Finance Committee on April 9th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting back to order.

Welcome to meeting number 135 of the House of Commons Standing Committee on Finance.

Pursuant to the order of reference on Monday, March 18, 2024 and motions adopted on Monday, December 11, 2023, the committee is meeting to discuss Bill C‑59, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023.

Today's meeting is taking place in a hybrid format pursuant to the Standing Orders. Members are attending in person in the room and remotely using the Zoom application.

I'd like to make a few comments for the benefit of the members.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to the microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbours' microphones are turned on. In order to prevent incidents and safeguard the hearing health of interpreters, I'd like participants to ensure that they speak into the microphone into which their headset is plugged and avoid manipulating the earbuds by placing them on the table away from the microphone when they are not in use.

All comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can, and we appreciate your patience and understanding in this regard.

All virtual witnesses for this meeting have been tested, and the clerk has said that everything is okay.

We have here today with us as an individual, Vivek Dehejia, associate professor of economics and philosophy at Carleton University. Also as an individual, we have Stephanie Woo Dearden, registered psychotherapist, who is with us via video conference. From Electricity Canada, we have vice-president of government relations, Michael Powell. Joining Mr. Powell is Derek Smith, vice-president, corporate tax, Emera Inc. That will be through video conference. From EverWind Fuels, we have Trent Vichie, chief executive officer.

On that, we will start with Mr. Dehejia for opening remarks, please.

[Vivek Dehejia, Associate Professor of Economics and Philosophy, Carleton University, As an Individual]

Thank you, Mr. Chair.

When I was here before this committee last fall, I warned that Canada stood at a crossroads. That is as true now as it was then. If anything, there is greater urgency to fix the problems that ail us. GDP growth per capita, the basic measure of the well-being of the average Canadian, is stagnating. GDP per person is basically where it was a decade ago. In other words, we've had a lost decade here in Canada.

In 1960 our average income per person was the same as that of the U.S. In Canada we now have less than three-quarters the income per person that they have south of the border. In terms of unemployment in Canada, when I wrote these notes I said it was just below 6%, but now we're actually at 6.1% and it could go to 7% or higher. In the U.S., it's below 4%. U.S. growth and productivity continue to be strong, but ours in Canada seem to have flatlined.

What's driving this increasing divergence between the U.S. and Canada and making us significantly poorer than our friends south of the border? Investment is a key driver of growth in income productivity. In the late 1990s gross fixed capital formation—fancy words for investment—as a share of GDP was about 7%; today it's about 3%. In 2013 gross fixed capital formation per worker in Canada was about 90% of that in the U.S.; it's now down to two-thirds of what it is in the U.S.

Why is this happening? Quite simply, increased government spending is crowding out private investment. Government now accounts for about one-quarter of Canada's GDP. It's staggering. Just think about that: One-quarter of our economy is socialized, and our total business investment is now only 8%. It's no wonder the latest numbers show that labour productivity in Canada shrank by more than half a percentage point in the last quarter while in the U.S. it grew by approximately 2.5%.

We are in serious trouble, but don't take my word for it. Recently the Bank of Canada's senior deputy governor, Carolyn Rogers, went so far as to say that low productivity growth in Canada is an emergency and “it's time to break the glass.”

Of course, the Bank of Canada has also done its share to add to our current woes. As I testified previously before this committee, the pandemic saw explosive growth in the money supply as the central bank monetized fiscal deficits financed by sovereign debt or, in other words, quantitative easing. That is what gave us the inflation crisis and the now-cripplingly high interest rates that are making life impossibly difficult for many Canadians.

What's to be done? As I testified last fall, we need to go back to basics. The three pillars of economic policy are fiscal policy, monetary policy and regulation, and they are all badly in need of repair. We've had a fiscal binge in Canada. Monetary policy, likewise, has been on a bender. The economy is over-regulated, thus stifling innovation, new business creation and private sector investment, and creating high barriers for new entrants. As a consequence, our economy is highly concentrated with a handful of dominant, politically powerful and entrenched incumbent firms in all major sectors—everything from cellphone services to groceries to legacy media to banking to airlines, you name it.

