Finance Committee on Oct. 21st, 2016

[Steven MacKinnon, Liberal, Gatineau, QC]

Good morning everyone.

Welcome to our hearing in Toronto. I'm Steve MacKinnon, the member of Parliament for Gatineau.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm Dan Albas and I'm a B.C.-based member of Parliament in the interior, Central Okanagan—Similkameen—Nicola. I'm very pleased to be here with you all and I'm very much looking forward to the presentations today.

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

I'm Gerard Deltell, the MP from Louis-Saint-Laurent. Louis-Saint-Laurent is a riding in the suburb of Quebec City.

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

Hello everyone. I'm Pierre-Luc Dusseault, the member of Parliament for Sherbrooke, which is situated in the Eastern Townships in Quebec, one of the best regions, of course.

[The Chair, Liberal, Wayne Easter]

Obviously, Pierre, you didn't spend enough time in Prince Edward Island. I'm Wayne Easter, the member of Parliament for Malpeque, Prince Edward Island. Welcome.

Mark Nantais from the Canadian Vehicle Manufacturers' Association, we will start with you. Welcome and you have the floor.

[Mark Nantais, President, Canadian Vehicle Manufacturers' Association]

Thanks very much, Mr. Chairman.

Good afternoon, honourable members.

I'm very pleased to be here—and thank you for the invitation—representing Fiat Chrysler, Ford, and General Motors. Together these companies are responsible for about 60% of all vehicle production in Canada, and they're among the largest multinational companies in the world, exporting their vehicles to some 100 countries around the globe. Their investments in Canada support the entire value chain, from parts manufacturing to research and development that leads to exciting technology development. Canadian plants are among the most productive in North America, and they are consistently producing award-winning quality vehicles.

Today I want to focus on four recommendations. We've actually presented them in our pre-budget submission, which provides more details.

To begin, number one is productivity, allowing for grants and non-repayable contributions.

The terms of the automotive innovation fund need to close the gap against competing jurisdictions and to ensure that Canada has the most competitive tools available, including the magnitude and form of the AIF, its tax treatment, flexibility, required conditions, and speed of approval for eligible proposals.

Most competing jurisdictions offer non-repayable contributions in many different forms, including cash grants, refundable tax credits, and infrastructure and training credits, with contribution levels that can actually exceed 50% of the total investment spending. There are no additional taxes incurred as a result of the incentives. The conditions are flexible and performance based, and project evaluation and approval is relatively fast. In fact, they're more fitting to a company's investment decision-making cycle. Furthermore, lowering the threshold to $25 million from $75 million would be very helpful in terms of innovation.

Speaking of innovation, we need to expand opportunities for automotive research and development.

The Canadian auto industry is a major investor in research and development of the technologies that actually spur advanced production processes, as well as vehicle safety and environmental performance that meet both the objectives of government as well as the driving experience that is demanded by consumers. The pace and scope of technological change in our industry has never been more profound.

R and D programs that are flexible, responsible, responsive to the needs of industry, and administratively efficient will help to support the innovation agenda by promoting auto research excellence and the opportunity to build on the existing research capacity, which CVMA member companies have right here in Canada.

The most recently announced changes to the scientific research and experimental development program do not address the narrowly defined scope for eligibility, which is an issue for advanced auto manufacturing. The program needs to revert to the original form wherein capital costs are recognized to offer benefit to auto manufacturing, and it should be based on a broader definition of innovation versus the current definition of science.

Increases in the cost of doing business will negatively impact Canadian automotive competitiveness compared with other jurisdictions where operating costs are actually lower. Longer-term certainty and predictability are also key factors when global investment decisions are made. For example, Canada's existing auto manufacturing plants will have the added challenge to compete with jurisdictions that do not operate under a carbon tax or a cap and trade regime. This has the potential to dissuade investors from placing future mandates here.

As part of the announced CPP enhancement, it is important that government recognize that auto manufacturing companies already provide high-quality private pension plans to their workers. If CPP premiums are increased as proposed, this will result in significant increases to auto industry payroll expenses at a time when there are already competitiveness challenges for the industry, versus other competing jurisdictions.

