Finance Committee on Feb. 15th, 2011

[Glen Hodgson]

That's an excellent question, because I look at firms trying to adapt to the strong dollar, to the coming labour force shortage that we're anticipating within two or three years. I think the answer is probably yes. I don't want to make it a permanent crutch for our business, but I do think we're going through a transition period where that's the kind of innovative thinking around tax policy that's probably required.

Frankly, I would see that as more important than an ongoing reduction of corporate income tax, but business is already planning for that. I think we should be looking for ways to do more to try to accelerate investment.

[The Chair, Conservative, James Rajotte]

Okay. My time is up, so Mr. Lee, just very briefly.

[Prof. Ian Lee]

Again, I agree completely with Glen. I wouldn't prioritize it. For me, protection is the number one issue facing our country. We've got to get more competition in to force our managers to compete.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Pacetti, please.

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

Thank you, Mr. Chair.

Just quickly, Glen, why wouldn't you make the accelerated capital costs permanent?

[Glen Hodgson]

I don't like building permanent crutches into our tax system.

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

It's not necessarily a crutch. Sorry to interrupt you, but the accelerated capital cost—we call it accelerated, but it matches the useful life.

[Glen Hodgson]

It may well reflect the useful life of capital now, so you're right. It's not something we studied in great detail. We like to operate based on hard analysis. A quick response off the top of my head is that's probably one area we could look at to encourage more ongoing investment in machinery and equipment.

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

Thank you.

Mr. Lee, just getting back to what we were talking about, at one point there's got to be a break-even when corporate taxes are not advantageous. I don't think anybody's opposed to having low corporate taxes, but there's got to be a point where it doesn't make a difference. It's a moot point. It doesn't really matter because you're not going to attract any more investment, and the companies that do have investments here should be paying part of the cost. If you look at corporations in Canada versus other jurisdictions, in Canada they obviously benefit from having a medicare system that's paid for through the state.

Then you have the whole choice...the government has to decide whether they're going to subsidize social programs. There is a social safety net there.

There's got to be a point...you can't just blankly say that corporate taxes should be at zero.

We're just saying it's not the right time right now.

[Prof. Ian Lee]

Believe it or not, I'm not trying to get involved in a partisan debate.

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

But you are involved.

[Prof. Ian Lee]

I'm saying what the research is saying.

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

You've got to tell me what your research says, so don't be uncomfortable.

[Prof. Ian Lee]

I'll answer your question.

In the OECD studies, and they have some great graphs showing this, the average level of taxation has declined in every country in the OECD for the past 20 to 30 years. This is a long-term trend. It's just going down. Where will it bottom out? Nobody knows because we're not there yet.

To answer your question directly, embedded in your question was the assumption or premise that corporations pay taxes, and I don't accept the premise. They don't. They pass it on.

So what we're talking about when we talk about income taxes is disguised. It's indirect taxation on those individuals as consumers or workers. Corporations don't pay anything. Everything is passed on. If they don't recapture all their costs, they're out of business.

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

But again, the state does provide some services, and the state has to find a way for corporations to pay the taxes.

Ireland tried it, and now they're under pressure to put back some of the corporate taxes.

It's nice that you don't believe corporate taxes should exist, but they do exist. It's a form of taxation. Yes, sure, they pass it on, but in the end, big corporations don't really exist, right? It's a shareholder or the guys at the top who control it. It's six of one, half a dozen of the other.

Again, at what point do you make choices as a government that you want corporate taxes to be at a certain level? At what level should they be?

I don't see what is wrong right now in keeping or maintaining the rate of corporate tax as it is right now. And I don't see any studies that indicate we should reduce it.

[Prof. Ian Lee]

It can be done.

If Parliament votes, that's what will happen.

I'm saying that it's misleading, because all they are, are disguised taxes on individuals. That's all I'm saying. They are passed on to consumers indirectly.

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

Thank you.

Glen, just a quick question. We didn't speak about the vulnerability of interest rates. If interest rates were to go up even a quarter of a point or half a point, is there any risk out there? Obviously under household debt--

[Glen Hodgson]

I don't think a small increase like that is going to have a lot of bite in the economy, but personal debt levels are now the highest they've ever been in Canada. They're at about 140% of income--higher than in the United States now, by the way. That's why Governor Carney and Minister Flaherty have been quite rightly warning Canadians about levels of personal indebtedness.

Rates are rising. We've seen five-year mortgage rates, for example, start to rise.

What we would expect to happen, with more pressure on financial markets, is now starting to happen. Individual Canadians have to be very aware of their own capacity to shift money out of consumption into debt service.

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

Will it have an impact on the government?

[Glen Hodgson]

Clearly, as government rolls over debt, the higher interest rates that we're seeing--maybe not for a year, but certainly two, three years down the road--are going to have an impact on—

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

But it will increase bankruptcies and mean less money coming into the government coffers. Would that happen?

[Glen Hodgson]

Probably not. I would separate it, but in terms of pure debt service, we're all going to pay more for debt.

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

That's only normal.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Pacetti.

I want to thank our witnesses for being here and for responding to our questions. If you have any further information you want to present to the committee, please do so through the clerk.

Colleagues, I just need to move the operational budget request.

All in favour?

(Motion agreed to [See Minutes of Proceedings])

Thank you, colleagues.

The meeting is adjourned.