Evidence of meeting #130 for Environment and Sustainable Development in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was carbon.
A recording is available from Parliament.
Liberal
Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance
Yes.
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
Thank you, Mr. Chair.
Thank you for being here this afternoon to help us to clarify our thinking on this section of Bill C-86. To be honest, I am having trouble finding my way around it. So it is very appropriate for you to be here, because I find it very difficult to understand the reason for these rules and the way in which you are going to apply them.
Mr. Mercille, since I got here late, I am going to use the text of your remarks, because I assume that it basically corresponds to what you said.
With the amendment dealing with the GST/HST, you say: “The amendment does not change the amount of GST/HST payable on such a sale. Instead, it provides that the purchaser of carbon emission allowances is responsible for self-assessing the tax amount.” The key word there is “self-assessing”. Can you explain how a company is going to be disciplined enough to do this self-assessing?
Director General, Sales Tax Division, Tax Policy Branch, Department of Finance
Essentially, large companies make monthly declarations because they have a large sales volume. When they buy a carbon emission allowance, they will indicate a percentage of the price of the allowance in their declaration, depending on their province. In Ontario, for example, it is 13%. So that is how they will self-assess the amount in their declarations. If all their activities are commercial in nature, as is generally the case for most companies that buy carbon emission allowances, they will at the same time request an input tax credit. In the example I have just given, nothing will be payable.
The GST program anticipates other cases where a company would self-assess. For example, if a company buys a carbon emission allowance overseas for use in Canada, and if the seller of the allowance is not registered, the company must self assess, unless it has an automatic right to input tax credits.
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
In fact, what you are telling me is that it is all based on self-discipline, so to speak. You are counting on the companies' good faith: they will submit reports, you will conduct audits on occasion.
Director General, Sales Tax Division, Tax Policy Branch, Department of Finance
Yes.
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
Is it really necessary to have this whole mechanism, this administrative burden, in place? Once again, we are increasing the paperwork for our companies by requiring them to report the number of carbon emission allowances they buy in the name of protecting our planet. Shouldn't we rather decrease the mechanisms and increase the awareness? You are telling me that we are talking about self-discipline. So why not make Canadians and our companies aware of the importance of implementing measures that will protect our planet?
Director General, Sales Tax Division, Tax Policy Branch, Department of Finance
You have to look at what this proposal is replacing. In the current system, sellers collect the amount of tax from purchasers on top of the purchase price, add that amount to the tax already collected and send everything to the Canada Revenue Agency or Revenu Québec, depending. Purchasers then wait for the next declaration period, generally the next month, and reclaim the input tax credit. As I see it, the current system is more burdensome than the proposed system.
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
I think I agree with you. I do not spend my days in the administrative offices of our companies. However, instead of saying that the current system is more burdensome than the one proposed, should we not be seeking instead to lighten the whole thing even more, at the same time as we protect our planet?
Director General, Sales Tax Division, Tax Policy Branch, Department of Finance
In general terms, the government is open to consider any proposal to simplify the tax system, but I am not familiar with yours.
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
I have another question and I think that it also goes to the Department of Finance. Just now, we heard that 90% of the taxes collected will be returned to Canadians and that the remaining 10% will be paid into a green fund. Are we doing all this work just to put 10% in a green fund? Does it also mean that the government will only have 10% of the money that it could have had to support innovation and green technology?
Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance
The incentive is not just about the 10% of the amounts collected under this system. Returning 90% to people is an incentive in itself, through which we want to see their behaviours changed, their purchases rethought, and a little more spent on green products and services.
Conservative
Joël Godin Conservative Portneuf—Jacques-Cartier, QC
Let me stop you right there and provide an answer to my question about reducing the process. Why not simply bill everyone 10% as a kind of environmental user fee and put all that money into a green fund, instead of collecting 100% from Canadians and returning 90% to them? Doing that is useless administration.
Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance
Actually, most economists agree that the most effective way of changing people's behaviour in this respect is to increase the relative price of goods.
Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance
That is what the government is doing here. Giving the money back to the people guarantees that they will have and will keep a certain purchasing power and make their decisions accordingly.
Mr. John Aldag (Cloverdale—Langley City, Lib.)
Next up, we have Mr. Peschisolido.
Joe Peschisolido Steveston—Richmond East, Lib.
Mr. Chair, thank you.
I'd like to thank all the officials for coming here and giving us a technical analysis of these provisions. As has been said, this is complex stuff, but under all the complexity there are some underlying mechanisms, principles. I don't think the Canadian public wants to get into the minutiae, but they do want to know that we know what we're doing. That's what I want to get at.
Before I ask some specific questions on the provisions, I'd like to ask some broad-stroke questions and get some context to deal with three main points: that climate change is real and it's out there; that the way to deal with it is to put a price on pollution; and that the goal, as has been discussed, is to change behaviour in order to transition from a carbon economy to a different kind of economy, which is greener but which also maintains economic activity and growth.
Having said that, what are the underlying principles and values to the two mechanisms that I'd like to deal with? That is, the federal backstop, the changes to the Income Tax Act, and then the changes to the goods and services tax. The second one is how it will not impact economic activity through small business activity.
Director General, Carbon Pricing Bureau, Department of the Environment
Thank you for that question.
I am mindful of time limits, but I'll start with just the broad question that you raise. I guess I'll just preface this by saying that obviously this is not a new tool. This is a well-established tool that's been in place—by many metrics, successfully—in Canadian jurisdictions and around the world for well over a decade, and the approach that the federal government is taking on this is aligned with those approaches.
I guess I'm always mindful of flagging that this is an important tool under the pan-Canadian framework, the national plan, but it's not the only one, so it's not always the most effective way. It's complemented by a range of measures, and they're based on evidence from other jurisdictions where this has been in place for a long time.
We know that a price on carbon pollution creates the incentives and the price signal to change behaviours. What it doesn't do is prescribe where those reductions need to take place. It doesn't tell industry and individuals the how. So it enables people to make choices about whether and how they reduce emissions, but in a way that makes sense for their particular circumstances.
You raised a second point, and I apologize that I might have missed something, but you asked about the underlying principles of the system that the federal government has developed.
Director General, Carbon Pricing Bureau, Department of the Environment
I would point back to—and I won't be able to quote it verbatim.... This approach came out of a lot of engagement, not only with provinces and territories, but with a whole range of stakeholders, indigenous communities, industry and the Canadian public.
The broad pan-Canadian approach to pricing carbon pollution, which includes this federal backstop measure as one key element, is underpinned by some principles that were developed by the carbon pollution pricing working group. That was a cross-sector group. We'll share the actual proper link. It's available, and you can look at the specific bullets.
Some of the key ones were a combination of things. Obviously, a consistent one was the environmental outcomes, about ensuring that key sources of pollution were being addressed and covered. Timely implementation was an important one. There were other elements that are also informing some of the mechanisms, such as how proceeds are being returned. Some of those included ensuring that the approach was gradual and transparent, ensuring that policies take into account impacts on potentially vulnerable populations, as well as competitiveness impacts and carbon leakage risks for industry.
I'm not quoting these verbatim. I'm happy to point you to the specific underlying ones. I would point to that as underlying the overall pan-Canadian approach, which took into account the provincial and territorial systems as well as the federal approach.
We have some more specific, related principles that underpin the different pieces, and we'll make sure we share those with you afterwards.
Steveston—Richmond East, Lib.
Just like Mr. Stetski and Mr. Warawa, I come from B.C., Steveston and East Richmond.
There is a different approach in B.C. than in Ontario.
