Finance Committee on May 28th, 2015

[Corinne Pohlmann]

I haven't looked at the most recent data, but I know that Canada does relatively well in new start-ups. That's what you want. You want to encourage that kind of growth and that sort of turnover. Of course, businesses go under as well, but that's the kind of churn you want to have. Eventually many of these are going to bring more jobs into their communities. I think it's particularly important in some of the smaller, more rural parts of the country, too. That's where you want to see growth happen, because we want to keep people in every part of the country, and sometimes it's small business growth and the development of small business in those communities that keeps them vibrant and growing.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

I agree with you.

I'm just curious, if we could change the question a little, about the accelerated capital cost allowance. It is something that has been discussed for a long time. This committee has spearheaded it as an important factor, and we made very significant changes in this budget.

Could you comment on how these are going to impact your membership?

[Corinne Pohlmann]

We agree with the CME.

We ourselves have more than 12,000 manufacturing businesses as members, and they're all Canadian-owned companies. More than three-quarters of them felt that this is a good measure for them, to help them grow, maintain, and sustain the viability of their businesses. It certainly helps encourage people to invest in new equipment, which is going to become even more important to productivity as we move forward.

I think the fact that it's a 10-year window is going to be very important as well, because it gives some stability to the sector: they know they can invest over time. I think that's also an important feature of what this announcement brings.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Mr. Zive, this budget was very focused on helping many Canadians, but a sectoral issue which you have spoken to previously and today briefly is how we help our seniors.

Could you give the highlights of how we're helping seniors with this budget and the comments from CALU?

[Terry Zive]

Very specifically, with respect to the RRIF withdrawal limit, reducing it allows seniors to retain more money in a tax-sheltered environment, which will allow them to be in a position to ensure that they do not run out of money in the future. That is a significant assist.

As I indicated in my remarks, I would hope that this review would continue to take place more frequently than every 30 years, so that we can ensure that seniors will remain solvent from a financial perspective.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Bateman.

Mr. Dionne Labelle, you have the floor.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Thank you, Mr. Chair.

Mr. Macdonald, I have here your table showing the maximization of the TFSA.

We see that the median family income in Canada is $74,000 or $76,000. I also see that 10% of average families have maximized their TFSAs whereas households earning more than $250,000 per year are three times more likely to have maximized their TFSAs.

According to what I read in the parliamentary budget officer’s report, by 2060, high-income earners, those in the highest quintile, that is, will use TFSAs 10 times more than people with lower incomes. Those with the highest incomes will benefit from this program 10 times more than those with low incomes.

You want a maximum amount to be set for the TFSA system so that the program does not produce millionaires. How did you establish the two levels of $150,000 and $300,000 that you proposed? Can you break all that down for us?

[David Macdonald]

Thank you, Mr. Dionne Labelle.

I just want to point out that the graphic you're referring to is not of households; it's of individual tax filers, and so there are going to be some differences there. For individual tax filers, median income is about $30,000.

That being said, I think—and others have looked at this as well—that it's very predictable that we will have TFSA millionaires, without some reform to the system, in the next 20 years.

The amounts I've chosen are for the lifetime contribution, 30 years of contributing at $5,000 a year—that's a fairly straightforward calculation—and providing people with a maximum of a doubling of that contribution, to have a hard asset cap at $300,000, whereby once people's TFSA is worth $300,000, they then have to take any excess amounts they receive in income out and hold that money in some other place.

I think this is a fair way to restrict TFSAs, such that low- and middle-income people, who should be benefiting—although the take-up rates are abysmal—can still benefit from this, but also to limit the benefits that high-net-worth individuals can make from TFSAs.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

A number of people have expressed concern about the impact of TFSAs on provincial finances, and I am one of those people.

According to the Parliamentary Budget Officer, in 2080—that seems a long way away, but time flies—the federal government will be deprived of an amount of $77 billion in revenue and the figure for the provinces will be $39 billion.

In your view, what burden will that put on the provinces? What do you think about the fact that there were no discussions between the federal government and the provinces before this loss of income was forced onto them? For the provinces, this is something unexpected that they had not foreseen. One witness mentioned health care costs, which are going to continue to climb. That weight is going to be on the backs of the promises given that the health sector is in provincial jurisdiction. Is that reality a concern for your organization?

