Finance Committee on Oct. 27th, 2014

[Armine Yalnizyan]

I think there's not much argumentation on that.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Well, apparently there's some policy argumentation because that's what the government looks to do with its income splitting program.

Over to you, Ms. Reynolds, for just a moment. It will have to be very quick. It's very interesting how credit card companies make more than some of your member associations.

You didn't mention it, and maybe it's too hot a topic, but the changes to the temporary foreign worker program have been embedded now in budget implementation acts, so it's become a budgetary item. What's the restaurant association's opinion in terms of the impact of the changes that the government has proposed to this point and going ahead with this particular program?

[Joyce Reynolds]

Well, as everybody knows, we have a very mixed labour market here in Canada. We have red-hot Alberta, where our members are actually having to reduce hours of operation. They're having to close down parts of their business. The burnout rate of the owners, operators, and staff once their temporary foreign workers go home is such that the businesses are going to become unsustainable.

Again, this is a very regional issue. There are markets where it is critical that there is something else. If there's not the temporary foreign worker program, then what?

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cullen.

We'll go to Mr. Keddy, for seven minutes, please.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

Welcome to our witnesses.

Mr. Howlett, in your submission you questioned the benefits of keeping taxes low. Specifically you were critical about the $43 billion in corporate tax relief. At the same time, you're a little less clear on the total $160 billion of tax relief for small businesses and individuals.

The reality is that we've made a decision, as a government, to keep corporate taxes low and to keep personal taxes low. We went into the worst recession that we've faced since the great recession, and I believe that because we've had lower tax rates we are a more attractive place to invest. At the end of the day we came out of the recession in better shape than our G-7 neighbours.

How does your argument work, that somehow the $43 billion in corporate tax relief didn't help us weather the recession?

[Dennis Howlett]

Well, a 2011 finance department report on the impact of the government's action plan in response to the global recession concluded that investments in infrastructure had a 1.6 multiplier effect but that tax cuts were the least effective. In fact, they had a 0 or even negative multiplier effect, depending on whether they were corporate tax cuts or individual tax cuts. Even the finance department recognizes that tax cuts are about the worst way to try to stimulate the economy.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

You are aware, of course, that with regard to the multiplier effect, if you talk to the municipalities and businesses across this country that were receiving an incentive to build, they couldn't afford to build any more than they already had on their plate. In my part of the world, the provincial government had to wait for its own share of tax revenue to build its portion of infrastructure builds. So I find that argument a bit disingenuous.

However, I want to ask you another question, on the 10 offshore tax havens that you talked about. You talked about how there is $170 billion in what you referred to as 10 offshore tax havens. You said there are two Statistics Canada data tables, one of which is entitled “International investment position, Canadian direct investment abroad and foreign direct investment in Canada, by country”. That seems to be where you found most of your data.

My question is this specifically: Canadians are allowed to invest their money however they want. We don't encourage people to hide their money in offshore accounts. Certainly you would have to agree that so long as it's done within the law and revenues are being reported on their tax returns, these 10 countries in particular aren't illegitimate countries and Canadians should be able to do business with them.

[Dennis Howlett]

The Statistics Canada figures are probably a low estimate because they only cover the legal investments in tax havens. They don't capture the large amount of illegal investments, mainly made by wealthy private individuals. It's true that this figure is largely for the corporate investments, but most of that is, if not tax evasion, tax avoidance. It is designed, in most cases, to lower their tax paid to the Canadian and provincial governments.

It is a problem, and what we were just pointing out is that it's a growing problem. What the government has done to date is not sufficient, and more needs to be done in that regard.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Maybe it's a question of clarity of language. You specifically picked out these 10 countries. Surely you can't believe that Canadians shouldn't be allowed to invest in places like Hong Kong, Ireland, and Singapore—three of the countries you named. This is legal investment, with taxes paid on that investment.

I want to be clear that you're not suggesting that Canadians shouldn't be allowed to invest legally, with open investment in those areas, and pay taxes on that investment.

[Dennis Howlett]

This is where we are supporting an action plan to tackle tax havens that includes greater transparency about what exactly those investments are. One of the big problems is that the investments don't stay in those countries, they go on to other places; but they go through those countries in order to lower their taxes. That is happening globally, and that's why the OECD and the G-20 are going forward with this OECD BEPS action plan that needs to be implemented. Hopefully by the end of 2015 we'll have a completed plan. Canada should support it and implement those recommendations.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Well, whether the OECD plan is perfect or not, I'm not quite certain.

I want to ask you a little bit about CRA's voluntary disclosure program. The program has worked well. For those who have not been entirely truthful on their taxes, let's be clear, it allows them to come forward before they're caught by CRA. They can correct the record by paying their taxes and any interest they owe on those back taxes while avoiding a stiff penalty. We've seen a deluge of folks formerly involved in a foreign tax haven who are coming forward in great numbers and paying their back taxes to avoid penalty.

Do you agree with that?

