Finance Committee on Oct. 27th, 2014

[Scott Mahaffy]

Yes. In seeking out professional counsel to assist them and maximize those savings going forward, we think it really helps and will help all Canadians to not be hit with this tax on an annual or quarterly basis, but rather at the time they actually choose to withdraw that money and actually consume services or goods. We think that's the appropriate time to simply defer.

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

You are in favour of a single national securities regulator for Canada. The government created a cooperative body. However, the problem is that two of the main players in this area, Alberta and Quebec, are fiercely opposed to participating in such a system.

If they do not get on board, would there not be risks in having a two-tier system, that is to say a cooperative body on the one hand, and on the other, very important players who are not a part of that system? What would be the impact of a two-speed system like that one?

[Scott Mahaffy]

That's my question. As you know, currently through our CSA, the Canadian Securities Administrators, we do have a number of national instruments that go across the country; however, there are gaps in that. I have concerns and we have concerns that it's a sort of two-tiered system, where some are members of the cooperative group and others are on the outside, and participating and agreeing on certain initiatives will only create greater regulatory gaps and greater confusion among investors. A single regulator is still the best solution.

[The Chair, Conservative, James Rajotte]

Merci.

We will go to Mr. Van Kesteren.

This will be the last seven-minute round.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Chair.

Thanks to all of you for coming back. It's good to see some of you as repeat offenders and others as newbies.

If I can make one recommendation—and please don't take this the wrong way—it is really important that we get these reports before you present them. The reason is that we have guys like Mr. Allen over here, who understands a lot of these terms. I'm speaking now more about.... Your reports are here, and I'm not here to lecture you, but it is that much more important that we can go over them and then ask those questions.

I do appreciate your coming in every year and presenting before this committee. We certainly do value your input.

We heard from you—I'm going to say Armine and Dennis, if you don't mind—in your opening remarks. We've heard about your feelings on why it was not necessarily a good thing to lower corporate taxes. I'm not asking you to respond to that, because we heard your presentation and I think you made your point. I want to ask the other three participants what their feelings are, because obviously they might have a different take.

Ms. Reynolds, how do you feel about corporate taxes and individual taxes? Would you agree that our government's efforts in lowering taxes for individuals and families are important? Is it something we should continue?

[Joyce Reynolds]

Absolutely. One of the things about our industry is that we have skinny margins, so that's why I focused on payroll taxes. They're a tax before profit, but both the small business tax and the corporate tax make a difference in terms of investment in equipment.

We have 1.1 million jobs in our industry. We have another 250,000 spinoff jobs, people, companies that provide everything from linens to tables, designers.

We are big supporters of the construction industry. If we want to expand our industry—and we are an industry that has been expanding for quite some time—we need to have money to invest.

So, absolutely, it makes a huge difference to our sector.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. Mahaffy and Mr. Magrath, would you agree? You're in a different line of work. Sometimes maybe you're approaching people—

[Scott Mahaffy]

It's a different line of work, to be sure, and I can't speak with any great degree of expertise, but there is obviously a right balance to be struck.

We encourage anything that will help Canada and Canadians grow their retirement savings to retire comfortably and with security, and also make the country attractive to investors from inside and outside the country.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm asking you to comment on lowering both individual and corporate taxes. Is it as true for one as for the other?

[Scott Mahaffy]

I don't have any empirical evidence to point to that would enable me to support any specific numbers, but I certainly support anything that will lead to greater retirement savings.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. Magrath, do you want to answer that?

[Paul Magrath]

Yes, sure. It's a very good question, very broad indeed.

TEI doesn't oppose targeted spending increases, individual tax relief, or reductions in government spending and debt. TEI commends the government on its efforts and commitment to a balanced budget, but that needs to be weighed against our tax competitiveness on a corporate basis and ensuring that we remain in competition for mobile capital around the world.

As was brought up by the honourable member, the BEPS initiative addresses some of those imbalances that were perceived, and perhaps we can get to a more balanced result.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

In your industry, lowering corporate taxes has been a positive?

[Paul Magrath]

Correct, I would suggest that in my industry, lowering the corporate tax rate has been an advantage. Unfortunately, we've seen some cyclical changes in the pharmaceutical industry. We've seen significant revenue reductions, but the incentives provided by this government and that continue to be provided around research and development have allowed us to continue with investment in innovation and jobs.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Ms. Reynolds, I want to go back to you. I don't have much more time.

