Finance Committee on Oct. 18th, 2017

[The Chair, Liberal, Wayne Easter]

Mr. Monette wanted to speak, and it will not take away from your time, Jennifer.

Go ahead, Mr. Monette.

[Pascal Monette]

Forgive me, but we have to leave soon to head back to Montreal; as you know, you always have to build in an extra 15 minutes for the traffic cones. I'd just like to say one last thing, though.

We debated the merits of the east-west oil pipeline, but I think we are forgetting a crucial piece of infrastructure for Quebec and Canada: digital infrastructure. The CRTC ruled that, in the next five or 10 years, all fixed broadband Internet access had to meet the universal download speed objective of 50 Mbps, or megabits per second. In some Scandinavian countries, that standard currently sits at 100 Mbps or 110 Mbps. That means our small businesses in the regions lacking telecommunications infrastructure don't have access to that crucial ingredient, possibly jeopardizing their growth.

We encourage our businesses to enter into global value chains, with a German company, for instance. When the system goes down, though, because of a spike in tourists, as one region in Quebec experienced in the summer, it shows just how much work we have to do.

The government has to get involved. It can look to northern Ontario for models. There, the private sector and governments have joined forces to set up telecommunications infrastructure. I think we need to be mindful of the importance of that infrastructure.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go back to you now, Ms. O'Connell.

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

Thank you.

Mr. Bélanger or Mr. Patry, I don't know if you want in, but I was curious about the conversation among our colleagues in terms of the question around investment and reducing taxes for corporations, and the economic theory that it will, then, trickle down. It was pointed out that even the late Jim Flaherty had concerns that this money was not actually trickling down.

Mr. Bélanger, I got the sense you wanted in on this question. If that's incorrect, that's fine, but perhaps you could comment, from your perspective representing workers, on that economic theory and on Mr. Fergus' point on whether that theory is actually based on economic realities.

[François Bélanger, Union Advisor, Confédération des syndicats nationaux]

Yes, we at the Confédération des syndicats nationaux, or CSN for short, are of the view that the corporate tax burden is not the only factor that determines a business's capacity to invest or the economy's ability to grow productivity. As Mr. Patry mentioned, we went from a corporate tax rate of 29% in the early 2000s to a rate of 15%—and that isn't the reduced rate.

Although the corporate tax rate is important, we've seen that other factors do come into play. Even before the great recession of 2008-09, it was clear that challenges already existed around accessing sufficient investment in a number of industries, investment required to upgrade plants and provide economic stimulus to developing high-tech sectors.

Against the backdrop of globalization, we nevertheless believe that our corporate tax rate should be competitive internationally, particularly when it comes to the U.S., where the competition is something else altogether. We are keeping a close eye on the tax reform package, but, according to published analyses, the U.S. is moving towards lowering its tax rate and adopting territorial taxation. The Americans are trying to expand their tax base to fund the tax cuts they want to give businesses, whose rate would go from 35% to 20%, depending on what Congress decides. The rate could be higher if Donald Trump succeeds in going ahead with his plan.

Economists are saying that the move would actually hurt U.S. small businesses, who would have to pay more for their exports. The increase in the value of the U.S. dollar is expected to offset that but likely won't be enough to really create a more competitive tax environment.

Furthermore, with the U.S. depriving itself of certain imports, including Canadian imports, it will put upward pressure on U.S. costs because the Americans won't easily be able to build the production capacity they need to fill the resulting void in the medium and long terms, thus driving costs up. What they gain fiscally, they will lose in production and import costs.

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

Thank you.

I have one more question.

Ms. Piperni, my question is with regard to your brief. I know time is short, so you don't always get to say everything that's in your brief. You talked about the importance of transparency and accountability. I assume that's not just for the funds specifically but also to ensure that if these jobs are created for students, they're not grunt work or jobs that really are not producing skills, and that these students aren't also, then, taken advantage of. Am I reading into that correctly? If so, could you elaborate on what you mean by the transparency and accountability of the program and why they are so necessary?

[Cara Piperni]

We were also addressing the way the funding would be administered. Whether it's a clerical job or a job in a lab, there are soft skills that can be developed—professionalism, time management, and all of those things—but absolutely we want it to be high-quality, part-time jobs where either it's discipline-related or there are learning outcomes, as well as retention and on-time completion outcomes to demonstrate that this means of financial support outside of the traditional government aid systems is really making a difference for those most vulnerable students.

If I may also address a little bit the question of debt versus work—and I think this does relate to your question as well—while debt is not preferred, we do see it as an investment. With the employability skills and non-precarious work opportunities, it should be possible to repay that debt successfully.

