Finance Committee on May 12th, 2016

[The Chair, Liberal, Wayne Easter]

Then, coming back to questions, you have four minutes.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Okay. My observation from Ms. O'Connell's questioning and assertion that the Canada summer jobs grant has a wide swath of small businesses that benefit, is that my experience over nine years now of reviewing the documents is that in the initial phase I have had fewer than 10 small businesses approved, and probably 90% or more of the organizations that are recommended for approval are public institutions, cooperatives, not-for-profits.

I would ask this, without putting forward a motion, which I think would be fair, because I can go back in the records and show you my documents. In fact, this year there were 26 small businesses not recommended, a handful that were, less than 10, and I, as you know, as a parliamentarian can say I would like those to be reconsidered and put into the mix and they were and every one of them got a student. I believe that for every one of those 26 individuals, although they didn't fill out the application as well as some other professional organizations are able to do and they were not recommended, I made sure they got that.

I think it would be appropriate, and I would very much like to see, the members of this committee submit their summers jobs grant lists of individuals to verify what your comments were today. I have not seen it under my term here under our government and this year as well.

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

Did you say small businesses?

[Phil McColeman, Conservative, Brantford—Brant, ON]

Small businesses are generally not....

[An hon. member]

Where is your problem?

[The Chair, Liberal, Wayne Easter]

Mr. McColeman, you can make a statement, but you cannot question Ms. O'Connell.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Okay, I will question her after.

I'll go to the witnesses.

[The Chair, Liberal, Wayne Easter]

We have a point of order from Ms. O'Connell.

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

Mr. Chair, with all due respect, I said that small businesses benefit from Canada summer jobs. To put any other words into my mouth is inappropriate and to suggest that is inappropriate.

[The Chair, Liberal, Wayne Easter]

We're not going to have a debate here among members.

Do you have one quick question to the witnesses? You're going to be out of time.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I do.

Mr. Kelly, please comment on the propensity of businesses that are able to.... I know you represent the professional side of small business and this may not be a comfortable question, but can you comment on—I come from the building industry, small contractor, small subtrades—the propensity to go to the cash underground economy when the tax system is penalizing you.

[Daniel Kelly]

I think most of the research that has been done on the underground economy shows that as tax rates rise, the more punitive the tax rate is regarded by businesses or by average citizens, the more propensity there is for some tax revenue to basically be foregone because things go underground.

Canada doesn't have a huge problem with the underground economy at the moment and that's a good thing. I also operate from the assumption that the vast majority of small business owners and average Canadians dutifully pay their taxes because they feel it's their responsibility and nothing upsets a small business owner more than having their competitor working under the table.

I can say for sure that one of the most effective ways to reduce the size and scope of the underground economy is reducing taxation in general. The issue that our colleague from the Convenience Stores Association brought up I think shows that as taxes on tobacco were reduced—and that's not a position I'm advocating—so was the amount of underground economy in that industry reduced.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Sorbara, five minutes.

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

Good morning, everybody.

It's quite spirited today. I wonder what everybody's drinking in their water. I'm going to start off with Alex.

I was actually very disappointed that in your presentation you didn't bring up the voluntary code of conduct that the—

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I would ask the member to withdraw that comment. I think that's inappropriate. There's an allegation in there that I find kind of—

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

In the spirit of camaraderie, I'll withdraw the allegation. How's that? Thank you.

Thank you, Ron.

[The Chair, Liberal, Wayne Easter]

All right. Let's get back to business.

Mr. Sorbara.

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

Alex, you didn't comment on the voluntary agreement that came into effect last year between the card issuers and the Government of Canada. It's been in effect maybe just over a year. You commented on the regulation that came into effect in Australia. It was regulated and then it was re-regulated, and now it's re-regulated again because the measures put in didn't work. Also with regard to the service charges that are interchange fees, those are actually different components. So not just card issuers but also other processors are involved, and that involves costs. You failed to acknowledge that.

I don't want you to comment, but I do want to point that out.

I want to talk to Mr. Kelly.

One thing you mentioned has, in my view, a lot of credence. It is with regard to succession planning.

Some prior witnesses commented that in Germany, if a family-run business is transferred to the next generation, the tax implications aren't the same as the tax implications here in Canada. Anybody here can jump in on this. I think we as a committee should look at tax simplification, because I think that also ties into productivity. People are spending time with their accountants and their advisers when they should be focusing on the successful running of their businesses. Being able to transfer is analogous to owning a home. If a parent owns a home and passes away, if it's their first property, they can actually transfer that to their children with no tax implications. I want to get your view on that.

[Daniel Kelly]

I am thrilled with this question. This is exactly the kind of focus that I would love the finance committee to take on to analyze some of these very important areas of public policy.

We did have better provisions in the past for transferring businesses from one generation to the next, but those were wound down. We know that there are concerns in the Department of Finance about potential abuse of some provisions, but I think the spirit of the question you were asking is very much our view too, which is that there are ways to accomplish this, to do this in a light fashion to allow business transfers from one generation to the next without having massive rules, paperwork requirements, and taxation attached to it. We have made some recommendations on that front. Your Liberal colleague Emmanuel Dubourg, somebody who knows this very well given his background as a CRA auditor, put forward, we think, an outstanding piece of legislation in the last Parliament, and we suggest that you and your government bring it forward again.

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

On the EI premiums, my understanding is that there will be $1.88 this year, $1.88 the next fiscal year and then, due to the break-even components, it will decline down to $1.61. So there will be some relief for all businesses across Canada.

[Daniel Kelly]

Yes, and just quickly on that front, if you look at slide 10 in my presentation, you're absolutely right that those numbers for the EI rates for employers and employees will be falling starting in 2017. However, the previous government implemented something called the small business job credit, which essentially meant that small firms received a 15% reduction in their EI rates back in 2015. Your government repeated it for 2016, and we're very grateful to you for doing that. What that means though is that, in fact, in 2017, the effective rate for EI for small businesses goes up. It goes up by one cent, so it's not a huge increase. I don't want to light my hair on fire on this one, but small firms are not going to get any reduction come 2017. In fact, they're going to see their EI premiums go up slightly.

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

An individual by the name of Jack Mintz presented to us and he stated that he was very, very happy to see that we did not lower the small business tax rate.

[Daniel Kelly]

We have debated Jack Mintz on many occasions. He operates from the assumption that the small business rate traps firms and keeps them small and doesn't allow them to grow to become medium-sized entities.

Obviously you can imagine that, as a group representing small and medium-sized firms, we respectfully disagree with Mr. Mintz, although we do agree with his assertions on CPP.

I do want to say that in the past, your party railed against the Conservatives for reducing taxes for big business aggressively and not reducing taxes for small business. We wish you kept that spirit alive now that you're in government, because, in fact, you have kept the reduction for big businesses at 15% and have cancelled the reduction for small firms. I would love it if this was a one-year pause and you were going to reinstitute the tax reduction schedule next year. However, every single person I've spoken to in your party in government has suggested that's unlikely to happen.

[The Chair, Liberal, Wayne Easter]

I'm sorry, we're both done. I guess we'll have to wait until next year and see.

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Mr. Brakel, I'm assuming that in the Canadian Chamber of Commerce you have a large number of small businesses that are also members of your association.