Bill C-74 (Historical)

Budget Implementation Act, 2018, No. 1

An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures

Part 1 implements certain income tax measures proposed or referenced in the February 27,2018 budget by
(a) ensuring appropriate tax treatment of amounts received under the Veterans Well-being Act;
(b) exempting from income amounts received under the Memorial Grant for First Responders;
(c) lowering the small business tax rate and making consequential adjustments to the dividend gross-up factor and dividend tax credit;
(d) reducing the business limit for the small business deduction based on passive income and restricting access to dividend refunds on the payment of eligible dividends;
(e) preventing the avoidance of tax through income sprinkling arrangements;
(f) removing the risk score requirement and increasing the level of income that can be deducted for Canadian armed forces personnel and police officers serving on designated international missions;
(g) introducing the Canada Workers Benefit;
(h) expanding the medical expense tax credit to recognize expenses incurred in respect of an animal specially trained to perform tasks for a patient with a severe mental impairment;
(i) indexing the Canada Child Benefit as of July 2018;
(j) extending, for one year, the mineral exploration tax credit for flow-through share investors;
(k) extending, by five years, the ability of a qualifying family member to be the plan holder of an individual’s Registered Disability Savings Plan;
(l) allowing transfers of property from charities to municipalities to be considered as qualifying expenditures for the purposes of reducing revocation tax;
(m) ensuring that appropriate taxpayers are eligible for the Canada Child Benefit and that information related to the Canada Child Benefit can be shared with provinces and territories for certain purposes; and
(n) extending, by five years, eligibility for Class 43.‍2.
Part 2 implements certain excise measures proposed in the February 27,2018 budget by
(a) advancing the existing inflationary adjustments for excise duty rates on tobacco products to occur on an annual basis rather than every five years; and
(b) increasing excise duty rates on tobacco products to account for inflation since the last inflationary adjustment in 2014 and by an additional $1 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates on other tobacco products.
Part 3 implements a new federal excise duty framework for cannabis products proposed in the February 27,2018 budget by
(a) requiring that cannabis cultivators and manufacturers obtain a cannabis licence from the Canada Revenue Agency;
(b) requiring that all cannabis products that are removed from the premises of a cannabis licensee to be entered into the Canadian market for retail sale be affixed with an excise stamp;
(c) imposing excise duties on cannabis products to be paid by cannabis licensees;
(d) providing for administration and enforcement rules related to the excise duty framework;
(e) providing the Governor in Council with authority to provide for an additional excise duty in respect of provinces and territories that enter into a coordinated cannabis taxation agreement with Canada; and
(f) making related amendments to other legislative texts, including ensuring that any sales of cannabis products that would otherwise be considered as basic groceries are subject to the GST/HST in the same way as sales of other types of cannabis products.
Part 4 amends the Pension Act to authorize the Minister of Veterans Affairs to waive, in certain cases, the requirement for an application for an award under that Act.
It also amends the Veterans Well-being Act to, among other things,
(a) replace the earnings loss benefit, career impact allowance, supplementary retirement benefit and retirement income security benefit with the income replacement benefit;
(b) replace the disability award with pain and suffering compensation; and
(c) create additional pain and suffering compensation.
Finally, it makes consequential amendments to other Acts.
Part 5 enacts the Greenhouse Gas Pollution Pricing Act and makes the Fuel Charge Regulations.
Part 1 of that Act sets out the regime for a charge on fossil fuels. The fuel charge regime provides that a charge applies, at rates set out in Schedule 2 to that Act, to fuels that are produced, delivered or used in a listed province, brought into a listed province from another place in Canada, or imported into Canada at a location in a listed province. The fuel charge regime also provides relief from the fuel charge, through rebate and exemption certificate mechanisms, in certain circumstances. The fuel charge regime also sets out the registration requirements for persons that carry out certain activities relating to fuels subject to the charge. Part 1 of that Act also contains administrative provisions and enforcement provisions, including penalties, offences and collection provisions. Part 1 of that Act also sets out a mechanism for distributing revenues from the fuel charge. Part 1 of that Act also provides the Governor in Council with authority to make regulations for purposes of that Part, including the authority to determine which province, territory or area is a listed province for purpose of that Part.
Part 2 of that Act sets out the regime for pricing industrial greenhouse gas emissions. The industrial emissions pricing regime requires the registration of any facility that is located in a province or area that is set out in Part 2 of Schedule 1 to that Act and that either meets criteria specified by regulation or voluntarily joins the regime. The industrial emissions pricing regime requires compliance reporting with respect to any facility that is covered by the regime and the provision of compensation for any amount of a greenhouse gas that the facility emits above the applicable emissions limit during a compliance period. Part 2 of that Act also sets out an information gathering regime, administrative powers, duties and functions, enforcement tools, offences and related penalties, and a mechanism for distributing revenues from the industrial emissions pricing regime. Part 2 of that Act also provides the Governor in Council with the authority to make regulations for the purposes of that Part and the authority to make orders that amend Part 2 of Schedule 1 by adding, deleting or amending the name of a province or the description of an area.
Part 3 of that Act authorizes the Governor in Council to make regulations that provide for the application of provincial laws concerning greenhouse gas emissions to works, undertakings, lands and waters under federal jurisdiction.
Part 4 of that Act requires the Minister of the Environment to prepare an annual report on the administration of the Act and to cause it to be tabled in each House of Parliament.
Part 6 amends several Acts in order to implement various measures.
Division 1 of Part 6 amends the Financial Administration Act to establish the office of the Chief Information Officer of Canada and to provide that the President of the Treasury Board is responsible for the coordination of that Officer’s activities with those of the other deputy heads of the Treasury Board Secretariat. It also amends the Act to ensure Crown corporations with no borrowing authority are able to continue to enter into leases and to specify that leases are not considered to be transactions to borrow money for the purposes of Crown corporations’ statutory borrowing limits.
Division 2 of Part 6 amends the Canada Deposit Insurance Corporation Act in order to modernize and enhance the Canadian deposit insurance framework to ensure it continues to meet its objectives, including financial stability.
