Finance Committee on Nov. 5th, 2009

[Dan Paszkowski, President and Chief Operating Officer, Canadian Vintners Association]

Thank you, Mr. Chair.

My name is Dan Paszkowski. I am the president of the Canadian Vintners Association. We represent the Canadian wine industry across Canada. We're responsible for more than 90% of wine production. Our members are engaged not only in the grape-growing and wine-producing elements of the business; we are involved in grape harvesting, bottling, retail sales, and a significant amount of tourism.

I will restrict my remarks today to three areas, which I'll briefly discuss.

Agricultural plant replacement provisions is the first issue. We have addressed it for a number of years in our pre-budget submissions. The Income Tax Act's replacement planting provisions under subsection 44(1) do not provide Canadian farmers with the economic flexibility required to improve their businesses by shifting crops to better value-added opportunities.

The Income Tax Act presently permits the deduction of replacement plant expenditures if the replacement is within the same species group. For example, if I go from one Chardonnay to a Merlot, I'm allowed to write off my replacement expenditures against my taxable income. However, the current interpretation does not allow for the deductibility of such expenditures if we shift from one species to another. So if I go from tobacco to grapes or from apple orchards to grapes, I'm not allowed to write off our expenditures for moving into a new value-added opportunity.

We believe that amending the Income Tax Act or the interpretation of the act makes good sense and reflects the business realities of today's agricultural business. Farming businesses, like other businesses, base their decisions on solid research and sound business practices, and we should be provided the same flexibility as provided to the manufacturing industry, which is permitted to deduct expenditures when shifting production from one widget to another.

Our second element is winery infrastructure investment and taxation. Wine is the highest value-added agricultural product in the world, and our industry is an important generator of value-added revenue across wine-producing regions. We produce high-quality grapes and wine, but we're also a catalyst for complementary economic activity, such as shopping and dining, museum and art galleries, theatres, festivals, etc.

Furthermore, it's important to note, in contrast with the situation respecting most value-added products, that wine sales are restricted to the winery retail and provincial liquor board sales, as well as direct sales to restaurants. Direct consumer winery sales across provincial boundaries are not permitted in Canada by virtue of the 1928 federal Importation of Intoxicating Liquors Act; therefore, we have very limited sales opportunities for our product in this country.

Given this, it's critical that wine businesses be able to attract new and repeat customers and tourists. This requires not only top-quality wines, but first-class winery infrastructure. To meet these needs, we recommend that a two-year vintners investment tax credit be implemented to support winery infrastructure improvements, whether these be building, retail and tourism, production equipment, or environmental improvements. We are proposing a 30% non-refundable tax credit for eligible expenditures of not more than $1 million, resulting in a maximum annual credit of $300,000 for participating Canadian estate wineries. The tax credit, as we recommend, would apply to the fiscal years 2010-11 and 2011-12, making a two-year restricted program.

Further, in last year's budget the federal government recognized the importance of increasing the small business income threshold from $400,000 to $500,000. We support this measure, but given the large capital investments required by today's wineries, from land acreage to capital investment to tourism and retail stores, the small business deduction qualifying asset test often eliminates the intended benefits through a straight-line reduction for those businesses with capital assets between $10 million and $15 million. As winery and small business investments continue to grow, access to the lower rate on the first $500,000 of qualifying income is restricted, given the qualifying asset test, which has not been adjusted to compensate for inflation since its introduction in 1994.

Turning to wine excise taxes, in 2006 the federal government eliminated the excise tax on 100% Canadian wines; however, it also increased the excise tax by 21% on all wines. Some 85% of Canadian wine production is of blended wine product. What we're seeking is that the excise tax exemption be extended to the Canadian content in those blended wines, given that the excise tax increase has resulted in roughly an $11-million-per-year increase for our industry, in a difficult climate wherein we're trying to compete with low-cost value wines from around the world.

Thank you very much.

[The Chair, Liberal, John McCallum]

Thank you for your presentation.

We will finish with the Canadian Restaurant and Foodservices Association.

[Joyce Reynolds, Executive Vice-President, Government Affairs, Canadian Restaurant and Foodservices Association]

Thank you, Mr. Chairman, and good morning, committee members.

