Finance Committee on Sept. 18th, 2018

[The Chair, Liberal, Wayne Easter]

Thank you all.

We'll turn to Mr. McCauley.

[Kelly McCauley, Conservative, Edmonton West, AB]

I want to continue with that line of questioning, Mr. Kelly, because it was one of my questions.

Does CFIB have in writing what the recommendation is for a tiered implementation for SMEs?

[Daniel Kelly]

We have not set out a specific plan. We did ask our members, and we gave them the example of starting at $100,000. There was broad-based support.

Slide 5 of our deck shows that 82% of our members supported the idea of a full year deductibility with the example of $100,000. There were only 11% opposed. That would be a starting point. You might consider that if the Obama administration was able to do it with half a million dollars U.S., you might look at a two-year or three-year plan to get there, starting at a reasonable level.

For our members, what has been more important about government policies when it comes to deficit reduction and all sorts of tax measures is not that we get there in one year—although there is some urgency to it—but that governments lay out a plan to get there. I think if there were a meaningful start to it in 2019 and a plan to get, over multiple years, towards the U.S. levels, I think that would address, at least for small and medium-sized firms, a lot of the competitive questions they have.

I certainly agree with you, Mr. Sorbara, that there are some warts in the U.S. system, absolutely, but small business optimism in the U.S. is at an all-time high. That is not the case in Canada.

[Kelly McCauley, Conservative, Edmonton West, AB]

What are we at?

[Daniel Kelly]

We in fact are kind of middling. Some months it's not bad and other months it's pretty terrible. We've seen this bouncing up and down.

[Kelly McCauley, Conservative, Edmonton West, AB]

That leads to my next question.

You touched upon the CPP tax hikes. They are the cost of business. I saw an earlier survey that you did of your members. I think they were saying that because of this hike, they're going to have to cancel wage increases and put off hiring. Has that sentiment changed at all, or is that still—?

[Daniel Kelly]

It hasn't.

[Kelly McCauley, Conservative, Edmonton West, AB]

Especially when you add in the minimum wage hikes that we see in B.C., Alberta, Ontario....

[Daniel Kelly]

You're absolutely right. The cost pressures on small and medium-sized firms are going through the roof right now. Some of them are natural, in that they're competing for labour and having to raise wages for that reason; others are government-imposed.

I don't think right now that anyone fully appreciates how significant the CPP impact is going to be on small and medium-sized firms. The government estimates of the job losses—and there are estimates that there will be job losses as a result of CPP expansion—we believe are vastly underestimated.

We worked with the University of Toronto on an estimate, and it was several times higher than the government's estimates. I think there are going to be a lot of businesses that over the next few years are going to be doing a lot of cost-trimming, and that's going to be felt by workers in the months and years ahead.

[Kelly McCauley, Conservative, Edmonton West, AB]

It's almost being pushed as a free lunch coming down the road for a retiree, but there is no such thing as a free lunch, and it's costing businesses thousands of jobs.

[Daniel Kelly]

The benefit increases get phased in over 40 years and the premium increases get phased in over five to seven years. That is going to take its toll on the Canadian economy. Again, EI will insulate a little of that in 2019; about a third of the cost increase will be covered by the EI reduction. We're pleased with the EI reduction that has been announced, but an awful lot more needs to happen if we're going to insulate small and medium-sized firms from the effect.

[Kelly McCauley, Conservative, Edmonton West, AB]

Mr. Kelly, I have about a minute and a half. You touched upon your article in the National Post today. I'd like you to expand a bit upon it. I know the Prime Minister has commented that people who have private corporations are just tax dodgers. There is a lot of that feeling being pushed out—that people who have income splitting or sprinkling are solely wealthy people giving money to country club wives. That's not the truth. I'd like to hear a bit from your article about it.

