Finance Committee on Feb. 19th, 2016

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

Thank you, Mr. Chair.

I'd like to start off with Ian.

This topic touches a lot of people and a lot of lives. This week I just happened to glance at one of the national newspapers, and there was an article about a remote Inuit town in northern Quebec where three teenagers in the last eight weeks took their lives, out of a population of, I think, about 2,500.

I don't know the answers. I'm here to listen and help facilitate, or whatever term you want to use. It's troubling in this day and age to read about such a story: three individuals who were in the prime of their lives and should have had bright futures ahead of them.

My general comment is this. What else can we do? What should we be doing, because we're obviously not doing something, to have—

[Dr. Ian Manion]

Let me tell you another story about a northern community where they had suicides on a regular basis with two different cohorts. One cohort was older teenagers, 17- and 18-year-olds, and the other one was 10- and 11-years-olds. Every month they were losing members of their small community. This was several years ago. We were involved with this community in a whole community approach to wellness, identification of problems, and supporting gatekeepers in that community. In that community the suicides stopped. For several years there were no suicides in that community.

What that suggests to me is that even in the most difficult of circumstances, if you're willing to look at the problem in a different way, if you look at the capacity that already exists in a community and you engage a community in terms not only of what they're doing wrong but of what their wellness could be, you can see change happen. They owned that change. It wasn't a bunch of researchers flying in or dropping in and saving the day. It was working with a community to find a solution based on a whole community approach that allowed them to change the course of how that community was coping with whatever circumstances they had.

There are enough of these stories that exist to suggest to me we can actually make a difference, but we don't weave these stories together. We don't have any national strategy, national plan, to implement with a way of evaluating so that one story in the one community could actually be replicated in the other community with the same kind of impact.

I think what we're trying to propose is this: how do we help all those communities learn from what they have suffered through or what they have been able to overcome in order to help other communities at the same time? Rather than being overwhelmed by a problem.... It's numbing when you think about the numbers and the impact. I prefer to think about where the opportunity is for us to do something different. I've never seen a time in my entire career when the opportunity has been as great as right now in terms of public willingness, the philanthropic willingness, and government's willingness to actually do something bold and get it done.

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

Thank you.

I'll go to Robin.

One of the reasons I ran and wanted to get into public service is that I wanted a strong economy. I wanted a strong economy for my two young daughters who are three and five. I want a great future for them. I wasn't seeing that in the past government. I wasn't seeing that in their policies.

I'm one who believes in wealth creation. I think the tax system over the last number of years has become convoluted, complex, and bureaucratic. I'd like to hear your top two or three recommendations on some immediate or near-term steps we could take to simplify, other than a national review of $100 billion of tax expenditures. Put that aside for now.

[Dr. Robin Boadway]

Thank you for your question, I think.

On simplifying the tax system, the general mantra of an economist, probably even an accountant and a tax lawyer, would be that a simpler tax system is a tax system that has a broader base and doesn't have a lot of exemptions. For example, the GST is a relatively simple base with some exceptions, whereas income tax is more complicated.

A lot of the complications in the income tax system and also in the corporate tax system come about because of the way we treat capital income, I believe. If we can simplify the way that capital income is treated in the tax system, it would probably go a long way toward putting tax planning professionals out of business, I would say.

I think looking at things like the capital gains exemption is one place to start. I think also.... I didn't want to get into this too much because it's a relatively technical subject, but the corporation income tax could also be simplified considerably by adopting a much simpler system that leads to fewer opportunities for profit shifting, changing the way you earn your profits, and so on.

These are difficult questions, but in the end I think simplification of the tax system would increase the trust members of the public have in it.

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

Thank you.

Mr. Littler, I have a question on tariffs.

Obviously, we live in a world where we have tariff and non-tariff barriers, which leads to some price differential between the U.S. and Canada. With your members, how much of that difference are you seeing in price differentials, putting aside the exchange rate movement in the last couple of years? What benefit could we see to the Canadian economy and to Canadian consumers with an easing of tariffs?

[Karl Littler]

The reasons for price differentials between Canada and the U.S. are many. Some of them are fairly straightforward economies of scale and population that you would expect to see. Some of them are a rather poor practice called country pricing, in which Canadians are charged either via a wholesaler or a distributor at a higher rate simply because the market will bear more in Canada. The Senate actually spoke to this at length, and indeed, then minister Flaherty indicated he was planning to address the issue in a budget. I think it was three budgets ago. The challenge, of course, is how you address that, because you can't attach a penalty to the goods or else you exacerbate the problem. For a lot of entities that were charging Canadians more, that don't have a permanent establishment in Canada, it was exceedingly difficult to think about a way to address that. That's been a big part of it.

