Finance Committee on Oct. 5th, 2010

[The Chair, Conservative, James Rajotte]

Good morning, everyone. This is the 32nd meeting of the Standing Committee on Finance. We're continuing our discussions here on pre-budget consultations, preparing for next year's budget.

We have with us two sessions this morning and five groups per session. In the first hour and a half we have the Canadian Bureau for International Education, the Canadian Construction Association, Financial Executives International Canada, BMO Capital Markets, and Make Poverty History.

We want to thank you all for coming in this morning. You have up to five minutes for an opening statement, and then we will go to questions from members.

We'll start with Ms. McBride. I believe you'll be presenting on behalf of your organization.

[Karen McBride, President and Chief Executive Officer, Canadian Bureau for International Education]

Thank you. Merci beaucoup.

CBIE's brief underscores the importance of international education for Canada and Canadians. In a globalized, competitive and knowledge-based world, attracting greater numbers of qualified international students to Canada and sending greater numbers of Canadian students abroad to gain international knowledge and competencies is essential to Canada's prosperity. Canada's main global competitors recognize this fact and are investing heavily in international education to ensure that they are able to compete effectively and efficiently, with a view to acquiring the talents and competencies their labour markets require and building strategic relationships in the future.

In international education Canada is falling behind. Our brief highlights recent data that make a compelling case as to the short-term and long-term economic benefits from attracting greater numbers of international students to Canada and sending more Canadian students abroad.

In the interest of time, I will not reiterate these points but would be pleased to say more about these links to economic competitiveness during the discussion.

When it comes to addressing these gaps, our brief makes three recommendations. Our first recommendation focuses on international education marketing. CBIE was grateful that in its 2009 report this committee highlighted the importance of international students and recommended that the federal government, in partnership with the provinces and territories, explore the development of a national strategy to promote greater emphasis on Canadian education services exports. I'm very pleased to report that there have been important developments in this regard since last year.

In order to bring greater coherence to the education sector's international marketing efforts, the five key national associations, the Association of Canadian Community Colleges, the Association of Universities and Colleges of Canada, the Canadian Association of Public Schools--International, CBIE, and Languages Canada have established the Canadian Consortium for International Education Marketing. These associations recognize that collective action is required to improve Canada's visibility in the competitive global education market and thereby achieve better results. It is important to note that the consortium has established strong working relationships with key federal departments and provincial–territorial governments through the Council of Ministers of Education Canada.

Moreover, at their August meeting, provincial–territorial premiers committed to further develop an international education marketing action plan that identifies areas for investment and opportunities for federal-provincial collaboration on marketing. At a follow-up meeting on September 24, education ministers confirmed their intention to work in cooperation with the federal government and key stakeholders to address barriers to attracting international students. Therefore, the key actors, governments and the education sector itself, are aligned and working in partnership so that we can maximize the results of an additional investment in education marketing, an investment we hope this committee will recommend in the context of its upcoming report.

Our brief identifies a target for this investment of $22 million per year for five years. Comparative data show that this target would put Canada on a more level playing field with its competitor countries.

In the context of this year's fiscal constraint, however, we recognize that a shorter-term commitment at this level of funding might be more feasible. Even this level of investment for an initial period of two years would help Canada make an important step forward, allowing us to deploy the federal–provincial Imagine Canada brand effectively, leverage the strong partnerships that now exist, and capitalize on the capacities of key stakeholders rather than duplicating efforts.

In our view, the foundations of an effective national marketing campaign are in place, but we cannot be successful without a significant federal investment.

CBIE believes that the recommendations outlined in its brief, which call for new funding in this area, represent a wise investment that will better position Canada for future success.

Thank you for the opportunity to present our position today.

I look forward to answering your questions and hearing your views.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Next is the Canadian Construction Association.

[Wayne Morsky, Chairman of the Board, Canadian Construction Association]

Good morning, Mr. Chair.

