Finance Committee on Oct. 5th, 2018

[Mark Nantais]

Mr. Sorbara, that question is one that everybody has asked me. Our industry, or any other industy that's capital-intensive, needs certainty. Did we get a perfect deal? No, but we got a deal that gives us the certainty we need to ensure that the decisions for new investment can now be made. It doesn't guarantee those new investments, but at least the certainty is there for the decision-makers to move ahead with their evaluations.

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

In my neck of the woods, in the York region, we have two of the three largest auto part suppliers in Canada—Martinrea and Magna. Magna is probably the largest in the world or close to it, if I'm not mistaken. So that's wonderful news. We haven't gotten a new plant or a new mandate. What will it take for us to get a new mandate?

[Mark Nantais]

It's going to take more than just a free trade agreement. We continue to face competitiveness headwinds. Canada is one of the highest-cost jurisdictions in which to manufacture, so the question becomes how we can reduce our cost structures. For instance, the electricity rates in Ontario are two to three times higher than those in our competing jurisdictions in the United States. We have other costs. Potentially we will have costs for carbon pricing, which is why I make the recommendation that we must have a revenue-neutral approach. Otherwise it's seen as another tax, and that does not sit well with decision-makers for new investment. It's a tax we would pay that our competing jurisdictions don't have.

These are all things now that we have to coordinate. We have to move forward with them in a holistic fashion and determine how we can make a better business environment here and lower our costs to attract the new investment. That whole issue is not static. Other jurisdictions continue to re-evaluate their position in terms of competitiveness and support.

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

We're done.

[The Chair, Liberal, Wayne Easter]

Mr. Kelly, go ahead.

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

Thank you.

Mr. Hudak, thank you for raising the issue of the sudden and quite marked reduction in the rate of home ownership that has taken place in the last couple of years in Canada. I think a lot of Canadians are quite alarmed about the barriers to home ownership now, having gone through generations in which there was an expectation that if one worked hard and was successful in the employment market, one could own a home in which to raise a family.

You identified the imposition of the mortgage stress test, which, as this committee has heard in earlier meetings from leaders in the mortgage industry, was imposed without any consultation with the mortgage industry whatsoever.

This committee has debated on more than one occasion motions put before it to hold a study on the effect of the mortgage stress test. Would you recommend that this committee study the mortgage stress test and its effect on the housing market?

[Tim Hudak]

Absolutely, and I would recommend that it happen relatively soon. Interest rates are likely to go up, as you know, in the next while. Every time mortgage rates go up by one per cent, you add two more points on top of that. That makes home ownership harder and harder to achieve. I know your colleague from Calgary Shepard, Mr. Kmiec, brought forward a motion. We would fully support that.

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

I support Mr. Kmiec, too, in his effort to get this committee to study the stress test.

It's rising interest rates that the stress test is designed to mitigate against. Now that rates are rising, does the argument for the stress test itself carry less weight?

[Tim Hudak]

The stress test actually becomes more cruel as interest rates increase. That's another 200 points on top of that. That makes the option to get into home ownership for millennials, for new Canadians or for entrepreneurs even more difficult to achieve. We understand it had a purpose from the beginning, but now when we see that home ownership is declining despite economic expansion and despite low mortgage rates, that should be an alarm bell. If the stress test continues to rise with mortgage rates at 200 points, that's going to strangle housing growth in our country.

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

I understand that you're here on behalf of the Ontario Real Estate Association. I recently participated in a real estate round table in Calgary, at which Calgary-based realtors talked about some real challenges in the market there. The stress test was among many factors discussed there. It raises the question of the efficacy of many of the decisions this government has made in housing, when you look at different markets across Canada. Even within Ontario, there must surely be quite a bit of variation from one market to another in the needs of local markets.

Do you think the one-size-fits-all approach is appropriate for an industry like real estate, which is really a series of local markets with different conditions?

[Tim Hudak]

Again, there's a problem. There is no Canadian housing market per se. We're a series of regions.

