Finance Committee on May 12th, 2016

[Julien Lampron, Directeur Affaires publiques, Fondaction, le Fonds de développement de la CSN pour la coopération et l'emploi]

Thank you, Mr. Chair.

Ladies and gentlemen of the committee, thank you for inviting us here this lovely sunny afternoon. It is a pleasure to spend the afternoon with you.

I am here to present Fondaction CSN, which was created in 1995 by enabling legislation of Quebec's National Assembly. The fund began operations in 1996 and it is now the second largest labour-sponsored fund in Canada.

Our mission is to promote economic and sustainable development, to create and retain quality jobs, and to encourage retirement savings, of course. I want to emphasize how important it is that the tax credits afforded to Fondaction shareholders have been completely restored.

We are an innovative financial institution. Since our inception, we have established the strictest governance and transparency requirements, and we have met these requirements for 10 years. We produce sustainable development reports consistent with the exhaustive criteria of the Global Reporting Initiative. We were the first financial institution to do so.

Our institution subscribes to the principles of responsible investment. Since 2007, we have been members of the United Nations Global Compact relating to the various principles for the attainment of millennium development goals.

Our goal is to focus increasingly on social impacts. When we invest in companies, we look not only at economic development. We also analyze the socio-economic impacts, and socio-economic training is given to the various companies we invest in.

Sustainable development has always been at the heart of our mission. We have decided not to choose among social, environmental and economic development, but rather to support all three at the same time.

Our business is very profitable to the government. A study released on May 31, 2015, of which you will soon receive a copy, shows that the tax and tax-related revenues directly attributable to Fondaction, relative to the cost of the tax credits, benefit all Canadians. The study shows a cost-benefit ratio of $1.08 for each dollar spent. So the impact is positive. We came up with a ranking in this regard: the ones we invest in and in which we are are the only ones who can invest, those in which other partners could invest, and those in which all businesses could invest.

We maintain and create jobs, over 30,000 for our entire portfolio. The various statistics I just mentioned pertain to 150 companies, while our portfolio has 800.

Tax credits enable Fondaction to carry out its primary mission, which is to promote retirement savings and create quality retirement capital.

The average annual income of our shareholders is $48,000. Without Fondaction and without labour-sponsored funds, they would not have access to the retirement savings they currently do. We have 128,000 shareholders, 51.4% of whom are women, and annual dues are $2,840, while the maximum is $5,000. We have shown that most shareholders of Fondaction CSN or of another labour-sponsored fund only have access to retirement savings through the type of vehicle we offer.

Fondaction can offer savings to middle-class retirees thanks to the support provided by federal tax credits. According to data from the Régie des rentes du Québec, in 2012, 47% of workers in Quebec, or nearly two million people, had no pension plan.

Tax credits enable us to achieve our primary mission. We can invest the savings for the long term with venture capital, which benefits SMEs. This enables us to expand, modernize, make acquisitions, merge companies, and, above all, to support business continuity by managing succession and transfer programs.

The elimination of the tax credit would have led to a withdrawal from Fondaction and from venture capital, as well a drop in development capital. Considering the leverage effect, the withdrawal of labour-sponsored funds would have reduced businesses' access to substantial amounts from private investors.

I would like to thank the government for fully restoring these tax credits in the budget.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Lampron.

We'll go to the first round of questions, and I think we're going to cut back to five minutes in order to get to business.

Mr. Grewal, you have five minutes.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair, and my thanks to our witnesses for appearing today.

Madame Bak, our government has made a commitment that the economy will grow not at the expense of the environment but hand in hand with it. A strong environment will lead to a strong economy and vice versa. Recently, the Minister of Innovation, Science and Economic Development had an op-ed in theToronto Star saying that innovation should be a Canadian value, that innovation should be at the core of every aspect of economic decision-making .