[Daniel Kelly]

Our concern—and this is noted in my National Post piece today—is really on the practicalities of the new rules that have been put in place. We do not deny for a second that some small businesses were taking liberties with the tax system and doing everything they could to avoid tax, in some cases inappropriately so. We didn't oppose at its core the idea of tightening up some of the rules, but what has happened instead is that the CRA has an absolute challenge in trying to implement these new rules that have been imposed. There are broad sectors of the economy, such as the service sector, that are not going to be insulated from some of the clarifications the government has put in place and the impact on small firms is probably not going be to felt in 2018, but it absolutely will start in 2019 when the audits begin.

[Kelly McCauley, Conservative, Edmonton West, AB]

Have you looked at the added costs to these small firms for accounting and auditing?

[Daniel Kelly]

We haven't done any aggregation of the overall costs to the economy, but we believe the audit season will start to parse some of that out, and that's not too far away. There will be another round of anger and heat at government as a result of these changes when a lot of small businesses are found offside.

[Kelly McCauley, Conservative, Edmonton West, AB]

Great. Thank you.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

I'll call on Ms. Rudd for five minutes.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you, Mr. Chair, and thank you all for coming this morning.

First of all, I just want to say that as a former president of a chamber of commerce and a former CFIB member, I'm quite familiar with your organizations and a lot of the work you do. In my previous role, Kevin, I know we talked a lot about energy efficiency. Those are a couple of the things I'd like to talk about.

I'd like to follow up where Mr. McCauley left off on the Canada Pension Plan contributions.

As someone who is technically a senior and someone who lives in a riding that has a good number of seniors—and the housing issue comes up in terms of affordable housing with seniors as well—I take some exception to the increases being called a tax. I see them as an investment. As we see defined contribution plans fall and defined benefit plans fall, we see seniors coming into a time when they're not able to make ends meet. Yes, it is a short time frame in terms of ramping up, but the reality is that we have to do something.

For those of us on the ground in our communities, we see the results of seniors not being able to afford to stay in their own homes. One of the things we're very excited about—and I know my colleague here, the parliamentary secretary, worked very hard on this—is that we now have a Minister of Seniors, and that minister will take into account a number of these things, the Canada Pension Plan being one.

In exchange for those higher premiums are higher benefits, and the numbers are significant. I think we have to remember what the goal is. It's not a tax; I see it as an investment.

I think the other thing we need to remember is that these increases will also come into effect to support survivors; the survivor's benefit will be increased, as will the disability benefit. As an entrepreneur, as a small business owner myself, I know we all struggle from time to time—there's absolutely no question—but I guess we all have to make decisions about what's important. I would like to get some help as we go through this process in changing some of the language around what it is we're talking about.

[Daniel Kelly]

Sure, let me talk on that front.

I can understand from an employee perspective why one might suggest that it's not a tax but in fact the deferring of your income for your benefit later. From a business perspective, however, it is a tax. It is a hit to the payroll budget of the firm that the business itself does not derive any benefit from. It is putting its money aside for its employees, but it is not driving any direct business benefit.

You could argue that a private pension plan or a matched RSP is essentially an employee benefit. The employer may be able to attract workers by offering these benefits, as Mr. Stratton talked about with respect to pharmacare. When it's government-mandated and imposed across the board, it ceases to become any kind of a tool that one could use to attract workers. That's why we use the words “payroll tax” for Canada Pension Plan premiums, workers' compensation premiums, and employment insurance premiums.

One thing I also want to note, though, unfortunately, is that when we did some public opinion polling, we found that 25% of Canadian seniors right now believe their CPP benefits are going to go up. Of course, as we all know, that's not true. In fact, the benefit increases will help seniors over the next 40 years, when the completion plan is started, so somebody my son's age, age 10, will get the additional benefits, but anybody who is retired now or will be retiring in the next 10 years will see no benefit at all.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Actually, that's not correct. The benefits go up in 2019 by $20, so they are starting to go up. We can have a debate about this, and we could probably go on a long time.

One of the things I wanted to talk about is energy efficiency. You talked about the efficiency in new builds, which we know is there, but as we look at the stock of housing, Mr. Morrison, particularly in rural communities and some of the older urban buildings, the efficiency is a challenge. We know that we can get to 50% of our Paris commitment just with energy efficiency. It's a very important aspect of what we need to do.

