Finance Committee on Nov. 20th, 2013

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

Well, I'd just like you to think about the infrastructure deficit and the economic price we all pay for the lack of ongoing increasing infrastructure spending. We'll get back to that maybe.

[The Chair, Conservative, James Rajotte]

We'll have to leave that as a statement for now.

We'll go to Mr. Saxton, please.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Chair.

Thanks to our witnesses for being here.

I just want to remind Peggy that in budget 2013, $70 billion, an unprecedented amount of money, is going to be spent on infrastructure over the next few years. That should take care of much of the deficit and the gap.

My first questions will be for Monique Moreau, senior policy analyst at the Canadian Federation of Independent Business.

Monique, earlier this fall the government announced a three-year freeze on EI premiums to promote stability and predictability for job creators and workers. This measure will leave $660 million in their pockets in 2014 alone. How important is it for small business to have this predictability when it comes to EI premiums?

[Monique Moreau]

The key piece in that whole rate freeze is exactly that: it's the freeze. It's rate stability.

Of course, deficits in the programs and the rather unpredictable nature of having rates go up and down, up during a recession and down when times are good—that was a very challenging tax for our business members to contend with. So we welcome the rate freeze, and we're very pleased that members now will be able to look down the line and understand what the costs to them will be for hiring or increasing the salaries of their employees over the next couple of years.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Now, enhancing the Canada Pension Plan, the CPP, is expected to be a focus at the next finance ministers meeting, in December. We all agree that retirement security is important for Canadians. However, given that economic growth is still fragile, economic recovery is still fragile, there is some concern now that this is not the appropriate time to be increasing the burden on workers as well as on businesses.

As your organization represents over 109,000 small business owners, could you describe the impact that CPP expansion at this time would have on small businesses in Canada?

[Monique Moreau]

As I mentioned in my presentation, the CPP/QPP payroll tax is the granddaddy of all payroll taxes. It is by far the biggest. The CPP is 4.9% on wages.

Our members have told us that they will not hire as they had planned to, or they will have to lay off staff, or they will be looking at reduced salaries over the coming year in order to accommodate that increase in payroll taxes. They also told us that their employees told them that it will mean less take-home pay for the employees, and will displace other mechanisms of saving that they could be investing on their own.

We're not quite sure that Canadians aren't saving enough at this point in time. We want to make sure that we investigate all opportunities available to Canadians, including PRPPs, including their own personal savings, to make sure that we don't rely on the CPP. It's funded right now, and it is looking good for the next 70 years, but not that long ago it wasn't. Canadians across the board had to pay increased premiums but for no increased benefit.

So we're not sure that's the best way to put all our eggs in one basket at this time.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you for that.

Sticking with the topic of hiring, our government recognizes the important role that small businesses play in helping the economy grow and in creating jobs for thousands of Canadians. In 2011 we introduced the small business hiring credit, which you're well aware of. We extended that in 2012 and again in 2013.

Could you speak to the impact this credit has had on supporting small businesses and job creation in Canada?

[Monique Moreau]

The credit was a critical tax credit for the smallest of businesses especially. It allowed them to in some cases keep their staff on hand.

Mr. Flaherty said in his most recent economic update that payroll taxes are job killers. Increases in payroll taxes, whether they are EI, CPP, or others, really limit growth for small businesses. They are not able to hire and they are not able to increase salaries.

The EI hiring credit, especially during a time of economic difficulty, did play a huge role in letting our members keep their own employees or absorb the increased EI rates that were occurring; we spoke about that difficulty in rate setting previously. It allowed some stability, for especially the smallest businesses to maintain their payroll.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay.

Thank you, Chair. I'm done.

[The Chair, Conservative, James Rajotte]

Mr. Scarpaleggia, please. You have five minutes.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Thank you very much.

This is a very interesting discussion, with multiple points of view represented at the table. That's what I guess makes it interesting.

In terms of closing loopholes, someone came to my office last week and talked about a loophole that was discussed in the business pages, I think, of The Globe and Mail involving the OAS clawback.

I don't know, Mr. Howlett, if you're familiar with this. As they explained it to me, let's say someone with a fair amount of money is earning interest on $800,000 of capital. If they just take that interest, of course they'll be subject to the OAS clawback. But if they put the $800,000 in a trust, the interest on that $800,000 is taxed in the trust, and therefore they as an individual will not be subject to the clawback.

Are you familiar with this loophole?

[Dennis Howlett]

I'm not aware of all the details of it, but I know there are a number of loopholes like that.

You know, it's true that there are always people looking for loopholes. The government has to keep vigilant to close those loopholes. Really, if the ultimate result of those loopholes is that it makes the tax system more unfair, then I think they need to be closed. Those kinds of issues should be addressed.

It's unfair, and again, it makes it more complex. Only someone who is able to hire professional advisers can make themselves aware of those possibilities. It's not fair to those who don't have the means to be able to hire professional tax advice.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

You weren't too familiar with that particular loophole, so I just bring it up because no doubt it's something the government will want to look at as part of its—

[Dennis Howlett]

There are a number of other loopholes that we have identified as part of our “close tax loopholes” campaign. I didn't have time to address all of them.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

That's fine. I was just bringing it to your attention. I remember doing some research once based on an inquiry from a constituent. It showed that when it comes to the OAS clawback, the speed at which you're clawed back depends upon whether your portfolio is weighted more toward interest-bearing securities or stocks. I don't know if you're familiar with that.

I don't know how one solves those problems, but anyway, I just thought I'd mention that for future reference.

Ms. Moreau, you were saying the small business tax rate has gone up over the years. I came in about a minute late, so I missed the beginning of your presentation. But you seemed to be saying that the small business tax rate has gone up and it should be brought back down. Is that to previous levels? Did I understand correctly?

[Monique Moreau]

The rate has actually decreased but not at the same rate as the general rate has decreased.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

You mean the general public rate.

[Monique Moreau]

Right, so we're addressing the erosion of that value for owners of small businesses.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

How could that happen? Every government professes to be on the side of small business, yet you're saying that the large corporation tax rate is going down faster than the small business tax rate. Is that a correct understanding?

[Monique Moreau]

In the sense of the value of the rates, the spread is not as high. So, yes, there were increased cuts to the corporate rate in general that weren't reflected in the small business rate.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Right, that's interesting. What about the SR and EDs, the scientific research and experimental development? Are you in favour of the direction the government is going with respect to that tax measure? A lot of small business owners have written to me saying, “What the government is doing is really hurting me”. It's getting rid of a more grassroots mechanism for encouraging innovation, and it's going to move toward directed grants to corporations for research and development.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Those decisions can become very political. I'd like to know your opinion about that.

[Monique Moreau]

We support attempts to foster innovation at all levels. SR and ED has its good points. It is a very difficult and expensive credit to gain. Many of our small business members have told us that they need to hire consultants to help them navigate the red tape and to apply. The benefits can be quite substantial. But it only affects a small portion of our membership at this time because of that complexity.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Scarpaleggia.

We'll go to Mr. Keddy.