Finance Committee on Oct. 5th, 2018

[The Chair, Liberal, Wayne Easter]

Thank you very much, Michael.

We'll turn to Indspire with Roberta Jamieson.

Welcome, Roberta.

[Chief Roberta Jamieson, President and Chief Executive Officer, Indspire]

Good morning. She:kon. Boozhoo. I am starting this morning with greetings and an appropriate acknowledgement that we are meeting on the traditional territories of the Ojibway, the Anishinaabe, the Mississaugas of the New Credit, and my own people, the Haudenosaunee.

Greetings to the chair and members of committee, and thank you for the invitation to be with you. You're focused on economic growth and ensuring Canada's competitiveness.

I'm Roberta Jamieson, the CEO of Indspire, which is very proud to be the national indigenous charity focused on advancing the education of first nation, Inuit and Métis students so they can achieve their highest potential. Our challenge is to raise funds from a variety of sources—corporations, foundations, individual Canadians and governments—to support scholarships and bursaries so that indigenous students across Canada can access and succeed in post-secondary education and training.

As the Truth and Reconciliation Commission reminds us, however, our students start with the legacy of the residential school system. We know that fewer than four in 10 first nation students on reserve graduate from high school, compared with 90% of non-indigenous Canadians. Indspire addresses this disparity by working with educators and students to provide them with the tools and supports they need to stay in school and graduate.

Canada's labour force is absolutely a critical contributor to our future competitiveness. Indigenous people are the fastest-growing demographic cohort and are younger than the Canadian average, making our young people a potential key piece of Canada's economic engine. A competitive Canada is one that includes the full, equitable and sustainable participation of indigenous peoples in all aspects of Canada's economy, but as the evidence shows, without much-needed funding support, our young people will not get the education other Canadians take for granted. We will not be prepared for the jobs of the future, and rather than contributing the talent, energy and enterprise of our people to the labour force, which the experts say would be worth $36.4 billion to Canada's economy over the next 15 years, the social and economic exclusion that has for far too long been the experience of our indigenous people will continue.

We can change that. By investing in our youth now, we are able to build the capacity required to accelerate support for first nations—for example, to have control over their own services and affairs, particularly as the nation-to-nation-relationship takes place. Now is the time to invest. I believe we are at an economic crossroads, and this government can make a fundamental difference. Budget 2019 is the opportunity to advance indigenous student outcomes, which in turn will strengthen our economy and competitiveness. Investing in education is an investment in our children and our future prosperity. No matter whether you're talking about resource development, housing changes or environmental issues, it starts with education in our communities.

Since 2004 Indspire has touched the lives of some 84,000 indigenous students through our many initiatives. We have invested nearly $100 million in the post-secondary education of more than 32,000 students, and have exposed many more thousands of indigenous youth to career opportunities and employers through our events. To date, however, what we raise is nowhere near enough to meet the needs of students. We currently meet only 20% of the needs. We can and must do more.

Here is our ask and the rationale. First, we request an investment of $1.5 million over five years to strengthen our capacity for analysis and research of the very rich data we have on indigenous post-secondary students, the only repository of this data in the country. That investment and the research that comes from it will inform policy and decision-making on indigenous post-secondary education and training, and will be invaluable to governments and business and indigenous leaders.

Second, we are requesting an additional $225 million over five years. This will add to our ability, as these funds are specifically for bursaries and scholarships, to support students access to post-secondary education and training. Our students, it should be remembered, have unique challenges that frequently place them in more difficult circumstances than other Canadians. Often marginalized in the first instance, when they attend post-secondary and travel many hundreds of kilometres, they leave their familial community, their language, their food, their traditions, their cultural norms and all supports. Too often they enter a world bereft of the cultural and social capital to which they can associate.

I want to share with you a quote from one of our students, who talks about the difference that the support from Indspire is making in their lives:

I felt unsupported and very alone as I was 1,500 km away from my family. I had applied for this scholarship not thinking that anything would come of it.... I can't begin to convey what a saviour it was, not only did it help relieve financial stress but it gave me some hope... I had been chosen by [lndspire].... At a very challenging time in my life, this award gave me more than dollars in my bank account, it gave me pride in myself.

