Finance Committee on Sept. 29th, 2009

[Ross Lennox]

There has to be some balance. I think you have to look at where the jobs are being created and where the IP is being created, and that is primarily in the SMEs. The refundability to the larger companies is 20% for SR and EDs.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay, that's fine.

In terms of paperwork, is it easy to get IRAPs? I'm talking about people who are applying for between $20,000 and $50,000. One of the big complaints I get is that it is tough to get the money. It's not worth their while to get the money, but when they do get the money, it is worth their while.

[Ross Lennox]

It requires a process, and there is a team of 12 technical experts who look at your applications. One of the things that would help us is this. If I receive an IRAP, I have to go through the same process with SR and ED again, so if it's an IRAP project, I should automatically get SR and ED for it.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's what I wanted to hear. Do you agree with that?

[A witness]

Absolutely.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

I have some time for a final round because people have been very concise. I certainly appreciate that.

I have a series of questions. The first is for the Alberta Chambers of Commerce.

I certainly have some sympathy for your recommendation concerning the threshold, so the first recommendation you make, committee members, can look at and perhaps adopt, but in terms of the second one, or in terms of actually committing to do that, is there a cost? Obviously, the biggest question the finance minister and the finance department would have is, what would be the cost of actually implementing ongoing thresholds for any tax changes?

[Ken Kobly]

As far as the actual cost involved to implement is concerned, we don't have those numbers. I would suggest that Finance could probably come up with a pretty good estimate, and we'd encourage them to take a look at it.

The one that would cost the least amount to implement, in my opinion, would be increasing the threshold of GST for small suppliers. It's effectively revenue neutral.

[The Chair, Conservative, James Rajotte]

Certainly I think the first recommendation in terms of an ongoing review of that is very practical.

Just turning now to the prospectors and developers, I am very heartened by Mr. McCallum's comments on perhaps this committee recommending that we stop doing this every year and having this constant debate on whether we are going to do it or not do it. That is certainly very hopeful.

I don't know if you want to comment on that, but the thing that really hit me when I was up at the diamond mine in the Northwest Territories was the massive structure, but then they showed how long it actually took to construct it, how long it will be in operation, then how long it will take to actually reclaim that land. Obviously, that is the reason you're asking, to have a long-term framework fiscally so that you can actually make decisions.

[Eira Thomas]

Absolutely. It is an investment in the future.

Further to Mr. Laforest's comment about our competitiveness, for 25 years mineral reserves in Canada have been on the decline, so despite the fact that we've had quite strong commodity prices, minus the last year where we had significant pullback, we haven't been replacing our mineral reserves. That is because Canada is probably losing its competitive edge. A lot of that comes down to the things we spoke about earlier, about a lot of the geology being in remote areas. The last major road development into northern Canada was Diefenbaker in 1959, so that gives you an indication of the lack of investment in infrastructure.

All of those things are important for the long-term sustainability, but for now and survival, I think this mineral exploration tax credit is very important.

[The Chair, Conservative, James Rajotte]

Thank you for that.

Also, I appreciate your comments about the IRAP program. It is certainly a program that we support very strongly and we will certainly look at what we can do on an ongoing basis.

I did want to return to the accelerated CCA. It's a bit of a special issue for me because we worked on it at the industry committee, and Jay Myers certainly drove that issue forward. The industry committee adopted it unanimously. The finance committee adopted it as well. I do take Mr. McCallum's point. You can't have 100% CCA on everything--obviously not--but with respect to the manufacturing sector, I get a little sensitive when people say a two-year writeoff for capital machinery and equipment is a subsidy.

Mr. Kaumeyer, I want you to respond to the people who say this is a subsidy and actually tell us what accelerated CCA actually means for a company or a plant in terms of their own operation.

