Finance Committee on Nov. 9th, 2006

[The Chair, Conservative, Brian Pallister]

Thank you, Madam Wasylycia-Leis.

We continue with Madam Ablonczy now.

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

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

Thank you, Mr. Minister, for appearing before the committee today.

I would like to drag the debate back to Bill C-28, as that's what we're here to discuss today. One of the things that have come up time and time again for the committee when we've been in our pre-budget consultations is productivity. We were at third place overall in productivity, and now we're in seventeenth. Can you talk about the importance of giving a timeframe and reducing corporate taxes to 19%, and then 18.5%, and also the elimination of the corporate surtax, with respect to improving productivity in Canada and investment?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

That's an excellent question, I must say. I'm glad Mr. McKay likes the question as much as I do.

[Dean Del Mastro, Conservative, Peterborough, ON]

Well, he should listen to the answer, because he needs to learn.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Quite frankly, Mr. Del Mastro, I think there's a consensus in Canada among people who look at the Canadian economy, including Roger Martin at the Rotman School of Business in Toronto, others who have analyzed the Canadian economy in our think tanks and so on, and members of various political parties. People who have looked at this issue say we have productivity challenges. How do we address that?

One way of addressing it, clearly, is to reduce the corporate tax burden, which we are doing. It's important that it be done in a predictable and certain way, so that corporations know what their tax rates will be going forward and can plan accordingly. We want to encourage investments in machinery and equipment, certainly, and in new technologies. For those long-term commitments, corporations need tax certainty in order to assess the appropriateness of making those kinds of long-term investments, which we know increase productivity.

Increasing productivity is not about people working harder in Canada; Canadians work hard. It's about working smarter, if I may put it that way. It's about all of us being more efficient through the use of technologies. We just have to look at how much more efficient we all are today through the use of software that we didn't have before. As an easy example, we know that cars are being produced today with technology that results in those plants being more productive than they used to be.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

You mentioned a number of things. First of all, you indicated that you think Canadians pay too much in taxes. I'll certainly tell you that the people in my riding feel that way. They feel excessively taxed. They appreciate the individual tax savings, important savings that, as you highlighted, are greater than in the last four budgets combined. In addition to the employment tax credit and the tool expenses tax credit, you underlined something else: benefits to people who currently work.

I think the measures we've taken to decrease the tax burden on seniors are really significant. You mentioned that we've removed 85,000 pensioners completely from the tax roll. Can you talk about the measures in Bill C-28, as well as the ones you announced on October 31? What benefit will those be to the 23,000 pensioners in my riding?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

The specific provision that's in Bill C-28is the increase of the pension tax credit by $1,000, which is a doubling of the tax credit. That is a commitment we made in the election campaign. Interestingly enough, although I didn't realize it when I first looked at it, it had never been increased since it was brought in at $1,000 more than 20 years ago, as I recall, so it's about time, in fairness to seniors. We're trying to create tax fairness in Canada; in fairness to seniors, that needed to be updated.

Then there is the age change we made for low- and middle-income seniors on October 31. Increasing that limit on the age credit by $1,000 will be significant. In Canada it assists low- and middle-income seniors primarily; there is an income limit on it.

Then the huge change, the massive change, in tax policy in Canada is that we changed the rule on income splitting for pensioners. I don't minimize the significance of that. It's a very significant tax change in Canada. It will benefit pensioners directly in a very real way, starting January 1, 2007.

Regardless of our political party, we all know as members of Parliament that among our constituents we have folks living on one pension. They are Canadians who worked during a time when it was not common for both partners to work outside the home, as it is today. They're living on one pension of, say, $40,000 a year, and they're paying tax on it at $40,000 a year. They'll be able to split it now to $20,000 a year each. That means tax savings of about $2,500 for those two people living together on $40,000. I think most Canadians would say that's fair, that it's the right thing to do.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Del Mastro.

We continue with Mr. McKay now. We're going to have to go to three-minute rounds, Mr. McKay.

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

Minister, now that you've had the really tough questions, we'll get to the easy ones.

For Mr. Del Mastro's purposes, he should note that Bill C-28 contains the dividend gross-ups that were announced in the November update of 2005, and they do affect income trusts.

