Evidence of meeting #7 for Finance in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was interest.
A video is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
Could we come to order and reconvene?
I know everyone knows this, but for the record we're continuing our study on pre-budget consultations for 2020.
Before I go to the witnesses, I believe the official opposition has a motion they want to propose. The motion is similar to what we did for minutes for Francesco Sorbara.
Can we have unanimous consent so that Pierre can put forward the motion?
Conservative
Pierre Poilievre Conservative Carleton, ON
I move:
That, notwithstanding the committee's routine motion on the distribution of documents adopted on Wednesday, January 29, 2020, and the usual practice of committees concerning access to electronic documents, Pat Kelly, M.P., be added to the committee's distribution list and be granted access to the committee's digital binder site for the remainder of the parliamentary session.
Liberal
The Chair Liberal Wayne Easter
All right. It's on the floor. Is there any discussion?
I think we said earlier we were willing to add further members to that.
(Motion agreed to)
Okay.
Thank you to all those folks who made their presentations and for coming on short notice. Also, for those who put in submissions prior to mid-August on the original deadline for pre-budget consultations, those documents have been brought forward by the committee and will be considered part of the evidence as well. We have accomplished that already.
If you could try to keep your presentations to about five minutes, I would appreciate that.
With that, we will turn first to Beer Canada, with Mr. Chapman. Welcome.
Luke Chapman President, Beer Canada
Thank you very much.
Mr. Chairman, honourable members of the committee, thank you for the invitation to appear before you today.
My name is Luke Chapman and I am here representing Beer Canada. For those of you who are not familiar with it, we are a national trade association comprising 48 member brewing companies that account for 90% of the beer produced in this country.
I'm here to talk about what's happening in the Canadian beer industry and to share a proposal we are asking this committee to recommend for inclusion in the upcoming federal budget. The proposal is supported by Parliament's beer industry caucus, brewing companies, barley farmers and many businesses along beer supply chains. It requires little government investment and aligns with the government's objectives of creating jobs and encouraging Canadians to lead healthy lifestyles.
We are asking the government to make minor, yet impactful, changes to beer's excise duty rates in order to stimulate growth and investment in Canada's budding low- and no-alcohol beer market. I will provide more details about this proposal in a moment.
Right now, there are over 1,000 breweries dotting towns and cities throughout Canada. The products created by these local businesses help to bring people together at social and sporting events, over meals with friends and family, and to celebrate festive occasions and milestones. Brewers are leaders when it comes to supporting community events, festivals, concerts and fundraisers.
The Canadian beer industry contributes a lot to Canada's economy. Domestic brewers are proud to directly employ 15,000 Canadians and pay $1 billion in salaries and wages. Of all beer sold in Canada, 85% is made here, and brewing makes up three-quarters of the GDP generated by the entire domestic beer, wine and spirits industries combined. The sale of beer in Canada supports 149,000 Canadian jobs and $5.7 billion in combined federal, provincial and municipal tax revenues.
Despite these important contributions, the future of the market is uncertain. From 2018 to 2019, domestic volume sales of beer declined by nearly 4%, which is the equivalent of eight million fewer cases of beer sold in just a one-year period. Over the last decade, we observed similar declines in per capita consumption, exports and beer share in Canada's beverage alcohol market. There is no simple explanation for what is causing these declines. Changing consumer preferences and changing demographics definitely play a role.
With respect, changes to how federal and provincial governments tax beer haven't helped either. Brewers know that they must continuously innovate with new products and invest in their brand portfolios to ensure they can engage consumers across a range of occasions. An emerging trend within the beer sector today is no- and low-alcohol products.
We have developed this proposal not only to stimulate investment in a promising new segment of the market, but also to respond to Canada's national alcohol strategy and the World Health Organization's global alcohol strategy, which calls on governments to promote the production and marketing of lower-alcohol products as a way to reduce alcohol-related harm.
Currently, excise tax on beer is calibrated under three alcohol-strength thresholds. The top excise duty rate comes into effect for beer with an alcohol strength of 2.5% alcohol by volume or greater. I did send a table around that helps explain this next paragraph. We'll walk you through it because it gets a little tricky.
