Finance Committee on May 8th, 2017

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

This should be fairly easy to answer, but I will not ask you to answer today. Would you be able to get back to this committee and clarify it? I'll give you an example.

If a homeowner is receiving a heating bill that has—in Alberta's case, there is no PST—a carbon tax applied at the bottom of the heating bill and then the GST is applied, is it appropriate for me to ask you to report back to this committee whether or not that is, in fact, taking place? If it is, what is the projected revenue for the federal government going forward from the GST portion of the carbon tax?

[Pierre Mercille]

We can report further on estimates of revenue, if we have it, but right now, the way the law is written the GST would apply on top of it.

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

Mr. Chair, can this committee ask—

[The Chair, Liberal, Wayne Easter]

We're here to deal with Bill C-44, but if there is an area that the department can provide further clarification on, I don't have a problem with that because they could either be asked for further clarification on it at this committee or via an Order Paper question. If any of the witnesses think they want to take a stab at this, they're open to do it.

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

I'm not even asking for the answer today. I'm asking whether you could get back to this committee on that, please.

[The Chair, Liberal, Wayne Easter]

Then you can check it.

Mr. Deltell is our last questioner, I think.

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

Thank you, Chair.

Gentlemen, it's always a pleasure to talk to you. A few minutes ago or an hour ago, we had the chance to talk about tax on alcohol. I would like to talk about tax on tobacco. I think Mr. Coulombe will be my counterpart.

It will be my pleasure to speak with you again, Mr. Coulombe. Thank you very much for the specific details you gave us about alcohol tax.

Now, let's talk about the tobacco tax.

We know that Canada had a sad reputation in 1981: we were the country that consumed the most tobacco per capita. Through vigorous awareness campaigns to alert the public, tobacco consumption in Canada has declined nicely. Our country now ranks among the best. We are not the best, but among the best in terms of use. When I say that we are among the best, it means that the less we use, the better.

Obviously, it is not without raising the anger of some who are sad to see that the current government wants to legalize marijuana, but that's another matter. Let's keep to Bill C-44, in accordance with the chair's most pertinent instructions.

Mr. Coulombe, I assume you have assessed the impact of the increase in the excise tax on tobacco. Is it calculated in the same way as for the excise tax on alcohol, meaning it's calculated based on the rising staircase principle, which can also have consequences on the other industries that depend on that?

I want to say right now, that clearly alcohol does not do harm people's health in the same way as cigarettes. As I mentioned earlier, the impact of alcohol in restaurants and drinking places has nothing to do with the impact of tobacco.

[Gervais Coulombe]

Thank you for the question.

To answer your question, I will provide two contextualizations.

The first one concerns the measure being proposed. As my colleague Trevor McGowan explained about Part I of the bill, the old surtax on the profits of tobacco manufacturers in Canada is withdrawn.

In addition, an adjustment is made with respect to the federal excise tax. Given that this adjustment is made on the basis of the revenues that the surtax was seeking at its peak in the early 2000s, there is a little bit of additional revenue coming from it. According to the budget, this adjustment amounts to $55 million, as of March 23, 2017. If we put it in context, the federal government will collect about $3.2 billion a year on taxation on tobacco alone.

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

I want to make sure I'm following you. The new taxation system will therefore allow an increase in government revenues. Is that correct?

[Gervais Coulombe]

On the adjustment, we will collect revenue at its peak, before some companies move abroad and are no longer subject to the surtax, for example. The goal is to put some balance back into the system. Therefore, an increase of $55 million should be made in the books.

Again, what you don't see in the cost table is what the tax measures are already reporting. With respect to tobacco, if you look at the Canada Revenue Agency and the Canada Border Services Agency tabs on Public Accounts of Canada and you add up the numbers, you will get a total of approximately $3.2 billion for the fiscal year ending March 31, 2016. This context provides evidence that $55 million out of $3.2 billion will have no impact on use.

I can also point out that, in fiscal policy, the government has demonstrated in its budget documents that it intends to continue to implement tobacco taxation that supports the government's goal of reducing tobacco use.

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

That's fine, but the tobacco tax is a double-edged sword: an appropriate tax can curb the purchase of tobacco, but too much tax can lead to contraband. I know of what I speak; I am from Quebec, and I was born in 1964. Like anyone, teenagers are tempted to try smoking. Thank goodness René Lévesque had just been elected premier. For the first time in Quebec's history, he introduced massive taxes on tobacco. Clearly, that dampened any enthusiasm I may have had at the time to take up smoking, when I was a student in my teenage years. That said, I realize that isn't a responsibility that falls on you; I just wanted to give you some context.