I understand why governments went down this path. In 2017, you had rapidly accelerating housing prices in the greater Toronto-Hamilton area and in Vancouver in the Lower Mainland, so I get that. The problem is that areas like Calgary, London and Nova Scotia get side-swiped by measures that were meant for the Toronto and Vancouver markets. From our point of view at the Ontario Real Estate Association, the pendulum has swung too far. We need to move it back. We've laid some ideas on the table.

I would also recommend to the committee.... I mentioned Finance Minister Morneau's committee. Almost every federal budget, as well as the provincial ones, usually includes infrastructure funds. It would be great if the finance committee were to recommend that those infrastructure funds reward municipalities and provinces that are bringing new housing supply. The ultimate solution here is going to be around increasing housing supply and choice in the marketplace.

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

I have a couple of minutes left. I'm going to put a question to Mr. Nantais.

You spoke of the need to ensure that the carbon tax not harm your industry. If I understood your presentation correctly, you talked about seeing the funds returned to the paying industry. I'm not even sure how that would work, but it raises a question: If we carve out all the different industries—many of whom have already come to this committee or requested exemptions because of their special needs, whether it's because they're energy-intensive or for competitive reasons—what behaviour will this tax ever affect? What good will it ever do if we carve everybody out from it?

Would we not be better off just to repeal and get rid of this tax, and look at different strategies or ways to address climate change?

[Mark Nantais]

Looking at a different strategy is an option.

I want to be absolutely clear here. Our industry is not looking for an exemption at all. In fact, we want to be part of this process, what we call the output-based pricing system, because like every other industry that falls into this category in provinces across the country, we need to be able to restore the revenues we pay into the system so that we can reinvest in our plants. Whether it's the auto industry or any other manufacturing industry, you have to be able to restore and invest in your plant to continue to make it competitive. Otherwise, it's just another tax, and it's a tax that competing plants in other jurisdictions don't have to pay, which means we're at a competitive disadvantage.

We want to work with the government on a process here that would be fair and effective in terms of its objectives to reduce greenhouse gas emissions but would still enable our industry and any other industry involved here—whether it's oil, chemical or whatever—to be sustainable in Canada and able to function under that regime.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Mr. Julian, go ahead.

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

Thank you very much, Mr. Chair.

Thanks to all the witnesses. I wish I could ask you all questions, but I have limited time.

I have a quick comment for Mr. Nantais. I drive a Ford Edge made by Unifor workers in Oakville, Ontario. Your association should actually be asking parliamentarians, “What do you drive? Do you drive a Canadian-made vehicle, or do you drive an import?” That would be a very interesting exercise.

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

I take the bus.

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

Some of us take the bus, and if it's made by New Flyer Industries in Winnipeg or north of Montreal, that would be fine.

I want to address my first question to Mr. O'Hara, Mr. Lucas and Mr. Rewak.

Thank you, sirs, for being here today. As you know, the last budget imposed a tax on medication. I brought forward an amendment to this committee, but it was not passed. I'd be interested in knowing and having the finance committee hear what the impacts have been of not accepting that amendment to the budget, and as a result imposing a tax on medication that people need.

I've heard anecdotal stories of people having to choose between a medication that controls their pain and rent, or between their medication and food. We're going into a Canadian winter, which means some Canadians will have to choose either controlling their pain or suffering and paying their heating bills. What are the implications of not having that amendment adopted, and what has been the result or the consequence?

[James O'Hara]

The implications have been profound, frankly, from the get-go, and they continue to be a significant challenge. You're absolutely right.

We hear from patients constantly, day in and day out, about the different challenges they face. Not only are they facing the economic challenges you mentioned in terms of having to choose between food and other things in order to live; they are constantly battling against pharmaceutical drugs being offered to them at a lower cost, which they know may not necessarily be good for them or may take them down a very dangerous path. The number one threat of that is the opioids. Quite often, they are in an unfortunate position where they have to choose to pay either for medical cannabis—which is costly for them to fund, obviously, but significantly more so when it comes to the tax part of it—or for opioids, which are quite often covered under various drug plans. That is definitely a constant worry.