As had been considered in other proposed public pension plan enhancements, the government should provide exemptions to the proposed CPP enhancements or provide CPP cost offsets to companies that already have provided comprehensive private pension plans to their employees.

Last, Mr. Chairman, speaking of border efficiency, commercial goods, and temporary international workers, the CVMA is a strong supporter of the continued commitment to the beyond the border initiative. It encourages the government to address the action plans that have been developed, and to do so expeditiously.

Border crossing infrastructure needs to respond to the volume of commercial shipments, and real-time data must be continuously reviewed to ensure infrastructure is meeting the needs of Canadian business. Appropriate levels of staffing are needed to quickly respond to demand peaks in commercial traffic, keep wait times at a minimum, and ensure that trusted trader lanes are fully operational.

Harmonization with the U.S. northern border policy and infrastructure would also help to ensure there is consistency and efficiency with commercial crossings while maintaining the integrity of a secure border.

On temporary international worker mobility, Canada needs to work towards a target turnaround time of about four hours, for example, to get specialized expertise across the border. Any shutdown in production for an assembly line due to a delay can cause losses of revenue in the realm of $1.5 million per hour. CVMA member companies are global companies with global teams that provide specific expertise. Any delay to get this expertise to Canadian facilities has repercussions on our productivity as well as future investment decisions. As trusted traders, the industry would be interested to explore the potential of a trusted employer pilot that would expedite the permit process. Budget measures that support the development of a more efficient program, including a pilot that our members could participate in, would be a positive step forward.

Mr. Chairman, as I said, our pre-budget submission provides more details, and I'd certainly be pleased to answer any questions the members of the committee may have.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mark. I might mention as well that we have the briefs that have come in. They are on our iPads, so that's why you'll see members concentrating on their iPads from time to time, including myself.

Now we'll turn to the Greater Toronto Airports Authority, Mr. Collier.

[Scott Collier, Vice President, Customer and Terminal Services, Greater Toronto Airports Authority]

Thank you, Mr. Chairman. Good afternoon, everybody.

Thank you for the invitation to speak about Toronto Pearson's significant contribution to Canada's economy, and how we can accelerate our performance with the right support from government.

Toronto Pearson is proud of its role in fostering prosperity for our country. We are Canada's largest airport, for both passenger and cargo traffic, and the second largest in North America for international passenger traffic, after JFK in New York. It's a global hub, with almost 44 million passengers this year, up from 41 million in 2015. We are continuing our growth on the world stage, creating jobs, facilitating an economic impact of almost $37 billion—which is 6% of Ontario's GDP—connecting Canadians and Canadian business to the world, and connecting the world to us.

By the mid-2030s—it's not that far from now—we are forecasted to serve upwards of 65 million passengers and facilitate $62 billion of Ontario's gross domestic product.

As a private, not-for-profit operator of the airport, the GTAA will continue to make the investments needed for the airport to become a world-class global hub. To be successful, however, we need our government partners to make investments in three key areas.

Number one, wait times for passenger screening on departure, and customs and immigration upon arrival, are not competitive globally. Long lines, flight delays, and missed connections negatively impact our air carriers, our passengers, and our global competitiveness as an airport, as a region, and as a country. Delays at both CATSA and CBSA checkpoints are major operational challenges. Government funding for both agencies has not kept up with passenger growth. It drags on our performance and will only become exacerbated as our growth continues to accelerate.

For CATSA, we have specifically requested the following: an increase in funding of a minimum of $20 million to deliver an international service standard of 95% of passengers screened in 10 minutes or less; funding to implement new technology that will increase throughput and productivity; and the ability and flexibility of airports to pay for a higher level of service should they desire to do so.

For CBSA, we require an investment in Toronto of $5 million in officers in order to reduce passenger wait times and improve critical connection performance for our air carriers.

Number two is changes to duty-free rules that will allow international and domestic passengers to purchase any product at a mixed departures zone—what we call “dual duty-free”. We also ask that arrivals duty-free be allowed. This is standard operating practice at any global hub across the world.

