Finance Committee on Nov. 27th, 2013

[The Chair, Conservative, James Rajotte]

I call to order meeting number 12 of the Standing Committee on Finance.

Pursuant to the order of reference of Tuesday, October 29, 2013, we are continuing our study of Bill C-4, a second act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures. Colleagues, we are doing clause-by-clause consideration of this bill.

I'll remind you as your chair, that I'm operating according to the motion, moved by Mr. Saxton, and adopted by this committee on Tuesday, November 5. It's quite a lengthy motion. I know you are quite familiar with its contents.

We have a number of amendments proposed by many of the parties here with respect to certain clauses. My advice to the committee in terms of how we propose.... You obviously have a copy of the agenda in front of you. The agenda highlights which clauses have which amendments attached to them. If any of you need any additional information, please highlight that to the clerk. We have our legislative clerk here as well, if you need any procedural advice with respect to amendments.

I will delve into clause-by-clause consideration.

Pursuant to Standing Order 75(1), consideration of clause 1, short title, is postponed. Therefore, I'm going to move to clause 2.

I do not have an amendment until clause 14, so, colleagues, may I...?

Ms. Nash, go ahead, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can we group clauses 2 to 12?

[Some hon. members]

Agreed.

[Peggy Nash, NDP, Parkdale—High Park, ON]

(Clauses 2 to 12 inclusive agreed to)

[The Chair, Conservative, James Rajotte]

We'll then deal with clause 13.

(Clause 13 agreed to on division)

(On clause 14)

We'll deal with clause 14, where we have our first amendment. We have NDP-1 in the name of Ms. Nash.

I will recognize Ms. Nash or Monsieur Caron.

Mr. Caron, go ahead.

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

Thank you kindly, Mr. Chair.

We understand the Supreme Court's decision on the matter of farming income versus income from other sources. But, if a farmer incurs losses year after year, he faces the choice of closing his operation or finding a source of income that enables him to keep the farm going. And the proposed changes don't take that reality into account. It would have been much more prudent of the government to consider the effect that the reasonable expectation of profit provision would have on the reality farmers face, particularly in tough economic times.

Our amendment addresses that problem to some extent. The government is proposing a $17,500 exemption, which was established in 1958. If you factor the increase in the cost of living into the initial exemption amount, it would be somewhere in the neighbourhood of $37,500, not $17,500.

Our amendment recognizes that the reasons for the exemption are still valid, while reflecting the fact that the exemption can't really work for farmers if it isn't raised to factor in the increase in the cost of living since 1958. Therefore, we are proposing that the exemption amount be raised to $37,500.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Caron.

Any other comments?

Mr. Saxton, please.

[Andrew Saxton, Conservative, North Vancouver, BC]

Mr. Chair, the motion put forward by the member opposite would effectively increase the maximum deduction available in respect of restricted farm losses to $40,000. The amendment in Bill C-4 proposes to increase the maximum deduction from the existing $8,750 to $17,500 in order to reflect inflation. The motion of my colleague across the table is inconsistent with the increase, which is already in the clause.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Saxton.

Mr. Caron, back to you.

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

Actually, the amendment doesn't even reflect half the increase in the cost of living. According to our calculations, the initial exemption from 1958 should be between $37,500 and $40,000. That's why we are putting this amendment forward. The $17,500 isn't even close to what it should be.

[The Chair, Conservative, James Rajotte]

Okay, thank you. Merci.

I will then call the vote on NDP-1.

(Amendment negatived: nays 7; yeas 4 [See Minutes of Proceedings])

(Clause 14 agreed to on division)

Colleagues, we have clauses 15 to 58. I do not have an amendment for any of those clauses.

Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

If you're thinking of grouping, could you group up to clause 53?

[The Chair, Conservative, James Rajotte]

The proposal is to group clauses 15 to 53.

Mr. Brison.

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

I would say up to and including clause 30 we would be supporting, but not clauses 31 and 32.

[The Chair, Conservative, James Rajotte]

Can we group clauses 15 to 30, colleagues?

