Finance Committee on Sept. 26th, 2017

[Laura O'Blenis]

Yes, but then what does it do to your business? You need to leave it in your business. I'm a business owner myself and business owners work hard. I know there are some criticisms of what they have or what they work for, but it's the choice they make and there are incredible risks associated with having a business as well.

We complain as a society that we want people to be more fiscally prudent and have financial literacy, but if you're going to be penalized and taxed at a 72% rate, then it's a complete disincentive.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you.

Mr. Kingston, the government says in its discussion paper that $27 billion a year in passive income is earned within Canadian-controlled private corporations. If you reverse engineer that number and assume, say, a 5% rate of return, that means probably about half a trillion dollars is saved inside these companies due to the responsible planning of our entrepreneurs.

The term “passive income” seems to me deceptive. You can answer this better than anyone because you represent a lot of the companies in which that passive income would be invested. When your public companies get so-called passive investments from private companies, does that money just sit dead or does it work?

[Brian Kingston]

It does not sit dead. When money is invested into public corporations, of course, they'll hold on to money depending on the business cycle, but they deploy that money as required to take advantage of new opportunities.

I'll also note that while we represent a majority of public corporations, we do have a subset of members, over 30, that are large, private corporations and there are serious concerns that they may also be caught by these proposals. These corporations employ thousands of people and they hold significant passive investments to invest in start-ups, tech companies, to prepare for downturns in the business cycle, so they could also be caught in this, which would be extremely concerning.

[Pierre Poilievre, Conservative, Carleton, ON]

The government says they want strict neutrality in the tax system with nobody treated differently from anyone else. Get rid of all these preferences. Do you believe that these proposals bring neutrality or are they bringing a higher rate of taxation on certain types of companies than on other types?

[Brian Kingston]

They definitely do not bring neutrality. One concern we have is that large, private corporations will now be on unequal footing with public corporations that are allowed to hold cash reserves as required to take advantage of new opportunities. You suddenly have a situation whereby a private company can no longer do that. That's the absolute opposite of neutrality. If the government was serious about wanting to clean up the tax system and make it more neutral, it would launch a comprehensive review of the tax code.

[Pierre Poilievre, Conservative, Carleton, ON]

Finally, do you worry that Canadian—

[The Chair, Liberal, Wayne Easter]

I'm sorry, Pierre, how fast time flies.

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Ms. O'Blenis, you're asking in your brief for $2.85 million for the three programs you mentioned over three years.

[Laura O'Blenis]

That's right.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

That seems like a relatively small amount of money for the three distinct programs that you laid out all in some detail.

I have two questions. One is what do you predict will be the positive outcomes from these types of investments? Your brief outlines a lot of statistics about when certain things happen or when investments are made in these areas. The outcomes are great, but from these three programs—let's just use the IP matchmaking program, I know you're working with INDU on that—what are some of the relevant initiatives that are going to be made that will see the positive results for a relatively small investment?

[Laura O'Blenis]

The IP matchmaking piece—I believe the budget was around half a million dollars a year over a three-year period—had the goal of on-boarding the institutions. The institutions all have very different policies on IP. Bringing some sort of alignment to how we would consolidate or collect and represent that data was basically the goal. In that three-year period what you can do is on-board the organizations and institutions and build a beta MVP online platform.

We could also look at consolidating information. For example, the NRC concierge program is a database program. Maybe there are existing federal programs that you could leverage or look at. ISED is also looking at something else, even to build something from scratch that's an online database platform. We have been looking at some components and you could do an MVP for a fairly minimal investment and then the rest is really on-boarding the institutions. So that is the IP, as one example.

The soft-landing program, I believe, is around $300,000 a year. It's specifically for the Fraunhofer exchange with the 67 institutions under Fraunhofer in Germany. We're working with Global Affairs and the European Union on that program, which was brought to us from them. Specifically, we are working with the interaction points between the companies, identifying the matches with Canadian sectors. The superclusters are a big thing right now. We've looked at the superclusters to build on and then learn from the institutions in Germany, which are quite specialized.