My name is Wayne Morsky. I'm the chairman of the Canadian Construction Association, or CCA, the national association representing the non-residential construction sector in Canada. This is a volunteer position. In my other life I'm the president and CEO of Morsky Group of Companies, a family-run business based in Saskatchewan, which has been active in road building and heavy construction for the past 60 years.

The CCA represents more than 16,000 members working in every region of the country and in every aspect of construction, including industrial, commercial, institutional, as well as road, sewer, and water--essentially every type of construction except your standard residential home. But I'm here today in my capacity as chairman of CCA.

To begin, I would like to caution against moving too aggressively to reduce the deficit. Our members witnessed firsthand the devastating impact previous deficit reduction efforts had on our nation's infrastructure, and we recommend Parliament take a more balanced approach. There is no point in paying off your mortgage if you cannot afford to fix the leak in your roof. We appreciate that Canadians are concerned about the growing deficits, but they are equally concerned about the crumbling infrastructure. Even after the investments of the past several years, there are still billions more required to modernize our aging infrastructure. Ultimately, investments in infrastructure must be seen for what they are: critical investments to improve productivity, and not just another line item on a federal budget.

Funding remains a primary concern to CCA members, particularly at the municipal level. According to the Federation of Canadian Municipalities, local governments collect just 8¢ of every tax dollar of revenue raised, but are responsible for more than 55% of the core public infrastructure assets in Canada. As such, no one should be surprised that the most reasonable estimates still peg our national infrastructure deficit at well over $100 billion, and that does not include the billions more that will be needed to comply with the recent federal water regulations over the coming decade.

This challenge requires a coordinated national approach. As a first step, governments must quantify the need, which is why we recommend the council of the federation undertake the appropriate research and development of a long-term financial plan to fairly cost-share the investments required to renew and maintain our core public infrastructure. To that end we believe that new revenue-sharing mechanisms are required between governments.

As an interim step, the federal government should make permanent the GST rebate for municipal purchases, as well as increased transfers under the federal gas tax program from $2 billion to $5 billion annually. Such immediate changes will not only increase the fiscal capacity of municipal governments but provide them with the program certainty they require to make long-term infrastructure investment decisions.

CCA members are also very concerned about labour supply. The construction industry will need 395,000 new workers over the next seven years to keep pace with retirements and demand. Unfortunately, college infrastructure simply cannot meet the growing demand, despite the investment made under the knowledge infrastructure program over the past two years. Many programs still have admission wait lists of more than 18 months, and when apprentices graduate they often cannot find employment because most small construction businesses cannot afford to absorb the costs associated with apprenticeship training. To overcome the college infrastructure crisis, CCA members recommend that the knowledge infrastructure program be funded at $1 billion annually over the life of the Building Canada plan to 2014.

Finally, CCA members feel that the federal government can introduce a number of measures to enhance Canadian competitiveness and improve our environment. The first is to adjust the one-time limited base capital cost allowance rates for heavy equipment purchases over the next few years. New and more expensive T4 engine technologies are being introduced next year. These technologies offer dramatic reductions in harmful emissions, but could add 10% to 20% additional cost to equipment. Therefore, to ensure that Canada's heavy equipment operators, such as the construction, mining, oil and gas, and trucking industries, become early adopters, we recommend increasing the CCA rate of classes 10, 16, and 38 to 50% and make purchases depreciable on a straight-line basis.

Our second recommendation is to permit tax deferral of capital gains on the sale of investment properties for a period of one year if the proceeds are reinvested in new property and utilized to pay for energy improvements. This would help reduce the overall emission produced by older buildings and permit these proceeds to be reinvested, encouraging building owners to make energy-wise investments.

With that, Mr. Chairman, I will conclude. I look forward to your questions.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now hear from Financial Executives International Canada.

[Michael Conway, Chief Executive and National President, Financial Executives International Canada]

Good morning, Mr. Chairman and committee members. I am Michael Conway, chief executive and national president of Financial Executives International Canada.

