Finance Committee on Oct. 26th, 2006

[Grant Wilson, President, Canadian Children's Rights Council]

Good afternoon.

I'm Grant Wilson, the president of the Canadian Children's Rights Council.

The Canadian Children's Rights Council is a non-profit, non-governmental organization that supports the human rights of Canadian children. They're one of the leading children's rights organizations in Canada, with volunteers from coast to coast to coast.

Canadian children are those under eighteen years of age, using the definition provided in the UN Convention on the Rights of the Child. Those under eighteen comprise about 25% of the population of Canada.

Our website, canadiancrc.com, is the most visited children's rights website in Canada concerned with Canadian children's rights and responsibilities. Last month, over 100,000 unique visitors visited our website from around the world. We've had visitors from 128 countries since the beginning of 2004, with over two million unique visitors. We are a major distributor of information to college and university students in various courses in psychology, journalism, early childhood education, and social work. We get calls from all over the place.

Our website is an online resource providing analysis, our position, news articles, policy analysis, and general information regarding the rights of Canadian children. There's a substantial section there on the UN Convention on the Rights of the Child, and that certainly includes your obligation, which isn't being fulfilled.

Article 42 of the UN Convention on the Rights of the Child states:

States Parties undertake to make the principles and provisions of the Convention widely known, by appropriate and active means, to adults and children alike.

You don't do that. In 1993, they declared National Child Day. Where are the full-page ads? Where's the discussion about this convention and the application in Canada?

We saw all sorts of politicians who are running for the leadership of the Liberal Party going before the Standing Committee on Human Rights of the Senate and paying lip service to this, and then a report comes out last November, a preliminary report, that asks who's in charge.

So when it comes to children's rights, children's poverty is not just about paying out more money. You have to look at delivery of services in more creative ways.

We see quite a change in history as we go along here. I just spent the morning on Microsoft. We're now using Windows Vista, which hasn't been released yet. You look at where things are going in the delivery of services, in the delivery of information. We are a major distributor of information on behalf of Health Canada, at no cost to the Canadian government. We don't get any tax credits for anybody that donates money. We're not a charity.

You look at how parents can benefit and get their children out of poverty by the proper delivery of these services through proper early childhood education policies, which involve both stay-at-home parents and high-quality education for early childhood. We have to look at this substantially differently if you're going to talk about productivity increases in the future. If you look at the software that's now being distributed and the way you can now distribute the information to parents on how to parent better and how to help their children to achieve and get out of poverty, it's not just a matter of throwing money at this.

You can put every single Canadian family on unlimited dial-up Internet service for $3 a month. We are advanced when it comes to the numbers on broadband service, and that is a major delivery system. We had to look at copyright.

We had to look at some of the educational tools that we can give the parents over the Internet at virtually no cost to the government, or at very little cost.

Here we have people producing tremendous books on how to parent properly, on some of the objectives that people should have in parenting, and on democratic parenting, and radio shows and TV and all this, and these parents have this tremendous job of funnelling all this information, if they get it, and trying to work this into the plan that they're going to have for their family to get them out of poverty. If there's more of a funnel and a concentration of that information, you can take the best radio or TV shows on how to parent and put these out there at less than 10¢ a parent, instead of having 5,000 books circulated that end up going to book stores and aren't available five years from now.

This is a changing world. From what I've seen and what I've experienced with Microsoft, this is going to change even more. So when it comes to child poverty, I think we have to seriously look at this from a productivity standpoint as well.

I sat there this morning listening to the vice-president of Microsoft explain that in India they're now producing 350,000 engineers who are making $15,000 a year, and that's their new middle class. We have to look seriously at education, and that certainly includes early childhood education, and paying people who are providing that service the same as we do teachers and other people in other levels of education.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Wilson.

Did you submit anything? We don't seem to have a brief. If you have something you could send us electronically, it would be appreciated by the committee.

Mr. Poschmann from the C.D. Howe Institute is next. You have five minutes.

[Finn Poschmann, Director of Research, C.D. Howe Institute]

Mr. Chairman, thank you, and thanks to the committee for inviting comment on Canada's place in a competitive world. I'm delighted to be back in front of the committee and delighted to see some familiar faces, and some new ones as well. I am very happy to be here.

Canada's competitiveness has been a dominant theme in the C.D. Howe Institute's work for literally decades. What I'd like to do here, given the constraints of the pre-budget format, is incorporate that work by reference, especially our shadow budget documents of the past five years, and focus on a couple of key themes and measures. That lets me be very brief indeed.

One touchstone for me is Canadians' prosperity. This speaks to the importance of making Canada a friendly place to work, and even invest. There is a virtuous link between saving and investing, between investing in people and innovation and growing productivity, and a link between growing productivity and prosperity by way of building Canadians' and workers' wages and seeing to it that they enjoy the fruits of their efforts.

Central to this story, I think, is saving and investment and improving the environment for it. Canada's tax rates on business investment are among the very highest in the developed world, notwithstanding recent and pending and very helpful relief from federal income and capital taxes. This is a real barrier to investment and growth and innovation, and mitigating it will require action from Canada and the provinces. Sooner rather than later, of course, is something that I think is important to enlarge the Canadian economy, and it's certainly something the government could not afford not to address.

