Finance Committee on Oct. 18th, 2006

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you very much.

[The Chair, Conservative, Brian Pallister]

Mr. St-Cyr, you have five minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you very much, Mr. Chair.

My first question goes to Mr. Beauchamp from the Canadian Real Estate Association. At page 11 of the submission that was presented to the committee, you mention the Energuide for Houses and you state that:

The Canadian Real Estate Association recommends that the federal government restore funding for the EnerGuide for Houses and the EnerGuide for Low-Income Households as part of its “Made in Canada” plan for climate change.

If you want the program to be reinstated, I suppose it’s because you think it’s efficient, and that is contrary to the present government’s position. If you had to measure the EnerGuide program’s efficiency — and perhaps you have done so before presenting this recommendation —, how would you proceed? Would you calculate the cost of reducing a certain quantity of greenhouse gas emissions or would you use the allotted ratio for the program’s evaluation costs as compared to the total envelope?

[Pierre Beauchamp]

Statistics show that homeowners have saved 28% annually in energy costs. In our view, that’s a good enough reason to maintain the program. This program was established in 2003 to provide funding to homeowners that wanted to have their home evaluated as to their level of energy consumption.

Up until now, the results have been positive. We ask why, in these circumstances, should we not maintain this program?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Have you evaluated how much each ton of greenhouse gas emissions cost to the program?

[Pierre Beauchamp]

No, I don’t have that data.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I think it’s the only interesting data. If we want a reduction in greenhouse gas emissions, we have to find out, for every dollar spent, where the reduction is greatest.

I now wish to raise the second point, the Home Buyer’s Plan or HBP. I must admit that I myself have recently used this plan. You say that 793,000 people have acquired a home thanks to the HBP. However, do you know what percentage is really due to the HBP or how many of them would not have acquired a home without the program? For my part, I would have acquired a home with or without the program but I would not have been able to raise the 25% investment required. I would have had to resort to Mr. Vukanovich in order to contract an insurance, which I did not have to do.

In a nutshell, are there any studies that pinpoint the real impact of this program on a person’s decision to buy?

[Pierre Beauchamp]

This program exists since 1992 and it has been very successful. Statistics show that it is quite popular. There are no statistics showing that certain homebuyers would not have bought their home if they had not been able to avail themselves of this program.

It is, however, quite clear that people who heard about this program have used it and have been able to say that it works quite well. The program should be maintained. We also believe that the maximum loan should be 25,000$ as mentioned in our presentation.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

To allow for inflation.

Mr. Stewart-Patterson, I noticed, at pages 5 and 6 of your submission, that you suggested an income tax reduction, and therefore, a drop in Government revenues. You then present a number of recommendations, to whit, access to postsecondary studies, employee training, delayed retirement incentives and the recruitment and integration of immigrants.

If one had to choose, what would you suggest? That we concentrate on access to postsecondary education and spend as you recommend or rather not spend and concentrate our efforts solely on tax reduction?

[David Stewart-Patterson]

I think the question is whether in fact there's a choice to be made. When we look at whether we spend or cut taxes, that question tends to be asked in a static way.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Stewart-Patterson, the committee’s procedures allow each person to present five or seven recommendations. A choice is then made between the various recommendations. I will have to choose. That’s why I’m asking you to tell me which one I should choose.

[David Stewart-Patterson]

I think I tried to make known--

[The Chair, Conservative, Brian Pallister]

Merci beaucoup, monsieur.

We will continue now with Madam Ablonczy. Five minutes, please.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Thank you, Mr. Chairman.

I see Mr. McKellar there looking very expert. Because of my high regard for my colleague Mr. McCallum, I would like to give you an opportunity to answer the question he put to you earlier.

[James McKellar, Advisor, Canadian Real Estate Association]

There's a long and a short answer. I'll give you the short answer.

Right now, there is an opportunity for a Canadian taxpayer to invest in stocks and bonds tax free. It's called an RRSP. Real estate, for example, is specifically excluded. So there's one situation that is punitive in terms of real estate. Whether in fact you want to expand it, I think we're here to address one aspect of the act. I am sure there are other people in this room who may feel that it's in the interest of Canadians to expand that. But certainly real estate is at a disadvantage in many categories.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

All right. I appreciate that very much.

Mr. Patterson, you have a number of proposals in your brief. Pick two big ones that would be first on your wish list.

[David Stewart-Patterson]

As I said, I think there are a lot of things that would help move this country in the direction of a more competitive economy. If I had to pick, my bias would be towards cutting taxes. What is my reason? Just look at the impact. It comes back to the question that Mr. St-Cyr raised: what is it that's going to create more revenue for governments?

