Finance Committee on Jan. 17th, 2007

[The Chair, Conservative, Brian Pallister]

We are convened. Finance committee members, welcome back for our first meeting of the new year, 2007.

Pursuant to Standing Order 106(4), this meeting was requested by four members of the committee, who requested that the committee organize and hold hearings on the government's decision to tax income trusts.

Ladies and gentlemen of the committee, we are going to begin our discussion. Four of our members have asked that we have a discussion pertinent to income trusts. To facilitate the discussion, first of all, I would encourage members of the media to leave. They're welcome to remain, but I'd like to have the members of the committee at the table.

Madam Wasylycia-Leis, you have some responsibilities here, and I'd like to see you at the table now. I'll ask the cameras to go off. Thank you.

Welcome, everyone. To facilitate discussion on this, I would much prefer that we have an introductory comment and then a motion, so that we can proceed to have a debate on something substantive rather than just having a general beating around of the issue. To expedite that, I will invite Mr. McCallum to present his motion and make comment in respect of it, as he so desires.

Mr. McCallum, the floor is yours.

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

Thank you, Mr. Chair.

I'd ask you to look upon this motion as the basis of discussion and as something to which we are certainly open to amendments with regard to issues such as the precise timing of this and how many hours are to be devoted to it.

The general point is that we would like to have hearings with expert witnesses on the income trust issue very soon. That is our primary point and the reason we called this meeting. The reason is that good public policy has to be based on good information, and on certain critical issues there is disagreement between the opinions asserted by the Department of Finance and the opinions of outside experts. I believe, in the interests of accountability and of basing policy on good information, it is incumbent upon us to get those experts around the same table and to hear their competing versions of the truth to allow us to determine, much better than we can today, where the truth lies.

Without limiting the subjects on which we might call witnesses, I'll give you three examples of them. One is the crucial question of what's called the tax leakage, or the tax revenue implications of this bill. The Department of Finance claims that this represents $500 million per year. Other reputable people claim that it would be far less than that, even nothing at all. We want to know what the truth is, and the only way to get to the truth, given that the finance officials are not speaking in public, is to get them around the same table and hear the competing views, and subject them to questioning.

The second subject is the transition period. Is four years appropriate, or should it be some other number? I'd think we'd need to get views on that and determine the costs and benefits of alternative periods for transition.

Third, there have been a number of sectors, including energy trusts, that think it is appropriate that they be exempt. I've heard arguments for and arguments against. Again, it's competing information, and we, as a committee, ought to take it upon ourselves, whether or not we agree with the bill, to get to the bottom of this and to seek out the truth.

There may be other issues that other members of the committee would want to hear witnesses on, but those are examples of issues about which I believe it is important for us to get to the truth through these witnesses.

Finally, Mr. Chair, I'd like to address two possible objections to this, briefly. Then I'll cede the floor.

The first is this idea that our so-called expert outside witnesses are simply in the employ of interested parties. That is not true. Some may be, but I'll give you the names of three people who are independent and expert: Mr. Gordon Tait from BMO, PricewaterhouseCoopers, a well-respected accounting firm, and Mr. Yves Fortin, a former public servant in the Department of Finance. These are credible outside witnesses we would all benefit from hearing--or at least doing so would not do us any harm.

The second point I would like to address is whether we are prolonging the uncertainty. I would point out two reasons for why I don't think we are. First of all, there is uncertainty regarding the facts, so by calling these witnesses we are getting to the bottom of that form of uncertainty in trying to find out where the truth lies. Second, in terms of timing, the reason we're doing this now is that we don't know when the finance minister plans to bring the bill to this committee. If he were to bring the bill to the committee in the first week of Parliament, then we'd have witnesses anyway, and we could subsume our proposed process with the government process. But for all we know, the bill could even be subsumed with the budget bill, and it wouldn't be here for some months, in which case that would be an undue delay.

Look upon this as an insurance policy. One way or another, we want to get witnesses before this committee. If the government were to act expeditiously in bringing its bill to this committee, that would solve the problem, but we don't know what the government's intentions are on this matter.

