Finance Committee on Feb. 19th, 2016

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Lehman.

We'll go to our first round of questions, and we're going to try to hold everybody to five minutes. That way we can get everybody in. That would be eight questions at five minutes.

Steven.

[Steven MacKinnon, Liberal, Gatineau, QC]

Merci, everyone. There have been a great variety of submissions and, as usual, they are of very high quality.

Mr. Gupta, we've heard a number of interventions about capital cost allowance and connecting rural communities, allowing more Canadians access to broadband and high-speed Internet and other things. I'd like you to expand, if you would, on your capital cost allowance recommendation and perhaps discuss a little about what barriers there may be in the private sector, on the telcos, for example, to getting something like that implemented.

[Karna Gupta]

Thank you for the question.

There are several measures to encourage the use of technology, such as the 2006 telecommunications policy review panel. They particularly identified ICT adoption with a lot of the tax credits that are tied to the CCA rate, and the conclusion was that it would directly help the adoption of technology, particularly among the small and medium-sized businesses. Therefore, we are asking the government to look at the across-the-board CCA rates and the several classes of depreciable assets that relate to communication network equipment, including the broadband networks. We recommend increasing them from the current rate base to 50% for capital investments.

It is not only telcos. There are cable companies and satellite providers. Communications are multi-dimensional now. Also look 100% in the areas that are particularly identified by the department of Innovation—the old Industry Canada—as underserved in connecting Canadians to broadband. These, we believe, will definitely change the way we connect communities and serve them for health, education, and even job creation.

You find that in other sectors people go to jobs. In technology, particularly in the ICT sector, jobs will go to people, so we want to make sure that people are connected to the new broadband network so they can do the work, the innovation, and contribute to the communities directly, as required.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you very much.

I would like to move on to the second part of my questions, which are for Ms. Zatylny of the Association of Canadian Port Authorities. As Mr. Laurin pointed out, I think it is important to invest in our port infrastructures, among other things.

I learned yesterday that Port Metro Vancouver was reporting very good results. Obviously, we're talking about the Asia-Pacific gateway and corridor initiative. We are having the same kind of conversation in Quebec and Montreal about the Port of Montreal.

Could you tell us a little more about the importance of investing in our port infrastructures and our ability to export? I would ask Ms. Citeau to comment on this as well.

[Wendy Zatylny]

Thank you for the question.

I will answer in English, if I may.

As I said earlier, the reality is that ports are very much economic generators. We are facilitators of trade and economic activity in two ways. It is through the cargo that we move, and as the port authorities have evolved their business models, they have also become export developers in their own right. They will go abroad, bring local businesses with them, and help develop export markets abroad as well as bringing cargo into Canada.

By virtue of playing that facilitator role, the port therefore contributes not only to its community but to the broader economy. However, in order to be able to do that, the ports do require the capacity to grow. We represent a very wide range of ports, a lot of them within city limits. They need space to grow. They need to be able to have the flexibility to trade land parcels so that it works best for the municipalities and the people living there, as well as for the port. In addition, they need to be able to invest in information technology that will allow them to simply manage the movement of goods more efficiently. When it comes back to investments in infrastructure and the importance of that, by being part of the funding blend for ports, it simply becomes an additional enabler for ports to grow.

We talk about P3s. Ports typically invest in what I call P6s. Their funding model is a combination of federal, provincial, and municipal funding, private sector resources, and borrowed funds. It's a patchwork. Federal funding is an important part of that. It's a catalyst.

[The Chair, Liberal, Wayne Easter]

We're going to have to leave it there and come up to you on another question, Ms. Citeau.

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thank you very much.

Mr. Laurin, I'd like to explore a little bit more your comments relative to the highest taxable income earners in this country. I'm an Alberta member of Parliament, and we just had a situation on January 1, where we went from a 10% flat tax to a progressive tax. The so-called rich that we always hear about, that higher income tax bracket is actually not that high when you hit that level at a relatively low taxable income.

How do we compare at that level, if you combine both federal and provincial to the American tax system?

[Alexandre Laurin]

You're absolutely right that the income threshold in the U.S. is the highest tax rate. It's a higher income threshold than in Canada. For our high income tax rates, their tax burden would be lower in the States. That's what matters, really.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

What impact does that have on the brain drain from our country?

[Alexandre Laurin]

The higher the tax rate is on talent, the higher the incentives for talent to move where it's most financially advantageous. I know it sounds obvious, but it's the truth. It doesn't mean that everyone's going to move away. That's not at all what happens, but you just need a few to make a dent in your expected tax revenues from the hike, and that's enough to lower the tax base. It's enough to sometimes create a shortfall or sometimes create tax revenues that are negligible, compared to what they would have been without a behavioural response.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Ms. Citeau, as an elected official, if asked a question by the media that's prefaced with “if”, I refuse to answer it because it's hypothetical. However, I'm going to put my reporter's hat on and ask you a question that starts with “if”.