Work, in some cases, is the only option for needy students who have hit the maximum amounts of government aid available to them. I'm talking about grants as well as loans. We see the reality that there is still unmet need, which is causing a tremendous amount of financial stress for students.

There also are inherent penalties across all government aid systems, whether it's Quebec's l'Aide financière aux études or the Canada student loan program. Institutions identify students in need. We want to use our institutional bursaries to support students. However, there are penalties. In Quebec, if we provide a student with more than $5,000, our dollar replaces the government aid dollar. Under the Canada student loan program, the student is penalized for anything over $1,800, so we cannot add to our government aid. We're replacing government aid dollars, and that doesn't work. Work, employment, becomes the solution.

[The Chair, Liberal, Wayne Easter]

We'll have to cut it there, and we'll split the last 10 minutes between Mr. Albas and Mr. Grewal.

Go ahead, Mr. Albas.

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

Thank you, Mr. Chair.

Thank you again to all our witnesses for your testimony here today.

I'd like to go to the Montreal Economic Institute.

Sir, you sounded as if you wanted to jump in on the question by the previous member.

[Mathieu Bédard]

It's widely accepted that, when you tax a certain behaviour, the frequency of that behaviour decreases.

For instance, my colleagues in the CSN are calling for inequalities to be taxed in order to reduce inequalities. It would make more sense to acknowledge that taxing investment reduces investment, as is the case with all taxes. Consider the tax on tobacco and just about every other tax.

That isn't a matter of theory or some formula on a university chalkboard; unfortunately, it's a fact. We can lament it all we want, but it doesn't change the fact that investment decreases when it is taxed.

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

Thank you.

With regard to the economy, I like to look at things in a way that we can understand. I think as politicians, we all have to level up with our communications. With issues like free trade and the competitiveness of the economy, we have to find solutions and, obviously, I like to use sport analogies. You have two basketball teams on the same court. Each team has different qualities—heights, speeds, and whatnot—but then you have structural differences.

For example, you've mentioned lack of labour mobility. We know that the government, whether the previous government or the current government, has placed an emphasis on infrastructure, but now we see the other team, so to speak—and I'm going to describe our friends the Americans as the other team—looking at making large structural changes as well. When you talk about business investment being at such record lows, Solow theory says that eventually developing economies get to a state where they're only replacing old capital—whether it be machinery or whatnot—and there's not as much investment placed in new productive capacity, whether we're talking about infrastructure publicly or privately allocated capital. Are you concerned that the business community in Canada is only replacing—or perhaps they're not even replacing—old capital as they play wait and see with regard to whether or not they want to invest in the United States versus in Canada?

[Mathieu Bédard]

I think it is definitely the case; there's no question. In some industries, the oil industry, for example, especially out in western Canada, it's important to remember that if the U.S. goes through with its corporate tax reduction, the new rate of 20% will apply in most economically significant states and will make theirs lower than ours, whereas ours has been lower than theirs up until now. That means that Texas and Ohio will be down to 20%. States like Michigan and New York will be down to 26%. This will definitely affect investments, and projects will definitely be invested in in the U.S. rather than in Canada. We are definitely seeing this type of behaviour in some industries, especially the capital-intensive industries such as oil.

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

Again, I'm a firm believer that ultimately the government can only consume and redistribute what the productive economy—the private sector, so to speak—creates, and if the private sector is finding it more profitable to move its operations or to even dial down operations because the people it collaborates with or supplies services to are investing in the United States, is there a concern, given our demographics, that we will see a real loss of not just productivity but also investment? The changes by our American friends put us even further behind. Is that correct?

[Mathieu Bédard]

They put us further behind in terms of wages. They put us further behind in terms of growth. They also put us further behind in terms of revenues for the government. They will definitely have a big effect, and I think it's important to keep in mind that this is coming. While I understand that politically it's not always easy to reduce taxes on companies, it will become very quickly inevitable if this goes through in the U.S. If it doesn't go through in the U.S., there are reasons for wanting to lower corporate taxes in Canada, and it would still be advantageous to the workers and to investment here.

[The Chair, Liberal, Wayne Easter]

I'm sorry. We're out of time. I know Mr. Patry wants in.

Can you do it fairly quickly, Mr. Patry?

[Pierre Patry]

There's no denying that everyone is worried about what's happening in the U.S. for all sorts of reasons. Just the reopening of NAFTA and the countervailing duties—another issue that didn't work out as hoped—are enough to cause concern.

That said, in Canada and Quebec, we have values, and we must stand up for them. We cannot simply take our cues from the U.S. To that end, Ms. Freeland set out a certain number of objectives she wanted to achieve with the renegotiation of NAFTA. We can only support that. I think we need to find a balance. Obviously, we need to be worried about what is happening in the U.S. and, to some extent, adjust accordingly, but we are who we are, and we have to be able to assert that, even in the face of the American giant.

