Finance Committee on May 16th, 2019

[Pierre Poilievre, Conservative, Carleton, ON]

Right. Okay.

Thank you for your comments on that. Right now it does remain a case for unsolved mysteries, and hopefully we can solve the riddle at some point, all of us together.

My next question is for the Surety Association of Canada. We had the Strandherd-Armstrong bridge construction in my riding. The general contractor went broke. A bonding company stepped in and picked up the cost, and taxpayers were generally protected as a result. The government now proposes something called an infrastructure bank, which would provide loan guarantees, subordinated equity and other measures that protect investors against losses.

How will this work? For example, in the event that the Strandherd-Armstrong bridge in my riding had been infrastructure bank-backed, who would have paid the extra cost of the bankruptcy, the extra cost of the delays and the penalties that came along with those delays? Who would have paid that, if it had been a government-backed risk?

[Steven Ness]

Do you mean, had there been no surety bond, just the protection from the bank?

[Pierre Poilievre, Conservative, Carleton, ON]

Yes.

[Steven Ness]

It would depend on how that was structured—perhaps no one.

The closest analogy I can bring up to address your question is that sometimes in lieu of surety bonds we see owners call for bank letters of credit as security. In those instances, we find that the owners—in the case of the Strandherd-Armstrong bridge, the City of Ottawa—would have been protected by the letter of credit, but there would have been nothing available to pay the subtrades and suppliers. That's how that would generally go down, because the letter of credit runs in favour of the project owner.

Depending on how it is structured, I think that is likely how it would go down.

[The Chair, Liberal, Wayne Easter]

Okay. We are substantially over time here as well.

I will say, Pierre, on your question on the market basket measure, that we did ask officials for the information. I expect that is yet to come, but we will have officials before the committee when we go to clause-by-clause. I expect it's a question that will be raised, so they'd better be prepared for that.

Mr. Fragiskatos.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Chair.

Thank you to the witnesses. It's a great discussion this morning.

Mr. Kingston, I want to start with you. It's good to see you again. You'll recall that we met, I think it was in Toronto, during the pre-budget consultation back in the fall. I enjoyed listening to your presentation again this morning.

I have a question relating to your suggestion on a comprehensive tax review. You won't be shocked. We've heard this time and again. Just yesterday in fact, the Canadian Chamber of Commerce presented and asked the same thing. I wasn't on the finance committee when they recommended that we go down that path. I think we should go down that path, seeing as it was the 1960s when we last saw a comprehensive tax review—1963. I could be mistaken. We need to look at this.

However, I'm a bit perplexed, because any time the idea of a comprehensive tax review is suggested, it's left there. What exactly does that mean? Are we talking about simplification of the tax code. If so, in what areas? Are we talking about reducing taxes? If so, in what areas?

I would love some insight on that, because it's one thing to say that we need a comprehensive tax review, but what exactly does that entail? What areas would we look at? Are we talking about corporate taxes? Are we talking about small business taxes, personal income taxes or all of it? This is a big question mark for me.

[Brian Kingston]

It's an excellent question, and you're right. You hear calls for this repeatedly, but when you scratch below the surface and ask for details, you don't necessarily get information on exactly what the objective should be.

Our view is that it has to be comprehensive, meaning that you're not just looking at corporate tax. You're not just looking at personal tax, or consumption tax. You have to look across the board. We have not taken a look at the balance of federal government revenues since that last review in the 1960s. Are we taxing the right things? Are we taking in the right amount of tax from companies, as opposed to individuals? That's the first part. It absolutely has to be comprehensive.

Second, it has to be about simplification. I was speaking with a retired financial official recently, who had worked in the tax branch, and who can no longer do his own personal income taxes. That's a concern. If a tax expert can't do their own taxes, I think we have a problem with the system.

We need simplification, and to look at ways to make it easy for Canadians to file, and easy for corporations to file, and go through the audit process, as well. There's a huge piece of work to be done there. Some countries are way ahead of the curve with respect to digitalization of the tax system. That has to be a big piece of it.

Finally, it's going to mean looking at tax expenditures and determining which ones are actually achieving their desired objectives. The one I always raise is the small business deduction. It's one of the most expensive tax credits in our system. Reams of evidence suggest that it is not efficient in doing what it's supposed to do, which is support small business. That's just one example. We have to look at every single tax credit out there and determine whether it's necessary.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I realize I'm putting you in a somewhat unfair position, because that is such an important question, and there are so many stakeholders who would have a view on what a comprehensive tax analysis would look at. It's good that it's on the record. In fact, I could be wrong about this, Mr. Chair, but that might be the first time we've heard from a witness during this review of the BIA, maybe even this year, on what a comprehensive tax review ought to entail. Thank you very much.

[Prof. Stewart Elgie]

May I say something very quickly?

[Peter Fragiskatos, Liberal, London North Centre, ON]

I was actually coming to you next.

Go ahead.

[Prof. Stewart Elgie]

It's probably different. I won't anticipate your question.

I agree with Brian. We should look at what we tax, too. One of the things to keep in mind is that if you look at the rest of the OECD, Canada ranks second last in terms of taxing pollution and waste. Most other OECD countries have begun to move their tax system and diversify what they tax. If you tax income, you're discouraging the thing you tax. You're discouraging working. You're discouraging investment. We don't want to discourage those things.

If you tax pollution and waste, you're discouraging pollution and waste. We do want to discourage those things. We should also look at what the rest of the OECD is doing, but do it in a way that is tax neutral, so that we're actually cutting other taxes as we're bringing those up. We're not increasing the net tax burden. We're just shifting towards things we want to discourage.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I appreciate that. Unfortunately, we've had, and still have it would seem, particular parties and members of Parliament who deny the existence of climate change and global warming and the effect that human activity is having; hence, we're a bit late to the party when it comes to the issue of putting a price on pollution. This government has ensured that we're getting there.

