Finance Committee on May 6th, 2010

[Marc Bellemare, Syndicate Counsellor, Fédération des travailleurs et travailleuses du Québec]

It’s very simple. You see I’m not wearing a tie. I call them “tie-wearing fraud artists”. This is the legalization of theft. I’m even going to go a little further in my comments. The Supreme Court actually ruled that the government was entitled to use the money, but the Supreme Court didn’t give the money to the government. The Supreme Court ruled that there should be a connection between the use of the funds and the employment insurance plan. Abolishing the employment insurance account breaks that relationship.

If the government were serious, which I doubt, it would ask the Supreme Court to rule immediately on this issue. If it doesn’t do that, we are going to do it. But the problem is this: if we do it, it will take 12 years before a decision is rendered. The government has already gone directly to the Supreme Court in the case of same-sex marriage. We are asking the government to do the same thing in this case.

In addition, Mr. Paillé, the budget documents are false, utterly inaccurate. We’re talking about a surplus of $600 million for 2008-2009: that is contrary to the 2009 evaluation and control report, which has just been prepared, and that refers to a deficit of $879 million for the 2008-2009 fiscal year.

We’re talking about expenses and so on. If we check the budget documents, we realize that the administrative expenses, that is to say the $2 billion a year in administrative expenses, aren’t included in the expenses. So when we refer to a deficit of $5 billion or $5.8 billion, that’s not true. You have to add the other $2 billion.

[Daniel Paillé, Bloc, Hochelaga, QC]

Time is passing—

[The Chair, Conservative, James Rajotte]

You have one minute left.

[Daniel Paillé, Bloc, Hochelaga, QC]

I’d like to hear what you have to say on one subject, the appointment method for the three board members. You had the benefit of the answers to the questions directed at the departmental people. That made me think, perhaps incorrectly—I ask you to correct me—of a grievance tribunal: there is one union representative, a management representative and the two agree on the selection of a board member. That’s how it works in settling a grievance. Do you still do it that way?

[Marc Bellemare]

No.

[Daniel Paillé, Bloc, Hochelaga, QC]

Why is your answer no?

[Marc Bellemare]

No. The three board members are appointed for the government. The board member representing the employers is appointed in consultation with the management organizations. The board member representing the workers is appointed together with the organizations representing employees, whereas the chair of the board is the sitting deputy minister, and he is therefore appointed by the government.

If you’re talking to me about the Employment Insurance Financing Board of Canada, that’s different. There’s a selection committee to appoint people to the board, that’s true, but none of the persons recommended by the board member representing the workers has been selected by the government. In accordance with one of the criteria, there had to be people with experience in placement, and so on. And yet at the FTQ and the Fonds de solidarité, we manage a fund of $7 billion with people who have experience; we submitted candidates’ names and they were not accepted. With regard to the board, sir, I want to add that, with regard to—

[The Chair, Conservative, James Rajotte]

Thank you.

[Marc Bellemare]

—the $241 million in interest—

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Paillé.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair, and I thank our witnesses.

We do have a very short time here, so I'll be very quick.

Mr. Firth, I accept your criticisms, and it was a misunderstanding. I just want to make sure we know that's your opinion, and I understand there are other opinions out there. This was simply a definition respecting financial services, and it was intended to address the uncertainty from certain court decisions and was never intended to be a policy change. No new taxes were imposed, and it is a continuation of a long-term policy. I'm just reaffirming that.

Certainly there were retractions from CRA, but I want to read into the record how this impacts the investment Industry. Ian Russell is on record, and I will quote:

And this is nothing that is unusual. What happens is the courts, there will be a tax case, they'll go to the courts and courts will rule. And in this case they made a ruling that using perhaps a loophole in the Tax Act that the fees paid on discretionary managed money were tax exempt. And the concern was sufficient at Finance that in the following December they put out a clarification. And they made it very clear that those fees were subject to GST. (...) You are absolutely right. And the cause of the confusion first of all in the CRA is they confirmed that discretionary management services and investment management services were taxable but then they had this phrase in which was services without discretionary authority. And that all of a sudden opened up everything to… what does that mean? Does it mean that things that had been tax exempt are taxable? But the reason we were reasonably confident which gets to your point, Michael, is that, that would be a fundamental change in tax policy. That is the responsibility of the Department of Finance not CRA. CRA simply implements tax policy. So what we were looking for from Finance was a confirmation that in fact tax policy had changed and there was no such confirmation except in that very, very narrow context of some promotional services that were carved out. Otherwise, it was simply reaffirming tax policy. (...) So the Minister just confirmed and removed the confusion on the street. I think it was very important for the Minister to do that as quickly as he did.