To conclude, in the interest of being accountable to Canadians, we think it's incumbent on parliamentarians to base their public policy on the best possible information. We don't think we have the best possible information, but we think that process could be assisted by bringing experts before us. We're open to the details on precise timing and the precise number of hours devoted to this exercise, but we're very adamant that we want these witnesses to appear before us in the near future.

Thank you, Mr. Chair.

[The Chair, Conservative, Brian Pallister]

Okay.

Mr. McCallum, if you're seized with a great urgency concerning this, I'd ask you to bring a motion forward to accomplish your goal--and do that now; read it into the record, please.

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

As I said earlier, we're open to amendments on these details of timing, but as currently written, the motion says:

That the finance committee invite expert witnesses to appear, including officials from the Department of Finance, to testify in regard to the decision to tax income trusts. At least six hours are to be allocated for these meetings to be held before February 2, 2007.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. McCallum.

Our discussions will proceed as they normally do around this motion, and comments will be germane to the motion itself, or amendments may be, of course, brought forward, whether Mr. McCallum likes it or not.

Who would like to comment?

Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

I've seen Mr. McCallum's motion. In fact, we discussed it over the holiday break. We agree on the motion, but I wanted to be very clear that we also agree with the principle of the draft bill that we have seen on the Department of Finance website. As you know, the Bloc Québécois voted for the ways and means motion that dealt with this issue until the bill was studied. However, we think it is important that we do some work on this issue immediately to avoid having the debate veer into an ideological debate.

On the one hand, it is true that converting corporations into income trusts resulted in tax losses that we felt were inequitable, but it is also true that the government's decision caused negative consequences for many small investors. 2.5 million Canadians have shares in these trusts. Not all of these people are rich.

So is there some way of minimizing the negative consequences so that we can pass legislation which, in our view, is necessary? I think this must be taken into account, once again, because we do not have an ideological approach to this issue. Yes, we want legislation, but we also want to ensure that we have taken all the options into account so as to minimize the negative consequences suffered by small investors as much as possible. This could be done by legislation or otherwise, but in order to achieve this objective, we must be able to study the issue now. I think this is a question of democracy and transparency.

Minister Flaherty has consulted private experts in recent weeks. I asked him to consult the Finance Committee. He decided not to do so, and he was perfectly entitled to make that decision. However, the finance committee may decide on its own initiative to undertake consultations immediately and to make a number of recommendations to the minister, perhaps even before the bill is tabled, to avoid any ideological tangents in the future legislation.

Consequently, I see this as an issue of transparency and one of being as efficient as possible, both for the benefit of Canadian taxpayers and for small investors who have been affected by this measure.

On the government side, a comment was made that the previous government showed some lack of responsibility. I would remind you that it is also true that during the election campaign, Mr. Harper promised—irresponsibly in my view—not to touch the tax rules. So the 2.5 million small and large shareholders in income trusts are entitled to expect us to review the whole issue to ensure that its negative consequences are minimized. Thus we will be supporting the motion.

However, I would suggest a change in the wording of the motion. Rather than saying: “At least six hours are to be allocated for these meetings to be held before February 2, 2007”, the motion would read: “At least six hours are to be allocated for these meetings to be held beginning before February 2”. The purpose of my suggestion is to ensure that we have enough time to hear from the witnesses who will help us to better understand this issue.

[The Chair, Conservative, Brian Pallister]

Monsieur Paquette, I'm not certain I know the nature of your amendment. I'd like you to restate it, if you would.

[Pierre Paquette, Bloc, Joliette, QC]

The motion reads as follows: “At least six hours are to be allocated for these meetings to be held before February 2, 2007”. I am suggesting rather that the six hours of meetings begin before February 2. In that way, there could be a three-hour meeting before February 2, and another afterwards. In this way, we would not have to rush, and we would make sure the witnesses we want to hear from are available.

It is just a detail, but I think it is important that we have this flexibility.

