Evidence of meeting #90 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.
A video is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
Thank you.
I do have a couple of questions to end up on. One is about the trade challenge from the Europeans. I understand that at one point in time there was an agreement established with the Europeans that 100% Canadian wine could be exempted from the excise tax.
You're saying that if the escalator goes in, we would be in violation of that agreement and would be challenged?
Liberal
The Chair Liberal Wayne Easter
Where do we find that agreement? I guess we could find that agreement somewhere. I would like to see it.
Second, I think it was you, Mr. Westcott, who talked about the experiment with the annual automatic indexing of liquor from 1981 to 1986. If you talk to Finance, they are going to tell you that the indexing to CPI at that time was different from the indexation at this time. I'm not 100% sure how that works, but that's what we're told.
How was that proposal then different from the one now? I was one of the ones borrowing money at the time, and I know that inflation was 10% at the time. What different factors were there then compared to now? I'm not trying to pin you down, but is it a fair argument to say that there could be the same impact on the industry today as there was through that experience from 1981 to 1986? What's your opinion?
President and Chief Executive Officer, Spirits Canada
It's an absolutely fair assessment that it will have a similar effect. No one can know for sure, and no one can even guess, because there is no analysis. Finance didn't do any work. They haven't done any work. There's no information forthcoming about what this means. As I said, based on what happened over the last 10 years, we're not particularly inclined to take them at their word based on what we've seen.
Our excise revenues to the government have gone up by almost 50%. Our business went up 14%, and inflation was 17%. Are those guys you would believe?
Absent seeing some analysis and some details, I can't really answer that. We do know it was a horrific experience for everybody. People are saying to me, “It's different. Don't worry about it. It can't be the same.” I'm not really inclined to believe that. The thousands of people whose jobs depend on that, middle-class Canadians, farmers all across this country, are the people whose livelihoods we're gambling with because we haven't done the work and don't know those answers.
Liberal
The Chair Liberal Wayne Easter
You mentioned earlier how the 2% increase impacts the whisky and other liquors that are in barrels. If you've got a further explanation of that, can you forward it to us in writing?
President and Chief Executive Officer, Spirits Canada
We'll provide that to you.
Liberal
The Chair Liberal Wayne Easter
To be quite honest with you, I still don't understand how that works, and I'd like to see how you get to that calculation, if you could forward it to us.
With that, we are substantially over time, so I do appreciate all of your coming forward and telling it like it is from your perspective.
We'll suspend for a couple of minutes while we change panels.
Liberal
The Chair Liberal Wayne Easter
We'll reconvene on Bill C-44. I would ask the witnesses and members to come to the table.
Welcome, folks. We have Normand Lafrenière and Frank Rider from the Canadian Association of Mutual Insurance Companies; Nicholas Rivers, associate professor with the University of Ottawa; and Marc André Way from the Canadian Taxi Association. Other witnesses may arrive shortly. We'll see.
We'll begin with the Canadian Association of Mutual Insurance Companies first.
Mr. Rider, the floor is yours.
Frank Rider Chairman of the Board, Canadian Association of Mutual Insurance Companies
Thank you. First of all, I want to thank this committee for the opportunity to appear before you.
The Canadian Association of Mutual Insurance Companies is an association of 79 mutual and co-operative insurance organizations operating in Canada. About 75 of our members are what we would call farm mutual insurance companies, i.e., smaller companies created by farmers, for farmers, mostly in the 19th century—several even before Confederation.
We are here to present our concern in relation to Bill C-44 which, if adopted, would eliminate the tax exemption for insurers of farming and fishing property originally introduced in 1954. That was at a time when farmers and fishers had little choice other than to obtain insurance from their own mutual insurance company. To this day, in some regions across the country, that need still exists. You have to remember that farm risks and fishing risks represent high values, and oftentimes they are total losses.
While it would appear that the elimination of the tax exemption will affect only the insurance companies, this is absolutely not the case. This tax relief, provided by the exemption, is not retained by the mutual insurance companies. It is passed along to farmers and fishers through lower rates and premium refunds, and it also allows us to tolerate higher loss ratios on farm and fishing risks.
Indeed, the mutual insurance companies of farmers and fishers still exist for one reason: to provide affordable insurance protection to farmers and fishers on an at cost basis, without a profit motive. The large majority of active food producing family farms and fishing enterprises across Canada continue to be insured by their small mutual insurance company. Farmers and fishers still, to this day, make up the majority of board members governing their company.
