Finance Committee on Feb. 13th, 2017

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

Thank you, Mr. Chair. Good afternoon, Ms. Petitpas Taylor.

My first question regards the changes that were made and whether, when you make these sorts of changes, you may be able to use a consultative process. Could you comment on that front, please?

[Ginette Petitpas Taylor, Liberal, Moncton—Riverview—Dieppe, NB]

Absolutely. Thank you very much for the question.

In past governments, when policies have been made in the housing market.... Some consultations are able to be made within government departments, but one thing is for certain. When you're looking at these types of policy changes, it is truly important to make sure there's no breach of confidentiality, because there are many sensitivities when it comes to these types of issues.

Our government has consulted on a number of fronts when at all possible, whether it be on the environment or whatever the case may be. But when it comes to these types of situations, when it comes to changing mortgage rules, it's truly important to make sure that we are very sensitive and very prudent with the information we have. As a result, that is why there was no public consultation held regarding these matters.

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

Thank you.

I have a second question I'd like to ask, and it may be for the officials. Our government has invested $440 million into CRA for tax avoidance and tax evasion over five years. We've taken a number of measures to ensure that all organizations and Canadians are paying their fair share of taxes to support those social services and programs that we so value in this country.

One of the changes that was announced on October 3 by the Department of Finance was to.... I'll read it verbatim:

Improve tax fairness by closing loopholes surrounding the capital gains tax exemption on the sale of a principal residence.

Can you comment on that, please?

[Rob Stewart, Associate Deputy Minister and G7/G20 and Financial Stability Board Deputy for Canada, Department of Finance]

Yes, by all means.

One of the things we did was to clarify the rules for the claiming of the capital gains exemption. This gets to be quite technical, so if you like I can provide it in writing.

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

Please.

[Rob Stewart]

In essence, it ensures that only those who are eligible for the exemption get to claim it. It furthermore ensures that reporting of sales of primary residences will from now on be made in all circumstances, whereas before it was only under the circumstance in which tax was owed. Now all sales of principal residences will be reported to the CRA. In addition, the CRA was provided with the power to audit on a permanent basis the past transactions in houses to ensure there was no tax avoidance or evasion. In all, we reinforced the powers of the CRA both in rules and in terms of their audit function.

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

Okay.

Going back to the parliamentary secretary to the finance minister, I would like you to comment on just how important it is for our government to ensure that we have a sound and stable housing market.

[Ginette Petitpas Taylor, Liberal, Moncton—Riverview—Dieppe, NB]

First and foremost, these policies or these changes were brought forward because we wanted to really help support a healthy and stable competitive housing market within our society and also to make sure the economy was stable as well.

We have put measures in place to protect borrowers, because we recognize that there is a high level of debt and we truly just want to make sure that we're here to protect Canadians. That's what it's all about. It's about protecting Canadians and making sure that they have a stable debt load.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Francesco.

Mr. Albas.

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

Thank you, Mr. Chair.

I want to thank the parliamentary secretary and the officials for coming today. Certainly, I've been in your seat before working as a parliamentary secretary and carrying water for my minister. Obviously, you weren't there for these changes, so I can't hold you accountable for them, but I can hold you accountable for what you've said.

The president of CMHC just said that the changes that were brought in on October 3 were not in response to Toronto's and Vancouver's housing markets. You, in your opening statements, have said otherwise. Who's right?

[Ginette Petitpas Taylor, Liberal, Moncton—Riverview—Dieppe, NB]

We have seen a situation that was acute in Toronto and in Vancouver. However, the borrower vulnerability is not just in Vancouver and in Toronto. The borrower vulnerability is all across Canada from coast to coast to coast.

Those markets were hot, yes; however, it's the borrower vulnerability that we're very concerned about and that's why these policies and these changes were put in place.

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

The president just said completely otherwise, that the changes were not made because of those exclusive...but we'll move on.

In your comments you talked about stability versus affordability. Now, Finance Canada, to my understanding, has always tried in this policy sphere of housing to have both stability and affordability, but also competition. I'm asking the officials if you can't answer. Did you understand that you were upsetting the competitive balance in the mortgage marketplace by removing portfolio insurance?

[Rob Stewart]

I would not put it in those terms. I would say we understood that there would be some structural adjustments necessary in the marketplace as a result of the reduced availability of portfolio insurance to those firms that are dependent upon it to finance their businesses.

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

Okay, in other words, you knew there would be a response to the changing of the rules. Is that correct?

[Rob Stewart]

We knew there would be some adjustment in the marketplace over time.

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

Okay, and that includes consolidation of some of the monoline lenders, but it also suggests there would be closures of some smaller competitors that just couldn't operate under the new set of rules. Is that correct?

[Rob Stewart]

If I may, I'll explain here that our changes have been made very much at the margin in terms of the access to the government's support for housing. In this respect, what we have done is change the rules for portfolio insurance that was used by these lenders to access funding. We have made those rules align with the terms and conditions that you must enter into when you buy transactional insurance for high-ratio properties.

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

You said structural changes earlier. In perfect competition we talk about many firms competing for different customers. In this case there are going to be fewer firms competing in that sphere, and there are going to be larger firms. Is that correct?

[Rob Stewart]

We reduced the access to the support by the taxpayer for those firms that were reliant upon it.

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

Okay. Did you understand that you were going to increase borrowing costs for Canadians with these changes, and did you intend to do so? Do you understand the mechanics behind these rate increases?

[Rob Stewart]

We anticipated that there would be some transitional issues associated with the adoption of these rules and that the marketplace would adjust over time. We would not predict an increase in mortgage rates, but we would say it would be, in the circumstances, possible that they would rise slightly.

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

What evidence of risk was present to eliminate portfolio insurance on refinance and rentals when there's a delinquency factor of 0.24 of 8% in the current portfolio of CMHC?

[Rob Stewart]

Again, looking at this from the broader perspective, it was a public policy decision to—

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

It's a very specific question, sir.