Finance Committee on Sept. 20th, 2018

[Paul Taylor]

Thanks very much indeed for the question.

The stress test is currently at a rate of 2% above posted. I'm oversimplifying it, but essentially if a contract is issued today for a five-year term at around a 3.5% rate, people have to qualify at a 5.5% rate. The logic is that you can ensure you can manage the payments if interest rates rise over time in the future.

Interest rates have risen across the last year—there have actually been four increases—so we're about a percentage point higher organically in the market now than we were at the time the stress test was introduced. The longer the stress test stays in place without some adjustment, the more people you're actually pushing out of the marketplace.

First-time buyers—young middle-class Canadians—are already having an incredibly difficult time getting the first foot on that first rung of the ladder. I think it's probably really incumbent upon government to start taking a look seriously at reducing that. The housing market numbers across the last year have been a whole lot slower than even average transaction numbers. We can see that there are a number of first-time buyers and also traditional move-up buyers at the bottom of the ladder who are having a hard time moving forward. Growing families need an extra bedroom, etc. That stress test creates a pretty significant reduction in overall borrowing power, so we really do recommend a reduction of that.

To the other question about moving at renewal time without having to requalify, I think it just makes good sense from a competitive market standpoint. I don't think lenders are incented to offer their most competitive rate at renewal if they understand that there's a hurdle for consumers in their ability to take that loan somewhere else. We see—Mark can probably comment first-hand—that oftentimes it's advantageous to an individual to take that mortgage to a different lender at that five-year point. I think the policy, while well intentioned—to ensure that people didn't get stuck—has actually had the reverse effect and has trapped a few people at a higher interest rate than they otherwise would have had.

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

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Mr. Richards.

[Blake Richards, Banff—Airdrie, CPC]

Thank you.

I appreciate all of you being here. I'll try to get in some questions for at least a few of you.

I'll start with MNP. You have provided us 10 recommendations in a 10-point action plan for competitiveness and stimulating growth. I think that's a very key area for recommendations to be made in. We thank you for that.

What we've heard—or at least what I've heard many times—is that while Canada seems to be going in one direction in terms of moving towards more regulation and more taxation, we're seeing our neighbour and our biggest competitor and ally, the United States, going in the opposite direction. There seems to be less taxation, with less regulation, and therefore, there seems to be a lot of business owners who are looking at moving businesses into the United States, away from Canada, if it's a possibility for them. This takes jobs away from Canada into the United States as well, obviously.

I want to first of all get your comment on that. Do you see that phenomenon occurring? Do you believe that the plan you've put forward here will have some impact on reducing that fleeing from Canada to the United States? Also, will it make us more competitive against the United States?

[Jennifer Kim Drever]

For your first question, whether we see our clients considering moving, and/or moving to the United States, we absolutely do. There is a cumulative effect of a lot of changes over the last five years, let's say, that have made it harder to compete in Canada. Some of those are regulations. Some of those are tax motivated. We have clients right now who are moving manufacturing operations south of the border.

Tax is a concept of two things: a computation of the income, and also the rate. Our computation of income is not competitive and our rate is not competitive. We layer two issues on top of each other, which is making it less profitable to do business in Canada, and less likely we'll be able to compete with our neighbours south of the border.

There is also an issue in the United States right now with the rise in the made-in-America approach. Some of our clients are trying to access the ability to say that they are made in America, versus made in Canada.

But the rate is very significant. We strongly believe that the corporate tax rate should be reduced. It's 27% right now. The Americans are at 21%. We are one of the highest in the OECD. We are higher than the average. Great Britain is below us. France is below us. The United States is below us. We have burdensome red tape, we have high taxes, and in order to improve competitiveness, we have to deal with both of those.

[Blake Richards]

Thank you.

You just mentioned the red tape. That was one of the follow-up questions I had for you. In your point number six, you mention reducing uncertainty, red tape and bureaucracy. That's certainly something I hear quite often, from small business owners in particular. Obviously, the red tape and bureaucracy that is imposed upon businesses has a greater impact on small businesses, because they have less ability to absorb the difficulties that arise from that. Obviously, there are generally fewer employers. It usually ends up being the business owners themselves trying to deal with the red tape, and it takes away from their ability and time to grow their business and serve their customers.

I wonder if you could give us some specific suggestions on things that could be done to reduce uncertainty, red tape and bureaucracy and ideas that you have that would help to do that.

