Finance Committee on May 1st, 2019

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Fine. I understood that it was for 2025.

The other unkept promise, which was a very clear one, was the one about stock options. You at least mentioned that in the budget, and I have to recognize that.

In your budget statement, you mentioned that this was a highly regressive measure. You admit that the measure is regressive, and even include very clear figures in your budget. I will mention them so that people who are listening to us understand well.

In 2017, 2,330 individuals who earned more than $1 million a year shared $1.3 billion in tax advantages related to stock options. And then there were 20,140 individuals who earned less than $200,000 a year, who shared $120 million thanks to that measure. In your own words, this is a highly regressive measure.

The only thing you did in the budget, even though this relates to a 2015 promise, is say that you would examine the issue and make an announcement next summer. Bill C-97, which we are now studying, was your opportunity to change the Income Tax Act to finally correct it and provide that fairness.

Why did you again postpone a promise you made to Canadians, and which you have still not kept four years later, and are postponing again?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you for the question.

As we said in our budget, we decided that it was necessary to take a different approach to stock options. We think it's important to see to it that companies that are experiencing growth—in several cases small and medium enterprises—have the opportunity to offer stock options. It's very important for them.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

You have been saying that for four years. It's been four years since we asked the question and you have given that same answer over those four years.

[Bill Morneau, Liberal, Toronto Centre, ON]

Yes, but we explained—

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

You did not find a solution.

[Bill Morneau, Liberal, Toronto Centre, ON]

This year, we explained that we would find a solution. We are going to provide more details over the next weeks and months to explain how it will be possible to keep what we have, which is important for growing companies.

However, at the same time, we must ensure that people who earn a lot of money thanks to the current system pay their fair share of tax. As always, we must find a balance and we are doing that.

If you want more details, Mr. Marsland can explain things.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

No thank you.

[The Chair, Liberal, Wayne Easter]

We will have to end it there. Time flies when everybody is having fun.

We'll turn to Mr. Sorbara, and then we will be back to Mr. Poilievre for five minutes.

Mr. Sorbara.

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

Thank you, Chair, and welcome, Minister.

Minister, last year, the Trump administration undertook a massive tax reform both on the corporate side and on the personal side. Two of those measures were to reduce corporate income tax rates and the second one was to bring in accelerated depreciation. Various groups advocated for changes in our tax rules to ensure we remained competitive. A.T. Kearney put out a report a few months ago saying that we had moved up the ranks and are number two in the world, slightly behind the United States.

I would like to hear some colour on our decision-making in terms of the measures we put in place to ensure companies in my riding in Vaughan—as you know, Martinrea, Magna and, in York Region, a number of large manufacturers—can continue to invest in Canada and continue to create good middle-class jobs.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you. This is a really important subject. It's obviously one that was unexpected in the sense that the U.S made significant changes.

The U.S. tax code, prior to their changes, was largely one that had fallen behind other OECD countries. Canada had already moved to lower corporate tax rates prior to the United States. We found ourselves in a situation prior to those changes and, in fact, afterwards as well, where we had a very competitive corporate tax rate. Our corporate tax rate, when you add in provincial and federal taxes, is roughly around 27% for large corporations and obviously a lot lower for small corporations, where we have the lowest small business tax rates among G7 countries.

When the U.S. changed their rates from an average of about 35% down to about 26%, they effectively changed them to be in the same zone as Canada. Of course, it made things more advantageous for companies in the United States. They broadened the base at the same time and added more things that were considered taxable, but importantly, they allowed companies to accelerate the depreciation of capital investments on a rapid basis. That created a situation where they were more competitive than Canada was with those changes.

That was what led us, in our fall economic statement, to accelerating the ability to depreciate capital cost investments for businesses in Canada. We did it slightly differently than the United States did. We added more categories, or we have more categories that are able to be depreciated, meaning that the analysis that we took on concluded that the ability for the next investment in Canada by an organization would mean there would be a 5% advantage on accelerating that depreciation in Canada versus the United States, allowing us to be in a competitive spot for new investments that should create jobs and help our economy to grow.

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

Thank you, Minister.

I would add that last night I attended the Chemistry Industry Association's annual international conference here. We've seen a number of projects, including Inter Pipeline, a $3.5-billion project, a joint venture between Pembina and the Kuwaitis. We also have the approval for LNG Canada, in the area of the country I grew up in, northern British Columbia. That will create tens of thousands of jobs and a great benefit for our economy, which will benefit from the introduction of the accelerated invested incentive.

