Finance Committee on Oct. 5th, 2011

[The Chair, Conservative, James Rajotte]

You have one minute.

[Mark Adler, Conservative, York Centre, ON]

I have a quick question, and then I'm going to go to Mr. Patry.

Do corporations pay taxes or are they passed on through as an expense?

[Norma Kozhaya]

That is an excellent question for an economist. Corporations, as entities, do not pay taxes. Shareholders pay the taxes, as do consumers through higher prices and workers through lower wages, and that offsets higher taxes.

[An hon. member]

Leave the corporation....

[Norma Kozhaya]

As a legal entity, the corporation pays, in theory, but it is really the shareholders, the customers and the workers who bear the tax burden at the end of the day.

[The Chair, Conservative, James Rajotte]

Thank you.

Sorry, Mr. Adler. You have 10 seconds, and for a question and answer that's not enough time.

[Mark Adler, Conservative, York Centre, ON]

No, it is. I need a one-word answer.

Mr. Patry, yes or no, should trade unions pay taxes?

[Pierre Patry]

Unions are non-profit organizations, so they do not pay taxes. They collect money that comes back to members in the form of services. Unions do not make profits. So there is no reason for them to pay taxes.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Giguère, go ahead.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

My first question is for the Conseil du patronat du Québec and has to do with R & D credits. Do you want to use them to introduce products into the market? If not, is it just a matter of accessing those credits?

[Georges Dick]

That is an extremely important question. The biggest problem is indeed access to those credits and the fact that they depend on tax auditors' assessment of the R & D program. They determine whether the R & D activities you have initiated are deemed acceptable.

A corporation that establishes an R & D program has no certainty that the activities it has undertaken will make it eligible for tax credits. Furthermore, it receives those tax credits after it has done its R & D. So, there is clearly an issue in terms of the cash assets needed to fund any R & D activities. Larger scale or riskier projects are often carried out in partnership with other corporations. New companies are set up to undertake those activities and potentially introduce products into the market. That means these companies do not pay taxes. It takes them years to become profitable, so they cannot access those tax credits.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

In Quebec, any municipal or provincial funding received must be deducted from R & D spending.

[Georges Dick]

Yes, those are grants, and they are deductible.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

That is not the case in the other provinces. That was just a comment I wanted to make.

You also said that the three-percentage point reduction in tax rates set out in the most recent budget would cost the government just $100 million. I would like you to provide your documentation, that is all. Much appreciated.

Ms. Azoulay, I believe you also had a few problems as far as research and development goes. You are calling for a refund, and understandably so, insofar as R & D credits are often reused to fund the following year's activities. But there as well, you have a problem. Is it an accessibility issue? If not, do you want them to be broader in scope, applicable to market promotion? What is your issue?

[Audrey Azoulay]

My issue has more to do with the need for a strong pro-R & D message, encouraging R & D policy and investment. The program already exists with all its benefits and drawbacks—I must admit that I am not that familiar with them—especially in terms of eligibility criteria, which I feel are very restrictive for SMEs given all the paperwork involved. You may see that as merely a detail, but it changes things. The result is that many companies cannot access these credits. Even when they try, the drawbacks ultimately prevent some companies from achieving the desired outcome. I don't think I am telling you anything you don't already know by saying we need to invest much more heavily in innovation in order to move beyond the barriers to competition we currently face and will continue to face tomorrow, the day after and well into the future.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you.

I have to ask you another question about social security taxes and payroll. In Europe, they are much higher than in Canada. At one point, you said something very interesting. You said we could replace it with a goods tax, a consumption tax. It is quite possible that the committee could eventually recommend a total overhaul of tax law. Could you suggest a few approaches?

[Audrey Azoulay]

Even though I am in the middle of educating myself on the topic, I can say that what is known as the social value-added tax or VAT is basically a transfer of the payroll tax to a consumption tax. Some northern European countries and Germany have done that. You can appreciate why that would interest an organization like ours. We are starting to see a lot of research showing the very positive correlation of this transfer to a so-called social VAT and exports. It is simply a matter of moving towards a much more efficient tax regime, closer to a consumption tax.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you. I don't have much time, so I must cut you off there.