[The Chair, Conservative, Brian Pallister]

So the purpose of your amendment is to give more latitude to the discussions being completed thereafter.

[Pierre Paquette, Bloc, Joliette, QC]

Yes.

[The Chair, Conservative, Brian Pallister]

Just to paraphrase, the intent of this amendment is to ensure that meetings would begin before February 2, but the amendment would allow the six hours to be completed thereafter, if desired.

Any further discussion on the amendment?

(Amendment agreed to) [See Minutes of Proceedings]

[The Chair, Conservative, Brian Pallister]

Madam Wasylycia-Leis, this is to speak to the amended motion now before you.

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

Thank you, Mr. Chairperson.

In considering this matter before us, I have to look very carefully at the merits of advancing a parliamentary agenda item on such an expeditious, urgent basis. I'm tempted to question the urgency of this issue, which has forced us all back in deep winter, in cold conditions where many homeless are suffering on the streets and where there are so many burning issues before Canadians. Obviously I am dismayed that we aren't dealing with something that critical, as opposed to this rather innocuous motion before the committee today.

I have been saying all along that I'm always willing to consider the merits of consulting with Canadians and being as accountable and transparent as possible. I have looked very carefully at Mr. McCallum's suggestion to see whether or not it is in that spirit that this motion is being brought before us. Based on the way in which we received the information and how this issue was handled, I can't do anything but conclude that this proposal before us is nothing more than political grandstanding.

Mr. Chairperson, I, like others may have, received a call from Mr. McCallum a number of days ago about this vague idea of calling the committee back under a special standing order. I said to him at the time that I needed more information before I could support it. I was expecting to get some more detailed information, and made calls to his office. We did not receive anything until this morning. The motion before us was presented to us at that time.

I've talked with Mr. McCallum. At one point he said that he is mainly concerned about the grandparenting clause and extending it. At another point he said he's flexible. Now he's come with a very vaguely worded motion that is very questionable in the context of our parliamentary agenda and our priorities as a committee.

If time permitted, Mr. Chairperson, I would say that we could debate whether or not this motion was even in order. I'm not going to take up the time of the committee to do so, but I do want to say that Parliament has a tradition of not repeating agenda items. Parliament has a tradition of not dealing with the same issue twice. As well, primacy is always given to a government bill.

I could have argued that under Standing Order 83, the government is obligated, has been ordered, to bring in a bill based on its ways and means motion, with set procedures in place for that to happen, and that therefore this motion should be ruled out of order. If some urgent and pressing new situation warranted dealing with this on an emergency basis, I could understand that we might be able to consider it in a different light, but we know that is not the case.

Mr. McCallum claims to be open to any kind of discussion. Yet we know from the tons of e-mails we're getting and the media reports that in fact this is an attempt to rally forces who want to kill the ways and means motion and want to end the tax on income trusts. You only have to look as far as headlines in the Globe and Mail--i.e., “Coalition aims to kill income trust tax”--to see how in fact this motion by Mr. McCallum has given them new hope to do that.

I can understand John McCallum wanting to do this. He has a banking background. He is defending the corporate elite. He is very interested in responding to their demands and concerns. Well, I want to say that I have always, and have consistently, taken a position that the income trusts were wrong from the point of view of tax leakage and being hurtful in terms of ordinary Canadians. I continue to stand up for everyday Canadians and to fight for measures that will serve the interests of Canadians generally.

At this point, given how this has been presented, I'm not about to change my mind and instill all kinds of instability into the markets. Mr. McCallum suggests that there won't be any impact on the markets. Well, we've seen what has happened over the last little while in terms of how the markets have responded to issues in Parliament. Mr. McCallum, as a former minister of government and as a member of a government that in fact intended to deal with this issue and failed, should know full well how that works.