With such heavy concentration and lack of competition, it's no wonder we pay higher prices and get poorer service than our friends in the U.S. do for just about everything.

To finish, it's time to cure ourselves of the addiction to fiscal and monetary excess and to take a chainsaw, to paraphrase the new President of Argentina, to burdensome regulations.

It is worth recalling that at the beginning of the 20th century Argentina had about the same per capita income as the U.S. and Canada did, but after 120 years of economic mismanagement, their income is now only one-third that of the U.S. As I said, ours is now actually less than three-quarters.

Unless we mend our ways, we risk going the way of Argentina.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Dehejia.

We'll now hear from Ms. Dearden.

Go ahead, please.

[Stephanie Woo Dearden, Registered Psychotherapist, As an Individual]

Thank you, Mr. Chair.

Hello. My name is Stephanie Woo Dearden. I am a registered psychotherapist, practising from London, Ontario.

I'm here to be a witness to the parts of Bill C-59 that pertain to the Excise Tax Act and amending it to expand the GST/HST exemption to services rendered to individuals by certain health practitioners to include psychotherapists and counselling therapists.

I am grateful to be here not only because I get to speak on this issue, but I understand that this moment of this committee considering and researching this legislation means a lot to the psychotherapists, counselling therapists and allies, who have been asking the Canadian government to remove this unfair tax since 2004. I, along with my professional peers and colleagues, am heartened that the Canadian government has listened and finally taken action on this matter after this time.

Firstly, psychotherapy and counselling therapy are the same profession with a different name, based on provincial preference. I call myself a “psychotherapist” rather than a “counselling therapist”, because I reside in Ontario and am registered with the College of Registered Psychotherapists. If I were to move to Nova Scotia, the equivalent professional and regulatory body there would be the College of Counselling Therapists. It's the same profession but a different name.

Our profession has met the criteria of being regulated in at least five different provinces and territories in order to be included in the Excise Tax Act among health care professionals.

I am not an expert in tax law, so I will be commenting based on my experience as a psychotherapist and what I see in my practice.

Psychotherapy and counselling therapy can be an integral part of an individual's overall health. Our bodies don't experience physical health and mental health as separate. There have been documented links between depression and inflammation, implicating the immune system; the HPA axis, which is our body's stress response system, in tumorigenesis in cancer; and cortisol release and Crohn's disease, just to name a few.

A health care system that divides between physical health care and mental health care is what we are familiar with, but health involves supporting and nourishing both aspects within us.

Examples from my practice involve working with individuals living with conditions such as endometriosis, adenomyosis, cancer, Crohn's disease and thyroid disease. I have seen, in sessions, the way psychological and socio-emotional pain contribute to physical symptoms that aggravate my client's experience of these conditions. Addressing this pain in a therapeutic, safe and compassionate way can lead to tension release, the ability to regulate emotions, to step out of isolation, to connect with community, to ask for help and to advocate for oneself in the health care system. It's by no means a cure, but it allows my clients to live with a better quality of life.

Removing this tax on counselling therapy and psychotherapy signals that the Canadian government understands that the health of Canadians encompasses physical health care and mental health care, and that this understanding is written in policy.

From a business and consumer perspective, amending the Excise Tax Act to include psychotherapists and counselling therapists allows choice and fairness for Canadians seeking psychotherapy. Currently, social workers, occupational therapists and nurses are among the practitioners who can provide psychotherapy services and refer to themselves as “psychotherapists”. They are exempt from charging GST or HST. It is ironic that counselling therapists and psychotherapists, who have specifically trained to practise psychotherapy, have to charge tax on their services.

