Finance Committee on April 14th, 2016

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Sorbara.

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

Thank you, Mr. Caron.

We're very confident that the minister will make an appearance before this committee, and we've put forward a motion for her to do so. If that changes at any point, we can insert a date, but for now we are confident that the honourable minister will be appearing before our committee.

[The Chair, Liberal, Wayne Easter]

Could I ask whether that would be before the end of April?

Can anybody answer that?

We have meetings on the 19th already booked, so it would have to be the 21st.

Mr. Champagne.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Mr. Chair, I'd like to clarify something first. The government is making an historic investment of $444 million just to fight tax evasion to ensure that the Canada Revenue Agency has the means, the teams and the technology to investigate and detect and prosecute people engaging in tax evasion.

[The Chair, Liberal, Wayne Easter]

Excuse me, Mr. Champagne, that's not what we're dealing with. What's your point related to the motion?

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

I'm getting there. I'm checking with the minister to give you confirmation. If my colleagues on the other side want to wait a minute, we'll be able to confirm whether the minister can appear on the date indicated. We are checking that as we speak. I will be able to give that information to my colleagues.

The minister wants to come. I am communicating with her to confirm her availability this Thursday. If we continue our discussions, we can confirm this as soon as possible, I hope. We are in communication as we speak.

[The Chair, Liberal, Wayne Easter]

I have Mr. Caron first, and then Mr. McColeman.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That's an answer I'd like to come back to. However, I didn't get an answer to my second question, about the meeting to draft a report on what we'll have heard. It's good to have an appearance, but if we only have a meeting where we hear arguments and we don't come back later to analyze within the committee what we discussed, I think that's a problem. It's a matter that requires a lot more discussion, which is why our initial motion mentioned a subsequent meeting to, and I quote:

... that the committee plan an additional meeting to consider a draft report.

Discussing this within the Standing Committee on Finance is one thing; being able to draft a report to Parliament is another.

[The Chair, Liberal, Wayne Easter]

Mr. McColeman is next, and then Mr. Grewal, and I want to make a point myself after that.

Go ahead, Mr. McColeman.

[Phil McColeman, Conservative, Brantford—Brant, ON]

My comments are in light of the fact that the parliamentary secretary just offered to communicate at this moment with the minister. If Mr. Caron agrees to allowing that to happen, I would like to put forward another motion, which I will do right now just so that the committee is aware of what I would like to put on the table. It relates to the minister directly. I'm thinking that if it could be coordinated, you might have the minister here for both issues.

My motion would be that the committee invite the Honourable Diane Lebouthillier, the Minister of National Revenue, and officials from Canada Revenue Agency to testify about the main estimates 2016-17 on or before May 20, 2016.

Thinking about the value of the minister's time, if she is coming to committee, perhaps she could speak to the main estimates at that time as well, which is traditionally what we invite the minister to do.

I am looking for Mr. Caron's acceptance of this while we have a little bit of time, if the parliamentary secretary is serious about contacting the minister to get a date.

[The Chair, Liberal, Wayne Easter]

Mr. Grewal, you wanted to make a point.

[Raj Grewal, Liberal, Brampton East, ON]

I think that the heart of the issue we're trying to get to on Mr. Sorbara's motion is that a lot of the information and the facts are going to come from the CRA officials, including Ms. Stéphanie Henderson. I think that would give us a good baseline.

My understanding is that the minister and the CRA aren't going to come at the same time and that there will be two separate meetings. Is that correct, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

To be honest, I don't know. It depends on what the committee wants to do. If it's your preference to have the minister, then I have no problem with one hour with the minister and then another hour with CRA officials.

I agree with Mr. Caron's point, and I think we can probably do this as a steering committee. If we're going to hold a hearing, there may be an additional witness or two whom we might want to look at, and we also need time to draft some kind of report.

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

Mr. Chair, we're very confident that the minister will be available before the end of April. I would like to call a vote on this motion and the related amendments.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I have no doubt that the minister will want to appear because she mentioned it yesterday. However, what she said yesterday is that she will appear “eventually”. What does that mean, “eventually”? Does it mean between now and the end of April? Now and the end of May? Between now and when we wrap up our meetings in June? Next fall? We have no idea. “Eventually” can mean many things. We need to act with rigour.

I heard what Mr. Champagne said, that he is currently checking the minister's availability. The question was raised on Tuesday. We've known that the minister is interested in appearing before the committee since Tuesday. We also knew the schedule, which is public. We knew that there is only one slot available between now and the end of April, and that is Thursday, April 21. If we want the minister to appear before the end of April, not only is the 21st the only date, but honestly, there was probably a way to contact the minister in the last 48 hours to confirm that she was available.

[The Chair, Liberal, Wayne Easter]

Mr. Caron, I'm not sure, so the procedural clerk may have to tell me. Could we either table this discussion where it's at or set it aside or whatever, and hear the witnesses until 12:05 or so? By that time, maybe we'll have some information from Mr. Champagne. Are we agreeable to do just...? Do we need a motion?