I would remind you, Mr. Chairman, that in fact if we are talking about accountability, we should go back to September 2005, when the then finance minister, Mr. Goodale, promised public consultations on income trusts, and that process, which was due to be completed at the beginning of 2006, was cut dead by a government that was determined to insulate itself from political reaction and take a half measure that caused all kinds of problems in the marketplace. If we're talking about accountability, I would suggest that we actually look at the factors that led to that half measure being concocted, causing a huge spike in the marketplace. I would suggest, Mr. Chairman, that if we're talking about accountability, we go back to the Department of Finance's own report under the former government, dated September 2005, which gave us a pretty clear indication of the number of income trusts that were accumulating in the marketplace and the tax leakage that was happening.

Mr. Chairman, the evidence was before us. It is clearly an issue about what is in the best interest of Canadians. I don't see at this point any benefit to this committee acting preemptively or in haste when in fact this matter will come to committee. The ways and means motion has been passed by Parliament. Parliament has decided. Now there is an obligation on the part of the government to bring a bill forward. As I understand it, a draft bill is being circulated for public comment. Comments are permitted until January 31, at which point the draft bill will be turned into a permanent bill and brought before the House. When a bill is brought before the House, it then goes through second reading and comes to committee. When it comes to committee, we have an opportunity to call witnesses and to discuss the bill in detail.

Mr. Chairman, I suggest to you that is the proper course of action, and if in fact we need to take up our time talking about pressing and urgent issues, I suggest there are a number, such as the number of homeless out in the cold winter this year and the growing concerns about the environment. I might add that when attempts were made by my colleagues in the NDP to in fact have the environmental crisis brought forward earlier to Parliament, before Parliament came back, which is next week, the Liberals dragged their heels and made sure that didn't happen.

I think, Mr. Chairman, we have a pretty good sense of what the Liberals are all about, and I would suggest to you that we get on with our agenda and the pressing issues before us.

[The Chair, Conservative, Brian Pallister]

Thank you, Madam.

Madam Ablonczy is next, and perhaps she can illuminate us a little bit on the timing issue. Madam Wasylycia-Leis is quite right; we'll be dealing with this issue. It's a question of timing. The ways and means motion will make it necessary for this committee to deal with this issue at some point. Perhaps the parliamentary secretary could illuminate us a little bit on the issue of timing.

I'd encourage members to keep their comments somewhat more brief than has been the case up until now or we're going to occupy considerably more time than we have allocated to the meeting.

Madam Ablonczy.

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

Thank you, Mr. Chair.

There's a bit of folklore that says don't feel too bad about your mistakes because at least you serve as a bad example for others. Here we see the Liberals have made mistakes. We learned from those mistakes by making a very decisive move on the issue of income trusts. This move, I might add, was made entirely privately, without sending signals to some people and not to others.

The Liberals have not learned from their mistakes. That is kind of ironic, I guess you'd have to say. I think the biggest concern I have is that this has re-injected a very disturbing and alarming note of doubt and instability into this very key issue, and it is going to hurt investors again. It is going to hurt the economic sector again.

In the normal course of business, the committee, as we've acknowledged, will be looking at the legislation that will come about as a result of the ways and means motion that was passed by the House of Commons. The legislation is well on track. The government has been very quick off the mark on this. The legislation was posted on the website. It is there for public input and stakeholder input. As Ms. Wasylycia-Leis has said, this input process will end on January 31. The bill will then be tweaked by the minister and the department in light of that input, responding to the concerns and the input of various stakeholders, and then introduced in the House.

It is difficult to know why there would be this rush to hear witnesses when we don't have the legislation before us. One can only assume that it is because politics is being played with this, and that's fair enough--we're politicians. But it is not fair that the uncertainty in the market is being re-ignited. That is harmful. Surely my honourable colleague, who is a former minister of revenue, would know this.

With respect to this purported concern about numbers, we have numbers coming out from a number of governments, including our government, from our Department of Finance, and from provincial governments that are talking about tax losses because of the trust situation for them.