It's pretty clear, I think, to the industry that's impacted by it. What's the conflict?

[Michael Firth]

Absolutely not clear at all. The legislation, if you read it, goes as far as the CRA took it in their bulletin. It taxes almost every form of financial intermediation, and there has been no retraction.

All we have is legislation that stands as originally proposed. We have the CRA notice from February, which gives a number of U-turn examples that say that mutual fund commissions, formerly exempt, are now taxable; finance commissions paid to auto dealers, formerly exempt, are now taxable; certain commissions paid to other financial intermediaries, formerly exempt, are now taxable. That's what created the huge alarm. The life insurance sector estimated the additional tax they would bear would be about half a billion a year.

There has been no retraction. All we have now, planted on top of that CRA notice but still with the original legislation before this committee, is a statement that the CRA will embark on a review. So if you make one of these endangered supplies.... And these days everybody is an intermediary, because whether it's a retail or wholesale product, whether you're buying a couch or a jet engine, the vendor will arrange for the financing and will receive a commission. It was also suggested to the CRA that equity brokerage was affected by this taxation as well. If you are in that zone you have legislation that taxes you, you have the CRA notice in February that taxes you, and you have this woolly statement from the minister and an endorsement that the CRA will now conduct a review.

So there has been no retraction, and many supplies are clearly taxable under the legislation in front of you.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Ashton, please.

[Niki Ashton, NDP, Churchill, MB]

Thank you very much for your presentation.

I’d like to ask the representatives of the Fédération des travailleurs et travailleuses du Québec a question. You made a very dynamic presentation expressing the concerns of many workers across Canada, and of course of those who live in my constituency. You clearly presented the historical background, which has taken place since the 1990s and later. I’d like to give you the opportunity to further clarify your point of view. I know you have more to say concerning the specific concerns about this budget, as regards the premium rate and the concerns of workers who are going through an extremely difficult economic period, particularly in the forest industry in Quebec, in my constituency and across Canada. You could tell us more about those concerns and that feeling among those workers, who see the government taking their money, their investments, and disappear when they need its support.

[Marc Bellemare]

Thank you for your question. The workers will have to pay between $500 and $800 more in premiums in the coming years. The government is currently facing an odd situation. There are two acts which are not compatible. When the government created the board, its first obligation was to establish a premium rate that would make it possible to achieve a balance every year—thus no surpluses, no deficits.

When the board established the premium rate, it also had to take into account the monetary advances that the government had made and the establishment of the $2 billion reserve. The equilibrium rate calculated by the actuary amounts to only $2.43 for 2010. The budget officer says $3.06. The rate is currently $1.73.

The act provides that we cannot increase the rate by more than 15¢. Do you have an idea of the time it will take workers to repay that deficit? It’s not an $11 billion deficit. We’re talking about a deficit of $17 billion or $18 billion. At 15¢ a shot, that will take eight to 12 years to repay it. What’s more is that, when the government achieves surpluses, the board’s obligation is not to pay money into the consolidated revenue fund, but to lower the premium rate. So workers are stuck. The FTQ explained that there was $57.2 billion that belonged to employers and workers. The deficit should be met out of the surplus.

It’s time for us one day to actually talk about the employment insurance program. We only talk about the rate, about the cost. Does the employment insurance program actually meet its definition? The answer is no. We can never agree on the nature of the program. We’re only told about costs and theft.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Ashton.

Ms. Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

Despite all the wonderful presentations, my questions are directed to Mr. Cunningham.

