Finance Committee on Oct. 20th, 2017

[Alexandra Dagg]

The Quebec hotel industry is very pleased that we've done this agreement in Quebec. We'd like to be able to do it in other parts of the country. We're currently engaging and doing that as well. I think the hotel industry sees us as a competitive threat. Frankly, we think there is plenty of room for both models, the hotel industry and the Airbnb system, which is a totally different way of travelling. There is not daily maid service in Airbnbs. There is no room service. There is no bell desk. It's a very different experience. You can't compare the two.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I agreed with you up to your last point.

Mr. Goetz, this week we heard testimony from a group from Montreal that the Organisation for Economic Co-operation and Development, or OECD, has recognized that the tax measure of taxing sugary soft drinks is the most promising in terms of cost and effectiveness.

This is in addition to the recommendation of the World Health Organization, which advises all countries to apply that tax. The group also mentioned that France, Mexico and Berkeley, California, have demonstrated the effectiveness of that tax.

Do you have any comments on that testimony?

[Jim Goetz]

First of all, earlier this year, the World Health Organization did talk about taxation, but they actually stated that it is not a cost-effective manner of reducing obesity. They did recommend that countries do it, but they did state that it is not cost effective. We have to be careful interpreting what the World Health Organization did say.

I look at the McKinsey Global Institute report of 2014, which talked about 18 different measures that either government or industry could do to help reduce obesity and disease caused by obesity, which I will also provide to the committee. Taxation was 16th on that list of policy recommendations concerning what governments and industry could do in order to actually move the needle on obesity.

I can refer this committee to the Mexican government's own reports on obesity, as of last year on their website, which I will provide for you, that show that obesity is continuing to rise. I'm not exactly sure what reports are being referred to about Mexico. I am aware of one that was done and written by a proponent of the tax, who actually helped the government design the tax. He pointed to a whopping six-calorie difference in diets since the tax has been introduced. The study did not cross-reference whether those calories are simply being replaced by other high-calorie foods. Six calories is a potato chip.

I have one final comment. When looking at Mexico, it is disingenuous to say that it is only a beverage tax. That tax applies to chips, snacks, cakes, and all kinds of confectionary. It is not just a beverage tax. Even with a broad tax like that, which applies to a variety of products, including beverages, there has been no moving the needle on obesity.

In Canada, our products make up 4% of Canadians' calories currently. That's soft drinks for example, and it's falling. To think that a tax on that small of a segment is going to make a difference is not—

[The Chair, Liberal, Wayne Easter]

We're going to have to cut it there. I'm sorry, but we'll have to cut it there.

Before I turn to Mr. Albas, I want to come back to Ms. Dagg for a minute.

We are getting a lot of complaints from the hotel industry about Airbnb getting into multi-room units or individuals getting into multi-room units. Therefore, the hotel industry and some others feel that Airbnb in those situations is not playing by the same rules.

What's your suggestion to get around that, because that is a problem and something that we have to deal with?

[Alexandra Dagg]

I would suggest that the study they put out has a number of factual errors in it and is based on incorrect data. We're happy to provide some of that analysis to this committee if that's helpful.

The other thing to point out is that when you think about what they describe as more commercial or professional operators on our platform, they fail to recognize that a number of them are actually hotels that are using our platform and paying all the same tax that other hotels do. They're just using our platform because we have a certain global reach. We have hotels on our platform, as well as bed and breakfasts, corporate housing suites, and executive stay companies. They've been around for generations and pay all taxes they're required to. They fail to understand that and report that in their reports.

There's a competitiveness here. They're concerned about a competitive threat, and that's all it is. We will prepare and send some more detailed suggestions as to why they're incorrect.

We're committed to paying taxes where we're obligated to do that, and we're committed to working in collaboration with governments to figure out where we can contribute in tourism, hotel, and lodging occupancy taxes because we are part of the tourism business and we want to contribute.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Albas.

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

Thank you, Mr. Chair.

Thank you, witnesses, for your testimony here today. There's certainly a wide variety of ideas and I appreciate that. I'm going to start with Mr. Goetz.

Mr. Goetz, we had some discussions in Montreal regarding a sugary drink tax that was implemented in Mexico, and I think you're sympathetic, as much as your industry is, because we all have children and we want the next generation to have a better life. We know that there are issues, but in matching the correct vehicle for us to deal with that, in this case, the question is whether it should be taxed as in Mexico.