On this front, the federal government could and should take further steps in reducing the general corporate income tax rate and working with the provinces to eliminate all taxes on paid-up capital, including especially the capital tax on financial institutions. These are taxes whose time, if it ever came, has quite certainly passed.

Among the biggest contributors to high effective tax rates on business investment are provincial retail sales taxes. Of course, this is a provincial responsibility, but the good news here for the federal government is that we have a splendid opportunity, presented by the current government's commitment to lowering the GST, to offer to the provinces financial support for a transition to compatible value-added taxes in place of provincial RSTs, and this would very much improve the investment environment in at least five provinces.

On the personal side, preserving the returns to working and saving means getting down to punitive marginal rates that apply to low-income families with children. It also means simple improvements to the saving environment for families at all income levels. The current government's campaign commitment to improving capital gains taxation turns out to be important here. Were the federal government to permit savers from low-income families, as well as others, to save after tax income in registered tax prepaid savings plans, capital gains could accumulate there without further tax implications, improving capital market performance and going partway to meeting the government's commitment to a form of capital gains rollover.

There are other options, such as capital gains deferral accounts. These could be modelled after the index securities investment plans of the early 1980s, and I would refer members of the committee to work by my colleagues, Jack Mintz and Tom Wilson, from Australia this year, updating the model to the current context.

A very simple option, and I have to admit that I like this one because of its simplicity, would be to permit capital gains to be rolled over into individual RSPs, so that taxes on gains would be deferred until a saver's chosen future to draw on their savings.

These options are all aimed at building Canadian families' prosperity, by improving the environment for savings and growth and by making Canada more globally competitive.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Poschmann.

Members, the first round will be six minutes, but we are going to stick to it this time because we're running behind. We'll start with Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Mr. Chair.

Thank you, presenters. Again, they were fine presentations from the folks from Toronto.

To Caroline Di Giovanni, I wanted to just mention Gerry Vandezande. I saw him last Friday night at the investiture. I don't know if you were there or if you weren't. I thought he was going to be here today. Gerry always keeps me in the picture, shall we say, on this issue.

Mr. Poschmann, you raised a couple of interesting points. I take it that your notion of creating GST space for the provinces means that if it goes down one or two points, as the case may be, that would create fiscal space for a province to raise its PST, HST, or whatever, up one or two or three points, as the province saw fit. Is that effectively your notion?

[Finn Poschmann]

Mr. Chairman, yes. Absolutely.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Essentially, there's no benefit to the consumer. It's just simply a revenue-shifting process.

My second question has to do with your RRSP idea. If I made $500,000 out of the sale of my business or the sale of my real estate portfolio, currently I couldn't put anything other than $18,000 or $19,000 into my RRSP. RRSPs actually restrict rolling certainly real estate or businesses into an RRSP. So is your notion here that you would have the RRSP concept renovated so that those kinds of gains could flow in once or twice or three times, depending on the size of my portfolio and the success of my real estate ventures?

[Finn Poschmann]

Thank you. Those are ideal questions.

On GST room, the benefit to the consumer would depend on the province you are in and how much of the available room a province chooses to take up. If you're in Ontario, with a relatively rich tax base, you might find that the province will choose to take up less than other provinces with weaker tax bases.

The more important point, though, is that I would encourage provinces to reform their retail sales taxes precisely because of their pro-growth, pro-investment, pro-employment aspects. A retail sales tax like the ones that exist in Ontario, Manitoba, Saskatchewan, B.C., and P.E.I. all involve a certain amount of cascading of business costs. Improving tax treatment by way of a value-added tax would be an important stimulus to economic growth and ultimately to employment wages.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So in effect, Alberta gets a sweet deal because it doesn't need the revenues.

[Finn Poschmann]

It's intriguing in that way. No, Alberta does not need the revenue. It would benefit, but to what extent the province would benefit would depend on what else happened in other fiscal envelopes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm running out of time here. Can you get to the RRSP one, please?

[Finn Poschmann]

Absolutely. First of all, you wouldn't be exposed to capital gains tax unless there was a disposition or a deemed disposition, so you would be talking about the proceeds of a disposition rather than the business asset or the property itself.

You would also need a one-time pop in contribution room generated by the capital gains. Of course, you could establish limits to how much could be rolled in during a given year, to some reasonable amount. It may turn out that we find a reasonable amount is in the hundreds of thousands.

Remember, of course, that when the proceeds are withdrawn from the RRSP down the road, they are fully taxable. The present value of the implicit tax loss to government is therefore not high at all. In fact, that mechanism imposes a natural limit, because individuals would not choose to take advantage of the rollover conversion unless they are planning on leaving the money in to accumulate gains within the account for some time.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

I'd like to pursue that, but I'm running out of time and we have a tyrant for a chairman.

To Toronto Financial Services, I agree with your P3s. I just wish you'd see more of them. I'm assuming you want a single securities regulator sooner rather than later.