If both programs were implemented, we would repatriate approximately $100 million in sales currently spent at foreign airports, and not in Toronto or Canadian airports. We could generate 600 new direct and indirect jobs across the nation, and $12 million in incremental tax revenue for the federal government from airports across the country.

Last but not least, road congestion—not a surprise to anybody in this room—is reaching critical levels in the greater Toronto area. More than 300,000 people work in the airport employment zone, the second largest employment zone in the country. In fact, 49,000 people work at Toronto Pearson today. The area surrounding the Toronto airport has extremely limited transit options for people coming to work and for those using Pearson to connect to the country and of course to the world. It is imperative that we provide more options for people—for passengers, employees, and businesses—who depend upon the airport for success.

We do have a plan to develop a regional ground transportation hub at Pearson, at the airport itself, that complements Toronto's Union Station, providing connectivity for a region experiencing significant employment growth. It is a significant driver of jobs. In fact, it's becoming a real engine of it.

We ask the Government of Canada to continue to support municipal and provincial governments by providing cost-sharing of transit projects connecting to a multimodal hub at Toronto Pearson.

As the country's largest airport, by a factor of two, connecting Canada to 67% of the world's GDP, Toronto Pearson plays a critical role in the economic activity of the country.

This connectivity allows Canadian businesses to reach domestic and global markets, generate jobs and tax revenues, and facilitate trade, foreign direct investment, and tourism.

For Toronto Pearson to continue to drive economic growth, the federal government's programs need to evolve in step with the rising passenger and cargo growth numbers. We, at Toronto Pearson, are completely confident that these investments, combined with our strong relationship with the government, will result in increased economic vibrancy for Canada and a greater opportunity for all Canadians.

Thank you, Mr. Chairman.

Thank you, ladies and gentlemen.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Collier.

Habitat for Humanity Canada, Mr. Rodgers.

[Mark Rodgers, President and Chief Executive Officer, Habitat for Humanity Canada]

Thank you, Mr. Chair.

Honourable committee members, good afternoon.

I would like to thank you for the invitation to appear before the committee. Travelling across this great nation certainly gives one an appreciation of the regional perspectives of the broad range of issues facing Canadians today. For many years now, I too have had the opportunity to travel across this country to better understand regional housing challenges and to meet the families who have purchased their homes through Habitat for Humanity.

Habitat operates throughout Canada with 56 affiliates that provide low-income Canadians the opportunity of affordable home ownership. This includes multiple indigenous families, both on and off reserve. While on the surface housing is just bricks and mortar, it also provides Canadians with the stability they need to access education and training, improve their employment and health outcomes, and ultimately contribute to our country's economy. The true value of affordable housing is the social benefits and opportunities it provides to Canadian families.

Unfortunately, there are a significant number of families who face impossible choices every day of their lives because they lack affordable housing. The high cost of housing relative to a family's income means that they make trade-offs that affect their lives and those of their children with food, clothing, and particularly health care. During one of my visits with a Habitat family, I met a delightful young girl who had previously developed ulcers and needed medication to manage anxiety because her family had moved from temporary housing to temporary housing on a frequent basis. As you can imagine, each of those moves meant new schools, new neighbourhoods, new friends, and new challenges, but Habitat for Humanity and affordable home ownership changes that.

Today, I am pleased to present the important role and impact that Habitat for Humanity plays in Canada's housing continuum, as well as our recommendations for budget 2017. The Habitat for Humanity model is based on a partnership between the family, the community, volunteers, the private sector, and at times modest contributions from various levels of government.

Families not only build, but they also purchase their homes with a mortgage that they can afford. In many cases, Habitat works with local skills and apprentice programs. We build homes in a variety of forms, ranging from single detached homes to large multi-unit developments exceeding 60 or more homes.

Affordable home ownership helps significantly bridge the gap between social housing and market housing. Today, the gap is growing so large that too many families cannot manage it on their own. As such, Habitat for Humanity is a unique bridge that helps them make the dream of home ownership possible in this country.