[The Chair, Liberal, Wayne Easter]

Mr. Grewal, you have the last questions to this panel, and you have five minutes.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for coming here and testifying.

My first question is for the Canadian Association of Student Financial Aid Administrators. I spent a great deal of time in post-secondary education, and I'm a huge proponent that education can really change a child's life. The reason I am an MP is in large part because I had access to post-secondary education. At the same time, I also had access to government grants and loans, but I still have student debt as an MP, and that gives me a unique perspective.

We're really proud of the government doubling the Canada student jobs initiative, the summer grants, and trying to make them more accessible for Canadian students. There is one thing I see as inherently unfair, and this is obviously a jurisdictional issue. I want to get your opinion on the fact that tuition varies across the country. If you're sitting in Quebec, tuition is drastically cheaper than if you're a child born in Ontario. That just seems a little bit unfair for a country the size of Canada with its wealth.

What are your comments on how we can solve this problem?

[Cara Piperni]

Yes, tuition does vary, but so too does the level of generosity of each of the government aid jurisdictions. If you are a Quebecer, while you pay lower tuition fees, there are still cost-of-living considerations and you are typically from a lower-income-profile family on aide financière than you are if you're an Ontario student paying higher fees, where your parental income is much higher, and you're still gaining access into a government aid system. We really do like to see it as costs minus government aid contributions in the forms of grants as well as loans. In that sense there is some equalization. Again, it's not about affordability; it's about access. The rate of tuition, I think, is connected to the kinds of funding supports available to colleges and institutions. That's not my area of expertise.

[Raj Grewal, Liberal, Brampton East, ON]

From your research, is their any data to show how many students forgo post-secondary opportunities because of the cost of post-secondary education?

[Cara Piperni]

Yes. We just had that conversation with some provincial program experts. That is the hundred-thousand-dollar question. We don't know who is not coming. We know once they're in the system if they are not persisting, or if because of financial struggles they're working excessively or extending their time at post-secondary education, which means incurring more debt and more cost as a consequence. Unfortunately, as a nation we do not have good tracking mechanisms and longitudinal analysis in order to track who is self-identifying out to begin with.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you. I like your recommendation on increasing campus jobs and having more campus jobs particularly for kids who have financial need. We'll definitely try to champion that issue.

Moving right along, I want to talk to Imperial Tobacco Limited. I thought the way you framed the issue was really good. Whether you agree or disagree with smoking is irrelevant. You have to follow the law of the nation. I was a corporate lawyer at a big Bay Street firm that did a lot of work for Imperial Tobacco, so I actually studied the illegal tobacco market. It's not something I generally discuss during coffee conversations.

I'm really interested to know how you guys get to the $2 billion in lost revenue number.

[Eric Gagnon]

First of all, it's hard to evaluate the illegal market, because it's illegal. When you look at the level of taxation in Canada, though.... This number is not coming from us. It's coming from third party groups, and it's public-domain information. I'll give the concrete example of Alberta. In 2015, Alberta increased the price of cigarettes by $10. In 2016, they missed their projections by $150 million, so you are able to evaluate, because of the level of taxation, how much governments are losing. This is how you come up to $2 billion. Some other groups have mentioned it's potentially up to $3 billion, so it is a lot of money.

To be fair, it's very easy to eliminate the problem. Tomorrow morning—and this has been done in the past—if you want to eliminate contraband, just decrease taxes on tobacco. That's not going to happen, because there is no political will. But then go and shut the illegal manufacturing operations. Everybody knows—and the RCMP knows—exactly where they are, but there's no political will to do that. This is where it becomes complicated. I've been advocating for this for 10 years and, to be fair, we haven't seen concrete measures yet. I'm hearing all the discussions today about—

[Raj Grewal, Liberal, Brampton East, ON]

Sorry, I'm going to have to cut you off, because I'm going to get cut off by the chair really soon.

You said that Quebec was doing something right. What is Quebec doing right?

[Eric Gagnon]

Very shortly, three things.

The first one is that they have a bill, Bill 44. We have been advocating for Ontario to do the same thing. Every police officer in Quebec has the right to impose the Tobacco Control Act. That's one.

Two, Ontario has introduced a task force and invested $1 million in it. It has five officers. In Quebec they invested $18 million and have 55 officers. There's no way Ontario is going to succeed.

The last one is that Quebec has been very good at managing excise on tobacco. They have recognized the problem and they don't shock the market, whereas Ontario—as I said earlier—has shocked the market. Also, they have announced another $4 tax increase next year, which is going to create a magnificent problem in Ontario next year.