Finance Committee on Oct. 19th, 2010

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair. I truly do appreciate hearing from all of you today.

I'm a member from Saskatchewan, so I think I'm going to focus my questions to those individuals who took the time to come out to Ottawa and present to us. I am pleased that you were able to reschedule and be here. Five minutes isn't long, so I'm going to jump right in.

Mr. Marit, I appreciate your presentation. If there is nothing we can do in terms of infrastructure, is there anything the federal government can do within the regulatory regime to assist municipalities?

[David Marit]

Thank you for the question, Kelly.

Yes, there is something that could be done, and I would hope that the committee could help us in this, and that is in the regulatory regime of municipal infrastructure and the work we do. We are bound by regulatory bodies both federally and provincially, but federally we have, under Transport Canada, the Navigable Waters Protection Act, and we have the Department of Fisheries and Oceans. There are regulatory changes that could be made under the Navigable Waters Protection Act that would alleviate a lot of onus on municipalities, and especially this one, and that is the definition of what is called a “navigable waterway”. That has to be clearly defined. We are dealing with an act that was incorporated in 1898, and we're trying to do it in 2010. That's what's wrong with our system today. It won't impact the environment in any way. What it means is where we have bridges in rural Saskatchewan that are 50 to 60 years old and cannot take the transportation that is on them today--with trucks and the size of trucks--we could replace those with steel pipe at a third of the price, and sometimes less. That's one change that has to be made, the definition of what is a “navigable waterway”.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much.

My second question is for Chief Lonechild. I certainly do appreciate the work that you do in our province, Chief, and I know that not many provinces have such a robust organization as FSIN. I do appreciate your work and the leadership you have provided with FNUC.

In your statement you said that this verbal presentation didn't give you time to speak about the aboriginal youth employment support program, so I'd like to give you some time to do that.

[Chief Guy Lonechild]

Thank you very much.

Very quickly, I'll state that so many of our young people in Saskatchewan are actually not attaining grade 12, and some as young as 12, 13, and 14 are exiting the education system. Between that age cohort and of course age 29 or so, there is a large gap of young people who are not participating in the economy. As good as we see the times in Saskatchewan, I think we need a reinvigorated and more robust youth employment strategy focusing on increased sources of provincial and federal contributions to get our people involved in the labour force.

Of course there are many things on the horizon, such as mines and minerals, that present great opportunity in terms of employment in the potash industry and in the oil and gas sector and many others. And I think it's something this committee as well as our provincial partners in advanced education need to get on board with to support.

Quite frankly, there's a significant number of people who are just not participating in the economy or being employed.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I'm going to jump back to Mr. Marit and ask him about your recommendation number two.

You recommend that a change be made to the AgriRecovery program parameters to ensure that disaster relief payments made through this program do not affect the level of payments made to producers through the existing business risk management programs. So is that happening right now?

[David Marit]

Yes, and we're aware of it as a result of what happened in Saskatchewan this year, with approximately 12 million acres that didn't get seeded or were flooded out. When the federal and provincial governments announced the payments through the AgriRecovery program, that payment would be reflected in any other payments they received through the AgriStability program. So that payment would come off what they would receive in AgriStability, and we think that's unfair. This is a disaster. It should be treated as a disaster and it should be separate.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Do you have any suggestions as to what should be put in place?

[David Marit]

The program, the way it is, is good with the way it can be processed and how quickly it can flow through to the producers. The AgriRecovery component should be totally separate from the AgriStability component, and that's what we're recommending.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Block.

Monsieur Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chair, I will begin by questioning Mr. Dickie, and my question is in the form of a request to obtain greater clarification, because I am not sure that I have grasped all of the nuances of their comments. I am referring to page 4 in the French version. In order to facilitate things for Mr. Dickie, the reference is found on page 3 in the English version.

You have estimated housing spending and tax expenditures by tenure in Canada. Following the list, you talk about the non-taxation of net imputed rent. There is a footnote No. 2 on the following page, which reads as follows:

According to Statistics Canada, net imputed rent on owner occupied housing in Canada amounted to $39.2 billion in 2009. The federal tax expenditure incurred in 2009 by not imposing income tax on that imputed income is estimated by [your expert] at $5,595 million (or $5.595 billion).

I would like you to explain this aspect further. Because this is not clear for us: how do you come up with the biggest number in your list, when you detail the disparities between private renters and homeowners? I do not understand how you have come up with this figure and then say that this proves there is a disparity. It is not obvious. Would you be so kind as to provide further explanations?

