Finance Committee on Dec. 8th, 2009

[The Chair, Conservative, James Rajotte]

I call the 70th meeting of the Standing Committee on Finance to order. The orders of the day are pursuant to the subject matter of Bill C-62, An Act to amend the Excise Tax Act.

Colleagues, as you know, we do have an order from the House. I will not read it in full but will explain that the report from the committee has to be done by 11 o'clock tonight. We have four hours from the time of the vote. The vote was called at 5:43 p.m., so we have until 9:43 p.m. At that time, if the committee is still debating the bill, I have to put every question necessary at that point without further debate or amendment, so essentially we have four hours here tonight to debate the bill.

We have five witnesses here before us who wish to present on the bill. I'm proposing that after that we have perhaps an hour with the witnesses, and then we proceed to clause-by-clause. We do have officials from the Department of Finance in the room who will be available for comments from members.

We have with us here today five witnesses. I'm recommending that we have between five and ten minutes per witness for an opening statement, and then we will have questions from members. My understanding in terms of presentation order is that Chief Angus Toulouse will be first; Chief Randy Phillips will be second; Chief Keith Matthew will be third; fourth will be Shirley-Ann George from the Canadian Chamber of Commerce; and fifth will be Jean-Michel Laurin from the Canadian Manufacturers and Exporters.

You have between five and ten minutes for an opening statement.

We'll start with Chief Toulouse, please. Thank you, and welcome to the committee.

[Chief Angus Toulouse, Ontario Regional Chief, Assembly of First Nations]

Thank you, Mr. Chair.

Honourable committee members, first of all, I want to thank you for giving me the opportunity to make this presentation. This subject is a matter of extreme importance to Ontario first nations and first nations people in general across this country. Therefore, I appreciate the opportunity to be heard.

We are in the midst of an AFN special chiefs assembly here in Ottawa, in Algonquin territory, where we've spent some time discussing the impact of the proposed HST on our communities. The chiefs are very concerned and have adopted a resolution expressing their position, which I would like to table with this committee. I would also like to table for the consideration of this committee a proposed amendment to Bill C-62, which was communicated earlier to the offices of the leaders of the opposition, just this afternoon.

In this presentation I want to address two topics: one, the lack of consultation and accommodation of Ontario first nations in the development of the HST proposal; and two, the economic impact of the HST on Ontario first nations.

The first point I want to make, for the record, is that Ontario first nations have not been meaningfully consulted and accommodated on the HST. Committee members will know that when aboriginal and treaty rights stand to be adversely affected by legislative or any crown conduct, affected first nations are required to be consulted. This is in the Constitution Act of 1982, section 35, and has been recognized by the Supreme Court of Canada in the Haida and Mikisew cases.

The aboriginal and treaty rights do not have to be established; they just need to be asserted. Minister Dwight Duncan agreed with the first nations leaders that the first nations tax exemption is an aboriginal and treaty right, yet we were not consulted when the memorandum of agreement was being developed and we were not included in the consultation regarding the CITCA. Needless to say, the present point-of-sale tax exemption provided for in the Retail Sales Tax Act will be eliminated in the HST. This has a major impact, and it is incomprehensible how we could have been left out of this process.

I acknowledge that Ontario has at least made some efforts to discuss our concerns and has expressed its support, most recently by way of correspondence from Premier McGuinty to Prime Minister Harper. But these have not been meaningful consultations and they have not resulted in any accommodation. Ontario blames the federal government for the failure to address our rights and interests. The federal government has ignored requests for consultation and will not respect the rights acknowledged by Ontario and under the current RST exemptions. There is some hope that we may be turning a corner, as per the premier's letter of December 2, 2009, to Prime Minister Harper requesting a meeting and an action.

As to the economic impact of the HST on Ontario first nations, the constitutionally protected rights and treaty rights are not the only issues. The HST will have a negative impact on first nations economies, yet there has been no economic impact study with respect to the increase in value-added tax paid by first nations communities on reserve. This includes first nations members who are on reserve living in poverty, northern first nations communities that are dependent upon off-reserve vendors, and the increased agency costs absorbed by aboriginal and non-aboriginal small businesses that serve first nations communities.

