Thank you, Mr. Chair. I'm also delighted to be back in Ottawa again.
I'm here representing the $68 billion, 1.1 million employee restaurant industry. We have lots of ideas on how Canada's taxation and regulatory regimes could be improved, but given the five-minute limit, I'm going to focus on two.
One is in the area of regulation. There's a pressing need for regulation in the area of credit card acceptance fees. We're happy to hear that could be addressed as early as this week.
And, one tax has a disproportionate impact on the labour-intensive restaurant industry, and that's payroll taxes.
There is rarely an issue that unites the entire restaurant industry, but skyrocketing credit card acceptance fees is one. Regardless of whether we are talking about a table service or a quick service business, independent operator or chain, large or small, even an institutional food service provider, all are handcuffed by a credit card system that they have to use and that has costs that they cannot predict or control. There are 93% of our members who identify credit card fees as a serious concern, with 79% saying these have a big impact on their bottom line.
Restaurants Canada has been raising the alarm bells about the proliferation of premium credit cards and their impact on merchant fees since 2008. These premium cards, which provide insurance, travel programs, cashback, and other perks to cardholders have fees that are up to 25 times higher than standard ones. lnterchange fees charged to Canadian merchants are higher than almost anywhere else in the world.
Our payment system has evolved from a cash and cheque-based system to one where the Canadian dollar is primarily transacted electronically with control by private enterprises. Associations representing merchants have come together in an unprecedented way to pressure credit card companies and their issuing banks to reign in their fees. Quite frankly government has been pressuring them for a long time as well. But the credit card companies and issuing banks continue to sweeten the reward pot for cardholders and raise prices at will in one-sided negotiations with merchants.
Last year the Competition Tribunal ruling, in response to concerns raised by the Competition Bureau to unfair business practices by Visa and MasterCard, identified a regulatory framework as the solution. The longer it takes government to intervene, the richer the rewards to cardholders become and the harder it becomes to unravel this arcane system that is costing Canadian businesses $5 billion per year.
The credit card company's return from a restaurant meal already can be as high, or higher, than that of the restaurant operator, who creates the jobs and makes the community investments. In addition, the restaurant operators must also pay credit card fees on the sales tax they collect on behalf of governments as well as the tips that customers leave for restaurant staff, revenue streams that the restaurant operator cannot access or control. Card issuers collect more than $40 million annually in merchant fees on the sales tax portion of the restaurant bill alone.
As a result, Restaurants Canada urges government to ensure the budget commitment on credit card acceptance fees results in a significant reduction. We're looking forward to that this week. Ideally, we would like to see a regulatory cap on interchange fees, with rules preventing the introduction of other merchant fees to recoup lost interchange revenue, and we would like you to stop credit card companies from profiting from taxes collected on behalf of government.
On payroll taxes, our members have consistently identified payroll taxes as an obstacle to job creation because they are a tax on jobs but they are also the most regressive form of taxation. Those individuals at the lower end of the payroll scale pay the highest amount proportionately.
According to the 2014 budget El operating account projections, the El account will have a $2.4 billion surplus in 2015-16 and a $6.4 billion surplus the following year. This provides government with an opportunity to restructure this payroll tax to make it less regressive.
El premiums place a disproportionate tax burden on lower-income earners and have a particularly negative effect on the labour-intensive restaurant industry. They provide a disincentive to hire young, inexperienced workers, whose tax rates compared to their wages is disproportionately high.
A year's basic exemption would be the most efficient and cost-effective way to deliver payroll tax relief to the groups most affected. Similar to the $3,500 per year basic exemption in the Canada and Quebec pension plans, the YBE refers to the annual earnings in which premiums are not applied and not to the first $3,500 of earnings.
Currently, employees earning less than $2,000 per year can apply for a full El premium refund. Those employees earning slightly more than $2,000, however, cannot, despite having no chance of qualifying for El benefits.
Only two-thirds of the individuals eligible for the rebate actually receive it. In addition, the existing rebate applies only to employees and not to employers. As a result, Restaurants Canada recommends that government restructure the EI premium system to include a year's basic exemption, similar to the CPP/QPP YBE, as a way to alleviate the tax burden on low-income Canadians, and assist employers to expand payroll to provide more young people with entry-level positions and retain them in these jobs.