Division 3 of Part 6 amends the Federal-Provincial Fiscal Arrangements Act to renew Fiscal Equalization Payments to the provinces and Territorial Formula Financing Payments to the territories for a five-year period beginning on April 1,2019 and ending on March 31,2024, and to authorize annual transition payments of $1,270,000 to Yukon and $1,744,000 to the Northwest Territories for that period. It also amends the Act to allow Canada Health Transfer deductions to be reimbursed when provinces and territories have taken the steps necessary to eliminate extra-billing and user fees in the delivery of public health care.
Division 4 of Part 6 amends the Bank of Canada Act to ensure that the Bank of Canada may continue to buy and sell securities issued or guaranteed by the government of the United Kingdom if that country ceases to be a member state of the European Union.
Division 5 of Part 6 amends the Currency Act to expand the objectives of the Exchange Fund Account to include providing a source of liquidity for the government of Canada. It also amends that Act to authorize the payment of funds from the Exchange Fund Account into the Consolidated Revenue Fund.
Division 6 of Part 6 amends the Bank of Canada Act to require the Bank of Canada to make adequate arrangements for the removal from circulation in Canada of its bank notes that are worn or mutilated or that are the subject of an order made under paragraph 9(1)‍(b) of the Currency Act. It also amends the Currency Act to provide, among other things, that
(a) bank notes are current if they are issued under the authority of the Bank of Canada Act;
(b) the Governor in Council may, by order, call in certain bank notes; and
(c) bank notes that are called in by order are not current.
Division 7 of Part 6 amends the Payment Clearing and Settlement Act in order to implement a framework for resolution of clearing and settlement systems and clearing houses, and to protect information related to oversight, by the Bank of Canada, of clearing and settlement systems.
Division 8 of Part 6 amends the Canadian International Trade Tribunal Act to, among other things,
(a) create the position of Vice-chairperson of the Canadian International Trade Tribunal;
(b) provide that former permanent members of the Tribunal may be re-appointed to one further term as a permanent member; and
(c) clarify the rules concerning the interim replacement of the Chairperson of the Tribunal and provide for the interim replacement of the Vice-chairperson of the Tribunal.
Division 9 of Part 6 amends the Canadian High Arctic Research Station Act to, among other things, provide that the Canadian High Arctic Research Station is to be considered an agent corporation for the purpose of the transfer of the administration of federal real property and federal immovables under the Federal Real Property and Federal Immovables Act. It also provides that the Order entitled Game Declared in Danger of Becoming Extinct is deemed to have continued in force and to have continued to apply in Nunavut, as of April 1,2014.
Division 10 of Part 6 amends the Canadian Institutes of Health Research Act in order to separate the roles of President of the Canadian Institutes of Health Research and Chairperson of the Governing Council, to merge the responsibility to establish policies and to limit delegation of certain Governing Council powers, duties and functions to its members or committees or to the President.
Division 11 of Part 6 amends the Red Tape Reduction Act to permit an administrative burden imposed by regulations to be offset by the reduction of another administrative burden imposed by another jurisdiction if the reduction is the result of regulatory cooperation agreements.
Division 12 of Part 6 provides for the transfer of certain employees and disclosure of information to the Communications Security Establishment to improve cyber security.
Division 13 of Part 6 amends the Department of Employment and Social Development Act to provide the Minister of Employment and Social Development with legislative authority respecting service delivery to the public and to make related amendments to Parts 4 and 6 of that Act.
Division 14 of Part 6 amends the Employment Insurance Act to modify the treatment of earnings received by claimants while they are in receipt of benefits.
Division 15 of Part 6 amends the Judges Act to authorize the salaries for the following new judges, namely, six judges for the Ontario Superior Court of Justice, one judge for the Saskatchewan Court of Appeal, 39 judges for the unified family courts (as of April 1,2019), one judge for the Federal Court and a new Associate Chief Justice for the Federal Court. This division also makes consequential amendments to the Federal Courts Act.
Division 16 of Part 6 amends certain Acts governing federal financial institutions and related Acts to, among other things,
(a) extend the scope of activities related to financial services in which federal financial institutions may engage, including activities related to financial technology, as well as modernize certain provisions applicable to information processing and information technology activities;
(b) permit life companies, fraternal benefit societies and insurance holding companies to make long-term investments in permitted infrastructure entities to obtain predictable returns under the Insurance Companies Act;
(c) provide prudentially regulated deposit-taking institutions, such as credit unions, with the ability to use generic bank terms under the Bank Act, subject to disclosure requirements, as well as provide the Superintendent of Financial Institutions with additional enforcement tools under the Bank Act and the Office of the Superintendent of Financial Institutions Act, and clarify existing provisions of the Bank Act; and
(d) modify sunset provisions in certain Acts governing federal financial institutions to extend by five years, after the day on which this Act receives royal assent, the period during which those institutions may carry on business.
Division 17 of Part 6 amends the Western Economic Diversification Act to remove the requirement of the Governor in Council’s approval for the Minister of Western Economic Diversification to enter into an agreement with the government of a province, or with a provincial agency, respecting the exercise of the Minister’s powers and the carrying out of the Minister’s duties and functions.
Division 18 of Part 6 amends the Parliament of Canada Act to give each House of Parliament the power to make regulations related to maternity and parental arrangements for its own members.
Division 19 of Part 6 amends the Canada Pension Plan to, among other things,
(a) eliminate age-based restrictions on the survivor’s pension;
(b) fix the amount of the death benefit at $2,500;
(c) provide a benefit to disabled retirement pension beneficiaries under the age of 65;
(d) protect retirement and survivor’s pension amounts under the additional Canada Pension Plan for individuals who are disabled;
(e) protect benefit amounts under the additional Canada Pension Plan for parents with lower earnings during child-rearing years;
(f) maintain portability between the Canada Pension Plan and the Act respecting the Québec Pension Plan; and
(g) authorize the making of regulations to support the sustainability of the additional Canada Pension Plan.
Division 20 of Part 6 amends the Criminal Code to establish a remediation agreement regime. Under this regime, the prosecutor may negotiate a remediation agreement with an organization that is alleged to have committed an offence of an economic character referred to in the schedule to Part XXII.‍1 of that Act and the proceedings related to that offence are stayed if the organization complies with the terms of the agreement.

