Finance Committee on Feb. 1st, 2007

[Voices]

Oh, oh!

[Brian Ernewein]

I would say the minister spent quite a bit of time on the numbers the other day, and on the reasons why he and we believe they are conservative. Yes, I think the answer he provided the other day was that he did take—apropos the discussion of extending the transition period from four years to ten years—the $500 million of estimated costs and multiplied them by six to come up with a number of $3 billion for that.

There is obviously more that goes into that when you get through it, as my colleague has mentioned. And as Mr. Bruce has said, there has been some decline in tax rates during that period of time. There has also been, according to our observation, quite an appreciation in the profits during that period. Washing those two out, we thought, was another example of being conservative, thus giving support to the numbers that had been previously provided to the committee.

[The Chair, Conservative, Brian Pallister]

Mr. Normand, do you have anything to add?

[Denis Normand]

The only point I would add is that, as I mentioned earlier in my remarks, the $500 million is net of one-time capital gains. To project the $3 billion, you don't take that into account. You start off with the ongoing impact and you take into account reductions in the corporate tax rates and growth in the sector, and that's how you come up with $3 billion. It turns out that a very simple arithmetic of six times $500 million comes pretty close to the same number.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

We'll continue with Mr. Del Mastro now.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

I'd like to begin—

[The Chair, Conservative, Brian Pallister]

Excuse me, Dean, but Monsieur Thibault has a point of order.

[Robert Thibault, Liberal, West Nova, NS]

The invited witnesses have been referring to some documents, some calculations, some information that they would have prepared to advise the minister and to advise other people on the staff. I think it would be quite appropriate for those documents to be tabled at the committee so that we can—

[The Chair, Conservative, Brian Pallister]

They may well be. I'm not sure if the information we received yesterday includes the information the witnesses are referring to. Nonetheless, Mr. McCallum has given notice of a motion that will deal with that topic.

We'll continue with Mr. Del Mastro now, and we'll deal with Mr. McCallum's notice of motion after the witnesses have done their testimony.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

In the previous committee, I found it interesting to note that some of the opposition members were calling on a consultative process that might have benefited this understanding. It's funny that when it resulted in a 9% fluctuation in the market, that resulted in people in the know ultimately making a lot of money on the backs on innocent investors, which didn't work out too well.

Mr. Murphy, I am holding in my hands letters from the finance ministers of the provinces in Canada. We have heard from departmental officials. We've heard from the finance minister. Is it possible that you guys all have it wrong and that there is no tax leakage?

[Mitchell Murphy]

I wish there were no tax leakage, but, no, the tax leakage is genuine and it's especially a concern for all provincial ministers. As you can appreciate, depending on the size of the economies, those dollars are significant, ranging from $400 million in one province down to what the loss would be in Prince Edward Island.

Obviously, when we prepared our budget for this year, in our revenue projections for our budget, we had to take into account the loss of corporate tax income that we were anticipating because of the trust conversion.

Another significant point that I was just getting to when I ran out of time was that in a small jurisdiction like ours, when you have a large corporation whose majority of unit-holders live outside your jurisdiction, they would pay personal income tax on their earnings from that trust. However, most of the personal income tax that they would pay would not be to our province. The chances of us recouping any of the money that we lost in corporate tax is minuscule, because most of the personal income tax gain on that is paid somewhere else.

[Dean Del Mastro, Conservative, Peterborough, ON]

Right, and I'd add that you're the first person to bring up that particular regional distortion that existed.

Just for clarity, if I can just get you on the record, every single department of finance in every province, and the Department of Finance of Canada, in your opinion, is not wrong and not incompetent.

[Mitchell Murphy]

No.

[Dean Del Mastro, Conservative, Peterborough, ON]

No. Thank you. That's all I need.

[Mitchell Murphy]

We believe the federal finance department is right and we believe provincial financial departments are right.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much.

Mr. Elitzur, the Rotman School of Management actually made a presentation to the finance committee earlier, and they spoke of a productivity challenge faced by the Canadian economy. The finance minister has said that, moving forward, an income trust economy is not good for Canada. Would you concur that ultimately, by bleeding off capital, our productivity is going to further suffer?

[Prof. Ramy Elitzur]

When I was 18, I knew everything. Now I know I don't know everything. Thank goodness I have my kids to consult with.

I concur with the conclusion. The problem is that companies that are naturally income trusts are companies that don't invest. Thus, if they don't invest in capital investment, they don't grow. So the long-term detrimental effect on the economy, I think, is very intuitive.

[The Chair, Conservative, Brian Pallister]

You have a minute.

[Dean Del Mastro, Conservative, Peterborough, ON]

Wonderful. I will certainly very happily use that.

Mr. Lever, you talked about a fair share of taxes, and certainly we made this decision based on tax fairness. You said investors who are expecting, at a given rate, to be taxed at 30% should get 70¢. Could you please apply that broad base right across the tax spectrum, to all Canadians, many of whom are not wealthy, who expect to pay only their fair share of taxes? How is it fair that we're going to let corporations off the hook without paying their fair share of taxes?

[Dirk Lever]

Perhaps I don't understand the question, but I'll try to answer it.

Lawyers, accountants, architects—a lot of them operate without having a corporation. They operate via partnership. They pay taxes themselves. They just share the profits. Really, that's what a trust is. So whether a corporation pays the taxes or the shareholders pay the taxes, it doesn't matter to me, as long as the taxes are being paid.

[Dean Del Mastro, Conservative, Peterborough, ON]

But we've heard from Mr. Murphy that there's a tax loss, so clearly it can't be fair.

[The Chair, Conservative, Brian Pallister]

Mr. Del Mastro, thank you. You were ready to quit a minute ago. You have to quit now.

Welcome to our colleague from Hamilton, Mr. Marston. It's over to you.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you, Mr. Chair.

I am really relieved to hear the government members talk about fair taxation for corporations. The world is turning.

Mr. Field, when we listened, we heard Mr. Elitzur's comments around perverse incentives. When you're the ordinary persons at the grassroots sitting at home—and I'll interject on myself to say that we have confidence in the public service of this country—the average, ordinary Canadian, and you hear these ads that usually come on around RRSP time, the ads say “minimum risk” and “maximum return”. Is it fair to say that because of the mishandling by the previous government, your seniors were set up to walk into this debacle that we're now facing here today?

[Art Field]

Some of it's possible. Those ads are coming on even now. Since October 31, I'm surprised that some of the companies are advertising, still trying to sell you all this high-profile or safe stuff. It's sad that it goes on, it's sad that there's no regulation, and it's sad because it's all across the country.

The other thing, off your question a bit, is that the regulations have been cut from six years to two years in Saskatchewan, Ontario, and some other places. Sometimes it takes you two years before you find out you are losing money, and then it's too late. And when you lose, you don't have any left for lawyers anyway, but then it's too late because the regulation says you can't do anything.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

In fairness, Mr. Field, I understand that your organization was warning your members, prior to this government's announcement, that they should steer clear. I'm wondering where you were getting your advice from, as an organization.