Finance Committee on Dec. 3rd, 2007

[Albert Ruel]

I guess I'm not clear on what that terms means.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay.

The next question, for Anna, is about this magazine subscription. You're saying that you have about 41% Canadian content in magazines. That's the amount of the market you hold. Is that correct?

[Anna Tores]

Yes.

[The Vice-Chair, Liberal, Massimo Pacetti]

So what is the ultimate goal? I was actually surprised that it was that high. Is there something you're aiming for?

[Anna Tores]

We want to have over 50%. We want Canadians reading Canadian products.

[The Vice-Chair, Liberal, Massimo Pacetti]

How do you do that? Do we force them? We give it to them for homework and then...?

[Anna Tores]

That's right, everyone must read Macleans.

We make it available to them. I think one of the biggest barriers is the newsstand and the fact that there isn't a space for Canadian magazines to be visible. You often find Canadian magazines buried underneath 100 copies of Vogue. That's one of our opportunities--

[The Vice-Chair, Liberal, Massimo Pacetti]

Are we competitive? Do people want to read Canadian content magazines? It's not American content magazines first.

[Anna Tores]

We are competitive, and I think we have the opportunity to be more competitive.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, great.

Just quickly, and this is going to be a little bit political, but Mr. Hackney, are you aware of the Liberal carbon budget and the proposal?

[Tom Hackney]

Not in detail, no.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, thank you.

Thank you to the witnesses. Again, I appreciate your input. It's very helpful for us in this process.

The meeting is suspended. Then we'll go to the next panel.

[The Vice-Chair, Liberal, Massimo Pacetti]

We would like to start. Good morning.

Thank you to the witnesses for appearing. We have to apologize, because we've been scrambling a little bit. We had a bit of a problem trying to organize this from our end because some of the members got left behind, either because of snowstorms or because there's a budget bill being debated in the House. So some of the members were left behind.

Your testimony, your briefs, your memoirs are being recorded, so the transcript is actually going to be on record. So if anybody wants to look up what you're advocating for, we're going to have that on record.

Also, some of the members lost their luggage, so some of us are not properly dressed. We have to apologize for that as well.

If we can start, I'm going to allow you a five-minute opening commentary to present your brief, and then we're going to allow a portion of time for members to ask questions. So let's begin.

Mr. MacKinnon, you have five minutes, please. Go ahead.

[Gordon MacKinnon, As an Individual]

Thank you.

When you people are looking for the proper balance between the private sector being taxed and the citizen--the proper balance between the two--I think when you're evaluating that you have to look at what our needs are in terms of human and financial capital for the coming years. Because of the growth we anticipate, we're going to need large amounts of capital, and we'll also be facing extreme shortages of human capital. So there has to be a balance between what we're offering in terms of being able to reward capital while also offering rewards to human capital.

People are motivated a little differently from businesses. People will make a choice that is positive, perhaps at a little bit of discomfort and not necessarily in their own self-interest. They might choose altruistically. Because of the Canada Corporations Act, businesses are typically responsible to their shareholders to deliver the best returns and advocate those policies, so their decision process is based on the best results for their shareholders.

The challenge we have is creating a brand for Canada that's going to attract international capital that doesn't necessarily come at the lowest cost for taxation. There's a theory in business that you don't want the low-cost customer, the people who will go to shop across the street because it's a dollar less. Those people do not return; they do not invest in your commerce, so they're not the most valued customer. What you want to do is develop a customer who recognizes value-added that you're delivering, and court them, because their partnership is going to bring more value. They recognize the value they're investing for the value that is hidden.

Part of this process, I believe, is that if we start evaluating our capital investment decisions based with real options accounting strategies that recognize hidden value that's delivered through future flexibility, where a decision will be made based on not necessarily the best cashflow, but more that there's a future option that gives you flexibility, that's worth more than the underlying cost of securities. This is covered a bit in my brief.

