Finance Committee on Nov. 6th, 2018

[The Chair, Liberal, Wayne Easter]

We'll come to order.

We have the minister and senior staff here, along with a lot of finance folks at the back of the room, related to our study on Bill C-86, a second act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.

On the side, we solved all the problems with Andrew and Ava. Minister, I guess we'd better let you go ahead.

The floor is yours. Welcome.

[Bill Morneau, Liberal, Minister of Finance]

I'm trying to work out the technology.

Ava's expertise is in law, but she apparently has a side in managing this stuff.

Okay, it works.

Mr. Chair, I suppose I can start.

[The Chair, Liberal, Wayne Easter]

Yes. You just weren't listening when I said you could.

Either way, go ahead. The floor is yours.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thanks, first of all, for inviting me here today. I'm happy to be here for the next 90 minutes or so to talk about budget implementation bill, no. 2. In particular, I'd like to thank you, Mr. Chair, as well as the vice-chairs and all the committee members, for your hard work during the last round of pre-budget consultations and, of course, during the review of the budget implementation bill. I am looking forward to hearing your questions on this important piece of legislation, which is the next step in the government's plan to strengthen and grow the middle class, and to build an economy that works for all Canadians.

The measures in this bill provide middle-class Canadians and those working hard to join them with more opportunities to succeed. These measures will enable everyone to contribute to Canada's success and to benefit from that success.

Before speaking to the specific measures included in the second budget implementation bill, I'd like to take a moment to highlight some of the actions our government has already taken, actions that, along with the hard work of Canadians, have helped to put Canada's economy in a very good place.

As you may remember, it was three years ago last week that the government was sworn in. Since then, we've continuously invested in Canadians, delivering on our promises and making smart investments that are helping to deliver real results for the middle class and for those Canadians who are working hard to join it.

One of our very first actions was to introduce a middle-class tax cut. More than nine million Canadians are now benefiting from that tax cut.

To help Canadian families with the cost of raising children, we also introduced the Canada child benefit, a simpler, tax-free and more generous benefit than the previous system of child benefits. Since its introduction in 2016, the Canada child benefit has helped to lift more than 520,000 people out of poverty across our country, including nearly 300,000 children.

To help give more Canadians the secure and dignified retirement they've earned after a lifetime of hard work, our government worked together with the provinces and strengthened the Canada pension plan.

To help low-income workers take home more money while they work, we introduced the Canada workers benefit, a program that will encourage more people to join and stay in the workforce, and offer real help to more than two million Canadians who are working hard to join the middle class.

We've also taken steps to support Canada's small business owners and entrepreneurs, the people who have helped to create the good, well-paying jobs that middle-class families rely on. This includes cutting the small business tax rate to 10%, effective this past January, and to 9% this coming January.

The government has also signed three new free trade agreements. Today, Canada is the only G7 country holding trade agreements with every other G7 country.

Mr. Chair, the results of the government's investments are clear. Over the past three years, Canadians have created over half a million full-time jobs. Canada had the fastest-growing G7 economy in 2017 and still has one of the strongest economies in the G7.

Wages are going up in Canada. The unemployment rate is at its lowest in 40 years. That being said, we know we still have work to do. Bill C-86 will enable us to make Canada even more egalitarian, competitive, sustainable and fair.

A moment ago, I referred to the Canada workers benefit, or the CWB. Not only are we introducing this more generous benefit for low-income working Canadians; we're also taking further steps to ensure that more workers who are eligible for the CWB actually receive it.

Budget implementation act, no. 2, or BIA 2, allows the Canada Revenue Agency to calculate the CWB for tax filers, even for those who have not claimed it. This means that low-income workers who are eligible to receive the CWB will be able to do so simply by filing their taxes.

We expect that when you combine this increase in take-up with other program enhancements, the CWB will deliver real help to more than two million working Canadians, starting next year. What's more, it will also help to lift about 70,000 Canadians out of poverty by the year 2020.

Ensuring that the people who have earned this benefit actually receive it, we believe, is just common sense. It's the right thing to do for the millions of low-income working Canadians, who are working hard to be successful and to join the middle class.

As all of you know, promoting and advancing other measures are also critically important in BIA 2. Promoting and advancing gender equality is another of our government's top priorities that are demonstrated in this act.