Mr. Elgie, I want to come to you on a matter relating to the issue you just raised, but a bit different. Yesterday we heard from Dale Marshall of Environmental Defence Canada. He raised the idea that Canada ought to legislate a move towards the purchasing of electric vehicles such that auto manufacturers, by a certain year—let's say 2025, as they suggested—would be selling 25% of their vehicles as electric vehicles. I asked him for examples of other jurisdictions that have done this. He cited Norway and a few other examples.

I have a very open mind on this. I'm not very familiar with this, but you are. You've made the environment your focus. Is this doable? Is this realistic? Should we be having this conversation in Canada?

[Prof. Stewart Elgie]

That's a good question. The world is going to transition towards fossil-fuel-free vehicles. The question for us is, do we move ourselves among the leaders of that pack or are we late adopters?

There's probably a basket of things you could do to encourage that transition. Having vehicle fuel efficiency standards is part of it. It might encourage you to move your entire vehicle fleet towards lower polluting, more efficient vehicles. That's really the low-hanging fruit. We should definitely do that.

As the U.S. relaxes its standards, we should keep pace with California. As long as you're moving with a big enough part of the North American economy, the market is going to supply.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I don't mean to cut you off. It's just time restrictions.

Are there unintended consequences, though, to a proposal such as that?

[Prof. Stewart Elgie]

The good unintended consequences are that we'll have cleaner vehicles, fewer kids with asthma and fewer people going to hospital from dirty air, and we'll be reducing our greenhouse gas emissions. Those are all good consequences.

The thing you need to worry about is having enough market demand that you're moving with big players. If you move with California and with some of the northeastern states, you have enough of a core market demand that the manufacturers are going to be producing the basket of vehicles you need.

Say it's the same thing with electric cars. If you want to have a portfolio standard for a certain percentage of them, you don't go it completely alone. Make sure you're moving with at least enough of a chunk of the North American market, which probably means California and the northeastern states.

The other thing to really worry about, which I said before, is that we make a lot of these cars, too, right? We really need to be thinking about moving a big part of that value chain on the production side in Canada towards manufacturing not just electric cars, but more fuel-efficient trucks and engines. There are lots of firms in Canada, such as Westport Innovations in Vancouver, that are part of that cleaner, more innovative production chain for vehicles of the future.

Part of the link between those two is that when your firms think about where they're going to situate their manufacturing and R and D capacity, it's an advantage if you're actually using the stuff they're making.

Right now, we tend to be making the dirtier vehicles. That's probably not a good thing. We should be trying to move our whole auto manufacturing sector towards more of the value chain on the cars of the future. That's where firms such as GM are going, and if we miss that boat, as we're seeing in Oshawa, we're going to lose out.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go over to Mr. Richards, and then Ms. Bendayan.

Mr. Richards.

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

Thanks, Mr. Chair.

My questions will be for Mortgage Professionals Canada. Mr. Taylor and Mr. Wolfe, you can decide between you who would like to answer.

I had to step out for another meeting briefly, so I apologize in advance if I repeat some questions you've already had. No doubt my colleague Mr. Kmiec would have been asking questions. I'm quite certain of that. I hope I'm not being repetitive, because he never has done that before—right, Mr. Chair?

I do want to ask about the government's shared equity mortgage plan. We're awaiting a lot of detail, as I'm sure you are, to see what that program looks like. I want to see if my initial thought on it is one that you share, and if so, why.

In terms of background, I was in the real estate industry before politics and I dealt with a lot of first-time homebuyers. From what I hear in the time since, it doesn't seem to have changed much in that the biggest challenge a lot of first-time buyers face is not so much the mortgage payments themselves but saving for that down payment. Of course, when rents continue to go up and things such as that, it's that much harder to imagine doing that.

I don't see that the plan does anything to actually address the bigger issue for those first-time buyers, which is that down payment. Would you share that thought, and if so, why?

[Paul Taylor]

We actually run consumer surveys twice annually, and most of the folks who are purchasing homes will suggest that it's taking longer and longer to amass that down payment. I think the real estate market has actually been performing very well for the last number of years. I don't think anybody would refute that. An awful lot of measures that have been implemented since 2007 have actually made borrowing more restrictive, and honestly, appropriately.

For a two-year period, with zero dollars down, you could get a 40-year amortization. We've definitely been tiering that in, but as property has been appreciating and requirements to amass larger down payments have changed, and now with restrictions through B-20 and such, folks are going to have to save longer, just because of the market's performance, to get in.

As we said in our remarks, the current program, as it was announced anyway, because you're right that there are quite a lot of details we're still awaiting, won't create any new eligible would-be purchasers. If you qualified in the past, you would qualify for this, and if you qualify for this, you would have qualified in the past.

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

That leads to my other two questions.

The first is in regard to the problem I raised in my initial question. I see the possibility that this policy could actually compound that problem. When we talk about new builds, 10% would be the shared portion from the government. I don't know about you, but if I were a builder, I might look at that and say, “That could be fun,” and maybe prices would go up a little bit as a result. Could it compound the problem as a result? I'd have to think a builder would look at that and say that if the government's going to kick in a little bit, maybe the prices can go up a little bit. Do you think that might be a possibility?

[Paul Taylor]

I actually don't, no.

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

No? Okay.

[Paul Taylor]

Mr. Siddall made a number of statements regarding the program. It's quite specifically created not to add any fuel to the fire.

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

Okay.

[Paul Taylor]

The program is really quite restricted so that folks who are eligible for it are actually able to borrow less than they otherwise would have been.

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

Right.