Finance Committee on May 7th, 2019

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

Absolutely. During one of the weeks that I was back in the riding, I was with the Minister of Infrastructure and the City of Toronto announcing funds for the disaster mitigation fund, of which the City of Vaughan received $16 million. We know climate change is real. We know we have to strengthen our infrastructure and mitigate the effects of climate change. It was a great announcement, well received. We had a number of mayors there, and we've had a great working relationship with them.

I'll move on to the mining sector and the Prospectors and Developers Association, PDAC.

We put flow-through shares in the budget. How important was that certainty for decision-making within the sector?

I think that's more important for PDAC. Then we'll switch to the Mining Association.

[Lisa McDonald]

Certainly, as noted in the remarks, this is something that we, as an organization, have advocated for since it was first implemented in 2000. As you're aware, it has been on a one-year renewal for that entire time. The five-year renewal really does provide that certainty for our members that there will be that type of investment and financing available to them for multi-year exploration programs.

As also noted, most of the exploration that is taking place now in Canada is in northern and remote regions. It's more challenging to do that exploration, and the time frame for planning in order to be successful has become longer, so that five-year horizon is certainly critical for our members.

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

Brendan, the Mining Association of Canada tends to deal with larger entities. There have been some mines approved. I believe Agnico Eagle had a mine approved up in northern Canada, I think in Nunavut, if I'm not mistaken. How could we strengthen the incentive for firms to continue to invest in Canada? I've heard from a lot of industry associations that it's not just the last three years, that it's been over a while that we've lost out to some of investment, and it's over a number of years under both Conservative and Liberal governments.

We introduced the accelerated investment incentive and accelerated capital cost depreciation for firms so manufacturing firms can invest or companies can buy equipment and write it off more quickly.

What else can we be doing? It's not a matter of just changing corporate tax rates. A.T. Kearney last year positioned us at number two for foreign direct investment in terms of attractiveness, so we are doing a lot of things right, but we could always be doing other things better.

Can you comment on that as well, please?

[Brendan Marshall]

To make a long story short, companies don't invest where they don't have confidence they can put in a project. If they have confidence they can put in a project, they don't invest where they don't think they can make money off building or operating one.

There are a number of points made about tax competitiveness here, and I think in many respects they're good points, but the nuance is really important.

My colleague and co-panellist, Kim, mentioned that we're at a significant disadvantage with respect to the U.S., and I think in some sectors that's very true. In the mining sector, we're not as much as a competitor with the United States of America as we are with other gold mining jurisdictions, so there's a limitation to the degree and extent to which that comment is directly applicable to us. It is applicable to oil and gas, absolutely. We also represent oil and gas members, so we're sensitive to that.

I think that the measures that were announced in the fall economic statement are welcome because for a long time there was so little attention given to improving the competitiveness of Canadian industry vis-à-vis the tax system.

In budgets 2012 and 2013, we saw the removal of indirect and direct mining tax credits. I think those measures that were put forward in the fall are a recognition that they need to do more. Are they enough? No, I would not suggest that in and of themselves they're enough to turn the tide of investment leakage out of this country in mining, oil and gas and other sectors as well, but I think it's a positive first step.

When we responded to that, and we did respond to that positively, we did so in the context that there's more work to be done, and we want to make sure that we do that with governments to make sure that our sectors remain competitive going forward. I don't think anybody sitting around this table, regardless of their political stripe, wants me to come back next year and say we've lost another $10 billion, $15 billion or $20 billion in projects, because I've done that year over year consecutively over the last five years.

Let's work together to avoid that happening going forward.

[The Vice-Chair, Conservative, Pierre Poilievre]

It's all the time we have, Mr. Sorbara.

Mr. Richards.

[Blake Richards, Conservative, Banff—Airdrie, AB]

Thank you.

Mr. Moody, you mentioned our competitiveness when it comes to tax rates. I also have a blog post that you did, which I thought encapsulated it pretty well, where you said:

[I]t is...disappointing given the fact that our country’s personal and corporate tax rates...are not competitive when compared to the gorilla south of the border (the United States). Our firm continues to hold the strong view that tax rate reductions are needed to compete with the US given the strong magnetic pull that US tax reform has had on investment capital.

I wonder if you could elaborate on that a little bit and tell us a about the direction that we've seen in the United States, the direction that we're seeing here in Canada and what effects that has had, particularly when it comes to either attracting new businesses or to keeping businesses here that are currently here when we look at those differences in terms of competitiveness when it comes to tax rates.