Not only will first nations people now have to pay an additional 8%, the HST will cover all sorts of things the RST doesn't, like fuel, electricity, and other essentials. Rebates and tax credits will not work for our people. Rebates do not match the taxes paid. Rebates come in the mail later on. Rebates won't feed us when we need the money today to buy the basic goods and services.

Finally, rebates assume that the federal government can implement this system across first nations. The track record on implementation is terrible. From drinking water to simple road access in remote first nations, the federal government does not manage first nations governance. In Ontario, 25% of the first nations are fly-in communities. The HST will increase the costs of doing business and hurt economic development in a segment of the Ontario population that is less than 1%. It is targeted and mean-spirited and not consistent with reconciliation.

However, there are recommendations on how this committee can address the concerns of Ontario first nations, and these are reasonable accommodations that will avoid significant economic hardships that would otherwise result from imposing the HST on Ontario first nations. These accommodations are within Canada's authority and can be implemented administratively and legislatively in a manner consistent with the work previously done by Ontario and first nations leadership in Ontario concerning the maintenance of the point-of-sale exemption.

Because the federal government refuses to meet with us--and the province--we have every reason to believe that we will not be heard or dealt with fairly once this bill leaves this committee. Accordingly, we urge this committee to ensure that our rights and interests are accommodated.

I'm leaving with the committee the letter from Premier McGuinty to Prime Minister Stephen Harper, the resolution of the Assembly of First Nations from just this afternoon, the letters that we sent to the opposition party leader Jack Layton and to the clerk of the finance committee, Jean-François Pagé, and the other letters to Gilles Duceppe and to Michael Ignatieff, leader of the opposition.

I am leaving that with you, committee members. What is also included there is the actual suggestion in terms of the amendment to the bill.

[The Chair, Conservative, James Rajotte]

Thank you very much, Chief Toulouse.

We will now hear from Chief Phillips, please.

[Grand Chief Randy Phillips, Grand Chief, Oneida Nation, Association of Iroquois and Allied Indians]

Thank you very much, Mr. Chair.

[Witness speaks in Oneida]

Thank you very much, Mr. Chair and members of this committee, for allowing us to make this presentation today. I am going to reiterate much of what Chief Toulouse has indicated with respect to the way we see this as a violation with respect to our treaty rights.

I represent an organization of eight communities. Within that, there are seven nations. That is the representation that we are trying to make here today. Within the same Constitution that protects those rights is an obligation by the federal government to have this notion and duty of consultation. There is an honour of the crown at stake.

As we start talking about the imposition of this tax on our people, I think we only stand to be fairly treated with respect to this. There is a great concern amongst our people with the speed and the process in terms of this particular piece of legislation, with it being rushed through not only in the Ontario parliament, but in this House of Commons as well.

We are calling on both governments to honour themselves. They have an obligation to protect our aboriginal treaty rights; they do exist. There is a process to be taken on if there is going to be any infringement on those rights. We don't see that with respect to this particular government in terms of addressing those things, so we are asking you to take up your obligation to protect these rights.

With respect to the notion of the exemption clause that the Ontario regional chief has suggested we include in this piece of legislation, this is not going to take away from the bill; it is not going to take away from anything with respect to the taxation powers that are going to be created. If Ontario citizens and Canadian citizens want to be taxed, that is certainly something that is beyond the control of first nations.

I come from communities that live by the spirit of what they call Gus-wen-tah, Two Row Wampum: that we would go down the river of life parallel and that rules would not interfere with one another. This is the same thing we're talking about here, ladies and gentlemen. It's the spirit and intent of that treaty that we need to uphold, and if there's going to be any violation of our rights, I think it behooves this committee and it behooves this government to sit down and do the fair thing and talk to us about this.

I am really concerned. I currently hold the chair for the chiefs committee on social and child welfare. What I have heard from citizens of many first nations right across this country is that this is going to have a tremendous impact on them. It is going to change their current ways with respect to spending and it is going to reduce their spending power. Also, this idea of a one-time contribution by the federal government to offset these costs is not going to be equitable, and it's certainly not going to be fair in comparison once this happens year after year.