[Lawrence Kaumeyer]

On what it means and why it's so vital right now, we're in very unique circumstances with SMEs across Canada right now. Probably the most predominant aspect that has hit small and medium-sized enterprises across Canada has been the ability to access cash from financial institutions. We all know what has happened with the credit crunch. The reason why it ties back so directly within CCA and the acceleration is that the ability to depreciate that faster enables you to increase the amount of cash flow you'll have in the business for other things. It's absolutely vital right now.

We're not a big business, but we are the lifeblood of what's going on across the country in that. We've invested $2.76 million in capital expenditures in the last two years. Our ability to have some leverage in looking at where that could expand would further assist in our cashflow management. That's really what's taking companies under right now.

I toured Ontario in the spring and saw dramatically what had occurred there in manufacturing. Basically companies were running out of cash. So the acceleration would assist that dramatically.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Oszli.

[Don Oszli]

An accelerated capital cost loan is really a deferral of taxes. From the government's standpoint, it doesn't result in reduced taxes overall; it's simply a deferral. You invest the money now and reap the benefits of that when the equipment is disposed of, or you reap the benefits of taxation from the growth of the companies that invest in that.

[The Chair, Conservative, James Rajotte]

Thank you.

I'd love to continue this discussion, but we're out of time. As I enforce the time on others, I'll enforce it on myself.

I want to thank you all for your presentations, responses to our questions, and submissions.

Members, we're going to suspend for a few minutes. We'll ask the other witnesses to come forward to the table, and we'll resume immediately thereafter.

Thank you.

[The Chair, Conservative, James Rajotte]

I call the second panel of the 44th meeting of the Standing Committee on Finance to order, as we continue our pre-budget consultations across Canada in our second city of hearings—and my favourite—Edmonton. It's lovely for all of you to be here.

We have with us a number of individuals and organizations, and I'll introduce them in the order they'll be presenting.

First of all, as an individual, we have Mr. Peter Bulkowski; and then we have Meyers Norris Penny LLP; the Edmonton Social Planning Council; Volunteer Alberta; the United Way of the Alberta Capital Region, Success By 6; and His Worship, the Mayor of Edmonton, Stephen Mandel.

Welcome to all of you. Thank you so much for being with us. Because of time constraints, you will have up to five minutes for an opening statement, and after the last presentation we will go to questions from members.

So we'll start with you, Mr. Bulkowski, for five minutes.

[Dr. Peter Bulkowski, As an Individual]

Thank you.

There is no free lunch. Every dollar you spend means money that's going to have to be recouped through increased taxes or through the destruction of savings by inflation. There's no free lunch.

I was born in 1950 in Canada. I have lived here all my life. I studied hard. I have three degrees in science from Toronto and Queen's. I've worked hard. I'm a conserver. I've lived frugally. I have a 14-year-old daughter and I'm not quite sure what to tell her now. The path now taken by all levels of government in Canada is unsustainable. It is unsustainable economically, it is unsustainable socially, and it's unsustainable environmentally.

My first recommendation is: you need to balance the budget. No deficit. No off-the-book deficits. No unfunded liabilities.

I'm 59 years old. In my lifetime, you gentlemen have destroyed the value of our currency by a factor of about 20. I've given you the example here of a postage stamp from 1966. I was 16 then, and five cents got you a letter then. Today it's 54 cents, an increase by a factor of 10. It's the same thing for a candy bar. It cost a nickel when I was a kid, but now it's a buck.

If you look at the coinage, you've debased our currency. The first coin I show here is from 1967. That coin was 80% silver. It's worth about two and a half bucks in today's money. By the end of 1967 it was down to 50% silver. In 1969 it was made of nickel, and then at the turn of the millennium you converted it to iron with nickel plating. You have debased our currency. I've seen it debased four times during my lifetime.

You carry a huge debt and you're adding to the debt. I guess I'm different from most of your other presenters, who are asking for more spending, more deficits, and more debt at all levels of government. I showed you the Canadian stamps and the Canadian coins. The other stamps there are German. Germany had some fairly significant inflation. The cost of stamps went from 20 marks in 1920 to 100,000 marks in 1922, and then the cost went to 50 billion marks to mail a letter in 1923. We're heading the same way, gentlemen. With that destruction of the currency, Germany removed its debts; they were inflated to nothing. It destroyed social stability and it brought in Hitler.