Affordable home ownership not only breaks the cycle of poverty, but it is also a path for many Canadians into the middle class. For example, 37% of Habitat families come directly from social housing, thereby freeing up much-needed units in both social and rental housing today. Not investing in affordable home ownership puts pressure on other parts of the housing continuum and communities in general.

A recent Boston Consulting Group study shows that there are quantifiable benefits to society as a result of Habitat families having access to affordable home ownership. On average, Habitat generates $175,000 of social benefits to the community for every family that we help. These benefits come in the form of reduced reliance on social housing and food banks, better educational and employment outcomes, and improved health.

Habitat for Humanity's home ownership program has created a social return on investment of more than $500 million over the last 30 years. Our pre-budget submission, and our submission on Canada's national housing strategy, recommends investing in all parts of the housing continuum, including affordable home ownership, which has been largely unaddressed for many years. Therefore, the focus of our recommendation is in this area. As such, we recommend to the committee a $200-million investment in Habitat's national affordable home ownership program over the next eight years through the social infrastructure fund. This will result in the creation of 1,600 new affordable homes for Canadian families, including indigenous families living both on and off reserve, and it will include the renovation of 800 homes in the Far North. These investments can be further supported by providing Habitat with access to low-cost capital and making government land or property available at a low cost, or at no cost.

In addition, these mortgage payments that come from our Habitat families will be reinvested in our fund for humanity, and used to build more homes in perpetuity. In fact, there is a multiplier effect at work. By year eight of the original investment, an additional 160 homes will be created as a result of that investment.

Finally, government funding will also leverage over $200 million in non-government contributions and provide a social return on investment of some $280 million over that eight-year period. Most importantly, it will break the cycle of poverty for families and children, and their families for generations to come.

On a personal note, an investment in affordable housing changes lives. I have been a witness to that multiple times across this country. Remember that little girl, that beautiful little girl with the ulcers and the anxiety disorder? She is now completely healthy as a result of a safe, decent, affordable Habitat home.

Mr. Chair and members of the committee, thank you for your gracious invitation to present today, and most of all, thank you for your undying commitment to all Canadian families.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Rodgers.

We're now turning to Mr. Speer with the Macdonald-Laurier Institute. The floor is yours.

[Sean Speer, Munk Senior Fellow, Macdonald-Laurier Institute]

Thank you, sir.

I appreciate the invitation to participate in the pre-budget consultations. I want to use my time primarily to focus on general fiscal policy matters, and to the extent that there is time left to briefly set out a specific idea to support economic growth and opportunity, based on the questions the committee has put to witnesses.

One thing I want to try to accomplish in my remarks is to focus on the when and why of fiscal policy rather than the how and what, which my colleagues here no doubt will focus on and many of the other people appearing over the course of your pre-budgets will also focus on.

It's often underappreciated that economic and fiscal policy involves trade-offs between the short and the long term. Policies designed to stimulate the economy, such as deficit spending, dampen long-term economic potential. Policies that boost long-term growth, such as liberalizing labour markets or free trade, may involve transitory job losses that dampen short-term growth.

At its core, then, politics is primarily about making judgments about these trade-offs. Governments may decide to run deficits to minimize the harmful effects of recession, even at the cost of somewhat lower growth over the long term. Similarly, policy-makers may accept short-term dislocation to support long-term opportunities.

As the former chief economist at the Bank for International Settlements has said, the long run is not just a series of short runs. The present fiscal policy debate in Ottawa sometimes seems to miss this nuance. Deficit spending tends to be characterized as a free lunch, but when it comes with long-term costs in the form of higher taxes or higher debt servicing payments, we need to be more preoccupied or more focused on the question of when and why.

The onus, it seems to me, should be on those who advocate for deficit financing to make the case that the trade-offs are worth it and that downside risks will be minimized. I put it to this committee that the government has work to do on both fronts.

There is little evidence that the deficit is being driven by investment rather than consumption, and thus the extent to which it will have an effect on short-term growth is minimized. There's also a lack of evidence that there's a plan to close the gap between revenues and outlays over time.