(Clauses 15 to 30 inclusive agreed to)

Mr. Brison, do you want to group clauses 31 and 32?

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

Yes.

[The Chair, Conservative, James Rajotte]

The vote is on clauses 31 and 32.

(Clauses 31 and 32 agreed to)

Mr. Brison, can we group from clauses 33 to 53?

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

I'd be all right with grouping to clause 56.

[The Chair, Conservative, James Rajotte]

Okay.

(Clauses 33 to 53 inclusive agreed to)

(Clause 54 agreed to on division)

(Clauses 55 and 56 agreed to)

(Clause 57 agreed to on division)

(Clause 58 agreed to)

(On clause 59)

Colleagues, we have amendments for clause 59. We have NDP-2, NDP-3, NDP-4, NDP-5. We also have Bloc Québécois 1, Bloc Québécois 2.

This is where we get into an area where we're dealing with amendments proposed by independent members. I'm proposing that we proceed similar to how we did last time, where we allocate a couple of minutes for Monsieur Plamondon to address his amendments and then the committee will vote with him. We will start first with the NDP addressing their amendments, and the NDP can address them separately or together, as they wish.

Monsieur Caron.

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

I'll give the overall argument, including the main motion and the amendment.

As our friends may have noticed, this clause is one of the most contentious in the bill. Most of the witnesses we heard from described a specific context in which the tax credit was actually helping the investors who were choosing to save, and not the funds. Under the Quebec model, savings take the form of an RRSP that then goes into a labour-sponsored fund to serve as development or venture capital. Quebec has two main labour-sponsored funds, and there are others outside Canada. This federal tax credit has been around since 1988 and has been serving its purpose well. Only one witness we heard from had the opposite view and objected to the tax credit, like the Minister of Finance.

From a venture capital perspective, Quebec is clearly a leader in Canada. In fact, Quebec is the leader in Canada when it comes to administering venture capital. What's more, in challenging economic times, this asset distinguished Quebec as a leader in the OECD. For that matter, as I have repeatedly mentioned, Quebec's venture capital investment as a share of GDP puts Quebec in third place among OECD member states, just behind Israel and the United States. The amount of managed venture capital in Quebec, as a share of GDP, is nearly three times greater than the Canadian average, and more than four times greater than Ontario's.

In Ontario, the tax credit was eliminated in 2005. Since then, Ontario's share of venture capital has decreased steadily, in proportion to Canada's total share. That's no coincidence, despite the comments made by Mr. Mintz, the government's main witness in favour of eliminating the tax credit. Despite having a much larger GDP than Quebec, Ontario has a share of managed venture capital that is equal to Quebec's, in proportion to Canada's total share. For both provinces, the figure is 36%. So the model is extremely successful.

There are many things about this measure I find deplorable. I find the government's failure to consult the major stakeholders deplorable. The views of all those who support the tax credit need to be taken into account. Conversely, we heard from just one witness with the opposite view, Jack Mintz, and no one else.

The government submitted a single study to support the measure, the OECD's study. Well-known documents that were submitted, including those of Deloitte and SECOR-KPMG, show that the tax credit barely costs the government a thing, because of the tax and quasi-tax revenue the government takes in from the venture capital investment that the tax credit generates or facilitates.

Quebec's significance in this respect cannot be disregarded. And the reason I keep bringing up Quebec is that its proportion of venture capital, labour-sponsored funds and the tax credit is 90%, precisely because its model has worked so well. Throughout our study, the government heard from members from across Quebec's business community. Representatives from Fédération des chambres de commerce du Québec appeared before the committee. The Board of Trade of Metropolitan Montreal supported our stance on the tax credit. And not only did Regroupement des jeunes chambres de commerce du Québec and Manufacturiers et Exportateurs du Québec support the continuation of the tax credit, but so did Canada's Venture Capital and Private Equity Association, the stakeholder whose input should carry the most weight.

It is clear that all the people, companies and organizations that are intrinsically and directly working with the two funds in Quebec understand the importance this may have, especially in a context where Quebec and Ontario economies, in the eastern part of the country, are experiencing much more difficulty than the economy in the western part of the country. So why eliminate the tax credit now without any impact studies having been conducted?