[Jennifer Kim Drever]

Tax should be certain, predictable and fair. We've had a cumulative effect of layering complexity on top of complexity on top of complexity for a number of years. Many small business owners and their advisers are not able to even comprehend what these new tax changes are, let alone comply with them.

In order for a small business to be compliant, they have so much more burden to try to determine what their income is. I wasn't going to go here, but the tax on split income really increases the red tape on private businesses in terms of trying to determine what is reasonable and tracking historical work performed in businesses. We're being asked to have information that was never tracked in the past. We have to go back, historically, and figure out what happened from the start of that business in order to support how we compensate the owners on a go-forward basis.

There is that. There is even the compliance with things like the carbon taxes and the differences in the CPP. There's just more and more things layering on to a business.

[Blake Richards]

I'll move now to Mr. Taylor, from Mortgage Professionals Canada.

There are a couple of things in regard to some of the changes that have been made to the mortgage rules, in particular, the stress test. I've heard some pretty significant estimates in terms of the number of people who are potentially taken out of having the ability of home ownership, and also the effect this has had. You're essentially making policy. This government has been making policy, dealing with two cities in Canada, and it affects the markets in every other part of the country as well. We're seeing softening housing markets and prices going down, and it's becoming very difficult for people.

I think about my province of Alberta where people are struggling right now. Some people are trying to sell a home but they're going to have to sell it at a loss because things have softened up.

I wonder if you could just comment on that impact, and if you have seen that impact as well in terms of the number of people being able to enter the market and if it's having an effect on the prices in places where it obviously wasn't intended to.

[Paul Taylor]

I think that anybody who has been paying attention to real estate transactions will see that there's been a pretty significant fall-off in that since the beginning of the year when the uninsured stress test was introduced. We're quite concerned that it really does disproportionately affect first-time buyers and younger Canadians. From the perspective of the long-term economic health of the country, if we're not enabling folks to start building equity early on, then a decade from now, the average balance sheet of a Canadian is going to be a whole lot worse. That's not really going to be a great news story for us.

It's really incumbent upon the government to take a look at the fact that interest rates have risen as well since the time that this stress test was introduced, which organically will push some people out of the marketplace. We're almost doubling down on the impact of some of these increases. I understand that there is concern about debt-to-income ratios and things, but I think it's also really important to make a clear distinction between debt that's used with an asset to secure it versus things that are not secured and therefore much more discretionary.

There's also no crisis, really. OREA's rates on mortgages were at 23 or 24 basis points. In really clear numbers, 23 or 24 out of 10,000 homeowners were behind on their mortgage payments. I feel like we've put protections in place to make sure that we have a stable financial system, which is, of course, a laudable goal, but we seem to have lost sight of the overall health of the middle-class Canadian who we're trying to support longer term.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Mr. Julian, you have roughly seven minutes.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks, Mr. Chair.

Thanks to all witnesses. You're providing us with important contributions for the pre-budget report.

I want to start with Ms. Biss and Ms. McLachlan. Thank you for your very important presentation.

It's shocking to me that we're looking at 4.8 million Canadians living in poverty. I know in my area in New Westminster—Burnaby, we're seeing an increase in poverty. This is largely linked to an inability to provide housing. Jagmeet Singh, our national leader, and I hosted a round table in Burnaby last Friday with organizations that are trying desperately to keep the roof over the heads of their clients.

We met a number of people who are on the verge of homelessness, including one, Edward. He is a senior citizen who has worked all of his life as a tradesperson. He has a modest pension, and the pension just does not keep up with the cost of housing. He said to me, “Every morning, I go online desperately trying to find an affordable place to live, and I am competing with hundreds of other people who are doing the same thing. If there's something posted online that's over an hour old, I know it's already been taken.” In 11 days now, Edward will be homeless, because, despite the fact that he has been searching for weeks, he's been unable to find affordable housing.

I'd like to ask you what role the housing crisis, the homelessness crisis, that we're facing in this country is playing on the massive number of Canadians who are living in poverty. You specifically talk about an adequate level of investment in budget 2019. I think it would be very helpful to this committee if you gave us figures.

What would be your expectation? We have a crisis in this country. We have to deal with it. We can't wait for years and years. How best would the federal government be showing that it is serious about poverty reduction in budget 2019? What are the amounts? Where are the investments? Where would they need to go?