Opposition Motion—Carbon Pricing

[Pierre Poilievre, Conservative, Carleton, ON]

moved:

That, given the government's carbon tax will impose higher gas prices, and making “better choices”, as the Prime Minister suggested, will not help most Canadians heat their homes and buy groceries, the House call on the government to cancel plans for new taxes that would further raise prices on consumers.

Mr. Speaker, when prices rise, the effective salary of average Canadians drops; the distance their dollar will go shortens; and it becomes harder and harder for people to pay the bills. In recent months, we have seen this problem worsen. Inflation has reached its highest level in a very long time, well over the 2% target rate that is set by the Bank of Canada. This means that the goods and services on which people rely actually become more expensive and more difficult for people to afford at their current salary rates.

The hon. member for Calgary Shepard will be commenting on this, as I will be splitting my time with him today.

Furthermore, the cost of servicing the very large debt levels that Canadians shoulder is also on the rise. Just last week, RBC and TD significantly raised their posted rates for five-year fixed mortgages. In the case of RBC, they went up by 45 basis points or almost 10% of the total interest rate charged to the average mortgage borrower, from 5% to roughly 5.69%. This is on top of record gas prices that are afflicting motorists, particularly in British Columbia but starting to affect people right across the country.

One of the root causes of increased costs for consumers is most often forgotten, and that is the cost of government. Government represents over 40% of our entire economy. Thus, when the cost of government rises, the cost of everything else rises with it, and that is the focus of my remarks today. Let me dissect how growing government costs cascade down to consumers at all levels.

Let me start with the proposed Liberal carbon tax. The government has said it will impose a tax on anything that requires fossil fuels to produce or deliver. What does this mean to the average Canadian consumer? The government admits that the carbon tax would increase the cost of gasoline by at least 11¢ a litre at the pump. The Liberals admit that the average households would pay roughly $200 more per year to heat their homes. That is all they are prepared to admit.

They have not calculated how much this tax would increase the cost of groceries, which of course are transported by truck and rail. Therefore, when the transportation costs go up, the costs are passed on to consumers at the end of the day. The Liberals have not revealed how much costs will increase for other household expenses, such as electricity. In many, if not most, provinces, electricity is produced by some form of fossil fuel, whether natural gas, coal fire, or some other source that would be affected by this carbon tax. Even people taking transit might end up paying more for their transit passes because so many of our buses continue to run on gas, diesel, or natural gas, all of which will become more expensive once this carbon tax is fully imposed.

Finance Canada has released documents conceding that the cost of the carbon tax would cascade down to consumers through higher prices. I have obtained documents from Finance Canada estimating how much those costs would be for households, depending on their income. The only problem is that the government blacked out all the numbers on those documents. We know from the evidence I have obtained that there will be higher prices for Canadian households; we just do not know how much, because the government is concealing that information.

Before the House now is Bill C-74, the budget bill, which would impose a federal carbon tax of $50 per tonne of greenhouse gases.

The government is asking our permission, as the House of Commons, which has the exclusive power of the purse, to give the finance minister permission to impose this tax, without telling us what the tax will cost.

The basic principle of the power of the purse is that the government cannot tax what Parliament has not approved. However, Parliament cannot approve what it does know. Right now, we do not know how much this tax will cost average Canadians.

There is a whole series of estimates. Some estimate it will be $1,000 a household. Some estimate more, some slightly less, but the government will not say, even though it has performed all of the calculations. It knows; it just does not want Canadians to know.

This is a particularly insidious tax because all of its costs are embedded in other products. For example, the price of fresh fruit might become more expensive for a single mother, but she will not know what share of the extra cost of that fruit is the tax. She might assume that it is just that her local grocer has raised prices. In this way, the government is attempting to blame local shopkeepers, grocers, and other small businesses for rising prices that are really imposed by government.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I want to appreciate what Ms. Turcotte said specifically within Canada, because Bill C-74, in essence, is taking away the ability of a province. Let's give the example of Saskatchewan, which has built itself on being competitive with its neighbours. You also have northern territories, like Mr. McLeod's, where the cost of living and the cost of doing business are so much higher, so to be imposing a centralized framework upon them basically may seal up Canada inter-jurisdictionally between provinces and territories. Now actually—with the United States being at a different rate—I think we need to have more discussion now.

Here is what the B.C. NDP provincial government describes as carbon leakage in its 2018 budget:

...industries that compete with industry in countries that may have low or no carbon price. If...industry loses market share to more polluting competitors, known as carbon leakage, it affects our economy and does not reduce global greenhouse gas emissions.

This, of course, is in B.C. with a carbon tax already. I should say that my end quote here is on gas emissions, so this is coming from British Columbia, with a carbon tax already.

We've already seen a lower price that was first installed by former premier Campbell and his government, where the cement industry was hard hit and has continued to receive subsidies and has struggled to maintain its market share.

I believe that the B.C. NDP are also quite worried about one of their favourite industries, which is pulp and paper, and you know we all have our favourite industries. I think the rising cost in the carbon tax, as set out in Bill C-74—as of April 1, we saw gas prices go up in British Columbia because they are moving $5 per year—will only get worse.

What obligation do we have as parliamentarians to ensure that, for those industries where many families are impacted, and those small and medium-sized businesses will be impacted, we are able to stem this issue of carbon leakage? I would open that to anyone.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you to our witnesses.

I hope MP Grewal can count on the support of his own father in his own riding.

Politics aside, I think, Mr. Elgie, you had pointed out that in the United States they have created the equivalent of a CCA, capital cost allowance, where within one year it can be used toward any kind of equipment including, as you said, a coal-fired facility. I think that illustrates the example that if we were to do something similar here, only for clean technology, many people would say that many of those clean technologies are much more intermittent than a coal-fired generation facility. I'm not arguing for coal, but I am saying that it's a competitive challenge because coal can be done quite cheaply in comparison to intermittent energy sources.