We hear this all too often.

Budget 2017 committed $25 million over five years to Indspire if we could go out and raise $15 million. That was a very good beginning. Trust me, I am working very hard and meeting the challenge, but far more is required, and it's needed now. For example, last year we helped 649 students in STEM and 452 in business. I could go on. But we have far more to do. The need is now and the need is urgent. We project that more than 130,000 indigenous individuals aged 17 to 51 will be eligible to attend post-secondary education by 2023.

Indspire's delivery model works. Of the students we support, 90% graduate, but we need more gas in the tank. Post-secondary education and training opens a pathway to a brighter future for indigenous students and their communities and improves Canada's long-term competitiveness.

We also, may I say, support the budget 2019 recommendations of indigenous organizations and Universities Canada. We believe that by investing across the system, the government will show leadership and incent other sectors to contribute to improving education outcomes and creating opportunities for indigenous people.

In closing, I'll repeat what we all know. Education opens doors and changes lives, and education is the best means to create a more competitive, productive and prosperous Canada. Moreover, as Senator Murray Sinclair would remind us, it is a key to reconciliation. Indspire stands ready to work hard to support this endeavour. Nia:wen kowa. Thank you for listening to my words this morning.

[The Chair, Liberal, Wayne Easter]

Thank you, Roberta.

With the Portfolio Management Association of Canada, we have Ms. Walmsley and Mr. Heldman.

[Katie Walmsley, President, Portfolio Management Association of Canada]

Thank you, Mr. Chair.

Good morning.

PMAC is very pleased to offer our recommendations today on behalf of our 270 investment firm members, who collectively manage over $1.8 trillion in assets for pension plans, foundations, endowments, and individual and group RRSPs across Canada.

We want to talk to you today about investment pooled funds, why they matter to so many Canadians, and concerns we have with the tax rules that are impacting their competitiveness and eroding retirement savings.

According to a 2017 Strategic Insight report, Canadians have over $65 billion invested in pooled funds. The majority of these are available through employer sponsored defined contribution pension plans. Pooled funds are very similar to mutual funds, but are less known because they are offered via prospectus exemptions under the securities law to advisers and various retirement and other savings vehicles.

Pooled funds offer Canadians access to diverse asset classes on a very cost-effective basis because they can realize economies of scale through pooling investments and sharing costs. Lower costs mean higher investment returns for Canadians.

Our recommendations today will achieve three important objectives. First, they will correct certain tax policy inequities impacting pooled funds relative to the tax treatment of mutual funds and insurance investment products. This will ensure they remain attractive and low-cost for small businesses that offer retirement savings options for their employees, and ultimately will result in less erosion of retirement nest eggs for average Canadians. Second, they will modernize specific tax rules which will allow Canadians and their investment managers to invest their retirement savings in international emerging markets. Third, they will increase the competitiveness of the asset management industry to attract investment capital from international pension plans and investors.

Canadian tax policy is out of line with international tax rules. It's eroding the talent pool in Canada and the investment profits offered in the industry. Changes desperately need to be made to a number of complex, out-of-date tax rules that have not kept pace with their international counterparts nor with the evolution occurring in the funds industry.

Now I'd like to pass it over to Theo Heldman, who chairs our tax committee and is head of tax at Invesco Canada, to discuss the details.

[Theo Heldman, Chair, Tax Committee, Portfolio Management Association of Canada]

Thank you, Katie and good morning.

To have comparable tax efficiency benefits afforded to retail funds, pooled funds need to meet the 150-unitholder test. This test is easier for retail funds to meet because of the distribution channel that's afforded to them. I can walk into any bank, for instance, and buy a retail mutual fund.

