Finance Committee on Nov. 1st, 2011

[The Vice-Chair, NDP, Hoang Mai]

Thank you, Mr. Marston.

Ms. McLeod.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair. I do have to make a quick comment before I go into my questions.

I find it profoundly interesting when the opposition expresses concern over EI, which is a sort of self-sustaining loop, but at the same time votes for a 45-day work year that would have an incredibly detrimental effect. I find those two concepts very hard to align.

I simply had to say that. I won't ask you to express your opinion on that particular view, Mr. Myers.

What I would really like to do is focus on the FCM. Certainly, as a former mayor of a small town, I appreciate the challenges around infrastructure, even the one-third, one-third, one third, and the capacity of communities. I wasn't a mayor when the gas tax came in, but I know I would have welcomed it with open arms.

We did hear from the minister earlier in terms of hoping that municipalities don't simply treat it as a grant but use it to leverage. I guess I have a couple of questions. Past practices show it has been mostly used as sort of a grant. Is that because it wasn't legislated and you couldn't count on it long term, and will legislating it make a difference?

Could you maybe talk about what enshrining the permanent gas tax fund in legislation will represent to municipalities, and a little bit about whether they are currently leveraging to some degree?

[Berry Vrbanovic]

I believe it's very important to emphasize that one of the clear messages we heard from our members was the need to have reliable, stable funding that they can count on toward dealing with the capital infrastructure investments they need to plan for going forward.

One of the challenges that occurs when you have blips in funding, which happen for very good reason--for example, under economic stimulus and so on--is that you run the risk of potential inflationary pressures and so on, because there isn't the capacity at times in the marketplace to deal with some of those issues.

I think it's fair to say it's extremely important going forward that we have reliable funding that we can count on. It will certainly give municipalities what they need to be able to plan financially, in terms of the work that needs to be done, and to balance out the various responsibilities they have.

From the people I've spoken with, I can tell you that everyone recognizes the importance of those infrastructure dollars, those gas tax dollars, and so on, going to that very purpose. The process is set up in that way, to ensure that it goes to those purposes in our municipalities.

I think Mike may want to add a little bit to this as well.

[Michael Buda, Director, Policy and Research, Federation of Canadian Municipalities]

Very quickly, to answer your question about leveraging, yes, municipalities are using the gas tax fund to fund larger projects that they take debt on to cover, and then use future gas tax fund payments to pay the debt obligations of that loan. It allows people to fund much larger projects.

That is why the predictability is so important. It allows people to essentially leverage the long-term nature of the fund so that we can get the kind of capital investments today, rather than waiting for 10 years. Of course, we need the infrastructure to do that.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

You talked about the gas tax being the major cornerstone; I would have to say it's one of the cornerstones. If you're looking at municipalities, they are 50% of the infrastructure. I look at so many important items around highways, which are provincial and federal.

I also have to quickly make note that certainly within lot subdivisions that straddle...we had to do water upgrades. We had a choice whether we paid it all ourselves, or so much per month over the next so many years.

I do appreciate municipalities and their significant needs, and the majority needs, but there are other situations in terms of provincial, territorial.... It is not the one and only piece.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

Mr. Giguère, you have five minutes.

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

My first question is for Jean-Pierre Laporte, and it's about individual pension plans.

How could I explain this to you? Let's look at how a person with a high income is taxed. The individual pension plan is not all that matters; there is also the $400,000 tax exemption for Canadian controlled private corporations. If SMEs want to get around paying taxes, all they have to do is hire a tax expert. I don't want to be mean, but how can I tell you this without being a little mean?

However, the taxpayer has only one shirt and would like to hold on to it. Currently, there are so many tax loopholes that make it possible for someone who makes $250,000 a year to pay as much in taxes as someone who only earns $50,000, over a 30-year period. There's something of a tax fairness issue with that. Dr. Léo-Paul Lauzon, a professor in taxation at the Université du Québec à Montréal, has pretty clearly shown this to be true. Too much comes out to the same as too little. Perhaps we need an individual pension plan.

I think that's hard to justify in terms of ethics and fairness.

[Jean-Pierre Laporte]

Do you have a question?

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

I will put it to you clearly. How can you justify such loopholes in terms of tax fairness?

[Jean-Pierre Laporte]

First of all, the rules governing individual pension funds are roughly the same ones that govern defined-benefit pension plans, from which the members of this committee and public servants benefit. If you think that the rules that provide additional tax cuts to people with such plans are a problem, perhaps the federal plans and MPs' plans should be reduced a little. The rules are roughly the same. There are a few small changes in the regulations that somewhat reduce an individual's capacity to receive tax cuts.