So that's the interaction piece. I know it doesn't seem like a lot, but we can actually do a lot because we've been building these networks and platforms over a period of 10 years. We can leverage those networks so that it's a fairly minimal investment to have a fairly significant outcome.

The last is the coordination of the ecosystem, and it's around the same as well. It's trying to bring together some semblance of standardization. For example, there's the CAIP funding. It's administered through IRAP, NRC. Fundamentally, the issue we've had with that program is that it supports about 15 accelerators, the main accelerators in Canada, but it doesn't disseminate the best practices or the information being collected or driven from that $100-million spend from CAIP. If you'd just put a little bit of coordination around that and actually disseminate some of those best practices to some of the smaller communities and some of the other accelerators, then we could multiply our impact on acceleration and incubation in Canada. It doesn't need to be significant. It's really just about wrapping around and having the autonomy to execute on behalf of the government while leveraging the network to be able to do so.

Thank you.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

Ms. Watts-Rynard, you spoke about providing the support the employer needs in order to understand these apprenticeship programs and what they mean. I'm just curious. Who would you envision actually providing this support? Do you want the federal government to directly offer these types of supports, or are there agencies that are better suited to provide mentorship to the apprentices? Who is doing the audits to ensure quality? You spoke about the example of the individual to whom the program wasn't beneficial even though the individual had a spot. Could you provide a little more background on who you would envision rolling some of these things out?

[Sarah Watts-Rynard]

Sure.

There are apprenticeship authorities in all of the provinces and territories, and to some extent apprenticeship is really a demand-driven system. If an employer says they would like to hire an apprentice and register them with the apprenticeship authority, that's really where the first relationship starts. I think the difficulty can be the idea of hiring and training somebody based on the fact that the employers were once apprentices themselves. That does not necessarily mean that journeypersons who are currently certified would be good mentors and so forth.

There are all kinds of really great programs across the country, but they tend to be in really small pockets. In New Brunswick there's a really great mentor-apprentice program, where they go out and actually show employers, get employers engaged with mentorship, get their journeypersons in the room, get the apprentices in the room, and talk about what mentorship means. For example, there are training plans that are available through some of the trade associations that deal with specific trades. We know there are a number of unions involved with apprenticeship training that are able to support employers in terms of the quality of training, the quality of mentorship, and so forth.

I think the infrastructure is there. The problem is that it's spotty, so there needs to be a sort of clearing-house of what that actually means, what good apprenticeship looks like.

In very few cases will apprenticeship authorities in the provinces, or any government, want to go into an employer and say they are not doing a very good job with their apprentices. But as the registration authority, it is reasonable to say, “Your apprentices aren't completing, so we're letting you register them. You're getting the tax credits. You have access to these supports, but you don't seem to be putting out apprentices at the end of the day who are turning into certified tradespeople. They're not doing well in their training,” and so forth.

I think there does need to be an audit process that looks at the quality of training that's being provided in workplaces. I think it has to happen within the apprenticeship community itself. I know that there are programs. I know there are some really great things going on.

We say about 19% of skilled trades employers are involved with apprenticeship training, and I think the other 81% have opportunities. Perhaps they can't offer the full scope of trades. Perhaps they have other reasons why they might suffer. But I think it's only a matter of really making sure there's an umbrella group out there, a clearing-house, and I'm thinking more of a centre of excellence around vocational training, thinking about the resources that employers need in their trade or sector, then building that so that good practices are happening across the country. Then, when people need help, making sure they're not necessarily being penalized, but they are certainly getting the supports they need to understand why their colleagues or peers down the street seem to be able to get apprentices through the program, but they don't.

I think it's a matter of—

[The Chair, Liberal, Wayne Easter]

Sarah, that's your time.

We'll turn to Mr. Albas.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Chair, and thank you to all of our witnesses for your participation today. It's very welcomed here.

I'm going to start with Ms. Mentzelopoulos in regard to risk-sharing. Credit unions, particularly the further west you go in this great country, are in the rural areas. Often they are in locales where there isn't an alternative financial institution. Oftentimes they're very localized because that is the nature of credit unions.

