Finance Committee on Nov. 28th, 2016

[Bill Morneau, Liberal, Toronto Centre, ON]

First and foremost, we should be dealing with the prospect of environmental issues by putting a price on carbon nationally, which we think is the single most impactful effort we can have. It will help organizations to make the right choices in where they invest and will enable the formation of a clean technology sector. We believe we can make investments to help ensure that organizations trying to be effective in the clean technology sector have the opportunity to do so.

The member asked me about the challenges in Alberta. We'd like not only to be successful in the resource sector, but also to think about people with strong skill sets in that sector. If we can make investments in clean technology firms, that might also enable some people to be successful in those firms in the future.

Our goal is clearly to be a leader in this area and to engender success among organizations that are trying to have an impact. We believe the investments we will be making in collaboration with businesses will have an impact.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Mr. Albas.

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

I want to thank the minister and his officials for being here today. Thank you for the service you do for Canadians every day.

I'd like to go back to Mr. Liepert's inquiry on the group medical structures. I can appreciate that you're making a clarification that says that these structures are not eligible for the small business preferential tax break. I appreciate that, but Minister, if we follow this through its natural course, what's going to happen is you're going to break up all of these group structures that have been put in place over the last 20 years by provinces and territories. There's a lot of unremunerated work for teaching and research that will get lost, and all of those doctors are simply going to re-form into small businesses of their own and be able to access those credits at that lower rate anyway.

Minister, if you follow your train of thought, you're going to end up with people getting the full amount anyway, but breaking up and actually making it more difficult for provinces and territories to deliver health care. What do you have to say?

[Bill Morneau, Liberal, Toronto Centre, ON]

Sorry, I want to be clear before I respond to things that have to do with tax. I'll say again, the intent of the presentation in the budget was for clarity, that the small business deduction is in fact intended for small businesses. Of course, what you do by leaving money in the small business is you allow yourself to have a deferral of the tax that would be paid on the gains within that organization.

Having done the math, we saw it as an issue that we needed to be clear on, and having done the math in presenting it back to those organizations, we believe we've shown that this is a fairly modest measure that will put these organizations on the same playing field as other small businesses.

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

Mr. Minister, you're clarifying that you're going to be instituting this in such a way that it will cause these group structures to no longer be used. It will have an impact on patient care, research, and education, and at the end of the day they're going to still come back. They'll restructure their businesses so they can get this.

You've basically made it so they have to go to their lawyers and their accountants to reprocess this. You're probably going to see as many, if not more, doctors claiming the small business amount, so why? Why not just say that you're actually going to clarify that this is okay so that this practice can continue? Why are you against seeing this practice continue?

[Bill Morneau, Liberal, Toronto Centre, ON]

As I said, we believe we've taken the correct action. We don't actually see the outcomes being the outcomes that you've just outlined.

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

Again, the CMA actually had Deloitte have an independent look at it, and it's anywhere between $16,000 and $32,000 a year.

Maybe we'll switch gears here, since it looks like I'm not getting very far with this, Mr. Chair.

Before, you were mentioning about the need to make the tax system fair. Canadians are a fair people. We're also a practical people, and we know that practical people make decisions. I'm going to read to you something from the 2016-1017 edition of Byrd & Chen's Canadian Tax Principles. This is about reduced tax revenues. It states:

There is evidence that, if tax rates are too high, the result may be reduced aggregate tax revenues. Some authorities believe this begins to occur at tax rates between 40 and 50 percent. We would know that, and with the 2016 increase in the maximum federal to 33 percent, maximum combined federal/provincial rate in most provinces now exceeds 50 percent, going as high as 54 percent in Nova Scotia. While it's difficult to predict the degree to which this will encourage tax evasion, it is almost certain that tax rates at this level result in significant amounts of income being moved out of Canada. Individuals with income in excess of the current maximum threshold of $200,000, often have great flexibility in where they reside and how they invest. Of particular importance is the possibility of moving to the U.S., where the combined federal/state rate on incomes in excess of $200,000 can be as low as 33 percent.

Given that there are wonderful winters in Florida, Minister, do you not see that by instituting this increase, the middle-income tax cut, or whatever you want to call it, you're actually putting our treasury at risk?