FEI Canada is a voluntary membership association comprised of over 2,000 Canadian chief financial officers and other senior finance executives. Our recommendations to this committee are the results of the collective effort of FEI Canada's tax committee, represented here today by Peter Effer, vice-president taxation at Shoppers Drug Mart.

In our written submission to you, we highlighted a range of budgetary initiatives that FEI Canada thinks the government should adopt, as they are key to an efficient tax environment. These include tax simplification, productivity, deficit reduction, economic renewal, and retirement planning.

Budget proposals should reduce the complexity of the taxation system and its compliance requirements, not add to them. To illustrate how complex tax laws have become, here's a copy of Canada's first tax act, introduced in 1917 as a temporary measure to fund World War I. Well, almost 100 years later, I wouldn't call this progress; this is what we now have.

When our research institute, the Canadian Financial Executive Research Foundation, surveyed our members for the study we published this summer, CFERF found that the tax system has become excessively complicated and that Canadian businesses, large and small, are bogged down with tax compliance issues.

If you look at it from the macro viewpoint, companies are a large source of tax revenue for the government. These same companies are devoting an inordinate amount of time and money on compliance when their managers could be spending more time advancing corporate growth and profitability. Simplifying the tax act would help make companies and the government more efficient and thus more competitive.

Improvements to the tax system that would help Canadian businesses thrive include some form of group tax reporting for companies, such as the implementation of a loss transfer system. These measures would help Canadian companies increase their productivity, a critical issue made even more urgent by the rise of the Canadian dollar. High productivity levels cannot be reached without a strong labour market. Skill development can be encouraged by introducing a refundable tax credit for qualified education and training and creating a deduction or tax credit for individuals who personally incur education or retraining costs.

Higher productivity is synonymous with the use of high performing and cost-efficient equipment and technology. To meet this objective we encourage extending the write-off for manufacturing machinery for at least five more years, as well as the write-off for computers. The government should encourage provinces to eliminate payroll taxes, as these are taxes on inputs that discourage employment and increase the cost of goods.

As policies should encourage investment and facilitate access to credit and capital markets, withholding taxes should be reduced or eliminated to encourage foreign investment. The government should continue to focus on deficit reduction and good fiscal management to ensure that the Canadian economy can withstand future downturns. Our country's tax system should also provide Canadians with more flexible retirement planning opportunities. That's why FEI Canada recommends extending to age 75 the mandatory date for concluding CPP contributions and for contributing to RRSPs or converting RRSPs to RRIFs. FEI Canada also recommends granting a 125% deduction for the first $5,000 contributed to RRSPs.

In conclusion, budget initiatives should protect and speed up Canada's progress through economic recovery, and they should be revenue neutral over the short to medium term. Our proposed tax measures conform to those objectives.

We strongly urge the government to consider these measures and implement them in Budget 2011. FEI Canada stands ready to assist.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Conway.

We'll now hear from Mr. Johnson, please.

[Donald Johnson, Senior Advisor, BMO Capital Markets]

Good morning, Mr. Chairman and distinguished committee members. Thank you for giving me an opportunity to appear before your committee this morning.

My name is Donald K. Johnson, and I'm appearing today in my role as a volunteer board member of five not-for-profit organizations in health care, education, the arts, and social services. In this capacity I'm actively involved in fundraising as well as donating personally to help each of these charities achieve their missions.

I'm appearing today to request that your committee give consideration to recommend that the government include two measures in the upcoming budget that will stimulate greater private sector funding for the not-for-profit sector on the basis that it's more tax effective than direct government spending.

The economic action plan will be implemented and completed by next spring, and the prime focus going forward is balancing the budget. The government has committed not to raise taxes or to reduce transfer payments to the provinces. In order to achieve a balanced budget, the focus must be on reducing spending on low-priority government programs, limiting future increases in government spending, and limiting measures that could potentially cost the government tax revenues.

