Finance Committee on Oct. 21st, 2016

[The Chair, Liberal, Wayne Easter]

Mr. Collier.

[Scott Collier]

Just to build on my colleague's comments, I'd say two things. It's difficult to separate productivity and supporting organic growth. I would share with you that CBSA over the last two or three years has accelerated its commitment to productivity growth, leveraging technologies, and leveraging new processes in terms of speeding processing through airports broadly speaking in Canada, but specifically in Pearson, which I'm closest to, as you might well expect.

I'll use NEXUS as an example. Toronto's is the highest productivity utilization of NEXUS across the country, but the reality is that we can go faster and need to go faster. The fundamental reality at Pearson is that when we're adding three million passengers a year—we've added about 8.5 million over the last three and a half years—we have to invest in officers in order to support the capacity that Pearson has built to support that growth. That is the fundamental reason that there are significant lineups emerging at the airport during the critical peak times. That's the opportunity.

I would say we need to do both, as any organization does both. There is good progress in one area, and I'd like to think that the government would continue to support their going faster at those airports to drive that growth. We're so critical, as you talked about, in terms of driving business, driving productivity, driving trade, and moving goods and services throughout the airport.

[Steven MacKinnon, Liberal, Gatineau, QC]

I'll maybe turn to Mr. Watt with my remaining time.

Mr. Watt, I'm always, of course, interested to hear the reflections of someone in the financial sector, and specifically an economist in the financial sector. What would be your specific recommendation to this committee concerning the budgetary policy of the government in the next couple of years? You mentioned indebtedness, you mentioned a couple of other things, but is there a specific point or a specific recommendation you would urge us to make to the government?

[David Watt]

The one I would focus on most specifically is the one I made towards the end of my comments, on small business tax credits or the tax backdrop for small businesses. The one thing I look at for Canadian businesses, and it goes to innovation as well, is that we tend to have a focus on the fact that small businesses don't innovate, that they don't do research and development. I think we need to do something to create an incentive for small businesses to do research and development.

Part of that, I think, should be government actually providing cash grants or providing some element of taking the risk off small businesses to do research and development. The other aspect of it is to reward or encourage companies to increase in size. Having a small business threshold that punishes companies for growing above a certain threshold does not encourage companies to start small and think about becoming the next Google.

We need to have that in Canada. We need companies thinking, when they start small, that they will become large and global competitors.

[Steven MacKinnon, Liberal, Gatineau, QC]

Should the corporate tax rate be lowered, or should the small business tax rate be raised?

[David Watt]

Part of that should be a lower corporate tax rate overall, in the context of removing the distortion and the small business tax threshold, so encouraging businesses in general to become more innovative. Part of that is turning Canada into a form of Germany, where we actually have a structure where, for small businesses, some of the risks of doing research and development is assumed by the government structure, so that companies don't necessarily take all the risks if a research and development project turns out not to be successful, which can keep companies cautious and limited in doing research and development.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Deltell.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chair.

Gentlemen, it's a real pleasure for me to see you.

Mr. Collier, you have in front of you a huge fan of Toronto Pearson International Airport because I love airplanes and I love airports. I want to chat with you after, because it's not a topic for today, on how to deal with some problems we have in Montreal.

Gentlemen—Mr. Rodgers, Mr. Speer, Mr. Watt—I would like to ask you this question because you raised the issue of home ownership. I think it's quite important that we have strong policies for homeowners. In French we used to say:

“When construction rolls, everything rolls!”

You raised the issue. As you know, a few days ago the finance minister tabled new regulations for ownership. We all recognize there's a huge problem here in Toronto and in Vancouver, but our concern is that the new rules apply from coast to coast to coast. Especially in my own city, Quebec City, there is a drop in the prices of houses, so there is no housing crisis in Quebec City. Halifax is –5%. That's not the case in Toronto.

What I would like to know from you is what you think of the new regulations tabled by the Minister of Finance. Maybe we should start with Mr. Watt.

[David Watt]

You bring up a good point, the idea that all housing is local, and there are conditions in various markets across the country. On the recent moves, I'll wait to see whether or not they're successful, but I think we needed to do something. We needed to bring in some measures.

I don't see a problem with bringing out measures that are specifically oriented toward particular regions: Ontario, Toronto. You can certainly go through and bring up measures that don't necessarily specifically target, but if you look at financial conditions—the condition of the market you're thinking about borrowing in—putting in thresholds that are somewhat higher than the rest of the country makes sense. It turns out to be a specific focus on a region, but I think they're appropriate, given that you want to target sections that are showing clear imbalances, which Toronto and Vancouver are.

