Evidence of meeting #174 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was students.
A recording is available from Parliament.
Aurora—Oak Ridges—Richmond Hill, CPC
Further to that, would you say that affects productivity, and where does balancing the budget sit in that conversation?
Partner and Chief Economist, Financial Advisory, Deloitte Canada
The tax rate on capital has an impact on investment. Investment helps drive economic growth. Economic growth creates jobs and it also creates income, which then creates fiscal capacity for governments. It's a holistic circle. At the same time, there has been criticism in the past that reductions in the corporate tax rate have not had the desired impact on investment, but the thing you need to consider when you think about that experience is the economic environment that was unfolding at the time. In point of fact, the question you need to ask is, how much weaker would investment have been if the corporate tax rates had actually not come down?
In point of fact, I do believe that reductions in corporate tax rates in the past have indeed had a positive impact on investment and growth. I've had an opportunity in my former role at the TD Bank to go from coast to coast talking to businesses. At Deloitte I now have the same sort of opportunity. I can tell you that past reductions in corporate and business tax rates have in fact ultimately led to higher investments in the economy.
Aurora—Oak Ridges—Richmond Hill, CPC
The next piece you mentioned is workforce. I wonder if you could expand a little on the recommendation that you have in here about how that investment or support from the government, in terms of a budget, should be rolled out. Should it be directly to individuals, or as you suggest, through businesses, and why?
October 5th, 2018 / 12:10 p.m.
Partner and Chief Economist, Financial Advisory, Deloitte Canada
I think that, ultimately, when it comes to skills development and building the workforce of the future, you need to take a balanced approach. In the past I've actually been a strong advocate for early childhood education because it's building the workforce of the future. But like most businesses, you also have to pay attention to the needs at the moment. If you just focus on the long term, your quarterly performance is going to deteriorate badly. You need a workforce today, so we actually need to focus equally on adult skills.
In terms of the transformation in the economy and the impact that technology is having, I'm deeply concerned that a lot of middle-skilled jobs are getting displaced. What we can see is 40% of businesses can't find the workers with the skills they need. We really do need to upskill the workforce.
One of the interesting things about working at Deloitte is that there's a group called Omnia that does AI and machine learning-related research. I'm not convinced it's going to replace jobs; it's actually going to replace tasks. What that ultimately means is that we need to change the skills the workforce has to meet the needs of business, so in our submission we were talking about how you complement the education system in terms of creating incentives to increase training and improve the skills outcomes that workers have.
Aurora—Oak Ridges—Richmond Hill, CPC
Then the last point I wanted to get to was that you mentioned we're not reaching commercialization. Can you give us an idea of why not, what we need to do to be able to do that, and why it matters?
Partner and Chief Economist, Financial Advisory, Deloitte Canada
It's a big conundrum. When you think about Canada's R and D, we've actually had very generous tax credits for a very long period of time. It's a question of why it isn't translating. One of the things we have observed is that in Canada, relative to other countries, we do more of the R and D work through academic institutions. As a consequence, it may slow down commercialization. One of the things that can help accelerate things is stronger partnerships between academic institutions doing R and D work and businesses. There's a role for the government to play also as a facilitator in helping to catalyze the opportunities that are possible from a commercialization point of view.
Aurora—Oak Ridges—Richmond Hill, CPC
Thank you very much.
Lastly, for Ms. Walmsley, that was a fantastic presentation. I don't believe you made a submission. It's definitely an area of interest.
What I wondered, which we don't probably have time for right now, is if you could give us some comparative examples of where the portfolio-managed situation is disadvantaged relative to the other option and why, therefore, the suggestions or recommendations that you're making would make that significant difference and benefit that group.
Could we just have some of those comparative examples and perhaps a submission of the things that you so eloquently provided to us today.
President, Portfolio Management Association of Canada
Sure. Thank you very much.
I'll start with a few comments, and maybe Mr. Heldman will join in.
The disadvantaging basically comes from the fact that pooled funds, as we mentioned, are lesser known. People know about mutual funds. They know about defined benefit pension plans. Pooled funds are sort of behind the scenes in employer-sponsored defined contribution plans.
Some of the tax issues involved with those are complex and little known to the people, the individuals in them. For the international investors, in their pension plans that it could be in, it may not be as visible. What is visible is the fact that the returns are less. The returns may be less because they may have dropped below this 150 arbitrary rule that results in some tax penalties.