Because the federal and provincial governments are not in a position to increase funding for the not-for-profit sector during the next few years, Canada's charities are also facing significant fiscal challenges. The demand for the services in health care, post-secondary education, social service, and the arts continues to grow. What can the government do to address this dilemma? You can capitalize on the enormous success of the 1997 and 2006 budget measures that initially reduced and ultimately eliminated the capital gains tax on gifts of listed securities. These measures have resulted in billions of dollars of incremental private sector funding for our not-for-profit sector. The capital gains tax exemption can be expanded to include gifts of two other significant appreciated capital assets: private company shares and real estate.

Charitable donations of both of these asset classes are exempt from capital gains tax in the U.S. Extending the exemption from the capital gains tax for charitable gifts of these assets would unlock additional private wealth for public good on the basis that it's much more effective and targeted than the bureaucratic process of direct government appropriation. Any concern about valuation abuse can be addressed by one simple measure: the charity would not issue a tax receipt to the donor until it has received the cash proceeds from the sale of the asset.

Also, if the purchaser of the asset is not at arm's length from the donor, the charity would need to obtain two independent professional appraisals to confirm that the charity is receiving fair market value for the sale of the assets. For each $100 million of incremental charitable giving, the federal government would forego approximately $11 million in capital gains tax. The donor would of course receive a charitable donation tax credit from the federal government for $29 million, the same as for a gift of cash.

The total tax revenue cost to the federal government would be approximately $40 million. Now, there's a high level of awareness and support for these measures across Canada, particularly among the tens of thousands of volunteer board members of our not-for-profit organizations and the management and employees of our hospitals, universities, arts and cultural organizations and social service agencies such as United Way. In particular, I'd like to mention three prominent organizations that are supportive.

The Canadian Federation of Independent Business has 107,000 members. They have understood and are supportive of these measures because all members are private enterprises. It is estimated that over one-third of family owned independent businesses in Canada will be sold or transferred by the end of this decade. Also, most of the 1,800 mayors who are members of the Federation of Canadian Municipalities are supportive. Not-for-profit organizations in municipalities would receive incremental funding from donors who live in their community, but there's no tax revenue cost to the municipality because they derive their revenues primarily from property taxes, not income taxes. Not-for-profit organizations in smaller and rural communities, in particular, would benefit from gifts of private company shares and real estate. Also, the C.D. Howe Institute published an e-brief last September endorsing both of these measures.

Now, it is also important to recognize that the Liberals, the NDP, and the Bloc Québécois have publicly confirmed their support. Charities across Canada thanked the Liberals and the NDP for their support with full-page advocacy ads published in The Globe and Mail, The Toronto Star, and the Ottawa Citizen last December.

Charities in Quebec thanked the Liberals, the NDP, and the Bloc Québécois for their support in full-page advocacy ads published in La Presse and Le Devoir last January.

We urge the finance committee to recommend that the government implement these measures in the upcoming budget. This is one of the few public policy issues upon which all four parties can agree and for which all Canadians will be very grateful.

Thank you for your attention. I'd be pleased to answer any questions.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Johnson.

Now we'll hear from Make Poverty History, please.

[Dennis Howlett, Coordinator, Make Poverty History]

I'm Dennis Howlett, national coordinator of Make Poverty History. With me is Laurel Rothman, who is a member of our steering committee and also the coordinator of Campaign 2000.

Poverty is a violation of human rights on a massive scale. It doesn't have to be this way. Collectively, we now have the resources, the technology, and the knowledge necessary to end poverty, both globally and here at home. If we choose, if we have the will to act, we can make poverty history. But we need a plan to do this.

Globally, there is a plan: the millennium development goals. Just two weeks ago in New York, there was a big world summit--Prime Minister Harper attended, along with many other leaders--to assess the progress made in the 10 years since this plan was adopted.

There has been significant progress made, but the progress has been affected by the impacts of climate change and the global economic crisis. Many of the eight goals have actually stalled or even been reversed in their progress. So what we need now is a redoubling of efforts in order to achieve these goals--the promises that were made to the world's poorest people--by the year 2015, because there are only five years remaining.