We want to certainly get into the idea, in this environment right now, of being careful about encouraging people to go into the housing market, especially in Toronto and Vancouver. Those are markets where we have restrictions on supply, and we have a lot of immigrants and other people who are still coming into the market. We don't necessarily want to encourage people to buy into these markets that are overvalued. We certainly want to get people thinking more rationally in terms of household borrowing.

I'd go back to 2009. In 2009, when we were coming out of the financial crisis and the recession, it was appropriate at that point to bring in the home renovation tax credit. Households were not over-leveraged. Household investment in residential real estate had fallen quite sharply. We are not in that environment right now. We do not need measures that would encourage people to go into the housing market.

The way I usually have been talking to people in general is that what we need now is to recognize that there's an imbalance between renting and owning. Right now the costs definitely favour renting, so I think that right now we should avoid specific measures to encourage people to get into home ownership until we get the valuation structure under better control.

Again, I still support measures to make housing more affordable, but we have to do it in the context of where we are, starting right now.

[Sean Speer]

I'll be brief.

My colleague referred to restrictions on supply in the hottest markets, and I think we can't have a discussion about housing affordability without talking about the matter of supply.

In my remarks I talked about trade-offs. I don't mean to sound like an economist, but public policy is a matter of trade-offs, and at present we have provincial and local governments constraining supply to achieve environmental goals or other policy objectives, but they're doing so at the expense of housing affordability.

Here in Toronto, the construction of single-family detached homes is at the lowest level in 36 years. In the city of Vancouver the construction of single-family detached homes has been flat for a quarter of a century.

I think we need to have a serious public policy debate in this country about these trade-offs. That's not to say that green space and other policy objectives aren't justified, but they do conflict with other objectives, including the priority in the current Ottawa government's focus on inclusive growth and middle-class opportunity, which as we know is closely associated with home ownership.

At the Macdonald-Laurier Institute we've even talked of Ottawa taking the extraordinary step—which I suspect would displease provincial and local governments—of tying affordable housing dollars to the city governments' revisiting of some of these urban containment strategies. Until we get at this matter of supply, the types of announcements that the minister made, which focus on demand, are going to have minimal impact, without broader thinking about the role of supply.

[The Chair, Liberal, Wayne Easter]

Mr. Rodgers.

[Mark Rodgers]

I'm certainly not an economist, so I can't speak to the benefits or the challenges. Market housing is not particularly my specialty.

What I can tell you is that as market housing continues to escalate and affordability continues to be an issue, the gap between those who find themselves in social housing and those in affordable rental housing grows, so making the leap to have any chance to become part of market housing is almost impossible.

While I appreciate the comments made about families or individuals who choose market or rental real estate, the reality is that we are dealing with families who are in a sense downriver from even that possibility.

The beauty of our program, though, if I can visually paint it for a second.... Think of two cliffs, with social housing as one and market housing as the other. The leap over is impossible, regardless of conditions. What we do is create the bridge in the middle that allows them to come out of social housing and into affordable home ownership.

Our program is subject to different principles and regulations and whatnot that allow people to experience home ownership without necessarily having to consider the market housing situation. We also alleviate the strain and the pressure of the growing social housing crisis that we have, because that's a mounting problem. Like a relief valve, we're taking pressure off of that and providing people an opportunity they would not otherwise have, regardless of any conditions or regulations whatsoever. That's the only place I can speak to this from.

[The Chair, Liberal, Wayne Easter]

Thank you. We'll cut you off there. We're considerably over.

Mr. Dusseault, you have six minutes.

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

Thank you, Mr. Chair, and thank you to all the panellists today. It was very interesting.

My first question is to Mr. Collier, about CATSA.

I know the issue quite well, because in my riding there is an airport that is not designated to receive CATSA services. That may be another issue.

But I just want to be clear. You said that CATSA decides the level of service they give in each airport. So it's not you, the airport authority, that says here are the needs we have in our airport, but CATSA that is deciding the level of service?

[Scott Collier]

That's correct.

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

I guess, if I am not wrong, that CATSA services are paid by a tax on every airport ticket.