I raised at the committee, at the time, the numbers from the National Institute of Public Health, Mexico's own institution that advocated this, showing a year-on-year increase in the consumption when factored in for population. I'm certainly sympathetic that we do need to have a full look at this and I appreciate you're suggesting that you're going to send the information so we can verify that, because there were some questions about whose numbers were correct. Again, I want to state for the record that I was quoting the National Institute of Public Health of Mexico's own numbers.

You said there has been a decline overall in Canadian consumption. Obviously there has been your own beverage industry's efforts recently, but I think you said that over the last 10 years it has dropped considerably on its own. I would say that has more to do with customer preferences and education. Is that correct?

[Jim Goetz]

I would say it is a combination of both. Certainly customer tastes are changing, and our member companies, because they're businesses, are rushing to meet those preferences. Last year alone, three of our largest members introduced at least 25 new products that are either low or no calorie, low or no sugar, into the Canadian market. That's a positive thing because there's investment behind each of those products. There's marketing and there's rollout. That's investment in the country.

However, it is true, according to industry data as well as Stats Canada data, that we are in a far different place than Mexico is. You are right that consumption in Mexico has bounced back. There was a slight dip at the very beginning when the tax was introduced. You need only go to the ministry of revenue website in Mexico, because it shows very clearly that the revenue is rising. If the tax is such a smashing success, someone has to square the circle for me on why revenue is going up.

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

In reference to Bill S-228, it actually says the advertisement of “unhealthy foods”. First of all, there's no definition of “unhealthy”. In your market, where you might say, having higher sugar content coupled with nutritious minerals and other nutrients...it's a question of what is healthy. Some people might say cheese is very healthy, but again, it depends on your interpretation of what's healthy and what's unhealthy. Does that create a lot of certainty for your industry?

[Jim Goetz]

The definition of “healthy” and “unhealthy” is pretty difficult. I believe Health Canada is trying to put together a matrix on that, in order to meet exactly what you said. I don't want to speak for the dairy folks because I don't represent them, but with your example of cheese, yes, it is high in fat and will probably fall under unhealthy.

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

I don't want to get the cheese industry cheesed at me, but again, these are the questions we have. I'm sure many people here received those emails saying that in the food guide that's coming out there are different interpretations of what is healthy and what isn't. I certainly appreciate that.

Advertising is the part that gets me. I recently did a course on business law, and it says that even the placement of posters advertising a price could be considered an advertisement. This sounds as if it will hit retailers as well as the manufacturers and not just relate directly to advertisements at a baseball game, etc. This sounds like the whole chain.

Is that your interpretation?

[Jim Goetz]

It is. That's why I mentioned that the economic analysis study that will be issued later in the month, I believe, by the advertisement marketing industry shows an approximate $10 billion hit to the GDP.

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

I am concerned as a parliamentarian, because there's nothing in it.... At one time I was a member of the Standing Joint Committee for the Scrutiny of Regulations. If a fine or a tax or whatnot is not put in by Parliament, I'm a little alarmed that there's no mention of how Health Canada would enforce these rules. Is it a broad ban or would they try to implement a tax or fine without parliamentarians such as ourselves having scrutinized and approved that?

Gail Czukar, thank you again for your presentation today.

I believe there is a lack of resources for mental health; however, when I see provinces such as my own institute regimes saying they're going to allow gambling and funnel the money back to help those who can be taken off their addiction, they're giving money to very good groups. They give a lot of the money to Rotarians and to different clubs to use for local civic or other projects. I think there's a mismatch sometimes between the monies we get from cigarettes, etc., to funding and helping people.

Do you think that the people who need the help the most—the people who are homeless and who have mental health issues—are being reached by government? Are they being funded well enough in this country?

[Gail Czukar]

They're definitely not being funded well enough. You've cited certain sources for funds, which is the case in Ontario as well. We would want to see more of those revenues going toward prevention, education, and treatment.

I want to clarify. Our argument is that a minimum of 9% of the health budget nationally should be going to mental health and addiction.

The other point I would make is that you've highlighted sources that tend to lead to addiction or disorders related to gambling and so on. What's not entirely clear to us is how much of the budgets or the health accord funding is intended to go to addiction. We need to be clear that mental health and addiction often occur together, but they don't always. Addiction tends to be even more stigmatized than mental health and receives less funding.

