Finance Committee on May 12th, 2008

[David Cohen]

I'll answer you with respect to the skilled workers, professionals, and skilled tradespeople who come here to Canada and find it difficult to find their jobs in Canada.

It's true, and I think we have to make a greater effort to put more pressure on professional organizations and skilled trade unions. For example, we know there are openings in Quebec and Ontario for doctors, yet they can't practise, even though they've qualified outside Canada and inside Canada. There's resistance there, and that's where the pressure has to be put.

[Gurbax Malhi, Liberal, Bramalea—Gore—Malton, ON]

What is your opinion about the minister being so sympathetic to the immigrants that she wants to clear out the backlog? On the other side, when I personally asked the minister to issue a ministerial permit because somebody had died in the family, she had no intention of giving one permit, but she can clear the 900,000 backlog. Why is she so sympathetic? What's your opinion on that?

[David Cohen]

One way to clear out the backlog would be to send out instructions to not take in any skilled worker applications for a period of time--be it one, two, or three years. At the end of that period there would be no more backlog. I don't know if that's what the minister intends to do, because at this point she has not given any indication as to what those instructions will be. But the minister will have the power to clear out the backlog.

The measures, however, will be drastic if they are taken, and we ought to be concerned about the discretion given to officers in the long run.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

Thank you, Mr. Cohen, for sticking around. You indicated that the legislation now allows the minister to set targets for different visa offices around the world, and you gave the example of Buffalo. In your view, part of the backlog is because the number is smaller in some places, and more people apply than are actually allowed in.

So if the minister has the ability to set number targets, why shouldn't she have the authority to set occupational targets if whatever skill sets they are looking for are available? To me it's the same process; one involves numbers, and one involves skills. If she has the authority to do one, why shouldn't she have the authority to do both?

[David Cohen]

That's a very good question. With respect to occupations, the minister now has the power to restrict certain occupations. She can say that for the time being, we don't need more accountants in Canada. Then anyone who's an accountant won't apply.

[Mike Wallace, Conservative, Burlington, ON]

That's on the negative side. But on the positive side, let's use plumbers as an example. We want to attract plumbers, so if someone sends in a plumbing application, they move a little closer to the front of the line.

[David Cohen]

But we do allow that. If an employer is willing to hire that plumber from abroad, that plumber comes in immediately on a work permit.

[Mike Wallace, Conservative, Burlington, ON]

That's if you've already made arrangements.

[David Cohen]

You asked what's the difference, so here is the difference. Let's say an application is processed in Buffalo in under two years, but it takes five years at the immigration office in India for an application with the same qualifications. At least we're saying to that individual who has to wait five years, “It's not your fault that you have to wait five years, but at least we will assess your qualifications the same way we assess those of the person who applied at the same time you did in Buffalo. We will assess the qualifications in the same way.”

Let me explain. If today I submit an application in Buffalo and somebody else submits an application at the Canadian visa office in New Delhi, the one in Buffalo will be heard first. But the person who has to wait longer in India, through no fault of his own, at least will be assessed according to the same standards as the person who was assessed in Buffalo.

[Mike Wallace, Conservative, Burlington, ON]

Maybe the plumber from the U.S. would get the same sort of approach. A plumber from the U.S. and a plumber from India would be able to move up the list under the same circumstances.

[David Cohen]

That's if they have a job. I'm saying that under the current system, both of these plumbers are at least being assessed according to the same objective criteria.

[Mike Wallace, Conservative, Burlington, ON]

But the minister, in this legislation, is using a package of identifiers of skilled labour that's needed. It's not that company B has to say they need a plumber. The plumber has the opportunity to come here and find a job. In this case our minister is using a package of criteria or indicators of the types of occupations that are required. So it doesn't require a company to ask Mr. Smith from India--sorry, I guess I shouldn't use Smith--to come here because he has the specific skills they want. It allows anybody with a certain occupational skill that's generally needed in this country to come here, based on those criteria or that analysis, from a variety of approaches.

Your argument doesn't hold water with me, sir.

[The Chair, Conservative, Rob Merrifield]

You made your point, Mr. Wallace. I'll allow just a very quick answer and then we'll move on.

