Finance Committee on Nov. 6th, 2012

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

My time is limited, and I would like to ask Mr. De Luca one last question.

Representatives from TSGI Chartered Accountants and from Canadian Manufacturers and Exporters told us that there were serious issues with R&D tax credit. I would like to know where the Jenkins report went wrong. This is not the first time we hear people talk about these problems, which stem from the Jenkins report. That's at least what the government is claiming.

What is the main mistake in the Jenkins report when it comes to its assessment of tax credit's usefulness?

[Albert De Luca]

The Jenkins panel still did some considerable work in terms of trying to better understand the impact of incentives on improving innovation in Canada. However, there are two or three things that the report did not fully accomplish, at least according to what we have clearly heard from people in the industry.

The first item has to do with meeting with representatives from the major Canadian companies in terms of innovation investment in order to establish a transparent, comprehensive and appropriate dialogue to better understand how that affects them directly. It is important to understand that more than two-thirds of Canadian companies are foreign-owned. So that means that decisions are not fully made in Canada. As I sometimes say, going to the movies is a bit more expensive in Canada, but the movies are just as good.

[The Vice-Chair, NDP, Peggy Nash]

Thank you, Mr. De Luca.

Sorry, we'll come back in another round of questioning.

Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Madam Chair.

Thank you to the witnesses for being here this afternoon. It's good to see you. I really appreciate your taking the time out of your busy schedules to be here. I'd like to talk to all of you, but I only have five minutes. I'm going to focus on a couple of you and get a feel for what your organizations are saying about a few issues.

I'll start off with you, Ms. Pohlmann. Roughly how many members make up the Canadian Federation of Independent Business?

[Corinne Pohlmann]

We have approximately 109,000 members.

[Randy Hoback, Conservative, Prince Albert, SK]

You have 109,000 members. You're in constant contact with your members through surveying in different ways. What would they expect the public service pension to be like? What do they think would be a fair pension plan for the public service? Should it be better? Give us your opinion of what your members think that should look like.

[Corinne Pohlmann]

Our members fundamentally believe that the overall public sector pensions and compensation should follow what's in the private sector. I think when you look at similar positions, especially at the mid-level, there are certain advantages to working in the public sector over working in the private sector. One of the big areas is that of benefits, specifically pension benefits.

These changes were a great start, but we would like to see, and we'll need to push for, such things as looking at defined contribution plans, perhaps extending the retirement age to 65 for all government employees over time, similar to how the OAS changes are being implemented. The changes wouldn't necessarily impact people who are close to retirement now, but perhaps would impact those who are still maybe 15 to 20 years away from it instead of only affecting those who start in 2013. Those would be a couple of things.

We also believe things like the bridge benefit might be something to be looked at. Those are some of the things that are just not available in the private sector that perhaps need to be looked at a little more closely in the public sector.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. Thomas, roughly how many members does your organization have, and what would be their expectations of the public service with regard to pensions? What do you think they would like to see? What do you think they would consider to be a fair pension plan for our public service employees?

[Gregory Thomas]

We have about 75,000 supporters.

We note that only about 12% of Canadians outside of government now have a defined benefit pension plan.

We believe that salaries, benefits, and retirement savings should be competitive for government. The government has to hire qualified staff if they want good staff. They want them to be well compensated, but they shouldn't make more than the rest of us do.

We think one of the ways governments have attracted employees is by offering all these back-end benefits that look cheap to government. They say that they will pay people less now, but they'll have pension benefits.

There are over 100 members of the Ontario teachers' pension plan who are at least 100 years of age. There are over 1,000 who are at least 90 years of age. There are 10,000 who are at least 80 years of age. The Ontario teachers have compiled great statistics, but the average retirement age this year was 59. Many of these people will be retired for longer than they actually worked as teachers.

That's the trap government is falling into by offering guaranteed indexed income for life to people starting when they are as young as 55. It's terrific that you're moving to start to deal with that. We think you should put things on more of a cash basis. Maybe pay your staff what you need to get them to work for you, but don't offer them benefits 40 years down the road that the rest of us can't afford.

[Randy Hoback, Conservative, Prince Albert, SK]

Again, this depends on what sector you're in. For example, one sector has to pay more to attract people to it versus what another sector does. I think if you look across the wide variety of jobs among the government sector, you would use pay as the reward for the higher demand jobs versus the lower demand jobs. Is that right?

[Gregory Thomas]

Yes, and let's face it. In some parts of Canada the government is the highest paying employer in the region. In other parts of Canada the government is scraping to find employees, because the economy is hot and they can't pay enough.

I think government has to be more flexible about getting the people it needs to operate.

[Randy Hoback, Conservative, Prince Albert, SK]

Mr. De Luca, in your presentation you talked about our competitiveness to attract investment going from third to fifth to ninth to thirteenth. I'm curious. What would those numbers look like if we didn't lower our corporate tax rate or if we didn't have the incentives to relocate here? I know it's speculation, but can you give us an idea of what that would look like? Also, what would a carbon tax do to those numbers?

