Finance Committee on May 16th, 2019

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

We have already.

I do want to move on, Chair, to Brian.

Brian, welcome back to the committee. As you know, in our pre-budget report, we submitted recommendation 18. The committee submitted that an expert panel should undertake a comprehensive review of the Canadian tax system, a made-in-Canada approach to address competitiveness, drive innovation and reduce the administrative compliance burden for all users of the tax system. It is something our committee is beholden to.

Our government, in budget 2016, undertook a tax expenditure review. Some $4 billion of what I would call tax expenditures that weren't driving innovation and weren't adding to our competitiveness have been changed or eliminated. We introduced the accelerated investment incentive.

There's one question that I would really to hear your view on. The United States is running a deficit of about 5% of GDP. We're at about 0.7%. To undertake further measures, whether that's cutting taxes or introducing new programs.... There's $14 billion which is going to help manufacturers across Canada.

What do you feel about the United States running a deficit that would be equivalent here in Canada to about $100 billion a year? That would be fiscally reckless. Would you agree with that?

[Brian Kingston]

Yes. First, I should have recognized that the committee did make that recommendation. We noticed that, and we're very appreciative of the fact that you recommended comprehensive tax reform.

On the U.S. fiscal situation, of course, what they're doing is clearly unsustainable. We absolutely do not recommend going down that path. Tax reform can be done in a responsible manner, and you can do it in close to a fiscally balanced, neutral way by eliminating some inefficient tax expenditures, as your government has started to do, and broadening the tax base. I recognize that it is very difficult to do, because every expenditure will have a constituency, but there is a way to do it that doesn't mean running up the deficit, and we would not recommend taking that approach.

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

Thank you, sir.

Thank you, Chair.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Sorbara.

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you, Mr. Chair.

All my questions will be for you, Mr. Taylor and Mr. Wolfe, because you talk about my favourite subject, which is the B-20 stress test.

You mentioned the impacts of B-20 on real estate markets across Canada, especially on homeowners across Canada. Do you think the shared equity mortgages, as laid out in the budget so far, will offset the impact of B-20?

[Paul Taylor]

No.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Perfect.

With respect to the rollout of it so far, we've heard from department officials and from the head of CMHC at the public accounts committee, and nobody seems to know the details of the programs. The head of CMHC said that the board of CMHC only found out they were doing this program through the Crown borrowing program on the night of the budget.

How long would it take to roll out a program like this across the entire broker network in Canada and the banks, and what would that look like?

[Michael Wolfe]

As I mentioned in my remarks, just the IT infrastructure piece of this is very concerning for the lending community. As we sit here in mid-May, we don't have the fine details needed to even start the work on the IT infrastructure and to get the program off the floor in September. We generally need a 10- to 12-month road map or runway to get those programs up and running.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

If the timeline is September, because that's what the Department of Finance and CMHC have said, will that increase costs to get it rolled out faster?

[Michael Wolfe]

Absolutely. As soon as you start to reduce the amount of lead time for an IT project, it significantly impacts the costs for just the IT measure, along with all the other requirements for the program, which of course we don't know yet.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

One of the numbers used by the government repeatedly, as well as by CMHC, is that 100,000 first-time homebuyers are going to be helped. When I asked Department of Finance officials where they came up with that number, they said CMHC. When I asked the CMHC CEO where that number came from, he said the Department of Finance.

Nobody seems to be able to agree how 100,000 first-time homebuyers will benefit from this, but the number made its way into budget 2019. I did some “back of the napkin” math and for 100,000, let's say 5%—I'm excluding new home builds of 10%—that would help about 54,945 people at the maximum, assuming a home price of $230,000.

I'm not sure I can buy a house for $230,000. The average home price in Ontario is $594,000. In B.C. it is $686,000. The average price of a home in Canada is $455,000.

Can you help me out with these numbers? Do you know where they got these numbers? Can you validate any of these numbers provided by the government?

[Paul Taylor]

We've done our own “back of the napkin” math on this as well. A lot of times people talk about the maximum purchase price, but to do that you have to assume that a household is making exactly $120,000. That number comes in somewhere around $550,000 for a home. The average family with, let's say, $75,000 is probably looking to potentially be able to purchase a home worth $340,000 to $350,000.

The concern for us is not even necessarily that. Home prices are already out of reach of what the program mathematically allows you to attain. It's generally that most of the folks who would qualify under the program would have qualified for an insured mortgage anyway, and they actually would have qualified to borrow a little more than this program allows them to. Therefore, not only are you restricted in your purchasing power through the already reasonably strict regulatory environment under B-20, but if you take part in this program, your purchasing power is actually reduced even further, all things being equal.

Incomes don't necessarily match home values across the country, as you will know intuitively. There are certain areas of the country where I don't think it's going to have very much application at all, and there are some areas where there are probably more families that would qualify. However, even in those regions we're pretty skeptical about the level of take-up that's going to occur.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

You mentioned the B.C. home ownership plan. You talked about take-up. I think you mentioned that they had assumed 42,000 or 43,000 people would use it. About 3,000 people actually did and then they canned the program after 15 months. That was a much more generous shared equity program. When I asked the head of CMHC at the public accounts committee about it, he insisted it was a totally different program that would not work the same way. When I reminded him that none of those details are available publicly, and that he doesn't actually have the details because they haven't been decided upon, he got quite defensive.