Normand Lafrenière President, Canadian Association of Mutual Insurance Companies
To qualify for the tax exemption, insurers have to maintain a minimum farm/fishing premium of 25% of their total written premium. According to the Department of Finance, in 2014, some 40 companies were still benefiting from the tax exemption, 37 of which were farm/fishermen mutual insurers, most of them small mutuals.
A number of these farm mutual insurance companies report that their continued existence depends on the tax exemption.
The three non-mutual insurers benefiting from the tax exemption do so through a special tax exemption giving them an unfair advantage over mutual insurers.
Because of the evolution of the rural landscape, and the resulting effect on insurance, the average farm mutual insurance company reports doing 15% of its business with farmers and fishers. In CAMIC's pre-budget submission, we recommended that the qualifying threshold be reduced to 5% of the total written premium, in concert with the elimination of the special tax treatment given to the three non-mutual insurers. The suggested measures would have been cost revenue neutral to the federal government.
While the government has not agreed to bring about the recommended changes, we fear that the elimination of the total tax exemption, as proposed under Bill C-44,, will have a very negative effect on mutual insurers of farmers and fishers.
We, therefore, recommend that paragraph 149(1)(p), and subsections 149(4.1) to 149(4.3) of the Income Tax Act be maintained as they are currently exist.
In closing, let me point out that farm mutual insurance companies provide significant benefit to the small rural communities in which they are located. They ensure that insurance is available at all times, even when the market is tight. Mutual insurers are also significant employers in their community. They purchase locally sourced goods and services whenever possible, and participate in the betterment of their community.
Thank you for considering CAMIC's recommendation.
Dr. Nicholas Rivers Associate Professor, University of Ottawa, As an Individual
Thank you very much for inviting me to speak.
I'm going to speak about the public transit tax credit. In the past couple of years, I've conducted research to try to understand the effectiveness of the public transit tax credit. Based on this research, as well as research conducted by others, I'd like to make three points.
The first point is that the public transit tax credit has failed to achieve its goals of substantially increasing public transit usage, reducing congestion, or reducing air pollution and greenhouse gas emissions from transport. This conclusion is based on statistical evaluation of the policy that I've conducted with one of my students. The study used data from the 2006 census and the 2011 national household survey and focused on responses to questions asking individuals how they travel to and from work. We established the effectiveness of the policy by comparing travel patterns of individuals who were and who were not eligible for the tax credit. Because the tax credit is non-refundable, only individuals that pay income tax are eligible to receive the tax credit. Individuals who don't pay income tax can therefore serve as a control group, while individuals who did pay income tax and are therefore eligible for the tax are the treatment group. Our study compared changes in public transit usage in the treatment and control groups from before and after the tax credit became available. We statistically controlled for a large number of other factors that could impact transit ridership in order to isolate the effect of the tax credit.
The results of the study suggested the tax credit had only a very small effect on public transit ridership, raising the proportion of individuals regularly using public transit by about 0.25 to 1 percentage point in comparison to a baseline transit ridership of about 12%. While this increase in transit ridership is desirable, it is not a substantial change from the status quo. Importantly, our study finds that the great majority of individuals who claimed the public transit tax credit, between 92% and 98% of all claimants, made no changes to their behaviour. They would have used public transit regardless of whether or not the tax credit was available.
This brings me to my second point, which is that, despite not achieving its goals, the public transit tax credit is expensive. The Canada Revenue Agency reports that in 2011 the tax credit cost about $170 million in foregone revenue. Based on the findings in my study, this suggests that between $1,200 and $4,800 is required to induce one additional person to take public transit. It is also possible to calculate the cost of reducing carbon dioxide emissions using the public transit tax credit. My study suggests that reducing one tonne of carbon dioxide emissions using the tax credit costs between $1,000 and $22,000 in foregone government revenue. This is much higher than the cost of other carbon mitigation opportunities. It leads me to conclude that the tax credit is not cost effective.
The final point I'd like to make is that the public transit tax credit is regressive. Because it is a non-refundable tax credit, many low-income individuals are excluded from the tax credit by design. Further, higher-income households likely have more access to tax planning advice than lower-income households and are more likely to receive the tax credit if eligible. Studies by the Department of Finance as well as studies by academics published in the journals Canadian Public Policy and the Canadian Tax Journal, show that the public transit tax credit is disproportionately claimed by middle or high-income households to the exclusion of low-income households. Overall, the tax credit likely had a small regressive effect on the distribution of income.
