Evidence of meeting #61 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was companies.
A recording is available from Parliament.
10:15 a.m.
Conservative
Russ Hiebert Conservative South Surrey—White Rock—Cloverdale, BC
Our government has substantially lowered taxes in the last five years, and we're looking to get down to a 15% tax rate as of next year. How much lower would we need to go to keep these Canadian companies and minimize the enticement of going overseas?
10:15 a.m.
Chairman and Director, Jarislowsky Fraser Limited
Well, I think it's again a question of the Canadian dollar. To the extent that our Canadian dollar goes to $1.50 U.S., we will still close more. It is one of the very important problems. We have 80% of our trade with the United States. They're beggaring us by bringing their dollar down and bringing our dollar up.
10:15 a.m.
Conservative
10:15 a.m.
Associate Professor, University of Toronto, As an Individual
I would argue that the government is going in exactly the right direction. It's hard to say what the right rate should be. The reason is that there's a big distinction between statutory rates and effective rates, with the deductions, and so on, that corporations have.
I would argue that we're definitely moving in the right direction. There's still some distance to go, but bringing down corporate tax rates is exactly the right thing to do to make it more attractive for foreign companies to locate in Canada and for Canadian companies to maintain operations here.
10:15 a.m.
Member of the board of directors, Mouvement d’éducation et de défense des actionnaires
I would like people to ask who is benefitting from these tax cuts. Is it the large organizations or corporations, the large multinationals, or is it the SMEs which are already paying their share of taxation? I think that is the real question.
10:15 a.m.
Conservative
The Chair Conservative James Rajotte
Merci.
Thank you, Mr. Hiebert.
We'll go back to Mr. Szabo, please.
10:15 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Mr. Hejazi, would you like to answer the question that was posed?
10:15 a.m.
Associate Professor, University of Toronto, As an Individual
Yes, I would.
These big multinational corporations, the big Canadian corporations and the banks, for example, are very widely held. When corporate tax cuts go to the big corporations, what do they do with the additional revenue? They pay it out to shareholders. When they pay it out to shareholders, it's all taxable. When they earn all of this extra income and they're doing better in the global economy, they hire more people.
My classes at the Rotman School are full of employees from the banks. I'll talk specifically about Scotiabank, where they have a big presence in the Caribbean. Many of the students at the Rotman School are in fact managing those global operations.
There are lots of benefits. It's not as if the corporation gets these tax breaks, goes off to sit on a beach, and enjoys them. They go to the shareholders. They go to the employees. They go back into the Canadian economy.
Thank you.
10:15 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Okay. I understand.
Not much has been said about the dimension of the problem. I hope all three witnesses will give some thought to the size of the problem and the urgency level and compare it to what you would assess to be the importance in size of the underground economy domestically and what relative priority that should take.
I would think there may be some commonality in terms of the approaches that are taken in terms of “carrot or stick”, etc. I want to ask for a very brief response from each of the three as to the priority and timeframe that may be required to reasonably address the challenges.
Madame Champoux-Paillé.
10:20 a.m.
Member of the board of directors, Mouvement d’éducation et de défense des actionnaires
As far as MÉDAC is concerned, there should be a comprehensive reform of the tax system based on the principles of economic solidarity.
10:20 a.m.
Chairman and Director, Jarislowsky Fraser Limited
I don't know the exact extent of it, and I don't think anybody really knows the exact extent of the private use of illegal tax shelters. I firmly believe that it's irrelevant.
We have to stop it to the extent that we can. We have to better educate our people in the revenue department in order to be able to do it. But the emphasis in this country should be on Canadian jobs and on good Canadian investment returns, which will lead to more investment in Canada.
10:20 a.m.
Associate Professor, University of Toronto, As an Individual
May I take two minutes, or is that too long?
10:20 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Well, I have two minutes. Show me that I'm making a good investment here. Carry on.
10:20 a.m.
Associate Professor, University of Toronto, As an Individual
That's a lot of pressure. But one thing I would say is that the returns are taxable, so.... Anyway, that was a joke.
As we talked about corporate tax rates going down and moving us in the right direction, we know that reducing taxes, corporate and personal, move us in the direction towards reducing the size.
But let me speak to the legitimate use of these offshore centres. I'm going to give you a few numbers. We have about $500 billion in the global economy; about 20% goes through offshore centres.
Let's say there's $100 billion. Let me just put some rough numbers to this. If I have $100 billion going through offshore centres...and suppose the return, the income generated, is 8%. So there's $8 billion a year generated in income from those investments we have in those offshore centres.
Let me throw a 40% tax rate on there. So I have $100 billion in offshore centres, I have an 8% return, so $8 billion in revenue, and I have a 40% tax rate. Many people believe that if we could tax all of that income that's generated in offshore centres, that would be about $3.2 billion. That's the sort of number I've seen thrown around by some people. That's sort of an upper bound. If the Canadian government were to limit the ability of Canadians to use those offshore jurisdictions, many people I've talked to think Canadian tax revenue would go up by about $3.2 billion. I argue it would go down. I argue it would go down because the income generated would fall because Canadian companies would not be as productive and competitive.
Secondly, many Canadian companies would actually leave Canada—
10:20 a.m.
Liberal
Paul Szabo Liberal Mississauga South, ON
Thank you. I appreciate that.
But the dimensions, then...you're still talking about some $3 billion. Compared to the underground economy domestically, it's small.
10:20 a.m.
Associate Professor, University of Toronto, As an Individual
When you think about tax evasion—and again, as my colleague in Montreal put it, we can't measure it—the vast majority of tax evasion, the vast majority of lost tax revenue in Canada, I would guess, is done by Canadians in Canada doing home improvements and other things and not by Canadian companies or individuals operating in offshore financial centres. I agree with you completely.
10:20 a.m.
Chairman and Director, Jarislowsky Fraser Limited
And I agree with that fully.
10:20 a.m.
Chairman and Director, Jarislowsky Fraser Limited
I think what we have to stop is the black market in Canada and the evasion of taxes in it.
10:20 a.m.
Conservative