We're asking for the playing field to be level with other insurance products and with mutual fund products, particularly because of the small business impact. If small businesses can't afford to provide a defined benefit pension plan, they provide group RRSPs and defined contribution plans. Those are through pooled vehicles. We're just wanting to level the playing field, encourage investments in those pooled vehicles, and eliminate the chances of those pooled vehicles that have retirement savings in them that shouldn't be paying tax.... They sometimes inadvertently are unbeknownst to the individuals in the pensions plans in those.
Mr. Heldman, I don't know if you want to add anything?
Chair, Tax Committee, Portfolio Management Association of Canada
Yes, I can provide a brief example.
For instance, if I'm an employer and I want to set up some sort of a deferred plan, I could ask my employees to invest in a retail fund and put their savings in that. Let's say I negotiate an institutional agreement with an investment manager to create a pooled fund and invest through that mechanism. It's essentially the same thing. It's just the channel in which I'm investing is going to be different.
But if I'm a pooled fund and I'm a registered investment, I'm restricted from investing in certain markets. I can only invest in those where securities are listed on a designated stock exchange. Currently that list excludes India and China, for instance. These are two rather large emerging markets, which are ultimately slowing down in today's economy but are potentially large savings vehicles for investors. That would be excluded from my portfolio management space because it's not on a designated stock exchange list.
We're advocating modernizing some of the rules to look through to the ultimate pension investors in those pooled funds, because they are widely held. They just happen to be held through a particular channel in this case as opposed to the retail mechanism.
Expanding that list to include those markets that we think are quite fairly included under a double taxation treaty or a tax information sharing agreement with those countries, I think that affords the policy position of Finance and allows a better result for the investor itself.
Liberal
The Chair Liberal Wayne Easter
We're substantially over time.
I'm going to come over to Peter.
Just on this point on pooled funds, Leona, the paper presented today once it's translated will be given to all members.
I wonder if there is a way either Katie or your organization.... On this point, there's no way big tax changes are going to come very quickly. On the pooled funds problem, when you go back and think about it, can you give us the road map to how to do this reasonably quickly? Then we can have Finance officials or whoever look at it. There is an inequity there. I've met with this before. I think others have as well. There is an inequity there that could have a fairly substantial impact on retirement savings, etc. If there's a way it can be done without getting into comprehensive tax reform at this point in time—I think it has to be done over the longer term—then it may be possible to do that.
Could you think about that and drop me or the clerk a letter?
Mr. Fragiskatos.
London North Centre, Lib.
Thank you, Mr. Chair.
Thank you to all of you.
My community of London, Ontario, has for some time been in the process of transitioning away from a manufacturing-based economy towards something quite different, embracing innovation, embracing firms that are pursuing R and D, and so on.
For that reason, Mr. Smith and Mr. Alexander, I was very interested in your comments today on what Canada can do from a competitiveness perspective to attract firms that do just that—firms that are high-tech, innovative and focused on R and D.
You highlight that taxation levels and taxation incentives matter a great deal, and I agree with you, but surely other factors matter as well. I'm not saying you are dismissive of other factors, but it's important to put on the record that much has been said on this subject. For example, there is a landmark 2016 study by the OECD that is highly relevant to this specific issue, called “Where to Locate Innovative Activities in Global Value Chains”.
In addition to taxation levels and taxation incentives that might be available, that report highlights the following factors: strong universities; an available talent pool where you have a high number of Ph.D. graduates in a particular locale, scientists, engineers; an airport infrastructure that facilitates international connectivity; the English language proficiency of the labour pool; the population size of a city or region; and international patent rights protection.
As we study this issue of competitiveness, and as we delve into matters such as those brought to the table by you folks, it's important to have a holistic view of all the factors that are relevant and at play.
I have limited time, so if you have a response to that, please go ahead. I also want to put a question to Ms. Jamieson, though.
Partner and Chief Economist, Financial Advisory, Deloitte Canada
The formal comments were focused on taxation, but the submission we made to the committee actually covers how to accelerate growth in a broad way, including other areas of competitiveness besides taxation. These include things like enhancing regulatory competitiveness, which means reducing the burden on businesses to allow them to grow.
Another area we talked about was how to attract start-up companies, for example, into new markets like London. France currently has a tech visa program. The message is “Come, we will make it more attractive for you to launch your next tech firm in our community versus the other community.”
We're in a very competitive landscape in terms of trying to attract talent. When it comes to policies around immigrant entrepreneurs, they often get melded with immigrant investors and this can be a very contentious subject.