This is not the time for Canada to be stalling on its commitment to achieve these goals. Canada has contributed until now, but last budget there was an announcement that the aid budget would be frozen. Now, in the final stretch, is not the time to reduce our level of effort. If anything, we need to increase our level of effort.

Governments in developed countries have obviously been affected by the impact of the financial crisis. We recognize--and this was clear in the meeting I had yesterday with Finance Minister Flaherty--that these are difficult times in terms of the upcoming budget. We have to keep in mind that the developed countries have spent trillions of dollars in response to the global financial and economic crisis, and this has led to large deficits for countries, including Canada. But the spending mostly went to bail out banks and corporations. Very little actually went to help developing countries cope.

Pursuing deficit reduction primarily through spending cuts, especially cuts to social programs and international aid, could further harm the poor in Canada and the poorest and most vulnerable people in the developing world who have already suffered the most from this financial and economic crisis which they did not cause.

Twenty-five percent of the planned overall reduction to the deficit, as announced by the Canadian government in last year's federal budget, will come from freezing its aid budget over the next five years. This is unjust and puts an unfair burden on the poorest people.

Two weeks ago in New York, I met the new British international development secretary, who said that even though the new Conservative government there faces a huge financial challenge, they are not going to balance their books on the backs of the poorest people. He said that himself. And the new government recommitted to achieving 0.7% by the year 2013.

There is support in Canada for increasing the aid budget. Last June we did an Angus Reid survey that showed 61% of Canadians actually support increasing Canada's aid budget.

Finally, I'd like to remind you that there is an alternative. We need to look at the revenue side as well and not just rely on cutbacks for deficit reduction. While increasing personal income taxes on middle- and lower-income people would undermine the weak economic recovery, there are other innovative tax measures that deserve consideration.

The financial transaction tax, or the Robin Hood tax, as we have called it, could raise hundreds of billions of dollars that could be used to reduce deficits in developing countries, as well as provide financing for poverty reduction and climate change adaptation in developing countries, which donor countries have been increasingly hard-pressed to come up with.

By imposing a very small fee of 0.05% on financial market transactions, the global financial sector, which benefited most from the bailouts and rescue packages, who now pay far less in taxes than other business sectors, would be made to contribute its fair share to a global economic recovery. And the FTT would have the added advantage of discouraging excessive speculation.

Laurel will now say a few words about domestic poverty.

[The Chair, Conservative, James Rajotte]

I'm sorry. You're about a minute over your time, so can we leave that for the question and answer session? If one of the members doesn't ask, I'll ask as the chair. Thank you.

Colleagues and witnesses, we do have to suspend for a few seconds. I understand there are technical difficulties. They're having trouble televising this hearing. So I'm going to suspend, and then we'll come right back.

[The Chair, Conservative, James Rajotte]

I would ask witnesses and colleagues to find your seats, please. I apologize for that technical interruption.

We will now begin with questions from members. We have Mr. Brison for seven minutes, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much.

I'll start with Mr. Johnson. Mr. Johnson, you've been appearing before this committee for about 12 years, initially looking for the reduction of the capital gains tax on publicly listed securities, which in fact the Liberal government provided and halved. Then coming back to both Liberal governments and the Conservative government, which ultimately did follow through in eliminating capital gains tax on publicly listed securities....

In terms of garnering the support you've received from the Bloc, NDP, and Liberal parties, the Conservatives have in the past understood the importance of not taxing large donors and attracting more of this private capital. So I think there's a good trend line here, and I think the Conservatives will follow suit on this. But they may have some questions in terms of the valuation.

You touched on this, and I think that's one of the concerns that may exist, not so much around land--land, if it's done at the point of sale, is a little different--but in terms of the private corporations.

What other countries have done this, and are there other models we can look at in terms of the valuation side?