Addressing these trade-offs in general and setting out a clear and credible plan to eliminate the deficit in particular should be the government's top budget priority, and—I put it to the committee with respect—your top priority as well.

Failing to do so risks setting us on a path of protracted deficit and increasing long-term costs or long-term opportunity costs. In this regard, I'd encourage the government to reconsider the enactment of fiscal rules, such as balanced budget legislation, to improve fiscal transparency and to help politicians help the government to reconcile these trade-offs between the short and the long term.

The previous balanced budget legislation didn't preclude deficit spending, as members know, but required the government to be transparent about why it was entering into deficit and how it intended to get out, by having the Minister of Finance appear before this committee. If the government nevertheless thought the law was too restrictive, which it set out in its election manifesto and then enacted in the first budget implementation bill, there's nothing stopping it from introducing an alternative.

The point is, it seems to me, that fiscal rules can not only help government manage the short- and long-term trade-offs between economic and fiscal policy choices, they can also help parliamentarians and this committee hold the government to account.

More generally, members, I would encourage you to grapple with this question of short- and long-term trade-offs, short- and long-term implications of economic and fiscal policy, as you develop your budget recommendations to the government.

With my remaining time, Mr. Chair, I will focus on two specific ideas that you might consider as part of your package.

The first is on the subject of broadband. The government, to its credit, has made a commitment to infrastructure, and not just traditional infrastructure but also broadband infrastructure. As many of you know, including in P.E.I., sir, broadband infrastructure, particularly in rural parts of the country, represents game-changing infrastructure. It is at the core of economic opportunity, business development, and social engagement.

Canada is a world leader in broadband infrastructure at this precise moment, with 99% of Canadians having access to high-speed Internet and 96% of Canadians being able to subscribe to download speeds of five megabytes per second. This has occurred to date largely through private investment. But it would be a mistake to rest on our laurels, especially since government policy plays such a critical role in creating the conditions for broadband infrastructure and broadband investment.

At the Macdonald-Laurier Institute, we have done considerable research on the strengths and weaknesses of Canadian broadband policy. In my submission I've set out some recommendations to help create the conditions to continue to have private investment driving the development of broadband infrastructure, not just in our urban centres but also in parts of rural Canada.

I'll just take one more moment. I just want to echo what Mark has said about the importance not just of affordable housing but of affordable home ownership. It's a subtle distinction, but it's a critical one. Much of federal spending on homelessness, particularly through the flagship or signature program, the homelessness partnering strategy, focuses primarily on affordable housing. I think there's plenty of work to be done on the subject of affordable home ownership and I think that the Habitat for Humanity model is unique in bridging that gap. I would encourage the committee and the government not just to refocus parts of the homelessness partnering strategy to support Habitat for Humanity but to more seriously think about how we can create the conditions not just for affordable housing but for affordable home ownership.

With that, Mr. Chair, I am grateful for the chance to be here and I look forward to the discussion. As I said at the outset, I would encourage members to grapple with these choices between the short and long term as they develop recommendations to the government.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Speer.

We have HSBC Bank Canada, Mr. Watt, chief economist.

[David Watt, Chief Economist, HSBC Bank Canada]

Thank you very much for the invitation to appear, Mr Chair and members of the committee. I'll just have some brief comments here.

I'm here as chief economist of HSBC Bank Canada, which is the leading international bank in Canada. In my comments, I will present our view of the Canadian economic situation and some concerns we have about the global economic backdrop, and then I'll delve into the issues pertinent to today's session.

In our view, the Canadian economy remains in a subdued growth, low inflation, low interest rate trajectory, characterized by moderate employment and income growth.

[The Chair, Liberal, Wayne Easter]

Could I get you to just slow down a little bit?

[David Watt]

Concurrently, the household sector is deeply in debt, potentially leaving Canada more vulnerable and accident prone. This concerns HSBC, given that global imbalances have widened in an echo of the 2007-08 financial crisis. Notably, the Bank for International Settlements, the BIS, recently singled out Canada, among all developed markets, for concern due to the pace of growth of household and non-financial corporate debt.