Canadian women are among the best educated in the world, but they still face barriers that keep many of them from reaching their full potential. Advancing women's equality drives our economic growth while boosting the income of Canadian families.

The wage gap between women and men has narrowed in recent years, but it remains a barrier. For every dollar per hour that a man working full time earns in Canada, a woman working full time earns, on average, about 88 cents. On an annual basis, women's earnings are even lower—about 69 cents for every dollar earned by men—because they're more likely to work part time.

We know that's not acceptable, and we're committed to doing better. That means taking real and meaningful action to help reduce the gender wage gap and to increase the participation of women in the labour force. That's exactly what we're doing with the legislation that we're discussing today.

With BIA 2, the government is introducing proactive pay equity legislation. It will require federally regulated employers with 10 employees or more to establish and maintain a pay equity plan so that employees who are not receiving equal pay for work of equal value can finally do so. This measure will apply to 1.2 million employed Canadians, including public servants, employees of Crown corporations, and employees of federally regulated private companies, such as banks, airlines, cable companies and radio and television broadcasters. As part of the act, we're also proposing to establish a new pay equity commissioner to administer and enforce the law, and to report annually back to Parliament.

That said, we also know that it often takes more than equal pay to deliver equal opportunity. As one example, no matter what a parent earns, child care duties in our society still fall disproportionately to women. That is why, in BIA 2, we are also proposing a new employment insurance parental sharing benefit. This “use it or lose it” benefit is intended to encourage all parents, including fathers, to take some leave when welcoming a new child, and to share more equally in the work of raising their children.

Two-parent families that agree to share parental leave could receive an additional five weeks of leave, or an additional eight weeks for parents who choose the extended parental benefits option. This will make it easier for women to return to work sooner, if they so choose. It will help to address some of the patterns of discrimination that many women experience during the hiring process, and it will give both parents an opportunity to spend time with their young children, setting up patterns of more equal parenting that can last for a lifetime.

The government proposes to make this measure available next March, three months earlier than originally planned. This earlier date would enable 24,000 more parents to benefit from the new measure.

Finally, BIA 2 also includes a proposal to introduce a gender budgeting act. We know that budgets are about making choices with limited resources. In budget 2018, all decisions were informed by what we call gender-based analysis plus. This allowed us to consider the different ways in which budget measures could impact Canadians based on their gender and also other factors. The gender budgeting act is intended to make this analysis a permanent feature of the federal budget-making process. It will ensure that these important factors are taken into account when making budgetary decisions.

Mr. Chair, we are committed to growing the economy in a responsible, fair and sustainable way. That also means protecting the environment and reducing carbon emissions. Forecasts show that climate change will cost our economy $5 billion a year by 2020. Canada needs to reduce its greenhouse gas emissions, and the best way to do that is to put a price on pollution. Pollution pricing is a proven way to encourage Canadians and businesses to innovate and invest in clean technologies.

For the past two years, the federal government has worked with its provincial and territorial partners on a plan to grow the economy while reducing Canada's greenhouse gas emissions. Provinces and territories had a range of options. They could either design or maintain their own carbon pollution pricing system that meets the federal standard, or they could voluntarily adopt the federal backstop pricing system, as Yukon and Nunavut decided to do.

Unfortunately, some provinces have failed to recognize the cost of pollution. For that reason, two weeks ago the Prime Minister announced that the gap in leadership will be filled by a federal pollution pricing system to be applied in New Brunswick, Ontario, Manitoba and Saskatchewan. All direct proceeds—and that means all direct proceeds from federal pollution pricing—will be returned to the province of origin, with the bulk of the proceeds from the fuel charge going directly to individuals and families through climate action incentive payments. The amendments proposed in BIA 2 would allow for climate action incentive payments to reach individuals and families in those four provinces.

Thanks to Canadians' hard work, job creation is up and unemployment is down. More and more Canadians are benefiting from Canada's strong economy, but there is still work to be done. Budget implementation act, no. 2, allows the government to enhance the support that middle-class Canadians need to make better lives for themselves and their families.

I'm happy to answer any questions on the second budget implementation act or the supplementary estimates.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Minister. I neglected to mention in the beginning that you're here, but it is 90 minutes on the estimates as well.

