Good afternoon.
Thank you, Chair.
I want to thank the committee for the opportunity to appear before you today. FINA members and parliamentarians in general have consistently referred interesting issues to my team, which has kept us busy and challenged.
I have a few brief introductory remarks I would like to make regarding my general process for preparing estimates of the proposed legislative amendments to the Income Tax Act and our specific review of Bill C-290.
Following this, I would be pleased to answer any questions members may have regarding the correspondence I sent to the committee chair on May 14 or any other issues.
I want to begin by outlining the general process by which we prepare cost estimates of legislative amendments to the Income Tax Act proposed by private members. Over the past year, we have received 15 requests and completed 4 cost estimates. All have followed the same general three-step approach.
Step 1 is to prepare terms of reference for the study, which specify timelines, resources and key assumptions to be used. These terms of reference are presented to the requesting parliamentarian or other interested Committee members for approval before any formal work begins.
Step 2 is to identify relevant data, research and expertise that can be used to determine how many taxpayers are currently eligible for the proposed legislative amendment, and how many taxpayers may be induced to change their behaviour to make themselves eligible.
The third step involves completing a reality check with people who actually work in the field and who are familiar with the policy area. After the calculations are completed and the draft report prepared, we then examine whether results are reasonable given what policy experts know about this domain.
For example, when I prepared a recent cost estimate regarding Bill C-466, the tax exemption for public transportation benefits, we benefited from the insight provided by U.S. firms that actually administer the proposed programs and indicated that, depending on how the legislation was worded, administration costs and adoption rates could vary widely. This is the type of real-world knowledge that is very relevant to preparing a cost estimate, but it's not typically collected in the data.
In the case of Bill C-290, we did not progress beyond step one, the preparation of the terms of reference. My staff met with several committee members shortly after receiving the request and completed a review of the cost estimates prepared by the Bloc Québécois and the government by early May.
At that time, it became evident that the divergence between the two cost estimates primarily related to differing legislative interpretations of Bill C-290. The Bloc Québécois believe it to be narrowly targeted, while the government believes it to have a wider application.
The government estimate assumes that all recipients of income from registered pension plans are eligible for a tax credit on pension income. In contrast, the legislative interpretation of the Bloc Québécois assumes that only retirees whose pension income has been reduced as a result of financial distress of the sponsoring firm are eligible for a tax credit on lost pension income.
After determining this, my staff asked the committee to clarify these assumptions and reach a common understanding of precisely which legislative proposal was to be costed. After waiting a week, we sent correspondence to the chair of the committee providing a preliminary assessment of the two cost estimates—$5 million per annum and approximately $10 billion per annum—and again highlighted the need to reach a common understanding regarding the legislative interpretation of Bill C-290 before moving forward with this request.
As noted in my correspondence of May 14, both estimates appear to be free of major errors. While a government estimate of $10 billion appears reasonable, given its assumptions, the Bloc Québécois estimate of $5 million may be near the low end of a range, based on their differing assumptions.
I would like to convey to committee members that we would look forward to continued work on a terms of reference for this request should members provide additional direction with respect to the legislative intent of Bill C-290.
I would be pleased to answer any questions Committee members may have regarding our process for preparing cost estimates of legislative amendments to the Income Tax Act or my preliminary analysis of Bill C-290.