[Donald Johnson]

Well, both private company shares and real estate gifts are exempt in the United States from capital gains taxes. The United States has a process where the charity issues a tax receipt to the donor after a couple of appraisals have been done on the valuation.

What we're proposing is a simpler measure that would I think basically eliminate concern about valuation abuse. The charity would issue a tax receipt to the donor after the charity has received cash from the sale of the asset. That way, there is no concern about some artificial value being attributed to the gift. What we're proposing for the Canadian system would be better than the U.S. system. It would be simpler, clearer, and would eliminate any concern about valuation abuse.

[Scott Brison, Liberal, Kings—Hants, NS]

So we have a model that's working in the U.S. and you have a streamlined or simpler model for here. I think that may help address whatever concerns may exist by the committee around valuation.

Thank you very much, Mr. Johnson. Based on our experience with you in the past, we may as well do this, because you will just keep coming back in successive governments.

[Donald Johnson]

Rest assured I will.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much.

Mr. Morsky, it's good to see you again. I saw you on Saturday when I spoke to the Construction Association of Nova Scotia.

The issue of the March 31 deadline was raised with me on Saturday by your members in Nova Scotia, and there is great concern with that. How important is it that the government come out very clearly that there will be flexibility and that projects that have already started with federal commitments will be fully funded, even if they are not completed by the March 31 deadline because of all kinds of factors, particularly Canadian winters? How important is that to your members?

[Wayne Morsky]

I think it's important to note that the recent announcement by the minister, with respect to the stimulus deadline, was very favourable. Our industry is aware of this deadline. It's a critical deadline. The situation is that it's difficult to predict because there are a lot of unforeseen circumstances across the country. Weather is a big factor. I realize that even in my own province we've had one of the wettest summers we've ever had. There are a lot of things that can't be done this year.

Another thing that has to be considered that is very important to the stimulus deadline is paving, which is a big part of the stimulus package. The March 31 deadline is not a factor because paving ends in the next couple or three to four weeks, if we don't get the weather we have to. It is important; we realize that it's a very big issue across the country. What we've done as an industry is try to advise our members of this deadline and to work towards it as best they can.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

Mr. Conway, you said we should be urging provincial governments to reduce payroll taxes. Do you believe that a 5¢ increase per $100 contribution as a payroll tax increase will hurt Canadian jobs, will reduce Canadian employment?

[Michael Conway]

I'll direct the question to Mr. Effer.

[Peter Effer, Vice-President, Taxation, Shoppers Drug Mart, Financial Executives International Canada]

The payroll tax that we're referring to relates to the incremental payroll tax, not the employment insurance in particular, which I believe you're referring to. In Ontario, for example, there's a payroll tax on company payrolls in excess of $400,000, equal to 1.95% of the payroll. Those taxes exist in Ontario, Quebec, Manitoba, and Newfoundland.

[Scott Brison, Liberal, Kings—Hants, NS]

But in terms of there being one taxpayer and one employer—one who pays federal and provincial—if you say that provincial payroll taxes cost jobs, isn't it logical to assume that federal payroll taxes cost jobs too?

[Peter Effer]

Yes, but we were directing our attention to the provincial payroll taxes.

[Scott Brison, Liberal, Kings—Hants, NS]

At a federal committee. I'm just trying to help here. We are a federal committee, so we can make recommendations to provincial governments, but we really direct federal policy. I'd really appreciate your input directly on the increase in payroll taxes scheduled for January. The CFIB estimates a 60,000 loss in jobs based on that increase. You've said that there will be job losses based on provincial increases. Do you not agree that this will cost jobs even though it's been enacted by a federal government?

[Peter Effer]

Sir, on that particular measure I didn't come prepared to speak.

I will clarify what we're referring to on the provincial payroll taxes. In 2007, there were temporary financial incentives introduced to encourage the provinces to eliminate their provincial capital taxes. They were introduced by the federal government; they were noted in last year's budget. That's the reference to the encouragement on the federal side.