Can you tell me more about the B.C. home ownership plan and why you think it failed?

[Paul Taylor]

There are definitely some differences between the two programs. In B.C. it was almost an interest-free loan. The CMHC program is a shared equity program. In B.C., if you purchase a home and the government gave you $50,000, five years later when you sell the home, you owe B.C. $50,000. In the newer program, the government is taking the market risk with the homeowner. If the house price depreciates by 10%, you will have to give the government back 10% on whatever the mortgage amount they gave you was. They really are on title and sharing ownership.

In B.C., the reason we would say it is arguably a more appealing program is that there was no interest on the mortgage payments for the first five years, which really helps people keep those carrying costs lower. In almost every market properties are going to appreciate, even slightly. A lot of people aren't really comfortable giving part of that investment proceed away. When you took the B.C. program, you knew exactly what your liability was at the end of the ownership period. With the new federal program, you don't really.

To be fair, there are an awful lot of details about the program we don't know yet, like its application, the description of how it would apply the order of who is going to get paid first if there's a problem on the mortgages, the collateral charge for registration and whether the government shares any investment that is made post-purchase if you make an upgrade to your home. We don't really have the full details yet. Without those, it's difficult for us to even tell you what consumer take-up would be.

In the current structure it doesn't feel very appealing.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to Mr. Dusseault and then to Ms. Rudd.

Mr. Dusseault.

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

Thank you, Mr. Chair.

I want to thank all the witnesses for being here today.

I won't have time to ask everyone questions, but I took careful note of the excellent recommendations you made.

My first question is for Ms. O'Leary, and it's about the poverty reduction act.

I completely agree with you that the goal should be no poverty. We should start by replacing the word “reduction” in the act's title with the word “eradication” and making the purpose of the act to eradicate poverty in Canada.

I'd like to talk about the market basket measure that's used to establish the poverty line. Do you think this measure should be changed in the bill, or should there just be more transparency regarding decisions about the contents of the basket and the costs to calculate the poverty line?

[Darlene O'Leary]

Thank you for your question.

We're not recommending that there be a change in terms of having the market basket measure as the official poverty line. It's a measure that we have made reference to for several years. It provides a certain amount of helpful information. Given its methodology, it tends to reflect more of a cost of living differentiation across communities, so we appreciate that that can be helpful.

I think one of our main concerns is that the market basket measure, because it has a complex methodology, requires very regular review. The costs can change year after year, and we're looking at about 50 communities across the country. Each of these communities is being reviewed for their particular data and household set-up. There is an established basket, what they call a basket of necessities, and that should also be considered something that isn't set in stone. It also needs to be reviewed, in terms of whether or not that's adequately reflective of the actual necessities for people living on low incomes.

It's a complex methodology, and we feel that because of that, it requires very regular review. The last review for the market basket measure was quite a while ago. We're looking at 2011. It's currently under review.

The other complex issue is that it requires that Statistics Canada and Employment and Social Development Canada work in close contact to make sure these reviews are taking place. It also informs the progress, and the ability to track the progress, of the poverty strategy.

We do want to see a very robust process involved, and not necessarily to say that we don't think the market basket measure can have a function.

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

Thank you. I've taken note of your answer about transparency and the need for more regular review.

My other question is about mortgages. I just want to make sure I understand correctly. In your opinion, the government program for first-time home buyers won't help more Canadians qualify for a mortgage.

[Paul Taylor]

Thank you for the question. I'd like to answer in English, if I may.

You're absolutely correct. Because of the structure of the program, people who were qualified to take part in it would already qualify for an insured mortgage. The number of potential first-time buyers in the marketplace is not going to increase, in our estimation.

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

Exactly.

The NDP leader's proposal that was mentioned earlier, which would increase the maximum amortization period to 30 years, would help more Canadians qualify for a mortgage.

I'm going to change topics now. I'm sorry, but I know my time is limited.

[The Chair, Liberal, Wayne Easter]

You have time.

Andrew, did you want in?

[Andrew Van Iterson]

No.

[The Chair, Liberal, Wayne Easter]

Okay.

Go ahead, Mr. Dusseault. You have a little more than a minute—a minute and a half.

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

My final question is about prompt payment.

First, you suggested adding a fairly simple sentence to section 23 of the proposed federal prompt payment for construction work act. Can you repeat it to the committee?

Also, from what I understand, Ontario has a payment bond mechanism in case of insolvency. The federal government should institute a similar system.

Those are the two parts of my question.

[Steven Ness]

Thank you.

With your indulgence, I will also respond in English.

I understand you're asking for an explanation of the placeholder we're proposing.

We do set this out in our written brief, but I'll go over it for you.

Proposed section 23 of the act sets out the regulations for the Governor in Council. There are currently two. We're proposing a third be added. We've included suggested wording for one sentence:

The Governor in Council may make regulations generally for carrying out the purposes and provisions of this Act, including regulations prescribing

(c) the requirements for contractors to furnish Her Majesty with a labour and material payment bond and a performance bond on Construction Projects.

Again, this is just a regulation the Governor in Council may or may not choose to make. That's what we're proposing. Just give us the opportunity to do that, because as the legislation now reads, this is out of the reach of the legislation. This will bring it back within reach and allow the government the flexibility.

Does that answer your question?