I would like to pivot and move on. Within the BIA, there is a section with regard to poverty reduction. It's something that doesn't happen overnight. It happens with a number of policy instruments that our government has introduced. In my wonderful riding of Vaughan—Woodbridge, where I have the privilege of representing those residents, every month, with the Canada child benefit, nearly $5 million gets sent to the residents there, benefiting over 16,000 children. The exact number is 16,210 in over 9,000 families.

On February 26, StatsCan put out the Canadian income survey. It showed a large drop in poverty levels in Canada. I think the exact number is 825,000. I would really like to hear of policy measures that our government is continuing to adopt to reduce poverty and lift people into the middle class across Canada.

[Bill Morneau, Liberal, Toronto Centre, ON]

This is a really important discussion. Obviously we set out to make sure we could not only ensure that middle-class Canadians were more optimistic but also that more people had the opportunity to be successful and get into a better financial situation, particularly those who were impoverished.

There are three measures that we think have made the biggest impact. One is, as you say, the Canada child benefit that lifted literally hundreds of thousands of children and of course their families in many cases out of poverty. Another is the Canada workers benefit that gives a benefit to people to get into work if they're not in work and enhances that benefit so that, as they move off social assistance, they get more value from that. Also, there is the increase in the guaranteed income supplement for single seniors.

Those three measures together were what largely added up to the 825,000 people who moved out of poverty. It's one of those things that, as we look back on what's been achieved during this first term of the Trudeau government.... We will look back and say that it's quite remarkable that, in three and a half years, we've reduced the poverty level from over 12% to about 9.5%, helping hundreds of thousands of Canadians to be in a better situation today and more optimistic for tomorrow.

It's particularly important when we think about the challenged demographics we have in this country. Getting more people into work and getting more people with the capacity to invest in themselves and their families provide for greater future prosperity for them and for our whole economy. We need people to be seeing that kind of success.

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

I think I have a few seconds left, Chair.

[The Chair, Liberal, Wayne Easter]

Please be very quick.

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

I would like to have on the record, going back to the accelerated investment incentive, that the marginal effective tax rate on new investments in Canada is approximately four percentage points lower than it is in the United States and amongst the lowest in the G7. I applaud you and your department for undertaking that initiative and allowing firms to continue to invest in my riding. There's a very large and heavy manufacturing presence in my riding and I do understand their concerns and needs. I meet with them regularly.

I thank you for coming to the committee today.

[The Chair, Liberal, Wayne Easter]

I'll take that as a statement, not a question.

Mr. Poilievre, you have five minutes.

[Pierre Poilievre, Conservative, Carleton, ON]

Your department conducted a review of tax credits and I want to know what tax increases you considered.

Did your department ever discuss with you, or you with them, in person or in writing, the idea of cancelling the health and dental benefits tax break that exists?

[Bill Morneau, Liberal, Toronto Centre, ON]

You're referring to the—

[Pierre Poilievre, Conservative, Carleton, ON]

Health and dental benefits are not taxable. Did you ever discuss the idea of making them taxable with any of your officials, in writing or in person?

[Bill Morneau, Liberal, Toronto Centre, ON]

I believe you're referring to the employee benefit, the non-taxability of employee benefits.

I think you're going back to the review we did of taxes that was...during which period?

[Andrew Marsland]

It was in the period 2016-17.

[Bill Morneau, Liberal, Toronto Centre, ON]

Yes, it was in 2016, and we did take a look at all the tax credits available to Canadians to understand their effectiveness, their distributional impacts and their costs to the government.

Although I can't remember any specifics of the documentation I received at that time, I imagine the review would have been comprehensive so that we could ensure we had considered all measures. As is clearly demonstrated by the continuing status of that—

[Pierre Poilievre, Conservative, Carleton, ON]

Did you...? I asked a very short question, Chair. I just want a quick answer. Did you ever discuss with your officials, in person or in writing, the possibility of taxing health and dental benefits, yes or no? We can move on.

[Bill Morneau, Liberal, Toronto Centre, ON]

I think my job as Minister of Finance is to work with the team to constantly review our tax system and like any other part of our tax system, we would—

[Pierre Poilievre, Conservative, Carleton, ON]

Is it yes or no?