Pooled funds, however, are not retail products. They have very different distribution channels and they're challenged to meet the 150-unitholder test. Currently, under the act, these pooled funds or pension investments are treated as a single investor, masking the hundreds and thousands of investors that are in these pension funds and deferred savings plans.

The following are a couple of examples of some of the tax inefficiencies. Unlike retail mutual funds, pooled funds that are registered investments are restricted from investing in numerous international markets. This could result in missing opportunities to invest in markets with higher investment returns; in some cases it also means higher transaction costs.

Should an investment manager of a pooled fund inadvertently purchase a security in an international exchange that's not permitted under the act, the pooled fund and ultimately its underlying investors are subject to significant tax penalties, potentially in the millions of dollars.

Since they haven't achieved mutual fund trust status, pooled fund distributions to foreign investment plans are also subject to higher withholding taxes. Certain pooled funds avoid this consequence by prohibiting non-residents from investing in the fund, but this reduces the competitiveness of Canadian investment funds and their attractiveness to foreign investment plans.

Ultimately, more investors in a pooled fund leads to greater economies of scale, lower costs for investors and ultimately a higher savings return.

Finally, under the act, mutual funds and some insurance investment products can merge on a tax-deferred basis. Investment funds generally merge when they want to increase the economies of scale of smaller funds, for instance, or they want to streamline their product shelf, or perhaps by design when they're dealing with a target date mutual fund that is scheduled to reach the end of its life.

These tax-deferred mergers are not permitted to pooled funds, and thus give rise to tax on savings were a merger to be undertaken.

PMAC's recommendations in this regard are twofold. First, the government should enable a look-through to beneficiaries who have invested in pooled funds via deferred plans and other commercial investment funds in order to count toward satisfying the 150-unitholder test. This would also enable them to be considered as mutual fund trusts, thereby eliminating some of the tax inefficiencies outlined previously.

Second, the act should be modernized by adopting a more principles-based alternative to the designated stock exchange list. Unless the list is eliminated, PMAC proposes that it include countries with which Canada has a tax treaty or a tax information exchange agreement, thereby broadening the range of countries accessible to investment managers from about 30 to over 100. This can lead to better investment returns and lower execution costs, thus benefiting Canadian retirement savings.

[Katie Walmsley]

In summary, we believe that it's in the government's best interest to enact measures that strengthen, not weaken, the competitiveness and fair tax treatment of pooled funds, to ensure the adequacy of Canadians' retirement savings.

Thank you. We look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you both.

We'll now turn to our last witnesses, Ms. Roy and Ms. Sultana from YWCA Canada,

[Maya Roy, Chief Executive Officer, YWCA Canada]

Good morning. Thank you.

My name is Maya Roy. I am the CEO of YWCA Canada. My colleague Anjum Sultana is our manager of policy. We are very pleased to be invited today to speak to this committee.

I had the privilege yesterday of being in Kamloops, B.C., a community that is still struggling with recovering from the impact of the wildfires. At YWCA Canada we have 32 member associations across Canada in nine provinces and two territories, including Kamloops, and we invest $2.1 million a year in 300 neighbourhoods across the country.

Yesterday morning I had the pleasure of speaking with one of our shelter staff, who talked to me about how she works with our women leaving abusive relationships and helps them to do their budgeting. In the midst of the housing affordability crisis in Canada when their benefits are not enough to cover their rent, she speaks to them about how to use money from their food allowance allocated toward baby formula and to put it toward rent. She talks to women about how to cut their cellphone bills, and about how they should go to the food bank first and then plan their groceries around what's in the food bank that particular week.

It really made me wonder about the amount of time and energy my colleagues are spending talking to women who are leaving abusive relationships and having to survive day by day, step by step through grinding poverty. What would it look like if we were able to work with our women to reach their true potential and be able to access the labour market and to live the lives they are meant to be living?

We know, and the evidence is quite clear in the research, that when we invest in gender equity, we also invest in economic growth. There's a very solid study by the McKinsey Global Institute that looks at gender parity in Canada. It points to how increasing labour market access for women could potentially unlock $150 billion in our GDP by 2026. Whereas men have labour market access rates of 91% in Canada, for women those rates are 87%. Imagine what that $150 billion would look like.