For the record, pursuant to Standing Order 81(5), we will consider supplementary estimates (A) 2018-19, votes 1a and 10a under the Department of Finance, referred to the committee on Wednesday, October 24, 2018. We will deal with both the BIA and the estimates in this hearing today.

We'll have ample time to get everybody on. We'll go to five-minute rounds across the piece.

First up is Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

Welcome to the minister and his staff.

Being a member of this committee has given me a lot of opportunities to hear voices from across the country. We've been travelling. We've had witnesses. We've heard a lot of issues raised and a lot of concerns brought forward. As a member of Parliament who represents a jurisdiction that has a large indigenous population—over half of my riding is indigenous—I was really impressed by the number of indigenous people who have appeared in front of us and talked to us about their concerns and reminded us of a number of things. I think there's a real sense of opportunity out there, after many years of not moving on a lot of the issues that face us.

Some of the things they reminded us of were that we need to create the mechanisms to allow indigenous people to be self-governing, that we need transformative change, and that we need to stop fighting in the courts. For the most part, I think we've done that. They were also there to remind us that indigenous people and non-indigenous people are in this together. I think that message is one we hear at all venues we attend where there are aboriginal people.

I was really pleased to see that this bill makes several amendments that would improve the fiscal capacity of first nations peoples on reserve. However, as you know, in the north, our indigenous people are structured a little differently. These changes might not be directly applicable to them.

Could you speak about how Bill C-86 would enhance economic reconciliation? As we talk about reconciliation, we always hear, and it's very clear, that there can be no reconciliation without economic reconciliation.

Could you talk a bit about the next steps that the government will take to ensure that all indigenous communities, including the ones in my riding and from coast to coast to coast, can strengthen their fiscal management systems? I think there's been a lot of work done in this area in the last while.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

Maybe what I could do is address broadly the things we've done and some of the direction we have, and then, if you like, address more specifics around the First Nations Fiscal Management Act. We can go through those as well.

I think the appropriate way to think about this question is to put it in the context of our government's direction and what we're trying to do in terms of our overall dealing with indigenous peoples. That's first nations, Inuit and the Métis nation across the country, including in the north.

Our goal, of course, is to deal with more immediate and pressing challenges that we must get at, things that are just unacceptable in this day and age—the challenges around clean water, infrastructure and education that exist in parts of our country and that are frankly unacceptable—but also to make sure that we get to fiscal arrangements that allow for longer-term self-government in places where that can and should go forward.

That's the broader agenda. Much of what you've seen us work on, of course, in the first two budgets—budgets 2016 and 2017—was identifying funding for dealing with those immediate and critical issues. We don't want to have another generation of people who don't find themselves with the opportunities that they should have in a country as rich and as successful as Canada.

What I've been working on during the course of that time, together with my colleagues, has been to think about those longer-term institutions, about how we can actually get at better fiscal management for the long term. That means thinking about what we do both in terms of legislative priorities and in terms of practices.

In terms of the practices we've taken on in our budget approach—this budget was no different, and certainly I've already started it in budget 2019—it is to actually get together with first nations in advance of considering what we would be putting in a budget, to make sure that we understand and consider the important imperatives for indigenous peoples, both in the short term and in the long term. As recently as yesterday, I was meeting with Inuit leaders to talk about their budget priorities for 2019.

This is an ongoing and important issue. I recognize that the issues in the north are not all exactly the same, given the different governance and leadership structures. This is something that, as you know, we're trying to work toward: making an important difference and thinking about how best to get funding to places where the funding goes through the provincial governments as opposed to directly through the first nations groups. That, I think, is work that we need to continue working on.

In terms of the First Nations Fiscal Management Act, in this budget we think it's something that will enable us to continue moving forward on our process for enabling self-government. I'd be happy to hear your views on that, either here or outside the room, to make sure that we're making the progress we're trying to achieve.

[The Chair, Liberal, Wayne Easter]

I'm sorry. We're well ahead of time.

I think I can give you a quick question and a quick answer, and we'll go to seven minutes in the first round, because we have 90 minutes with the minister. You'll have a quick question and a quick answer, and we're away.

