Finance Committee on Nov. 29th, 2007

[Carolyn Bennett, Liberal, St. Paul's, ON]

--being relative to the other two, I just think, is very destructive. Just ask for more money for social science research; don't say you want the others to get less--

[The Chair, Conservative, Rob Merrifield]

I think your point is made, Ms. Bennett.

We'll now move to Mr. Wallace for five minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

Mr. Van Iterson, I appreciate your presentation. I actually had some of your members in my office a week and a half ago, and we had a very good conversation. There are three sections to it, if I recall correctly, and one of them is the Great Lakes. I have been actively working on getting funding for Randall Reef, which is a hot spot in the Great Lakes. Fortunately, the Minister of the Environment came out, and we put federal money of $30 million on the table to clean it up. I'm quite happy with that, and I'm happy to work on those particular issues.

I wouldn't mind some comments from your organization's perspective on the recent announcements we've had in terms of creating new parkland in this country. We've done some in the Great Lakes, for example, and we've done some in northern Canada recently. I didn't hear anything back from your organization at all on it, and I would like to know, from any press release or anything you or your organization has done, how you feel about the work we've done in this area.

[Andrew Van Iterson]

I can tell you that many of our member organizations were very pleased, if not jubilant, about the announcement. I think many people were working for many years towards this day.

The Green Budget Coalition is a unique entity in that it brings together groups, virtually the hunters and the anti-hunters. We don't agree on everything. We focus on the budget and we comment on budgets, and that's really all we comment on, so that's why you haven't heard anything from us--but you certainly have no complaints.

[Mike Wallace, Conservative, Burlington, ON]

Okay. Just for my understanding, it's really a coalition just at budget time to deal with what the federal government may or may not put in the next upcoming budget. Is that...?

[Andrew Van Iterson]

We make recommendations for the budget and for integrating environmental values into fiscal policy. That's pretty clearly what we do.

[Mike Wallace, Conservative, Burlington, ON]

As you know, and I think you referred to it, the Build Canada Fund is the infrastructure money that we put aside in the last budget. Really, to be frank with you, we are just starting to roll it out in terms of allocating those funds. We need agreements from provinces. Unfortunately, the way this country works is we always work in partnership with other governments.

We've heard a lot from the municipalities lately. Does the Green Budget organization have any comments on what municipalities should be doing in terms of infrastructure spending as a percentage of their budgets? Is it really just directed at the federal level, or do you deal with other levels of government?

[Andrew Van Iterson]

We really have recommendations only for the federal government. We would love to see money put into water infrastructure and waste water infrastructure. As you mentioned, that's one of our key areas, and we're suggesting that it be matched by the municipalities and the provinces. We'd certainly like to see the level of water treatment and waste water treatment raised substantially. Informally, we would like to see the provinces and municipalities prioritize water treatment for their use of the money that they're being given.

[Mike Wallace, Conservative, Burlington, ON]

Not long ago I was a municipal councillor. I sat on the public works department for the region of Halton and for the City of Burlington. Halton Region looked after water and waste water. In our community in the region of Halton, water and waste water have for a long time had charges on our tax bill to cover costs--not only the costs of the actual sewage and sewage plants and use of water, but also, through an additional charge, the costs of replacing cast iron water mains. That is virtually all done now.

What is your group's position on the responsibility of municipalities to charge their customers or their clients or their constituents the actual real costs, replacement costs, of the water and waste water services they're using?

[Andrew Van Iterson]

We are very supportive of user-pricing mechanisms being put into place, and we would like to see all transfers to the provinces and to the municipalities made conditional on the achievement of environmental objectives and the implementation of user-pay means.

We talked about recommending that the transfers on our water should be made conditional on such a user-pay basis for municipalities, and we did not in the end put it in because there were different means of achieving those ends. We wanted to give municipalities the flexibility to achieve the goals in the best way they could.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Massimo has one quick question and then we'll end this segment.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

Mr. Van Iterson, on your brief, your second and third recommendations--action on nature and the Great Lakes--don't seem to be costed. I think it was last year.

[Andrew Van Iterson]

No, they're costed. What you have are the preliminary recommendations. I sent to your office the final recommendations.

The nature recommendation is $1 billion over the next five years and $212 million per year over the subsequent years. The Great Lakes and the St. Lawrence is $4.5 billion for the next five years and $3 billion for the following years, but that's not all new money. So a big chunk of that could come from the Building Canada Fund.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

With that, we want to thank the witnesses for coming forward and for your presentations that we will take into serious consideration as we finalize our report.