London North Centre, Lib.
It's appreciated, Mr. Alexander. As I said, I don't have much time. I have certainly looked at your brief. Taxation matters a great deal. Regulation matters a great deal. One of the things we've heard a lot at this committee is thoughts on regulation and taxation. I just make the point that it's important to have a holistic view, hence my reference to the 2016 OECD study.
Ms. Jamieson, as I said to you before this meeting started, it's a great honour to meet you, especially as a fellow Western University alumnus and someone who was at Western before going into politics. They love you there, and for good reason.
You have a recommendation on tracking post-secondary outcomes of first nations, Inuit and Métis students. Is that tracking not happening now, or if it is happening, is it not sufficient? Can you go into that and what the ultimate aim of that recommendation would be?
President and Chief Executive Officer, Indspire
The Auditor General has told us, and it's now well known, that we have woefully inadequate data on post-secondary indigenous students, and for a lot of reasons. We've counted them differently. We haven't counted them at all. A lot of communities still do not participate in the census or Statistics Canada's materials.
Now we have contact. Since I've been at Indspire, we've given out more than 32,000 bursaries. We have direct access to students. They trust us. They share information with us so that we can determine trends that will be helpful to policy-makers.
The problem is that I don't have resources to mine a lot of that information. We mine some of it now, but it would be very helpful in determining where to place the emphasis in the future in supporting students more in STEM, less over here, more in business, and also in taking apart what the challenges are. We know day care is a huge challenge, child care for our recipients who are women. What would we do?
Any area of policy would benefit, I think, from more accurate fulsome statistics on post-secondary indigenous students. Where are they going to school? Why are they going there? What is it that attracts them? How many degrees are they taking? Where is it that they see their future jobs could be? What barriers to those jobs do they see?
We track a lot of those things now. We do surveys and students participate. What I can't do at the moment is to make as much use of that information as I would like, and as policy-makers need, to make decisions for the future. That's why in our submission there's a very modest ask of $1.5 million over five years to enable us to do that.
Liberal
The Chair Liberal Wayne Easter
We're just about to adjourn, but based on all the discussion you've heard—and there are no questions your way, Ms. Roy and Ms. Sultana—is there anything you want to add?
Okay.
I do have one other question.
Earlier, Mr. Smith, you talked about there being other tools that are better than...and I think you meant accelerated capital cost allowance or depreciation. What would they be in terms of making us competitive?
National Mergers and Acquisitions Leader, Tax, Deloitte Canada
Reduce corporate tax rates and reduce personal tax rates, and have R and D incentives.
Liberal
The Chair Liberal Wayne Easter
Okay. I have one other question, and it has come up many times for people in the finance area, and that is about having a comprehensive review of the tax system. I don't think we're going to as we're a year out from a general election, but how would you see that being done? What would be the starting point for doing that? Would it be a white paper? Would it be a commission or whatever, to then be turned over to a future finance committee? What would be the process to get it done in the best way, with experts in the field? What's your suggestion there?
Does anybody—Michael, Craig, Katie—want to answer?
National Mergers and Acquisitions Leader, Tax, Deloitte Canada
I'm supportive of looking at comprehensive tax reform. It could be a multitude of those forums that you look at. I think there needs to be broad consultation in going through that. Certainly, it's a process that other countries have been going through recently. I think the U.K. is probably one of the more notable examples in recent times.
Liberal
Chair, Tax Committee, Portfolio Management Association of Canada
I echo Mr. Smith's points. I think a broad bandwidth of various different types of input is necessary to accomplish that immense task.
Liberal
The Chair Liberal Wayne Easter
It would also be better to start with experts in the field than with a committee of politicians, I would think.
With that, I thank each and every one of you for your presentations and for asking and answering questions.
Committee members will suspend until 1:15.
Liberal
The Chair Liberal Wayne Easter
We'll reconvene and welcome the witnesses.
We are doing our pre-budget consultations in advance of the 2019 budget.
For the witnesses who presented the submissions, members do have the original submissions on their iPads, and we look forward to your presentations today.
I will just quickly go around the room so you have a bit of a feel for where members come from and who they represent.
I'm Wayne Easter, chair. I'm a member of Parliament with the governing party, from Prince Edward Island and the riding of Malpeque.
We'll start with Peter.
London North Centre, Lib.
Good afternoon, everyone.
I'm Peter Fragiskatos, a member of Parliament for the riding of London North Centre. I sit on the governing side as well. I am very much looking forward to hearing from you today.