[Scott Collier]

There is a national security charge that all passengers pay. It's approximately $700 million, and it goes to the national government in general revenues and is allocated back to the various crown corporations, CATSA and the other security services. But the money that's allocated specifically for security screening at Toronto Pearson is not nearly sufficient to achieve the standards CATSA establishes for itself, let alone what Toronto Pearson requires at minimum to maintain global standards, let alone to be best in class, which of course we certainly aspire to be, as do all Canadians.

That's the chasm we have presently.

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

So what would be the solution to have more CATSA services, let's say, in Pearson airport? Is it by having more tax on each ticket, or by CATSA allocating its services more

fairly?

[Scott Collier]

That's the fundamental question because the reality is the passengers are paying more than sufficient to pay for screening to global standards across the country. However, it's not allocated back to CATSA.

Our point of view at Toronto Pearson International Airport is that, if we want to take the growth of the airport seriously, if we want to drive Toronto to mega-hub status, allow our four Canadian airlines—Air Transat, Sunwing, Air Canada, WestJet—to be successful, the flow at the airport is critical, and it's a massive bottleneck now. So the opportunities are to fund it to the levels that it should be funded to, fund it to standards that are competitive, give the airport flexibility to purchase incremental resources if CATSA is unwilling. All those things, in our opinion, need to be done in order to make us a best-in-class airport, and I say that for Montreal, for Vancouver, and for Calgary.

That is the opportunity in front of us. We have a great growth opportunity today, and our friends at CATSA who are trying very hard need that support from their agency partners in order to make that come to fruition.

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

And do you think government can do something to have comparable prices of airfare tickets in Canada to the U.S., let's say, because in my region we are just 45 minutes away from the border with the U.S., and there have been plenty of studies saying that we are losing passengers to U.S. airports.

So what can the government do to improve the competitiveness of our airports? Is it just by those services or something else?

[Scott Collier]

That's a broader question, competitive air travel in Canada, and well beyond my purview. Certainly passengers make choices, and the ease of flowing through an airport, whether it's passenger screening, whether it's check-in, or whether it's CBSA...these are all important decisions. Air carriers also make decisions in terms of taxes, landing fees, fuel taxes. All of those have become the constellation of the decision and it's broader than just my brief today, but airports are a huge part of our transportation infrastructure, and the more we focus on making that work for the country, the more effective we'll be in driving trade, tourism, and quite frankly, more government revenue in from a tax standpoint.

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

Mr. Morrison, just quickly, in your brief, there was a part about Netflix, and I was wondering what you think about the growing amount of foreign content that we see in our market, and the competitiveness of our own content. The things we produce here in Canada, are they competitive with the things that are produced abroad, and what can we do as a government to make sure our own content is more accessible and fairly priced?

[Ian Morrison]

I think we're starting from a base of strength. The access to strong Canadian content has been a priority of successive governments for a long time. In the anglophone part of the country where the competition from American programming is more severe and intense, I think one of the key things, from your point of view as a member of the finance committee, is the level playing field. The people who are delivering programming into Canadian households should be making contributions toward the Canadian broadcasting system.

You may know that for over-the-air broadcasters, something like 30% of their program expenditures are in Canadian content. For distributors, it's down around 5%. You mentioned Netflix. Not to single it out, but at the moment, Netflix is taking advantage of federal law and regulations in order to not collect sales tax that Canadians would otherwise pay. We just saw the Rogers organization withdraw from that market in competition with Netflix. In this city Rogers had to charge 13% HST, and my neighbour would have paid nothing in taxes for Netflix. So there's a role for government in ensuring that all the players are making some type of contribution to the system, and some of the details to that effect are in the longer brief that we submitted in August.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Mr. Sorbara.

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

Thank you, Mr. Chair.

Thank you for everyone's presentation today. They're all quite insightful—not that one of them would ever not be insightful, but they are actually quite insightful. Thank you.

I'm going to make some comments to two or three of you, because I don't have enough time to ask questions to everyone.

Mr. Johnson, I would like to follow up with you on your presentation and recommendations on the charitable programs and the differences between the budgets in the days ahead.

Let me start with Mark over at the Canadian Vehicle Manufacturers' Association. I have the background, having covered the sector for many years. I am rather concerned that vehicle sales may start levelling off in the years ahead and may taper off in the months ahead. I want to see how we are positioned vis-à-vis our jurisdictions especially in the rust belt states—but really, they've rejuvenated themselves—versus down in the southern United States. Could you comment on that?