[The Chair, Liberal, Wayne Easter]

Dan, we're well over and we're at the end of our time.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

My question is for the Canadian Beverage Association.

What do you view as the most important challenge to the industry right now from the federal government?

[Jim Goetz]

I would say it's cross-departmental coordination. For example, in the last budget, the food and beverage industry as a whole was very happy to be identified along with the agrifood chain as a supercluster targeted for growth. We're excited about the opportunities that will happen from field to fork, or from field to bottle in my industry.

At the same time, changes to labelling of food and beverage products at both Health Canada and CFIA are going to cost the industry $2 billion right out of the gate, according to Industry Canada. Even though we've been identified as a cluster for growth, we're being handed a bill for $2 billion. We believe a lack of coordination across the industy is problematic.

Again, we can go back to taxation. A punitive tax of 20% on one industry is being suggested. There's no way anyone in economics can argue that's not going to have a chill on investment in Canada. It's unfortunate, because we already know where the trend is going with beverage consumption, which is completely different from other countries that were cited earlier, like Mexico. You have a good news story here to tell, and we want to keep our investment.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

If our colleague Mr. Grewal was here today—he couldn't attend—he would mention that the facility of one of your members located in Brampton is, obviously, a large employer. I know Raj has mentioned that many times.

With regard to that realm, what could we do to facilitate further development of the industry here in Canada? Consumer tastes are changing. We see a lot more water-based drinks and so forth. What would you say on that realm?

[Jim Goetz]

Shockingly, nothing, other than let us do what we do: innovate, bring new products to market, and market them. Let us adapt to changing tastes, and let our industry continue to grow here in Canada.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

Nathaniel, I have a quick question.

We hear IP, intellectual property, talked about a lot. We hear about it even with regard to this week's announcement between Bombardier and EADS, or Airbus. Here in Canada, how are we doing in terms of IP? I've heard these ideas brought forward before, the innovation box and two other programs that you've announced. It seems that we are very good at doing a lot of good research. I think our supercluster program that we've rolled out is a very big step in the right direction, and I applaud the Minister of Innovation for bringing that forward.

Can you talk about how we're doing, what else we can be doing directly, and how powerful these recommendations are?

[Nathaniel Lipkus]

The good news story is that we're great at research. Another good news story is that we're getting great at entrepreneurship, and the superclusters, you're right, will help. The challenge is that, for whatever reason—historical, cultural—we don't take the step of protecting the things that we're creating. By that I mean inventions that people come up with; something that is new, useful, and inventive in an industry; new designs and copyrighted works. We're not actually taking the step to own those things around the world so that we can export them and so that we can take advantage of them. What happens is when somebody asks, “Do I want to fund this business”, that investor looks around and gets nervous. When a company is doing business with another company, that other company, which may not be Canadian, may feel that it can take advantage. There seems to be a disconnect, and these incentives are intended to bridge it.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there.

I just have one question for you, Mr. Lipkus, as well.

You said that your third recommendation would help spark innovation across Canada through lower taxes. We've heard from close to 200 witnesses across the country, and as with this one—$20 million here, $40 million there, $100 million here—it kind of adds up. Corporate taxes in this country are the lowest. Business taxes have just been lowered, or have been proposed to be lowered, among other things. Do you mean an investment tax credit? Just what do you mean?

[Nathaniel Lipkus]

The idea is the intellectual property portion of a good. It wouldn't be an exemption for a good that is protected by intellectual property, but there would be some portion that is attributable to the intellectual property, as is the case any time there's a good that has intellectual property. Some portion of that, which we say is commercialization in Canada, wouldn't be a credit, but it would be an exemption that goes with those sales. The idea is to provide a boost so that when companies are deciding at the early stages what they're going to do with their new product, they make that decision to get the intellectual property. It's a pull incentive to get them to make that upfront decision. They would get a benefit down the line, but it wouldn't be a benefit for all global sales or an immunization from tax. You would calibrate it.

[The Chair, Liberal, Wayne Easter]

Okay, that does clarify it, at least in my mind.

I want to thank each and every one of you for your presentation and for answering questions.

With that, we will suspend until the next panel at 10:45 a.m.