Again, my colleague, as a former minister, a former member of cabinet, a former revenue minister, had the very same numbers before him when his government waffled and went back and forth and finally dropped the ball and botched the issue on income trusts. There's been no change in the numbers. If they were good enough for the old Liberal government, why are they suddenly suspect now? The numbers have simply increased because there has been an additional $70 billion in trust conversion since we took office, which no one anticipated was going to happen.

The fact of the matter is that nothing is being hidden. These numbers were well known to the Liberals. They were known to the Liberals for longer than they were known to us, I might add. Of course there are going to be people willing to challenge numbers. There always are people willing to challenge numbers, but that doesn't mean that there's some need to suggest there's skulduggery or that we need to get to the truth, as if something were being hidden. These numbers have been out, and they are the same numbers that every government has had in the past.

I really believe that it's very clear that the government is on track. The legislation is on the website for everybody to see. The government will be introducing it as soon as possible, certainly before the budget comes down, and the committee will be studying this issue.

If the committee wishes to hear witnesses before we even have legislation in front of us, then I think we should, in fairness, re-inject the certainty into this situation that is so necessary so that everyone can know what they're dealing with.

I would like to propose an amendment to the motion, as follows:

Notwithstanding the Standing Committee on Finance's support for the Ways and Means Motion No. 10, adopted by the House of Commons on November 7, 2006, which includes, first of all, a distribution tax on distributions from publicly traded income trusts and limited partnerships; second, for existing income trusts and limited partnerships, a four-year transition period; third, a reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011; fourth, an increase in the age credit amount by $1,000, from $4,066 to $5,066, effective January 1, 2006, benefiting low- and middle-income seniors; and lastly, income splitting for pensioners beginning in 2007; the committee agrees, in the next 30 sitting days, to hold one three-hour meeting to hear evidence from witnesses on the government's tax fairness plan and the economic and fiscal consequences of the transformation of a growing number of taxable corporations into income trusts.

Mr. Chairman, I think this would make certain what the committee's intentions are, and would be important to make clear that there is continued support for the decisive announcement that was made on this issue. I think it's critical that this committee make it clear that is not going to change, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

All right.

First of all, my preference would be to conclude a debate around the original motion. This strikes me as a separate motion. My concern is that there are some contradictions, obviously, between the two, in reference specifically to limiting discussion to three hours.

Let me try to move this forward a little bit.

What we're not debating here is whether there will be a debate. We're not debating that. What we're not debating is whether we'll hear witnesses on the issue. We're not debating that. What we're not debating is whether finance officials will come forward and answer questions about the issue. We're not debating any of that, because that's going to happen. The question before us is when that is going to happen. All of this other preamble and so on about the rationale and so on is really largely irrelevant and I think somewhat indicative of a lack of respect for the time of our witnesses and ourselves. Frankly, we're going to deal with the issue, and the question is when. That's what is really before us today.

We've had an indication from the parliamentary secretary that the legislation, the ways and means motion, is in its preparatory phase. We have no indication of when it will be coming forward. Can we get--

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

It will be before the budget.

[The Chair, Conservative, Brian Pallister]

It will be prior to the budget. So we have that assurance from--

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

It will be by the time of the budget.

[The Chair, Conservative, Brian Pallister]

It will be by the time of the budget. We have that assurance from the parliamentary secretary.

What I would ask my colleagues to speak to now, rather than continuing with the general discussion we've had to this point, is the reason for urgency in dealing with this issue. If you can make the case that there is some urgency to deal with this issue now, I think you'll compel our colleagues in the committee to support you. If you cannot, we are going to be dealing with the issue in due course in any case. There's hardly been a case made, to this point, for urgency, so I would like to give the opportunity to committee members to focus their comments more in that direction if they wish to be persuasive to my colleagues around the table.

We'll go now to Mr. Szabo, then to Mr. Paquette, and Mr. McCallum thereafter.

[Paul Szabo, Liberal, Mississauga South, ON]

Thank you, Mr. Chairman. I agree with you fully.