[Phil McColeman, Conservative, Brantford—Brant, ON]

I can put a motion on the floor to do exactly that. I move that consideration of the motion of Francesco Sorbara be postponed to the end of the first panel of witnesses.

[The Chair, Liberal, Wayne Easter]

The motion is to postpone the discussion until 12:05. Okay.

(Motion agreed to)

Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I just want to be clear. How much time will we have at the end to discuss this?

[The Chair, Liberal, Wayne Easter]

It will be before we start the next witnesses, so we're not going to run into the problem of running out of time. We'll hear from Mr. Macdonald and the first four witnesses on our list. We'll go until 12:10, and then we'll come back to this question. Is that agreeable?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Yes.

[The Chair, Liberal, Wayne Easter]

Okay.

Thank you, witnesses, for being patient, and we will tighten up the time a little. We will have 50 minutes for discussion.

We have Mr. Alexander with us from the C.D. Howe Institute. From the Canadian Centre for Policy Alternatives, we have Mr. Macdonald. By video conference from Toronto, we have Ms. Morris from the Canadian Association of Retired Persons, and also by video conference from Toronto, from the Chartered Professional Accountants of Canada, we have Mr. Ball.

Thank you for appearing, and we are now discussing the related order of reference of Bill C-2, an act to amend the Income Tax Act.

We will start with you, Mr. Alexander. My apologies for the delay.

[Craig Alexander, Vice-President, Economic Analysis, C.D. Howe Institute]

Thank you, Mr. Chair. No apology is required. The business of government precedes the business of witnesses.

Thank you very much for the opportunity to speak to you today about the proposed amendments to the Income Tax Act. I can look at each of the measures in terms of the pros and cons, but I also would like to provide a couple of comments about the efficiency of the items in terms of fostering inclusive economic growth in the years ahead.

I'm really going to focus on three items. The first one is the cut to the middle-income tax bracket, the second one is the introduction of the high-income tax bracket, and the third is the reduction in the contribution limit ceiling for TFSAs.

In terms of the middle-income tax bracket cut, the estimated revenue impact to the federal government is $3.5 billion. That's a tax saving that will go into the hands of households. As an economist and a former forecaster, I have little doubt that the bulk of that tax savings will in fact go into expenditure and will be stimulative to economic growth. To the extent that some of the money is saved, although it won't add to economic growth or real GDP growth, it will come at a time when Canadians are carrying an awful lot of debt. I think, then, that there is a strong economic rationale for providing tax relief to middle-income households.

As for the introduction of the new income tax bracket, there are really two different dimensions that have been discussed or focused on. The first is the revenue capacity of the tax revenues that will be generated by the high-income tax bracket. There was a suggestion that the middle tax bracket cut could be paid for largely by the implementation of a high tax bracket. The Department of Finance's estimate on the revenue generation from the high tax bracket is roughly $2 billion, so there is a revenue shortfall.

However, analysis by the C.D. Howe Institute suggests that there is a downside risk to the amount of revenues that will be generated by the high-income tax bracket. This fundamentally has to do with what you estimate will be the behavioural response of high-income earners who are facing the higher tax rate. There's a sort of economic jargon expression, the “elasticity of taxable income”. You fundamentally have to make an assumption as to what the reaction function is going to look like.

Alexandre Laurin of our institute did work on this. He looked at 11 different studies, some from Canada, some international, and what he found was that the response of high-income earners could be more pronounced than the Department of Finance is currently anticipating. As a consequence, his estimate is that the high-income tax bracket could generate perhaps only $1 billion in new revenues. This is not to suggest that the Department of Finance is wrong; it is really about what assumption you make with respect to the behavioural response. As a consequence, what I want to flag to the committee is a downside risk to the revenues that might be generated.

However, you might argue that the introduction of the high-income tax rate is not just about generating fiscal revenues. You could argue that it is about increasing the progressivity of the tax system. We really should ask questions about whether this will create more inclusive growth and whether it will actually reduce income inequality.

If we think about it from this point of view, one big risk related to the behavioural response is the level the tax rate is going to get to by way of a combined federal–provincial tax rate in various provinces. It will be above 50% of income in a number of jurisdictions. This can lead to distortions, and in fact it could lead some provinces to cut their high-income tax rates. As a consequence, what you have to wonder about is whether this creates an environment in which we end up with a transfer of tax points from the provinces to the federal government, when in actual fact I'd argue that given the fiscal pressures on provinces to deal with education and health care priorities, if anything, we should be seeing a transfer of tax points going in the opposite direction.

Nevertheless, there is no question that when you look at the empirical data, the high end of the income spectrum has seen more income growth over the last decade or longer. This is a reflection of a global trend. It represents a global competition for talent, as a consequence of which labour is now being marketed in the global arena, and this is putting pressure on high-income earnings.

From a financial capacity point of view, one could argue that the high-income tax bracket is reflecting the fact that high-income earners have more capacity to contribute to tax revenues, but there are a few potential unintended consequences I would like to flag to the committee.

The first one is that Canada is in a war for global talent. We are competing to attract and retain talent, and the high-income tax bracket may deter that—

[The Chair, Liberal, Wayne Easter]

Sum up pretty quickly, Mr. Alexander.