I think this raises the bigger question of competitiveness, and I do also think we need to discuss carbon leakage.

Mr. Chair, I'd like to ask a question of each of the witnesses. Mr. Elgie talked a little bit in his presentation, and so did Mr. Cross.... What is your definition of carbon leakage, and in regard to Bill C-74? I just would like to hear what you have to say about those two things—your definition of carbon leakage.

[The Chair, Liberal, Wayne Easter]

Colleagues, we'll reconvene. As I think everyone knows, we're dealing with Bill C-74, the budget implementation act on the February 27, 2018 budget.

Welcome to the witnesses here this afternoon. We'll start with Green Budget Coalition. Mr. Van Iterson, welcome.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

My thanks to all our witnesses for joining us today.

My first question goes to the Hon. Mr. Kenney. A number of people, mostly Conservatives, if truth be told, will tell us that an economic apocalypse awaits us if we decide to adopt a carbon tax. We have been asked to express an opinion on that issue as we study Bill C-74.

Can you share with us any data at all on the issue, or tell us a country where it has had a negative effect on the economy? Can you give me an example to support the argument you are putting forward?

[Graham Saul, Executive Director, Nature Canada]

Thank you.

Mr. Chair, members of the finance committee, my name is Graham Saul. I am the executive director of Nature Canada.

First, I'd like to acknowledge that budget 2018 represents a historic federal investment in nature conservation. Nature Canada is truly excited about the promise of expending the $1.3 billion prudently over five years to reverse the decline in biodiversity in Canada and to establish managing protected areas and recovering species at risk. Thank you to everyone who played a role in supporting those provisions.

On the subject of the greenhouse gas pollution pricing act, I think it's worth remembering that it was 26 years ago, in May of 1992, that Canada signed the United Nations Framework Convention on Climate Change. It has been more than 25 years since Canada first promised to reduce its greenhouse gas pollution, and we've barely begun to follow through on that promise.

And it was about 14 years ago that former Liberal prime minister Paul Martin first announced plans to put a price on greenhouse gas pollution by creating a market for emission reductions in all sectors of the economy, and it never happened. Then, in May of 2008, almost exactly 10 years ago today, Conservative federal environment minister John Baird called carbon trading “a key part” of the government's new Turning the Corner plan to reduce greenhouse gas emissions.

Later on that year, also in 2008, the Conservative government of Stephen Harper won a minority mandate with a campaign that clearly pledged to develop and implement a cap-and-trade system for greenhouse gases and air pollution, and it never happened. Then, in 2015, Canadians supported a Liberal election platform that made a clear commitment to put a price on greenhouse gas pollution, and here we are today.

What are just a few of the things that have been happening in the meantime? The city of Calgary had two 100-year floods in only eight years, the most recent of which, in 2013, resulted in $6 billion in financial losses and property damage. In 2016, two years ago this May, almost 90,000 people were evacuated from wildfires across Fort McMurray, and thousands of homes were reduced to ashes. According to the Insurance Bureau of Canada, the Fort McMurray wildfire became the costliest insured natural disaster in Canadian history, with an estimated $3.77 billion in claims filed by mid-November, 2016.

On this day last year, I watched as the military was called in to help deal with the fact that my hometown of Ottawa-Gatineau was flooding. The flooding caused more than $220 million in insurable damages. A couple of months later, I spent a few weeks in British Columbia as the worst recorded fire season in the history of the province unfolded. More than 1,300 fires burned more than 1.2 million hectares, displacing 65,000 people from their homes and costing B.C. over $500 million. The wildfire season included the longest state of emergency in the history of British Columbia, lasting a total of 10 weeks.

Now, all we have to do is look east to the tragic situation unfolding in New Brunswick. As Premier Brian Gallant put it:

We are seeing weather events like we have never seen before. This is most likely going to end up being the largest, most impactful flood that we have ever recorded here in New Brunswick....

I've been asked to comment on what I think about part 5 of Bill C-74, which enacts the greenhouse gas pollution pricing act and makes the fuel charge regulations. I think this is a policy that we should have adopted at least 10 years ago. I think we need to use all the tools in the tool box, including carbon pricing, to finally move this country in the right direction. We need to stop fiddling while places like New Brunswick drown. We need to stop fiddling while places like British Columbia burn.

Canadians have consistently voted for leaders who have promised to take action to fight climate change, and now we need to stop playing politics with what is quickly becoming a life-and-death issue for communities and species across Canada and around the world. We need to position Canada to be a leader in the economy of the 21st century, and putting a price on greenhouse gas pollution is part of that process.

We need to position Canada to be a leader in the economy of the 21st century, and putting a price on greenhouse gas pollution is part of that process.

More importantly, we need to finally send a signal to our children and grandchildren that we are prepared to invest in solutions instead of turning our back on the problems and letting them deal with the resulting damage.

Thank you.

[Dale Beugin, Executive Director, Canada's Ecofiscal Commission]

Thank you very much for the opportunity to speak today.

I represent Canada's Ecofiscal Commission. We are a panel of senior economists from across the country supported by a cross-partisan advisory board with representatives from industry, civil society, and perspectives across the political spectrum. The commission's mandate is to identify and support policies that make sense for both the environment and for the economy. In other words, it is to identify policies that achieve environmental objectives at the lowest economic cost. Our research and analysis clearly indicate that carbon pricing is such a policy.

Today, I look to unpack three key aspects of carbon pricing as they relate to BillC-74. First, carbon pricing is effective in reducing GHG emissions. It creates incentives for businesses and households to choose lower carbon activities and technologies, it creates demand for low-carbon technologies, and it drives low-carbon innovation. We know that prices affect choice all through the economy, but there is also, as Mr. Leach alluded to, ample and empirical evidence that carbon pricing works.