There is no complexity. The only way to spend more than is being earned is to inflate the currency. That is neither stable nor sustainable. There is not a trade-off between economics and social and environmental stability. Without economic stability, you will not have social stability. You cannot defend the weak if you have no financial abilities. You cannot protect the environment. You need to balance the budget: no deficit, no off-the-book deficits, no accounting games, no unfunded liabilities.

Where you're going to spend, you need to spend productively. That means accountability. You need to show that what you're spending actually generates some wealth. I heard a lot about IRAP and other things. After spending 40 years in science, I'm telling you that you need to show that you're actually getting something back, because a lot of it doesn't come back. You need to rebuild the tax system so it's fair, and seen to be fair. Simplify, simplify, and simplify.

There are a bunch of examples there. No deficits; accountability for all spending; a simplified fair tax system. No free lunch.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now go to Meyers Norris Penny, please.

[Gordon Tait, Partner, Meyers Norris Penny LLP]

Thank you for the opportunity to appear before this committee.

Meyers Norris Penny is here to make a presentation on behalf of our 300 Hutterite colony clients who represent approximately 95% of the 30,000 Hutterite people in Canada.

Section 143 of the Income Tax Act applies only to communal organizations and outlines the specific rules that Hutterite colonies need to follow in order to file and pay income tax on their earnings. We have been requesting a change to these provisions for many years, and we appeared before this committee in 2007. Through the years the message has been the same: it is unfair to restrict the Hutterites' ability to allocate income for tax purposes when there are no other similar restrictions in place for any other business in Canada.

Our submission to the committee included a fair amount of detail and background regarding the information on colonies, and we trust you've had a chance to review that. Today we would like to focus on two critical issues.

One, by denying an allocation of income to Hutterites under the age of 18 who are actively engaged in the business, the Income Tax Act penalizes Hutterites; and two, in some of our discussions with the Department of Finance it has been suggested that the current legislation is fair because it allows colonies to allocate income to members over the age of 18 without regard to their age, physical or mental capacity, and without distinguishing between activity and responsibility on an individual basis. Our analysis and the numbers will show that an inequity still exists.

There are approximately 3,000 members of Hutterite colonies between the ages of 14 and 17 who are actively engaged in the business of farming and who at this point in time are not allowed to file an income tax return based on the provisions in section 143. Meyers Norris Penny, as I said, prepares the income tax returns for approximately 95% of all Hutterites in Canada, so we got this from our demographic data.

As you're all aware, an individual in Canada can earn approximately $9,500 of income, tax free. It's that inability to file an income tax return and the loss of those resulting non-refundable personal tax credits that amounts to about $25 million of non-refundable credits per year that the colonies lose access to. That loss of non-refundable tax credits results in an actual tax loss of about $3 million per year.

The income allocated to taxpayers for Hutterite colonies over the last number of years averages less than $20,000 per year, per person, for the people who are allowed to file a tax return. The average income allocated to a senior or disabled person in the 2008 taxation year was less than $10,000.

The reason I point those numbers out is that they are very reasonable and supportable based on the contributions the individuals are making to the colony business, and they demonstrate that Hutterites do not receive any significant benefit from the current allocation rules. There is no trade-off or benefit that in any way offsets the loss of the non-refundable personal tax credits.

Let's also remember that no other business in Canada, farming or otherwise, is subject to any restriction whatsoever when it comes to the payment of salary or wages or the allocation of income. The only requirement is that the amount be reasonable given the circumstances.

It is fundamentally unfair to put restrictions on Hutterite people that are not in place for any other business. This is not a social policy issue; this is an income tax issue.

We've been asking for this change to section 143 for a number of years, and we've met with many MPs and department officials who agree that our request is fair and reasonable. In terms of government spending and budgets, the change we are requesting will have a very small impact, approximately $3 million per year. This amount is very significant to the Hutterite community.