[Kim Moody]

I think I'll answer that question from two different angles. First of all, recognize that our firm deals exclusively with private clients, so we're not dealing with the headline grabbers of all the large oil and gas companies that are fleeing, for example, the oil sands. That's just not our firm. What we're dealing with is private businesses, their wealth and their capital, which doesn't hit the news, and it will take a long time for statisticians to be able to keep up and figure out how much is left.

I can tell you there are two broad strokes. One is individuals leaving Canada, just saying goodbye to Canada. I can tell you that I've been doing this game for a long time, and in the last three and a half to four years, I have never had more assignments helping wealthy individuals leave Canada. It will never hit the headlines, but it's a tremendous amount of capital. That's the first thing.

Number two is much more common.

[Blake Richards, Conservative, Banff—Airdrie, AB]

Can I maybe interrupt you before you go to number two?

[Kim Moody]

Sure.

[Blake Richards, Conservative, Banff—Airdrie, AB]

Can you maybe speak to the effects that has for our economy?

[Kim Moody]

I think there are a whole bunch of effects. When wealthy individuals leave Canada, especially if they're job creators, the worst-case scenario is those jobs leave or just end. In many cases, the brains behind the operation are gone and that taxation on the investment income is gone as well.

Number two is much more common, especially with U.S. tax reform. It is the investment of capital in the United States by Canadian private businesses for a variety of reasons. One is that it's just a much more attractive business environment. My home province of Alberta, as you know, is in pretty rough shape. A lot of them are simply trying to survive. The United States looks pretty attractive and in many cases, it is.

[Blake Richards, Conservative, Banff—Airdrie, AB]

I want to maybe just turn to intergenerational transfers of family businesses. It came up in the first panel. I know you were there, so you had a chance to benefit from that discussion, but I'm sure you have some thoughts on this as well.

MNP used the example of, I think, a bakery in Waterloo. I can think of many examples, but the one that most sticks out for me is a small pharmacy. It's a family-run pharmacy in my riding. This family is a pillar of the community. They do all kinds of great things in the community. Their kids want to be able to take over. He's a pharmacist and he wants to take over the business, but he said to me that he can't do that to his parents. As much as he wants to take over the business, he just doesn't think it would be right to do that to his parents because of the effect it would have on them.

I wonder if you could speak to this issue of intergenerational transfers, the challenges there and what should be done to address that issue.

[Kim Moody]

It's a tricky issue. This issue has been around since 1985. This is not a new issue. When they introduced the capital gains deduction in 1985, this issue existed. I commend the current government for at least looking at it and, frankly, wanting to solve this decades-old problem.

I've sat on many private committees that have put forward submissions to the Department of Finance on how to solve this issue, and notwithstanding the showboating, as I call it—where they go across the country and do these hearings of what should be done—this is a very technical issue that cannot be solved by the average person.

The best submission that has been put forward by far is one by the Conference for Advanced Life Underwriting, CALU, which made a submission in September 2018. That submission has not received a ton of attention, unfortunately, but it needs to. I participated in that. There is a group of about six or seven of us who did what the government asked us to do, which was to spend a lot of time thinking about this issue. But no, instead we have more showboating across the country looking for submissions.

I think what needs to be done is, number one, look at that submission. There is some gold in that submission. Then act on it, because it's a real issue. It's important.

[The Chair, Liberal, Wayne Easter]

Thank you. On that submission of the Conference for Advanced Life Underwriting. Can you send a link to that? We probably have it, but it will draw it to our attention. Send it to the clerk and he'll send it out to all the members, so that we have it top of mind.

Mr. Boulerice.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you very much, Mr. Chair.

I'm pleased to be here with all of you. I have to replace my colleague, the member for Sherbrooke, who was called upon to react to the Auditor General's report.

My first question is also for Mr. Moody.

What's interesting is that the Auditor General tells us that the shortcomings in the taxation of e-commerce mean that our companies are subject to unfair competition from foreign companies. This is also in the headlines of newspaper articles about the Auditor General's report.

I'd like to hear your opinion on this.

Are Quebec and Canadian companies, in fact, at a disadvantage because of the federal government's inaction when it comes to the taxation of e-commerce?