In B.C., according to academic research, GHG emissions would be 5% to 15% higher had B.C. not implemented its carbon tax. More specifically, for example, in the absence of the tax, vehicles would be 4% less efficient per capita, gasoline demand would be 7% to 17% higher.

Ecofiscal's own modelling analysis from 2016 found that a carbon price rising to $50 per tonne in 2021 and $100 per tonne by 2027 could reduce emissions by about 170 megatonnes in 2030 and 80 megatonnes in 2022.

Second, economists agree that carbon pricing is the lowest-cost approach to reducing GHG emissions. Our same analysis finds that the cost of carbon pricing, even when rising to $100 per tonne by 2027, would only slightly affect economic growth. How does revenue recycled affect these estimates? At worst, carbon pricing would reduce growth rates by about one-tenth of a percentage point, but if revenues were used to cut income taxes, as provinces have discretion to do under the pan-Canadian framework, the impacts on growth would be negligible. Economic growth would remain positive and strong.

Alongside these small costs, we must also consider benefits. Carbon pricing can reduce GHG emissions, helping Canada to achieve its 2030 target. Doing so will also contribute to global efforts to fight climate change, and avoiding the costly impacts of a changing climate. These reductions will also have benefits in terms of reducing local air pollution, and thus improving local air quality and health.

Canada has ambitious targets for emission reductions in 2030. Achieving these targets will have costs, but carbon pricing can achieve those emissions reductions at the lowest possible cost. Other policies, including subsidies or prescriptive regulations, will cost more. Regulations that require specific outcomes or technologies in specific sectors are less flexible, and thus have higher costs. Carbon pricing does not require a preconception as to where in the economy or the country the lowest-cost opportunities for emissions reductions might exist.

The flexibility of carbon pricing also creates powerful incentives for clean innovation. Subsidies for clean technologies require picking specific technologies. Furthermore, they're often paid to businesses or individuals that would have adopted the clean technology even in the absence of the subsidy or with a smaller subsidy, thus raising costs.

Finally, well-designed carbon pricing can reduce emissions while also protecting the competitiveness of Canadian businesses, even while some of our trading partners do not price carbon. In particular, Ecofiscal's analysis of output-based pricing suggested that this approach, as included in BillC-74, can provide transitional steps forward to vulnerable industries. It creates incentives for industry to reduce GHG emissions by improving emissions performance, not by reducing production or investment in Canada. This is the approach that Alberta pioneered under the specified gas emitters regulation in 2007, and subsequently improved under the carbon competitiveness incentive regulation.

Canadian businesses, especially those in emissions-intensive and trade-exposed sectors, have expressed clear support for output-based pricing as a way to cost-effectively encourage emissions reductions without undermining economic competitiveness.

To conclude, a climate plan based on carbon pricing is the lowest-cost approach to achieving Canada's GHG emissions targets. The legislation here ensures carbon pricing applies across Canada, addresses concerns around competitiveness, but also gives provinces flexibility in designing provincial carbon pricing and recycling revenue.

Thank you very much.

[Jason Kenney, P.C., MLA, Leader of the Official Opposition of the Legislative Assembly of Alberta, As an Individual]

Thank you, Mr. Chairman. I've been on both sides of the table, and at this end too, so it's wonderful to be back.

Mr. Chairman, I am leader of the United Conservative Party in Alberta. We just had our founding annual general meeting, which wrapped up yesterday. Since 98% of our members voted in favour of a policy to repeal the carbon tax imposed by the incumbent NDP government in Alberta, I am here in opposition to part 5 of Bill C-74 and its proposed federal carbon tax.

The NDP government in Alberta imposed its carbon tax five months after the last election. Hilariously, they forgot to mention their carbon tax in that election. It was the largest hidden agenda in our province's political history, and the largest tax increase in our history. They raised it by 50% on January 1 of this year. They are now committed to raising it by a further 67%, and they're blaming Bill C-74, the federal carbon tax.

I can report that there have been over a dozen public opinion polls taken on the carbon tax in Alberta in the past two years, showing consistently that two-thirds of Albertans oppose this tax. They oppose it not because they are indifferent to the environmental questions or the challenges of climate change and greenhouse gas emissions, but because they understand, with their good common sense, that punishing consumers for living normal lives in a cold northern climate and an advanced economy is not a responsible environmental policy. They understand that making it more expensive for seniors to heat their homes when it's 30 below outside, as it was just a couple of weeks ago in Alberta, or making people pay more in order to drive to work, is punishing people for simply living their lives and doesn't make sense.

The theorists who support carbon tax will generally admit that it is a so-called Pigouvian tax, by which they mean there should be a taxation on negative behaviours, like sin taxes on booze and cigarettes.

Most Albertans don't think that heating their homes and driving to work and running their small businesses are something that should be punished.

I recently visited the Sundre Seniors Centre. It's a wonderful organization that keeps seniors active in their community. They do that for only $18,000 a year. It's a completely volunteer organization. They're now spending 7% of their annual budget on a carbon tax they can't afford, which is about to go up by another 67%. They don't get a rebate and they don't get any prospective offsetting tax cut, so they're looking at possibly having to close down their seniors centre.

There are real human impacts that the advocates don't talk about. That is why I am pleased to report to you that if Albertans elect a United Conservative government in next year's provincial election, the first bill that we will introduce in the legislature will be the carbon tax repeal act. We will completely repeal the NDP carbon tax.

If the federal government then seeks to impose the powers proposed in this bill on Albertans through a federal carbon tax, we will see the federal government in court. Our official opposition is making an application to the Saskatchewan Court of Appeal to seek intervenor status to join the Saskatchewan government's constitutional challenge of Bill C-74. Should we be in office, we will ensure that Alberta does everything it can to get Alberta before the courts on the same issue.

We believe this is an unconstitutional intrusion into the exclusive provincial power to tax for provincial purposes. It's also an unequal application of a federal power on different provinces, which are being treated differently.