If a Canadian is living in a rural setting, where a psychotherapist or a counselling therapist is their main option for accessing mental health care, they would have to pay HST. This puts them in an unfair situation compared with an urban counterpart, who may have their pick among professionals registered to different professional regulatory bodies and can choose one charging a lower fee and who doesn't charge tax.

This person—in an urban setting in our example—gets to keep an extra $10 to $20 in their pocket per session, compared to someone who's living in this rural setting and seeing a counselling therapist or psychotherapist. If both these individuals see a therapist biweekly, that would be an extra $240 to $480 saved over a year for our urban resident. There are many things they can do with that money—getting more sessions if they need it—so in my view this exemption is also about fairness for Canadians seeking mental health services across the country.

There is more I can say on this, but I am sensitive to my time. MPs from multiple major political parties have written op-eds and made statements declaring this tax to be unfair, so I think that it is straightforward, going forward, that amending the Excise Tax Act to include psychotherapists and counselling therapists is one step the Canadian government can take to make mental health care more accessible to Canadians.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Dearden. I'm sure the members will have many questions. Thank you for your opening remarks.

We'll now hear from Electricity Canada. We have Mr. Michael Powell with us here in the room, who will be delivering remarks. Derek Smith, who is appearing remotely, is also with the organization.

[Michael Powell, Vice-President, Government Relations, Electricity Canada]

Thank you, Chair.

Good afternoon. Electricity Canada is the national voice for the electricity sector. Our members generate, transmit and distribute electricity in every province and territory. As the chair said, joining me today is Derek Smith. He's the VP of corporate tax at Emera Inc., and he may be better suited to answer some of your more technical questions because I'm not a tax expert.

Nova Scotia will be impacted by the EIFEL provisions included in Bill C-59.

Since 2005, the electricity sector has cut emissions in half, and today Canada’s grid is over 84% non-emitting. That's among the cleanest in the world. Our sector has been responsible for the majority of emissions reductions in Canada and will be the engine that powers a net-zero economy in 2050. The task to getting there will not be easy. Estimates project that we will need to generate two or three times more electricity than we currently do today. That growth must be done without compromising the reliability of our system or the affordability of energy bills for Canadians.

Bill C-59 is an important piece of legislation that helps enable that balance. In particular, the clean technology and CCUS ITCs in Bill C-59 are essential pieces of the puzzle. To this end, federal investments enable the competitive build-out of electricity infrastructure, while reducing the burden on Canadian ratepayers.

That being said, we've identified a few adjustments to these ITCs that we think would help ensure that they have the maximum intended impact. That includes expanding eligibility to allow commercial trusts to access the clean-tech ITC and ensure the projects held by these trusts are competitive; adjusting the draft definition of SMRs in the clean-tech ITC to those that are no more than 1,200 megawatts of thermal energy per reactor core; and then extending the full 50% value of the CCUS ITC until 2035, recognizing that delays on its deployment and the final clean electricity regulations have impacted project timelines.

It's equally important that other ITCs, including the clean electricity ITC, are moved forward to deployment as quickly as possible. We look forward to more details on that in the very near future. While these are provisions that help enable an affordable, reliable and clean electricity grid, there are provisions that serve as a barrier to these objectives. As outlined in our submitted brief, the excessive interest and financing expenses limitation, EIFEL, will inadvertently impact energy affordability for Canadians in various parts of the country and restrict the capital intended to build projects supporting net zero. The intent of these rules is to align with the OECD’s BEPS project. This is a positive step towards fostering a fair global tax framework and something that we support.

However, as some regulated gas and electric utilities are federally taxable and have some assets outside of Canada, they will be subject to the EIFEL rules while others will not, for example, those that are provincial Crown corporations. Due to this structure and the way rates are set, the utilities impacted by EIFEL will see increased costs passed to customers from interest on all existing and new debt.

We understand that broad sectoral exemptions could run counter to the spirit of the legislation, so we propose a targeted public interest exemption for regulated energy utilities and their holding companies. This approach is consistent with that of our peers, including the United States, Ireland and the United Kingdom, and is consistent with the OECD recommendation that these rules not apply to public benefit infrastructure. Such an exemption is appropriate for our sector as rate-regulated utilities are unique for several reasons.