The surtaxes imposed in the 1990s led to an increase in illegal tobacco. I am from Loretteville. I have some wonderful neighbours, but unfortunately, some of them got involved in illegal activities and were severely punished under the law. I should point out that, when Grand Chief Konrad Sioui was elected in 2008, he took the bull by the horns and curbed the expansion of illegal tobacco activities in Wendake.

Has the Department of Finance determined where the fine line is between an appropriate tax that deters people from smoking and generates acceptable economic spinoff, on one hand, and an excessive tax that tilts the industry towards the wrong side of the law, on the other hand? Has the Government of Canada done the math and come to the clear conclusion that the right amount of taxation can be beneficial, but that too much can be detrimental?

[Gervais Coulombe]

I am once again going to make a few general comments.

It is clear that potential schemes involving contraband tobacco are reviewed regularly. They factor into the equation when the government, through its budget, reassesses the effectiveness of its suite of tax measures and their impact, every year. It strives to find a balance between the excise tax and the pressures associated with contraband.

As for the fine line, it's very tough to wade into that territory. As you know, Canada is a huge country. The tax base from tobacco products is divided among the provinces. Each one has its own taxation rates, which can vary significantly from one market to another. One province might be dealing with specific law enforcement challenges that are not at all present in other parts of the country. My colleagues at the RCMP and Public Safety Canada would no doubt be better-positioned to discuss the issue in much more detail. I will say, though, that, in past years, we have seen specific problems involving counterfeit tobacco product imports. They were coming from China and truly looked like legitimate products that had been stamped in Canada. Of course, the illegal manufacture of tobacco products is a problem in parts of the country that are farther away from the major import ports. Given the wide range of factors that come into play, I will refrain from commenting on what that fine line is.

I can tell you, however, that the measure in the bill is intended to maintain the overall tax burden through the taxation policies being implemented. Given the minimal impact on the tobacco taxes collected, overall, I doubt that this increase would have much of an effect on the contraband situation in the country.

[The Chair, Liberal, Wayne Easter]

Thank you for that in-depth answer, because the same thing was going through my mind: you don't know what's in half of legal tobacco either, which is a bigger health issue.

You wanted to speak again, Mr. Dusseault?

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

Yes, but I will keep it short. I just have two questions. I said earlier that I wouldn't ask Mr. Coulombe any more questions, but I would like some additional clarification.

The Canadian Cancer Society would like all tobacco excise taxes to go towards education and awareness campaigns to prevent more people from smoking.

You mentioned a figure of $3.2 billion. Are you able to tell us what percentage of the excise tax the federal government spends on anti-smoking awareness campaigns? Can you give us an approximate number? If not, would you be able to get back to the committee with that information?

[Gervais Coulombe]

I don't have that information with me. No doubt, it would be possible to check with the people at Health Canada on that, since they would probably be in a better position to provide exact numbers for that spending.

What provincial governments spend in that area would also have to be taken into account, given that they, too, take in tobacco tax revenue, which—I might add—is well above the $3.2 billion collected by the federal government.

As far as spending in this area goes, that is once again outside my specific area of tax policy expertise. We, on our end, collect the money, and my colleagues here handle the spending or suggest spending measures.

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

According to the Canadian Cancer Society, the provinces are a lot more active on this front. What the organization is really looking for is a larger contribution from the federal government, which does take in a fair amount of tobacco tax revenue, after all—$3.2 billion.

I would like to pick up on the public transit tax credit.

Mr. LeBlanc, you said that the goal of the credit, when it was introduced in 2006, was to reduce greenhouse gas emissions and increase public transit use, but that the credit had not accomplished either of those things. In light of that finding, and given that the current government is sticking to its objectives of reducing greenhouse gas emissions—at least, I hope it is—and increasing public transit use, have you looked into alternative solutions? It's well and good to conclude that a measure doesn't work and to get rid of it, but have you evaluated other options to achieve these very worthy objectives—perhaps a new tax credit or tax incentive? In a nutshell, have you weighed options to replace the public transit tax credit you deemed ineffective?

[Pierre LeBlanc]

Thank you for the question.

I don't think a tax credit is the most effective way for the government to promote public transit.

Budget 2017 did, however, set out major investments in public transit infrastructure. Some of my colleagues could no doubt speak to that in greater detail. I believe the government allocated more than $20 billion over a period of 11 years through agreements with the provinces and territories. The government has, then, earmarked some very significant spending for public transit, direct spending.

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

That answers my question. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

That ends our questioning on parts 1, 2, and 3. Thank you all for coming before the committee and answering questions.