I asked Mr. Keenan that during the study. I actually asked him three questions about impact studies. First, I asked him whether an impact study had been carried out to determine the potential repercussions of such a decision on the level of venture capital invested in Canada. No impact study was conducted. Second, I asked him whether an impact study had been done to determine the potential consequences of that measure on the level of savings, especially in Quebec, but also across Canada. No impact study was done. Third, I talked about the fact that the two funds had provided the government with an opportunity to actively participate in its venture capital action plan. That action plan includes a $400-million investment from the government. Incidentally, that amount is close to what the government is hoping to save by eliminating the tax credit.

The two funds—the QFL Solidarity Fund and Fondaction—were prepared to invest $2 billion over 10 years under that action plan. This contribution is five times larger than that of the federal government.

In addition, the two funds were satisfying one of the federal government's requests—that of decreasing the impact of tax expenditures resulting from the tax credit by putting a cap on their share issuing in order to ensure that the government would offer 30% less in tax deductions.

So they have done 30% of the work in terms of tax deductions and are offering to invest five times the amount the federal government is proposing to inject in its venture capital action plan. I asked whether an impact study was conducted to compare the offer made by the two funds and what the government will manage to accomplish with the action plan. Once again, the answer was no.

So I am appealing to the government members and asking them to understand the reality of the situation. The proposed amendments aim to stop the gradual elimination of the tax credit, since we know that the credit will be reduced from 15% to 10% in fiscal year 2015-2016, and to 5% the following year. Finally, it will be completely eliminated.

The three amendments we are proposing aim to stop the gradual elimination and to take away 5%. That way, as of 2015-2016, the tax credit would be only 10%, but it would not be eliminated later on. This is an attempt to recognize the federal government's wish to limit tax expenditures arising from the tax credit, but without eliminating it, as that would have a significant impact on job creation in Quebec and on the level of venture capital that could be invested.

I know that we will first vote on the amendments. I hope that our members and the Conservative members of the committee will seriously consider this proposal, which would be tantamount to what the Conservatives are proposing for 2015-2016. In the meantime, they will also have an opportunity to carry out a real impact study on what this will mean for Quebec and Canadian venture capital and also what it will mean for the Quebec savings level, which has grown significantly thanks to the two funds. When the QFL Solidarity Fund was created in 1983, Quebec had one of the lowest, if not the lowest, savings levels in Canada. Currently, Quebec has one the highest levels, with thousands of savers. And these are not speculations; we are really talking about average Quebeckers. About 50% of individuals who contribute to savings are unionized. Half of them are not unionized, but they are still workers.

The elimination of that tax credit will directly affect savings. We want to know what the impact of a complete elimination will be, and the proposal also has to do with that.

I will stop here for now.

[The Chair, Conservative, James Rajotte]

Thank you, Monsieur Caron.

I will go next to Mr. Brison.

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

I'm going to support this amendment.

One of the reasons that I think we ought not to move forward with these changes to the labour-sponsored venture capital funds is that the government's new program, I think the VCAP program, has not yet been implemented. We would actually be ceasing one level of support for venture capital without having in place a functional replacement.

I think it's sensible to delay these changes and perhaps not go forward with them in any case, but I think the timing of this is really bad, given the state of venture capital in Canada and the reality that the new program has yet to be operational.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Monsieur Caron, perhaps I could just clarify. We have NDP-2, 3, 4, and 5. Can we apply the vote on NDP-2 to the other ones, or do you want to vote separately on each of them?

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

I think they all come to the same conclusion. We can vote on them together.

[The Chair, Conservative, James Rajotte]

Colleagues, we'll now vote on amendment NDP-2.

(Amendment negatived [See Minutes of Proceedings])

We will apply that vote to NDP-3, NDP-4 and NDP-5.

We'll now go to amendment BQ-1. As I mentioned before, I'm suggesting we allocate some time to Mr. Plamondon to address the amendment.

Mr. Plamondon, the floor is yours.