Finance Committee on Nov. 9th, 2006

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I'm sorry to interrupt, but I just want to go to Ms. Zabel. Our time is limited.

Ms. Zabel.

[Karin Zabel]

We certainly believe that additional funding would help us improve our competitive position. We would invest additional funds in the U.S. market, which is our toughest market at this point.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

Mr. Boughen.

[Kevin Boughen]

In our experience, VRP programs are economically smart. Shifting the money to marketing will not address the fundamental issue that it's a consumption tax and you're exporting a product that's not being consumed in the country.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

I can see we have consensus around the table. What that is we're not sure.

Thank you, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Thank you very much to the panellists for being here this morning. We appreciate the work you're doing on behalf of your organizations. Thank you for your time and your responses to our committee members' mostly civil questions. We're very appreciative of your time and effort.

We will suspend briefly until the minister arrives.

[The Chair, Conservative, Brian Pallister]

Welcome, Mr. Minister. We're pleased to have you here. Committee members, I know, are pleased to see you as well. I'll read some comments here and give the media a chance to leave here.

Pursuant to the order of reference of Monday, October 30, 2006, BillC-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006, the chair calls clause 1.

(On clause 1--Short title)

[The Chair, Conservative, Brian Pallister]

I'll invite the minister to make some introductory remarks, and I would also, if he would be so willing, ask him to work into those remarks a possible date that Canadians might expect to hear a fall fiscal update.

Mr. Minister, welcome.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Chair.

I express my thanks to the committee for all of the work that has been done on pre-budget consultations. I know that the committee has travelled extensively and done a great deal of work, and I look forward to reviewing the report of the committee as part of budget preparation.

On the point that you mentioned, Mr. Chairman, I'd be honoured to appear before this committee to provide Canadians with the state of our nation's finances on Thursday, November 23. I will deliver the fall economic statement of Canada's new government. As you know, we have established strong economic fundamentals through implementing significant tax relief, debt reduction, and efficient spending, and by focusing on the priorities of Canadian families and businesses, but we must build on our success and seek new ways to unleash our potential. For these reasons, I will also be providing Canadians on that day with our economic plan for Canada. This new economic platform is a strategic long-term plan designed to improve our country's prosperity, both today and in the future. Canada's new government is getting things done for Canadians, and you will see further evidence of that on November 23.

I would like to turn to Bill C-28, Chair, and then in a few minutes, I understand, we'll look at finance estimates.

Once passed, Bill C-28 will implement certain tax relief measures that Canada's new government announced in budget 2006, but that were not included in the initial budget implementation bill last spring. I will say at the outset, Chair, that Canadians pay too much tax, and the tax burden on individuals, families, and businesses is still too great and must be reduced. Our government made significant progress on this front this past May. Budget 2006 provides more tax relief for individuals than did the last four federal budgets combined.

Once passed, Bill C-28 will implement certain tax relief measures that Canada's new government announced in budget 2006, but that were not included in the initial budget implementation bill last spring.

Mr. Chairman, Canadians pay too much tax. The tax burden on individuals, families and businesses is still too great and must be reduced. Our government made significant progress on this front this past May. Budget 2006 provides more tax relief for individuals than did the last four federal budgets combined.

All told, we left some $20 billion more in the pockets of individual Canadians in budget 2006. As the measures in Bill C-28 demonstrate, the tax relief will have widespread benefits.

The question is often asked, Chair, why we've reduced taxes and why we reduced the tax burden on Canadians. It is not simply for the sake of reducing taxes. The actions taken by this government will serve to build a stronger, more competitive and productive Canada, both for today and tomorrow. Our goal is, first of all, to focus on the priorities of Canadians; second, to maintain a balanced budget; third, to reduce debt; and fourth, to spend on programs that are both efficient and effective. We will also create a real tax advantage for Canada that encourages and rewards investment, hard work, and savings.

I won't go into excessive detail on the bill, but allow me, if I may, Chair, to take a few moments to explain how the measures in Bill C-28 contribute to our goal.

First of all, the Canada employment credit recognizes that working Canadians are the foundation of Canada's economic growth. It rewards them by helping to offset work-related expenses that are not covered by the employer, expenses such as uniforms, books, or home computers. The credit will allow each and every working Canadian to claim a credit on up to $500 in employment income in 2006, starting last July 1. This coming January 2007 the amount of income eligible for the credit will double to $1,000.

Together with the new Canada employment credit is a new deduction for tool expenses. This new measure provides for a deduction of up to $500 to tradespeople for the cost of tools in excess of $1,000 that they must acquire as a condition of employment. Mr. Chairman, the tools deduction combined with the Canada employment credit will provide tax relief to about 700,000 employed tradespeople in Canada.

This bill also contains proposals to help meet the demand for skilled workers, particularly in the construction trades. The new apprenticeship job creation tax credit will encourage employers to hire new apprentices to learn a trade. As a result of this proposed measure, eligible employers will be able to receive, to a maximum of $2,000 per apprentice per year, a tax credit equal to 10% of the wages they pay to qualifying apprentices in the first two years of their contract.

In this year's budget, we also proposed a tax credit so that people who use public transit with monthly passes in Canada will have about two months free public transit per year. This initiative will be instrumental in cutting the commute, cleaning the air, and driving our economy.

Similarly, Mr. Chairman, Canadians have been very supportive of our efforts to help upcoming generations secure their futures. In recognition of the expenses involved in putting our children through school, Bill C-28 includes a new non-refundable tax credit to help cover the costs of textbooks for students. Also to help students, Bill C-28 will fully exempt from tax scholarships, fellowships, and bursaries received by a qualifying post-secondary student. Currently, the situation is that only the first $3,000 is exempt. This measure, with respect to scholarships and fellowships and bursaries, will help provide tax relief to more than 100,000 post-secondary students.