Basically, what I would like to see is the opportunity to develop a brand for Canada where we are leveraging our ethics, our community, where we have high respect for the rule of law. We are reducing the risks for the investor by our very community, inasmuch as we have a great deal of political stability, fiscal stability and we're looking at a very prosperous future. That means we don't necessarily need to reward investors with lower taxation rates because we've already mitigated the risk.

In investment, there's risk and reward. If you're reducing the risk, you certainly don't necessarily have to sweeten the reward, because the balance works out.

So I think what we have to do is work on developing our communities through a lot of investment in the communities, but also looking at shifting to consumption-based taxation; from personal income tax to consumption-based taxation.

The idea of this would be perhaps an idea of an ecological cost-of-ownership tax, which would replace the GST and would allow people to factor in the ecological cost of their purchase—have it broken out with labelling or whatever—so that you know that there's an energy component that was in the tax on this item, and you can make a more responsible choice at the till. At the same time, we'd shift the taxation from income tax to consumption taxation, so we can direct individual decisions and corporate decisions toward better ecological choices.

We could even integrate with the ecological cost-of-ownership tax, things such as the levies we now have in British Columbia for the disposal of goods that you purchase, because you are buying something for its life cycle and it also ends up in landfill or needs to be remediated in some way. These costs also need to be covered.

I guess that's more or less all for now.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

From the Capital Unitarian Universalist Congregation, Ms. MacDonald.

[Jackie MacDonald, Member, Social Responsibility Committee, Capital Unitarian Universalist Congregation]

Hello. My name is Jackie MacDonald. I'm from the social responsibility committee of the Capital Unitarian Universalist Congregation in Victoria.

I would like to thank the chair and all the members of the Standing Committee on Finance for this opportunity to address you.

The points that follow are highlights from our written submission.

The criteria that should guide changes to government revenue should be fairness, ability to pay, environmental sustainability, and social impacts. Future tax policy based on these criteria will do more to create prosperity than the current tax policy, which has not addressed the growing gap between the rich and the poor.

Studies by the Organisation for Economic Co-operation and Development, the OECD, show that prosperity is achieved by providing adequate income, housing, health care, education, and other infrastructure. Federal tax cuts in recent decades have created negative impacts in all of these areas.

We believe that corporate taxation should be based on activity in Canada, particularly with respect to multinationals, to prevent the shifting of tax responsibility to other countries or jurisdictions that may have lower rates. If you assume that corporations are ultimately owned by individuals, then they have a responsibility to contribute to the economic, social, and environmental objectives of Canada and should not be able to delay this indefinitely by sheltering income within a corporation.

Grants or subsidies should be based on assessments of a corporation's environmental and social impact, as well as its economic impact, as is the case with the environmental assessments that are currently required for major capital projects. This would eliminate subsidies to the fossil fuel sector and would provide more tax dollars for such appropriate uses as renewable energy.

The level of corporate taxation should not be based on what is competitive with other countries if this means that an inappropriate contribution is made toward Canada's environmental, social, and economic objectives; Canadian society should not be driven to the lowest common denominator of other jurisdictions. A fair level of taxation should be based on the economic, social, and environmental policies agreed to by the electorate through genuine consultation. To that end, tax cuts should not be used as a vote-buying mechanism when there is obvious need, based on consultation.

Accounting rules should be changed so that all financial statements include a triple bottom line; in other words, if a corporation had a negative environmental or social impact, they would pay more tax.

In addition, we believe in creating a carbon tax in order to encourage the reduction of greenhouse gases. One way or another, the true cost of goods and services needs to be reflected in their price. Failing to implement a system with true costs will delay the changes needed to avoid disastrous climate change until it is too late.

This is an urgent challenge that demands immediate action. We need leaders who have the courage to step up, who care for their children's future more than short-term economic growth or the next election. We can't afford to wait for others to lead the way; we must lead the way. What legacy will you leave? How will you be remembered?

I deeply appreciate the opportunity to make this presentation. Thank you for listening.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Next is Mr. Jim Hackler, from the First Unitarian Church of Victoria.