I close by pointing out that the advocates of carbon taxes know that the $50 tax is just the beginning. Environment Canada has said that in order to hit the Paris targets, it has to go to $300 a tonne. This is the “frog in the pot” syndrome. All of the carbon tax advocates here are simply trying to get people used to paying more to heat their homes and to drive to work, so that they can continually raise this to give more revenue to politicians and more control to government. A future Conservative government in Alberta will do everything it can to fight that.

[Dr. Andrew Leach, Associate Professor, Alberta School of Business, University of Alberta, As an Individual]

Thank you, Mr. Chair.

Good afternoon, ladies and gentleman, it's a pleasure for me to speak to you today to express my support, and to provide context for the greenhouse gas pollution pricing act, part 5 of Bill C-74.

This legislation, the backbone for the federal government's approach to climate change, will complement the measures already taken by Canada's provinces. It will allow provinces without carbon pricing systems to benefit from the federal architecture to impose a carbon price, and will allow them to receive revenue collected from it. This combination of federal policy with provincial-level flexibility recognizes the diversity of provincial economies, yet allows for federal leadership on climate change, which is so important.

This bill guarantees that carbon prices will apply on nearly all emissions from energy used in Canada, from the cars on the 401 and the 417, to the largest industrial facilities in Canada. The bill provides for the federal price to be applied in provinces without sufficiently stringent carbon pricing policy.

Assuming no changes in provincial policy, implementation of this bill would likely exempt the provinces of B.C., Alberta, Ontario, Quebec, and most likely Manitoba. These provinces, home to 90% of Canada's population and responsible for 83% of Canada's emissions, would be potentially subject to this legislation were their domestic climate change policies to be significantly weakened.

Why have a carbon a price? Simply put, carbon price leverages the power of the market to enable emission reductions at the lowest possible cost. It does not rely on governments to determine who should emit, or what technology they should use to do so. It relies on individuals to make decisions where they are best suited to do so.

The carbon pricing plan proposed in this bill, just like current policies in B.C., Alberta, Ontario, and Quebec, puts the price on carbon emissions from most sources, not just large industrial facilities. The broader the price is on carbon, the lower the price will be to meet any given target, or the greater the emission reductions will be from any given carbon price.

Of course, as we know, carbon emissions in Canada are not just a big industry issue and certainly not just an oil and gas issue.

Do carbon prices work? That's probably a question you're hearing a lot on this committee, and the answer is simply, yes. We have plenty of evidence from B.C.'s carbon tax, which has been in place since 2008, that carbon prices do reduce emissions below where they would otherwise be. If you want to look up some work on this, work by Nic Rivers at the University of Ottawa, among others, has shown this conclusively.

This doesn't mean they're magic. They will not always lead to emissions being lower than they have historically been, especially when macroeconomic growth is rapid, something we've seen in Alberta for years, or when technological change is slow. However, let me assure you, and put on the record, that demand curves slope downwards despite frequent claims to the contrary.

When emissions have a price, we'll use fewer of them.

If you think of innovation and technological change as the solution to climate change, a carbon price is your best policy choice. When asked how governments can spur innovation and green tech, Syracuse University's David Popp provided five rules for government in a report published by the C.D. Howe Institute. The first of these is carbon price, carbon price, carbon price, because in his words, "Supporting technology development means not only investing in new technologies but also creating demand for clean technologies throughout the economy.” That happens organically with a carbon price. A carbon price is also a useful alternative to governments picking winners with regulations and subsidies.

Therefore, why not just have a big federal policy? Why not just have a one-size-fits-all federal plan in this regard? I think that would be a poor decision because our provincial economies are very different—I've done a lot of work in Alberta, Ontario, and Quebec—as our emissions profiles are very different, as are the means to reduce emissions. I have a couple of examples. If you look at some of our provinces, we still generate a lot of our electricity from fossil fuel sources, whereas in other provinces, electricity is already zero carbon. That in and of itself provides different opportunities.

If you look at my home province of Alberta, about a quarter of our GDP comes from sectors which are described as emissions intensive and trade exposed. It means they're vulnerable to possible emissions leakage, so Alberta designed a program to mitigate that. If you tried to pick the same policy to work for Ontario that worked in Alberta, you'd find that the policy didn't fit very well.

Finally, of course, is the use of revenues. You can see different choices made across the country to meet provincial goals.

Therefore, I think the federal government has chosen wisely here, not only providing the provinces with the means to select their own policies but also to determine the uses of revenue from these federally imposed carbon prices.

Here again, I think this is an area where provinces are going to have different priorities and different ideal uses of revenues. Trevor Tombe recently put forward a proposal for Ontario that would see, without altering the income distribution, a carbon tax used to expand the sales tax credit by 80% and to eliminate the health care premium.

Obviously in Alberta and B.C., we've chosen more progressive policies, which have made the bottom 40% to 50% of households better off with the carbon tax than they were without.

I think these choices are better made provincially than federally.

Just to wrap up, I do have a couple of concerns with this legislation. I am concerned a little bit with the discretion provided to the Governor in Council to apply measures to provinces.

Clause 189 indicates that the cabinet may take into account any factor it considers appropriate, including the stringency of carbon pricing mechanisms, to determine whether a province should be covered. Here I'd like to see a cleaner definition of “stringency”; and conveniently, a price on carbon gives you that. A test judged by that standard would prevent an outcome where cabinet sees fit to apply to one province a price on carbon far higher than it would allow to be applied in others.

I am also concerned a bit with clause 188, which determines the distribution of revenues from the carbon tax to specified provinces. I think what we want to make sure of here is that the implications are clear that the revenues collected in these bills will be distributed to the provinces independent of other transfer decisions of the federal government.

Overall, though, it's my pleasure to be here with you today to express my support for this bill.

Thank you for your attention and for setting time aside for me. I will be happy to answer your questions.

[The Chair, Liberal, Wayne Easter]

Okay, we'll call the meeting to order. I'd just like to remind people that once the gavel is down, no more pictures are allowed in the committee room. I see a few of them out.

Today, we'll be furthering our study on the budget implementation act, Bill C-74, an act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.