We're concerned about that. We're concerned about the activities that it's going to cause right now with respect to a change in behaviour.

What it's going to hurt, too, sir.... You people have to understand that 90% of our money in first nations communities is not spent within our communities, but outside, so this idea that we don't pay tax is a misnomer. We have paid tax. We have paid tax continuously.

What we're saying now is that with this change, it's going to hurt the people. It's going to take money right out of their pockets. That, unfortunately, is going to have a negative effect on them. We're dealing right now with the poorest of the poor. We're dealing right now with families that are on fixed incomes. We're dealing with seniors who are on fixed incomes.

We live with all of these challenges on a day-to-day basis. We see nothing from the federal government in terms of trying to correct those things in a positive or aggressive fashion. We see that this tax is going to harm us and it's certainly going to harm our communities and our economic development.

With that, again, I just want to reiterate the fact that this is a violation of our treaty rights. I think this table has an obligation to report that to the House and to the Senate, and to take the proper actions to make sure that our rights are upheld and that this particular government holds true to its word with respect to the honour of the crown.

Thank you very much, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much, Chief Phillips.

We will now hear from Chief Matthew, please.

[Chief Keith Matthew, Chief, Simpcw First Nation]

Thank you, Honourable Chair. It's good to be here today.

I'd just like to say a few words in my language.

[Witness speaks in Secwepemc]

My name is Chief Keith Matthew. I'm from the Simpcw First Nation. I'm on the HST committee for the Union of B.C. Indian Chiefs.

I'd like to open my comments by saying that we do not see this as adequate or meaningful consultation on this particular issue, to be called one hour before a committee meeting. We want to engage on this particular issue, but we haven't had that opportunity. I need to state that for the record.

We are here to express concern with the current implementation process of the harmonized sales tax. I would like to meet and engage in meaningful consultations to ensure that our community's current tax benefits are unimpeded and uninterrupted by the potential passage of this legislation.

As you know, first nations in Canada have tax exemption for personal and real property situated on reserves under section 87 of the Indian Act, 1985. To date, B.C. first nations have not been consulted in any way about the potential HST legislation, although it stands to impact our communities, lands, and resources.

Because of this lack of consultation and inclusion, we are not clear about how the HST will affect and impact first nations bands, individuals, and companies. The UBCIC council, by resolution, has directed the UBCIC executive to raise concerns with the ministries of finance of the provincial and federal governments regarding the HST and its impacts on B.C. first nations, and to call for meaningful consultation accommodation, including commitments to develop appropriate information packages regarding the application of HST to first nations, inclusion of specific non-derogation language regarding the preservation of section 87 of the Indian Act tax exemption, and continuing rights of first nations taxation rights under the First Nations Goods and Services Tax Act and first nations sales tax prior to B.C. and Canada signing the Comprehensive Integrated Tax Coordination Agreement.

We are asking you to include the non-derogation language arrived at with the appropriate consultation with first nations into the CITCA immediately and well before the passage of CITCA through the legislatures.

Further to that, our communities are poorly equipped as the poorest of Canada's poor. We see the HST as a shift from business to consumers. We pay taxes when buying goods and services off reserve. Most of our reserves in B.C. do not have a retail sector. We do most of our purchasing off reserve, and as the poorest of the poor, we are poorly equipped to deal with that shift.

Thank you, Mr. Chair, for considering these comments. I appreciate this opportunity.

[Witness speaks in Secwepemc]

[The Chair, Conservative, James Rajotte]

Thank you, Chief Matthew.

We'll now hear from Ms. George, please.

[Shirley-Ann George, Senior Vice-President, Policy, Canadian Chamber of Commerce]

Thank you very much, Mr. Chair. The Canadian Chamber of Commerce appreciates the opportunity to present this evening.

Given the short time we had to prepare for this hearing, I will be reading a letter to all the leaders of the parties that was sent by our president and CEO, Mr. Perrin Beatty, on November 30:

Dear Prime Minister, Mr. Ignatieff, Mr. Layton and Monsieur Duceppe:

For some years, the Canadian Chamber has asked the federal government to encourage provinces to levy retail sales taxes (RSTs) to harmonize these taxes with the GST.