[David Cohen]

Unfortunately, it's not something that can be answered in one sentence, but I would like to try to say that, if it could be done fairly and objectively, you would have a good point. But in fact, it's going to require the picking and choosing of applications somewhere in the queue and that's where it breaks down.

I'm sorry, I really do have to leave, Chair. Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much, and thank you to our panellists for coming forward and testifying.

Thank you for the questions. We'll now pause as we bring forward our second panel.

[The Chair, Conservative, Rob Merrifield]

We'll ask the cameras to leave.

We'll start our second round. We have our witnesses here and we have the members at their seats.

We will start. We have four presenters and we will start with the C.D. Howe Institute. We have Mr. Poschmann.

You're first up and we'll give you the floor. You have seven minutes.

[Finn Poschmann, Director of Research, C.D. Howe Institute]

Good afternoon to you, Mr. Chairman, and to all. I thank the committee for inviting me. It is always a delight to appear before this committee.

Clearly I am here to discuss this budget bill, and there's a lot in that bill, so I'm going to restrict my opening comments to TFSAs and Bank of Canada powers, parts 1 and 10 of the bill.

Let me begin by repeating that there is a lot in the bill, and this point deserves emphasis. Members of the committee are keenly aware of the importance of the parliamentary process and may know that I believe MPs should have an opportunity to scrutinize legislation with the diligence it deserves. I will not second-guess the government's wisdom in bring forward omnibus legislation like this bill, but I point out that doing so and packing multiple issues together in one bill does make it difficult for any of us to give each aspect the scrutiny it deserves.

That said, there is much to like in this bill, and I do. I've made no secret of my support for tax-free savings accounts, and I'm absolutely delighted to see the idea appear in legislation. When Jon Kesselman and I first wrote about the concept in the Canadian context back in 2001, our focus was on expanding the range of options available for Canadian savers. We were concerned that, on the one hand, people planning their retirements did not have enough tax-recognized contribution in total. After all, the contribution limits on RRSPs were much lower then, and at the time had not moved much over many years.

We had two reasons for prescribing something other than just bigger contribution limits. We made the general point that people are better off when they have more options for how they can save. Sometimes, in anyone's life, it can make more sense to save out of pre-tax earnings, as with RRSPs, and others might be better off saving out of after-tax earnings, as with TFSAs.

I should add that we labelled them “tax-prepaid” savings plans, because we wanted to emphasize that the tax had already been paid on the earnings underpinning those savings. That reminder explicit in the tax-prepaid label was really aimed at future governments, because we were concerned that the plans would become very popular and large over time and that future governments would see the accumulated savings as a target for taxing.

That brings us to the second aspect of why I think the option of saving in TFSAs is good for Canadians. That is because RRSPs are not right for everyone. Consider an older worker, someone who perhaps immigrated to Canada late in life who doesn't have much savings or a workplace pension. This worker will almost certainly rely on the guaranteed income supplement when he or she retires and may be eligible for federal or provincial supplementary benefits. But what happens if she saves in an RRSP? When she retires and begins to draw down her RRSP savings, the withdrawals count to taxable income, but she must also count those withdrawals in establishing her GIS eligibility and will lose entitlements at the rate of 50¢ or 75¢ on the dollar for each dollar of private income, including from her savings. If she loses entirely her GIS ability, she'll lose access to other benefits such as provincial top-ups or subsidies that are made available to the people who qualify for the GIS. So some workers are no better off saving in RRSPs than if they don't save at all. In fact, they may be worse off if they do.

Some folks argue that low-income families don't save. In fact, they do. A few years back, GIS recipients had retirement savings totalling $37 billion, averaging about $25,000 each, but even if we thought saving was rare, policy shouldn't punish people for doing it. That's where TFSAs come in. I see them as beneficial for Canadian savers of all sorts.

For us to take advantage of them, however, we do have to see the legislation adopted and supportive regulations developed and published, because 2009 is not very far off, and if financial institutions are to roll out the new savings accounts, they need staff and promotional materials, they need to deal with their legal issues, and perhaps most important of all, they have to update their information systems. So all that has to be ready.