[David Macdonald]

Certainly, and the Parliamentary Budget Office has done more estimates of this than I have. The same type of problem applied equally to income splitting or some of the earlier versions of income splitting, and I'm glad to see that the government has revised it such that the fiscal impact is purely on the federal government and not on the provincial governments. But it is one of the impacts of changing the definition of income, which is what would happen under TFSAs in contrast to RRSPs, where withdrawals from RRSPs count as income, or where savings are kept outside of tax sheltered accounts, and therefore folks pay taxes on capital gains or on interest and dividend income.

I think it's an important point that decisions at the federal level on what counts as income impact provincial finances. In some cases, those amounts can be quite substantial, as they will be over time with TFSAs.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Mr. Zive, I have to put my name down in the “no” column in terms of your desire to promote private insurance for long-term care. I feel that it is a very bad idea. We have a universal health care system that is free and accessible to all here. Long-term care is part of the universal system in Canada. Rather than trying to promote private insurance, it seems better to me to devote our energies to strengthening our Canadian health care system. I do not subscribe to your comments at all.

Thank you.

[The Chair, Conservative, James Rajotte]

Just a brief response, please.

[Terry Zive]

I don't think that this would be forced upon anyone. This would be voluntary in the event that one chose to purchase long-term care insurance. Clearly, the numbers that have been shown from the C.D. Howe Institute's study indicate that this is an issue the provinces will not be in a position to deal with, based on the demographic shifts and the incidence of longevity and illness.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Zive.

We'll go to Mr. Cannan, please.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair, and to our witnesses, good morning and welcome.

Ms. Woolley, just for clarification, in your opening comments you made reference to a balanced budget. Do you think it's important to have a balanced budget?

[Dr. Frances Woolley]

Right now I'd like to see the federal government in surplus. I think things over the longer term are not good. There's no right answer to what the budget balance should be; it all depends on the context.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I just want to get clarification about savings. Do you think it's important that the government encourage Canadians to save for the future?

[Dr. Frances Woolley]

There are lots of obstacles to savings. I think the kind of obstacles...a lot of it is psychological, things like people who get into credit card debt.

Savings are important, but I don't think expanding the TFSA is a good way of helping the people who need to save more, save more.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

There are a variety of ways. I just want to know if the fundamental philosophy of helping Canadians.... You said we're pulling the money. The money actually goes into investments which are then used to pull capital to help stimulate the economy and keep the economic cycle going. As an economics professor, you understand that, correct?

[Dr. Frances Woolley]

Well, I'm a micro-economics professor. In a global economy, the links between domestic savings and domestic investment are seriously weakened.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

That's a good segue to Mr. Lavoie.

We are in a globalized economy, 60% of our GDP. We're looking at our trade aspect and one of the aspects within our budget is fostering and enhancing trade partners. We have 43 different trade agreements now, 38 new ones since 2006.

I just wanted to know if there is comment from the exporters on the additional funding for trade commissioner services and export development enhancement.

[Martin Lavoie]

That is very important. As you said, not only are we a globalized economy, but we're also a small country in a global world. In talking about entrepreneurs and small businesses, very often when some of our members make a new product, they have to export. The market is not big enough for them in Canada. Trade commissioner services for a small business that doesn't have a sales force outside Canada or outside North America are crucial. How do they go and find new customers in Asia or Europe if they don't have a sales force there or distribution?

The new program announced for helping SMEs participate in trade missions and so on is very important, too. As we know, before you export to one country, you may have to visit that country between eight and ten times. That requires a lot time and money, so I think this help from the government is well appreciated.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks for the clarification.

Ms. Pohlmann, on your “Business Barometer”, I looked at your website, and it says, “Business owners are least optimistic in Alberta, where index levels dropped slightly to 45.7.” That was just last month. Is that because of what happened, the lack of stability and confidence with the change of government?

[Corinne Pohlmann]

Well, no. I think it's been going on since the oil prices dropped. We've seen that the confidence in Alberta has been dipping for the last three or four months. It has not necessarily improved; it continues to be fairly low. We've started to see a little bit of improvement in Saskatchewan where there was also as big a dip, but this confidence level is very varied across the country. Some parts of the country, like B.C., are doing very well, but in Alberta, unfortunately at this point in time, the confidence is quite low.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

One other aspect of small business is that we have our Kelowna Chamber of Commerce, that just won B.C.'s Chamber of Commerce award this past week. Congratulations to them. It is the economic engine that drives our local economy.

Working with Minister Kerry-Lynne Findlay and the red tape reduction panel since 2001, your organization awarded the Golden Scissors Award to Minister Findlay for the reduction of red tape.

I believe, within the budget, there's also a next phase. Maybe you want to expand on what your plans are to further reduce the red tape.