We want to thank the committee for their questions. With that, we will take a five-minute break as we line up the next set of witnesses.

[The Chair, Conservative, Rob Merrifield]

We will resume the meeting now.

We'll start the second session of this committee. We are awaiting, by teleconference from Iqaluit, three other witnesses. The technology is just getting itself together. We will allow that to happen, but in the meantime, we will not wait. We'll continue with the witnesses we have in the room, so as not to cause us time problems later in the meeting.

We have, from the Canadian School Boards Association, Rick Johnson, who is the vice-president.

Thank you for coming. We'd ask you to start this session. Five minutes is yours.

[Rick Johnson, Vice-President, Canadian School Boards Association]

Thank you very much.

I am the vice-president of the Canadian School Boards Association and past-president of the Ontario Public School Boards' Association.

The Canadian School Boards Association represents school boards across the country. Our members are the provincial school associations that provide direct support to boards that in turn govern the range and quality of educational services to Canada's public schools. Elected trustees represent Canadian communities and Canadian taxpayers, including the 70% of the population who do not have children in school.

The Canadian School Boards Association is non-partisan. Our interest is, first and foremost, the excellence of our education system. We believe you share that goal. However, we are not asking you to intervene in the education system. Rather, there are areas of federal jurisdiction that do have an impact on school boards across Canada. Given that you have asked people coming before the committee to focus on the tax system, we shall make recommendations that ensure school boards can maximize revenues that provincial taxpayers provide to support education.

There are three areas that I would like to address today: the clawback inherent in the GST on school board purchases; a recommendation to encourage green spending; and a general proposal to encourage aboriginal students to complete high school and post-secondary education.

We were disappointed that the federal government did not adopt the recommendation of the finance committee last year to fully rebate the GST to school boards. The GST is a federal government tax on moneys that school boards receive as a consequence of taxation—namely, provincial government grants. It also imposes a complicated administrative system that forces school boards to engage consultant experts to help them comply with regulations. Clawbacks on publicly funded schools do not make sense.

Our second recommendation is to encourage green spending. School boards nationally spend just under $3 billion annually on capital expenditures. It's fair to say that capital expenditures are fairly consistent over time. If those expenditures were subject to tax incentives based on their environmental impact, the federal government could be a powerful influence.

We refer you to the “Leadership in Energy and Environmental Design”, or LEED, green building system, a benchmark for the design, construction, and operation of high-performance, environmentally responsible buildings. LEED Canada tailors the systems for our environment. As yet, there is no LEED for schools like there is in the U.S.

Given that the suppliers of LEED products and designs in the U.S. are also operating in Canada, it would be fairly easy to implement in Canadian schools. We could even improve on it by adding health-promotion design. We believe that the annual amount of school board expenditures would be a powerful demand-based instigator for a green economy and would spill over into other sectors.

We would also like the federal government to explore an incentive for aboriginal graduates, similar to what Saskatchewan offers students in the province. Saskatchewan has introduced a program offering elimination of income tax for a set period of time for aboriginal graduates. While it is intended to encourage recently graduated young people to remain in the province, we believe it can be adapted to encourage aboriginal students across Canada to complete their schooling.

I believe these recommendations are doable and sensible, and ask that you consider them in your deliberations.

I thank you on behalf of the thousands of elected trustees who are entrusted by their communities with the job of educating Canada's most valuable natural resource: our children.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we'll move on to the Toronto Financial Services Alliance, with Janet Ecker, who is the president.

Janet, you have five minutes.

[Janet Ecker, President, Toronto Financial Services Alliance]

Thank you very much, Mr. Chair, and good afternoon to the committee members. Thank you very much for this opportunity to present today and to participate.

Our association represents a full range of organizations that make up the financial services sector, from banks and insurance companies to investment firms and mutual funds, as well as the professional organizations that support them, such as accounting and law firms. We also have representation from the post-secondary education sector. In short, we seek to present one voice that speaks on behalf of the whole financial sector in the Toronto region.

Our goals are to work with our partners to support growth in financial services jobs; to grow to be one of the two pre-eminent such centres in North America--we're currently the third-largest and the fastest growing; and to be in the top ten internationally--we're currently ranked 13 out of 50 such centres.