I'm very grateful for the opportunity to appear today. I apologize that I wasn't able to make it last week, and I appreciate your fitting us in. Our president, Garth Whyte, sends his regrets, but Ron Reaman has ably stepped in for him. I'm pleased to be here on behalf of our $60 billion food service industry.

Canada's food service industry accounts for 4% of the national economy, but our real strength lies in the contributions we make to communities of all sizes across this country. Our 84,000 restaurants, cafeterias, coffee shops, and bars are gathering spots for people from all walks of life, and we are proud to serve as a social club for seniors, the boardroom for small business, and a meeting place for community groups. You'll find us wherever Canadians gather to celebrate, do business, spend time with family and friends, and yes, to talk politics.

We are uniquely positioned to contribute to economic recovery and growth. Every $1 million in restaurant sales creates 27 jobs, making our industry one of the top five job creators in Canada. Every dollar spent at a restaurant generates an additional $1.85 in spending in the rest of the economy, well above the average for all industries in Canada. And the diverse nature of our industry means the benefits are felt in every community, not only in major centres.

With more than one million employees, food service operators employ more people in Canada than agriculture, forestry, automotive manufacturing, mining, and oil and gas extraction combined, and they do so without government handouts, bailouts, or subsidies.

In the short time available to us this morning, I want to talk to you about three critical issues facing food service operators in this country: first, a new 7% sales tax on all restaurant meals as a result of GST/PST harmonization in British Columbia; second, the prospect of ballooning payroll tax costs; and third, rising credit and debit card fees resulting from unfair business practices by credit card companies and their processors.

First of all on the GST, it's not a neutral tax, because it treats food differently depending on where it's purchased. The grocery industry has capitalized on this tax advantage by introducing thousands of new products that compete directly with restaurants. The Province of British Columbia has always taxed food fairly, but sales tax harmonization requires a new 7% tax on restaurant meals, which will result in an annual loss of nearly $50,000 for the average restaurant in B.C.

While it was the provincial government's decision to harmonize, it's federal government rules around harmonization that will cause hardship to the industry. The federal government has limited provincial tax exemptions to 5% of the GST base, and food service alone accounts for 13.3% of the base. The federal government has dictated the timelines for implementation, and the federal government has also provided the provincial government with a $1.6 billion incentive to harmonize. As a result, the industry needs the federal government to commit to federal-provincial solutions to limit the harm of harmonization to food service operators.

Overwhelmingly, the industry is asking for a full meal tax exemption. At a minimum, both governments must agree to phase in the tax over a three-year period. The precedent has already been set for a graduated implementation with a phase-in of the input tax credits for restaurant meals. A phase-in of the tax will help to avoid the severe sticker shock that will chase customers to tax-free alternatives in grocery stores. We can't repeat what happened in 1991 and change customer habits forever.

A food service business's key inputs are food and labour, and the costs of both have been rising dramatically. Neither is subject to input tax credits. Harmonization, through input tax credits, provides tax relief to capital-intensive companies. Payroll tax reductions would provide relief to labour-intensive food service businesses.

While we appreciate that EI premiums have been frozen in 2009 and 2010, we are concerned about 2011 and beyond, particularly since the government, in its projections, appears to be relying on revenues from increased EI premiums to reduce the country's deficit. Payroll taxes are the worst form of tax, because they are profit-insensitive, regressive, job-killing, and a drain on the economy.

For years we have pressed for a separate EI account, so that EI premiums could not be diverted to general revenue for purposes unrelated to EI. Now that we have a separate account and rising EI costs, we need to ensure that some of the $57 billion of overcontributions will be diverted back to this fund so that premiums do not have to be increased.

In fact, we are recommending a targeted reduction in EI premiums through a yearly basic exemption, or YBE.

[The Chair, Liberal, John McCallum]

Ms. Reynolds, briefly conclude, please.

[Joyce Reynolds]

Okay. There's lots more about the YBE in our brief.

I also want to touch briefly on credit card and debit card fees. Again, we appeared before this committee earlier this year. We provided a detailed submission at that time. Our concerns relate to the rollout of the new debit products by Visa and MasterCard, and some of our fears that we discussed at that time are now being confirmed. We are looking forward to the new code of practice. We hope our concerns are going to be addressed in that, and we will provide our comments when we receive it.