Could you comment about that importance of energy efficiency, not just in terms of the work we need to do for good housing stock, but also in terms of energy efficiency as it relates to our environment?

[Jeff Morrison]

As I mentioned, the most significant program in the national housing strategy is the $16-billion co-investment fund, which essentially will fund payment for repairs and renewal of the existing housing stock. One of the requirements for housing providers to receive funding under the co-investment fund is that they have to demonstrate that the project or the new build they're proposing meets certain energy efficiency requirements.

I want to be very careful here, because of course we fully support the greening of the existing housing stock and of new construction. However, I will say that this requirement has proven to be a challenge for some projects, particularly for repair and renewal types of projects for which an energy efficiency component is simply not there. For example, if you're installing a new elevator in an old building, there may not really be an energy efficiency gain to be had. That's serving as a bit of a disincentive for several housing providers to apply through that fund, which is defeating its purpose. We've asked CMHC to build in a little flexibility in that requirement.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thanks to all of you.

Five minutes go by so fast when you're having fun, Kim.

Mr. Poilievre is next.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Kelly, your members have suffered a real drubbing over the last three years. They've been hit by heavy new regulations at a provincial level and they're imminently facing new federal carbon taxes with no prospect of any offsetting reductions.

They came under attack with the tax increases of July 18, 2017, which were an existential threat to many businesses. Also, any so-called gains that had been made were already there, of course. The reduction of the small business rate to 9% was already legislated back in the 2015 budget. The current government took it away and then brought it back, under some pressure, so that's not a gain; it's just a reclamation of something that small businesses already had. The only reason the government backed off in the attack on small businesses that it initiated last summer was that there was a spontaneous grassroots uprising across the country of individual entrepreneurs who are otherwise apolitical but who realized that their very businesses were under threat.

My concern is that as long as the political dynamic doesn't change, that won't change. None of what I just described will change either. The trajectory is set and it will continue.

A moment ago, you said that 25% of seniors think their CPP will rise, when in fact we all know that's not true. If we're lucky, somewhere down the road, 10 to 15 years from now, it will be middle-aged people who will then be retired who will get some break. When you stated that fact, you actually encouraged the government to go ahead with its existing plan, because you pointed to a public relations advantage to them in doing so, even though the public policy advantage is not a real one.

I guess my question relates to whether or not the method of just sending politicians briefing notes and making testimony and writing op-eds in newspapers that politicians read is enough, or if it's time to work on changing public opinion.

I can tell you that politicians go out and door-knock, and if they hear something at 10 or 15 doors in an evening, they act on it, whereas if they get a briefing note from an Ottawa lobbyist....

What's the strategy to invest in changing public opinion instead of just lobbying politicians?

[Daniel Kelly]

Thank you very much for your question, Mr. Poilievre. We've certainly had this kind of conversation by trading emails back and forth a few times.

CFIB has always been and will always remain a non-partisan organization working with all political parties. Our spirit of criticizing bad government policy and complimenting good public policy will remain. We sent out a news release complimenting the government when it reduced employment insurance rates, shortly followed by a reminder that CPP increases are going to go up.

I take your point very seriously, though, about the fact that many of these issues that are incredibly complicated need to be shared with the Canadian public. That's why CFIB helped lead a coalition, together with the Canadian Chamber of Commerce and 80 business associations, to try to share with the public the impact of the small business tax changes on the business community.

We did the same with the Canada Pension Plan issue. For two straight years we fought that issue, did public opinion polling, sent out news releases, and tried to ensure that we had Canadians behind us on that front. A decision was reached by government. We are still actively trying to undo the decision. For the record, we are lobbying the Ford government to pull out of the agreement for Canada Pension Plan premium enhancements. We only have a few short weeks to do that, but our plans remain the same.

I take what you're saying. There are serious concerns. We're going to call them as we see them on an ongoing basis, complimenting good policy, as there has been some, and criticizing bad.