[John Dickie]

Let me try to explain what has been said. When one looks at a renter, it's clear you have income from outside and then you pay out rent, and that's a living expense. With a homeowner the situation is a little bit different. A homeowner has cash income and then, by virtue of owning their home they receive non-cash income, which is the money they don't have to pay out for the rent of their home. That's a notional income. We in the tax system often tax non-cash income. There are certain benefits people get from employers that are taxed. In some of the tax systems around the world they tax that notional income. It is a distinct benefit to the homeowner that the homeowner, instead of putting $200,000 in shares, bringing an income, paying tax on that and then paying a rent, puts $200,000 into their own home, pays it all down for cash. Then, under our tax system, it shows up as having no income from that $200,000 and so pays no tax on that. So they get to enjoy a home worth, say, $2,000 a month, whereas when you run it through the tax system you get $2,000 of income. If you're at the 50% bracket you pay $1,000 in tax, so you'd only have $1,000 left to pay your rent. That's the discrepancy. Certainly it is a notional income. It is something people are not used to looking at, but it is a huge benefit to homeowners. When one is looking at all the tax expenditures the system includes, that is the biggest amount, frankly, because it's ongoing every year. I'm a homeowner myself. I'm glad I have that income from my house that I don't have to pay tax on.

[Thomas Mulcair, NDP, Outremont, QC]

At the end of your list, you mention something that is a little bit more obvious. Because I must confess to you, Mr. Dickie, that even though I did follow what you were saying in your answer, it is far from being obvious. When you say that there is an advantage, it is due to the fact that capital gains on a principal residence are not taxed. Everyone agrees with that.

However, would it not be fair to say that you have failed to consider the flip side of the coin? It is precisely because part of our tax and financial system is based on the fact that there is, for the owner, an incentive to encourage purchase, namely, the ability to recover these amounts, and that is part of what we deem to be revenue.

We say that the retirement systems include three pillars: the public retirement pension system, the private systems and savings. That is part of savings. This is an incentive to encourage saving, namely to say that you can invest in your house. If we were to tax that, if we were to no longer consider the existing tax reductions, we would have to recover this amount elsewhere, because people would not have enough money once retired.

[John Dickie]

Well, understand that we're not saying that these things should be taxed. Frankly, you'd have a revolution on your hands. What we're saying is that there should be recognition that this is a benefit that is received, and it's a valuable benefit that equates to real money. So when you're designing the system, you should be looking at how you can make the system more fair to renters. That's what we're saying.

[Thomas Mulcair, NDP, Outremont, QC]

I would like to take this opportunity and say that I hear what you are saying when you go beyond your tax and financial analysis in order to give a political opinion, namely that we would be dealing with a revolution. I do not disagree with you on that matter.

However, I would like to put the question back into your court. If you are not asking us to take this away, could I ask you a question? Is it in the interest of society to encourage people to become property owners, to become—I would dare say—masters of their own homes, or is it instead in our interest to keep them as tenants?

[John Dickie]

Well, society actually would be better served, at the point we're at, if more people were renters, because renters, when they become unemployed, will look for a job wherever there's a job and then will move to take it. Homeowners look for a job within commuting distance of their house, and they'll stay unemployed. So society loses, and the people who are at the margin lose.

The United States have gone further down the path than we have in pushing people into home ownership, and look at the disaster that has overtaken them. We may have avoided that—

[Thomas Mulcair, NDP, Outremont, QC]

With all due respect, Mr. Dickie, you are complicating matters. What the Americans did with their subprime loans, when they allowed unqualified people to purchase houses for which they could never repay the mortgage, has nothing to do with what the Americans are encouraging.

It is true that the tax deductions for interest and municipal taxes in many countries can be additional incentives, but it is certainly not what caused the crash that occurred with the subprime loans. I think that you are exaggerating a bit.

I would now like to turn to Mrs. Mendes.

[The Chair, Conservative, James Rajotte]

Mr. Mulcair, you have 10 seconds remaining.

[Thomas Mulcair, NDP, Outremont, QC]

It's over? That's fine, thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mulcair.

Mr. Pacetti, you are next, please.

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

Thank you, Mr. Chair.

Thank you to the witnesses for appearing.

I don't want to belabour a point, but I have a couple of comments, Mr. Dickie, since we're there. I understand a little bit of your logic, but concerning renters, if we just focus on home renovation, an apartment owner would have taken advantage of the home renovation tax credit and would have then transferred it over to the renter, would he not have?

[John Dickie]

That's what we're saying should have been possible to do, but it was not in the program design. If you were a homeowner, you could spend your $10,000 and get $1,350 back, off your taxes. However, a landlord could not do that, so—

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

Because the building was not eligible to receive that.

[John Dickie]

That's correct. So there was no incentive for the landlord to do that.

You might say we're not trying to give landlords more profit, but the issue is if that you reduce the cost to landlords of doing repairs, they're more likely to do them. That will improve the rental standards.

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

I understand. It was a poorly designed program; I think we agree with that.

The other aspect is that because you're using a dollar value.... Homes are normally valued much higher than smaller apartments that are for rent. You're using a dollar value, but you should probably be using percentages, because the fiscal benefit.... You used dollar amounts, but I would imagine it would be based on a higher value. I think you're using homeowners at $1,823, but what would be the value versus $308 of subsidies that you're saying private renters would use?