[Jim Hackler, Chair, Justice Subcommittee of the Social Responsibility Committee, First Unitarian Church of Victoria]

I'm Jim Hackler, from the social responsibility committee of the First Unitarian Church of Victoria. I had no idea that Mrs. MacDonald would be presenting today. This is strictly a coincidence.

We are concerned that politicians tend to be very apologetic about taxes, as if they are somehow things we should not be using and that it's much better to give income back to people so they can buy stuff. In western civilization in recent years we've seen that things that really matter to quality of life have largely come from the use of tax moneys to do something for the community--public libraries being an excellent illustration.

We don't find that private enterprise necessarily deals with some of these issues. We rather regret this tendency to seduce voters by giving money back to them instead of using it in a constructive manner.

Let me try to deal with the issue. We talk about how we collect taxes. We don't collect taxes haphazardly; we have a reason for it. We tie those taxes to the goal we're trying to achieve. You develop pension plans on the basis that people who are working can prepare for their pensions. You don't go out and decide on these taxes independently.

With respect to the public transportation issue, we have the dilemma that most people drive cars. They want to pay very few taxes. They want to have cheap gas and big highways with nobody on them. Everybody else can ride bicycles and use public transportation. That's unsustainable, of course

Hopefully, intelligent political leaders will try to convince the majority of these people who drive cars that they can't continue to be subsidized as they are now. They have to help in subsidizing cost-efficient things like rail traffic, which we know is much more efficient than other forms of transportation. Somehow you have to divert funds from those people who want to drive their cars to a public transportation system that is efficient. How that is done requires leadership rather than followership.

Let me go to one other specific illustration on how one might change things at the corporate level. Obviously corporate lobbies will play an important role in government. How do you resist that? We saw an illustration from the Toronto Stock Exchange a number of years ago where they resisted providing information to shareholders. Finally they gave in and the corporate salaries were revealed, as the New York Stock Exchange had done.

There are other steps. For example, we have an unlimited amount of salary dollars for CEOs that can be written off as expenses. A rational policy might limit corporation expenses to a salary for a CEO that is, say, 20 times the median salary paid to the rest of the people in the corporation. About $1 million or so should keep the wolf from the door for some of these people. Beyond that it should be money taken directly from shareholders. Then shareholders might say, do I really want this to continue?

In other words, a modest change in the way we tax corporations might bring about some long-range gains. What I'm basically saying is similar to what my colleagues have said. The social good should be weighed.

Applying taxes to the public is not going to be a straightforward process; it's going to be manipulative, opportunistic, what have you. There will be double taxation. When corporations complain about it, they're just joining the crowd. Double taxation is going to be part of the game. We're going to have opportunistic taxation. We can live with that, but how do you do that in such a way that you get a decent social payoff?

At the present time, we are giving in to a variety of pressures, rather than having social good being the highest goal.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

From the Greater Victoria Chamber of Commerce, we have Madame Renault.

[Shannon Renault, Manager, Policy Development and Communications, Greater Victoria Chamber of Commerce]

Good morning. My name is Shannon Renault from the Greater Victoria Chamber of Commerce. I thank you for this opportunity to present today.

Since 2000, the Government of Canada has introduced a number of tax changes that have been designed to place the country in a more competitive position and to lessen the tax burden on individuals. Significant as these achievements have been, at the chamber we believe we can do more.

Going forward, we believe the federal government should focus efforts on three fronts: first, encourage more active investment in the Canadian business economy; second, focus on the issue of labour attraction and retention; and third, invest in finding solutions to social problems that impact business and our communities.

In regard to encouraging investment, the recent announcement in October from Minister Flaherty about a reduction in corporate and small business taxes certainly will have a positive impact on the ability of companies to invest in productivity. Another important step that would encourage further investment would be a significant change in the taxation of capital gains, as promised in the 2006 Conservative election campaign. The elimination of capital gains tax for individuals on the sale of assets, wherein the proceeds are reinvested within six months, would encourage more active investment in our economy. That tax-exempt rollover of capital gains should be introduced in the next fiscal year.