What if the Trans-Pacific Partnership agreement is not ratified? What are the impacts on our agricultural community in the next five years?

[Claire Citeau]

If the TPP is ratified and Canada is not part of it, we will fall behind. What specifically the numbers will look like is difficult to determine at this point.

But look at, as I mentioned, what happened with Korea. In 2011 this was our fifth-largest export market for agriculture, a $1-billion market, and literally overnight our exports were slashed in half. That loss was directly attributed to the fact that our competitors, the U.S. and Australia, had signed and implemented agreements with that market.

The Korea-Canada agreement was implemented January 1, and we've slowly been able to regain market access, but it will continue to take time. Who knows what will happen? But we know that if the TPP is ratified and Canada is not part of it, the impacts will be devastating for our sectors. For farmers who depend on trade, and that's 90% of them, the impacts will be very negative and very devastating.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Do I have more time?

[The Chair, Liberal, Wayne Easter]

Yes.

Were you going to share a little time with Mr. Brassard?

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I'm happy to.

[John Brassard, Conservative, Barrie—Innisfil, ON]

Thank you, Chair, for the opportunity.

Mayor Lehman, you spoke about the gas tax fund, the potential for faster streamlining and making sure that it's not politically based. You also mentioned the importance of the construction season. Most municipalities, as I understand it, have now finished their budget process.

I'm wondering if you could expand a little bit more on the comments you made. What would LUMCO like to see with respect to some of the points you brought up?

[Jeff Lehman]

Thanks for that, Mr. Brassard.

As to the construction season, we're tendering as we speak. I think tendering will begin in earnest in the next couple of months. Toronto just passed its initial vote on the budget yesterday. I think the loss of the construction season pushes you back by a full year. The easy way to do this is to have a straightforward formula. We need something that is per capita, that allows the funding to flow. We want to make shovel-smart, economically beneficial investments in transportation and infrastructure. I agree with Mr. Gupta that broadband is an excellent investment. I think you will find that cities in Ontario and across the country have long lists of things to do and would welcome any assistance.

What is very important, though, is the agreement process. This may sound like a little detail to some members of the committee, but the agreement process itself often takes a long time so that the actual economic benefits take a lot longer to realize than they should. It's not enough that the application process is straightforward; the agreement process needs to be straightforward as well. I want to emphasize that point. We can't move ahead with an incremental investment in Canada's infrastructure until there is an agreement in place.

That's why we favour the gas tax, because it's an existing mechanism that you could simply amplify.

[The Chair, Liberal, Wayne Easter]

Thank you both very much.

Mr. Caron.

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

My question is for Mr. Laurin.

I will continue on a bit from where Mr. Liepert left off concerning the tax bracket that was created for income over $200,000.

Mr. Laurin, what you spoke about makes sense theoretically, but empirically, can we see this? Have we seen this phenomenon of a higher tax creating a brain drain in the recent past?

[Alexandre Laurin]

There are a lot of empirical studies on the reaction of taxpayers to taxes.

In my own study on this, I collected 11 or 12 serious empirical studies that used two best practices methods in particular. The economic profession agrees with the fact that these are good methods and that the data used are excellent. So they are good studies.

The reaction of taxpayers was clearly observed. We know what it is. The results of the study can be used to make fairly accurate estimates.

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

I'm curious about these 11 or 12 studies you mention. Were they North American, European or global studies?

[Alexandre Laurin]

Initially, they were from the United States, but then there was a study from the Department of Finance of Canada. Other studies were conducted by Canadian professors. Another study was conducted by the United Kingdom government.

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

From an empirical standpoint, is it not more probable that this higher tax rate associated with creating new tax brackets is thwarted by changes in behaviour? For example, people can use tax shelters more wisely. People who earn such income can obviously get help from tax specialists. It would be easier than transferring all of it to another jurisdiction.

Also, has this change in behaviour led to lower incomes than those expected by the Liberal Party, the current government, when it did its fiscal framework.

[Alexandre Laurin]

Yes. You're right. Some of the behaviours relate to fiscal planning.

The economic reactions are still important, in my opinion, meaning that people may work less, make less effort, take fewer risks, invest less in the future, and so on. Those are economic reactions.

There are also real reactions that happen. It's a whole mix.

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

So when we talk about a brain drain, that's not necessarily what will happen. A lot of other things may occur, such as spending more time with your children, more recreational activities. It may also simply be a change in behaviour to make sure you pay less tax, so not paying as much as the 33% bracket would have us pay.