[The Chair, Liberal, John McCallum]

Thank you. Thank you for your presentation.

We'll start with members' questions, with Mr. McCallum, please.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair, and thank you all for being with us today.

First of all, in terms of access to duty-free shopping upon arrival as well as upon departure, I think this idea has been around for at least two or three years, and to me it's a no-brainer. It doesn't cost the government anything, so the only question really is why the government didn't get this job done a year or two ago. Hopefully, they will this time, so I don't need to ask you a question because it's obviously a good thing.

I would like to ask Ms. Reynolds a question.

You referred to ballooning payroll taxes and you say payroll taxes are the worst kind of taxes. Now, the government is proposing a maximum increase in EI premiums allowed, beginning in 2011, and Dale Orr, who's a respected economist, has calculated that this would cost a small business employing 10 people an additional approximately $9,000 as a consequence of this payroll increase.

I think a lot of your members would employ something like 10 people. Can you describe how this would impact your industry and whether you think there would be a significant impact on jobs?

[Joyce Reynolds]

Absolutely. We have many restaurants across this country that are barely hanging on right now, and for them, payroll taxes represent a large percentage of their tax load. They just can't tolerate increases in payroll taxes, and they will object vehemently to any increases to payroll taxes, after having over-contributed $57 billion to a rainy day fund. That rainy day is here and we need that money back.

[John McCallum, Liberal, Markham—Unionville, ON]

So are you suggesting that if EI premiums have to go up more moderately...? Or what are you suggesting?

[Joyce Reynolds]

What we are suggesting is implementing a yearly basic exemption in the EI program so that they don't go up as dramatically for low-income employees and labour-intensive businesses.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay. Thank you.

Perhaps I may now turn to Mr. Cox, on the graduate students. I certainly agree with you that the $148 million of cuts should be returned. I certainly agree with you that for the government to single out business-related degrees for support is an unwarranted intrusion of government into the academic priority-setting. But my question for you is this. When you ask for additional funding for graduate students, which I agree with, but you say it should go, in some sense, disproportionately to social sciences and humanities, can you explain why that should be? In what sense has that group been underfunded in the past, and according to what criteria would they get a disproportionate share of additional funding?

[Graham Cox]

Sure. The Social Sciences and Humanities Research Council covers about 50% of graduate students enrolled in universities, and we're asking for that increase to the Canada graduate scholarship, which is not money for infrastructure. It's not money for laboratories. It's not money for advanced research costs. It's for graduate students. We see that there's quite a lot of money going through the Canadian Institutes for Health Research and the Natural Sciences and Engineering Research Council, but SSHRC is underfunded.

It was started later than those two programs, and we see many social sciences and humanities graduate students not having enough money to pursue those types of degrees. Those types of degrees include a vast variety of things that we need in Canada with regard to analysis of social trends and economics, and so on.

[John McCallum, Liberal, Markham—Unionville, ON]

If there were, let's say, $100 extra in graduate funding, under today's rules how much would social sciences get, and how much would it be under your proposal, approximately?

[Graham Cox]

According to the latest budget, about a third of the money or less goes to social sciences and humanities. We would like to see at least 50% of the money go to the social sciences and humanities graduate students.

[John McCallum, Liberal, Markham—Unionville, ON]

Dr. Pereira, I'd like to ask you a question about physician-assisted suicide, which is in your brief. I'm sure you know there is a bill on this subject before Parliament. I think I know the answer, but I'd like to ask for your organization's view on this topic. The bill before Parliament may have inadequate safeguards.

Is there any kind of law on the subject that you would support? Let's suppose it had the best possible safeguards. Would your organization be open to that, or would your position be that there is no such thing as an adequate safeguard? Is it something you would oppose under all circumstances?

[Dr. José Pereira]

Thank you very much for that question.

First of all, one of the most important stands we're taking is that there are still too many gaps in adequate palliative care services in the country.

I had a very interesting experience. I'm probably the only palliative care physician in Canada who has worked in a jurisdiction that allows assisted suicide. I worked for three years in Switzerland. I learned during that experience that it's probably impossible to put foolproof safeguards in these types of law.