I am writing all party leaders to urge you to support legislation enabling the provinces--in this case, Ontario and British Columbia, to move forward with harmonization.

Businesses pay retail sales taxes on many inputs related to the production of goods and services, including capital goods like the machinery Canadian workers use to produce the products we sell. The prices consumers pay reflect these embedded taxes. In contrast, businesses would be able to recover the Harmonized Sales Tax (HST) on the materials and services used to produce the goods or services they sell. This important reduction would help them price their products, including those they export, more competitively. Moving to an HST would strengthen Canada's business competitiveness at home and abroad and protect Canadian jobs.

TD Economics estimates that sales tax harmonization will reduce taxes paid on inputs by businesses by $6.9 billion in Ontario and British Columbia combined. Much of this saving will be passed on to consumers as lower prices. Businesses are expected to save an additional $650 million in compliance and administrative costs by combining paperwork and related efforts into one system instead of two.

I emphasize that this is most important for small businesses.

Additionally, the provinces will achieve significant savings for their taxpayers through reduced administrative costs.

In the 2009 Budget, the federal government stated that RSTs in British Columbia, Saskatchewan, Manitoba, Ontario and Prince Edward Island significantly increased their respective marginal effective tax rates (METRs) on new business investment, and if all five provinces were to adopt Harmonized Sales Taxes, the METR on new business investment in Canada would be reduced by more than 7 percentage points. This new investment would create jobs and greater prosperity throughout Canada.

According to the C.D. Howe Institute, more than one-third of RST revenue collected in Ontario comes from taxing intermediate and capital goods. The Institute estimates that Ontario's Retail Sales Tax on capital investment increases the province's marginal effective tax rates on capital from 28.2 percent to 37.0 percent. Replacing it with a tax system that does not bear on business inputs would boost Ontario's capital investment by $36 billion.

That's billion with a “b”.

In BC, about one-third of RST revenue coming from taxing business inputs. A report by the BC Progress Board indicates that the province could experience a 12 percent increase in trend investment in machinery and equipment by harmonizing, and close 70 percent of the machinery and equipment investment intensity gap between BC and the national average.

Investment in machinery and equipment, particularly information and telecommunications (ICT), drives productivity. Canadian businesses are well behind other countries, including the U.S., the UK and Germany, in investing in machinery and equipment. In 2007, Canadian businesses invested 16 percent less per worker in all machinery, equipment and software compared to the U.S.; 37 percent less per worker in ICT. Harmonization would help increase capital stock, worker productivity, business innovation, and Canada's global competitiveness. The result would be an improved standard of living for Canadians.

As with any tax reform, it is important to look at the impact on the economy as a whole. The Canadian Chamber recognizes that some currently untaxed products and services will be part of a broader tax base, resulting in higher prices for those goods and services. However a substantial portion of the tax savings realized by businesses will be passed on to consumers in the form of lower prices as businesses strive to retain customers and remain profitable.

While the transition to an HST will inevitably create challenges, the net economic benefit for Canadian business and Canadian workers will be significant and timely. Harmonization will help our companies emerge from the economic downturn in a stronger and more competitive position. The Canadian Chamber asks all elected officials, especially party leaders, to support tax harmonization legislation to build a stronger economy.

It was signed, as I said, by Perrin Beatty.

I would note that similar letters of strong support for the HST have also been sent by the Ontario and British Columbia chambers, and copies of these letters are available if the chair would like to have them submitted.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. George, for your presentation.

We will finish with Monsieur Laurin, please.

[Jean-Michel Laurin, Vice-President, Global Business Policy, Canadian Manufacturers & Exporters]

Thank you, Mr. Chairman.

Ladies and gentlemen, good evening.

Good evening. Thank you for inviting me to appear before the committee this evening on behalf of Canadian Manufacturers & Exporters to discuss sales tax harmonization. This is a very important measure that would help Ontario and British Columbia improve their tax competitiveness and make the exports coming from these two provinces more competitive as well.