[Michèle Biss]

The housing crisis is one that's really in mind for many living in poverty in Canada. For the numbers piece, I'll turn it over to Peter—I'll give him a heads-up about that—because we also contributed to the alternative federal budget, and he has some sharp numbers for you.

That being said, one piece that I want to address here is this issue that people who experience homelessness—when they experience it, when we see these violations of their rights, the systemic discrimination—have nowhere to go. We do not thus far have a claiming mechanism in Canada for those who are experiencing homelessness. There's nowhere to go.

However, there is a real opportunity here, and I'll flag this for the committee, within the national housing strategy. Currently legislation is being considered to accompany the national housing strategy. We're hoping to see a system where we can have a federal advocate have power, autonomy, be adequately funded and be independent from the government to be able to investigate big issues of systemic discrimination.

As we see growing financialization of housing across the country, in cities like Vancouver, Toronto and others, and as we see growing numbers of marginalized groups experiencing homelessness and inadequate housing, it's critical that they have someone to speak to when issues of systemic discrimination exist. There is a real opportunity here. There's a lot of talk about human rights within the national housing strategy that we, as an organization, are very excited about. We're hoping that the legislation that will be tabled accompanying the national housing strategy is going to take seriously the role of accountability through the federal housing advocate.

I will pass the numbers issue over to Peter, who is our expert.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

If I may, before we go to Mr. Bleyer, I was also going to ask him a question. I'll let him answer both what you referred him to and also the issue around competitiveness and the Canadian economy.

I ran a social enterprise before I was elected to Parliament. Universal health care provided a benefit of $3,000 per year, per employee. That is a major competitive advantage that is often not mentioned around this table.

Mr. Bleyer, you mentioned issues like single-payer pharmacare, and we've been talking about child care. These are all competitive advantages to Canadian businesses, because it means that their costs, if they're treating their employees effectively, are taken away and provided for as part of a generalized system. That's a major competitive advantage.

Could you speak to that as well, as you mention the figures, in terms of what that would meaningfully mean in an attempt by the federal government to reduce poverty in Canada?

[Peter Bleyer]

I will play my role for the broader collective first, and I will refer you to pages 47 and 48 of the alternative federal budget, published yesterday as well.

Quickly, we have three recommendations that were brought together by the broader civil society folks. First of all, it's to allocate $1.5 billion immediately to the Canada housing benefit to help 250,000 low-income households afford their rent. That is moving forward an expenditure that I think was intended for 2020. Second is to enhance the national housing co-investment fund with an additional billion dollars in grant money for new build. Third is allocating $1 billion annually to build new supportive housing for vulnerable populations. Those are very explicit, clear recommendations for immediate action on housing.

As to the question of competitive advantage, I think this is critical. Any discussion of competitiveness can go down at least two different tracks. There are values and choices involved here, going back to the competitive advantage of medicare and other social programs.

For example, let's look at the automobile industry in this country. Do we believe we would have been able to thrive for decades without the competitive advantage that medicare provided in the context of the development of the Canadian automobile industry? Certainly going forward, we have to remember that lesson and understand that building that kind of social infrastructure is critical to competitive advantage.

There are very different narratives around what competitiveness means. For me, a fundamental question is about values and choices: what you're willing to accept, what you're willing to externalize from that viewpoint. Are you willing to leave poverty, exclusion and inequality, for example, as externalities, and make decisions around tax policy regardless, or do you understand that these are critical values and objectives that we have as a society?

Moreover, there are ways, which, for example, the alternative federal budget explores annually, to come up with a fully costed, reasonable plan that can accept and advance those values, and at the same time maintain and build competitive advantage. It's really a question of values and choices that one has to make, in addition to the very clear competitive advantages that come explicitly from medicare and a future pharmacare program, and many other social programs as well.

[The Chair, Liberal, Wayne Easter]

Thank you. We're well over on all three questioners this time.

I have a quick question on the alternative budget. Can you send a copy of that to the clerk, or do we go to your website?

You state in your brief—and I think you're the third one who said it—that Canada trails at 0.3% funding on child care. Does that include the Canada child benefit or does it not? Does it include the Canada child benefit, which is huge?

[Peter Bleyer]

That's a good question. I don't believe it does, because the Canada child benefit is not a child care expenditure. That's the difference.