First, as a highly regulated, capital-intensive industry, we must maintain high levels of debt to ensure that costs to consumers are spread over the life of a project. Debt levels of utilities could be 50% or 60% of their capital structure and are prescribed to the utilities by regulators. Second, regulated utilities are subject to a significant amount of scrutiny and control by provincial regulators in Canada. In this vein, every dollar a regulated utility spends or charges to a customer must go through a transparent and accountable process. Third, due to their regulatory structure, utilities must pass on certain costs to customers, including taxes paid.

Importantly, EIFEL will create a patchwork that will affect Canadians' energy bills differently across the country based on the taxable status and ownership of their local utility—and we've outlined this in a map that was included in part of our submission. You can't choose, as a customer of a gas or electric utility, to move to a different provider without moving. You have no choice about the utility you have; it's based on where you live. Creating winners and losers with EIFEL will create a patchwork of energy affordability winners and losers, and that's not something that anyone wants. We believe a targeted exemption will ensure fairness and avoid increasing energy bills for Canadians at a time when cost of living concerns are on the rise. That's why we'd encourage, in this case, a sectoral exemption on the EIFEL rules.

Thank you. We look forward to taking your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Powell.

Now we'll hear from the CEO of EverWind Fuels, Trent Vichie.

[Trent Vichie, Chief Executive Officer, EverWind Fuels]

Mr. Chair and honourable members of the committee, thank you for the opportunity to present today.

My name is Trent Vichie. I am the chief executive officer of EverWind Fuels, Canada's most advanced green hydrogen development.

For the last two years, we have invested over $200 million in capital to pursue and push our projects forward. Last week, we were pleased to announce the completion of our front-end engineering design, which marked a major milestone in the development of the project and in the development of the technical and engineering requirements to build the project. In short, we are a significant supporter of the government's initiatives to move forward in terms of reducing carbon emissions, and we see hydrogen as a crucial part of this work.

As you will hear in our comments, the swift passage of the investment tax credits—first announced in the 2022 fall economic statement—are a crucial part of bringing these projects to life. The swift passage of ITC legislation is important for two reasons. First, it provides certainty to invest. Second, the passage of legislation also allows other parts of the government that administer the ITCs—namely, the Canada Revenue Agency and Natural Resources Canada—to roll out the administrative aspects, which are crucial to the effectiveness of the investment tax credits. Some of these areas are highly technical and need to be integrated with the engineering work. This leads to a need for speed on that.

Today, I am here to provide our perspective on Bill C-59, which implements certain provisions of the 2023 fall economic statement. Specifically, we will focus our comments on the clean technology investment tax credit.

First off, we are pleased the federal government has introduced a robust suite of policies to ensure Canada remains a globally competitive jurisdiction when it comes to clean energy. The fulsome set of ITCs and other public policy tools gives Canada the opportunity to be an investment destination of choice and a leader in this sector. However, to truly seize this first-move advantage, we must be swift and decisive in our public policy actions. The global race to provide clean energy to the world is on and competition is fierce. We have the opportunity to make Canada a leader in this space. The U.S. Inflation Reduction Act must be met with an equal or more robust policy response, and the ITCs play a key role in this.

With this context, we want to highlight two important commitments made in the fall economic statement.

First, a timeline was laid out with regard to the enactment of certain clean investment tax credits. For EverWind, the timeline around the clean hydrogen ITC is crucial, along with the introduction of legislation for the clean technology ITC through Bill C-59.

Second, the fall economic statement proposed clarity regarding the effect of repayable loans from Crown corporations and other public authorities on the investment tax credits. EverWind closed a $125-million loan with Export Development Canada in late November 2023. This proposal provides certainty that the loan will not delay the availability of various clean investment tax credits. We look forward to seeing this measure in the forthcoming bill.