With us this afternoon we have six witnesses. We'll start with you, Mr. Leach, the associate professor of the Alberta School of Business, University of Alberta. The floor is yours, and we try to keep opening comments to about five minutes.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chairman.

Minister, thank you and your team for being here.

My first question is about expectations. In your budget statement and in a speech in the House, you announced pay equity legislation. Even today, you referred to wage gap between men and women in Canada.

Furthermore, everyone expects to see in C-74, which the committee is studying today, pay equity measures. However, this 500-page bill makes no mention of pay equity.

Can you explain why you again decided to delay implementation of pay equity legislation ?

[Bill Morneau, Liberal, Minister of Finance]

Thank you, Mr. Chair.

Before I address passage of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures, I would like to thank the members of the Standing Committee on Finance for their hard work and diligence.

I’m pleased to be here today to talk about our government’s most recent budget and to answer any questions committee members may have.

When I introduced budget 2018 in the House of Commons back at the end of February, it reflected a record of achievement for Canadians. Since November 2015, more than 600,000 new jobs have been created for Canadians, most of them full time. The unemployment rate is at the lowest level we've seen in more than 40 years in this country.

If you compare Canada with its economic peers, the other G7 nations, we're leading the pack when it comes to economic growth since 2016. With budget 2018, we're building on a plan that respects the choice that Canadians made a little over two years ago—a confident and ambitious approach to growing our economy.

Right now, the strength of our economy’s fundamentals allows us to invest in what will help keep our economy strong and growing now and in the long term. I’m talking about areas like infrastructure, science and research, as well as skills and training.

However, we have an obligation to take a serious look at the deeper problems that continue to slow down our people and our economy.

That's where this year's budget comes in.

The measures in budget 2018 reflect our government's continuing commitment to strengthening and growing the middle class, and doing so in a fiscally responsible way. There are important measures from budget 2018 contained in the BIA, and I'd like to take a few minutes to describe a few of them.

The first is the new Canada workers benefit. We know that the future success of Canadians and, indeed, the future success of our economy as a whole rests on giving more people more opportunities to work and to earn a good living from that work. As a strengthened, more accessible, and more generous replacement for the working income tax benefit, the Canada workers benefit will allow low-income workers to take home more money while they work, encouraging more people to join and stay in the workforce, and offering real help to more than two million Canadians who are working hard to join the middle class.

I'll give you a sense of what this will mean for Canadians. A low-income worker earning $15,000 could receive nearly $500 more from the Canada workers benefit in 2019 than he or she would have under the previous working income tax benefit.

Our government will also make it easier for workers to get the allowance to which they are entitled. We are proposing amendments to allow the Canada Revenue Agency to automatically determine whether these tax filers are eligible for the new allowance.

By making this benefit more generous and automatically paying it to all eligible individuals, we will be helping about 70,000 Canadians lift themselves out of poverty by 2020.

In total, our government will be investing almost $1 billion in new annual funding, starting in 2019, to help low-income workers get ahead and stay ahead.

Also included in the budget implementation act are changes to better support Canada's seniors because we believe, as we know Canadians do, that every Canadian deserves a secure and dignified retirement. In June 2016, the government reached an historic agreement with provinces to enhance the Canada pension plan, the CPP enhancement. It will begin to be phased in next January, and it will mean more money for Canadians when they retire so that they can worry less about their financial situation and focus more on enjoying their retirement.

With the action taken by Quebec to enhance the Quebec pension plan in a similar fashion, all Canadian workers can now look forward to a safer and more secure retirement.

The budget implementation act includes the additional CPP benefit increases that were agreed to with the provinces last December. A unanimous consensus was reached to further strengthen the CPP in order to provide greater benefits to parents whose income drops after the birth or adoption of their child, to persons with disabilities, to spouses who are widowed at a young age, and to the estates of low-income contributors. These changes we have put in place without raising CPP contribution rates.

This year's budget, and consequently the current BIA, is also heavily focused on helping Canadian women and Canadian families succeed.

As you may know, women's participation in the workforce in Canada is the highest among G7 countries, but it's still nearly 10 percentage points below the rate for Canadian men, even though Canadian women are among the best educated in the world. The gender wage gap is also an issue in Canada, as it is in many other places. In 2017, for every dollar per hour a male worker in Canada earned, a female worker earned 88¢.

Canadians are under-represented in leadership positions and in science, technology, engineering and mathematics. We also know that unpaid work requirements, such as child care or caring for sick or elderly family members, are disproportionately handled by women, making it difficult for them to take advantage of other opportunities, including work opportunities.

Therefore, in Budget 2018, we announced a new shared EI parental benefit, use it or lose it, to encourage both partners in a two-parent family to share child-related work equally.

The employment insurance parental sharing benefit isn't part of the budget implementation bill, but I'd be happy to answer any questions about it that you may have.

We're also taking steps to further help Canadian families through a strengthened Canada child benefit. Compared to the old system of child benefits, the CCB gives low- and middle-income parents more money each month, tax free, to help with the high cost of raising their children. It's simpler, more generous, and better targeted to help more families who need it most. Thanks to the CCB, nine out of 10 Canadian families now have extra help each and every month to pay for things like healthy food, music lessons, kids' activities, or whatever their family wants. In dollar terms, families that receive the CCB will get on average about $6,800 this year. Across the country I've heard, and I'm sure many other people in this room have heard, this income is making a real difference for families. It's making a real difference for children, too.

Since its introduction in 2016, the CCB has helped to lift 300,000 Canadian children out of poverty. The budget implementation bill strengthens the Canada child benefit by indexing its benefits to the cost of living, starting this July. I should note this is fully two years ahead of the previous schedule. It's because our economy is strong and growing, and because of our government's stronger fiscal position that we're able to offer this extra help to families now.

Finally, Mr. Chair, I’d like to say a few words about our government’s commitment to providing greater support to small businesses that create the jobs Canadians depend on.