Obviously, they have high capital requirements. They can only loan out a certain amount, because that credit union can't spread the risk over a wide system in the way that one of the big-six banks can, so this risk-sharing thing could be very painful, could it not, for a small credit union?

[Athana Mentzelopoulos]

That's exactly why we've taken the position that we have.

To your point, I believe Keremeos is the most recent community where we've seen that a credit union is the last standing financial institution. There are communities like that all over. It's really a policy approach that was tailored for Vancouver and Toronto and the real estate markets there. It's not a policy approach that's going to be in any way helpful to communities and the credit unions that serve them outside of those major metropolitan areas.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Also, communities like Peachland in my riding are only serviced by credit unions, so I certainly appreciate your being up to snuff with western Canada.

In regard to competitiveness, deposits, and whatnot, you said you have high capital requirements that are not the same at the federal level. I know many small businesses use credit unions as their go-to sources for funding and whatnot. If your depositors—in this case, small businesses—are being taxed at higher rates and have less money at the end of the day, that directly impacts your ability to lend, because the less money in the bank account, the less money goes out in loans. Is that correct?

[Athana Mentzelopoulos]

We certainly are hearing that reflected from our membership, and they are hearing that in turn from their members.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you for that.

Mr. Wudrick, I just wanted to ask you a quick question. Given that the government is spending a lot of money with no plan for returning to balance, that it is giving a lot of money away to large corporations in a friend-seeking fashion, and that obviously you see the small business taxation here, what is most concerning when you put all these things together?

[Aaron Wudrick]

Frankly, it's that the government has a credibility issue. Look, we were one of the groups for the longest time calling for tax reform. I don't want to suggest we're against it. However, we stipulated that the condition must be that the money has to be returned in the form of cutting broad-based tax rates. I think the fact that the government has not made that commitment feeds into the suspicion. We all know the government did run on a promise to run a deficit, but it turned out to be much larger and much longer in reality, and they have not presented a plan to get back to balance.

When you add all that up, it does start to undermine the argument that they are concerned about fairness and that they are not concerned about finding more money to pay for the fact that they can't keep spending under control.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Mr. Kingston, you mentioned that some of your membership may be caught up in these changes, as well. I just want to piggyback on Mr. Poilievre's earlier question in regard to “passive”. Obviously, if entrepreneurs buy a bond issued by one of your companies, they may not have a purpose for that money right now, but they want to be able to have something that's pretty liquid, that will track with inflation, and that also gives money now to that larger corporation to open up a new factory, which may end up purchasing supplies from that company.

Do you think this whole idea of passive investments really doesn't reflect the true nature of our economy and that what one person might say is passive actually has a very real effect in the economy?

[Brian Kingston]

Yes, I agree with that statement. It's been characterized as “passive”, and a lot of people assume, then, that the money is just sitting there not doing anything. However, as you note, that money is invested in corporations that are actively investing in communities and employing people. That's the reason that, in the submission we will be providing to this committee and to the minister, we are calling on the government to undertake a full, comprehensive economic assessment of the policies it has tabled. There has been no information regarding how this will impact the broader Canadian economy, and we're very concerned that it could have serious implications.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Again, when someone buys that bond, let's say they get 5%. Right away they already are taxed, and maybe you might not know this. They are taxed right now where they have to pay taxes at just around 50%. That's just how it is in a Canadian-controlled private corporation. If you add a higher tax of 73%, now that person isn't even tracking with inflation. I think there are a lot of broad-based concerns here, because if we stop investment into the most productive use of those dollars and suck it away, we're going to be in for a lot of unintended consequences.

Do you have anything further to add to passive investments?

[Brian Kingston]

I would just say that if someone is facing a 70% or higher tax rate, which is what we've heard from some of our large private corporations on their passive investments, I think that's a pretty clear disincentive to make any investments whatsoever. So that's very concerning.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

What about public companies taking—?