Unlike no-alcohol wine and spirits, no-alcohol beer is not exempt from excise. We would like to change this. In addition, we are proposing that beer within the range of 0.5% to no more than 2.5% ABV have one-quarter of the top excise duty rate applied, while beer over 2.5% but not more than 3.5% ABV have half of the top excise duty rate applied. The top excise rate would apply to beer over 3.5% ABV.
In 2018, less than 2% of overall beer sales had an alcohol strength of 3.5% ABV or less. The market is small, but it is growing. This means that the fiscal cost to government of implementing our proposal would be small, an estimated $4 million in the short term, and in time the costs could be mitigated by positive volume growth of Canadian beer. For perspective, in fiscal year 2019, the federal government collected nearly $700 million in excise revenue on beer alone.
The domestic brewing industry is facing challenges, but with challenges come new opportunities for future success. We believe the proposal we have put forward today can help secure the future success of Canada's domestic beer industry. It is low cost to government, but it would be very helpful to brewers and those businesses that are dependent on a successful Canadian beer industry.
We kindly ask that this committee recommend that this proposal be included in the upcoming federal budget.
Thank you for your time. I'd be happy to answer any questions.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Luke.
We turn now to the Great Lakes Fishery Commission, with Marc Gaden, director of communications; and Greg McClinchey, legislative liaison.
Gregory McClinchey Legislative Liaison, Great Lakes Fishery Commission
Mr. Chair, thank you.
Thank you for inviting us, the Great Lakes Fishery Commission, to appear before you today.
I'm the commission's legislative liaison, and with me today is Dr. Marc Gaden, the commission's communications director. Together we're here to provide you with a brief overview of the Great Lakes Fishery Commission and to present our budget request.
It's good to begin with why the Great Lakes are so important, not just for Ontario but to all Canadians. They are a binational treasure and a top economic driver for the country. Aside from their environmental significance, they provide thousands of jobs, and the economic impact of the Great Lakes and the Great Lakes basin reverberates nationally. We cannot underestimate the environmental and social impacts of the lakes, nor should we minimize the connections between the lakes and the area's indigenous communities.
The fishery is worth more than $8 billion annually, and this doesn't take into account the economic multiplier impact of the lakes, be it in tourism, trade or many other economic and social or environmental benefits. History tells us that if we are to preserve these advantages, we need to be collaborative.
More than one treaty fell apart because Canada and the U.S. could not agree on how to tackle our shared problems, but by 1954 governments finally moved past these rivalries and ratified the Convention on Great Lakes Fisheries as a treaty. That treaty created the commission and gave us three primary duties: one, to formulate and drive a science program upon which to base fishery management decisions; two, to help the management agencies work together, as divided governance had led to inconsistent regulations, parochial actions and a race to the bottom; and three, to formulate and deliver a sea lamprey control program. The sea lamprey is an invasive predator that is incredibly destructive to both the fishery and the economy.
The commission ended the cross-border bickering that resulted in constant conflict and a collapsed fishery. The commission created a scientific understanding of the fishery and how to address problems and, most noteworthy, it reduced lamprey populations by 90%. This work has facilitated restoration of that $8-billion fishery.
Our treaty is premised on cross-border partnerships and a pledge by both nations to fund the commission's work. A funding formula, which both nations agree to respect, does exist, and for the sea lamprey program the U.S. pays 69% and Canada pays 31%. For science and cross-border coordination, our two nations have agreed to share all costs equally. The U.S. has fulfilled its funding commitments, but Canada has been behind for many years.
To meet this funding formula, Canada should be contributing $19.44 million annually, compared to our actual contribution of $9.54 million, which amounts to a $9.9-million annual shortfall. Canada's funding deficit places the commission's work and our relationship with our treaty partner at risk. This underfunding means that Canada is shortchanging lamprey control, contributing nothing to the commission's science mandate and providing nothing to our efforts for cross-border co-operation and other programming.
To remedy this, I would urge the committee that Canada's commitment should be brought into alignment. For the budget under discussion, we propose that Canada contribute $13.15 million, to be increased to $19.44 million by 2022. The latter figure will bring the two nations into alignment and reflects funding that is very important to maintaining and improving the fishery. It would also allow the commission to devote full attention to sea lamprey control. Current research tells us that we're underfunding sea lamprey control by 25% and therefore not taking full advantage of what the fishery offers. It should be noted that a failure to adequately fund control measures could allow populations to rebound and threaten fish stocks.
