Finance Committee on May 28th, 2015

[Corinne Pohlmann]

Yes. This is extremely important, as we've talked about. The second highest priority of small business in Canada is to find ways to reduce the paper burden. In particular, CRA and Minister Findlay have done an excellent job in trying to at least start moving the needle a little bit, because CRA really has the biggest impact on small companies in Canada.

She was awarded the Golden Scissors Award for the work on bringing more accountability so that when you actually ask a question in writing to CRA, the response you get back will be honoured, even if its later found to be incorrect. This is because the businesses have done everything they can to make sure that they're in compliance, but if CRA has given them the wrong information, they shouldn't be held responsible for that. Doing that was the first step. That's what that was about.

We'd like to see more of those kinds of initiatives take place. I think this quarterly remitter category that's being created in this budget for new businesses is really an important first step.

They're so small, these things, but they have such an impact on the ground. People feel it. Some of the biggest feedback we get is when things like reducing the number of times they have to remit payroll taxes are introduced. That's when we get the feedback that it actually makes a difference.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Cannan.

Mr. Côté, s'il vous plaît.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

My thanks also to the witnesses for joining us today.

Ms. Woolley, when you testified as part of the prebudget consultations, you were very critical of income splitting. You said this about it:

Income splitting reduces the marginal tax rates of people who aren't very sensitive to tax changes—that's the primary breadwinner—and it increases the marginal tax rates of people who are sensitive to changes in tax rates, and that's secondary earners.

As you said later in your testimony, most of the benefits go to higher-income families.

As I understand it, that seems to suggest that one of the two spouses could quite easily exclude themselves from the workforce, which clearly would mostly involve women. So you were talking about the potential for inefficiency.

Could you talk to us about the fact that hundreds or thousands of people could exclude themselves from the workforce?

[Dr. Frances Woolley]

I just want to highlight two issues.

There's been research by economist Tammy Schirle that has found that the universal child care benefit has had a significant negative effect on women's participation in the labour market. I think this income splitting could have even a more significant negative effect on women's economic participation. That's a very serious concern. My concern is that this is not going to help a lot of families. It's going to deliver more help to families who need it least as compared to the child amount credit that it's replacing.

Another thing that I think hasn't been mentioned and which I would like to highlight is that women have liability for taxes on income that they never receive, right? That's a feature of the pension income splitting, too. That's a very, very serious problem.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you, Ms. Woolley.

Now I am going to turn to Ms. Pohlmann and Mr. Lavoie.

Businesses need qualified staff and a decent pool of workers. Are Ms. Woolley's comments a concern for you? Are you monitoring how the availability of labour is evolving subsequent to these tax measures?

[Corinne Pohlmann]

Certainly, we follow closely what's.... The shortage of skilled labour is very important. It has continued to grow despite the fact the economy has cooled somewhat. It's one of the factors we look at in our “Business Barometer”. In this month it's probably the second highest issue that's causing business constraints at the moment, in that they have a lack of skilled labour and trouble finding the people they need.

Definitely, it's something we track very closely. It's something we work on in terms of trying to match people with the skills that are out there and the needs that are out there. We are looking at things through the immigration system, as well, and potentially doing some work on improving things like the temporary foreign worker program, as well as permanent immigration. We are also making sure the skill matches and that people can move from one province to the other and not have to go through a whole set of new skills or training to do that.

Yes, there's lots of work being done and it's something we watch very closely.

[Martin Lavoie]

Of our members, 57% say that they are facing labour problems that are limiting their ability to consider expanding, to produce and sell more. However, I do not at all share the view that the income splitting measure would automatically have a negative effect.

Income splitting is capped at $2,000. I am not prepared to say that someone is going to give up a job paying $30,000, $25,000 or $20,000 a year because of a measure like that. I am not sure I can connect the dots there. We have seen no evidence that it will happen. We will have to see.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Fine.

Mr. Macdonald, the last table particularly struck me, the one that shows the maximization rates since 2010. It is really interesting to see the very marked drop in TFSA maximization, even for those with very high incomes. We know that Canadians have a high rate of household debt. In fact, the ability of families to handle the cost of living has gone down considerably. Is there a link to be made there?

[David Macdonald]

I'm not sure about that.

I think the drop in the maximization rate has much more to do with the fact the maximum you can put in has grown by $5,000 a year. When the total amount you could ever put in a TFSA was $5,000 or $10,000, you saw much higher maximization rates. Now, once you're at $36,500, people are less likely to have that much money lying around that they could put in a TFSA. It's not surprising at all that folks in the lower-income bracket who are making the bottom 10%, or who are making under $5,000, don't have $5,000 a year to put into a TFSA, which is why you see the maximization rates extremely low at 1%.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

So raising the ceiling is a very bad idea, especially since the maximization rate for incomes of $100,000 and more has been reduced by half.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We go now to Mr. Van Kesteren.

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

Thank you all for being here. Many of you have appeared before. Sometimes we hear the same story and that's good. I think we need to hear some repetition, and that encourages us to do the right things.

That's a stunning statistic, Mr. Lavoie, that you gave us about productivity. I'm curious as to what is your organization's analysis. Why do we have such low productivity rates as opposed to the Americans and the Germans?

[Martin Lavoie]

I think for a long time we've had an economy structured by a low currency. When you have lower labour costs, you don't need as much automation as when you have higher labour costs. Some other countries, and we talk about Germany and the U.S., have been coping with high currencies for many years. We had so much catch-up to do suddenly when our currency started to go high very rapidly. The problem is not that we have a high or low currency; it's the volatility of it and how fast it can go up and down.