The retail pot is about $500 billion, but about $100 billion of that is auto, which has a very strictly controlled environment; about $50 billion is gas station sales. We tend not to look at them in the same way. They tend to be vertically integrated companies. Everybody is tracking that pretty tightly. Of the rest, we have about $100 billion in the grocery area. When you pare it down all the way, in consumer goods you're getting into about the $220-billion zone. When you think about $4.5 billion of tariffs, it is, on average, 2%, but of course it falls differentially from product to product, and in some cases actually outstrips all of the sales taxes, both federal and provincial, that are collected. It's a disparate impact, depending upon the item. Of course, some items are exempt or have very low tariff rates.

Did that address the question you were asking?

[The Chair, Liberal, Wayne Easter]

I'm going to have to cut it there in any event.

Mr. Albas, for five minutes.

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

Thank you, Mr. Chair.

Thank you to all of our witnesses for coming here and giving us their viewpoints. I'm going to be specifically speaking to education.

I do appreciate, Ms. Robinson, your speaking to the members earlier on a question regarding apprenticeships. It was the previous government that actually made it so that any bridge, like a new Champlain Bridge, or the shipbuilding contracts, would use Canadian apprentices. In fact, of the 600 employees that Seaspan brought on to their Vancouver operations specifically for that, I believe two-thirds or so were just apprentices, which I think is a great thing.

There's a huge amount of support that governments right across this great country give to supporting students, though, in terms of the Canada student loans program, etc. Obviously, enabling apprentices to now qualify for the Canada student loans program I think is a great thing. Certainly in British Columbia that's the voice I heard.

There's one area in which I don't think we do a very good job, and I certainly want to offer a suggestion and maybe hear your viewpoint.

In the United States they actually have what's called the college scorecard. Have you heard of that, Madam? Yes, it basically provides a comparison of costs and outcomes among similar programs for prospective students with similar backgrounds. Let's say I might want to go to Okanagan College or BCIT in British Columbia, two fine institutions. I could go online if they were universities that received federal funding in the United States and actually compare a similar program. If I was interested in a particular trade, I could see what the costs would be. They will say what the graduation rate is, but also what the costs were, what the student debt was, and how many are employed. It's just like when you buy a car. You expect to see some key indicators as to whether the car is gas efficient, etc. This gives you that.

Do you think we suffer in Canada from not giving students enough information so they can make informed choices about which trades or post-secondary education programs they take?

[Nobina Robinson]

Thank you so much, Mr. Albas.

Absolutely, I totally agree. Yes, we suffer from that problem. Are there solutions that you can come up with? Yes. Let's be cautious. These are shared jurisdiction issues, so the federal government can't act alone. But what you're proposing is my ultimate vision: a data dashboard, guidance counsellors, parents, students, employers who know. These are, after all, publicly funded post-secondary institutions. Canada has 97 publicly funded universities and 135-odd community colleges, polytechnics, and institutes publicly funded through federal transfer dollars and provincial funding. Why does the citizen, the learner, the employer, not have accessible, reliable, real-time labour market data? Currently, as much as we believe in Statistics Canada and are delighted that the census is back, it takes four to five years to polish any data. Today, on apprenticeship, we are coming up with policy solutions based on data culled in 2002. As a key proponent of the Canada apprentice loan, I think it's very easy. Every time the federal government issues an incentive grant, a completion grant, why don't we have a student identifier number? We know nothing about the pathways of our publicly supported learners.

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

Actually, Statistics Canada, I believe, launched two new labour market surveys last year, but I do appreciate it does takes time for the proper data to be not only gathered but also disseminated.

I just think there is a real dearth of information to help empower students, and I think there would also be greater competition and accountability among post-secondary choices. As our demographics age, those students should be given as much information so that they can get the highest quality of life and be able to pay those higher taxes that go along with it, which I think is a good thing. When you make a lot more money, then you share and help grow our economy.

Going over to Mr. Boadway, I want to ask you a question.

You mentioned earlier about the Canadian health care transfer and somehow that the federal government should automatically pay whatever the rate of growth is in a province. Is that correct?

[Dr. Robin Boadway]

[Inaudible—Editor]

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

Okay.

In British Columbia, we have the lowest per capita health care costs. We have the highest life expectancy. We have the lowest infant mortality rate per 1,000 live births, the lowest cancer mortality rates per 100,000, and the lowest mortality rate from heart disease. They offer a lot of services that aren't in other provinces, yet they are able efficiently to deliver those services. If we expect better of our health care systems, simply just suggesting that we give more money, I think, actually creates a perverse incentive. For provinces that have done a good job of growing their economy, but have also kept their services like health care affordable at such a high level, to me it gives a bit of a perverse incentive. Would you agree with that?

[Dr. Robin Boadway]

Thank you for the question.

