Finance Committee on Dec. 3rd, 2007

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Thank you, Mr. Chair.

My first question goes to Mr. MacKinnon.

You have talked about consumption taxation. Would you like to comment on this GST cut? How could we have handled it better? When I look at this, the incentive goes directly to the taxpayer, even though it does not make a big difference in the pockets of people who are spending about $40,000 a year, but that's one person....

Could you elaborate on this issue?

[Gordon MacKinnon]

First, look at it from the standpoint of the economic burden on a business. I run a business. I have to file my GST input credits and returns. I'm doing the same amount of work to file for 5% as 7%.

That means, similarly I would presume--this is pure conjecture--the Department of Finance is going to have overhead costs in a similar range. So, in effect, by reducing the GST from 7% to 5%, they have effectively reduced the efficiency of the collection, which is not necessarily the best signal, I would think, to send businesses about improving productivity when the department is heading in the opposite direction itself.

Second, there is quite a bit of evidence from the OECD, from the Department of Finance--I gathered this information from a report of the Fraser Institute about the effectiveness of various revenue-neutral forms of taxation--and consistently, consumption taxation was one of the most effective forms of economic stimulation and economic benefits derived from that form of taxation.

It seems to me if you have a revenue-neutral situation, you have more personal income with reduced personal income tax, and then you have the choice of spending on consumption or investing and reinvesting in our economy. So there's the added benefit to that.

I'm not an economist, so I can't break down all the benefits that were identified in those studies, but that's my point of view.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

How would it help the low- or middle-income families, because I see most of the panel here as socially responsible? How could it help those families?

[Gordon MacKinnon]

That's certainly the challenge, because I don't know how the GST rebate as currently structured, that comes to people on a quarterly basis, is necessarily going to address the inequities in income if you have to wait every quarter to get the money to pay the additional taxes you might be paying on your consumption. That's a bit of an economic hardship, and there is a challenge in identifying a better way of targeting some equalization strategies for the economically disadvantaged.

Similarly, if we were to go to a concept of an ecological cost of ownership tax, there would also be an issue of how to develop strategies to lessen the burden on economically sensitive businesses.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

You have also covered the direct funding for major centres. Do you mean the cities and communities?

[Gordon MacKinnon]

Yes. I often think when you have direct funding at a municipal level there is a lot more input. It's community based, and the needs of each community are a little bit different. So it's difficult to have a national strategy and say how we're going to do this when each community has different priorities and different requirements. And unfortunately they're limited in their means of generating revenues.

Unfortunately, the other problem is constitutional issues. Municipalities are not a federal responsibility, so it requires a great deal of cooperation with the provinces on this matter as well.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

So you're acting with the large city mayors to have much more control and direct funding for their communities.

[Gordon MacKinnon]

I think that would be more effective. As I said, it's on the ground at the municipal level where you have.... We don't have a homogenous country. There are different issues here in Victoria than there might be in Toronto, Montreal, or Halifax.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Ms. MacDonald, you talk about a carbon tax. The deputy leader for the Liberals talked about bringing in a carbon tax as well. Could you elaborate more on how it would help? Can you give us the pros and cons on that for the economy?

[Jackie MacDonald]

I guess it depends on how it's structured. I know there are two different ways of structuring it. One is based on international energy and one is based on domestic energy. From what I've read, it appears that if you structure a carbon tax based on domestic energy, it's more effective.

There would be disadvantages, as this gentleman said, to low-income people, because consumption taxes affect them more than income taxes. There would have to be something for them so they weren't overly disadvantaged by that.

Sorry, what was the other question?

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Mr. St-Cyr, just to help everybody out, do you have translators?

Let us see if it works in French. Perfect.

Go ahead, Mr. Saint-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you very much for being here.

My first question is for a Mrs. Renault. I wonder if you speak French, with such a pretty name. I guess not.

[Shannon Renault]

Sorry, I don't.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I will have better luck next time.

You have made two recommendations relating to income tax. The first is to reduce the rate of income tax, especially for low income workers as well as for middle and high income people. So, there is nothing specific there, you just want a general income tax reduction.

However, your second recommendation is to raise the bottom of the highest income tax bracket from $150,000 to $200,000. I must admit that there has been a long debate within the Standing Committee on Finance to know if we should be more in favour of a general tax-cut then a targeted cut for lower income people but this is the first time that someone wants a tax cut for the highest incomes, especially since tax cuts are always more beneficial to the richest among us. If we lower the first bracket, all taxpayers benefit from it, even those who are in the highest brackets. However, if we cut only for the highest bracket, nobody else gets any benefit.

I suppose you are aware that this would be somewhat difficult to sell in our ridings and I would like you to tell us how many taxpayers they are in Canada earning between $150,000 to $200,000, apart from the 308 MPs in Ottawa.

[Shannon Renault]

Actually, there are a couple of things there.

To answer your immediate latter question, I don't know the number of Canadians who are in that actual tax bracket.

But if you don't mind, I'd like to correct something you said. We are aware that there have already been tax reductions introduced for those in the lowest tax bracket. They were just announced recently by Minister Flaherty and will be retroactive to January 1, 2007, this year. The announcement made in October will actually remove somewhere in the order of 385,000 to 400,000 Canadians from the federal income tax rolls altogether. That is something we had been advocating for ourselves at the chamber of commerce, and it was certainly being advocated for by the national chamber of commerce. That's a tick in the box already. We're happy with that one.

