Finance Committee on May 12th, 2016

[Daniel Kelly]

Yes, the report came out Tuesday from the PBO. We have had a chance to look at it, Ted Mallett, our chief economist, has reviewed it. The study does a pretty good job of looking at the GDP impact of the cancellation of the small business corporate income tax rate; it's estimated at $300 million per year when fully implemented.

The job numbers puzzle us. I respect the work of the PBO greatly, but it looked quite light, given that we're talking about $2.2 billion coming out of small business pockets over the next five years. The estimate was around 1,500 jobs, if I recall correctly.

When we delve into the report it analyzes corporate income tax cuts in the same way that it would a tax cut for large companies. We all know small firms tend to be far more labour intensive than large firms. Large firms tend to be more capital intensive, but the PBO does a great job of some of the analysis. The jobs number was the part that puzzled us a bit.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Can you cite any examples of any of your members who maybe made plans around the promised cut, rather the broken promise? Maybe they're going to grow or make changes to their businesses?

[Daniel Kelly]

Yes, thank you for that question. I was thinking if time hadn't been so tight I was going to read this anyway; this is an email from a member. This is to his Liberal MP in northern Ontario. He's a hotel owner in northern Ontario, and he says:

I voted for you to see how you would do. Do not increase the tax rates of small business. We need investments in jobs in the north. We work extremely hard in small business, employ 22 people, and are about thinking of starting a new business as well. Because of the tax rate we reinvest nearly all of our profits in the business which means more jobs, more capital expenditures for the region and an overall bigger tax piece for the Government. Do not kill the goose. I know the PM talked about small business being a tax loop hole. While for tens of thousands of us, it is not. We are a powerful voice in our community.

This is a Liberal voter who felt quite burned by the fact that the small business corporate tax rate was cancelled in the last budget.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you.

We know the Liberals ran on a budget, a promise to run deficits of $10 billion; it's at $30 billion. Can you elaborate, Mr. Brakel, about your feeling from your members about the fact that the Liberals have run such a large deficit? And that they decided not to follow through with their promise to reduce taxes from 11% to 9%.

[Hendrik Brakel]

There was a lot of debate and discussion at our last annual general meeting about how important deficits versus balanced budgets are. I think business buys the argument that we have to borrow to stimulate the economy, to create growth. Now with the deficits, they're hoping we see this growth, that this stimulus will help the Canadian economy.

I think that business and certainly the chamber has always been committed to balanced budgets over the medium term. We recognize that we can deviate from them in the short term to help with deficits. I think business wants to see if this is going to materialize and create the growth to return to balanced budgets.

[Gord Johns, NDP, Courtenay—Alberni, BC]

We all recognize we need healthy business to have a healthy economy. To do that we need to inject money into the economy and we're hearing from people that small business is the best way.

Mr. Kelly, can you talk a little about the multiplier effect, the impact on small business when we have tax cuts to small business?

[Daniel Kelly]

Yes. We find that tax deductions for small business are incredibly effective. When you think about the small businesses in your own ridings, these businesses are there in good times and in bad. Some of them unfortunately do have to close their doors. The income they earn is far more likely to stay in that local community supporting the local groups and organizations that make Canada such a terrific country.

Small firms tend to be a little slower to hire. They don't create a job unless they know it's going to be there for the longer term. The flip side of that is that small firms are slower to fire. And in bad times, they tend to hang onto their employees because they have developed those personal relationships.

I've talked to thousands of business owners over my 22-year career. They have said that in bad years they are taking home less themselves than they are paying their employees in order to hang on to those employees. That's the kind of thing that I worry is not going to be happening as often, given the snatching away of the reductions that had been promised by all four major political parties.

[The Chair, Liberal, Wayne Easter]

Thank you.

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you very much, Mr. Chair.

Thanks to all of you for coming.

I'll start with you, Mr. Kelly. You talked about the hiring of students and young people, but you didn't actually talk about the fact that with regard to the Canada summer jobs program, we more than doubled that investment. In my riding, for example, there were over 230 positions in 30 businesses.

When you talked about the hiring of young people, why did you not mention how successful it was and how helpful it was that small businesses could hire young people? For example, in my riding, it equalled $1.1 million. Why did you leave that out of your testimony when you were criticizing the lack of hiring of young people?

[Daniel Kelly]

We are fans of the Canada summer jobs program. Thank you very much for raising that. Obviously, a five-minute testimony doesn't leave you with an awful lot of time to go through every issue exhaustively.

