Finance Committee on Sept. 29th, 2014

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here.

I want to finish Mr. Keddy's line of questioning on the capital gains piece. I think, Mr. Cross, you didn't get a chance to respond because Mr. Thomas used that time.

Do you have any other comments on the capital gains piece that Mr. Keddy was talking about?

[Philip Cross]

No, I don't have much to add. Sean has made a much more extensive study on this. We haven't published anything specifically on capital gains.

I think I was asked earlier if we favoured income splitting or a capital gains.... I think the most important thing is that we're talking about reducing the tax burden on Canadians. Exactly how we do that is less important to me than the actual reduction.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Okay, then I'll take it back to Mr. Speer and follow up on a few things.

In New Brunswick, a lot of our businesses—80% to 90% of them—have fewer than 10 employees. We have lot of small businesses, a lot of small manufacturing, a lot of small types of things. As part of that process you were talking about, as part of the capital gains, how do you see that impacting—if this capital gains were a rollover mechanism or some other—the various types of businesses large and small? Would it benefit some over the others, or do you see it generally benefiting everything across the board?

[Sean Speer]

Thank you, Mr. Chair.

This committee has heard a number of times about financing constraints, particularly for new and expanding firms. Organizations such as the Investment Industry Association of Canada have been here, I know, talking about a decline in venture capital financing, for instance, over the past 10 or 15 years.

The real question is about how we get this capital off the sidelines. As I say, I think empirical work on the lock-in effect shows that it's real and could represent a significant obstacle to people moving capital from lower to higher productive investments.

The empirical studies differ, but I don't think there's any question that it would represent a major step forward in terms of access to finance for companies of all sizes.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

As part of this business investment and as the Bank of Canada projected for some of the GDP growth that we're predicting over 2015 and 2016, at least a significant portion of it is going to be started by business investment and exports and that type of thing. Would you see at least probably more than a proportional increase in the revenues line from giving up this $2.8 billion, if you will?

[Sean Speer]

Well, I want to be transparent. As I said, the work that Finance has done on the marginal efficiency of the capital gains tax shows that a reduction, or an increase, to put it differently, of the capital gains has a bigger economic impact than a reduction of, say, a consumption tax. It would be misleading to say that the feedback would be 100%, but I don't think there's any question that in generating economic activity there would be a return of some level of revenue.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

My last comment on this, too, is about freeing up the investment capital, because a lot of these small businesses can or would like to participate in some of the big contracts, whether it be the shipbuilding or others. The challenge they have is on the working capital aspect of it. They're paying out the materials and they're paying out the people, but then they're going to get paid maybe 60 to 90 days later. Do you see this same type of act helping with that access to capital issue as well?

[Sean Speer]

That's right, Mr. Chair.

I think to the credit of everyone around the table, this is something that we've been grappling with: how do we deal with this financing issue? There have been experiments with tax credits. There have been experiments with direct subsidies. A budget a couple of years ago launched the venture capital action plan. I think the last frontier, and what I think could make a significant improvement in access to capital, is looking at and reforming the capital gains tax system.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you.

Mr. Page, I would like to come back to a comment you made. You talked about how the option to reform federal transfers is something that we might want to think about. When we were doing our study on youth employment in Canada, we had some input from the student associations and also from the community colleges. The community colleges talked about a significant amount of rigour in the reporting they have to do to the provinces, based on the post-secondary money they get as a result of the post-secondary transfer. It wasn't the same for the universities. They didn't have to do the same kind of reporting.

Minister Kenney threw out the idea last week of having a discussion with the provinces on some reporting on that and some metrics with respect to the universities. Do you think that would be a smart thing for us to do with respect to the $12 billion in transfers we're making with respect to that?

[Kevin Page]

Thank you, Mr. Chair.

I think this is a good opportunity to talk about transfer reform. Before anybody increases transfers, I think we should look at the effectiveness of the transfers we're making now, which are in excess of $60 billion overall and, as you say, far in excess of $10 billion for the Canada social transfer. Yes, I think improved reporting on the performance of these institutions so that Canadians are getting value for money is a good thing.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Mr. Oberg, I'd like to go to you.

One of things talked about was the tax credit for the hiring of veterans. We have the Helmets to Hardhats proposal, which we're looking to do and will provide a place for some of our veterans. How did you see that tax credit...? How would you see that proposal working, that tax credit for incentive for hiring, and how would you see that working to keep it as simple as possible?

[Gary Oberg]

Well, you're the ones who are probably in the finance area a lot more than I am, but what I can tell you is that any incentive for a company to make it easier for their bottom line to hire somebody would certainly go a long way to making that happen. When we have veterans who are not able to get hired because of their disabilities, there need to be incentives to be able to make them become more productive.

As I said in my statement, there's an awful lot of talent out there and there are a lot of brilliant people. Just because they're missing a body part or they're not necessarily in the best of shape physically...they can still offer an awful lot to the economy of Canada.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I guess one way to classify it would be in terms of expenses for accommodation and other types of things.

[Gary Oberg]

Any way they can be accommodated, I would suggest, should be done to make it an incentive to the company to hire a veteran.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Thank you to all the witnesses for coming today.

