Finance Committee on April 30th, 2018

[Prof. Kevin Milligan]

The member is talking about the rate at which the benefit is phased out among those who are earning a bit more money. The current working income tax benefit is phased out at about 15%, I think, for both types of families that are considered. The new Canada workers benefit reduces that to about 12%, I believe. That's an improvement of three percentage points. I think that's important, because economists think that does matter a bit for people's decision of how much to work.

However, most of the evidence on this kind of benefit focuses a bit more on whether or not you get a cheque at all versus the small benefit that is clawed back at the margin for those who are in that range where it's clawed back. For me, the idea that we reduce the marginal effective tax rate from 15% to 12% is an advantage. The member is correct that we're now applying that over a bigger range of income, and that's a bit of a trade-off that we have to consider.

[Pierre Poilievre, Conservative, Carleton, ON]

Are there any instances under the model where someone could be both receiving the benefit, and paying income tax? Or does the benefit simply credit one's income tax obligations so that the two cancel each other out?

[Prof. Kevin Milligan]

It does depend a bit on one's personal circumstance, of how many non-refundable tax credits one has. The basic amount these days is in the range of $12,000, so it's quite likely that many people who are in that $20,000 range might be facing income tax on their marginal dollars. For those who are making $15,000 or $16,000, it's much less likely that they're actually paying income tax. When we get into that $20,000 to $30,000 range, that's the place where most people start to pay income tax.

[Pierre Poilievre, Conservative, Carleton, ON]

When they're in that range, where they're making enough to pay income tax but not enough to have graduated off the workers benefit, does the benefit act as an increased personal exemption, or does the government simultaneously write a cheque and take a cheque?

[Prof. Kevin Milligan]

Over that range, you'd be simultaneously paying income tax and your benefit would be shrinking as you earn more dollars. So your basic amount is not phased out, you'd get to keep that. It is the question of you starting to pay income tax at the same time as you are seeing your Canada workers benefit begin to diminish.

[Pierre Poilievre, Conservative, Carleton, ON]

Does that have to be the case? In the United States they have the earned income tax credit. Does it work the same way, or does the earned income tax credit effectively operate as an exemption in the range in which it applies?

This is not a criticism of the current government. I'm sure this would have applied under WITB, as well. It just seems that when someone is receiving a benefit and paying tax, an inefficiency could result.

[Prof. Kevin Milligan]

Yes, there is certainly a possibility of integrating the basic amount—an earned income tax benefit like the WITB, or the Canada workers benefit—with, say, the GST tax credit to make a comprehensive package for lower-income workers that would be clear, would provide incentives to work, and would be easy for everyone to understand. It would potentially make sure we're not stacking these tax rates on top of each other, which is an important consideration in tax policy.

[Pierre Poilievre, Conservative, Carleton, ON]

Could I just close off? I understand I'm out of time.

What concerns me, and one of the reasons I've introduced a bill related to this with respect to disabled people, is that when you start to compound the clawbacks and the taxes, there are these serious penalties for certain people at certain income levels. We should try to find a way to eliminate them.

[Prof. Kevin Milligan]

I think that's right. It is a concern when different taxes and different benefits are stacked on top of each other such that you end up with effective tax rates on marginal income that can get quite high in some circumstances, so we should always pay attention to that. That's one of the reasons I think the move to the Canada workers benefit, which reduces that clawback rate from $15,000 to $12,000, is an advance. I do, however, accept the member's comment that we must always consider these things, and there is room to do more to consider how all of these benefits, both provincial and federal, stack together.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Mr. McLeod, you have a five-minute round.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

My question is for the Business Development Bank of Canada.

Can you explain to me your relationship with the Government of Canada? Could you also tell me if you have an operation or presence in the three northern territories, Yukon, Nunavut, and the Northwest Territories?

[Karen Kastner]

We work closely with the department of ISED, and we report to Parliament through the Minister of ISED. We're a crown corporation. We have our own board of directors, and we report to a board of directors.

[Michael McLeod, Liberal, Northwest Territories, NT]

Okay.

[Karen Kastner]

Does that...?

[Michael McLeod, Liberal, Northwest Territories, NT]

Yes, I was trying to find the link there, because I'm trying to see if the minister's mandate or commitment to indigenous people carries over to your board. The minister has a mandate letter that says he's required to promote economic development and create jobs for indigenous people. Does that flow through to you also?

[Karen Kastner]

Absolutely. That is definitely a segment of entrepreneurs whom we see as having a tremendous amount of untapped opportunity. There are many youth whom we feel are aspiring entrepreneurs, and we want to be able to finance them.