In our budget brief we make some recommendations on how we can support women to access the labour market. First of all is child care, child care, child care, and, as my colleague Ms. Friendly said, meeting that 1% of GDP benchmark set by the OECD. Having access to affordable child care is one of the best ways to impact economic growth and to increase labour market access rates for women.

We also know that women face unique challenges to participating in the labour market. With the rise of precarious work and the gig economy we live in today, we know there is overrepresentation of women in non-standard employment, such as contract, seasonal and part-time work. We also know that throughout their life women are more likely to leave the labour market at higher rates because they are being asked to perform unpaid care work such as elder care or child care.

As a result of their varying labour market participation, many women don't meet the current eligibility criteria to benefit from employment insurance. To address these barriers and concerns, we recommend that the Government of Canada implement the recommendations in the report of the Standing Committee on the Status of Women, “Women's economic security: securing the future of Canada's economy”. That's really about lowering the entry requirements to a national standard of 360 hours for a basic EI claim. It's a simple number, but by looking at 360 hours, we would start to increase access for EI and bridge that gap for women to do retraining, to take the time they need if they need to leave an abusive relationship or intimate partner violence, and to re-enter the labour market. We could also look at increasing the rate of EI to 60% of the best 12 weeks, up from the current 55% of insurable earnings.

We also know that reducing the gender wage gap is a very clear way to increase economic productivity. We need pay equity with teeth. Therefore, YWCA Canada urges the government to implement the recommendations of the 2016 report of the Special Committee on Pay Equity. By passing proactive pay equity legislation, followed by financial investments and enforcement in the monitoring of its implementation, we can start to invest in gender equity.

We also know that if women are not safe, if it's not safe for them to go to work, then economic productivity suffers. The 32 local member associations of YWCA Canada ask the Government of Canada to support and provide increased funding of $50 million, as well as grant a two-year extension, to the National Inquiry into Missing and Murdered Indigenous Women. We know with indigenous women, given the legacy of violence and ongoing genocide they're experiencing, that if we do not address the systemic causes of violence impacting our community members and we do not given them an opportunity to be safe in this country, then we're simply not going to get the kinds of economic benefits you're looking for as a committee.

In conclusion, we know that when we invest in gender equity, we're ensuring Canada's competitiveness on the world stage. Not only will it improve equitable outcomes for women and girls of all backgrounds across the country, but it will also position our entire nation for economic and social progress for generations to come.

Thank you very much for this opportunity, and we'd be happy to answer any questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Maya.

We are going to be a little tighter on time this time, so we'll go with seven-minute questions for the first four members, and five-minute questions for the next two.

Seven minutes, Greg.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Chair.

My thanks to all the witnesses who have appeared today. Your presentations were very relevant.

I would like to acknowledge YWCA Canada's fine work and recommendations. Ms. Roy, thank you very much for your presentation, it was very interesting.

I also acknowledge Martha Friendly's long career. I met her in the early 1990s. While I was working with Pierre Pettigrew, we discussed a number of files she was sponsoring at the time.

Ms. Friendly, thank you once again for your important work.

I'll start with you, Mr. Agnew. Two days ago, when we were in Quebec City, the Association pour la recherche au collégial made a presentation and submitted recommendations very similar to yours. However, they did raise an issue that you did not mention in your presentation and I would like to hear what you have to say about that. I'm talking about the indirect costs of college research.

Your sector is faced with a great challenge. It receives grants to do research. I agree that the $40 million would be an excellent contribution. However, given the amounts already allocated to Seneca College, which is a large college, how will you deal with the lack of funding to cover the indirect costs of research?

[David Agnew]

The shape of our recommendations across the board for an increase in research funding has really been directed towards the support costs of research, which is another way of talking about indirect costs.