With other sectors limited, we feel that the federal government has room to provide stimulus. However, we think that the government stimulus efforts should include a focus on crowding in business investment by making Canada an attractive global investment destination. We need non-resident investment, but I believe we need to redirect it from bonds and residential real estate to more productive uses. We think that stimulus efforts should avoid crowding in the over-leveraged household sector. In fact, we think households should be encouraged to de-lever.

While there is naturally a desire to boost employment, particularly when job growth is sluggish, we must also focus on what we want from the workforce 10 to 15 years from now. As the expansion of the working age population slows, we need to ensure that upward momentum in incomes and living standards in maintained.

This involves improving human capital via skills training and skills mobility. Improving human capital should know no race, recognize no disability, pay no heed to age, and need not be dependent on or limited by geography.

Among the key structural headwinds to the economy is lacklustre productivity. Sparking innovation is critical for business investment and human capital formation to improve competitiveness and offset the slowdown in the working age population. These efforts will allow Canada to maintain a high standard of living and still compete with low-wage nations. To that end, we think that the corporate tax system should encourage growth rather than providing incentives to remain small. This is imperative, as there is scarcely a sector or firm that won't feel pressure from global innovations or competition, assuming global trade barriers continue to fall.

Thank you very much, and I look forward to an engaging conversation.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Watt.

Friends of Canadian Broadcasting, Ian Morrison. Go ahead, Ian.

[Ian Morrison, Spokesperson, Friends of Canadian Broadcasting]

Mr. Chair and members of the committee, I thank you for allowing the organization Friends of Canadian Broadcasting to appear before you today.

On August 5, we submitted a proposal to you which contained several ideas for Budget 2017. Today, I am going to discuss subsection 19(1) of the Income Tax Act, which concerns the deductibility of advertizing expenses.

Recent changes in the advertising market threaten the future of Canadian media. In the 1960s and 1970s, Parliament recognized the threat of foreign media to the viability of Canadian media and introduced measures to prevent the deductibility of advertising expenditures in foreign-owned publications and broadcasters.

Section 19(1) was enacted in 1976. Its immediate result was to reduce Canadian ad spending on U.S. border TV stations by $10 million, which was about 10% of that year's total TV ad buy.

Since then, and until recently, section 19 has underpinned the viability of Canadian media, keeping Canadian ad revenues largely in the hands of Canadian players.

Early this century, Internet advertising began to take off in the Canadian market, growing from a total of $562 million in 2005 to $5.6 billion projected to 2016. Mr. Chair, in my remarks today, I have a couple of charts that illustrate this.

Today more than $5 billion in Canadian ad spending is going to foreign-owned Internet companies, approximately one-third of major media ad spend. That's 90% of Canadian digital advertising.

Section 19 provides that advertising expenses in newspapers and periodicals are deductible only if the ad is placed in an issue of the newspaper or publication that is edited and published in Canada and is owned by a Canadian citizen or a corporation that is effectively owned by Canadians.

Broadcast advertising expenses are not deductible if the ad is placed on a station or network whose content is controlled by an operator located outside Canada, if the ad is directed primarily to a market in Canada.

In 1996, the CRA issued an opinion that a “website” is not a newspaper, a periodical, or a broadcasting undertaking. This opinion specified that the comments represented a current position—that's a 1996 position—and might not indicate future views. It reflected the context of the Internet 20 years ago when websites did not perform the functions of print media or broadcasting because of bandwidth limitations. Of course, the only viewing platform then was the personal computer because there were no mobile smart phones and tablets. They just did not exist.

While the CRA interpretation may have been appropriate for 1996 technology, it does not apply to current practice where the content is distributed over the Internet to a wide range of devices using a variety of technologies and program languages to enable video and audio. Where a 1996 website could not provide broadcasting, newspapers, or periodicals, in 2016, the Internet does. Hence, a new interpretation of the Income Tax Act is required, one that acknowledges this reality.

The CRA noted that “newspaper” was not defined in the act. It therefore drew its definition from a contemporary version of Webster's dictionary, as well as a 1935 court case. Its definition of “broadcasting” derived from various references in the act, as no other definition was available in 1996.