With all respect, I don't sit here to represent Imperial Tobacco, but in my riding of Willowdale I have one heck of a lot of convenience stores, and they are not happy, obviously, with the contraband tobacco situation. Stamping cigarettes might address those who try to pretend that they're selling a particular brand to a store that might actually be in a position to tell the difference. But I can tell you that most of the people who are really worried, certainly in my riding, are worried about the bags of cigarettes. They are not in a position to believe that a stamp, and an added layer of cost for the legitimate tobacco companies—and I'm not here to comment on that—will come close to addressing the issue of contraband tobacco. My concern is that all the effort put into something like that may in fact take away from any effort by this government to truly deal with contraband tobacco.

I would put it to you now, because you have already acknowledged that this is not the only solution, to make suggestions. Concrete suggestions would be great.

You've said that you think the biggest challenge comes from the illicit manufacturing. I would suggest, and I ask your opinion.... The Imperial Tobacco suggestion has been--and we've certainly heard this elsewhere--that we finally have an independent expert panel to address this issue. It seems all too often that this issue, which has a huge dollar value and a huge effect on many small businesses, continues to be swept under the rug, because people are simply not willing to address first nations issues and the criminal element in other organized crime.

Can you speak to this at all?

[Rob Cunningham]

Yes.

I'm not sure that we need to have another panel to have another round of consultations. There was an intergovernmental task force, federally, that was announced in May 2008. That was two years ago.

There's been consultation. We believe that it's time for action with respect to the other remedies, which would include the most important source, which is illegal manufacturing on the U.S. side of Akwesasne. For that we need to persuade the U.S. Attorney General, through the Minister of Public Safety, to take action to shut down those illegal factories on the U.S. side. That is our most important source of baggies entering Canada.

Second, the border post, which last summer was moved from Cornwall Island to the other side of the bridge, has actually made an important difference in reducing contraband within the last 12 months. It became a choke point that didn't exist previously. Before, the smugglers could go right around the border post and into Canada. So our recommendation, as is the Canadian Convenience Stores Association's, is to have the border post remain in its current temporary location. But make it permanent, and make other adjustments, as necessary, for a suitable permanent location.

We heard the RCMP state last week that there are now 50 illegal manufacturers in Canada--unlicensed--and that's a concern, because it's growing. Because of the sensitivities about enforcement on first nations reserves, we recommend having better control of the raw materials supplied to these unlicensed manufacturers. It is not only the leaf tobacco--but have control over those suppliers; it is also cigarette papers and so on.

These are all actions that we hope can be implemented in the very short term.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you very much.

Thanks, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Carrier, s'il vous plaît.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chairman. Four minutes goes fast. I’m going to speak to the people from the Fédération des travailleurs et travailleuses du Québec.

I understand why you’re exasperated over the fact that workers have been robbed of $54 billion in surpluses accumulated over the years. I think that, if money were taken from anyone here, that person would be in the same frame of mind. Earlier, Mr. Bellemare, you said that, if Bill C-9 were adopted, you would go to the Supreme Court since the government is not interested in doing so. You know that Bill C-9 will surely be adopted, with the cooperation of the Liberals, who don’t want to see the government defeated. So are you going to take immediate steps to go to the Supreme Court?

[Marc Bellemare]

No, we’re not going to do it immediately. FTQ officials, including my colleague, our vice-president who is here today, will quite definitely reflect on the matter. We will definitely consult the union movement across Canada and in Quebec, of course. If we do it, it will pose a problem; it will take between 11 and 15 years before a decision is rendered. The first Supreme Court appeal took nearly 12 years. If the government wants to be as transparent as it says, but not opaquely transparent, truly transparent, let it ask the Supreme Court to decide the matter. It’s previously done that. The Constitution of Canada allows the government to seek immediate clarification from the Supreme Court. It’s only a common sense rule, and I’m not doing any advertising for Honda.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

We could tell it, as in the case of the single securities commission it wants to introduce in Canada, despite the unanimously unfavourable opinion of the people of Quebec, that it should go to the Supreme Court. It could be done in the same way; I believe the matter is just as important.

[Marc Bellemare]

Yes, I repeat what I previously said on the subject: the Supreme Court didn’t give the money to the government. I’m going to give you an example, sir. All of you, ladies and gentlemen, have a bank account. You deposit your money, the bank uses it, and it does what it wants with it. The same is true of the employment insurance account, but in the case of the bank, the money is still yours.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Yes, I know.