[Dennis Howlett]

Yes, we are pleased that more people are coming forward. I think it's a result of not only some of the measures government has taken but the media attention to this issue and our efforts to make this a public issue. That has had a positive effect. I would agree with you on that one.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Keddy.

We'll go to Mr. Chan for seven minutes, please.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Thank you very much to the witnesses for all of your presentations.

First, to Ms. Reynolds from the Restaurants Canada association, I had the pleasure of meeting with some of your members last week. Today you've made I think a very forceful presentation with respect to your members' concern about the high rate of credit card acceptance fees. In fact, Canada probably has one of the highest credit card acceptance fees around the world. Our party certainly agrees with the Competition Tribunal's position that we need some form of regulatory framework with respect to managing credit card processing fees.

I'm probably one of the most guilty individuals with respect to these loyalty cards, which is why my wallet is as big as it is. I myself am equally captured by the attractiveness of all these benefits from various loyalty programs.

The Minister of Finance had discussed the fact that the government's voluntary approach, the code of conduct for credit card and debit fees, was working. Do you have a particular comment with respect to that? Do you think there needs to be a different approach, and how would that approach take place?

[Joyce Reynolds]

I do think the code of conduct has been very useful and helpful in terms of helping to maintain our very low-cost debit card system here in Canada. We were threatened with Visa and MasterCard debit cards that would start to...that would be a percentage-based fee, even though the money would go directly from your account to the bank, of having these loyalty programs that would be built into the debit card system.

We have actually amongst the lowest debit card fees in the world, so I would say it has been very helpful in that regard. But as I said, we've been trying to rein in credit card fees since 2008, and they've just continued to grow and grow. Canadians, particularly higher-income Canadians, have become addicted to the benefits. It's come to the point where merchants, whether retail or restaurant, will lose the business if they say they'll only take cash. They really don't have any choice but to just accept these very, very high fees.

What we have determined, similar to the Competition Tribunal, is that a voluntary approach won't work. This is something that's been pursued since 2008. It's time for government to intervene.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Great, thank you.

I wanted to turn to the issue in some of your discussion with respect to the EI tax credit, and, of course, the government has proposed its small business jobs tax credit that would only apply to firms that have a payroll of less than $15,000 in EI taxes. A number of economists have indicated that there is essentially a design flaw because it essentially acts as a disincentive for businesses to grow.

Liberals instead have proposed getting rid of this particular ceiling, and have suggested providing an EI holiday for businesses that create new jobs.

What is your view on these two particular proposals? Which do you think actually will ultimately produce more jobs?

[Joyce Reynolds]

We actually have proposed an alternative to both those proposals. Building on the new hires program that your government has proposed...we like the youth hires program that your government had in place a number of years ago.

The current tax credit program does benefit some of our members, but it tends to benefit the small restaurant. If you want to expand to a second restaurant, it's not going to be as beneficial. But the year's basic exemption is a proposal that had all-party support back in the time when the EI fund was in surplus. It was endorsed by all parties in the human resources standing committee as well as the finance committee, but the government hasn't been in a position to be able to implement it because there hasn't been that kind of surplus for some time. Now that we are approaching a surplus in the account the opportunity presents itself again to have all parties agree to a year's basic exemption that really would make the EI system fairer for those at the lower end of the income scale as well as for labour-intensive employers.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Thank you.

My next question is for Ms. Yalnizyan. Thank you very much for your opening comments.

Your organization put out a report in January called “Income Splitting Canada: Inequality by Design”. Can you expand upon your thoughts with respect to the government's proposed position on income splitting and why you think this is a particularly inefficient use of taxpayer resources?

[Armine Yalnizyan]

That report indicated, and was mirrored by the way by one from the C.D. Howe Institute.... So across the political spectrum, the analysis seems to be that there are not many ways of analyzing the original proposal. I underscore “original” because it does sound like the Conservative Party is having a rethink on how to introduce an income splitting proposal.

But that $3 billion would be only at the federal level. It would entail $1.9 billion of costs for the provincial governments as well. Only 9% of Canadian families with young children would benefit. They would tend to be upper income. It is an awful lot of money going for—

Something a lot of people want to see is that the families who can afford to spend more time at home with their kids would love to do so. The argument is not just child care and it isn't just higher wages. Something that lets young families actually have more choice in the way they raise their families would be fantastic, as long as you're not creating advantages for those who are the most advantaged in our society.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

You have about 10 seconds, Mr. Chan.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Okay, a very quick one then....

Your organization also released a report called “Help Not Wanted” about cuts to student jobs in the federal government.

What impact has this had on young Canadians?

[The Chair, Conservative, James Rajotte]

Okay, time is up but I'll give you a very brief response now and we can come back to it.

[Armine Yalnizyan]

I would recommend that everybody read the report.

[The Chair, Conservative, James Rajotte]

Okay, that's a very good brief response.

We will go to Mr. Allen. You'll have seven minutes, please.