In a Toronto Star article that you wrote, you made an interesting point. You said there was a “need...to connect the dots, because if we just do more innovation, we will get the same results as we did in the past, which is lots of promising companies, but none that grow up here.” I thought that was a really interesting comment, saying that the whole purpose of innovation is to grow companies, to change the way that we're doing things. You're saying that we also have to recognize that we may be innovating a ton but we are not getting empirical results in the long term. If you could comment on that, it would be great.

[Céline Bak]

Canada has been thinking for some time about productivity and why Canada's productivity figures are not at the level we would like them to be in OECD rankings. This has led to some fairly serious consideration about matters to do with innovation.

Productivity is a result of investment in new ways of doing things. This may be technology or it may be management processes or it may be capital. In Canada we have a fairly concentrated economy, and we also lag in a number of ways in terms of regulations. The competitive forces at play are relatively low and our regulatory framework is not as robust as it is in some other countries. A rising price on carbon is an example of that. Absent robust, competitive forces to stimulate innovation, and absent, where there are market failures, regulation to stimulate the take-up of innovation, we will not have all the benefits of the investments we're making in innovation.

I would also say that other countries, Israel included, have very good economic information on the role that relatively small firms play in their global competitiveness through exports and other things. I would suggest that we may want to consider reporting on R and D, and exports as well, by size of firm so that we have the macroeconomic information to improve the formation of capital markets and our decision-making in the private and public sector.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you.

My next question is for Mr. Battle. I wanted to thank you for submitting your presentation. It was one of the more objective ones I've read since I've been on the committee. You pointed to what was good in the budget, you pointed to what was not so good in the budget, and you pointed out areas for improvement and constructive criticism.

In your conclusion you wrote that “it appears that the government truly appreciates the value of social investment. For the next few years at least, social policy is that”. You spoke about the Canada child benefit. You also said that the universal child credit previously implemented was not really tied to child care and that the Canada child benefit addresses two concerns. At its core, it gives more money to those who need it most. At the same time, it helps to alleviate poverty for 300,000 children. But then you went on to say that this is only good if we index it to inflation.

Can you elaborate on these comments?

[Ken Battle]

Yes. Thank you for your comments. It's nice to hear that people read our work, and that we are non-partisan.

Let me just give a specific example to answer your question. But first, the failure to index the new child benefit blew me away. I never could have thought that a new government would do that, which is I think is quite critical, since we've seen over the years when governments of all political stripes have tried indexation or de-indexation, that it ends up with pretty bad results.

But the one about the new child benefit, though, is very powerful. Let me give you an example; it's just simple arithmetic. In July 2016, when it starts, the Canada child benefit will pay a maximum of $6,400 a year to a low income household. That's a very hefty amount of money.

If inflation were to run at an annual rate of 2%, which is does these days, the purchasing power of that benefit will fall in the second year to $6,272. By 2020, the real value of the benefit will be only $5,903 in constant 2020 dollars. It doesn't sound like much to people, but it really adds up. That's the problem with indexation. It's quite sneaky.

The only reason that governments do that is to save money. So we were not happy about that aspect of it, and what we've asked for is an explanation of how the child benefit will be rolled out—

[Raj Grewal, Liberal, Brampton East, ON]

Sorry, not to cut you off, I think I only have—

Can I make one comment, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

Go ahead.

[Raj Grewal, Liberal, Brampton East, ON]

I just wanted to say that in your press release on the budget, you made it a point of saying that there's a weakness in Canada's retirement programs, specifically that the Canada Pension Plan is not doing enough to support retirement because the whole concept is that it would supplement five attention programs.

[The Chair, Liberal, Wayne Easter]

I don't think that was a short comment.

Maybe, Mr. Battle, you can come back to that in another question.

Ms. Raitt.

[Lisa Raitt, Conservative, Milton, ON]

I would just pick up on my colleague's questions.

Mr. Battle, did I hear you say in your remarks that you think indexation will happen in 2020?

[Ken Battle]

No. The government has said that in 2020 they will begin indexing it, yes.