The great thing about getting these presentations beforehand is that we can look over them and we can see a common theme sometimes. There's an interesting proposition made by the chamber, which is going to appear before us next, to equal the payment between the employer and the employee for EI.

Is that something you've talked about? Is that something you would also recommend? I wonder if you could just tell us about that.

[Joyce Reynolds]

I did provide mine in advance, by the way.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Yes, I got yours.

[Joyce Reynolds]

Yes, there's no reason for the 60-40 split. If you look at the EI benefits, many of them are social benefits. The employer has no control over those social benefits. They become a larger and larger percentage of the EI benefits over time.

At one point, the government paid 20%, employees paid 40%, and employers paid 40%. It switched over to employers paying 60%. There's no reason employers should be paying 1.4 times the amount that employees are paying.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

I'll go to Mr. Rankin and we'll go to five-minute rounds.

[Murray Rankin, NDP, Victoria, BC]

Thank you, Chair, and thank you to all of our witnesses.

I'd like to begin, if I could, with Mr. Howlett of Canadians for Tax Fairness.

In your presentation, you come back to a theme that's been around since the Carter Commission, which is usually expressed as “a buck is a buck is a buck”, and argue against capital gains getting a break on taxation and treating it like any other kind of income.

Then you also talked about the unfairness. You single out the stock options deduction as the most unfair loophole. Why do we have these? Has your research indicated why these discrepancies continue to exist? Is it because of reciprocity with the United States that has caused this to come into our tax law? It makes a lot of sense that you would treat all income the same, yet we don't, as you point out. Why?

[Dennis Howlett]

There are a couple of things. One, there is increasing criticism of the stock option deduction from business as well. We find, for example, the former head of the U of T business school saying that this encouraged poor behaviour by corporations. It encourages a short-term type of thinking, and runs counter to the interests of the companies themselves. So there is an increasing critique on the stock options deduction even in business terms. It doesn't really provide any social or economic benefit; in fact it's counterproductive in both cases.

In terms of the differential treatment of income from investments, what we need to realize is that some investments do create jobs and should be encouraged, but more and more investments are actually speculative investments and do little or nothing. In fact they are counterproductive in terms of economic growth and economic development or job creation. Government needs to distinguish between these.

There may have been a point to the special treatment of investment income back in the day when the stock markets were actually a source of capital investment. They no longer are a significant source of capital investment or job creation, so there really is no economic reason to give preferential treatment, especially when you consider that the benefits of this, which cost a huge amount in terms of government expenditure, are going to the wealthiest citizens.

Even Ms. Yellen from the United States is saying growing income inequality is bad for the economy, so we need to do something about closing the income gap. These tax policies go in exactly the opposite direction.

[Murray Rankin, NDP, Victoria, BC]

All right.

For Ms. Yalnizyan of the CCPA, thank you for your presentation. You had to go very quickly, so I want to make sure I grasp one of the first points you made about inheritance tax. You pointed out there's $1 trillion in wealth transfer coming up as baby boomers are set to retire, and die, and the kids get the money. My question, then, is your only recommendation to address the issue—it appears to be—that there be an inheritance tax implemented? If so, don't we already have something like that with the deemed disposition on death, capital gains, etc.?

[Armine Yalnizyan]

We don't have an inheritance tax in Canada.

I did make several suggestions. I'm just saying that the long game for your considerations today with respect to tax regulation and incidence of tax is to broaden the base. Broadening the base includes introducing something like an inheritance tax so that you are able to capture a little piece of what's about to move along in the next 20 years. We're going to have a huge dependency ratio issue. If you wait for 20 years to do anything about the tax base you have, you're going to be taxing the people you're also asking to support both the young and old, then. This is the moment to do this.

I did indicate, I think I got out, that I was hoping we could cap lifetime contributions as well as the tax-sheltered assets and tax-free savings accounts, which were introduced in January 2009 and on full maturity will be a huge leakage in the good ship government.

I also had a recommendation about eliminating deductions for stock options and capital gains. You could tighten tax expenditures for scientific research and experimental development.

Most importantly, you can broaden the base by enforcing the base more rigorously. I tried to make the point that our ability to enforce is being tapped out in favour of reducing red tape. If we ever needed compliance with tax regulations, now is the time.

[The Chair, Conservative, James Rajotte]

Thank you.

[Murray Rankin, NDP, Victoria, BC]

Are you referring to the cuts at CRA, for example, in personnel?