However, this particular personal tax deduction that I spoke of today was presented in the light of labour market attraction and retention. Some of the most highly skilled professionals and workers in different categories are up in that tax bracket. So these are your highly skilled technical people, professionals, people who have a lot of choice in terms of where they're going to sell their labour. We don't need to tell anybody in this room how competitive the labour market is, not only between Canada and the U.S., but globally. So while it might not be emotionally palatable to say that people who make a lot of money should get a better tax break, it's logical that when you're finishing your education and you've invested the amount of money that you need to invest to be able to market yourself to those positions, you have a lot of expenses, and you're going to personally be marketing your skills to the area where you're going to be saving most of your money, and right now that's the U.S.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I would like to conclude with two comments. Most of those studies has been funded by society in general, which means that they have been funded also by the middle class and classes at the lowest levels.

On the other hand, I would like to remind you of my first comment. Income tax reductions for the poorest people do not exist. When there is an income tax cut for the lowest income people, all taxpayers benefit from it. One cannot say that taxpayers in the highest classes did not benefit from previous cuts. Each time the minimum level of taxation is raised, all taxpayers get a tax cut, highest incomes included. Here, you're talking about eight cups aimed at the eight-day limited number of taxpayers. To my mind, very few people earn $150,000 or more.

Since I have very little time, I want to ask you another question on another issue where we might be more of a mind. It is on the manufacturing sector. The present difficulties of the manufacturing sector has been mentioned frequently in this committee, especially those caused by the increase in value of the Canadian dollar, the cost of energy, and so on. The Bloc Québecois was a suggesting, in particular, to make the research and development credit refundable and to allow for accelerated depreciation of the machinery and equipment purchases, of investments in businesses. Those are two measures that would cost very little since they consist of deferring taxes in the future but they would provide more cash to companies during this time of crisis.

Do you believe that those two measures could be helpful to the manufacturing sector of British Columbia?

[Shannon Renault]

Yes, we're certainly in support of that. It's something that has also been talked about at the Canadian Chamber of Commerce. It's just not the piece we chose to focus on at this presentation.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Very well.

I have a brief question for Mr. James which does not necessarily relate to the federal government. It is more for my own information. In my riding of Montreal, a new standard is slowly being implemented for new developments. With this standard, 30% of new units would have to be affordable units in major developments, even in high-end ones.

Does that exist in British Columbia?

[James Mitchell]

There is one municipality within the Capital Regional District, which has 13 municipalities, that actually has the requirement that new developments have to have 30% affordable housing.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. St-Cyr.

Your turn, Ms. Savoie.

[Denise Savoie, NDP, Victoria, BC]

Merci.

Thank you all very much for your presentations. They were really interesting and stimulating.

I think despite the differences in perspective, in some cases you all seemed to say the tax system should be attentive to the social outcomes. So I have a couple of questions to some of you, but I'll start with you, Shannon.

Certainly, you've advocated for tax cuts. My colleague here has just pointed out that you made the unusual recommendation of suggesting tax cuts for the highest bracket. Given that the taxes we have are a finite pool, how would you balance the need to provide the kinds of tax cuts the government is providing--I think it was $14.8 billion in corporate tax cuts--with little attention to the social outcomes?

We've just heard this morning, what was it, $550,000-some for the average house in Victoria. We know the problem we're having with affordability. I'm just wondering, how do you balance that?

Obviously, there's a balance issue, and the government needs to pay attention. I wonder if you could comment on it.

[Shannon Renault]

Keeping within the context of the priorities we presented, if I were to combine the recommendation regarding the tax cuts to the highest income bracket with a recommendation regarding increased investments for homelessness initiatives, that might sound like a cost to the federal government all the way around.

Quite frankly, the recommendation regarding the income tax decreases, as your colleague so rightfully pointed out, doesn't necessarily target a large group of Canadians. However, it does target a group of Canadians we want to maintain in Canada in our own workforce, doing our research development and all the other highly skilled jobs we need to have done in our own country. The cost to government on that measure is, frankly, not significant, but it improves the competitive platform in terms of labour market attraction and retention.

On the other hand, keeping within the context of those priorities we presented, investing more on the part of the federal government in initiatives that address homelessness clearly has a multiplying effect in terms of cost savings in other parts of government expenditures, be it in policing costs, judicial costs across the country, and health care, most significantly, which has a significant contribution, as you all know, from the federal government. Contributions from the federal government will go a heck of a lot further if costs are not being absorbed at any exorbitant rate by the increasing number of the homeless.

The recommendations need to be looked at in terms of the whole compendium of what costs and to what advantage and what savings and to what advantage. Certainly, in the ones we've put forward, I think the tax costs, if you will, compared to the tax savings, are like this.

[Denise Savoie, NDP, Victoria, BC]

Thank you.

From all the studies I've read, quality of life is a big factor in attracting and retaining people, so the issue of homelessness is a big one that needs to be addressed to reduce some of the risks for business, not to mention the humanitarian aspect of providing housing.

I want to go back to the issue, not just of homelessness but of affordability, in terms of what the government can do. You've made a number of recommendations. I wonder if you could elaborate on them.

Ms. Renault referred to the capital gains rollover, and you've made it a little more specific, Mr. Mitchell. I think you talked about applying the gains rollover specifically to real property. Is that something you think would be preferential to the broad, just plain capital gains rollover?

[James Mitchell]

I wouldn't like to say it would be preferential; I'd like to say having it as a component would be sufficient. It's very important that—

[Denise Savoie, NDP, Victoria, BC]

That in itself would be sufficient, just to be clear on your answer.