[The Vice-Chair, NDP, Peggy Nash]

Mr. Hoback, sorry, you're out of time.

Mr. De Luca, if you'd like to answer, we have time for a very brief response.

[Albert De Luca]

The concept you're referring to takes into consideration the total tax framework. We're not suggesting that lowering the tax rates is not a good attractive feature. In fact, we think it is.

The problem, however, is in the fact that risks and rewards are not timed properly and the fact that we're competing against the large projects, outside natural resources, because we're quite competitive there. You can understand the impact.

[The Vice-Chair, NDP, Peggy Nash]

Thank you, Mr. Hoback.

Go ahead, Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Madam Chair.

I'd like to begin with Ms. Pohlmann. Under Bill C-45, the 2012 hiring credit does not factor in the 2011 hiring credit calculations. The calculation under Bill C-45 is based on employers' 2011 EI premiums before the hiring credit. As a result of that, for instance, a small company with 10 employees, earning $39,000 each in salary, would pay premiums of $9,445 in 2011. In 2012, that would go up to $9,718. Would you acknowledge that small businesses, even those that qualify for the 2012 hiring credit, would still see their EI rates go up by 7¢ per $100 contribution in 2012 compared to what they paid in 2011?

[Corinne Pohlmann]

Yes, that is true. The fact is the increase still applies even after the credit is in place, but we also feel at least it's some sort of credit that is available to small business owners. There is a bit of a break given to them when they do their hiring. But that is one of the limitations of the credit the way it's designed right now.

[Scott Brison, Liberal, Kings—Hants, NS]

Beyond that, there is a disincentive for those businesses that break the $10,000 maximum. There's an actual disincentive to potentially increasing wages on one hand or potentially increasing the number of employees on the other hand. To give an example, employers who had 10 workers, again earning $39,000 each, would have qualified for the 2011 hiring credit, but if they give a wage increase of 1.3% in 2012, this would push the employers up over the $10,000 maximum and they would not qualify for the 2012 hiring credit and their EI rate in 2012 would actually rise by 12¢ per $100.

What should we do to address this disincentive for a small business to actually hire more people? There would be a number of small businesses in that category which would be teetering on the edge of that threshold.

[Corinne Pohlmann]

There's a couple of things. We have strongly recommended for the last year or two to have the EI hiring credit expanded as well as extended beyond 2011 into 2012 and 2013. When I say expanded I mean it should be available to firms with more than $10,000 in EI premiums, perhaps $15,000 or whatever, and perhaps it could be increased gradually every year to make sure those folks are always captured. We would like to see that threshold expanded.

Another alternative, so that everybody would benefit, would be to actually freeze EI premiums. Freezing EI premiums at a difficult time would be one solution. While that would add to the deficit in the EI account, it would just add a couple more years of paying down that deficit. Instead of having the deficit paid off by 2015, it would be paid off by 2017-18. We've done some modelling on that and that is what we've determined over time. Another option would be to freeze EI premiums.

[Scott Brison, Liberal, Kings—Hants, NS]

For the government not to raise EI premiums by the scheduled amount would be a $600 million boost to the economy, whereas the hiring credit for small businesses is actually only $125 million. Unemployment rates, as you said Ms. MacEwen, are still higher than they were pre-recession and are significantly higher depending on where you are in the country. There's a real gap.

Thank you very much.

Madam Chair, do I have more time?

[The Vice-Chair, NDP, Peggy Nash]

You have one minute.

[Scott Brison, Liberal, Kings—Hants, NS]

On SR and ED, Mr. De Luca, thank you very much for your intervention. We heard earlier today from Mr. Cudmore, an accountant in Calgary who used to be at the University of Calgary, about the impact on the oil and gas sector and research in the oil and gas sector and the negative impact.

Do you find the changes to SR and ED potentially risking the capacity for businesses, entrepreneurs and scientists to actually prioritize research and giving that control to big government? There seems to be a shift with the Conservatives towards the bureaucracy making these decisions as opposed to the scientists and the entrepreneurs actually in the field. What would your comment be in terms of the potential risk to innovation?

[Albert De Luca]

My comments are based on surveys we have performed. Industry has said very clearly that it is in the best position to decide where the funds are to be invested. That has been said time and time again and very clearly, as much as it also indicates that it's perfectly acceptable for a government to identify certain strategic areas of interest and that the related funding of those should be governed centrally, but as it relates to determining how the investment should be made.

[The Vice-Chair, NDP, Peggy Nash]

Thank you, Mr. Brison.

Mr. Jean.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Madam Chair, and thank you to the witnesses for coming today.

Mr. De Luca, I remember hearing your proposal. It went by pretty quickly, but are you suggesting that we get into picking more winners and losers, that the government do more direct funding? You're shaking your head in disagreement.