Secondly, consideration needs to be given to including gains from the ownership of real property in capital gains exemptions. A good number of Canadians have investments in varying sizes in real property; however, these investments would not currently qualify for the capital gains deferrals. Investments in real property lack liquidity and portability, and the immediate application of capital gains makes it difficult for investors to grow their real property investments. As a result, and I'm sure I'll be supported by the real estate board on this, investments are locked in, and real property owners do not turn over their assets and have a more active participation in generating wealth in the economy. In addition, because owners are faced with a financial disincentive to maintain the overall quality of both commercial and residential investment properties, unfortunately, the unintended result of some of this is urban decay.

As to labour attraction and retention, the Greater Victoria Chamber supports the need for Canada to be more tax competitive with our U.S. neighbours. This is on a personal level, not a corporate one. Notwithstanding differences in our social service systems, the disparity in our respective levels of personal taxation are such that some of our professional and high-wage earners can be lured away to attractive opportunities in the U.S., where they personally benefit from significantly lower taxation. This is especially true of those in the top marginal tax bracket, which in Canada is 8% higher than in the U.S. In addition, the threshold at which the top marginal rate kicks in is much lower in Canada than south of the border. These two things together make Canada appear to be a less competitive market on an individual basis for our best and brightest.

Also, to become more competitive in the shrinking global labour market, it's advisable for the federal government to develop innovative tax policies focused not only on attracting skilled foreign immigrants but also on luring Canadians back to Canada--so those talented expatriates as well. Some suggestions might include introducing a tax incentive for individuals in targeted skills areas for which there is a particularly high need across the country. You might consider something not unlike municipal tax holidays, which are designed to encourage particular types of development in the cities. You could consider also federal tax holidays to attract back expatriates in specifically skills-short areas in Canada.

Also, we would suggest a tax credit for small and medium-sized enterprises for employing co-op students in positions that have the potential to grow into full-time employment. It has been well documented that co-op placements are a hugely useful way to anchor students to the places from which they take their education. Many small businesses and medium-sized enterprises don't participate in co-op placements because it's not in their budget to do so, and certainly a tax credit would assist in that.

Last, but certainly not least, the Government of Canada needs to take a far more aggressive lead in solving the problems of chronic homelessness across our country. Through the commitment of $256 million to the housing partnership initiative, we see the government is mindful of the homeless problem in Canada; however, the funding allocation is insufficient to deal with the size of the problem. By comparison, the U.S. government invests 3.6 times per capita what the Canadian government does on results-oriented homelessness initiatives. In the U.S., the numbers of homeless are decreasing; in Canada, the numbers of homeless are growing.

Businesses across the country, those that are on the front lines of our urban landscapes, are languishing each morning as they clean up the human mess that results from the problem that is being ill-handled and continues to grow. I might illustrate that you need only go a short walk from this hotel to see that for yourself. In this time of record government surplus, it is absolutely necessary for the federal government to apply a focused effort to reducing homelessness across Canada, and in doing so improve the business environment for thousands of Canadian companies.

So in conclusion, and to sum up our recommendations, the Greater Victoria Chamber of Commerce would recommend introducing the capital gains rollover and including the gains from real property in the group of qualifying assets; reducing income tax levels on the highest tax bracket and increasing that bracket's threshold; introducing a variety of tax incentives to attract workers in targeted areas of skill shortages and to retain our students with Canadian companies; and investing far more aggressively in a results-oriented strategy to reduce chronic homelessness across the country.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

From Heritage BC, Mr. Goodacre.

[Rick Goodacre, Executive Director, Heritage BC]

My name is Rick Goodacre. I'm the executive director with Heritage BC. Heritage BC is a non-profit provincial umbrella society that represents about 165 member organizations around the province.

Thank you, Mr. Chairman and members of the committee, for the opportunity to speak this morning.