Our purpose today is to encourage the committee to make recommendations to the government that will support further sector growth, but not to the exclusion of other sectors--quite the contrary, as some of the tax initiatives we have raised benefit other sectors as well. This sector is the single-largest contributor to our nation's GNP; it's one of the largest employers; and its activities underpin the financial security of the rest of the economy, whether you are a consumer, an investor, a pensioner, an entrepreneur, or an employer.

The key is to ensure that our financial sector remains internationally competitive. Today we are the 13th most important financial centre in the world, not far behind Tokyo and Geneva. This ranking was prepared through the cooperation of the City of London, arguably the top financial services centre in the world, closely followed by New York.

We invited the authors of this survey, which is the Global Financial Centres Index, to Toronto to help us understand ways to help us rank even higher and make us more competitive. What would move Toronto up the scale into the top ten?

They focused on five key factors: people factors, or the quality of our workforce; the business environment; market access; infrastructure; and general competitiveness. Of the five, Toronto was the strongest on the people factors; however, on some of the others we are lagging, particularly in the business environment, which reflects where we stand on tax rates and regulation.

Notwithstanding government efforts to reduce taxes, Canada remains a highly taxed nation. It's not enough to look at just one tax; one has to look at all forms of taxation and the overall level of taxation by all levels of government. When looked at in this fashion, Canada remains a country where government continues to take too big a share of our country's income. On a national accounts basis, general government tax and non-tax revenue can account for over 40% of our GDP.

TFSA has been recommending to governments, provincially and federally, that taxes, particularly corporate, need to be lowered. Tax rates that allow program spending to increase by 8% a year are clearly too high. We're pleased that Minister Flaherty, in his economic update last month, announced that corporate tax rates would be lowered. We've also been encouraged that the Leader of the Opposition has indicated that he too believes cutting corporate tax rates makes good sense.

We encourage the members of Parliament to provide relatively quick tax relief, and obviously there has to be a balance. Mr. Flaherty suggested that our corporate tax rate will eventually be the lowest among industrialized countries, which is a good thing. But we need to remind ourselves that other countries are moving in the same direction, and some of them are moving faster than we are. We continue to encourage Ontario to do what it can to bring down their corporate rate as well.

I won't go into some of the points and principles we made in the submission we sent to the committee earlier in the summer. Let me simply mention that not all taxes are created equal. The greatest increase in economic well-being comes from reducing taxes on capital by either increasing capital cost allowances or reducing capital tax rates. We have argued for both.

We also recommend you strive for tax neutrality and tax efficiency. Decisions made by businesses or individuals should be based on economic conditions, not preferential tax treatment. In pursuing tax reform, you should focus on those taxes that impose the greatest economic penalty on the economy, such as capital taxes. We also encourage efforts to work with the provinces to harmonize the GST and the PST.

The second major influence on the business environment, of course, is the regulatory environment, and we're very supportive of the government's efforts to reduce the regulatory burden, most importantly pushing for a common securities regulator.

Finally, Mr. Chairman, I'd like to suggest that the committee could play a leadership role by spearheading an effort to benchmark Canada's performance on tax policy. As I mentioned, it's not about absolute levels of tax but about relative levels of tax, not just about tax rates but also about tax mix. We believe that Canada should set goals against competing jurisdictions and measure our progress towards attaining those goals, and we think this committee could certainly play a role.

Finally, Toronto has much to offer as a financial services location, but international competition is growing, as many other regions and countries try to build global financial centres. When London and New York, the top two centres in the world, invest time and resources to defend their positions against that competition, Canada needs to ensure our sector is ideally positioned to withstand that pressure too. The factors that drive such success are clear.

Thank you very much for this opportunity, and I look forward to discussing it further with you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move now to World Vision Canada. Elly Vandenberg, the floor is yours.

[Elly Vandenberg, Director, World Vision Canada]

My name is Elly Vandenberg, and I'm the director of World Vision Canada's Ottawa office. World Vision is one of the largest international relief, development, and advocacy organizations in Canada. More than half a million Canadians give regularly to support our child-focused community-based work to end poverty.

The pre-budget consultation period is an important time to remind you that Canadians support spending on international development. This morning, World Vision released new evidence that showed that Canadians are more compassionate than citizens in any other G-7 country towards issues related to poverty, especially HIV and AIDS. Eighty-four percent of Canadians think that the Canadian government should do more to help children who are orphaned by AIDS and AIDS-related illnesses around the world. Ninety percent of Canadians agree that even if we can't prevent more people from getting infected by HIV, we have a moral obligation to try.