You were at the groundbreaking for our new centre for innovation, technology and entrepreneurship. It's wonderful to build these beautiful new buildings and put people in them, but then we have to run them, and they are expensive to run. We've had a challenge with the funding councils at the federal level, recognizing that we, too, have indirect costs to support our research.

One of the important things about applied research at the college level is that every one of those projects includes students. In fact, a lot of the time it's actually embedded at the program level, so there are academic outcomes to the applied research projects that we're doing. It really is important. And we employ teachers; we don't employ researchers. It's very important for us to maintain that balance in the faculty, where they're still teaching and are also leading applied research projects with students. Many of them are actually still working in the industries they're teaching for, which is important to do. All of that, of course, requires resources, and those are very limited.

That's partly why. To be honest with you, $40 million is a drop in the bucket when it comes to the federal research spend, but we're also trying to be reasonable in these times of restraint and allocation challenges. There are a lot of great things to support around the table, and it would be a small contribution to offset some of those costs we are eating right now.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I agree. Thank you very much.

Ms. Jamieson, I have a few questions for you. I will begin by congratulating the previous government for investing in Indspire, because I know it is an organization that does a lot for indigenous youth.

I am interested in your request for $45 million a year for five years, or $225 million over five years. I was really touched when you said that education opens doors and changes minds. I fully agree with you. You have already accomplished a lot with the money at your disposal. In particular, you took the government money and doubled it to enable young people to pursue their post-secondary education. In keeping with that, can you tell us what you plan to do with the $45 million a year for indigenous students?

[Chief Roberta Jamieson]

Thank you.

With the $225 million in additional funds that we're requesting over five years, we project that we will be able to support 14,000 students annually. At a 90% graduation rate, depending on what year they're in, the maximum number of graduates would be somewhere around 12,600. This is much needed in communities and it also serves the broader population.

Interestingly enough, we are told by our students that over 50% of the students we're now supporting have continued on to a second degree. That's very encouraging and a very new trend among our students. More than 42% have jobs and 50%-plus tell us they are working in fields that support indigenous people. There is the opportunity to create change in communities, and we all know we need change. It doesn't matter which social indicator you look at in the country, indigenous people are at the bottom. That's why I ask, no matter what we're talking about, should we take on housing, should we improve governance, should we do more development? What should we do? All of those things require capacity. That's why we think education is the best way in.

I have some more numbers for top 10 fields of study we supported last year. I mentioned STEM, where we supported 649 students last year; business, 452; educators, 601; nurses, 391; doctors, 200; law, 191; and I could go on. These are the stories Canadians don't hear about. This is the potential we're growing.

I saw this morning the the number of jobs increased in Canada in September. I'm excited by that. I'm worried, though, that the labour force participation rate of indigenous people is almost 5% below that of non-indigenous people. If you look at the 15-to-24 age group, you see that it's 12.4% lower. We need to change that. If we do close that gap, potentially one-fifth of labour force growth in Canada would be indigenous youth by 2036. That's encouraging and promising, but only if we make an investment now.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Mr. Kelly.

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

Thank you.

Mr. Smith, from your work in mergers and acquisitions in Calgary, it would seem to me that you may really be at ground zero of the capital flight that is taking place in Canada and that has been under way for quite some time. You mentioned Canada as being the best place on earth to live and work. I wholeheartedly agree with that sentiment. The market is telling us that it is perhaps not the best place to invest right now. We're seized with the question of competitiveness. Can you address the issue of Canada's competitiveness and the effect that capital flight from Canada could ultimately have on employment and on a matter very dear to this committee's work, namely government revenues?

[Michael Smith]

In terms of investment, yes, we are seeing people and enterprises reducing the amount of investment they're making in Canada. I can say that I've seen less foreign inbound investment in recent times than I have throughout my entire career.

We also see both enterprises in Canada and multinationals also looking to either curtail investment in Canada or to exit Canada all together.

In part, that relates to tax rates and economics, and in part—at least where I live—that relates to access to market issues.