That implies two things. The first is swift action from the government in passing legislation and regulation if we are to see TFSAs as swiftly in place as I would hope. The second is that as we run through the regulations in particular, but the legislation too, we should see that, wherever possible, TFSAs be given provisions identical to those applying to RRSPs. This is a good example of where policy can usefully be guided by practice.

At this point, I would like to shift gears entirely while returning to the general issue of legislative scrutiny. Part 10 of the bill proposes broader powers for the Bank of Canada. Indeed, the C.D. Howe Institute published a brief last year stating that an updated Bank of Canada Act was due because the types of securities the bank was permitted to buy and sell no longer reflected the modern financial marketplace. That's a problem, because if the governor had to invoke emergency powers to respond to ordinary needs for short-term liquidity in support of otherwise solvent financial institutions, the announcement of an emergency would risk further aggravating the problems it sought to solve.

Bill C-50 would broadly expand the governor's powers, subject to the requirement that the governor establish a clear policy and publish it seven days in advance in the Canada Gazette laying out how those powers could be implemented. That's good for accountability.

What concerns me, however, is whether the bank, with liberalized powers to buy and sell assets as well as lend, is sufficiently protected from pressure to prop up failing institutions, exposing Canadians at large to risks and costs that should stay parked with those institutions themselves.

The Bank of Canada is very well managed and recognized around the world for its independence and reliability, but it is dangerous to assume that this will always be the case, and risky to lower the institutional barriers that protect that independence. After all, when faced with political pressure to act in a particular way, it is useful for an agency head to be able to say that the institution's governing legislation does not permit what the political leadership says it wants.

Again, I think the bank will handle these powers well, but I find the recent U.S. experience of grave concern. There, after all, the Federal Reserve has come under intense pressure to support financial institutions, and to do so in some novel ways. For good or ill, the Fed has provided such support, so I see there some evident justification for my concern.

What to do about it? One modification would be to look for a longer lead time—longer than seven days—with respect to policy changes in what the bank may do in the course of its market activities, and to clarify that changes will take the form of regulations requiring order in council approval. Another would be for the legislation to be more prescriptive and less open-ended with respect to bank powers. Those are some options.

With that, I think my time is up, Mr. Chairman. I thank you very much for your time.

[The Chair, Conservative, Rob Merrifield]

We thank you very much for your presentation.

We'll now move on to Mr. Cunningham, from the Canadian Cancer Society.

I see you brought your lunch with you. I don't know whether you're going to have time to eat it, but we are certainly looking forward to your presentation.

[Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society]

Thank you Mr. Chairman and members of the committee. My name is Rob Cunningham. I am a lawyer and a senior policy analyst for the Canadian Cancer Society.

On behalf of the Canadian Cancer Society, thank you for the opportunity to testify today.

Our single most important strategy to reduce tobacco consumption is higher taxes. The very high levels of contraband that we find in Canada today are undermining the success of that strategy. Teenagers are particularly price-sensitive. The high levels of contraband are a problem for not only public health but also public revenue; there's easily more than $1 billion lost by federal and provincial governments. It's also a problem of public security, given the nature of the problem.

My comments will refer specifically to clauses 50 to 69 of the bill, which we support and urge all members of the committee to endorse. We would like to endorse what was in the 2008 budget, in terms of contraband prevention measures, first, to prohibit the importation or possession of tobacco manufacturing equipment, except for those with a valid tobacco manufacture licence. In the absence of this provision, there is inadequate control of the ability to make cigarettes.

Second, we endorse making explicit the authority of the Minister of National Revenue to deny or revoke a tobacco manufacturer's licence where inspectors' access to the premises is impeded. We know this is currently a problem.

And we also support changing the way roll-your-own tobacco is taxed, to facilitate implementation of the government's forthcoming sophisticated tax stamping system. It is a positive measure that we support.

Another measure in the bill and the budget is to close a loophole for a product category called “tobacco sticks”, which are taxed at a much lower rate than cigarettes. Nine out of ten provinces have closed this loophole and the market share has fallen to less than 1%. It's a positive measure to prevent problems in the future.