On the eve of World AIDS Day, these compelling findings send a strong message to you that Canadians are supportive of spending our tax dollars to improve the lives of children around the world.

Last year alone, Canadians gave $300 million to support World Vision's work with the poor. One specific thing many Canadians can do to help people around the world is to give to charities. Changes in tax rules for charitable giving make a difference in encouraging Canadians to give. We've seen a 800% increase in the dollar value of publicly traded securities donated due to the recent elimination of personal gains tax. World Vision supporters appreciate these types of initiatives.

Our brief outlines specific changes to encourage giving. Our monthly donors number as many as all Canadian political party supporters combined. Surely their gifts should be eligible for the same kind of tax credit as political party contributions are.

Charitable donations are an important part of ensuring that Canada's tax system is structured to help eliminate poverty, but charitable donations alone are not enough. The reach of private charities must be complemented by the much larger reach of a healthy and effective aid budget.

Canada has made a longstanding commitment to dedicating 0.7% of our gross national income to international development. Although today's World Vision poll suggests that Canada should be a leader in dedicating resources to the elimination of poverty, as a country we have fallen far behind. Canada is not even halfway to meeting the 0.7% target.

Dedicating more resources to aid will be helpful only if they're spent effectively. Effective aid is assistance that recognizes that both governments and non-governmental organizations have an important role to play. We ask you to ensure that Canada's approach to international aid be informed by clear guidelines that uphold the importance of transparency and accountability, and most importantly that it deliver meaningful change to the lives of people to have their needs met, their rights realized and protected.

There's a bill in the Senate now that will provide and improve aid effectiveness. I ask you to encourage your colleagues to support it.

In conclusion, last month in many elementary schools, children practised giving speeches. I asked my 12-year-old son to time me for this presentation. We talked about 0.7% and what it actually means. I told him about its 36-year history. Two years ago all Canadian parties supported the idea of achieving 0.7%. Prime Minister Harper gave an election commitment to do better than previous governments on growing Canada's aid spending.

I said to my son, “It's like this. Our gross national income can be represented by seven boxes of timbits. Each box has 20 of those little donuts. If we take one of these Timbits out of one of these boxes, the one Timbit represents 0.7%. If you take just one small bite out of the Timbit, that bite represents what we now give to overseas development assistance.”

I said to him, “Your mom thinks we should give more. World Vision supporters think we should give more. An international poll released this morning demonstrates that Canadians are generous and compassionate and want their government to give more.”

We have the resources to end world poverty. All we lack is the political will. It's up to you, our parliamentary representatives, to do the right thing. As you weigh the value of the different Timbits of the gross national income, structure Canada's tax system to enable our government to meet the needs of the most vulnerable.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you.

You're actually not supposed to use props. That's cruel and unusual punishment for students, as an example, but it's worse on committee members.

Let's move on to the video conference group. We have, from the Northern Territories Federation of Labour--Iqaluit, Geoff Ryan. He's the regional vice-president of that region--and I'm not going to try to pronounce that.

Geoff, are you there?

[Geoff Ryan, Regional Vice-President, Qikiqtaaluk Region, Northern Territories Federation of Labour - Iqaluit]

Yes. It's the Qikiqtaaluk region.

[The Chair, Conservative, Rob Merrifield]

Yes, that's what I was going to say.

Geoff, the floor is yours, five minutes.

[Geoff Ryan]

Thank you, Mr. Chair.

I'd like to speak to the committee about tax fairness and its impact in the north. Residents of the three territories and the northern parts of the provinces face several challenges relative to those living in southern, more populated regions of Canada.

In addition to a difficult climate and restricted access to goods and services, they usually face higher living costs because long distances from major markets add to the cost of basic goods and services. Because of these challenges employers often find it difficult to recruit and retain employees--skilled workers in general, and people in the medical profession in particular.

In 1987 the federal government introduced the northern residents tax deduction as a measure to offset the high cost of living in the territories and remote parts of the provinces. The northern residents tax deduction consists of two parts: a residency deduction and a travel deduction.

Many Canadians are aware that it costs more to live in the north; however, few realize just how much more it does cost. The single most debilitating factor facing workers who wish to live in the north is the increased cost associated with running a household.