[Michael McLeod, Liberal, Northwest Territories, NT]

Earlier today, Minister Duclos tabled Bill C-87, an act respecting the reduction of poverty. As this act is enacted through division 21 in part 4 of this budget implementation act, I want to know how it builds upon the actions that the government has already taken to address this critical issue. It's something that's very important not only in my riding but right across the country.

[Bill Morneau, Liberal, Toronto Centre, ON]

The key measure that was introduced this morning, and one thing that we want to make sure we have embedded into our overall goals around poverty reduction, is to ensure that we actually have targets: targets that we've embedded into law so that we can move forward in a way that will ensure we actually have something to try to achieve and we have measures that we can actually use to try to get there.

The approach or goal is to get to a 20% reduction by 2020 in poverty as defined, and 50% by 2030. The descriptions of those poverty measures are really descriptions around what we would expect people should be able to have to meet up to standards acceptable to Canadians in terms of being able to live at a reasonable approach in having basic needs fulfilled. That's something that we think is important for us as we continue in our efforts to alleviate poverty.

[The Chair, Liberal, Wayne Easter]

Thanks, both of you.

Mr. Poilievre, you have seven minutes.

[Pierre Poilievre, Conservative, Carleton, ON]

Minister, last fall you announced new tax penalties on small businesses that have passive income of over $50,000 a year.

When you made that announcement, you reassured those businesses that their existing savings and investment income from those savings would be grandfathered and therefore not affected by the new rules. Let me quote: “I want to reassure everyone that our proposed changes would only apply on a go-forward basis—not to existing savings, nor to investment income from those savings.”

I have a yes or no question. Did you keep your promise to grandfather those pre-existing savings and income from those savings of small businesses in your tax changes?

[Bill Morneau, Liberal, Toronto Centre, ON]

Mr. Chair, I have the same amount of—

[The Chair, Liberal, Wayne Easter]

We're unlikely to go to yes or no questions in this forum, Mr. Poilievre. The minister has the floor for an equal amount of time.

Go ahead, Minister.

[Bill Morneau, Liberal, Toronto Centre, ON]

What we moved forward with was a measure that recognizes the important savings that small business owners might have in their corporations, and we found a way to assure those small business owners that they would be at the small business tax rate, up to the time at which they hit $1 million, approximately, in savings. Then they would move to the large—

[Pierre Poilievre, Conservative, Carleton, ON]

Does that grandfather existing savings?

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre, let the minister answer. You have seven minutes and there are two other rounds.

[Bill Morneau, Liberal, Toronto Centre, ON]

That move to the large business tax rate—still a tax advantage rate progressively up to about $3 million in savings—not only enables small business owners to have money to invest in their businesses, but to the extent that, for some of them, they were using it for a retirement vehicle, it protects them in that regard.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Chair, forgive me, but the minister is using my time. He already had a chance to give a speech.

He promised that his proposed changes “would only apply on a go-forward basis—not to existing savings, nor to investment income from those savings”. This is a simple question: Did the minister keep that promise, yes or no?

[Bill Morneau, Liberal, Toronto Centre, ON]

As I mentioned, the measures that were introduced are of course on a go-forward basis, and they—

[Pierre Poilievre, Conservative, Carleton, ON]

Do they apply to the investment income from pre-existing savings?

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre, look, we have a lot of time. We can go through this without interruptions. The minister has the floor. You'll both get equal time. I'm watching the time.

Minister, go ahead.

[Bill Morneau, Liberal, Toronto Centre, ON]

What we will do as we enact this is make sure that those savings are protected. As people move past that $1 million of savings in their private vehicle, up to the $3 million, they will be gradually moved into the larger business tax rate, a continuing preferential tax rate.

[Pierre Poilievre, Conservative, Carleton, ON]

Okay. You have a factual error in your answer, used multiple times. The number that's in the legislation you introduced is not $1 million; it's $50,000. I'd urge you to read your own legislation.

Second, you said that income from pre-existing savings would be grandfathered, that it would not count towards this new tax penalty. I'm simply asking you whether or not you kept that promise. Is it grandfathered, yes or no?

[Bill Morneau, Liberal, Toronto Centre, ON]

The proxy of using the amount of investment, of course, is to use a shorthand that would require a little bit of math. In using the math, you're correct that the $50,000 intended to show a 5% rate of return on $1 million, and $150,000 would be intended to show the rate of return on $3 million.