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

The problem is that I am not sending the bill to a company that will receive a tax deduction. In addition, unlike a Canadian controlled private corporation, I'm not eligible for a $400,000 capital gains deduction.

You are limiting your view to the pension plan matter, but I am interested in how taxation is ultimately affected. I think that there's a big problem with the fact that, if they are resourceful, people who earn $250,000 a year will pay less taxes than people who make $50,000 a year. Those earning $50,000 would like people making $250,000 to pay a bit more than they do.

[Jean-Pierre Laporte]

In a normal pension plan, such as the teachers' or the public workers' plan, taxpayers contribute as the employer. In an individual plan, the company must put up the contribution. However, the company is the individual who owns it. I am talking about a private company. If a doctor is incorporated, the company's income is that of the doctor. Consequently, the doctor must contribute to the plan, and the two parts come from the same source.

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

Your doctor example is very appropriate. Doctors are paid by the government, while high school teachers cannot become incorporated to include their salaries under a Canadian controlled private corporation. A doctor can do so. That is where the whole problem with tax fairness lies.

[The Chair, Conservative, James Rajotte]

Do you have an answer, Mr. Laporte?

[Jean-Pierre Laporte]

I talked to you about what retirement plans can provide taxpayers with. I am not here to analyze the whole Income Tax Act.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Lake, please.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair. I'm just going to focus on one issue here, if I can, because I think it'll be the defining issue probably over the next four years here in Parliament. You've seen a bit of the debates back and forth between the NDP and us. The NDP, in the previous election, called for a 19.5% corporate tax. Our corporate tax rate for next year will be 15%. Theirs represents an increase of 30% over ours.

There's a good slide on page 4 of your presentation, Mr. Myers, that talks about the impacts of the reductions in a positive way. For example, there are increased personal incomes of Canadians, boosting our GDP.

Maybe speak to some of the impacts of a lower corporate tax rate versus a higher corporate tax rate, especially with a difference of 30%.

[Dr. Jayson Myers]

I would first of all refer you to the graph on page 2, the top one, that shows the relationship between after-tax profits as a percentage of GDP, so it's a general measure of business profitability and unemployment. What it shows is that the only time unemployment rises is when profits fall, and the only time unemployment falls is when profits increase. That's after-tax profits. The relationship is not as strong on before-tax profits. In fact, as the profit margin increases over about 6.5%, there's almost a one-to-one relationship between the change.

On that basis, you can track the impact of reducing corporate tax rates in terms of an increase in profitability and a reduction in the unemployment rate. So if businesses are growing, they're employing more people. As more people are employed, personal incomes increase, GDP increases, government revenues increase, and that's where the overall economic benefits come from, as that table outlines.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

So it's fair to say that of the 650,000 net new jobs since July 2009, a significant number would be due to a declining tax rate on job creators.

[Dr. Jayson Myers]

What we've seen is that the unemployment rate falls as profitability increases. And I think that is a very important reason why profitability has increased so rapidly in Canada versus what is happening in the United States. It's not only because of the state of the economy, but also because of the tax reductions over the course of the last 10 years.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I would just get in another comment. Back in the early summer, we had this debate over Canada Post that ran for 48 to 72 hours, or something like that. One of the advantages of that is we had time to do some reading. One of the things I started reading was about Canada Post's union pension plan. I think some of your members would be among the largest equity holdings in that pension plan. There's Suncor, for example. I think they hold about $154 million worth of Suncor shares. There's PotashCorp., $100 million worth of shares. Talisman Energy is a favourite whipping boy for the NDP, but the Canada Post union pension plan holds $94 million in Talisman shares.

Maybe you could speak to the impact on those Canada Post pensioners of a 30% increase in taxes on those companies.

[Dr. Jayson Myers]

An increase in taxes does two things. It means there's a lower return on investment for the company and therefore the share value will fall. It also means there's less money to distribute in dividends, and unretained earnings by the company, so there's less of a dividend. Both of those have a negative impact on any investor holding the stock, and, as you say, these are some major investments that any pension plan would hold.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Mr. Hsu made a couple of comments to do with EI—he wasn't here in the previous Parliament, but the Bloc, the NDP, and the Liberals banded together to put forward a 45-day work year proposal for EI. After 45 days of work, a worker would qualify to receive EI for the rest of the year. I can't remember what numbers were attached to that, but it was in the billions of dollars. Do you remember that—$4 billion I think was the amount?

[The Chair, Conservative, James Rajotte]

Mr. Lake, there is a point of order.

Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

I understand Mr. Lake has been brought in late on this. He may not be aware of the details on Bill C-13, but that is indeed what we are speaking to, and I'm sure his colleagues on the Conservative side understand that's completely out of the scope of what we've asked witnesses to come here to speak on tonight.