[Bill Morneau, Liberal, Toronto Centre, ON]

We believe that the approach we've taken is sound methodologically. We also believe that in introducing a tax reduction for the middle class we've done something that's going to have a very significant impact on a large cross-section of Canadians. We believe that this sort of a fair tax approach is something that will stand Canada well over time. We also believe that Canada is a very attractive place in which to live and to invest and that we will see the benefits of that over the long term.

[The Chair, Liberal, Wayne Easter]

Thank you. We're well over the time.

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Minister, for coming today.

Just from going door to door in my riding during the summer, I learned that the Canada child benefit was a massive hit. Families really appreciated the extra money, the fact that it was after tax, and that they received it just in time to go back-to-school shopping. That was a great piece from the government.

To pick up on my colleague's comments on the business tax deduction for doctors and to clarify things for my colleague, nothing in the law prohibits doctors from still forming these partnerships. The only change in the law is that now they equally will share the small business deduction of $500,000, which was the original intent of the law. In my previous experience as a corporate lawyer, I think it's actually the fair thing to do.

Minister, both you and the Prime Minister have been travelling the world, promoting Canada as this great place to invest. What do you see as the global economic challenges for Canada's economic growth outlook?

[Bill Morneau, Liberal, Toronto Centre, ON]

Clearly, we have put in place measures that we think are going to be positive for our country, but we're not immune from global economic conditions. There are a number of what I would call headwinds around the world that present challenges and reinforce the need for us to take measures in our own economy that can make a difference.

Globally, we've seen China move away from an approach to developing its economy that's focused on investment and infrastructure and one that's more focused on consumerism. That, of course, reduces reliance on some of the things that we produce and changes global resource prices. That's something we have to deal with.

We've seen over the last couple of years a significant change in the levels of global trade. For the first time in many years, we've seen the increase in trade be less than the increase in global growth, which is a challenging trend and portends a challenge around global growth. Anything that has a negative impact on global trade, of course, has an impact on a country like Canada that relies on trade. Any decision to consider trade barriers or put up any challenges in that regard can present challenges.

For us, that reinforces the need to focus on what we can do. Our focus on helping families so that they can invest and consume is important. Our focus on investing over the long term in infrastructure can make a real difference. Our attracting investors from around the world to come to Canada can make a real difference. While we can't change global trends, we can do what we can nationally to make a difference for Canadians, to create jobs here. That's what we intend on doing.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Minister.

Housing was a big concern to many Canadians, and then you implemented some changes that sort of settled the market. Are there any indications on how those changes have really ensured that the market is protected and that Canadians are protected in their investments? For many Canadians, and I would say for 99% of Canadians, their house is their biggest asset.

[Bill Morneau, Liberal, Toronto Centre, ON]

As you know, from the first days of our coming in as a government, we wanted to make sure that we understood the biggest risks to Canadians. We see the housing market as being something we have to be very vigilant about. We've taken two separate sets of measures in doing that. The first one was to deal with down payments for homes between $500,000 and $1 million. The more recent measures, as you've identified, are to put stress testing on mortgages, and to ensure that people are only claiming the principal house capital gains tax exemption.

They're intended to deal with the long-term stability of the market and with pockets of risk that we've seen emerge. It's gone, largely in the early stages, as we might have expected, but I will say that we need to remain very carefully focused on the impacts, and we will do so. That'll be our continuing promise to Canadians, that we will work to manage the risks as best we can so that their most important investment is protected for the long term.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Minister.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

Mr. Caron, for a short round, and then Mr. Ouellette will wrap it up.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I would be remiss if I did not take this opportunity to bring up infrastructure.

There are two things, currently. There are the funds that were announced, and there is the Canada Infrastructure Bank. You are aware of our reluctance with regard to this infrastructure bank. First, it was not presented as such during the election campaign. The Liberal platform did mention an infrastructure bank, but it never mentioned such a massive commitment from the private sector.

There is also the fact that you will be taking funds that would have gone to small communities to put them in this infrastructure bank that will not really be accessible to small municipalities, as you acknowledged, I believe, to the Federation of Canadian Municipalities.