I want to direct the minister's attention to this panoply of tax credits that he's put into his budget. Frankly, I think the accountants and CGAs of this world should be erecting monuments to you, because you've certainly increased the Income Tax Act of Canada by several chapters.

Now, on the public transit passes tax credit, can either you or anyone in your department point me to a study that supports the cost-benefit analysis of this particular tax credit?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I don't have a study here with me, if you're asking me to produce a study. We looked at various materials when we were preparing the budget for 2006. I don't have much doubt that if a person can save two months' worth of transit a year—for example, in my community of Whitby, taking the GO train into Toronto—they're happy to do that.

You have to be a monthly user. This tax credit was not designed for casual users of public transit; it was targeted at people who commute. That's why the qualification is there for a monthly pass.

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

With greatest respect, Minister, you know this is going to cost you about $900 million, and because your department has already told you, you know that there might possibly be a bump-up of about 5% of users. How can you justify a reduction of revenues to the government worth essentially $900 million, and only get this kind of return? And that is optimistic at the outset. What has changed from the previous departmental studies that would now enable you to make this part of your budget?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I don't think I need to remind this member what the traffic is like in Scarborough every morning, with the cars sitting on Highway 401, and the air pollution that they create, and the greenhouse gas emissions—

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

You and I agree on that point.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

You're asking me to put a price on that. What price do you put on that kind of air pollution and greenhouse gas emissions in Canada?

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

But why not buy more transit? Why not buy more buses, more GO trains, and more subways? That's where you get the benefit.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Exactly, and we announced it in the trusts that we created for public transit in March.

[The Chair, Conservative, Brian Pallister]

Thank you.

We'll continue now.

We will now go to Mr. St-Cyr.

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

Thank you, Mr. Chairman.

My first question deals with the measures taken concerning microbreweries and wineries. I am going to concentrate on microbreweries, since there is one in my riding.

Initially, there was supposed to be measures for breweries producing less than 300,000 hectolitres a year. Now the exemption has been broadened to cover all Canadian breweries. What was the reason for that change? Did it result from pressure from the major Canadian brewers?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

That's a good question.

We had views expressed by breweries generally on how that should be structured. Our primary focus has been on the smaller breweries in Canada, which have been remarkable entrepreneurial success stories.

I knew this from my prior life as the Minister of Finance in Ontario, where we provided incentives for the smaller breweries. They responded by expanding and employing more people. It was successful. That's why we looked at exemptions. You can do it either way. You can draw a line at the size of the breweries, or you can do it for all breweries and exempt only a certain amount of...what do they call them, hectolitres? Whatever it is now, it used to be gallons.

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

My second question deals with the textbook tax credit. Obviously, everyone would like to see assistance for students, but this non-refundable tax credit does not seem to me to be the best way of doing that. Students will be able to defer the credit until they have finished their studies, but it is while they are still at school that they need this money. Why did you not choose instead to give a refundable tax credit or a GST exemption on textbooks, which would have been preferable and easier to administer?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

As you know, exemptions for GST come up all the time as an issue. There's a general reluctance to have exemptions from GST because it's a tax of general application in Canada, but I take your point.

Students sometimes have cash challenges and they don't have much money in their pockets. There are different ways of structuring that. I suppose one could do grants directly to students, but that might be viewed as interfering in an area of provincial jurisdiction also. I'm prepared certainly to look at suggestions of how to make that effort more effective.

The point is to assist students, and if there's a better way of accomplishing that goal, then I'm happy to review that with you.

[The Chair, Conservative, Brian Pallister]

Thank you, Monsieur.

We continue now with Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

I want to come back to the transit pass piece. It's very important to my riding in Burlington. I want to be clear so that when I'm communicating with my constituents once this has passed, I can say what is happening.

Right now a GO train pass from Burlington GO train station to downtown Toronto on a monthly basis is $247, which comes out to about just shy of $3,000 a year--$2,964. If I'm reading this correctly, which I need verification for, they're able to apply a tax credit of about 15.25% in 2006 and 15.5% in 2007. Am I reading that correctly? Can somebody tell me if that's accurate?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I'm sure you're reading it correctly.