I'd like to take the occasion to acknowledge and support the announcement of Public Safety Minister Stockwell Day last week with respect to moving forward on enforcement as it relates to tobacco contraband. There's a very serious recognition by the government of the magnitude of the problem. There's a political commitment to move forward. Minister Day recognized this is one step in the process and that more measures in the future will be considered, and we agree there are other measures that would contribute to having an impact as part of a comprehensive strategy.

If I could invite members of the committee to turn to the handout, on the final page is a graph comparing provincial tobacco tax rates in Canada. We see that Ontario and Quebec have the lowest tobacco tax rates, yet they have the highest contraband levels by far. This helps to illustrate that the problem of contraband today in Canada is not one of higher taxes or of demand, but of supply. The key to success is eliminating the sources of supply. We know where those are. The RCMP was very specific about that in the report it released last week on illegal operations on the U.S. side of Akwesasne in New York State near Cornwall, Kahnawake near Montreal, Tyendinaga near Belleville, and Six Nations near Brantford. And there are illicit distribution channels off reserve in various places, particularly in Ontario and Quebec.

What additional measures could assist here? First, to persuade the U.S. government of the importance of shutting down the illegal operations on the U.S. side of Akwesasne. It is a national security threat to both countries. The Canadian government is losing revenue. By far it is the most important source of contraband entering Canada, and we would expect that the U.S. government would ask Canada to act if the reverse were occurring and the U.S. market were being flooded with illegal cigarettes from Canada.

Second, prohibit the supply of raw materials to unlicensed manufacturers, not only leaf tobacco but also cigarette papers, filters, and packaging. We need to choke off illegal production even before we get to the factory.

Third, establish a minimum bond of $5 million to have a tobacco manufacturers licence. Right now, believe it or not, it's possible to get a federal manufacturing licence for as little as $5,000—which is a problem. If we had a meaningful bond, we could have the financial leverage to encourage compliance, and if there's a failure to comply, that bond could be forfeited in whole or in part.

Fourth, have a tracking and tracing system to build on the new tax stamping system that's coming to monitor shipments and identify the point of illegal diversion.

Fifth, and finally, have better promotion of the first nations tobacco tax opportunity that currently exists because of the 2006 budget. There is a very low level of awareness of this, but if we could promote it more, first nations could implement a tobacco tax equal to provincial tobacco taxes. They must have an agreement, an arrangement, with the province in which they're located, but this would assist them.

Contraband is a population-wide public health problem for aboriginal and non-aboriginal kids, and aboriginal and non-aboriginal populations. There's a very high smoking rate among the aboriginal population. It's caused in part by long-standing access to cheap cigarettes, including very cheap contraband cigarettes.

Thank you for your time. I look forward to any questions you may have.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Canadian Institute of Actuaries.

Monsieur Bédard, the floor is yours.

[Michel Bédard, Member, Task Force on Financing of Employment Insurance, Canadian Institute of Actuaries]

Thank you Mr. Chairman.

My name is Michel Bédard and I would like to thank you for inviting the Canadian Institute of Actuaries to appear before your committee to discuss the creation of the Canada Employment Insurance Financing Board, as provided for in Bill C-50.

Our profession puts public interest before its own needs and those of its members. It is with that in mind that in December 2007, we published our report on the funding of employment insurance and that is we are appearing before your committee today.

We support the creation of the Canada Employment Insurance Financing Board, an independent board to supervise the funding of the plan; however, there are major aspects of this bill that could lead to problems for workers and employers as well as for the government itself.

The merit in this new system, of course, lies in the fact that after 2008, all costs and premiums will be balanced. However, forcing the financing board to maintain that balance on an annual basis, one year at a time, represents a serious handicap and will lead to fluctuations in the premium rates, and, more particularly, will trigger a procyclical rate increase at the first sign of a recession.

To illustrate, let's look at the following scenario. A recession hits Canada. Unemployment levels rise to 8%, which is 2% higher than now, increasing payments to out-of-work Canadians by about $3 billion. What happens? The board's $2 billion reserve is totally depleted. The EI account is forced to borrow another $1 billion from the government, even though, by the way, the EI account shows a surplus at this date of $56 billion. Unemployment levels might rise further. The government fiscal balance falls into deficit.