Before I begin, I would like to say a few words about our association. Canadian Manufacturers & Exporters is the voice of manufacturing and global business in Canada. As such, we represent more than 10,000 leading companies nationwide. More than 85% of our members are small and medium-sized companies. Our members represent industrial sectors and every export sector you can imagine in the economy. We have members in every province and happen to have very active divisions in British Columbia and Ontario.

I am pleased to be here tonight to discuss Bill C-62. Sometimes, especially when we face some significant economic challenges, as is the case today, governments have to do the right thing, even in the face of political opposition. That's what leadership is all about, and it's what B.C. and Ontario are trying to do right now with their initiatives to harmonize their provincial sales taxes with the GST. It's the right thing to do for their economies, and it's the right thing to do for Ontarians and British Columbians.

One of the most important things we've learned from this recession that has battered the Canadian economy over the past year is that you have to create real value in order to sustain employment and generate income growth. The financial market crash has shown that no one can create lasting wealth simply by spinning other people's money around and around. Eventually that money needs to be producing goods and services that people want to buy. Otherwise it leads to financial bubbles and major trouble for our economy.

Another lesson we've learned from the recession is that whether we like it or not, our economy is affected by global economic conditions. We must compete around the world for customers and suppliers, for skills and intellectual property, for credit and for investment dollars. Our companies have to be world class, and the business environment they operate in also has to be world class.

Competitive pressures have only become more acute as a result of the recession. In that context, we should be aware that the way we perceive taxes has a significant impact on investment, innovation, job creation, and all the elements needed to sustain a healthy economy. These lessons are becoming more obvious as the economy begins to recover. Business as usual is not an option for governments or for the enterprises upon whose success the economic recovery ultimately depends.

Sales tax harmonization is exactly the kind of forward-looking policy reform that will be critical in strengthening provincial economies, speeding along recovery, and creating job opportunities in the future. Harmonization will save businesses money, lowering the cost of investments in innovation and new technologies, productivity, and environmental performance, and in the development of new markets, all of which are extremely important in rebooting the economy, securing jobs for the future, and helping businesses make the changes they require to compete and grow in global markets.

Businesses in British Columbia and Ontario currently pay $6.9 billion every year in provincial sales taxes when they purchase inputs such as construction materials, office supplies, energy, legal services, furniture, business vehicles, and equipment--all goods they need to produce goods and services that they will sell to their clients. That $6.9 billion will be saved under a harmonized sales tax system. There will also be additional savings for businesses, as well as for governments, as a result of lowering the cost of tax administration.

Tax experts—and I understand you might be hearing from some of them later on—agree about the benefits of the HST. The introduction of an HST in Ontario and British Columbia will make these provinces' tax systems more competitive in attracting business investments to their provinces. That's extremely important for companies that are competing right now to attract and retain the investments these provinces need to develop an economy based on advanced manufacturing and on knowledge and value creation.

But it is the citizens of these two provinces who ultimately stand to benefit from tax harmonization. Business savings will be redirected to supporting employment in more competitive industries as well as reducing consumer prices.

To conclude, I want to stress that sales tax harmonization will help build a more competitive private sector in B.C. and Ontario that is capable of creating jobs in the future, because it's investing today in new products, new technologies, new skills, and new markets. By doing the right thing today, we will help our economies recover faster from the recession. We will be in a stronger position to pay off the debts we incurred before and during the recession. Above all, we will continue to generate the job and income growth that is so important to maintaining the quality of life Ontarians and British Columbians enjoy, both today and in the future.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Laurin. We'll now go to questions from members.

Mr. McCallum, you have seven minutes.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair, and thank you to all the witnesses for being with us this evening.

I want to begin by describing our actions in the Liberal Party vis-à-vis this issue, which the three aboriginal chiefs and the grand chief have presented.

Grand Chief Phillips, I think you'll remember that we had a meeting in my office. As a consequence of that meeting, I wrote a letter to Mr. Flaherty. I copied you. I hope you received it.