I would like to know why the government chose this massive commitment of private funds, when it could have borrowed at 2% at the time of the last 30-year securities auction. We know very well that Mr. Barton, Mr. Sabia and Mr. Wiseman would like to see a return of more than 5%, 6% or 7%. The Caisse de dépôt et placement du Québec had an overall return of 9%. I can't see them investing in a project that would yield less than that.

I have another question for you on infrastructure, but first I would like you to explain why this involvement of the private sector is absolutely necessary today, as it will mean a loss of public control over these infrastructures.

[Bill Morneau, Liberal, Toronto Centre, ON]

As I said a few minutes ago, we know it is possible to invest in infrastructure in Canada, and we need a lot of investments.

We decided that $180 billion would be invested over the next two years. It is a very large sum, but we can do even more. That is why we think that being able to find investments—from pension funds for example—in the infrastructure sector is a good idea.

I must point out that your evaluation of the return does not comply with what is going to happen. When we talk about the return, we are talking about an entire fund. For the infrastructure fund, the return is much lower. This gives us the possibility of finding a lot of investments for our infrastructure, which will be helpful to our economy.

[The Chair, Liberal, Wayne Easter]

Mr. Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Mr. Chair.

Thank you very much, Mr. Morneau, for being here.

In the past, I asked you a lot of questions on the Canada Child Benefit, particularly as regards those who need it the most, especially those whose parents receive social assistance. I wanted to know if those parents were going to receive the child benefit.

Moreover, how are we doing, everywhere in the country, in ensuring that the provinces do not take the money back? We give, but the provinces take back what we give. I would like to know what the situation is in this regard currently.

[Bill Morneau, Liberal, Toronto Centre, ON]

Asking what the provinces want to do is always a good question. It is not our issue, but as you know, we want to improve the situation for children in Canada. Thanks to the Canada Child Benefit, their situation will be improved. If the provinces do things differently, we'll see, but that is not our decision.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you.

I've also heard that there are other provinces that continue to claw back these benefits from these families. One group in particular who I think you should know about who continue to suffer are the children who are in the care of the state. These are some of the most vulnerable children in our country. They have become an economic benefit for some governments and also for a number of people. They are almost a natural resource. We often say that our children are a resource, but in this case, they're actually an economic benefit. The more children you have in care, the greater the economic benefit. This is true in a lot of provinces, especially for first nations children.

I just want to put on your plate and in your mind that, if you have the opportunity to talk to various provinces, you make sure they don't claw back this money from these children. I know they're doing it in the province of Manitoba. It's not that I want to start a war with Manitoba, and I also know they're doing it in other provinces. I'd like to ensure that the monies that we give to these children, the most in need, when they leave child welfare at age 18 or they age out—children who often have no social support sometimes and very poor family structures—will at least give them financial resources that can propel them to a better future. They need at least to have the potential to pay for an education that will give them the long-term success they need so they don't end up living in places like the Occidental Hotel, now the Red Road Lodge, in Winnipeg, which is essentially a place for homeless people. Because they're 18 and they've aged out, they don't have the financial resources to pay because no one really wants these kids. I hope to put it in your head in a public way—and I hope you don't mind, sir—so you will talk to other finance ministers when you have the chance to encourage them to look at that.

I have a very short question. I'm just wondering if there are any studies being done on the longitudinal impacts on the Canada child benefit, especially among families. What are they using the monies for? Who benefits the most? Are we conducting scientific studies in order to really understand this form of guaranteed income for families?

Thank you for your time and for listening. I appreciate it.

[Bill Morneau, Liberal, Toronto Centre, ON]

First of all, to address the first part of your question, my officials confirm that no province has clawed back any of the Canada child benefit. When we were together last year, we asked them not to. They all confirmed that they wouldn't, and no province has introduced any clawback of the Canada child benefit, just to confirm that for you.

With respect to your second point, I'm assured that we are going to be looking at the impacts of the Canada child benefit through studies as we move forward. Clearly, what we want to do is ascertain that, in fact, the goals that we've set out are being achieved, but over the longer term we want to make sure it has the desired impact on improved outcomes for Canadian families.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Okay, that will end it.

Thank you, Minister, and your officials for your time on the estimates and Bill C-29.

Thank you, Minister, Andrew, and Leah.