You should also be aware that Hutterites believe in growing and maintaining their existing culture and establishing new communities, so you can rest assured that any tax savings achieved as a result of this request that we are making will be reinvested back into the Canadian agricultural economy, into the western Canadian economy, which I think is in line with the committee's mandate. We can seek fairness in income tax and grow the economy at the same time.

The request we are making is not to get something special for Hutterites--quite the opposite. We are trying to bring the taxation of Hutterites in line with the taxation of other farm businesses.

You might be interested to know that Hutterites were not allowed to file separate income tax returns for a married couple until 1997, more proof that the legislation regarding colony income tax has lagged behind all others.

The rules in place today do not result in fair and equitable treatment. The numbers and analysis prove that colonies are losing access to $25 million in non-refundable tax credits each and every year.

We respectfully request that this committee make a recommendation that the income allocation rules contained in section 143 of the Income Tax Act be updated and modernized in the next federal budget.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now go to Mr. Kolkman, please.

[John Kolkman, Research and Policy Analysis Coordinator, Edmonton Social Planning Council]

Thank you.

Thank you to committee members.

The Edmonton Social Planning Council is pleased to participate in these pre-budget consultations. The ESPC is an independent, non-profit social research organization focusing on issues of poverty and low income, with the goal of building a more healthy, just, and inclusive community.

This ESPC brief responds to the first question posed by the committee, which asks, what federal tax and program spending measures are needed to ensure prosperity and a sustainable future for Canadians?

Any recovery from the current economic recession is likely to be slow. Poverty generally goes up during recessions. This makes it imperative that next year's federal budget expand investments in Canada's people, especially its children. These investments should support the development of a poverty reduction strategy complementing the initiatives under way in most Canadian provinces.

The ESPC therefore makes the following recommendations: one, that Budget 2010 increase the basic Canada child tax benefit by $400 annually, in addition to normal indexing, for the first child, with proportionate increases for additional children; two, increase the basic Canada child tax benefit by $200 annually, in real terms, for the subsequent four budget years, starting with Budget 2011; and three, index the working income tax benefit starting in Budget 2010, with further increases beyond the indexing being phased in after the economy recovers from the current recession.

I want to speak in more detail about the child tax benefit. The child tax benefit, including the national child benefit supplement for low-income families, is an important social policy measure that helps reduce child and family poverty. The child tax benefit is also a parental recognition program designed to compensate parents for the extra expenses involved with raising children.

Budget 2009 made a modest additional investment in child tax benefits by raising the upper limit on net family income required to receive the maximum benefit; however, there is the potential to do so much more as government revenues recover in coming years.

To help pay for the recommended changes, the non-refundable child tax credit should be eliminated. It is a poorly targeted program disproportionately benefiting higher-income families. The $1.5 billion in savings should instead be invested in the basic child tax benefit, allowing it to be increased by about $200 annually at no extra cost to government.

The ESPC's position is that any real increases to child tax benefits should be to the basic benefit, with indexing only of the NCBS portion, that is, the supplement, in future years. This avoids creating a poverty wall caused by the already steep phase-out rates of NCBS benefits as family income rises.

We propose that benefit reduction rates remain the same as those currently existing. Applying the real increases in child tax benefits to the basic benefit will also assist more Canadian families with the costs of raising children, thereby helping to offset the loss of the non-refundable child tax credit. Currently, child tax benefits are fully phased out at $107,000 of net family income. Under our proposal, by July 2014, child tax benefits will only be fully phased out above $200,000 of net family income.

The universality of the universal child care benefit should be retained as it provides extra support to younger families with children of preschool age, who incur extra child care costs compared to parents of school-aged children. The UCCB also replaced the supplement for children under age seven that existed prior to July 2006; however, the UCCB should be non-taxable, indexed, and better integrated with the child tax benefit system.