With that background, the introduction of legislation for the clean technology investment tax credit is therefore most welcome, including the mechanisms for labour conditions, which we wholeheartedly support. As a general comment, the refinements from the August draft legislation are welcome and also consistent with the original framework announced in the 2022 fall economic statement.

My message to parliamentarians is simple: We need the legislation that will activate these ITCs to be passed without delay. The clean energy ITC and clean hydrogen ITC will help ensure Canadian green energy projects can develop with greater speed and certainty and can be cost-competitive on a global stage.

As I mentioned earlier, EverWind has invested nearly $200 million in our projects to date, in order to establish North America's most advanced green energy hub in the Atlantic Canada region. We are the only project in the western hemisphere to have completed FEED engineering. This shows Canada can lead the way, but we need all the public policy tools to be fulsome and operational in order to seize this opportunity in front of us.

As we are in advanced discussions on offtake, full certainty and accessibility of the investment tax credits will enable the signing of binding offtake agreements and the financial close—project financing and final investment decisions—on our multi-billion dollar project this year, with production at the end of 2025.

As we indicated in our consultation submissions, we have full certainty in the design and functionality of these ITCs to provide greater commercial certainty and establish Canada as a global green-energy leader.

I'll conclude by saying that the global energy movement towards green energy is rapidly accelerating. It's a critical time for the federal government to determine whether Canada will be a leader or a follower in the future energy economy. That is why we need to ensure that the clean technology ITCs and others are in place as quickly as possible. There's not a moment to waste in this fierce global race.

Thank you again for your time, and I look forward to questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Vichie, for your opening remarks. It's good to see you again. The last time we were together was in Halifax when our committee was on pre-budget consultations. It's good to hear your progress.

Members and witnesses, we're moving into our rounds of questions now. There will be six minutes per party to ask questions, and we're starting with MP Lawrence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, Mr. Chair.

Will we get two rounds?

[The Chair, Liberal, Peter Fonseca]

If we don't have other interruptions, then, yes, we may get through two rounds.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

That's very good.

I'm going to start with Mr. Smith.

With regard to the EIFEL restrictions, I think Mr. Powell gave a great overview with respect to the cost they will add and the fact that they're out of step with the BEPS project, where exemptions were given in the U.K. for utilities. My concern and my interest is actually for folks—in this case, in Nova Scotia, but also for all Canadians—with regard to the ever-increasing price of energy, whether that be through the carbon tax or now through the EIFEL restrictions.

Mr. Smith, could you talk about the potential increase to the end-user that the EIFEL restrictions will put on consumers?

[Derek Smith, Vice-President, Corporate Tax, Emera Inc., Electricity Canada]

I'll speak specifically and use the example of Nova Scotia. Over the next three years, the Nova Scotia utility, Nova Scotia Power, would anticipate incremental costs of a combined $50 million over that three-year period as a result of denied interest, i.e., our tax costs will increase. Therefore, bills to customers will increase.

If we get granular on that and drill it down to the residential customer, we're looking at about $25 per year per customer bill over a three-year period. That's about a 1% rate increase for the individual residential customer.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you for that, Mr. Smith.

We see the impact of the ever-increasing carbon tax in our economy and on consumers. The carbon tax is increasing inflation now by a third, by 0.8%, driving up the costs of nearly everything. The PBO recently said that the vast majority of Canadians will pay far more when you take into account both the economic and fiscal restraints.

I'm going to go to you, Vivek. What impact does the increasing cost of energy have on the Canadian economy or on any economy for that matter?

[Vivek Dehejia]

It really has knock-on effects for every sector of the economy. Given our geography and given that just about everything has to be delivered or transported, including food, people have to drive long distances. We're all going to be paying higher prices, even an urban city dweller like myself who lives close to Parliament and doesn't have a car, because everything is going to become more expensive. Don't forget that this is in the context of already-high interest rates, so that's really a double whammy. Prices are high. We all have debt and are servicing that debt.