For the three reasons I have described, I support the elimination of the public transit tax credit. In doing so, I'd like to make two additional points. First, while I have studied the public transit tax credit and have concluded that it is expensive and ineffective, I have no reason to believe it is uniquely so compared with other tax credits. There exists research that suggests that several other tax credits in the federal system are expensive, ineffective, and regressive. I support the continued examination of tax credits in the federal tax system undertaken by the federal government with a view to improving the transparency and efficiency of the tax system.
Second, while I don't think that the public transit tax credit is a well-functioning policy, I do strongly support the objectives under which it was developed, including reducing congestion and reducing transport sector emissions. Research suggests that the best way to achieve these objectives involves imposing distance-based fees on road users or emissions-based fees on emitters, such as road pricing, congestion pricing, or greenhouse gas pricing. I strongly encourage the further implementation and study of these options by governments in Canada.
Thanks very much for the chance to address the committee.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. Rivers.
With the Canadian Taxi Association, Mr. Marc André Way.
Marc André Way President, Canadian Taxi Association
Good afternoon, Mr. Chair and members of the committee. Thank you for allowing me to speak today.
I'm here to support the amendment to increase the collection of HST/GST from the ride-sharing companies and affiliated drivers.
My name is Marc André Way. I'm the president of the Canadian Taxi Association. I have also been the chief operating officer of Coventry Connections since 2004, operating 1,500 taxis in six municipalities in Ontario. I'm also co-owner of Capital Taxi, a business operating in Ottawa since 1938. My experience in the ground transportation business is extensive in the taxi, limousine, black car, and sedan business.
I'm an active member of the community. I hold a seat on the transportation committee of the Greater Ottawa Chamber of Commerce, and the taxi advisory committee of the City of Ottawa. I'm also a board member of the Taxi, Limousine and Paratransit Association, an international association that will be celebrating its 100th year of service in 2018.
We are presenting today to support the government's decision to address the significant inequity in the application of GST/HST that has a substantial impact on us and our members. The Canadian Taxi Association is the voice of the taxi industry in Canada. Our members consist of the largest companies in most major cities across Canada. We speak for an industry of 30,000 taxi owners and operators and over 50,000 taxi drivers, who undertake over $2 billion in consumer transactions on an annual basis.
All taxi operators in Canada are required to be registered for GST and HST purposes, and to charge, collect, report, and remit HST and GST on their fares regardless of their annual revenue.
Ride-sharing companies such as Uber and TappCar and their drivers should be required to be registered. Typically today they are not registered and do not charge, collect, report, or remit GST or HST. This creates a significant competitive disadvantage for our drivers and members and provides a direct competitive advantage to the ride-sharing companies and their drivers. The recent budget of 2017 levels the playing field for us.
Over time, changes in the economy have made a number of provisions in the Canadian tax statutes less relevant than when they were first introduced. To address these changes, budget 2017 proposes to amend the definition of a taxi business under the Excise Tax Act to level the playing field and ensure that ride-sharing businesses are subject to the same GST and HST rules as taxis.
Our reason for strongly supporting those measures in budget 2017 are to ensure a fair, equitable, consistent application of GST to all suppliers in the private transportation industry, including taxis and ride-sharing companies; to maintain a competitive private transportation industry unburdened by arbitrary tax preferences; to simplify the application of GST in the private transportation industry for both consumers and suppliers; to ensure the stability of the federal government's HST/GST revenues for ride-sharing companies and their drivers, just as our members and drivers collect, report, and remit for the government's benefit; and to improve the operation of GST for the benefit of all Canadians.
In conclusion, the past unfair and inconsistent application of the excise tax's small supplier registration exemption poses a significant threat to the competitiveness of the private transportation industry. Unless amendments to the excise tax are made, small supplier ride-sharing companies and their drivers will have an arbitrary but significant price advantage in the market. Consumers will be forced to seek smaller supplier ride-sharing company drivers in order to receive a lower fare.
As consumers continue to increase their reliance on the services offered by ride-sharing companies and their drivers, the federal government's GST revenues from private transportation companies will steadily decline. Accordingly, we support the Government of Canada and the Department of Finance amendment to the excise tax to address this inequitable application of the GST/HST between our drivers and members and the ride-sharing companies and their drivers.
Thank you.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. Way.
From Transport 2000 Québec, we have Mr. Pepin, the president of the council, and Madame Plouganou, the secretary of the board.
Welcome.
Go ahead, Mr. Pepin.
François Pepin President of the Council, Transport 2000 Québec
Thank you, Mr. Chairman.
I thank the members of the Standing Committee on Finance very much for their invitation.