When the premium rate is set for the following year, several things will need to happen. First, the $1 billion that was borrowed by the EI account will have to be repaid, and so premiums will have to rise to cover that. The $2 billion so-called reserve has to be repaid within a single year. Then, of course, an increasing number of Canadians are out of work, and premiums have to increase to cover those extra costs.

Well, consideration of raising the premiums above the legislated limit of 0.15%, which is in the current legislation, will then fall to ministers. This will not be an easy decision in a weakened economy and weakened fiscal position.

We can look at the many times that the government substituted its health to the EI commission in the past to see that this is a real risk and a real possibility. Of course the impact on Canadian businesses, which pay for nearly 60% of the EI program costs, will be significant at those times when their cashflow and profits are severely reduced. And workers, who foot the bill for 40% of the EI contributions, will also be deeply impacted.

We believe having a five- to seven-year time horizon, closer to the normal course of a business cycle, would eliminate the necessity of raising premiums at the precise moment when they need to be stable, not increasing. Our calculations also indicate that an actuarial reserve of $10 billion to $15 billion would be needed to stabilize premium rates over such a timeframe. The rest of the existing surplus, which now stands at $56 billion as I pointed out, is not needed for the proper financial management of the EI program.

Even during an economic downturn that's not as deep as the one I described.... Even deeper recessions might also be possible, but during a smaller economic downturn, the one-year look-forward system would necessitate raising premiums on each occasion, pro-cyclically. Canada's actuaries believe this mechanism needs to be abandoned.

In fact, the proposed system is likely to produce premium rates that vary erratically from year to year, even in normal times, to recover normal forecasting errors. The so-called reserve of $2 billion does nothing to prevent this, as it must be rebuilt each and every year. In this sense, it is not a real reserve under that proposed system. It will not help stabilize premium rates at all. In fact, there is no fiscal cost for the government in any of this, of course, as the new board's operations will be entirely consolidated with those of the government.

Bill C-50 also has a number of restriction override provisions that, in our opinion, minimize or undermine the promise of independence put forward by the Minister of Finance in the February 26 budget. Under proposed sections 66.1 and 66.2--it's paragraph 2(b) in each--ministers are authorized to regulate what is binding on the board in addition to the rules they have to follow in terms of setting premium rates for a year.

Proposed subsection 66(8) allows ministers to override the 0.15% limit.

Proposed section 66.3 allows ministers to override the board without even any limit, at any time.

And proposed subsection 80(2) allows the Minister of Finance to dictate these loans and the pace at which they will be repaid.

We conclude with three recommendations. First, as I pointed out, the Canadian Institute of Actuaries recommends that premium rates be set taking into account a five- to seven-year period, with an actuarial reserve of $10 billion to $15 billion drawn from the existing surplus of $56 billion--maybe not all at once, maybe spread out over time, but ideally, given through a truly independent body.

Second, the institute recommends that Bill C-50 be amended to allow the chief actuary and the board considerably more latitude in the assumptions and projections needed to develop the premium rates, taking into account a five- to seven-year time horizon.

Third, the institute must, as a point of principle, reiterate our position of principle that the existing surplus belongs to the EI system and to its contributors, and should be addressed clearly instead of being swept under the rug once again. And in that domain, I must point out, of course, that the Supreme Court will be hearing this very situation tomorrow morning.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we'll move on to our last presenter. We have Lorne Waldman, an immigration lawyer. He's here as an individual.

The floors is yours for seven minutes, please.

[Lorne Waldman, Immigration Lawyer, As an Individual]

Thank you.

Having listened to my predecessors, I am convinced once again that it's extremely unfortunate that the government has chosen to put so many diverse issues into one bill. I found the presentation by the actuaries association extremely interesting, and I think it would be extremely important to take heed of what he said. I would say the same of the presentation by the Cancer Society and by my friend from the C.D. Howe Institute as well.

In any event, having said that, I will address the issue that I know about. I don't know about actuarial issues but I do know about immigration law. I've practised it for 30 years.

I'd like to deal with the claim of the government that this has to do with the backlog. I hope by now it's abundantly clear that this legislation has nothing to do with the immigration backlog. It excludes the backlog from its application. If that's the case, the question arises: what are we going to do with this massive backlog?