The one paragraph says, “Grand Chief Phillips has indicated to me that the Government of Ontario has shown some interest in establishing a working group to discuss this issue. Of course for such a group to have any chance of success, the federal government must be present. As the Department of Finance's annual performance report states that,”—this is in quotation marks, and I think this is an important part—“'the Department’”—that is, the finance department—“‘works with Aboriginal governments to negotiate tax treatment agreements.’ The dialogue between the Crown and the AIAI”—which is the Association of Iroquois and Allied Indians—“should therefore logically begin with you.”

This letter was sent on November 16. I haven't had a substantive response, and I assume, Grand Chief, that you haven't either.

[Grand Chief Randy Phillips]

No, sir.

[John McCallum, Liberal, Markham—Unionville, ON]

I don't understand. I would hope that someone on the government side, such as the parliamentary secretary, might explain when it comes his turn to question. If it says in the Department of Finance annual performance report that the department works with aboriginal governments to negotiate tax treatment agreements, then I do not understand why, up until now, neither the Minister of Finance nor the Prime Minister has responded.

I hope the parliamentary secretary will cast light on that, unless you, Grand Chief, have a theory as to why we have had no response.

[Grand Chief Randy Phillips]

Thank you for that.

Mr. Chair, I really don't have any response whatsoever. I met personally with Minister Flaherty. He gave me his assurance that we would sit down and have this dialogue. Then, once we met with the officials—senior ministers, the Minister of Aboriginal Affairs, the Minister of Finance, and the Minister of Revenue for Ontario—they reiterated that this is what was going to happen. We received some correspondence back from those gentlemen saying that they already spoke with the chiefs of Ontario, that they already spoke with us. That dialogue never occurred, sir.

As a matter of fact, what we've been hearing clearly from the office of Minister Flaherty is that there's no need to discuss this issue. We continue to raise this issue with members of Parliament and members of the Senate to say that we haven't been treated fairly with respect to these issues. And we think that should have been the response as a first course. Unfortunately, nothing has come back with respect to any of the points you raised, sir.

[John McCallum, Liberal, Markham—Unionville, ON]

We, as the Liberal Party, are committed to supporting this bill without amendment, largely because we regard it as a matter of provincial jurisdiction. At the same time, we are pushing the finance minister to engage on your issue.

Just today, our leader, Michael Ignatieff, said at a press conference that he was also pushing the government to engage with Ontario to come to an agreement on your issues. I said the same thing in the House.

I don't understand. I'm hoping that Mr. Menzies might provide guidance as to why there has been no response at all on this matter.

[Grand Chief Randy Phillips]

Sir, I'll quickly respond to that.

Mr. Chair, when we met with provincial officials, they said that it was up to the federal government. When we met with the federal government, they said it was up to the provincial government. So this is where we are right now with respect to some of the frustration and concern about moving this issue forward. We are hearing that it's somebody else's responsibility.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Go ahead, Chief Toulouse, please.

[Chief Angus Toulouse]

I will add to Grand Chief Phillips' comments. What we're proposing and what we've attached is the suggested amendment that would allow for us to have certainty about the kinds of amendments that we're seeking and that would enable that to take place. That would hopefully allow the province, through their agreement, to work with us, but without this amendment going forward, we're not going to be able to have that kind of discussion with all three parties present.

[John McCallum, Liberal, Markham—Unionville, ON]

We haven't seen the amendment because I don't think we achieved unanimous consent; it's not translated into French and English. We had committed earlier to pass the bill without amendments, but to try to use other means to push the government to enter into discussions in good faith on your issue.

[Chief Angus Toulouse]

That's the problem we have. If there were some consideration on the amendment, it would give us more comfort that we could actually sit down with the province and deal with the issue in the best way possible for our citizens.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

Did you want to add to that? Please be very brief.

[Grand Chief Randy Phillips]

I just want to respond to that. I certainly do appreciate the member's support with respect to this, but there is one issue that we did raise with the Liberal Party, and we found it within the Liberal Party's platform. I'm going to read this off to you. It says, “...the Liberal Party of Canada rejects the GST, and more particularly, categorically rejects the imposition of the GST to first nations and their citizens....”

We see the HST as an extension of that, and this is the opportunity for the House and for Parliament to correct that mistake and put us back with respect to this notion of tax immunity and tax exemption.