I should add, interestingly, that debt interest costs are not actually part of the CPI, so we're missing a big piece of inflation. Energy costs are just adding to the burden for the average person.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you.

From a macroeconomic standpoint, we're in a global marketplace, of course, and attracting capital is incredibly important. In fact, I believe the OECD said that Canada will be last in terms of capital investment over the next 40 years. That's the projection. What type of impact—from the increased costs through additional regulation and additional, in this case, taxation on energy—will it have?

[Vivek Dehejia]

That will certainly deter investment, both domestic and foreign. In my opening remarks, I shared with you the numbers relative to the U.S., which is our benchmark. We have woefully insufficient investment, and if we're going to increase regulations and the cost of investing, that's going to deter investors from parking their money or investing in various sectors of the economy, including energy.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

As deputy governor Carolyn Rogers says, we're in a productivity crisis. My standpoint or my opinion is that increasing the cost of energy would hurt productivity even further. Isn't this the exact opposite of the type of action that Carolyn Rogers was asking for?

[Vivek Dehejia]

I agree. I must say I was struck by the fact that, for a central banker, she was extremely candid and used very stark language. Indeed, as I said in prior remarks, we're over-regulated and we're overtaxed. We've had a monetary and fiscal binge, and we're in trouble.

We need to boost productivity. As I warned, Argentina, Canada and the U.S. had the same per capita income 120 years ago. They're now one-third of the U.S. They're a poor country or a middle-income country. We are now significantly poorer than our friends south of the border, and low productivity and low investment are a big cause of that.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Those who are proponents of the carbon tax would say that it works by making non-fossil fuel things less expensive and making fossil fuel products more expensive. When you increase the cost of a 84% clean energy source like electricity, does that not undermine the theory of the carbon tax pricing?

[Vivek Dehejia]

Yes, I agree. In the perfect textbook world, we teach our first-year students that, yes, there's a case for a carbon tax. If you want to reduce something, you make it costlier or you add a tax. It's called a Pigouvian tax. We're far from the textbook world. We don't even know that we've set the tax rate correctly to begin with. There are knock-on effects in other sectors. It is also very poorly timed, given that the cost of living is already skyrocketing. Lastly, of course, the problem is global. We can't solve the problem here in Canada.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

Now we'll go to MP Thompson.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

Welcome to all of the witnesses.

Mr. Vichie, I welcome you to committee. I am so pleased with the advancements that you've been able to make in a short period of time. I certainly am pleased with the news out of Newfoundland and Labrador today about World Energy and their green light to keep moving. I think that really speaks to the work that is happening in Canada, certainly in Atlantic Canada, on global green energy, and I feel government always supports that work. Thank you for highlighting that in your opening comments.

If we could just drill down on that for a few moments, certainly as it relates to investment tax credits, could you again speak to why it is so important that we move Bill C-59 forward and why this legislation is so important?

[Trent Vichie]

When you're starting to develop a new industry like green hydrogen, you really need the support of government. Once we start to make this product, we will make it cheaper, more efficient and quicker.

It's important to push this investment now, because the history of businesses and economies has shown that [Technical difficulty—Editor] clean energy hub is where you tend to get more investment over time. We have an opportunity today to really place Canada at the centre of this new industry. It's very supported by critical minerals, clean energy and decarbonization. Going forward, you will see companies attracted to the region because they will want clean green hydrogen to make all kinds of products: chemicals, steel, etc. Now is the time.

Developing these projects is like a freight train. It requires so much coordination and so much effort. You've seen a few proponents step forward and really take the risk on bringing these businesses to life. The decision today from Newfoundland is really welcome. It shows Canada being supportive and a real leader in this space. Now is the time.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

I said earlier today that the economic climate is real and climate change is real. There is real economic opportunity here. Could you speak again to how the investment tax credit creates certainty in the industry? I think that's really important for us to clearly understand.