We do have an indigenous banking unit at BDC. I think we're up to about 10 people across the country who are dedicated to serving this community. We now have about 600 self-declared indigenous clients with about a $325 million portfolio, but we are looking to do more. We know that the AFIs, the aboriginal financing institutions, have great links within the community that we don't have. We'd like to do more with them, and we're looking at ways to do more with them so that we can extend our reach to indigenous entrepreneurs.

[Michael McLeod, Liberal, Northwest Territories, NT]

I was involved with a Métis Dene business loan fund in the Northwest Territories, way back when they were just getting off the ground. The money has been oversubscribed, right from day one. It's a good program. It's very popular, but the revolving fund is not big enough to really make a big difference. Is there anything that your organization can do to step in? You mentioned $600 million. Is that a separate fund for aboriginal clients? Is it adequate? Is it big enough?

[Karen Kastner]

We'd love to do more. It's actually not a fund, but represents all of our outstanding loans to individual indigenous entrepreneurs. We'd love to do more in the form of a fund, and we're looking at various options to do that, but we haven't quite landed that yet.

[Michael McLeod, Liberal, Northwest Territories, NT]

I have a question for Paws Fur Thought regarding the medical expense tax credit. The number that you said, $1.35 per day, seems like a small amount to train a dog, to obtain a dog, given all of the costs. Where does that fit in with what you're attempting to do?

[Medric Cousineau]

The actual capital cost of the dog, depending on the organization from which you're acquiring a dog, is somewhere between $15,000 and $30,000. However, to put the ongoing operating and maintenance budget into purely budgetary terms, when you take a $3,000 sum and multiply it by the 15% medical tax credit, you arrive at $450, which, when divided by 365, brings us down to about $1.23 per day.

It doesn't seem like a huge amount of money, but you have to realize that there are significant financial implications for all those people who are dealing with serious mental health issues. With the demographics, the drop in earnings capacity, the increased expense, the lost time from work, there are a lot of implications. I attempted to point out that what may look like a ridiculous number is in fact not that at all. It does matter to a lot of disabled Canadians.

[Michael McLeod, Liberal, Northwest Territories, NT]

You keep referring to mental health issues. Are those related to trauma? Is that what we're talking about?

[Medric Cousineau]

In a lot of cases, the serious mental health issues we're dealing with are trauma-based injuries—traumatic brain injuries, post-traumatic stress injuries, and operational stress injuries. All of those injuries cause significant loss of future earnings capacity. In VAC's defence, they've also realized that, and they are making steps to help ameliorate that with future increases and some other benefit suites.

Based on what was presented in the veterans town halls by the Minister of Veterans Affairs and the deputy minister, the problem is that no clear numbers have been brought to the table. This has created serious angst within the community. It would be somewhat akin to my asking the committee to write a blank cheque and saying, “Trust me.” I don't think we're going to do that.

[The Chair, Liberal, Wayne Easter]

Okay. We'll leave it at that.

We'll split the remaining time between Mr. Albas and Mr. Sorbara.

Mr. Albas.

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

Thank you again, Mr. Chair, and thanks to our witnesses for being here today.

Mr. Cousineau, I'd like to go back to the service dogs. Earlier in your presentation, you talked about the arbitrariness of the decision by Veterans Affairs. In certain other government agencies, they will recognize certain standards or have none at all. It's just a question of whether you have a dog and whether it is used for a medical purpose or therapeutic purpose.

I do know that there is a big issue because I've contacted two different ministers here in Ottawa who have the responsibility for it. Both of them have said that most provinces and territories have completely different standards that do not align. They use different language and whatnot. Is this part of the reason for the complex nature of the problem we face, where no one has a very good definition and so VAC is just being arbitrary? Could you explain a little more for me, please?

[Medric Cousineau]

In reality there is a international standard that is out there and recognized. It's called the Assistance Dogs International standard and it also runs in conjunction with the IGDF standard, that of the International Guide Dog Federation. Probably the most advanced standard on a provincial basis is the one in B.C.

I will give you that, because you guys have a plan, a standard, and it works.

I helped get the service dog legislation passed for the Province of Nova Scotia. The regulations that are going to operate under that legislation will look very similar to what B.C. has done. The problem that we have is that there is no interprovincial reciprocity. By that I mean if you have your B.C. driver's licence, you do not have to show up in Nova Scotia and take a driver's test to be able to drive legally in Nova Scotia. Unfortunately, we have such a convoluted and fractured set of rules that, in effect, if I leave Nova Scotia and go to B.C., to get the legal protections under the law, I have to recertify. Alberta has a different set of rules yet again. The rest of the provinces, save Nova Scotia, are in absolute disarray. So that sort of points to where the battlefield lies.