Evidence of meeting #87 for Finance in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was vehicles.
A recording is available from Parliament.
Conservative
Partner, McCarthy Tétrault, As an Individual
I can add a little colour for you. The GAAR rule generally would not apply in circumstances of the double dipping. There's nothing offensive that's happening from a Canadian tax perspective; there's a single deduction of interest that's occurring in Canada. What seems to be offensive to people is another deduction for interest occurring in another jurisdiction, and GAAR would have no application there.
Conservative
Conservative
Rick Dykstra Conservative St. Catharines, ON
Merci.
Armine, one of the early comments in the presentation you made was about the potential for home values to double in the next 20 years. I want to make sure that your comment then was that salaries will not increase to the same extent. Is that correct?
Director of Research, Community Social Planning Council of Toronto , As an Individual
What I said was that several reports out now by the major banks are saying the prices in real estate markets across Canada are predicted to go up by 20%; there is no banker or economist out there who has said incomes are going to double.
Conservative
Rick Dykstra Conservative St. Catharines, ON
I did a quick check. In the last generation, in fact, the per capita household income has increased by 104%.
Director of Research, Community Social Planning Council of Toronto , As an Individual
What's your timeframe, sir?
Conservative
Director of Research, Community Social Planning Council of Toronto , As an Individual
I would love to see the study you are referring to, because I've just done an analysis of inflation-adjusted growth in household incomes, particularly among families raising kids, and saw no such evidence from 1976 to 2004. Indeed, the average did go up, but the average is driven by most of those gains being concentrated in the top 10% of families raising children; the distribution is such that the bottom half of the distribution of families raising children stagnated or fell, and that's after taxes.
Conservative
Rick Dykstra Conservative St. Catharines, ON
I think we've tried to address that issue in the last two budgets, in the sense that 850,000 people in this country no longer pay federal income tax. I do understand your point when you speak to the fact that when the 10% or 20% of incomes at the higher end go up, percentage-wise, they obviously go up a lot more than the lower end.
One of the things you have to address from a government perspective, as far as we're concerned, is to make sure that folks who are at the lower end of the income scale receive credits that apply to them to allow them to do the types of things they need to do on a daily and yearly basis to support their families, and if they're paying tax and shouldn't be, to make sure we remove them from the tax rolls. When you move 855,000 people from the tax rolls, I think that states a lot.
When you talk about the debt that we pay down, in a sense a lot of the interest that we use and a lot of the debt we pay down is money that we don't have to pay interest on. I think what we've done is responsible in terms of ensuring that we apply the money that we have and the revenue that's generated to the most vulnerable, and by that I mean those who shouldn't be paying income tax and those in low-income families that need assistance.
You didn't address this in your comments. I do want to ask a couple of folks some other questions, but I do think that needs to be taken into account when you prepare your presentations.
Director of Research, Community Social Planning Council of Toronto , As an Individual
May I respond, Mr. Chair—
Conservative
Rick Dykstra Conservative St. Catharines, ON
Dianne, I did have a question about the points you were making.
We had Mr. Dielwart up prior to you. I did ask him about that, and he's here, but I wouldn't mind getting your comments. One of the comments he made was about the risk we put the energy trusts in when we implement what we're doing. I wonder if you could comment a little on that potential.
Independent Consulting Analyst, As an Individual
I'm not sure I understood.
Is this the issue of needing a lower cost of capital in order to exploit the energy assets in the western basin?
Independent Consulting Analyst, As an Individual
My feeling is that if oil is at $64, up from $25 just a short two to three years ago, and we need to have a Canadian government subsidy in order to create a lower cost of capital.... When I say it was overvalued, the flip side of that is a lower cost of capital; if you have a high price, then you have a low cost of capital. He's saying he cannot run his business unless he has a subsidized cost of capital. I'm saying I just don't believe it.
Conservative
Rick Dykstra Conservative St. Catharines, ON
James, one of the points you made that I found intriguing was your last point, which was that the structure of some of the sentencing was too broad and did not cover specific areas.
Conservative
The Chair Conservative Brian Pallister
Merci, Monsieur. We'll have to learn more about that intriguing point later.
Monsieur Thibault is next.
Liberal
Robert Thibault Liberal West Nova, NS
Madam Urquhart, you referred--and I've heard this a few times--to some people being enticed into investing on an unrealistic return in companies or trusts that eventually can't meet their commitments and can't replace their assets. That is a concern, but don't we have that same problem in the normal equities market on the TSE? I've got friends who got burned on what they were buying. They were thinking Nortel was an absolute blue-chip corporation.
Independent Consulting Analyst, As an Individual
The difference is the nature of the buyer. We're talking about a product that was said to be designed for seniors whose objectives were preservation of capital and income for the purpose of meeting their household expenses.
Liberal
Robert Thibault Liberal West Nova, NS
Didn't we see that in the vast majority of trusts where that was reasonably carried out; where the payments were made and the preservation of capital was maintained until the announcement of a 31% tax by the Minister of Finance?
Independent Consulting Analyst, As an Individual
No. Already, in a strong economic period with no new taxes needing to be paid, close to one-third of the business income trusts have suspended or massively slashed their distribution. That has nothing to do with income trust tax.
They had to slash because they were set too high. Then when there was a hiccup in the business, or simply when management determined it was time to do replacement of assets and they couldn't get new financing, they were forced to do a cut. In some cases the banks themselves allowed this degree of leverage and high distribution to occur at the beginning so they could get the product out the door at a premium price and get the maximum fees out of it. They were the ones that said, “Okay, now that you've reached your covenants you need to cut.” The minute they cut.... Too many of them have occurred. We think at least half the business income trust market will go there.
Liberal
Robert Thibault Liberal West Nova, NS
We think that, but we know there was a collapse in the value of those trusts when the finance minister made the announcement. We know there was encouragement and enticement of seniors to invest, beyond what would have been reasonable in a balanced portfolio, by the promise of the Prime Minister to not tax them. We know those things. We know there are problems.
There are always some shysters, but we also know that the Governor of the Bank of Canada told us here that while there were problems in some sectors in governance, and in some cases it wasn't a proper vehicle, for some sectors like energy it was a proper vehicle for REITs. The Minister of Finance agreed with that.
When you give your figures on the index, you forget to mention that the REITs are included and there have been transfers of funds into those REITs. There has been an increase in investments in those because they are still permitted to do an income distribution. The capital market, the investment market, is looking for income distribution, so they normally go there.
My final question, if I have any time left, is to Mr. Jock. You mentioned the Atlantic fisheries investment, and I am pleased that it continues to be there. But when there was that whole Marshall decision and adjustment package, part of that money was for economic investment in those communities on the Atlantic coast.
I've had an opportunity to visit a lot of those communities to see the positive things they have done and the change within those communities to a “can do” attitude. I see business investments and thousands of jobs created where very few jobs existed before.
Can that experience be repeated? Did the Kelowna accord give us that chance, and is there still a chance to repeat that experience in less favoured communities?
Chief Executive Officer, Assembly of First Nations
I think that's an excellent example of where government investment can be replicated and multiplied in terms of impact. I would invite you to talk with John Paul of the Atlantic Policy Forum, because they generated a study that looked at the sustainable jobs that came out of the investment in Marshall.
I would say that your observations are well-grounded in clear evidence. I think that's one of the reasons we're pleased that this plan was continued to a degree, although I understand it's not at the same level as its initial investment.
Kelowna was a step. It only began to look at economic development. A challenge and a way forward is to look at economic development in terms of creating opportunity; looking at the potential for first nations people to become part of these new opportunities as both companies and individuals who can contribute to the labour market.
Conservative