But before we even get there, in making the decision we need to understand what we're talking about. We need to address the fear society has about talking about dying. We need to address the misinformation that people have—for example, many people believe that withdrawing futile treatments is euthanasia. It's not. That's good palliative care. It's good end-of-life care.

Health professionals still think that using morphine and opiates—I heard this from someone I was speaking to just last night—are dangerous at the end of life and they shorten life. That's absolutely incorrect.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

Thank you, Mr. Chairman.

[The Chair, Liberal, John McCallum]

Monsieur Laforest, s'il vous plaît.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair.

Good morning and welcome to the Standing Committee on Finance.

My first question, or at least my first comment, is for Ms. Reynolds.

In your presentation, you talked about—and I think this is very relevant—your fear that the federal government will use the employment insurance fund for something other than employment insurance. You pointed out that it plans to increase premiums in 2011 and, at the same time, does not plan to raise taxes, all the while, paying down the deficit.

For some 15 years, the government has been using the $57 billion surplus in the EI fund to pay down the deficit. It is not an independent fund, and the money is generated by the employment insurance program.

There is real cause for concern over the future, both for businesses and for the workers paying into the system through their premiums.

One government after another, Liberal and Conservative alike, has failed to take responsibility for this situation.

You are right in stating very clearly that we need to avoid adopting such a measure and using that money to bring down the deficit. There are other ways to do it, and we should not, at least not now, plan to raise EI premiums. I think you are absolutely right to raise this issue.

I assume that when you say $57 million, you are talking about a comprehensive analysis of the past few years, and that your members called on you to put together such a report.

[Joyce Reynolds]

We have long been on record as objecting to funds being diverted from the EI fund to general revenue. People heard from me repeatedly throughout the 1990s and the early 2000s about this. We know it's a notional account and it didn't happen on this government's watch, but the fact is that our members don't care. All they know is they over-contributed. Now unemployment has gone up and costs have gone up, and we cannot afford a 15¢-per-year increase in premiums. It will kill jobs. It will hurt our members.

So we're saying don't plan to use EI premiums to reduce the overall deficit. It's time to start reversing the process and diverting money from consolidated revenue into that EI fund so you can avoid increasing the worst form of taxation.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Exactly, and that would pave the way for an exhaustive review of the employment insurance system, as we have been calling for. That way, in times of crisis, workers who lose their jobs could really get the support they need. But, unfortunately, that is not what the current government is choosing to do.

My next question is for Mr. Jackson and Mr. Baumann.

You believe that the performance of the athletes is directly linked to the fact that the Canadian government is investing millions of dollars in the Olympic program. Generally speaking, are the private sector and the public also called upon to help fund Olympic programs, and, if so, how?

[Dr. Roger Jackson]

Thank you very much for your question.

Almost 50% of the funding for Own the Podium comes from corporate sponsorship, public donations, or participating provincial contributions to this program. It's an extremely interesting program, because never before in my experience have we been able to have a project with a national focus that has attracted provincial governments, the federal government, corporations, and the general public.

One example I can give you immediately is the red mitten campaign, where you can buy a pair of mittens with the Olympic symbol on it.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

We saw that yesterday.

[Dr. Roger Jackson]

That program was initiated by us, and it's expected to generate probably $4 million to $4.5 million between now and Christmas as everybody buys mittens for their children. So it's one example.

We have also launched a national donation campaign for the general public to contribute $20.10. There are huge banners in the Globe and Mail, and it's promoted strongly by CTV. That is another initiative we have taken to encourage the general public to feel they're a part of the games.

So while we are requesting $22 million from the federal government, I can assure you we have a number of other plans to try to work with the Canadian Olympic Committee, the Paralympic Committee, and the general public on the initiatives I've just described to add resources to what we require.

Thank you.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you very much.

My question is for Mr. Rendeck.

What you are asking for, on behalf of the Association of Canadian Airport Duty Free Operators, is very simple: you want citizens returning to Canada or Quebec to be able to shop at duty free stores.

In terms of alcohol, for instance, would that not create problems? In the case of the SAQ in Quebec, would it not lead to problems because of the monopoly?