Small businesses create good jobs and help support communities and families across this country. Small businesses account for about seven out of 10 jobs in the private sector. We know that low and competitive tax rates allow Canada's entrepreneurs to invest in their businesses and create even more good, well-paying jobs. That's why we cut the small business tax rate to 10%, effective this past January, with a plan to lower it again to 9%, effective January 1, 2019. By this time next year the combined federal-provincial-territorial average income tax rate for small business will be 12.2%, the lowest in the G7 countries and the third-lowest among members of the OECD. For the average small business this will mean an extra $1,600 per year to reinvest in new equipment, new products, new jobs.

There is one last thing I'd like to mention because I know it's of great interest to this committee, and that's the terminology used by credit unions. The budget implementation bill would provide prudentially regulated, deposit-taking institutions, such as credit unions, with the ability to use generic bank terms under the Bank Act, subject to disclosure requirements.

Mr. Chair, the measures contained in the budget implementation bill represent the next step in the government's plan to put people first, to deliver the help they need now, while investing in the things that will deliver growth for the long term.

Thank you again for having me here with all of you today. I'll be happy to answer questions from members of the committee either on budget 2018 or on other measures, as you wish.

Thank you.

[The Chair, Liberal, Wayne Easter]

The second item that you have before you is the request for the budget dealing with Bill C-74, which is the budget implementation act before Parliament. It relates to witnesses' expenses in Toronto, Victoria, and Montreal; video conferences; and working meals. The total requested is $39,800. Is there any discussion?

It is moved by Mr. Dusseault.

(Motion agreed to)

Thank you, Minister. The floor is yours and welcome.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I would like to thank all of you for being with us today.

My first question is for Mr. Macdonald from the Canadian Centre for Policy Alternatives.

In February, the Minister of Finance made a budget statement, which dealt with pay equity. When you read Bill C-74, were you disappointed that there was no pay equity legislation.

[Jennifer Kim Drever, Regional Tax Leader, MNP LLP]

Chair and members of the committee, I would like to thank you for inviting us to speak with you today.

MNP believes that we need comprehensive tax reform. Without it, we will have an increasingly complex and costly tax system. We need simplification and modernization of the current system.

At MNP, we represent over 150,000 private businesses in Canada, including 16,000 farms. We are the country's tax experts on small business. No one in Canada works with more small businesses day in and day out than MNP.

First, I would like to commend the government for listening to the concerns raised by the community relating to the private company tax proposals. The draft legislation released on December 13 relating to the tax on split income—or, as we call it, TOSI—and the passive income proposals in the budget of 2018 have addressed many of the concerns that we had last summer and fall. However, we believe that there still needs to be further clarity.

Given the amount of time we have today, I would like to focus on TOSI.

First, it unfairly targets service businesses. They account for 78% of Canadian small businesses, and they are being specifically excluded from some of the rules.

There is a new 20-hour test, which would exclude people from having TOSI apply to them. Most family-run businesses have never kept time sheets. They have never really kept track of the hours that are being put in by the owners of the business. We question how CRA will ever be able to have the evidence they need for these audits. It will all be personal testimony. This legislation could be retroactive in nature, because Canadians will be penalized for not keeping records that they did not have to keep at the time the work was being performed.

Next is the test of reasonability. These TOSI rules introduce several new factors to the reasonability tests. Labour is one of the factors that we see elsewhere in the Income Tax Act with a reasonability concept, but this new reasonability test blurs the line between investment, the return on investment, and the labour. This is new ground. We are asking for a balanced approach whereby the Department of Finance and the CRA provide a comprehensive framework to help determine what is reasonable and what is not. This will allow Canadians and the CRA to apply the framework consistently.

I would like to introduce you to a sample client.

Bob and Karen have a company: BK Transport. This is a very typical client that you would see across Canada. Over the last 30 years, they have grown from a small trucking business to one with significant capital. They have over 250 employees and operate in three different provinces. Karen is ill. She has reduced her regular duties in the business and is rarely able to come into work. Like many entrepreneurs, Bob and Karen declared dividends instead of paying themselves wages throughout the last 30 years. No one needed time sheets; no one prepared time sheets. Now, due to the TOSI changes, when we are paying out dividends, we will need to determine the relative value of Bob's work in the business to Karen's work in the business.

The first thing we need to look at is whether TOSI even applies. Because they are both involved in the business and both are shareholders in the business, TOSI will apply unless we meet one of the specific exclusions. For Bob, he'll have to start tracking his hours. He's going to need to meet that test of 20 hours a week on average. He'll have to start tracking it and keeping time sheets. Karen won't meet this test, and the other thing is that Karen has never had time sheets in the past.

Next, BK Transport is a service business. It is in trucking, which is a service. This will not meet the specific carve-outs. When we explain this to Bob and Karen, they can't understand why their trucking business is impacted, but a business that is in retail or in construction, with the same number of employees and the same amount of capital, is fine. Their service business is not.

Under this draft legislation, the final way out is that of meeting the reasonability test. This is very subjective. Do we think her dividends would be reasonable? We would think so. Do we have certainty that the CRA would agree? There is no certainty here.

What they would benefit from would be more administrative guidance on what would be considered reasonable as well as clarity on the intended businesses to be caught. We believe catching businesses like BK Transport is an unintended consequence in the drafting of the legislation.

As far as passive income is concerned, the draft legislation is greatly improved from what was in the July paper. We recognize the government's commitment to finding an acceptable balance on this issue. In our written submission, we have three comments on these proposals for your consideration.

In closing, Bill C-74 is a considerable improvement over what we saw in July. That said, we still need more simplification of TOSI so that it's something that business owners can understand and actually comply with.

Please consider our three recommendations. First, we believe strongly in comprehensive tax reform. This should be for all taxes, not just income taxes. Second, because the new TOSI rules unfairly target service businesses, we think we should look at this again and see whether service businesses should be excluded. Last, we are very encouraged by the continued collaboration with all stakeholders and also the experts.

As we move forward to ensure that we have a fair tax system for all Canadians, we will have to keep doing this. I look forward to the committee's questions on the tax on split income, on the passive income proposals, and on the new RDTOH regime.

Thank you.