Transport 2000 Québec is a non-profit association whose mission is to contribute to the overall development of public transit in Quebec and improve user services, while ensuring that the users' viewpoint is taken into account. Our vision is to ensure that citizens have access to affordable, high-quality and safe public transit services. With our partners from the various regional chapters, we are members of a Canada-wide network, Transport Action Canada.
Transport 2000 was astounded when it was announced in the last federal budget that the personal public transit tax credit would be abolished. Over the next five years, close to $1 billion will be removed from the pockets of citizens who use public transit.
The 15% tax credit meant that citizens could recover the equivalent of close to two months' monthly fees for using public transit. This compensation for choosing sustainable transport just went up in smoke, and no new incentive has been proposed to replace it.
Among available studies, a study pointing to the weak impact of the tax credit on increasing the use of public transit was mentioned. The study, done by Professor Rivers of the University of Ottawa, showed an increase in ridership of between 0.25 and 1 per cent, which represents a major increase on a Canada-wide scale. So the credit did have an effect on the use of public transit networks. We are talking about 35,000 to 154,000 additional daily users.
Aside from those figures, the tax credit was claimed by 1.7 million Canadians in 2012, which represents $170 million that was returned to the pockets of taxpayers who used public transit. In order to obtain that credit, those same taxpayers in one year spent $1.38 billion in transit fees. Thus, except in Toronto, every Canadian who spends about $1,000 a year in transit fees will be deprived of approximately $150. That is the equivalent of a 15% fee increase.
Econometric studies have shown that any increase in public transit fees leads to a decrease in ridership. Many users decide to change transport modes, that is to say to walk or use the car. Given these facts, we estimate that on a yearly basis, this could mean some tens of millions fewer public transit trips throughout the country.
According to the Toronto Transit Commission, the TTC,
“The [Public Transit Tax Credit] has undoubtedly had a positive impact on TTC Metropass sales and ridership growth”, and the TTC feels that eliminating it “will erode at least some of these gains.”
If everyone starts to use the car, there will be millions more tons of greenhouse gases in the atmosphere every year.
Ms. Plouganou, you have the floor.
Maëlle Plouganou Secretary of the Board, Transport 2000 Québec
We often hear it said that many low-income families do not benefit from the tax credit because they do not pay income tax. That argument is debatable. As has been shown by the cities of Calgary, Ottawa, and soon Toronto, the best way of helping low-income families is a social tariff structure to reduce fees and make public transit more affordable for low-income families and Canadians.
Such a reduction allows citizens to spend less money when they purchase their transit tickets by offering discounts of between 20% and 40% on single, weekly and monthly fees. Indeed, the main obstacle to the use of public transit by low-income families and Canadians is having to spend a rather large amount when they purchase their tickets. In fact, when a fee increase is too large, some citizens prefer to walk rather than use the bus.
President of the Council, Transport 2000 Québec
Canada cannot allow itself to act against its own policies. The elimination of the personal tax credit for public transit is in blatant contradiction to the objectives of the Government of Canada, which are to help the middle class, stimulate the economy and enable the environmental transition.
If Budget 2017 is the next step in our collective efforts to strengthen the Canadian middle class and support families who are working hard to join it, the elimination of this measure which benefited the users of public transit is a step backwards.
To support and encourage Canadians to massively opt for public transit, a range of measures must be offered to citizens by governments: incentives for users, financial support for investment programs, and increased participation in operational costs so as to improve and increase the daily service offer in every neighbourhood.
Thank you.
Liberal
The Chair Liberal Wayne Easter
Thank you all, and thank you for the work you do.
We're going to go to very concentrated three-minute rounds, so we can get through the list.
Mr. Grewal, you can start.
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you, Mr. Chair.
Thank you to all the witnesses who came today.
Marc, I'm the son of a taxi driver, so this was a really big development for us in our neck of the woods.
Can I get your comments on how the current system works? If you drive for Beck Taxi in Toronto, how are you expected to register and how is your HST remitted?
President, Canadian Taxi Association
A driver gets licensed by the city; his next step is to be registered with the government as a taxi driver, so he gets a GST number. The way the GST or the HST works in Ontario is that it's built into the metre fare. There are no choices—we have to. Our drivers must be registered to collect the HST. Every charge they go through by paying the brokers imposes HST. They go through the process of accumulating their fares, making their calculations, and being able to remit them either quarterly or monthly.
Liberal
Raj Grewal Liberal Brampton East, ON
For example, if five drivers drive for Beck, they don't remit it to Beck, and then Beck remits it to the government?
Each driver remits it.
President, Canadian Taxi Association
He remits his own portion of the HST, and the brokers or the company remits their portion on the fees they charge.