Finance Committee on May 9th, 2018

[The Chair, Liberal, Wayne Easter]

Who wants to start? Canadians for Fair Access?

[Jonathan Zaid]

Sure.

On the first question of prescription versus over-the-counter cannabis, Bill C-45 proposes that the medical cannabis system as it stands today, as described by Cannabis Canada and Hydropothecary, largely continue as is, moving into legalization. This will mean a medical cannabis system distinct from non-medical cannabis. Patients will still have to go to their health care provider. They will still have to go through that assessment to ensure that they are suitable for the use of medical cannabis and that there are no risks in doing so.

Then they will get their products shipped directly to their homes. This is a distinct medical cannabis program that largely operates in a way that I consider to be similar to that of an online pharmacy, where it's still a prescription-like document that's sent and used for medical purposes only. That will be totally distinct. This is what we're saying should be exempt from taxation. When it's used for medical purposes on the basis of a health care provider's authorization, it should be treated like every other medicine that is based on a doctor's authorization, which are all exempt from tax.

On the second question, I believe that you're referencing the CCIC conference. I was a speaker there. I attended this, as well.

CFAMM has been advocating for a distinct medical cannabis system for the reasons we highlighted today. Patients have unique needs. It's irresponsible, I think, to suggest that patients, some of whom have serious medical conditions, like MS and cancer, go and simply self-medicate through a recreational cannabis store. That makes no sense. That's not a safe way for someone to integrate cannabis into their health plan, especially when they have other medications they're using.

I would also note that over 11,000 or 12,000 Canadian physicians have currently authorized cannabis for medical purposes. The number keeps going up. I haven't seen the latest market data, for the past month, but this is a number that's growing month over month significantly.

I hear the CMA's concerns. That said, patients are very clear. The courts have been very clear. And most other associations that represent different health authorities, such as nurses and pharmacists, have recommended a distinct medical cannabis system.

[The Chair, Liberal, Wayne Easter]

Does anybody else have anything they want to add to that?

Michael, you have time for one more question.

[Michael McLeod, Liberal, Northwest Territories, NT]

Mr. Chairman, I support the legalization of marijuana, mainly because I want to see it out of the hands of children. In the north, we are seeing too many children getting their hands on marijuana. It's out of control in some places. Now that I know it will decrease opioid use and alcohol use, I am even more in support.

I want to ask those of you who are focused on cannabis about about Beer Canada's point today that legalization of marijuana will cut the prices by half. I haven't heard that before, and I'm just wondering if that's something—

[Allan Rewak]

As we scale up, that's a very ambitious target. The United States is not an accurate comparator. Our high regulation of production is a little different from the way they do it. We have added costs.

That said, as we scale up, there will be a reduction in price over time. But to be blunt, that won't be absorbed by the end-consumer. In many cases what it will do is to increase tax revenue for our provincial partners as they sell and distribute. There will ultimately be a rationalization of price, as with any new industry. At that point, we can always look at the taxation system in the future to ensure that our government partners always receive fair revenue.

[The Chair, Liberal, Wayne Easter]

With that, unless Beer Canada has anything to add to that discussion, we'll turn to Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Mr. Kingston, you said in your opening statement, if I understood correctly, that in the name of tax competitiveness, or general economic competitiveness, you supported a broad independent review of the tax system. Today we're studying today Bill C-74, which, among other things, will implement certain changes to the taxation of private corporations. You didn't comment much on that in your opening statement. I'm not sure you touched on it at all. Is there anything you'd like to say about that?

[Brian Kingston]

Yes, absolutely. Thank you for the opportunity.

We're happy with the changes made to the original proposal on passive investments, but our view is that what the government was trying to address there stems from the fact that the small business deduction continues to get used. It's a very expensive tax expenditure, and there's not a huge amount of evidence to support continuing that expenditure in this year. Finance estimates it's going to cost the government $5.5 billion in foregone revenue.

Rather than further complicating the tax system with more changes trying to restrict access to that deduction, why don't we take a broad look at the tax system, broaden the base, lower rates, and get rid of inefficient tax expenditures, such as the small business deduction. We think that's a more reasonable approach to this.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

How would you go about establishing this broad-based review? Do you want an independent body to do this?

[Brian Kingston]

Exactly. An independent body composed of people from the private sector and tax experts could get together and look at the tax system in its entirety and provide a report to the government and, hopefully, there would be actions on what that committee recommended. That is the best approach at this point.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

On the federal budget overall, and the continuation of the deficit you touched on, how much would be added to the deficit over the short term coming off what was indeed, to many, a surprisingly positive year and yet one in which we are no closer to a balanced budget? When ought decisions be undertaken to balance a budget if not during times of relative growth of the economy?