Before getting into my presentation, and to put it into context of current discussions about sustainability and global climate change, I would like to note that the greenest building is the one that's already built.

In our brief submitted in August we spoke to one principal issue, the national historic places initiative, and I will this morning use my time to speak about this one issue again.

In its written invitations to Canadians to make their views known, the committee specifically identified tax policy, asking what changes to the current tax system might be beneficial. I will be talking about such a measure this morning.

Before doing that, I would like to give the committee a little background on the essential nature of heritage conservation, which I think would be some useful context.

Canada has many heritage buildings and historic places that we value as part of the fabric of our society. There are an estimated 20,000 such places that have some official designation or identification across the country. While some heritage buildings are publicly owned, most are in private hands, and while a few have been set aside and protected as unique artifacts of Canadian history, the great majority have not. In fact, like people, buildings have to work to make a living, and heritage buildings are no exception.

A heritage building, if it is to survive, must have a useful function, and this means there must be routine maintenance and sometimes significant investment and rehabilitation when that function must be updated or changed altogether. For many of our heritage buildings, we rely on the private sector to develop an industry to make these investments to keep the building working and to find new uses when required, but the public also has an interest in these resources. We value the buildings for their heritage character, the qualities they bring to our historic downtowns--and I refer you to downtown Victoria, just across the bridge here--their appeal for tourists, and their opportunities for business and housing.

We want to see them used and reused. We don't want to see them demolished and put in the landfill. We don't want to see the embodied energy in these buildings wasted and we don't want to lose more of our history.

The reality of heritage conservation is therefore a complex relationship and partnership between the private and the public sectors. The private sector provides the initiative and takes many of the risks. The public sector provides the planning and developing context but must also share in the investment if we expect heritage conservation to happen.

There are many excellent programs at the local government level; nonetheless, many of our heritage buildings remain underutilized--derelict, even--and facing demolition. In response to a scenario of continuing losses of our heritage, in 2001 the federal government launched the historic places initiative, or HPI. The HPI has been a national rather than a federal effort, involving all provinces and territories in an exceptional degree of accord that reflects the unanimous agreement that this is something worth doing.

A basic federal commitment from the outset that was fundamental to building this national accord was to bring the federal government into the heritage conservation business at the street level in cities and communities across Canada by becoming a participant in the business of heritage rehabilitation. The historic places initiative over the next two years laid the groundwork. The historic places branch was created, a national register of historic places was established, standards and guidelines for historic conservation were published by the federal government, and a network of project certification agents was set up to deal with project inspection and approval.

The next step was to launch the Commercial Heritage Properties Incentive Fund in the 2003 federal budget. This $30 million program, providing grants of up to $1 million to private development projects involving recognized heritage buildings, was confirmed at the outset by then Minister of Finance John Manley to be a pilot for a much anticipated federal tax incentive to attract investment in the rehabilitation of heritage buildings.

Although a number of projects were supported by this program, it was wound up early, a year ago. To date we've heard nothing more from the federal government about a tax incentive program for heritage buildings or any similar measures.

Canada needs a federal tax incentive for our irreplaceable stock of heritage buildings. All of the basic elements are in place. The preliminary milestones have been passed. The research has been done. The departments of environment and finance have been talking about this for several years. The pilot project has been completed, and it's now time to act.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

From the Housing Affordability Partnership, Mr. Mitchell James.

[James Mitchell, Executive Director, Housing Affordability Partnership]

Good morning.

I would like to thank the committee for this opportunity to bring our recommendations forward.

The recommendations in this presentation are related to the challenges and needs within the housing sector. In the capital region of B.C., the need for affordable housing is increasing. The present housing environment prevents households at or below the median income level from achieving home ownership. The market forces are such that we have the lowest vacancy rate in the country, and one of the corresponding results is a homelessness count in Victoria alone of over 1,500 persons.

I would like to stress a few key points from our written submission and update some information using the report published by the City of Victoria entitled “Mayor's Task Force on Breaking the Cycle of Mental Illness, Addictions and Homelessness”. This report was released on October 19, 2007.