I want to start with Mr. Oberg.

Thank you, Sir, for your service to the country, and for what I thought was an excellent brief by the National Association of Federal Retirees.

I want to start with a comment that Mr. Cross made. He used the expression “pension crisis” in Canada. You have done an enormous amount in your brief to try to elaborate on that crisis. For example, you said that you are in strong support of public measures such as increasing the Canada Pension Plan. You also pointed out some of the difficulties with the RRSP as a solution. He specifically said that pooled registered pension plans are insufficient.

I want to know what your solution is for this pension crisis which Mr. Cross referred to.

[Gary Oberg]

Mr. Chair, I don't believe there is a total panacea that exists out there with reference to pension reform. What this country needs to do, what we need to do so that people can retire with health, dignity, and financial dignity has to be more than what is happening today.

The Canada Pension Plan is not going to meet the need. Not all companies across Canada have pension plans. Those who are entrepreneurs don't have pension plans. They have to save throughout their lives. We are advocating that the best thing we can probably come up with at this point in time is the Canada Pension Plan has to be expanded to be able to meet that better need at the end of the day, because it is not happening under its current regime.

[Murray Rankin, NDP, Victoria, BC]

I want to turn to your comments on vulnerable Canadians, particularly seniors. I represent the riding of Victoria, which has a large demographic of seniors. You refer to the former federal parliamentary budget officer, Mr. Kevin Page, and his analysis that new terms will translate into spending cuts of $31 billion in health care between 2017 and 2024. You said this will certainly place our health care system at risk, which I certainly would agree with. You then talked about home care being less expensive than the alternative. You talked about the Canadian Medical Association saying that long-term care is much less expensive than hospital care. You also made some other recommendations.

I wonder if you could elaborate more on some of these issues that you mentioned in your brief.

[Gary Oberg]

Boy, you really want me to go back into that think tank, don't you?

Mr. Chair, to put it into a much better context, as an association, we are advocating pharmacare and in-home care as the mantra which we believe the seniors of this country need at the end of the day. Health care is an exorbitant drain on the capital of the provinces, and we all know that. They are working extremely hard in their various ways to try to come to grips with the drain on that capital.

How do the seniors get involved in this? It comes to the point whereby we as an association have to ensure that all Canadians at the end of the day have health care that is going to meet their needs. That has to be tied with financial capability. If you don't have the two, you don't have the finances to meet your needs and that's going to discipline yourself as to what you're going to put on your table with respect to food, or perhaps it's just going to be your medication. They go hand in hand; if you don't have the health care and you don't have the finances, at the end of the day, you're probably going to need more health care.

[Murray Rankin, NDP, Victoria, BC]

Essentially you're saying sustainability has to be the lens through which we look at this.

That takes me to Mr. Page and his comments about fiscal sustainability today.

You talked about the CPP and the Quebec Pension Plan being fiscally sustainable, in your judgment, yet the federal government appears to be examining something called income splitting. I'd like you to comment on the fiscal sustainability vis-à-vis the provinces in the income-splitting regime. You talked about the disparity, the amount of income gap that the provinces have as programs are being pushed down by the federal government to the provinces and to the municipalities.

What would the impact be of the income-splitting scheme on provincial revenues?

[Kevin Page]

Mr. Chair, we have tax collection agreements with the provinces. It remains to be seen exactly how income splitting will be designed, how rich this program will be, what the parameters will be. There will be, as other panellists have talked about, an impact. This impact will be that the provinces will find themselves with less revenue, I guess. The provinces will have a choice on how to fill the gap, but from the point of view of sustainability, if there is a gap now—we think the gap at the provincial level is about two percentage points overall—this would add to that gap in the way that the reduction in the escalator to the Canada health transfer added to the fiscal gap of the provinces.

[Murray Rankin, NDP, Victoria, BC]

It's just exacerbating the problem for the provincial governments, yes.

Now, you were quoted in the Toronto Star in January as follows:

Canadians have also added a lot of debt to our balance sheets. The ratio of household financial liabilities to household disposable income now sits at a record high 166 per cent, compared to 110 per cent in 2000. And as Canadians try to pay off this increased debt, inevitably consumption will further decrease, adding to more economic drift or stagnation.

Then you asked, “So how do we get out of this dangerous spiral?”

So that's my question to you. Is there a role in this budget to begin to address this enormous debt load Canadians have?

[Kevin Page]

We went through effectively, Mr. Chair, a balance sheet-type recession in 2008-09. I think there's more and more research that looks at the causes that precipitated it. Certainly the buildup in household debt relative to income was a factor, with the drop in asset prices, particularly in the United States and in other places in the world with house prices. We didn't see that. We were still.... We have this significant debt.

How do we get ourselves out of it? I think there's no quick solution. Right now we've seen moderations in the rate of growth of mortgage debt and credit debt. I think this is helping to bring things back into line. Obviously, economic growth would lighten the load on some of that debt as well.

[The Chair, Conservative, James Rajotte]

Thank you.

You have 10 seconds.

[Murray Rankin, NDP, Victoria, BC]

All right. Thank you.