[Brian Kingston]

Exactly. We think the government should run a fiscal policy that is essentially counter-cyclical to the economic cycle. In good times you should be posting surpluses and preparing for a potential downturn. Then, when the economy goes into a recession, you have the funds available to support people who end up unemployed, or sectors that are facing challenges, rather than continuing to increase the deficit in a time of prosperity. We don't quite understand the logic behind the latter.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Do you have any specific concerns like the prospect of rising interest rates being above, or even just slightly above, the assumptions the government has made, or corrections in the housing market? Do any of these things concern you about the ability to balance a budget further on?

[Brian Kingston]

Absolutely. One thing we've been watching closely is the fact that the U.S. economy is in a 100-month bull market right now. This is a historically long bull market. Inevitably, a recession will occur. You never know what will trigger it. Perhaps it could be rising interest rates. But the fact is we are a very indebted nation, and so when that's triggered the impact could be significant. Putting your fiscal record on the debt-to-GDP ratio is very dangerous when suddenly GDP falls through the floor. We'd like to see a more concrete fiscal anchor such as a return to balance by a particular date.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Do I have any time at all?

[The Chair, Liberal, Wayne Easter]

You have more time if you want it. We can come back to you again.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I have just a quick question then for Beer Canada on the excise escalator. If I heard you correctly, you're rather down on that. Is there any other comment you'd like to make on that? I understand the arguments made by those who say we're just merely tying it to inflation, but ought not a government be compelled to actually make that case in Parliament and vote on it for the record, rather than our just allowing a tax to increase silently in the background every year? This is especially so when you've seen the types of increases that have already happened in your industry.

[Luke Harford]

Yes, and thank you for the question. I would say that our expectation is, or was, that if the government were going to increase taxes, they would consult with us and look at the balance of the evidence, and see the state of the industry and look at the competitive marketplace in which the industry has to operate, and then decide on the tax rate. They would do that on an annual basis or whenever they need to do it, but they'd set it in motion so that it's automatic and baked into the legislation.

It's very difficult to accommodate the changes that are happening in the marketplace. The tying to inflation does not reflect what's happening in our category, and it certainly doesn't reflect what's happening to our category within each region of the country.

[The Chair, Liberal, Wayne Easter]

Okay, with that we go to Mr. Sorbara.

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

Thank you, Mr. Chair.

Welcome, everyone.

Turning first to the Business Council of Canada, to Brian and John, welcome.

I have trumpeted this in the past couple of weeks. The A.T. Kearney report that came out last week showed Canada as the number two preferred location in the world for foreign direct investment, moving up three spots, only slightly behind the United States of America. I think this is a pretty good ranking and indicative of a number of measures we have taken. These include the formation of Invest in Canada; the signing and completion of the CETA trade deal; the CPTPP; our entering into negotiations with Mercosur; and obviously the ongoing NAFTA negotiations, which we well know about; and also the number of other measures we've taken, such as the supercluster agenda, or supergrappes, as they say in French.

There are a lot of good things happening. Our debt-to-GDP ratio is also declining, which, according to some economists, is another fiscal anchor that we can look at. We have created 600,000 new jobs and our unemployment rate is at a 40-year low.

Wouldn't you say those are pretty good things?

[Brian Kingston]

I'm quite happy you raised the A.T. Kearney report. We've looked into that. We were surprised by the findings, frankly, given what we hear from the members of our association, and there are a couple of serious flaws in that report.

First of all, it was a survey of executives in January 2018, which was before U.S. tax reform was fully understood. We're still trying to wrap our heads around the complexity of U.S. reform. I don't think the report accurately reflected the implications of U.S. reform.

Secondly, it mentioned a few initiatives that the government has announced that aren't actually operational yet. For example, in the report it mentioned that the Invest in Canada hub is attracting investment in 2018. That's not an operational entity, and we don't expect it to be operational until 2019 at best.

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

I'm going to stop you there, because I need to point out two things. I don't think I would criticize A.T. Kearney's report from January to now. Four months have gone by. The fiscal situation in the United States has actually worsened in terms of their balance-of-payments issues. I think our deficit-to-GDP ratio is at 0.4% and theirs is at 5%, if I'm accurate.

[Brian Kingston]

They are definitely in a worse fiscal position, but the U.S. also has the global reserve currency, which gives them more—

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

I'm not talking about currencies, remember?

[Brian Kingston]

—ability than we do, to point it out.