I want to add that there is one thing we often see that is going to get us. In this case, what I am seeing is a very disturbing trend that I don't think we have a very good handle on. There is a demographic tsunami coming at us. When I say “tsunami”, I mean that. It's out there. We know it's there, but it hasn't quite hit us yet. That is in the form of older Canadians. Older Canadians obviously consume medication at a much higher rate than younger folks, and they're really seeing the impact there. They are having to make very distinct and very difficult choices. That is happening on a much more regular basis. As Canadians age, and this is obviously happening at a relatively fast rate, that is a big issue that we're going to have to face. It's very important that we respond to this issue now in order to prevent a bigger issue down the road.

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

Thank you.

Go ahead, Mr. Lucas, briefly.

[Philippe Lucas, Vice-Chair, Cannabis Council of Canada]

Thank you. I'm currently a researcher at Tilray. I'm VP of global patient research and access at Tilray. I'm also a graduate researcher with the Canadian Institute for Substance Use Research. The focus of my research is the impact of cannabis on the use of prescription and other drugs.

The challenge that patients are facing right now is that an excise tax is typically applied on something that has social costs, to mitigate these costs. With medical cannabis, it has become overwhelmingly clear that those patients benefit from the use of medical cannabis and in fact reduce the social cost, because they're using fewer prescription drugs. Also, the data is very clear that they use less alcohol, tobacco and other substances as well.

In fact, I'm the primary investigator on the largest national longitudinal tracking of medical cannabis patients today. It's taking place in 20 centres. We're tracking 1,900 patients over a 12-month period. From baseline to six months, we see a 74% reduction in the actual milligrams per day of opioids being used by those patients. So, it's clearly having a positive impact on our opioid crisis that medical cannabis is being offered to this.

More to the point, this government's policy has been to normalize medical cannabis, to treat it like all other medicines, and that suggests to me that obviously it should be zero-rated in terms of removing this pending excise tax, which, by the way, in some cases, in some provinces, including Ontario, would mean that over 30% of the cost of medical cannabis will be taxation. This is not a small impact. It's not just the 10% as suggested through the excise tax. Once you add the provincial tax and then the sales tax, it ends up being over 30% of the cost. Therefore, it's going to seriously impede the ability of patients like Sarah and others to use the small amount of pocket change they have to spend on medicine, food, or anything else, to cover the cost of medical cannabis.

Certainly, common sense and compassion suggest that we need to remove this excise tax and all other taxes on medical cannabis.

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

Thank you very much. I'm going to move on to Mr. Lund and Ms. Baker.

You talked about the impact of the big web giants, Airbnb and Expedia. There are massive amounts of revenue, and they are not paying any of the taxes or supports that we need in this country. As part of the study, we're supposed to be looking at the competitiveness of Canada. Are we not undermining our own competitiveness, within your industry and your members, by allowing these big web giants to walk in unimpeded and basically suck money out of Canada without making the contributions they should be making to preserving infrastructure and providing investment?

[Jonathan Lund]

Thank you, Mr. Julian.

Through the chair, I'll just make a quick comment, and then I'll hand it over to Alana.

As for Airbnb and these sharing platforms, we're not opposed to the growth of those or the success of those. What we want is some tax fairness. We think the hotel business is being unfairly treated in this manner by encouraging, with no tax, these platforms that are allowed to operate. That's primarily our concern here. We all pay taxes, but they don't, and we think that's not right. That's encouraging an underground economy basically. If you look at the potential revenue stream of $100 million—and I could say that would be growing incrementally—we think that's not right.

Alana.

[Alana Baker, Director of Government Relations, Hotel Association of Canada]

Thank you, Jonathan.

I would just add something quickly. The committee has asked what measures they can take to ensure competitiveness. I think the answer is fairly simple: ensure tax fairness so that Canada's lodging sector and those traditional accommodation businesses that are good corporate citizens, which are paying their taxes and playing by the rules, can compete on a fair and level playing field. What we're dealing with here are digital, online, foreign-owned platforms. They're not required to pay those taxes like the traditional bricks-and-mortar businesses do, and it's really just a matter of fairness.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Mr. Fergus.

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

Thank you, Mr. Chair.

My first question is for Mr. Hudak.

Mr. Hudak, thank you very much for your presentation today. I think the points you have raised are important. You suggested that a target of about 70% home ownership by 2021, and then 75% be set. In your opinion, what is the desirable rate of home ownership in Canada?