just put some out this morning. Of course we also have a few recommendations for you.
A deck was sent around in English and French. You should have that, members of the committee. I wanted to walk you through that.
Businesses in Canada remain really shut down. On average across Canada, only 51% of businesses are fully open at this stage. The number is lowest in Ontario, while some provinces, particularly Atlantic Canada and some of the prairie provinces, are doing better than that.
On the staffing side, only about 40% of businesses are at normal levels of staffing, meaning 60% of them have fewer staff than is normal for them at this time of the year. Most concerning of all, only 25% of business have normal or better revenues than they usually do at this stage in the game.
Small businesses are deeply concerned about the economic repercussions of COVID. Of course, this started out as a health care emergency and quickly morphed into an economic emergency, but there are a great many worries on the part of small business owners, such as economic repercussions, consumer spending concerns even following COVID, the sluggish vaccine rollout, their business cash flow, debt and stress. These are some of the things small business owners are telling us.
I want to flag some brand new data that I mentioned we just put out today. One thing the committee should be very concerned about is the amount of COVID-related debt small businesses have incurred since the start of the pandemic. Right now, across Canada, it is $170,000 on average for a small firm in new COVID-related debt directly attributable to the pandemic. Bankers will tell you it's not that businesses have been rushing out and borrowing a whole bunch more money. It's typically unpaid bills that are the largest chunk of the debt. A lot of that is due to landlords, in part due to some of the failures of earlier rent relief programs. I agree with the previous speaker that the new rent support program is a much better version, but it's still not delivering in sufficient quantity to businesses that are being affected. That's $170,000 in debt, on average, across Canada.
Our estimate at CFIB, based on our member data, is that one in six businesses across Canada is at significant risk of closing. That means there could be 181,000 fewer small, independently owned and operated businesses across the country that go bankrupt or wind down permanently, directly as a result of COVID and the damage they sustained over the course of the emergency. That would represent 2.4 million Canadian private sector jobs being taken out at the same time.
Data from StatsCan will tell you that in fact business bankruptcies to date are actually lower than is normal. They too have been affected by the COVID emergency. Many firms are existing right now on government subsidies, and as those subsidies start to be taken out of the economy—and we all hope one day we can replace subsidies with sales—many business owners are worried they're not going to make it, especially, as I shared previously, due to the amount of debt they've gained over the course of the pandemic. That's one in six businesses, or 181,000, on top of the 60,000 Canadian businesses that have already gone bankrupt over the last little while. That means there could be a full wipeout of 20% of Canada's small and medium-sized businesses.
The government has created a number of very helpful programs, and I credit the finance committee and the government itself—with opposition parties, of course, contributing to this as well—for the creation of many of these programs. It was slow. It was incomplete. There remain hundreds and hundreds of different exemptions and rules that have made tens of thousands of business owners slip through the cracks of the program, but many have been helped. Sixty-five per cent of our members have used the CEBA bank account, which has now been topped up to $60,000 loans. Fifty-nine per cent of our members have used the wage subsidy—the CEWS program.
The Canada emergency response benefit—CERB—or the new one under EI has been used by entrepreneurs themselves. Twenty-eight per cent of business owners have used those programs. However, even now only 26% of small businesses are able to use the rent support program, because there remain a number of significant gaps.
We've put forward six major recommendations. We've presented these to Finance. Let me just run through them quickly.
We're asking the government to extend and expand COVID support until the entire economy can recover, including reopening Canada's borders. Really, the sign that government can start to scale back subsidies is when federal and provincial governments can stop telling Canadians to stay at home. Until we're at that point, we would not advise ratcheting back the subsidies that are provided to businesses to keep them alive, because so many businesses need that face-to-face interaction with a customer in order to make a living.
We're asking you—we're pleading with you—to put a moratorium on any new taxes and costs to small businesses. We just can't handle them. We're unhappy that CPP premiums went up at the beginning of this year, in the middle of this terrible time. We're asking you to delay further increases in CPP and the increases planned for the carbon tax—or at least to provide a full rebate to the businesses that are affected by it—and to freeze the liquor tax escalation.
We really think that forgiving more small business debt is a chunk of the solution here, and there are pathways in existing programs. One-third of CEBA is now forgivable if you repay the balance. Something similar to that could be adopted with the new HASCAP program, which we think has some potential.
A hiring incentive would be a good idea as we transition from a shut-down economy to a reopened one. Cutting red tape should be made a priority, as should holding off on any consumer stimulus. I'm really worried that the government may embark upon a big consumer stimulus measure. While that might be helpful to some, if we do that too early, businesses that rely on face-to-face transactions, which have been the ones that have been hardest hit, will not benefit from it, because of course that money will be going to the parts of the economy that have remained open.
As I close, I also just want to commend the finance committee on the great recommendations in its recent report. Many of the all-party recommendations, as well as some that were put forward by the parties, make a lot of sense.
One of the ones I want to highlight, which we love, is making good on the Liberal party promise to small business owners to eliminate credit card processing fees on sales taxes. That, we believe, would save small businesses $500,000 a year. It was a promise in the 2019 Liberal party platform, but we've seen no signs of that proceeding and we urge the committee to keep the pressure up.
We strongly support Bill C-208, which the Conservatives have put forward. That would allow for the same tax benefits for parents selling their farm or small business to a child or family member. That's a great move and would be welcomed by farmers and business people across the country. We have listed a few others there as well, but I know we're tight on time.
Thank you, again, committee. A lot of good work has been done, and I'm happy to take any questions at the appropriate time.
View Sean Fraser Profile
Lib. (NS)
View Sean Fraser Profile
2021-02-25 16:26
Thank you.
Mr. Kelly, thank you for the work you've done through this pandemic. Despite certain criticisms, which I appreciate and have jotted down, I really appreciate the advice that CFIB has provided from the outside of this pandemic. You focused heavily on solutions to small and medium-sized business debt.
Obviously government subsidies can't carry on in perpetuity. The private sector is going to play an important role at a certain point in time.
I'm curious whether you have any thoughts on the role that could be played by an equity tax credit of limited duration to help with the economic recovery—to help some of these businesses that may not otherwise survive not just get back on their feet but grow in a healthy way once it's safe to do so.
Daniel Kelly
View Daniel Kelly Profile
Daniel Kelly
2021-02-25 16:27
I'm not sure that I understand what you mean by an equity tax credit, but the idea of some support as we move from lockdowns to ending of stay-at-home orders and advice and then into an open economy.... That transition is going to be a really delicate one and different for every sector of the economy. As was noted by my friend from Restaurants Canada, we are going to need a variety of measures.
The one I would advocate most strongly—to move us towards recovery with the pool that the Deputy Prime Minister has already suggested she's allocated for this purpose—would be to try to find some ways to relieve small business debt. The CEBA model, with the current one-third that is forgiven, could be ratcheted up. We've suggested that be expanded to a $80,000 loan that is 50% forgivable. The other is to move a forgivable component into the HASCAP loan for the highly affected sector.
If you did that, we think businesses would be helped. If equity implies perhaps government partial ownership of the business, I'm not sure that would be something we would support, but—
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