Finance Committee on Feb. 14th, 2012

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I asked that question in the context of being a kid in New Westminster and rolling the pennies to make local charitable donations with a bunch of my buddies. We collected pop bottles, took them down to the store, and gave the money to charity. It can start at an early age.

The other question I wanted to ask I'll put very briefly. Right now for cash donations governments pay about 46%. For capital gains tax we talk about listed securities. It can typically be 60% and as high as 69%. Can you comment about the appropriateness of that mix and whether you feel that should be drawn more together?

[The Chair, Conservative, James Rajotte]

Who is that directed to?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'll direct it to Mr. MacDonald.

[The Chair, Conservative, James Rajotte]

Mr. MacDonald, be very brief, please.

[Bruce MacDonald]

Sorry, can you just rephrase that?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

The Ministry of Finance testified before us and said that cash donations are covered about 46% by government support. For capital gains and listed securities it's typically 60%. So there's a definite increased subsidy right now for listed securities and capital gains donations. Do you feel that's an appropriate division or mix?

[Bruce MacDonald]

If there is an opportunity to have greater recognition of the cash investments, that's fantastic. But to be honest with you, I'm not qualified to throw an opinion on that one.

[The Chair, Conservative, James Rajotte]

We're a minute over his time. If any of you have comments, please feel free to submit them to the clerk. We'll ensure that all members get them. Sometimes the chair offers the advice that good questions should be asked at the beginning.

I'm going to take the next round as the chair and follow up with two organizations.

To Mr. Van Pelt and Mr. Bussey from Cardus, both of you recommended not the stretch tax credit but sort of making the one-stage credit—making it for under $200 equivalent to over $200.

I want to put a critique out there that you are probably well aware of. This will not increase giving at all; it will simply increase the cost to the government in terms of revenues. This is a very public criticism. I'm sure you are both well aware of it. So I want you both to answer that it will not incent giving—that's the argument for the stretch tax credit—but will simply increase the cost to the treasury.

Mr. Bussey.

[Barry Bussey]

From our perspective, in the church community it is the individuals who have been supporting on a consistent basis, motivated quite often because of religious commitment to the local church, whether they are giving tithes, offerings, and those kinds of things. From looking at it, we're trying to increase the funding to the charitable community.

We already know who is giving. They have been consistent over the years. They are the ones we have relied on. We've seen this over and over again. We are proposing what we are proposing simply to allow these people to have even greater capacity to give more. Because they are so dedicated to the cause of whatever charity they are supporting, having the ability to have a greater tax credit allows them to have an increased capacity.

[The Chair, Conservative, James Rajotte]

Mr. Van Pelt.

[Michael Van Pelt]

There's some caution that needs to be employed on the argument that an increase in the charitable tax credit won't increase giving. If one follows the logic of that argument too much, one might be tempted to say, let's remove the tax credit altogether. I'm rather curious what 80,000 charities would say to that.

There is the matter of the law of diminishing returns, which happens with charitable giving. I do not know of any research out there that illustrates that we are at the peak of the law of diminishing returns, but let's understand why we're doing the charitable tax credit increase.

We are not doing it because we want to find a whole bunch of other people to be able to give. Remember, for those who give already, there's a lot of room to give. The amount that Canadians give is not a huge amount. There's lots of potential to give more. The strategy—and it's a different strategy than the stretch credit—is to shore up this civic core, which is so critical to our community, allowing us some time to answer the bigger questions.

My suspicion is that the government's tax expenditure numbers are going to increasingly go down, not up, even with a benefit.

[The Chair, Conservative, James Rajotte]

Respectfully, though, I'm not sure I'm getting an answer to how making it a one-stage credit for both incents people to give more, or does it incent people to give more, because the argument against—from people we had on the last panel—was that you're just going to increase the cost? You're not going to incent people to give more. That's why you should do the stretch tax credit because that incents people to give more. That's an argument for the stretch.

I want you to address that criticism—that this does not, in fact, incent people to give more than making it a one-stage credit. Frankly, I like the simplicity of it, but I want that argument addressed.

[Michael Van Pelt]

I would go back to your assumption that it doesn't incent. Where do you get that assumption, if I may respectfully challenge you, Mr. Chair, on the assumption that it doesn't incent?

Every time we go out—

[The Chair, Conservative, James Rajotte]

Because the argument is that if I could give over $200, I'd be giving it now and I would be getting the higher credit, but I'm not giving that. There's no incentive if you make it the same for me to give more than say the $50 I'm giving to Big Brothers Big Sisters.

[Michael Van Pelt]

Our experience, as we talk to charities across the country, is that as the charitable tax credit goes up, people see they have more room in their disposable income to give, they're passionate about what they're going to give to, and they will.