I think it's instructive to look at what's happened to corporate taxes and corporate tax revenue over the last five years. As the corporate income tax rate has come down significantly, nonetheless corporate income taxes made up 14.3% of the total federal revenue last year. That's the highest they've ever been except in one year out of the past 20. The average corporate income tax revenues, as a share of the total tax take for the federal government, has been two percentage points higher in the last five years than it was in the best five years of the eighties. So we're seeing some clear proof there that further action on the corporate tax front is going to pay off. It's going to pay off remarkably quickly with the kind of revenues that the government needs to do other things as well.

The other item I might just focus on is the tax treatment of dividends. I know there's some concern out there about the income trust question, and whether companies are being pushed, for tax reasons, to convert from a business form or a corporate form of an organization to an income trust form. The previous government introduced one important reform by increasing the dividend tax credit. That was fine for taxable investors. The fact is that millions of Canadians who save for retirement through their pension funds and through their RRSPs are basically being double-taxed on their dividends, as things stand now, because the dividend tax credit is not refundable to pension plans and RRSPs.

I think if you wanted to do something really useful to encourage people to invest, in other words to do something for individuals that also would help the country's companies, focus on how to grow their businesses rather than on how to structure them for tax purposes. I think that would be useful on both fronts.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

We were just talking about the capital gains tax rollover provisions. Let me play devil's advocate. Some have suggested that would be difficult to administer. Do you have any advice or insight into that issue?

[David Stewart-Patterson]

Frankly, on that front, I would not pretend to have any expertise. My instinctive reaction is that it may be very difficult to design something that works. My comment is to suggest that anything that encourages people to save more, to invest more, is a positive thing. Obviously allowing people to roll things over from one investment into another and defer tax along the way, in principle, sounds like a good idea. I don't know if that can be designed properly.

I think we've had more specific suggestions here today, and I'm open-minded to that. If I were trying to narrow it down, if I were trying to choose, my instinct would be to do something on the dividend side, on the refundability to pension plans, because that is doable. It is measurable. It's quite simple to do.

Capital gains treatment, as I say, in principle sounds like a good idea. If there's a model that can work, and can work cleanly, I'd say let's go for it. But I think it is a complex design issue, and I'm waiting to see whether people with more expertise than I have can come up with a design that actually works.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Okay. That's helpful. Thank you very much.

[The Chair, Conservative, Brian Pallister]

We'll continue with Madam Wasylycia-Leis.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you, Mr. Chairperson.

First, let me ask Mr. Stewart-Patterson a question. I almost think that we found an area of agreement here on income trusts, and I'm shuddering to think of the possibilities. Is it true that you consider that perhaps the whole arrangement around income trusts is not conducive to what the business sector needs to do, which is to contribute to our growing the economy, and that this just seems to be a way to constantly restructure and find new avenues to deal with taxes, as opposed to what's really at hand?

[David Stewart-Patterson]

Well, it's interesting. We had a very detailed discussion amongst our members a year ago when this issue was explicitly on the table, and we asked our members a number of questions in terms of their perception of whether converting to an income trust leads to a more conservative management approach. In other words, do you start focusing on paying things out instead of growing businesses? Certainly, that's one view. The alternative view is that because income trusts pay everything out every year, if they want to grow, they have to go back to market and persuade investors to put new money into the company, and that discipline may be good for competitiveness.

Frankly, opinion within the business community on that economic efficiency question was split, but I think, in terms of what you do about it, there was a clear feeling amongst our members that companies were being pushed to consider converting from a corporate form to an income trust form, whether or not it made sense for the business, in their view. In other words, they're being pushed to consider that, and to take time to analyze it and consider it, and to respond to the concerns of the big institutional investors, the pension funds.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Do you think it might be worthwhile to actually try to put a freeze on new income trusts and to spend some time studying the impact on economic growth, industrial strategies, and pension funds?

[David Stewart-Patterson]

I think there's been a pretty thorough analysis on all of this. I think it's important to ensure that companies choose the form of organization that works in terms of growing the business and in terms of whether it's appropriate for the business they're in, as opposed to getting involved in this kind of thing because of imbalances and tax policy. That's why I think the solution was very clear.

In the survey of our members that we did last year, we found it to be quite interesting that by a margin of two to one, our members said fixing the tax treatment of dividends, not only for taxable investors but for pension funds, would be a more useful change in tax policy and a more important change in tax policy than a further cut to the corporate income tax rate. In other words, when we put it to them bluntly and asked how urgent it was to deal with this, we heard back from them that a lot of energy was distracted from the business of growing companies in this country, through tax policy and through pressure from institutional investors in big pension funds, teachers' pension funds, and organizations like that.

Our members wanted to get back to focusing on business. The best way to do that was to clear up the imbalance that exists in tax policy between the tax treatment of dividends for people who are taxable and the tax treatment of dividends for pension funds.