The effect and estimated additional cost of these recommended changes is summarized on the table on page 4 of the written brief that I have presented. Also, phasing in benefits over five budget years recognizes the constraints the current economic recession is placing on government expenditures. As the economy recovers, the federal government will have increasing fiscal capacity to make these investments in Canada's children.

We estimate that this single measure of enhancing child tax benefits, once fully implemented, could lift at least one in five Canadian children out of poverty.

While I recognize that this is a little bit of a technical presentation, I'd be pleased to answer any questions you may have.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to the Consulting Architects of Alberta for their five-minute presentation.

[Vivian Manasc, Architect, Consulting Architects of Alberta]

Thank you, and good morning.

It's great to be here to speak with the Standing Committee on Finance on behalf of the Consulting Architects of Alberta.

The Consulting Architects of Alberta is a relatively new organization. It was founded to represent the business interests of the architectural community in Alberta. It works in collaboration with the Alberta Association of Architects, which is our regulatory body, and the Royal Architectural Institute of Canada, our national advocacy body.

When we looked at your questions and identified the wide range of interests that architects have in the environment, in the economy, and in the future budget of this country, we identified three areas that we could speak to among the many of interest to us as architects. Those three are the environment, the federal stimulus program and actual infrastructure construction, and the cultural infrastructure of our country. All of those are part of the wide range of issues and interests that we as architects address on a day-to-day basis.

Starting with the environmental issues, we're delighted to see the ongoing commitment of the Government of Canada to reducing greenhouse gas emissions from the built environment, recognizing the very large contribution that buildings and the communities make toward greenhouse gases.

We can dramatically reduce energy consumption and greenhouse gas emissions from buildings by improving their energy performance for both existing and new buildings. That we can do, and incentive programs are of great assistance to that.

We would invite the government to consider reinstating or expanding new incentive programs to replace those that have been eliminated. For instance, the LEED green building rating system, which has taken off across the country, is one that should be recognized and incented. We would appreciate an incentive program that would recognize and reward both private sector and public sector owners who get their buildings certified to a green building standard.

Secondly, on the issue of the economy and the federal stimulus measures, certainly it's been great to see the number of dollars that have been committed to infrastructure, but it's interesting to hear the focus on “shovel-ready”. That, of course, is of great concern to us as architects and as engineers. We recognize that about 10% of the man-hours involved in the world of infrastructure are actually related to the knowledge economy, or the architecture and engineering of the work. We suggest that a term such as “pencil-ready” might be more appropriate than “shovel-ready”. That way, when projects are in the process of being developed and imagined, there's an opportunity to spend time on design and construction.

Many of our clients are very frustrated by the very short timeframes that have been provided for shovel-ready projects, and as a result have been proceeding with less urgent road repairs instead of more urgent building design. The building design simply takes too long to design and construct within the very tight windows that have been established.

Finally, I think there's an opportunity to look to Canada's future. We're coming to 2017, our 150th birthday. It's an opportunity to create a cultural buildings program across the country, and the time is now. It's important that we start to think about designing libraries, new museums, new cultural facilities, and buildings of all manner that will celebrate the richness and diversity of the culture of our country. We have heritage buildings that need preservation and we have new buildings that need to be designed and constructed so that our children will have an even richer cultural environment.

If we cast our minds back to 1967, we are reminded of the number of centennial projects that we all enjoy today, including auditoriums and libraries and recreational facilities. We would invite the government to consider including in this year's budget a fairly substantial initiative around the planning and design of a whole new set of cultural facilities in every community, as well as in first nations communities, across this country.

In summary, there are basically three areas that are of particular interest to the architects in Alberta. Those are the environment, infrastructure, and cultural infrastructure.

We welcome your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We're going to go now to Mrs. Lynch.

[Karen Lynch, Executive Director, Volunteer Alberta]

Chair and finance committee members, my name is Karen Lynch. I am the executive director of Volunteer Alberta, a 20-year-old provincial organization connecting the non-profit voluntary sector, and specifically volunteer-engaging organizations. I'm also a volunteer on three boards.