I would suggest to you that first we have to understand how it came to be. It's only a backlog that was created in the last six years—900,000 in six years—because the law changed six years ago. How did we get to this massive backlog in six years? We got to it because, notwithstanding the fact that this government and the previous government had the tools in place to ensure that the backlog didn't grow--because they could have changed at any time the criteria--they stood by and allowed this massive backlog to exist. We now have a backlog, and this legislation won't do anything about it, so we have to ask ourselves why we are talking about the changes to the selection criteria if, in fact, we have 900,000 people waiting whose applications are going to have to be processed, which is equivalent to about six years' worth of applications in the backlog.

There has to be a strategy to deal with this backlog, and this legislation has nothing to do with that strategy. The minister has suggested that we need this legislation because we need to have more flexibility in order to determine who we select to come into Canada. As the speaker from the previous panel said, we already have that flexibility in place. The minister has the power to make political directions. One example is the provincial nominee program. There's nothing in the legislation that allows provincial nominee applicants to get priority processing over other applicants, but they get it because the minister directed her officials to process provincial nominee applications more quickly.

The minister can make any types of direction she likes, even dealing with occupations. I went to court two years ago and challenged the minister's authority to do this in the case of Vaziri. I lost. It was a case about processing sponsored applications, and I argued that the legislation said that parents and spouses had to be processed at the same time, and the only way the minister could give priority over spouses was through a regulation. The Federal Court said the minister had political power to direct processing of applications as she liked. That would apply to occupations, and it would apply to provincial nominees.

So the minister doesn't need that power through this legislation.

The minister has said that this legislation does not authorize her to interfere in individual applications. That may be her intent, but as immigration lawyers, we've learned many times that professions of intent are meaningless when you go to the Federal Court and the court looks at the wording. The wording, as it stands now, clearly allows the minister to interfere with individual applications. If the government is serious, they should introduce an amendment that expressly says she cannot do that.

I was at the citizenship and immigration committee before, and someone from the Bloc asked me if it would allow the minister to interfere with the power of Quebec to select immigrants. The answer is yes. The instructions that the minister can issue are unrestricted. Indeed, the minister could issue an instruction saying that all provincial applications are going to be given lower priority than others, or no priority, or whatever.

So that's extremely important for the people from all of the provinces to understand. And this gets to the question that was asked: what's the problem with this? If we have the power now, why do we need this legislation? Well, this legislation gives the minister the power to override any of the rules and regulations or even the agreements that exist between the provinces. It gives the minister extremely broad, unfettered discretion with respect to who gets into Canada, where there is absolutely no political accountability, and that, in my view, is a very serious problem.

The Conservatives came to power saying they believed there should be more participation by Parliament. What this legislation does, if it's passed, is basically undermine any participation by members of Parliament in any aspect of the immigration process, because anything that's debated can be undermined by instructions issued by the minister when Parliament isn't sitting, which wouldn't be subject to any debate. If this bill goes through before the end of this session and becomes law on June 30, on July 2 the minister could issue an instruction that could totally change all the rules under which applications are being processed, and Parliament wouldn't have an opportunity to discuss it until October.

This is extremely undemocratic, and undermines the role of Parliament in debating and discussing immigration policy. In my view, it's not correct that the minister will be politically accountable as a result of publication. She may ultimately be politically accountable, but by the time any debate occurs, months will have passed. So I would urge the committee to really defer a determination of this legislation because I think it's really ill-conceived, undemocratic.

My final point is that it sets a very negative precedent. If this legislation is allowed to pass, what is to prevent the Minister of Finance from being given powers to issue instructions about important matters? What is to prevent the Minister of the Environment from being given the same power, to override the regulations through some kind of administrative fiat? Ultimately we can give all the different ministers the powers to issue instructions, and then we don't need to have a Parliament, we just have ministers who issue instructions. It's an extremely dangerous precedent that is a further centralization of the power of government, and I think it's something that should be carefully considered before it's passed into law.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Okay, thank you.

We'll move to questions. Mr. McKay will start, for seven minutes.