Three years later, the CRTC which, as you know, is the body charged with interpreting the meaning of broadcasting in Canadian law, defined broadcasting transmitted over the Internet in its new media exemption order. The commission determined that broadcasting over the Internet was indeed broadcasting, since the Internet represented simply another form of telecommunication.

Hence, the time has come for the CRA to update its interpretation and end the deductibility of ads placed on foreign-owned, digital platforms. Doing so would respect the original intent of section 19 by helping Canadian media, essential to our democracy and to our culture, at a time when they need it more than ever.

Mr. Chair, this proposal is unusual because it would boost the consolidated revenue fund while defending Canadian media and hence, democracy.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Ian.

Before we turn to Don, I would like to let you know that on our agenda is the Canadian Veterans Advocacy, Michael Blais, president and founder. He was unable to attend today due to an illness, so he is on our list and his brief will become part of our submission.

We'll be turning then to Mr. Johnson. Are you appearing as an individual or an organization, Don, so we get it right on our transcript?

[Donald Johnson, As an Individual]

Thank you, Mr. Chair, for the opportunity to appear before your committee on such short notice.

I'm appearing as an individual who is a volunteer board member of four not-for-profit organizations: the Toronto General & Western Hospital Foundation, the Ivey Advisory Board of the Western Business School, Business for the Arts, and the major individual giving group in Canada, the United Way.

The 2015 budget included a measure that would have increased charitable donations by $200 million per annum, and that measure had the support of all three parties. The measure stated that if the owner of private company shares or real estate sold the asset to an arm's-length party and donated the cash proceeds to a charity within 30 days, they would be exempt from capital gains tax on that donation. To everyone's surprise, the 2016 budget stated that the government would not proceed with this measure.

The purpose of our submission is to outline why including this measure in the 2017 budget would help the government achieve its 2017 budget measures, and also to address concerns that had been raised by the Department of Finance.

First, why would this measure help the government achieve its 2017 budget objectives? Our social services agencies, such as United Way and Centraide, provide vital services to the unemployed, indigenous peoples, those with disabilities, and seniors. Hospitals are the largest recipients of charitable donations, and seniors represent a significant percentage of patients. Increased donations to our hospitals, universities, social service agencies, and arts and culture organizations would create new jobs and stimulate economic growth.

Many large donations, as a result of this measure, would provide funding for infrastructure projects for many of these not-for-profit organizations and contribute to economic growth. Entrepreneurs play an important role in growing our economy, with a focus on innovation, new products, and infrastructure. The Canadian Federation of Independent Business, which represents 109,000 private companies headed by entrepreneurs, is supportive of this proposal.

Now, all municipalities, large and small, are logically supportive. They derive their revenues from property taxes, not income taxes; there is therefore no fiscal cost to the municipality. However, not-for-profit organizations in all municipalities benefit from the increased charitable donations. It's a great opportunity for the federal and provincial governments to stimulate donations to not-for-profit organizations in all municipalities across Canada.

The committee also has to take into consideration concerns that are raised by the Department of Finance. There are four main concerns, based upon my conversations with the deputy minister of finance and his tax policy professionals.

The first is the fiscal cost of this proposal to the federal government. The forgone capital gains tax on these donations would be only $50 million to $65 million per annum, but the charitable donation tax credit is the same as for gifts of cash. From the forgoing of $50 million to $65 million of tax revenues to the federal government, charities would receive $200 million from the private sector.

The second concern was valuation abuse, because private companies' shares and real estate do not have a public market, unlike listed securities. However, any concern about valuation abuse is addressed by the fact that the donor must sell the asset to an arm's-length party. That ensures that the donor is achieving fair market value, the best price for the sale of that asset. That addresses any concern about valuation abuse.