I have with me today in the audience three current or former Volunteer Alberta board members: Dr. Christina Nsaliwa, executive director of Edmonton Immigrant Services Association; Mr. Ryan Stasynec, a fourth-year business student presently in a co-op position with Meyers Norris Penny, and Mrs. Mary O'Neill, the executive director of the Glenrose Rehabilitation Hospital Foundation, a former member of the legislative assembly and an educator.

Some Canadians might question why an organization with the word “volunteer” in its name might be concerned about an economic stimulus plan. The fact is that in the 21st century volunteers are not free. This statement may further confuse committee members who are painting a visual picture of volunteers reflecting the warm adages of motherhood and apple pie and wondering, “Since when did volunteers start getting paid?” I can assure you that you have not missed this important detail as you search to find an economic silver bullet for Canadians in this worldwide recession.

What costs is developing the leadership in volunteer-engaging organizations. Investing in both defining the knowledge and then transferring it efficiently and effectively throughout all 12 sectors, not just the social service delivery sector—which is the one that most government and elected officials think of when the word “volunteer” is spoken—but the entire range of organizations, from faith, sports and recreation, and arts and culture to environmental groups, requires more than just “business as usual” during not only the current economic downturn but also to be the partner in delivering your public policy on the ground.

Volunteer Alberta's position on specific economic investment measures that our government could take that would generate great returns not only in the traditional way of measuring return on investment, or ROI, but in terms of service delivery and creating community is in the brief respectfully submitted to you in August.

There are three points.

First, investment in infrastructure needs to include the powerful social investment of volunteerism, not just capital infrastructure but the people infrastructure, the very foundation of Canada's wealth. Funding to Canadians most negatively impacted by the recession must also address the infrastructure required for the service delivery mechanisms: non-profit organizations.

Secondly, although thankfully Canadians do not have the fractured American financial system model, there are a few American initiatives in the Edward M. Kennedy Serve America Act that should be considered in Canada to act as a catalyst to increase the opportunities for Canadians of all ages and demographics to serve our country—most importantly, investing in the non-profit sector's capacity to recruit and retain volunteers. This is where the “volunteers are not free” comment comes in. It is not true that volunteers are in short supply in this country. What is true is that the types of Canadians interested in volunteering are dramatically different from the motherhood-and-apple-pie volunteer. Engaging and keeping volunteers engaged is challenging, but the bigger challenge is for non-profit leaders to adjust and learn an entirely new approach to 21st century volunteerism. Knowledge is there; capacity is lacking.

That leads to our final recommendation: leverage the existing academic research and best-practice learning to eliminate inefficient and outdated voluntary sector practices; create funding opportunities for capacity-building organizations so the government receives value for its investment. The responsibility for transferring this knowledge in leadership organizations across the country is again an investment in the infrastructure.

Like others presenting today, I follow media reports on the economic action plan and applaud you for the investment made today in the non-profit sector. As a recipient organization of the extra investment in the Canada summer jobs program, thank you. Just a word, though: it would be really helpful if the grant approval process were actually six weeks earlier so non-profits could actually attract the best of student populations.

Many volunteers and elected leaders toy with the suggestion that tax credits would be incentives to offset the perceived declining rate of volunteerism. Earlier this year, Volunteer Alberta commissioned a research study, of which your chair received a copy, that finds that the wide-scale implementation of the tax credit policy for volunteer time donations is potentially problematic. The research, undertaken by a CA and funded by the Muttart Foundation, revealed the complexity of the issue. The research is available to inform you about the fallacy of volunteer tax credits as a quick fix to improving volunteer rates in Canada.

On that note, I would like to leave you with one memorable statistic. According to government data from StatsCan, the non-profit voluntary sector represents nearly $80 billion, or 7.8% of the national GDP. It's a larger share than the manufacturing sector, and that is only when you use traditional accounting methods.

The passion, the commitment, and the civic engagement levels are immeasurable.

Thank you.