Finance Committee on May 1st, 2018

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

They'll just leave it.

[Jennifer Kim Drever]

Yes.

[The Chair, Liberal, Wayne Easter]

Ms. O'Connell, and then Mr. Dusseault.

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

Thank you, Mr. Chair.

Thank you all for being here.

Mr. Macdonald, you started off talking about the budget and the GBA+ analysis that was done for the first time, and I know you spoke to other things. It's been suggested, even by, for example, the Conservative critic for innovation, science and economic development, that this is really just pandering to gender and intersectionality.

Can you elaborate on why it's so important from an economic—not just moral—standpoint to do this type of analysis in budgeting?

[David Macdonald]

Given that it affects half the population, as you know, this is an important part of what governments do, and it's certainly not anything new that the federal government does gender analysis. I think what's new is that it has moved from the departmental level up into the public budget documents, which I think is a positive analysis, and it can highlight for us important ways that we can increase economic growth, potentially at relatively low cost.

As we were saying to an earlier question, the corollary to reduced child care fees, which is increased labour force participation, was one of the original reasons that Quebec reduced fees in that province. It began that process in the 1990s, and went from having one of the lowest female labour force participation rates to having one of the highest, above the Canadian average, In large part that's due to the fact that there are more spaces and those spaces are more affordable, and that allows women to work.

If that same approach were taken across the country, and not just in Quebec, Prince Edward Island, and Manitoba, where fees are set, there would be potentially substantial economic gains by helping families, and in particular, giving women who want to work the means to work, to raise their family incomes and spend that money back into the economy.

That's one example, but there are various other examples. EI is a good one, with the normalization of paternity leave. Through the “use it or lose it” paternal component, I think it will in the long run likely reduce the disparity between women and men who take time off for children—hopefully. It's a limited circumstance at this point, but I think it's an important step forward.

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

Thank you.

In regard to your comments on the Canada workers benefit—and I appreciate that you acknowledged the changes and the impacts—you had some suggestions in terms of a way to potentially, especially in the future, make this program better. You mentioned that there was a gap for individuals between 50 to 65 years of age.

Do you have any ideas in terms of how to address this? Is it simply just opening it up to that age group, or do you think there needs to be something more targeted for this age range? You mentioned a variety of issues in terms of kids leaving, retirement, disability, and not quite kicking into CPP at that point.

[David Macdonald]

It's an interesting age group in the sense that federal and provincial supports are relatively strong for seniors, in particular. We have established basic incomes across the country of over $16,000 to $19,000, depending on the province, which is relatively high. The same is somewhat true for families with children, using the Canada child benefit as well as provincial top-ups.

But there exists one group of people—those who don't have children, who are not seniors, and who are not working and therefore cannot access the Canada workers benefit. Again, if you've worked hard all of your life and you've become injured, or your spouse has become injured and you can't work because you're caring for them, or you just can't work, there are essentially no supports, outside of social assistance.

There are a couple of approaches that we could take to try to better create transfers for that group. One is some sort of more universal top-up, which is something we've examined in our alternative budget, that would sit on top of the GST and be worth about $1,800, which would decrease fairly rapidly with income.

Another approach would be to decrease the age of eligibility for important programs such as the guaranteed income supplement and old age security, which currently start at age 65. For the bottom 20% of the population, they actually see their incomes rise substantially as they reach the age of 65, because they can access those programs. If those programs were available earlier, we would lower poverty rates, particularly for folks who can't work and have no other means of support outside of social assistance.

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

Thank you. I appreciate that clarification.

Mr. Cunningham, we've heard before at this committee that dealing with contraband tobacco is certainly an issue, but there is sometimes a suggestion that this is what the government should really focus on and that plain packaging is not really necessary and won't have the desired impact of continuing to reduce smoking rates. We often have that debate, in terms of other jurisdictions that did plain packaging and whether or not it was successful.

I personally think that this is the right approach and the way we should be going, but can you elaborate on the point of why it's not one or the other, but plain packaging is the next step we need to move forward on?

[Rob Cunningham]

We need a comprehensive strategy that includes taxation, legislation, cessation programs, education, and contraband prevention. There is more that the Ontario, Quebec, and federal governments can do to reduce contraband. We support those measures in parallel. The convenience store associations that make this...they're funded by the tobacco industry. They have tobacco companies as members. They don't often volunteer that relationship.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I would like to dig a little deeper into the issue of passive income and try to get a figure that would show the importance of the small business deduction that would be lost by a $150,000 passive investment income.

Is there anyone, for example Ms. Drever, or others, who have done the math to determine the real monetary impact of this change? Do any of you have a typical example to tell us what the impact is? As a parliamentarian, I think it would be interesting to be able to put a number on it.

[Jennifer Kim Drever]

That will depend on the province that each business is in, but they start to lose the small business deduction at $50,000 of passive income. It's lost completely by the time they get to $150,000. They are losing it on a $5 for every $1 of passive income ratio.

The difference from a federal perspective is that we're talking about 6%, which is the loss of the small business deduction. That is what it's worth for small and medium-sized enterprises. Add on to that the provincial taxes and it might be about 16% for each dollar of income. If it's $5 of income that's being lost, we're looking at something like $60,000, potentially. That would be the value of the small business deduction that could be lost for these businesses.

Bear in mind that the small business deduction is a deferral, and when we have a small business deduction, the ultimate dividends come out as ineligible dividends and are taxed at a higher rate. If we pay a higher corporate tax rate and we don't have a small business deduction, the dividends come out as eligible dividends, and they're at a much lower rate. On a year-over-year, they end up being very similar. Effectively, if you were to withdraw all the money in the same year, it would end up being at very similar tax rates.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you for that clarification.

My other question has to do with the reference to January 1, 2018. The bill proposes retroactively implementing measures related to the distribution of income. The average company concerned should be aware that, as of today, it is expected to have already begun to change the way it operates in order to comply with what is likely to be passed by Parliament by June and will therefore have a retroactive effect.

Does this worry you? Do you see this as a problem? Are you suggesting changing that date in the bill?

[Jennifer Kim Drever]

It would be a concern for many of the businesses, because they probably are not aware of how this will impact them. I would agree with that. There are a lot of small and medium-sized enterprises that do not know how these TOSI rules will apply to them and whether or not they are going to be subjected to them.

The revised legislation was released on December 13, and it was to be effective on January 1. That was very little time for most businesses to get ready for it. Should it be deferred? That would be a great idea. I don't know if that's an option.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Does anybody else have other questions?

Do any of the witnesses have anything they want to add in conclusion? Just raise your hand and I'll catch you. Are we all done, all in? Okay.

Thank you very much for your testimony and for directly answering our questions.

The meeting is adjourned.