The Northwest Territories Bureau of Statistics did a study that indicated that NWT households spend nearly $3,000 more on food, $5,000 more on shelter, and they pay $7,000 more in personal income tax than the average Canadian household. The NWT has the highest average household expenditures. Nunavut and the Yukon are tied for fifth.

Just to give you an indication of the differences in prices, I have an example of some on-sale prices that were selected from an Iqaluit newspaper. They were compared to a grocery store in Ottawa; the date of comparison was July 16, 2007. For example, Cashmere bathroom tissue, a 24-roll pack, two ply, in Iqaluit is on sale for $23.99. Ottawa's regular price is $12.99. Another example would be Snuggle fabric softener, a 946-millilitre bottle. Ottawa's regular price is $4.99; in Iqaluit it's on sale for $10.89.

Increasing these costs even more is the impact of the goods and services tax. Since the GST is a percentage of the price of the goods, increased prices mean increased real GST payments. For example, a shopper buying toilet paper in Iqaluit will pay $1.44 in GST, while the Ottawa shopper pays only 78¢ in GST. The people in the north pay almost twice the GST per item compared with people in the south.

The northern residents tax deduction study paper was prepared by the parliamentary library in January 2004. The publication number is PRB 03-52E. It gives the rationale for the northern residents tax deduction.

The first reason is sovereignty. Nation-states the world over have historically acted to secure claims over sparsely populated and isolated areas by a variety of means. In some countries and in some historical periods these attempts to secure sovereignty have meant forcibly moving people into or out of northern and isolated areas. In more recent times governments have attempted to establish and/or maintain claims to these areas by generating economic activity and providing incentives for people to locate to these regions.

Another reason is economic development. Employment in northern and isolated areas tends to be concentrated in mines, energy development projects, administrative centres, military installations, and tourism. These sectors of the economy tend to be either seasonal or subject to cyclical fluctuations, leading to sporadic demand for workers. Special tax treatment, for example tax incentives like the northern residents tax deduction, can help employers in these areas recruit and retain workers.

Another reason is regional differences in wages and cost of living. The cost of living in northern Canada and in small isolated communities is higher than in large urban centres, primarily because of higher transportation costs. Shipping goods from distant major centres via ice roads, water, rail, or air adds to the cost of basic necessities such as food, clothing, and shelter.

To entice workers to these isolated areas and to compensate for higher living costs, some firms pay their workers isolation pay in the form of above average wages or benefits, such as housing or travel benefits, or both. Combined with a progressive tax system, for example a tax that is larger as a percentage of income for those with larger incomes, these higher salary benefits lead to unequal tax treatment. Consequently, some argue that special tax treatment is required to redress this inequity.

With respect to regional differences in the level of goods and services, residents of northern and isolated areas generally have less access to specialized goods and services, particularly with respect to health care, education, and recreation. The federal government has a long tradition of supporting regions through its equalization and territorial formula financing programs, which helps provinces and territories provide basic services comparable to those available elsewhere. Those in favour of special tax treatment for northern and isolated areas argue that the equalization and the territorial formula financing programs are insufficient and need to be augmented by tax measures such as the northern residents tax deduction.

Finally, with respect to environmental hardship, northern areas typically experience long, cold winters, and they have barren terrain. Distance from major population centres adds to the sense of isolation. As noted, some employers provide additional benefits to help employees alleviate the sense of isolation. Consequently the argument is made that special tax assistance is needed so that these types of benefits, which are typically not needed in southern or urban areas, are affordable, in particular for northern residents, again with a view to attracting and retaining workers.

According to Finance Canada's tax expenditures and evaluations, in 2006 the federal government lost $135 million of potential revenue due to the northern residents tax deduction. It is estimated that an increase of 50% to the residency portion would result in an additional loss of potential revenue of roughly $50 million. This would bring the total potential revenue to $185 million, or less than 1% of the total federal budget. However, for every $1,000 the deduction is increased, it has been estimated that $3 million would be returned to the residents of the Northwest Territories alone. Further, by taking action to reduce the high cost of living in the north, more workers would be enticed to remain in the north rather than flying in and out. Having these workers remain in the north would not only assist in the economic development of the north, it would also enhance Canada's Arctic sovereignty.

At an additional $50 million, this is significantly cheaper than the proposed military spending. We are requesting an increase to the northern residents tax deduction for the first time since it was introduced in 1987.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Nunavut Association of Municipalities. We have Lynda Gunn, CEO, and for backup we have Russell Banta.

Lynda, you are doing the presentation. Are you with us?