[Lisa Raitt, Conservative, Milton, ON]

So when did the government say that? Because I have the parliamentary budget officer's report here. It goes out to 2020, and it says that “spending on the new benefit is stable as the CCB will not be indexed.” I'd like to get an understanding of when the government said this. Perhaps you can give me a press release or...?

[Ken Battle]

That was part of the mystery of the whole thing. On budget night, a reporter, from I can't remember which newspaper reported that it was not going to be indexed until 2020. I talked about that with my colleague Sherri Torjman, and we couldn't believe that this could be true. We called some people at PMO that we know and they said, yes, wait until the budget act comes down, and you'll find out clearly what's going to happen. We're in limberland. We don't know what's happened to it. We think it's important that the government make that clear so that the people can understand and criticize it, or whatever. But so far, it's a mystery.

[Lisa Raitt, Conservative, Milton, ON]

It's interesting, and I appreciate you telling us that you did have these phone calls with the PMO and that assurances were given, because I did take a look at the supplementary information that's on the budget.gc.ca website and it is silent on the issue of whether or not it's indexed, but it only has two years. Then I turned to the PBO report and found that's very clear. Even in 2020-21—sadly for you—there's no indexation, and the PBO is actually relying upon that in order to show that the government's books are in good stead over that period of time.

I appreciate you sharing with us the information. We may be following up on that somehow, in some fashion at some point.

Mr. Chair, I'll give you some notice that we may be asking for some PMO folks to come in and talk to us about what kinds of assertions they're giving with respect to indexation on the child care benefit. I do appreciate the work.

I do have a question for Dr. Lee. I have to say you did put out something very controversial; it is on your deck. You said that perhaps what we should do is amend the concept of universality and move towards more targeted measures. In other words, get rid of everybody getting it, you only get clawed back at about $70,000, and move it into more along the lines of.... You also said not to believe that the CPP is going bankrupt, that the Canada Pension Plan fund is in good stead.

I guess I'm wondering. The Liberal government has decided to move away from universality on the child care side. Can you tell me why they should do the same thing on the senior side?

[Ian Lee]

Right.

By the way, I may not have spoken well or clearly. I wasn't referring to CPP, I was referring to old age pension.

[Lisa Raitt, Conservative, Milton, ON]

I understand that. I was talking about CPP.

[Ian Lee]

I was making reference to the criticism of the criticism, because the PBO said he didn't know what people were talking about, that the OAS is sustainable. Well, people like me and Jack Mintz never said it was unsustainable.

The issue is not whether it's going to bankrupt Canada. Of course it's not going to bankrupt Canada. We're an enormously wealthy country. I'm saying that as someone who travels around the world teaching over 100 times in developing countries. I'm going to be in Poland in August and China in October. We are fabulously wealthy.

My point was that it obscures the fact that resources are scarce and when you, the decision-makers and the parliamentarians, have a choice between using—and I called it “squandering”—public resources on something that's less essential versus more essential, you should always focus on the more essential and not the less essential. That was my fundamental point.

Again, I do want to thank the clerk of the committee for being able to get these slides to you. Take a look at page 9. It's from Jack Mintz, but in turn it is based on Finance Canada's income replacement percentages. In my paper on how Ottawa spends—which hasn't yet been physically published—I argued that there are really two pension systems in this country and people don't really realize it. We think this is one big pension system. I've said that we have a public pension system for people in the bottom two quintiles. I said that empirically and statistically they receive most of their income in retirement from OAS, GIS, and CPP.That's an empirical statement, whether we like it or not, whereas the top three quintiles, which is the top, the upper-middle, and the middle, receive declining.... Look at that graph on page 9. You get down to people in the top quintile and it's 10% of their income.

My point is that we have de facto—not legally but de facto—two different pension systems. One is for low-income people, which I define as the bottom two quintiles, who absolutely need the public system. I'm not suggesting taking away it from them. In fact, I'm suggesting giving them more, and taking it away from university professors, NGO, union and corporate leaders, and Conrad Black, and high-income people, who shouldn't be getting OAS.