Some people are concerned that Canada's charitable donation tax incentives are already very generous. Well, they are generous in many ways; however, the current Income Tax Act has an inequity. If you're an entrepreneur who takes your company public and donates shares to a charity, you're exempt from capital gains tax. However, if you're an entrepreneur who keeps your company private, like these 109,000 entrepreneurs, and you donate your shares to a charity, you have to pay a capital gains tax. That's an inequity. This measure would address that inequity.

The final concern was that this measure would enable donors to switch their cash donations by changing their donations to donations of private company shares of real estate. Experts have estimated that 90% to 95% of these donations would be incremental, and only 5% or 10% would be substitution. So there's no concern about valuation abuse.

Some of your committee members may have already seen these full-page letters that were addressed to the Prime Minister with copies to the leaders of the opposition parties and their finance critics. One was published and it was signed by prominent charities, outlining why this measure makes sense in the 2017 budget. One was published on the outside back cover of The Globe and Mail, the National Post, the Toronto Star, and The Hill Times, and in French in Quebec, signed by Quebec charities. I've brought copies of these full-page letters for handout, if any of you have not had a chance to read them.

Basically in conclusion, we urge the finance committee to recommend that the government implement these measures in the 2017 budget. It would be a great legacy for all Canadians for generations to come.

Thank you for inviting me to this pre-budget consultation hearing.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Johnson. You probably hold the record for getting an invitation and getting here so fast, because I think we called you a little before noon. So thank you for getting here and making your presentation.

Turning to questions then, we'll go with six-minute rounds.

Go ahead, Mr. MacKinnon.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

Thank you to all of you for appearing today and taking your time.

I would note that Mr. Johnson is a frequent correspondent, and we always appreciate your missives in our office. I would reiterate what the chairman said about your very altruistic and philanthropic advancement of public policy. So thank you very much.

And Mr. Morrison, you are also a frequent advocate. Welcome today. Maybe I'll just ask you briefly. Would this be the first time you ever agreed with Paul Godfrey on a matter of public policy?

[Ian Morrison]

Even if it's something of benefit to Mr. Godfrey, I'm still in.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you for that, and I assure you we've taken careful note of your very pointed and precise recommendations.

I want to turn to Mr. Nantais and Mr. Collier. One of the common threads through both of your presentations was something that I don't think we have spent enough time on in this round of consultations, and that is exports and specifically the role of the CBSA in exports.

Now exports can be vehicles or other goods, or they can be tourist dollars or business travel into Canada. Both of those are exports and it's highly frustrating after, I would say, many years of significant investment in CBSA capacity and training and so on and facilities that we are still in this position of restricting or bottlenecking Canada's ability to export. I'll maybe ask you both to expand on and help guide us on really where the problem is here. Is it a matter of bilateral negotiations? Is it a capacity issue? Is it a question of spending more money? Or is it about working smarter?

[Mark Nantais]

From our perspective, there was the beyond the border initiative, which was introduced roughly in 2011, that identified several issues but also had several recommendations in its work plan, all focused on how we can make the Canada-U.S. border, for instance.... When we talk about exports, our primary market for production in Canada is the United States, although plants now in Canada are acquiring what we call global mandates, and so exports more broadly to other countries around the globe are also going to be very important as we go forward. The idea here is to maintain security at the border but also to ensure that the border is basically seamless.

For our part, we're a highly integrated industry. We move parts and components back and forth across the border as many as six or seven times a day towards our finished product. We still continue to run into issues with CBSA that thicken the border, even though we are trusted traders. We're hoping to remove some of those things. That, of course, takes not just efforts on the part of CBSA, but efforts on the part of their counterparts in the U.S. To be fair, that's something that needs to be done and done jointly.

There is room for improvements that have been on the books or at least recommended but that are not yet in place. We would like to see that agenda continue, just as we would the Regulatory Cooperation Council, under which we have differences in regulations that should be removed between Canada and the United States.

Yes, there are efficiencies and some greater alignment that need to happen and a need to take away some of the administrative burden that exists. Particularly when we talk about de minimis thresholds for goods, or when we talk about, for instance, the FAST lanes—that's the infrastructure part of this—it all has to work hand in hand.

What we're saying is that we have a long way to go and there are opportunities that we should continue to pursue.