[The Chair, Liberal, Wayne Easter]

We will have to figure it out. There are a lot of comparisons.

Ms. Rudd.

[Kim Rudd, Northumberland—Peterborough South, Lib.]

Thank you, Mr. Chair.

Thank you, all, for coming today.

I'd like to start with Mr. Laidler and Mr. McAvity.

I really enjoyed your presentation. In terms of the work your organization is doing around museums, it's something, as a young country, I don't think we've necessarily been laser-focused on for what sounds like a good number of years. I'd like you to expand a bit on your thinking around one of your recommendations, which was around the matching dollars. Could you expand on that, please?

[John McAvity]

I'd be delighted to.

We've made a proposal, for a number of years, that the way to increase the stability of our institutions and to raise private sector support—I mean money or securities, not donations of works of art—would be to provide a matching mechanism. Currently, there is a program quite similar, but museums are excluded from it by the Department of Canadian Heritage. However, that is for matching to go into endowments.

Our preferred route is to have a program that would be an incentive to encourage philanthropy in this country in donations to priority projects that the museum or gallery, itself, could identify. We would very much welcome your support. I know that was a recommendation made last year; however, it was to endowments and it did not make the federal budget.

[Kim Rudd]

I think you gave the number during your presentation, but I missed it. How many people, broadly, across the country, do museums employ? As well, what is the number of volunteers?

[John McAvity]

There are about 36,000 employees in museums, and 115,000 volunteers.

To make another point on your earlier question, donations currently are about 10% at museums. We believe the matching donation can take that up to 20%. In the United States it's closer to 40%, but it is a different tax regime in the United States, as we all recognize.

[Kim Rudd]

Thank you very much.

My next question is for Kim and Amanjit. Thank you for your presentation.

There was a little bit of doom and gloom in the presentation. I'm a small business owner and have been for 30 years. There is a lot of good stuff out there too, so I think we want to make sure that while we recognize there are challenges, we also have to look at what those opportunities are. When you talk about clients looking to leave the country and going to the U.S., or not continuing, I think we have to remember there have been a number of companies coming to Canada—large companies, companies big and small. In my riding Weston Foods just closed two of their plants in the U.S. and they've moved all of their operations to a small community in Ontario in which they're expanding by about 150 jobs.

There's always a balance to those things. I'm sure you have new clients who come to you, who have moved here, looking for advice, and it's a very important role you play in ensuring that they're getting that good advice.

You mentioned a couple of things in your presentation around qualifying capital asset purchases. You used the word “qualifying” in your.... I wonder if you could expand on what you see “qualifying” as meaning. You mentioned the word “efficiency” as well, in terms of capital costs to increase efficiency. Do you have any thoughts around what that would look like, and is there a threshold built into that?

[Jennifer Kim Drever]

We haven't considered whether there was a threshold built into that. As for what would be qualifying, we think that it's any kind of equipment that is, let's say, tangible. It's property that you can see and touch, whether it's for manufacturing, whether it's for farming or whether it's for any other kind of business in Canada, that improves efficiencies. In the oil field sector, it could be new equipment. For trucking, it could be trucking equipment and things that help with the logistics. We don't think that there should be, necessarily, ceilings on it, as long as it improves the efficiency and the competitiveness of the business to compete.

As for what other kinds of equipment is concerned, I don't know if we had anything that we thought should be restricted.

[Kim Rudd]

You just used the word “qualifying” in your presentation so I wondered if you had anything specific around that.

Are you looking at a phase-in of...? I know that you've mentioned the U.S. a number of times in your presentation. Of course we're looking at trade agreements all around the world to expand markets for Canadian companies, which I think is extremely important. I think we have to look at the fact that, globally in that context, yes, the U.S. is certainly our largest trading partner, but that is changing incrementally.

Is there a thought about what that accelerated capital cost should look at because we've heard it from other presentations as well? What is that number? Should it be phased in over a number of years? What is that percentage? Any thoughts on that?

[Jennifer Kim Drever]

I don't think it should be phased in. I think in the budget there should be an announcement that, as of a certain date, equipment purchases from then on would be 100% accelerated CCA for a period of time until we get the economy back on its feet.

The Americans put a timeline on theirs. I don't think we should have an accelerated CCA forever, but it does encourage businesses to invest when there is a better writeoff.