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

Are you referring to access to market issues for energy products? It's astounding to me that we would seemingly go out of our way to impoverish ourselves as a society by cutting off and preventing the construction of projects.

Can you give us some further insight on how this ultimately affects government revenue and, therefore, the ability to fund all of these worthy asks that are before us today?

[Craig Alexander, Partner and Chief Economist, Financial Advisory, Deloitte Canada]

Let me field that question as an economist.

When we look at the outlook of the Canadian economy, the economy grows because you either have more workers or you use your workers more productively. Productivity, basically, is heavily affected by your capital investment.

When we look at the forecast for the Canadian economy, the trend rate of growth is going to drop from what was 3% in the 1990s down to around 1.5% over the next decade or two. If you think about that, when you add on inflation, that basically means your trend rate of income growth in your economy drops from 5% to 3.5%. That's a 30% drop in your income growth. That's what you tax.

Effectively you're saying the trend that Canada's on—unless we can boost productivity and improve competitiveness—is basically a 30% reduction in the fiscal capacity of governments to meet the priorities they are challenged with balancing.

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

The ability of the government to say yes to the funding requests we have today is entirely tied up in our inability to get energy products to market and our inability to stem the outflow of foreign capital and domestic capital and once again attract investment to Canada.

[Craig Alexander]

The priority is to find ways to improve productivity competitiveness and to increase economic growth so that the income pie gets bigger and it's easier to meet socio-economic priorities. Ultimately, this calls for balance.

I've appeared before this committee many times. I've appeared to make the case for increased investment in early childhood education. I've appeared to talk about the importance of investing in skills training. At the end of the day, if we want to pay for these priorities, we actually need the economy to grow by creating jobs and income so that we can pay for these investments.

[The Chair, Liberal, Wayne Easter]

Could you clarify, Mr. Smith, what you mean by “access to market issues” for the benefit of the committee?

[Michael Smith]

This is getting energy products to markets other than the United States, so getting to deepwater ports. That access to market issue is currently impacting potential investments in Canada.

[The Chair, Liberal, Wayne Easter]

Okay.

We're back to you, Pat.

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

Thank you, Mr. Chair.

I'm going to just switch to Madame Jamieson.

Your presentation spoke of a very positive story, and it was nice to have that information.

When we examine issues around the experience of indigenous Canadians in the workforce and access to economic opportunity, there's a tendency to focus on or think about the experience of indigenous people who live on reserve or in remote communities. If I understand correctly, though, a full majority of indigenous Canadians now live in cities, with a mixture of success in terms of participation in the labour force and access to education.

Can you address barriers, or some of the work your organization does that might be geared to urban indigenous Canadians?

[Chief Roberta Jamieson]

You are right in saying the majority of indigenous—and remember that indigenous includes Métis, first nations and Inuit—now, of course, do not live on reserve. Métis would not live on reserve in any event, nor would Inuit, but the majority of first nations people still reside on reserve. There are different ways that we cut the statistic. It doesn't really matter which statistic you pick up. I think the Auditor General told us that fewer than four out of 10 graduate from high school on reserve. Let's look at off reserve and let's look at indigenous writ large: 87% completed high school or a higher credential whereas 69% indigenous did not. There's still a gap, still a disparity.

You're right that my focus is very much not on emphasizing the gap; it is on closing it. The work we do ranges from youth empowerment conferences for young people.... We are about to have one in Calgary, in fact, in February, for 1,000 indigenous students, to get them to focus on being part of a critical mass that can create a different future for their family and their communities.

We also provide mentorship so that those students who are nearing graduation have a mentor who is working, because our students don't have a network. We don't have Uncle Bob who knows sister Sheila. We don't have those pathways. We've now cascaded the mentorship from a person employed to a new graduate, and now to high school. This is having an impact, because we're connecting the students where they live, in urban, rural or fly-in communities, and getting them to see what is possible to achieve their potential. Mentorship has been a key tool.

The chair will know I could go on about this even longer, but I see him out of the corner of my eye wanting to give other members a chance to ask a question.

Thank you very much.