I think it's easy to overestimate the incentive consequences of general transfers like the Canada social transfer and the Canada health transfer because they're unconditional, and they're not contingent on what any one province does. How you use those transfers in your province, or how your provincial government uses them is entirely up to them. I could see an argument for conditioning the transfers on demographic differences across provinces, where provinces that have, for example, older populations have more need for money, but in terms of the incentives that provinces get from unconditional transfers that are formula-based and based on nationwide averages, I think the incentives are rather minimal.

My concern is really the balance between federal revenue and transfers in provincial revenue and transfers. There's a purpose for having a vertical balance, a vertical gap in the federation, which we can see nowadays, and which they don't have in Europe. It fulfills a very important insurance function for the federation. When provinces are subject to shocks, the fiscal federalism system automatically accommodates those shocks by changes in the transfer system. That would be lost if you insisted on all provinces relying on their own revenues to finance all of their programs.

[The Chair, Liberal, Wayne Easter]

I will have to cut it off there. We went considerably over, but I thought it was a discussion that needed to be had.

Mr. MacKinnon, five minutes.

[Steven MacKinnon, Liberal, Gatineau, QC]

Mr. Littler, if you don't mind, I'm going to speak French.

Merchants in my riding tell me that online purchases of less than $20 from other countries, mostly the United States, can enter Canada without taxes or tariffs. They are afraid that the government will maintain or increase this $20 threshold.

Can you share the point of view of your members regarding online purchases from other countries?

[Karl Littler]

Some of our members would probably carry sharpened stakes and garlic, and so on. It's a hard file to kill. The issue, for us at least, is not online shopping. We're prepared to compete, and indeed our top 10 members' online sales match Amazon and eBay sales, eBay also being a member, so we're happy to compete. There was a lobby during the TPP negotiations and there is a lobby currently by the U.S. air freight industry and by online warehouses both in the U.S. and abroad to dramatically increase de minimis. Initially the ask was $200. They point out that's the U.S. level, and they kind of joke that Canada is at the same level as, I think, Uganda. What they also fail to point out is that there is no federal sales tax in the United States, so it works rather differently going the other way, and of course, they also have a lot of the warehouses there, so you can intuit reasonably who would lose sales—those investing and hiring in Canada—and who would gain sales—those shipping from outside.

The problem is that if de minimis were raised, that would strip out the tax and the duty at the border, and somebody selling a good for $100 in your riding would have to collect QST and HST while for somebody shipping it in from Albuquerque, there would be no tax. It's a basic tax fairness issue. We can live with the $20. Nobody wants to tax paperclips. It's not worth anybody's time, but $200 represents a lot of consumer goods—we estimate that to be up to $80 billion—though not all of those are shippable. Obviously, not all of those would be diverted, but we are very worried that if de minimis were increased significantly, it would lead to massive cross-border online shopping from the comfort of people's living rooms, and that is a source of great concern to Canadian merchants.

[Steven MacKinnon, Liberal, Gatineau, QC]

That is to say nothing of our merchants losing sales and tax revenues.

[Karl Littler]

Yes, that's provincial and federal tax revenue, of course.

[Steven MacKinnon, Liberal, Gatineau, QC]

Exactly.

I will turn to Professor Boadway with the time I have left.

This government and hopefully this committee, Mr. Chairman, will take up the issue of reviewing some of what Mr. Sorbara was referring to in terms of tax exemptions and their efficacy with respect to favouring one income group over another disproportionately. My question is much the same as Mr. Sorbara's and perhaps we'll have another occasion to explore this with you more fully. Do you have advice for this committee as we take up that particular task?

[Dr. Robin Boadway]

Thank you for the question. You're not talking about simplicity now; you're talking about fairness, as I understand it.

[Steven MacKinnon, Liberal, Gatineau, QC]

It's both.

[Dr. Robin Boadway]

I made one or two proposals that were kind of addressing this issue obliquely. One of them had to do with taking all non-refundable tax credits—personal credit, spousal credit, age credit, credit for dependants, and so on—and turning them into refundable credits. There is no reason in principle why you couldn't do that. If you turned them into refundable credits, you could also run them through the tax system in the same way the GST credit, the child tax credit, and the guaranteed income supplement are run through, and make them contingent on income so that they diminish as you go up the income distribution. You could have a set of refundable tax credits that are very fair. They would go to the people who need them most, and they would be consistent. There is no consistency now between non-refundable tax credits, which came from a period in the 1980s when we converted deductions to credits and so on, and refundable tax credits, which were introduced with the GST at the end of the 1980s and which have become one of the potentially most important policy instruments in the tax system that we should exploit.

That's an example of what I'm saying.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

We'll have to cut it there.

Mr. Liepert.

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

I'll start with Mr. Boadway.

We had the C.D. Howe Institute here this morning, and the conclusion of a lot of work they have done in the way of studies is that for our upper income tax brackets, we have reached the maximum. If I heard you correctly, you believe there's still room in those upper tax brackets for increases. Is that a personal opinion, or is that a result of some studies?