[Lisa Raitt, Conservative, Milton, ON]

Mr. Lee, I have one last question.

Is there any truth to the assertion that the reason why it's okay to move from 67 years of age to 65 is that those who live in the lower-income class actually don't live as long, and that's why it's not as expensive? Is that a valid reason, do you think?

[Ian Lee]

I'm not sure if it's a valid reason. If you're asking me if there are empirics on that, I've seen them. I can't quote them from my fingertips, but life expectancy is correlated to income. The American data is very clear, as is Canadian data, that the more educated and higher the income, the longer the longevity.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you, Ms. Raitt.

Ms. Ashton, welcome to the finance committee. The floor is yours for five minutes.

[Niki Ashton, NDP, Churchill—Keewatinook Aski, MB]

Wonderful. Thank you very much.

Thank you to our witnesses for coming today.

I want to spend a few moments talking about something that didn't come up in any focused way in the presentations, and that's the changes to EI in Bill C-15. This is obviously something we've heard quite a bit about. While there are some very welcome changes, they don't go far enough in terms of making a difference for many working Canadians.

I'd like to direct my first question to Mr. Battle. I'm familiar with some of Caledon's work around the ineligibility surrounding EI, and the fact that fewer and fewer Canadians are eligible. I'm thinking about the report you put out in December 2011, entitled “Fixing the Hole in EI”. Specific to Bill C-15, the concern has been raised that there are regions that have suffered significant unemployment in the last two years and that are excluded. We hear today that finally the Liberal government is seeing the need to include Edmonton as one of those regions. We're hearing some different reports in terms of southern Saskatchewan, which has also been hit hard by the drop in the extractive sector. But we still know that many regions that depend on seasonal work, including in Quebec and the Atlantic, are still ineligible, and it creates the black hole, or le trou noir, that we know of.

Many Canadians who are hurting have paid into EI and aren't able to access it. In your report you talk about 55% eligibility; I guess that was in 2011. Now we're down to about 40% eligibility. I'm wondering if you could speak to this. Is this a serious issue? Should we be taking it more seriously? Should we be fixing the EI program to make it more responsive to current crises that Canadians are facing but also a shifting job market, particularly the rise of precarious work? Any thoughts on that would be welcome.

[Ken Battle]

There are two key criticisms that we make about EI. I think EI is an incredibly important part of our social security system and certainly is one of the social programs that is most in need of reform. We think the regionalization aspect of EI is a bad idea. It leads to the kinds of inequities that we're seeing now in various parts of the country. What's needed is to increase the earnings-related ratio for EI so that it is a more generous program. It could be developed over the years so that it doesn't have these regional aspects to it, which we think are quite pernicious, like it or not.

The other problem you just touched on is the development of a new labour market, with marginal work and the whole syndrome of problems that people have adjoining to the labour force. We decided that, on this one, you can't fix it with EI as a social insurance. We're always going to have these kinds of inequities that we see, that we talk about. We suggested a kind of experiment to look at a new program, an income-tested program, that would be geared to people who just can't make it in the usual labour market. There has to be another way of helping those people. They're certainly never going to meet the requirements of the social insurance-based program.

So it's those kinds of things. We're trying to look at it from a broader point of view. The unfairness in the regionalization thing I think is palpable, and some of it has to be fixed.

[Niki Ashton, NDP, Churchill—Keewatinook Aski, MB]

I appreciate that point. Of course a number of organizations, whether it's the labour movement or others, speak to the need for a universal threshold recognizing that the regionalization, as you pointed out, is problematic and that there are major inequities.

Do you believe looking at something like that would be helpful? I take your point about how the shifting labour market speaks to a whole other discussion that we ought to be having, but in the meantime, should we be looking at a more universal threshold for EI?