As you can see, Canada's new government has taken significant action to help Canadians prepare for their future, but there is more. In budget 2006, we introduced our physical fitness tax credit for up to $500 to assist parents with the costs of programs that require regular physical activity for our children.

We have also delivered significant positive initiatives in support of our pensioners and seniors. In our first budget, Canada's new government proposed to double to $2,000 the maximum amount of eligible pension income that can be claimed under the pension income credit. This is the first time the credit has been increased. Not only will this measure provide greater tax assistance to those who have saved carefully for their retirement, it will remove approximately 85,000 pensioners from the tax rolls completely.

Since then, of course, we have gone further, through the tax fairness plan I announced on October 31, permitting income splitting for pensioners beginning in 2007, and increasing the age credit amount by $1,000, to $5,066, effective January 1, 2006, or this past January.

For businesses, budget 2006 introduced a reduction in the general corporate tax rate to 19% by 2010; the elimination of the corporate surtax for all corporations in 2008; and the end of the federal capital tax in January 2006, two years earlier than had been scheduled. These tax reductions have already been legislated.

We also announced on October 31 a further 0.5% cut in the general corporate income tax rate starting January 1, 2011, under the tax fairness plan, which will reduce that rate a further 0.5%, to 18.5%.

For small businesses, which are 95% of all Canadian businesses, Bill C-28 contains further tax reduction measures from the budget. These proposals will increase the small business income threshold to $400,000 starting next January, and will reduce the small business income tax to 11% by 2009.

There is more on this bill, Mr. Chairman, but I think my remarks so far serve to illustrate the government's course and where we intend to go in future budgets.

I now invite any questions you may have about Bill C-28. With me today are officials from Finance Canada who are here to help address any technical issues members of the committee may want to clarify.

I gather, Chair, later we'll deal with the estimates part?

[The Chair, Conservative, Brian Pallister]

That's correct.

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

Thank you, Chair.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Minister.

Just for clarification, we will carry on with questions now until approximately 12:25 and take a brief break of, I hope, ten minutes, at which time we'll invite the officials and the minister to join us for a light lunch. Then we'll reconvene and conclude. I'm hopeful that the minister will agree to stay slightly longer, until approximately 1:15.

We'll commence now with questions, and we'll go with six-minute rounds.

Mr. McCallum.

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

Thank you, Mr. Chair.

It's a pleasure to see you, Minister, and to have an opportunity for a little engagement here. I have six minutes and a number of questions. I will try to be precise and concise. I hope you can reciprocate.

My first question is on income trusts. I'd like to ask you a fairly technical question. I'm referring only to existing income trusts, not to what happens to future income trusts.

I'm wondering why you didn't allow a transition period of ten years rather than four years for the bringing into play of the taxes. The Americans did that, I think purely because of the time value of money. The effect on capital values for investors who had, after all, invested in good faith would have been very substantially reduced. The negative effect would have been very substantially reduced had you gone for a longer transition period.

So why did you choose four years rather than ten years?

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

Or three years or five years or two years or no years. Obviously a line—

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

Well, ten years is what the Americans chose, so that's a bit of a benchmark. You chose four.

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

Yes, and the Australians chose three years.

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

Right.

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

I'm not being flippant about it, Mr. McCallum. There had to be a line drawn somewhere.

Certainly it was determined early on that we would have a grandparenting period because that would be fair, and this was a plan directed at tax fairness, making sure that we were protecting the Canadian tax base and making sure that we were not imposing an unfair burden on individuals and families by reason of corporations being able to avoid paying corporate tax in Canada.

We looked at the Australian experience, at the experiences in the U.K., and at the United States in particular. The Australian experience had been at three years. Our market was somewhat bigger than that, so we chose four years. It could have been more, it could have been less. There's not the wisdom of Solomon to that, but we felt that was about right, based on the experience in Australia.

[The Chair, Conservative, Brian Pallister]

Let me quickly interject.

Committee, we are dealing with Bill C-28 here. The minister has already announced that he'll be coming back in two weeks for the fall fiscal update. If you have questions of a general nature, not pertaining to this particular bill, I would encourage you to bide your time and use the opportunity presented to you in two weeks to deal with these issues.

At this point, of course, I will continue to give the latitude I am accustomed to giving. But I would encourage members to deal with the substance of Bill C-28 as much as possible today. That's what we're here to discuss.

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

Thank you, Mr. Chair. I hope that was not included in my six minutes.

I will move on, but I would simply note there was a press release in the minister's document about income trusts that his department submitted.

I'm moving on anyway.

[The Chair, Conservative, Brian Pallister]

Mr. McCallum, I will note that I didn't call you to order earlier, for that reason. However, I am putting this on the record at this juncture as advice to committee members in further questions.

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

You will note friendly compliance on my part.

Mr. Minister, I now would like to ask you a question about the funding provided under apprenticeship job creation or tradespeople's expenses. Are any of those funds that go to Ontarians under those programs counted as part of your meeting the terms of the Canada-Ontario agreement?

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

The Canada-Ontario agreement provides that the Government of Canada transfer more than $5 million to Ontario or Ontarians over the course of the agreement. That was entered into by the current Government of Ontario with the former Government of Canada--Mr. McGuinty and Mr. Martin as the Premier and Prime Minister, respectively.

Our government extended that. The Prime Minister has extended that by a further year to six years. Some transfers are transfers to the people of Ontario and not directly through the Government of Ontario.

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

So the apprenticeship funding, for example, would you consider that to be a part of your commitment under the Canada-Ontario agreement?

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

I don't have the agreement in front of me, Mr. McCallum. I can't specifically recall whether the apprenticeship dollars were included in that or not.