[Kim Moody]

If I understand the question correctly, I'll just paraphrase it in English: Do I think that Quebec and Canada have been harmed by Internet sales that ultimately have not been subject to both federal and provincial tax? Is that a fair summary?

I would suggest the answer is yes. Again, this is a very difficult issue that the OECD has spent a lot of time looking at and it has released some reports on this issue, but I would suggest that implementing that is much easier said than done.

Is it something that we should look at? Absolutely we should and, in my view, we should take action.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

From your point of view, do you see other countries in the OECD doing a better job than we are right now as a country?

[Kim Moody]

Better is subjective, right? Do I see other countries taking action? Yes, and in my opening remarks I gave one example, which is a recent proposal that France has come up with, which is to tax the French revenues of Google, Amazon, Facebook and all these Internet giants.

Do I think that's a step in the right direction? Maybe. The OECD doesn't like that proposal, but France struck out on its own. To make a long story short, do I think countries like Canada need to actually go it alone in certain cases? Yes, I do.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you.

My next question is for the representatives from the Federation of Canadian Municipalities.

We are almost out of a serious crisis, the flood crisis, which is affecting all regions of Quebec. Infrastructure will be increasingly affected by natural disasters and climate change, sometimes in the form of droughts and sometimes floods. Flooding also means mould and moisture problems later on.

Do you think the municipalities that you represent have the necessary means to be able to invest in what is called “climate change adaptation”?

[Carole Saab]

Obviously, these are timely and very critical questions you're asking.

The short answer is no. The cost to upgrade infrastructure to truly meet adaptation requirements is significant. It is monumental. Our infrastructure in this country is, for the most part, pretty old, and obviously, with increased climate events and the effects of climate change, municipalities are on the front lines of the impacts that are being felt.

The current climate change and disaster mitigation and adaptation fund is a start, certainly. We know that it was oversubscribed. We know from members there are many projects in the queue to get some support to adapt the infrastructure.

Your question is quite critical, because it isn't really a matter of will. Everybody's aware of the situation. Everybody's concerned about the situation. Cities and communities across the country are doing what they can to protect their residents. The costs are so significant, comparable to the revenues to which municipalities are entitled. It really is going to require a partnership, and significant partnership, from other orders of government.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Would you like to have a federal fund that would allow you to work with municipalities fir several years, that is, to have a five-year or 10-year plan, and therefore work with municipalities on investments or work by project?

[Carole Saab]

Our current recommendation is that the current disaster adaptation fund be expanded in terms of the order of magnitude. Again, as with anything, the more long term and predictable funding is for municipalities, the easier it is to plan and use it.

[The Chair, Liberal, Wayne Easter]

Ms. Rudd.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you very much. I want to put a question to Lisa, from PDAC, and Francis, maybe you could chime in as well.

The Governor of the Bank of Canada was here earlier this week, and one of the things he talked about was foreign direct investment. I want to highlight that a couple of months ago, Bloomberg pointed out that FDI rose to $51.3 billion last year, as reported by StatsCan. That was the highest annual total since 2015.

Even as investment in the oil sands has somewhat levelled off, investment is coming in to other sectors of the economy. I'd like to talk a little bit about those sectors, one being relevant to both PDAC as well as the Canadian Electricity Association.

At PDAC, just a few months ago, there was, for the first time ever, a discussion between mining and the nuclear sector around the deployment of small, modular reactors as a form of energy, removing diesel from the mix. As we know, there are mines that have become electrified in Canada.

In your submission you spoke about the strategic innovation fund and how that will help move that along in terms of cleaner energy production for mining. There was a really interesting meeting attended by about 150 people, including lawyers, people from the finance sector, mining and nuclear, in a room, in Toronto, for the first time ever, talking about how we can electrify the mining sector.

Lisa, perhaps you could talk about how you see that helping the.... I know the METC was huge for the mining sector, but this is also a game-changing next step. Francis, you can talk about electrification.

[Lisa McDonald]

Sure. I can start, but then I'm going to pass it over to my colleague Brendan. He was at said meeting at the PDAC in Toronto, so he can speak to it further.

Certainly from a high level I can comment that, as we noted, one significant cost barrier to operating in the north is the dependence on diesel. There are no other options for energy in the north. Certainly our sector is looking increasingly to innovation to help us solve some of those problems. There is significant interest in small nuclear.

Maybe with that, Brendan, I'll throw it over to you to give a little more—