We'll now turn to Mr. Halley and Ms. Bourns to look at part 4, division 1, Special Import Measures Act.

Thank you, folks. I believe there are a couple of things to get back to the committee on about part 3.

We have our witnesses at the table. First, we have Patrick Halley, the director of the international trade policy division, international trade and finance branch; and Laura Bourns, the senior economist, trade rules, international trade and finance branch.

The floor is yours for an opening statement, and then we'll go to questions. We're dealing with part 4, division 1, amendments to the Special Import Measures Act.

The floor is yours.

[Patrick Halley, Director, International Trade Policy Division, International Trade and Finance Branch, Department of Finance]

Thank you, Mr. Chair.

Division 1 of part 4 pertains to amendments to the Special Import Measures Act. This is the primary legislation governing Canada's trade remedy system, which provides for the application of duties to address situations where dumped or subsidized imports cause injury to domestic producers.

The Minister of Finance is responsible for the legislation and policies relating to Canada's trade remedy system, which is jointly administered by the Canada Border Services Agency and the Canadian International Trade Tribunal.

There are four key legislative amendments being proposed in part 1. The first change relates to the implementation of a World Trade Organization dispute settlement decision, which found that Canada was in breach of its international trade rules. With these changes, Canada's trade remedy system will allow for determination and trade remedy investigation when an individual exporter is found to have an insignificant amount of subsidy or dumping.

The remaining three changes relate to proposals on which public consultations were conducted at this time last year. Two new proceedings will be created related to the enforcement of trade remedy measures.

First, primarily in clauses 87 and 89, there will be new scope proceedings that will provide for binding and appealable rulings as to whether a good is subject to anti-dumping or countervailing duties. These proceedings will enhance transparency and predictability related to the enforcement of trade remedy measures in Canada.

The second set of changes relates to new anti-circumvention investigations. They are primarily in clauses 84 and 89. These new anti-circumvention investigations will provide for the extension of duties to goods from exporters who are modifying their trade patterns specifically to avoid the imposition of duties in Canada. This will provide the Canada Border Services Agency with enhanced tools to address circumvention and more effective enforcement.

Third, CBSA will also be given new powers to respond to situations where market distortions in the country of export make prices unreliable for the purpose of calculating dumping margins, for example, when there are price controls by the government. This will ensure that trade remedy duties are accurately reflecting market conditions in the country under investigation.

Finally, one item that is not in Bill C-44 but was in budget 2017 was the proposal that unions be provided with the right to participate in trade remedy investigations. This change is being implemented in a parallel process, namely regulatory amendments. So it is not in this bill, but was announced in the budget.

Overall, these changes will strengthen Canada's response to unfair trade, better align Canada with our major trading partners, and ensure that we are abiding by international trade obligations. They provide important new tools for trade remedy investigators in Canada while maintaining the system's balance of interest between domestic producers, downstream users, and consumers.

That concludes our presentation.

We would be glad to answer any questions you have.

[The Chair, Liberal, Wayne Easter]

All right. Thank you.

I have Mr. Dusseault. I don't believe there are any questions from the official opposition in this round.

Mr. Dusseault, are there any over here?

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

Yes, thank you.

Would you mind clarifying what the government is trying to achieve with all of these changes?

Right now, certain companies are engaging in trade dumping or illegal trade practices under international trade law but are using these practices in a way that allows them to avoid the measures we impose.

Is that the reason behind these changes?

[Patrick Halley]

It's the reason behind the proposed anti-circumvention measures. Some exporters are indeed engaging in certain practices in order to avoid anti-dumping or countervailing duties when their goods arrive in Canada.

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

Will the changes also apply to the dumping we are seeing in the steel industry?

[Laura Bourns, Senior Economist, International Trade Policy Division, International Trade and Finance Branch, Department of Finance]

The majority of Canada's trade remedy measures apply to the steel industry, so I believe around two-thirds of our trade remedy measures relate to steel products, and the majority of those measures would relate to China. Many other Asian countries are also implicated, but China is the main target.

What we sometimes have seen and other countries have encountered is that when a measure is imposed against China, there may be exporters in China that will try to ship goods through other countries, to ship unfinished goods to other countries, and have them completed in that third country and then be shipped onwards to another market. In that case, anti-circumvention investigations would be used to then potentially extend that measure against China to the third country if it were found that the goods from China were still a substantial proportion of the goods that were ultimately shipped on to the domestic market. There will be checks and balances to make sure that these measures are only extended where warranted, but, essentially, it will increase the enforcement of the existing measure by ensuring that circumvention isn't happening.