The average house price reported by the Victoria Real Estate Board for a single family home sold on the MLS system for October 2007 was $556,222, and the vacancy rate for rental apartments remains below 1%. This extremely tight housing market burdens the low- to moderate-income earners with additional hardship as they seek safe, affordable places to live.

The situation can most easily be seen when we look at the challenges faced by individuals who are homeless and living on the streets of Victoria. The mayor's task force states that homeless residents consume an inordinate amount of the social services provided due to their continued movement through the service system without obtaining the help they need. These costs can be reduced and homelessness can be eradicated through the provision of permanent supportive housing. Providing housing for homeless people is the essential foundation for a successful response to homelessness. It is estimated that there are now approximately 1,500 homeless people in the greater Victoria area. The task force is recommending that a minimum of 1,550 units of housing be built or secured in the next five years.

Although 1,550 units would make a substantial impact, they may still not provide a home for every homeless resident who needs one. The Housing Affordability Partnership, or HAP, is a unique public-private, not-for-profit group working together to address housing affordability concerns and raise awareness of emerging housing issues and opportunities in the capital region of B.C. HAP is a volunteer working partnership with representation from industry-related profit and non-profit sectors. We have recently supported and participated in the development and establishment of a regional housing trust fund to initiate the production of affordable housing, and since the establishment of the RHTF, we have seen the establishment of similar housing trust funds set up by the City of Victoria and the City of Langford. The partnership has also been involved in the development and adoption of a regional housing affordability strategy that details a region-wide framework that supports the development of affordable housing projects.

While these housing initiatives are successful and very much needed, the housing crisis cannot be adequately addressed without the private sector's developing purpose-built rental housing. This has not happened in our community for 25 years. To encourage the needed private sector development, we must remove the impediments in the federal tax structure. We must also face the fact that some 3.1 million apartments in Canada are over 30 years of age, and we are losing them to demolition or conversion by the tens of thousands per year, far exceeding the number of apartments being built. It is critical that this imbalance be addressed as quickly as possible to ensure that workers are able to afford to live in the area in which they are working.

The Housing Affordability Partnership would like to compliment our local RECO, the CHBA, ROMS BC, our Victoria Real Estate Board, as well as the rest of the partners who created the report “Why Isn't Rental Housing Being Built?” Their recommendations provided the framework for our written submission.

A few key recommendations that we strongly encourage the committee to consider are to allow the rollover of capital gains should an owner wish to sell a rental building and either buy or build a new one; rebate 100% of the GST, as is the case with other multi-unit buildings; have the same taxation rules apply to the construction and operation of rental apartment buildings as are applied to condos, hotels, and warehouses; allow landlords to apply capital cost deductions at a rate that will foster significant reinvestment in upgrading and maintaining the existing 3.1 million apartments in Canada; and apply a flat taxation rate of 15% on all revenues generated from secondary suites, rather than the application of standard taxation practices.

Our written submission has more substantial recommendations in it as well.

The Housing Affordability Partnership also stands with the Greater Victoria Chamber of Commerce, which issued a press release on October 30 that called for a more significant contribution from the Government of Canada in solving our national homelessness problem.

The chamber is also encouraging the federal government to invest more in the national housing first strategy. The federal government should immediately increase its level of funding support for affordable housing to levels experienced between 1985 and 1990.

Quality affordable housing is a cornerstone to developing healthy, economically vibrant communities across Canada. Canada is desperately in need of an affordable housing strategy. Affordable housing and homelessness have reached crisis proportions in our urban, rural, and remote communities.

We need Canada's federal government to help address these issues through additional direct funding support and significant tax changes that will empower local communities and entrepreneurs to respond effectively and quickly.

Thank you very much.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

We'll go to seven-minute rounds.

I will remind the witnesses that the members have seven minutes for the questions and the answers, so if you would keep your answers to a brief intervention, I think it would help the debate.

Mr. Dhaliwal, seven minutes.