Interestingly, David Dodge, not the last time he appeared but the time before that, said that the financial services sector is one of the lower sectors in terms of productivity, that it's not very good in productivity. Given that a good part of your statement has to do with improving productivity, do you have any observations to make with respect to the governor's statement?

[Janet Ecker]

Thank you very much, Mr. McKay.

Actually, Mr. Dodge, as early as today, at the Ontario Economic Summit, was talking about the need for Ontario and Canada to move forward on more P3 partnerships and infrastructure spending. So hopefully that can occur.

We quite acknowledge that there's a debate around the relative productivity and efficiency of our financial services sector. Some people are advocating and saying we are not as competitive or as efficient as some of our, say, American banks might be, but there are also some legitimate questions about how that's measured, because in the case of an American bank, many of those banks are very different from those in the Canadian banking industry. So there's work that's going on through the Institute for Competitiveness and Prosperity, Roger Martin's group, and also through some of the work that the C.D. Howe Institute is doing and that the Bank of Canada is doing, taking a look at exactly that question.

So do we need to improve productivity and efficiency within financial services? Absolutely, and competitive regulation and taxation can help us do that.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Ecker.

Mr. Del Mastro, for six minutes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

I want to go back to Mr. Poschmann for a moment. That was a very interesting proposal, actually. I've long argued that a harmonized sales tax or some form of it in Ontario would be a significant benefit to Ontario small business especially. We actually have to file two tax returns. There's incredible inefficiency in the government collection of these taxes, because we have two separate bureaus, separate timelines, and separate tax auditors. It's a real harassment for business.

You made a very interesting proposal, which is actually to move from a retail sales tax to a value-added tax, which is what the GST is. Since this would be a little bit more broad-based, would that, or could it, incorporate a lower tax rate in the province of Ontario and see similar revenues?

[Finn Poschmann]

It could, in principle, but there are several “ifs” and “buts” attached to that.

First of all, notice that I did say a provincial VAT, or value-added tax, but I did not say a provincial GST, because one of the alternatives to contemplate here is that a province would not have to follow the GST base precisely. As long as they are roughly compatible, however, the province could quite reasonably look to the Canada Revenue Agency to collect the tax without incurring significant costs.

As to rates, yes, the base would in practice be broader. You'd expect it to be broader, in particular because you've exposed consumers to value-added taxes on several services. However, at the same time, you're lifting taxes that would otherwise be collected from business inputs, and in Ontario, it's quite a significant number. So you give up a fair bit on that side in revenue by not taxing business inputs. Sadly, it isn't quite as low a rate as you might like to see, but we can certainly contemplate not going all the way, say, to 14%. These are options.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Secondly, capital gains tax, the way it presently exists, is very different from what we see, say, in the United States. It stagnates money in pockets and prohibits the circulation of money that would encourage growth. It's a real hold on there and it puts the brakes on the economy, doesn't it?

[Finn Poschmann]

I would tend to agree.

As a first and upfront caveat, Canada has a smarter system of taxing capital gains than the U.S. does. We have a fairly clean and simple model, relative to the complex multi-rate U.S. system that has a number of classes, a number of holding periods. So I like the Canadian system as a model, but I would certainly agree that the rate is too high, especially given that there remain, for instance, accumulated inflationary gains present in taxable gains. So that's something to take note of.

You can't, or rather I wouldn't, recommend, however, simply lowering the capital gains tax rate without paying attention to what's going on with the different taxes and small business taxes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Ms. Ecker, you mentioned in your brief a national security regulator. If this were adopted, do you think this would encourage more foreign investment in Canada?

[Janet Ecker]

Absolutely. We're the only country now that has thirteen regulators.

Secondly, one of the issues we have is that, internationally, regulators and business seek to improve regulation--for example, around terrorism, money laundering, transparency, and accountability. It's very difficult for Canada to participate in the international discussion when we have so many voices. Again, they can be very good voices, but we have so many voices.

I think Ontario's push for this, what they've done with the Crawford report, puts some good options on the table. There are certainly regional issues that need to be paid attention to in this, but I think there are some options there that I hope collectively the federal government and the provinces can move forward on.

[Dean Del Mastro, Conservative, Peterborough, ON]

In your brief, I didn't see anything about CCA rates. We've heard a lot about how it pertains to productivity as we've travelled the country. Do you have a position on CCA rates?

[Janet Ecker]

Yes, we agree that this needs to be addressed. It has an impact on productivity and efficiency. I believe we have a small line in there supporting that position.

[Dean Del Mastro, Conservative, Peterborough, ON]

Mr. Fiddler, we saw a number of significant investments in Budget 2006 for aboriginals. I agree with you. I don't think I would celebrate the first 100 years since the treaties. We've got to do better. We've got to do much better.

We've committed a little more than $9 billion, which is a significant increase. Quite a bit of money has been spent previously on the file. Why aren't we achieving the results we're looking for? Are we putting the money into the wrong areas? Can you give us a little guidance on where we should be going?

[The Vice-Chair, Liberal, Massimo Pacetti]

If you can answer that in thirty seconds, I'd appreciate it.