For manufacturers, productivity has started to do better after the financial crisis. Starting in 2011, the manufacturing sector has been driving productivity growth in the country, mostly because of automation and investment in machinery and equipment. We need to do more.

If you look at the level of adoption of automation in general in the Canadian manufacturing sector, it's lower than in some other countries. It's going to be a long-term problem given the demographics and given the skills issues. We need to automate more. Even if we were automating more, we would still be facing some issues like that. As I said, for every hour worked we produce $45 of goods. We need to bring that up to $55 or $60 if we want to be competing against the other countries.

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

I'm a big advocate of studies and mining the numbers. I'm curious: has there been a study done enabling us to point directly at what is causing this? I suspect there may be something more here, with just what you're telling us about our success with small businesses and medium-size businesses. We have lost manufacturing. All major economies have lost manufacturing. I don't think we're unique in that sense, but it's interesting. You made a comment about some of the larger corporations. I would suspect those would be the German corporations that are founded in Germany, and the Americans. Is it because of regulations and such that manufacturers seem to leave? What would be the cause? Is it the high labour cost? Why wouldn't we be doing so well? That's the first part of my question.

The second part of my question is this. Maybe you could just tell the committee again why it's so important to grow those small and medium-size businesses, because the labour that's produced is 95% of the workforce, and how we can continue to be successful. That's an exciting story, I think, that we've done so well. So maybe you could elaborate on that for the committee.

[Martin Lavoie]

In terms of studies, I would be careful with that, because there are lots of studies. There are people saying if we have a high dollar, we should have a lot of investment in machinery and equipment. Well, that's only part of the story, because what's really driving investment, any investment, particularly in machinery and equipment, is cash flow.

You're going to see a lot of investment, and I'm actually expecting more investment now that we have a bit of a lower dollar and companies have better balance sheets. That's pretty much the better context for investment in machinery and equipment.

Why is it important to grow businesses? As I said, manufacturing is about 10% of our economy, but it's 63% of our exports. It's important to export because it brings foreign money into the country. We all agree we need to export more, but we can export only as much as we produce. If we don't produce more, we cannot export more. That's my point here. If you have a small food processor in your riding that can sell that much every month, and then you ask what if a billion people in China could buy your tomato soup, well, if they want to buy it, you need to produce it. That's my point. If you don't grow those businesses, we're not going to produce more. We're not going to export more. We're going to be stuck at a low economic growth level. It's as simple as that.

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

With regard to the strategy by the government to expand our markets and to lower the taxes to encourage small businesses, I'm thinking about companies within my own riding. For instance, in the greenhouse industry we've been quite successful, but that strategy has to continue. We need to focus on making it more attractive for small businesses, encouraging them to start up and then giving them the markets. Would you agree with that?

[Martin Lavoie]

Absolutely. We've heard for many years that we need to diversify our exports. That strategy has worked, because now we're less dependent on the United States than we used to be before. That is working. We just need to be more aggressive in certain regions. I think Asia is the next one, with the TPP, but also keep South America in mind. A lot of countries are doing well there, and there is more stability. We're talking about Cuba, but there is a bunch of other countries as well in South America that are doing well, with more stable governments. I think we need to keep an eye on those as well.

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

Doing the trade deals.

[Martin Lavoie]

Doing trade deals.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

Mr. Adler, go ahead please.

[Mark Adler, Conservative, York Centre, ON]

Thank you all for being here today.

I want to begin my questioning with Ms. Pohlmann from the CFIB.

The proof is really in the results here in Canada. Since 2006, we have followed a rather moderate path to growth and to balance. As you remember, the first thing we did when we came to government in 2006 was to pay down $38 billion of the national debt, which of course gave us the fiscal flexibility to respond in an effective way during the economic downturn.

I do want to ask you how important it is that the budget contain a number of confidence-building measures. How important is that for your members?

[Corinne Pohlmann]

It's extremely important. As I showed you, today's business barometer continues to show that at least it's not getting worse. Things are starting to improve slightly, but they aren't necessarily improving as quickly as we'd like, and with confidence comes growth, I believe.

By putting in measures, as I said, the small business tax rate is a big one. The only thing that could have made it better is if it had been implemented sooner than 2016. That is a huge factor in instilling confidence, and certainly some of the other measures that I talked about are really important, such as the lifetime capital gains exemption going to $1 million, which is for fishers and farmers, at the moment. Not only are we seeing it used as a retirement vehicle, but we're seeing it used as a financing vehicle for the next generation, which is really important because we're going to have a huge succession process that's going to take place over the next 10 years. Demographics hit employers just as much as the rest of the population.

Certainly the red tape reduction measures are key as well. That one remitter category is definitely just one of a few that were announced in the budget.

[Mark Adler, Conservative, York Centre, ON]

I'm glad you mentioned a number of those. Certainly the reduction in the CRA payroll remittances, the times that you have to remit, is important. The small business tax credit, of course, will save some $550 million in EI premiums. Reduction in credit card processing fees is also very important. These are all, as you indicated earlier, important in terms of building confidence in our business community.

How many members do you have?

[Corinne Pohlmann]

Across Canada, we have 109,000 members.

[Mark Adler, Conservative, York Centre, ON]

One hundred and nine thousand. How many employees would you estimate work for your members?