We are fans of the Canada summer jobs program. I will say, though, that small firms find that it is often very difficult to access. It does tend to be focused more heavily on larger businesses and community groups and organizations.

Small firms say the most stimulative effect they could have to help them create more jobs is to reduce the payroll tax burden. That's why we were big fans when Liberal governments in the past introduced a youth hires program. It was a terrific program that was well received by small business owners and had light paperwork requirements.

We were so excited when your party committed, as the centrepiece of your youth employment strategy, to introduce an EI holiday for 2016, 2017, and 2018. In fact, the budget didn't even talk about the fact that this had been cancelled. They didn't even tell us that it was cancelled, but as we found out later, it was replaced with an expert panel to study youth employment.

The Canada summer jobs program is a good one. It would have been far more powerful, and far more employees—youths—would be back in jobs right now, had you gone ahead with your own election promise to introduce the EI credit.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thanks, but from your own testimony, it hasn't been cancelled. There's a committee looking at the implementation. So which is it? Is it cancelled, or is it looking at the implementation? You have to be careful with your testimony—

[Daniel Kelly]

You'd be in a much better position than I would be to answer that question. I will say that when we raised this with the officials, they've said that it's been cancelled.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

I will, through the chair, recommend that any small businesses looking to access the Canada summer jobs program contact their MP. I called the 18 pages of successful applicants in my riding, and I can assure you that the majority of them are small businesses that are benefiting from this, not big organizations.

Perhaps they just need to work with their members of Parliament to find out how to access it.

[Daniel Kelly]

That's good advice.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Mr. Brakel, you touched on the innovation in research and development and the need in Canada to commercialize this. I've heard about this a bit, but could you elaborate more on what this means and how the government, through this budget...? I know that innovation is critically important, but how do we take this to the next step, not just in terms of coming up with the ideas but also in terms of putting them into place and having them work in this economy?

[Hendrik Brakel]

That's been the challenge for Canada. We have amazing universities and incredible research. The challenge is getting those new products to market. That's why we've said that we want to build more venture capital in Canada. We have a booming venture capital market, but we want more of those start-ups, those companies that are creating these new technologies.

One of the ideas we're looking at is the fact that British Columbia has an investment tax credit of 30%—it's best in this type of venture capital—and it really appeals to a lot of investors. We're hoping to pull more venture capital into Canada.

There's another idea we were thinking about in terms of some of the tax credits that would work to incent companies to do their innovation here in Canada. A number of countries have what they call a “patent box” or an “innovation box”. The U.K. and the Netherlands have them. It means that if you create an innovation or a technology here in Canada, we'll tax you at a much lower rate; revenues coming out of that innovation will be taxed at a much lower rate. It incents companies to actually do their innovation here.

We want the private sector to step up and do a lot more innovation. That's crucial to the future of our economy. It's about venture capital bringing in new companies and creating them and also having the tax incentive so that big companies do it as well.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Great. Thank you very much.

I'll leave the rest to the parliamentary secretary. Thank you, Mr. Chair.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Thank you.

Just for the record, I'd like to correct: the minister did not say, nor ever suggest, that the CPP would be bankrupt. I was very surprised to hear that from the member, but I can assure you that the minister would never have said that.

[Lisa Raitt, Conservative, Milton, ON]

On a point of order, you can't say that.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

I can say what I want.

[Lisa Raitt, Conservative, Milton, ON]

Well, you're making—

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

My question is for Mr. Scholten.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Champagne.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Mr. Scholten, you're aware that there is a voluntary process going on with respect to credit card fees. Can you enlighten the committee on its effectiveness and on what you know about it?

[Alex Scholten]

The voluntary agreement with the credit card companies was to result in an average credit card rate of 1.5%, the average credit card rate for all businesses. Our concern with that agreement is that prior to the agreement, Canada had amongst the highest credit card rates in the world. After that agreement, Canada still has amongst the highest credit card rates in the world.

In addition to that, the average rate entails that some will be below the average and some will be above the average. I'll give you the example of Costco, which has a zero rating on their credit card fees. As a result, because of the significant sales that Costco has, that average rate then will be impacted, and the retailers that are least likely or least able to negotiate a lower rate will be paying above 1.5%.

So from a small business perspective, we do not agree that the voluntary agreement will have a significant impact on credit card fees.