There is maybe a question of leakage. If you go from 29% to 42% for every $1,000, there's $130 there that it's costing the government. Some may say, “Yes, there's some leakage. We'll keep $70 of it and give away the difference.”

I'd take the risk on that issue. I just don't see any other alternative that accomplishes your interest as well.

[The Chair, Conservative, James Rajotte]

Okay. I have to cut myself off here in terms of time, unfortunately, but if there's anything further, please do feel free to send it in.

I'll go to Mr. Brison now, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

I want to speak to the capital gains tax exemption. Now, we have publicly listed securities, but the proposal is for shares in private companies and also real estate.

The Department of Finance officials told us that there was a tax expenditure they assigned to these gifts of about $34 million per year. When pressed, the officials said that it was difficult to assign that value, because they admitted it was based on the assumption that the disposition of the shares would have occurred in any case. To understand how you assess a value to that, you have to understand the psychological impact of capital gains tax on investors. The reality is that capital gains tax actually locks up a lot of capital, because people don't want to sell shares that they have held onto, in some cases, for years and years, and in some cases decades.

Would you agree that the actual cost to taxpayers is significantly less than that which the Department of Finance officials are assigning, rather arbitrarily, today?

[The Chair, Conservative, James Rajotte]

Anyone want to take this?

Mr. Bird.

[Ian Bird]

I believe Mr. Johnson was here previously and has an answer for that. Don has been the one who has really crafted this argument and would be the go-to person to help you with that, if you weren't able to get the answer from his testimony.

[Scott Brison, Liberal, Kings—Hants, NS]

The issue, though, is an important one, and you've considered Mr. Julian's question about the significant tax expenditures. My point is that if you assume that the disposition of the shares or the assets would not have occurred otherwise, you could argue there's no tax expenditure, because there would not have been a tax expenditure in any case, except perhaps 20 years in the future when someone dies and things are passed on to an heir or something. It is important to consider that.

But also, the Department of Finance, when it's considering these tax expenditure arguments, doesn't really consider the leveraging that occurs in terms of the potential benefit. I was reading Neil Reynolds' piece in the Globe and Mail yesterday, which I think you were referring to. The federal reserve in the U.S., in one study indicated that “charitable activities can be accomplished [by the philanthropic] sector...at about one-third less than what the government would have to spend to accomplish the same goals”.

So I think it's really important for us to consider, particularly during tight fiscal times, that these incentives actually create a leveraging effect that actually stretches tax dollars as opposed to taking tax dollars. The Department of Finance simply does not have the mandate to look at it.

Should we as a committee be studying more thoroughly the leveraging effect as part of that cost-benefit analysis?

[Michael Van Pelt]

I would love to be able to help answer that question.

It's interesting—this question came up in the discussions with HRSDC on their interest in increasingly leveraging the social service organizations that they're part of so that the percentages would be stronger, based on that argument.

HRSDC internally does not have data on who and why and how these organizations actually best leverage their resources. It's a question that's still out there.

I go back to the comment in my presentation: if we had no charitable tax credit at all, if it didn't exist, and someone came up to you as a member of Parliament and said, “Give me $2.26 billion and I'll influence 80,000 charities across the country, in every single community, all over”, you would sign on to that $2.26 billion in a minute. It would be in this budget.

It is still, by far, the most powerful tool you have out there as a parliamentarian, and that gets partially at it.

[Ian Bird]

To follow up on that, you're getting at something that's about timing. For example, for a community foundation in southern Saskatchewan that receives a gift of mineral rights below the ground, there's a timing issue. It may be unlocked sooner if there's an incentive to do so.

The other part of timing is what we need now. What do the times call for? I think this comes back to the civic participation question. How do we get more people right across the country providing a contribution to civic strength in all communities? That's the timeliness that I think we're after.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Brison.

We'll go to Mrs. Block.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

It's good to be back at this committee. I know you'd like us to keep our questions succinct, so I will try to do that.

We've held this conversation at this table before. Your last comment, Mr. Bird, is a great segue into my question, because it does have to do with the culture of giving. I know I've heard that referenced a number of times around this table. I've mentioned this before at other tables. I've heard it said that culture eats strategy for breakfast.

While you're trying to create a culture, you are also probably dealing with one that already exists. I think therein lies the tension. How do you deal with a culture that's already in existence and create a new one or build on one?

I'm wondering—and this is for any of you—what you believe the role of the federal government would be in terms of educating the public, say, through an advertising campaign?

[The Chair, Conservative, James Rajotte]

Mr. Bird, and then Mr. Hutchinson.