Mr. Chairman, the urgency here is to deal with the allegation that the facts on which decisions have been taken are incorrect, in whole or in part. Mr. Chairman, you know that a large number of investors endured an erosion of their capital investment of some $30 billion to $35 billion. This spawned the creation of this group called the Canadian Association of Income Trust Investors. They have brought forward information that the computations of the so-called tax leakage do not include.... If I read from their release, it excludes the taxes paid on income trusts held in retirement accounts. This is a substantial variance with what the computation should be, if in fact that is the case.

If you do not deal with this issue, Mr. Chairman, with regard to what is the real leakage, the discussion about whether there should be exemptions or whether there should be other extensions of time, etc., are all consequential to that. You need to know the leakage.

The urgency, therefore, Mr. Chairman, is to make sure that we have the facts. I don't want to talk about truth; I want to talk about facts. I think we have information around the table about good, solid witnesses who will help this committee determine the facts.

Mr. Chairman, why now? The timing of the tabling of the bill--the draft is on the website now--is uncertain at this point. You know, Mr. Chairman, that the House has the opportunity to refer a bill to committee after it's had second reading debate and second reading vote, at which time it would have had approval in principle, or it could come in fact after first reading or before second reading. That's very significant, because then it would allow the committee the latitude to be able to make substantial changes that it otherwise would not be able to make.

Mr. Chairman, unless we have the facts, parliamentarians will not know whether or not they should make the case that there should be a referral to the committee after first reading. I speak strongly in favour of getting the information, the facts that are going to be necessary to make good, wise decisions. This committee in fact is the only instrument that can make that happen now. It has the tools. Commentary from any witnesses that will be heard will be on the record. It will not have to be repeated to this committee when the bill subsequently comes before us.

As Mr. McCallum has suggested, should the bill be delayed for any reason at all, all we're doing is extending the uncertainty with regard to the facts on which decisions have been taken.

I would strongly urge that we have these hearings to establish fact on the leakage issue; everything else is consequential to that.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Szabo.

Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

I would like to come back to the issue of holding meetings immediately. Experts, and individuals affected by the situation, are being consulted about the bill. Why are parliamentarians not being consulted during this initial phase which will lead to the final draft of the bill?

Furthermore, the problem goes beyond the bill. As I already said, I agree with the principle of ending the conversion of corporations into income trusts. That I am not questioning. However, 2.5 million Canadians with shares in income trusts lost money. The average loss has been 16% since October 31, 2006. Could we think about how to minimize the negative impact of this drop in value, particularly in light of the fact that during the election campaign the Prime Minister guaranteed these people that he would not touch these tax rules?

So I think we have some work to do so that we can suggest some solutions to the government. They may go beyond the context of the bill, or they may improve the bill. If possible, we should do this before we study the bill. Clearly, we will have work to do after second reading, but then we will be working within the confines of the bill itself. Our work cannot go beyond the provisions of the bill in any significant way.

With respect to the uncertainty, I have already told Ms. Ablonczy that we would be voting for the bill, but that we wanted to work constructively, not ideologically. We know that the Conservatives, the NDP and the Bloc Québécois will be voting for the bill in the end. I do not know what the Liberals' position on the bill is. I understand that we should not be creating false hopes for some by giving the impression that the government will reverse its decision to put an end to the conversion of corporations into income trusts.

Therefore, I would like to move an amendment to Mr. McCallum's motion. I would add some words to the beginning of the motion so that the amended motion would read as follows:

Notwithstanding the Standing Committee on Finance's support for Ways and Means Motion No. 10, adopted by the House of Commons on November 7, 2006, that the Standing Committee on Finance invite expert witnesses to appear, including officials from the Department of Finance, to testify in regard to the decision to tax income trusts. At least six hours are to be allocated [...]”

I think everyone could agree with this. I think Mr. McCallum's motion is broader than the one put forward by the parliamentary secretary.

[The Chair, Conservative, Brian Pallister]

Monsieur Paquette proposes adding a clause that restates the House's support for the motion in principle, for the government's initiative in principle.

[Pierre Paquette, Bloc, Joliette, QC]

I hope everyone will agree with this.