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.