[The Chair, Conservative, James Rajotte]

Thirty seconds left.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

If we continue to contribute so little to public pension funds, what will happen to workers who will be retiring in thirty years or so?

[Pierre Patry]

In Quebec, 40% of people have a private pension plan.

The system is built on public plans, employer or private pension plans and personal savings. In that sense, the labour fund is an excellent vehicle for personal savings. Now if we do not increase contributions to public pension plans, such as the Canada Pension Plan and the Québec Pension Plan, which, today, are designed to replace approximately 25% of retirement income, many people will certainly be condemned to the poor house.

So, not only do we need to take action at that level, but we also need to have private pension plans that employers contribute to, not just workers. People are in debt up to their eyeballs. They don't save and end up living in poverty come retirement. In the long run, the economy suffers.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

And thank you all for coming.

We had an opportunity to come here a little earlier yesterday and to visit your incredibly beautiful city. We did a lot of walking around.

I have to tell you that when we travelled in from the airport we saw some serious infrastructure problems, and you've touched on those too. You also spoke about the costs and, you're absolutely right that the costs are off the charts.

I want to ask the following question, however. There was a recent report on corruption in construction. As a member of Parliament, it's my responsibility, when we decide on spending throughout the country, to respond to my constituents' questions about what is being done to address these problems.

So I want to give you that opportunity, Mr. Rotrand, to respond. What have you done in city hall, for instance, to combat that and maybe to correct it? Maybe you could just expand on that briefly.

[Marvin Rotrand]

Mr. Van Kesteren, welcome to Montreal.

You're asking a very important question. There is a debate about this issue in Quebec society right now. There have been a lot of accusations, lots of innuendo, and very little proof, but there is still a great deal of public concern.

I think there's an overwhelming consensus in Quebec that the Government of Quebec should launch a public inquiry into the construction industry. In fact, Montreal city council has adopted a resolution on this, not once, but twice, and that's exceptional for us, as we're not a provincial opposition party. However, on a municipal level, the elected officials are reacting to what they're hearing from their constituents.

In terms of our own governance models, we've put together a series of reforms internally to ensure there isn't collusion between construction companies when they respond to public bids.

I wear two hats: one at city council and one at the transit commission. And I can assure you that we have rigorous control over our contracts in both areas. But there are limits to what we can do. There are provincial laws that kick in. The lowest bidder is always going to get the contract, but we can't be sure 100% of the time that there hasn't been any collusion between the lowest bidder and other construction companies.

That's what the Government of Quebec is looking at right now. They've set up an anti-collusion squad. There are investigations. There have been a lot of discussions recently about the Duchesneau report. The government is going to have to react to that in some way, and I don't want to preclude what they will do or to comment or make a value judgment on how they're handling the situation. I don't have all of the facts they may well have.

But we as a transit operator are saying that we can provide Canada with a great future. We've done wonderful things in Montreal, but there is a limit to what municipalities can do on their own. We're going to need your help and the help of the Government of Quebec as well. We have a slightly different model from the other provinces. The funds you provide go through the SOFIL before they get to us.

But clearly, whether you decide to lower taxes or to invest and put off deficit reduction, we think transit should be looked at in an entirely different way.

As I mentioned before to Ms. McLeod and Mr. Jean, we're the good cholesterol that makes the economy run at the same time as we protect the environment. So we hope you will take that into account regardless of the recommendations you ultimately make.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, sir.

Mr. Patry, I just want to clarify something. You said we had a 37% deficit, but if you combine the federal, provincial, and municipal levels, we're at about 87%. That's just something that we all have to realize.

And very quickly, could I just ask Madame Azoulay a question? It's very important being in the export business. You mentioned the fact that we can no longer depend on an expanding economy in the United States. Our government has been very active in reaching free trade agreements. We have a number of them in this hemisphere and, of course, we're expanding now to Europe. How important is that to your organization, and where do you think that should go?