With additional funds, we would devote more attention to research that is very critical to sound fisheries management. We would devote more attention to our mandate to help agencies work together and to communicate our work to those who will put it to real-world use. This would allow us to better prepare for challenges, such as those posed by the Asian carp.
With additional funds, Canada would, for the first time in more than a generation, meet our treaty commitment. Details, including budget tables, have been provided to the clerk and are available from me upon request.
Let me end with a brief note about a machinery-of-government change that is in the works. The commission believes that we should again fall under GAC's umbrella and not DFO's, as we are an international treaty organization with a binational mandate. The commission needs a political partner that can sit with the U.S. State Department if past successes are to continue. We're in discussions on the subject and we are optimistic.
In closing, the fishery is important culturally and economically and is well worth this small investment.
Our two nations have a long-standing mechanism in place to manage this binational resource. To be frank, it works, though the lack of Canadian funding has raised eyebrows in Washington for years. We have a 65-year track record of success. The $8-billion-a-year fishery is proof of that. We hope this committee can help us move forward in a way that will benefit both nations and the resource that we are tasked to protect.
Thank you for having us here. I would be happy to answer any questions.
Liberal
The Chair Liberal Wayne Easter
Thanks, Greg.
You didn't bring your fish tank so that people could see what a sea lamprey looks like.
Legislative Liaison, Great Lakes Fishery Commission
Well, now, Mr. Chair, I happen to have a sea lamprey right here under the table, if anyone would like to see it.
Liberal
The Chair Liberal Wayne Easter
I don't see people running.
Okay, from the Mining Association of Canada, we have Mr. Marshall, vice-president. Go ahead.
Brendan Marshall Vice-President, Economic and Northern Affairs, Mining Association of Canada
It's disconcerting to think about what's under the table.
Vice-President, Economic and Northern Affairs, Mining Association of Canada
Thank you, Mr. Chair, committee members, clerk and fellow witnesses.
For the record, my name is Brendan Marshall. I am vice-president of economic and northern affairs for the Mining Association of Canada. Thank you for the opportunity to participate in this important consultation process.
Never before has a robust and competitive domestic Canadian mining and metal manufacturing industry been more critical to attracting downstream value-added advanced manufacturing investment to Canada. Elevated geopolitical and trade tensions have exposed growing concerns over the reliability of existing supply for critical minerals—materials without which the Teslas, the Apples and the Amazons of the world cannot operate. These companies are making investment decisions on the basis of stable, consistent and long-term access to the critical minerals and metals that are essential for the low-carbon battery and clean-tech products they produce.
Canada's success in attracting advanced manufacturing investment is inextricably linked to a competitive and renewed mining and metal manufacturing industry. To deliver on the government's clean economy vision for Canada and seize this rare opportunity, targeted policies signalling Canada's commitment to the industrial competitiveness needed for success in the low-carbon economy are needed.
The first area I want to talk about is public geoscience funding. The past 30 years have seen marked declines in proven and probable Canadian mineral reserves in all major base metals. The implication is that production from Canada's fleet of operational mines is shrinking. This adds strain to the country's smelters and refineries, several of which have closed in recent years because of increased reliance on costly international feedstock. A robust renewal of Canada's commitment to public geoscience funding is essential to a turnaround.
To reverse the decline of critical minerals and metals, MAC has two recommendations for the government. One, renew and expand from previous levels the geomapping for energy and minerals program, or GEM, to $200 million over five years to locate the next generation of Canadian mines. Two, renew and expand from previous levels the targeted geoscience initiative, to $50 million over five years, to increase the life of Canada's existing fleet of operational mines. Noting that those programs were brought in under the previous government, I would hope that there would be an opportunity for a bipartisan acknowledgement of a clear path forward on that.
Critical mineral innovation and industrial policy is the next piece I want to speak about. Increased geopolitical uncertainty has brought focused attention to the precariousness of existing supply sources for many primary materials. This has resulted in Canada's allies classifying as critical minerals the primary materials on which their economies and national security rely, but which they cannot procure from within their own borders. Rare earth elements and other critical minerals are of strategic interest due to their use in a wide range of essential battery, energy, computing and defence applications. Currently, China holds control over the production of many of these materials, thus rendering governments and other consumers reliant on China as their source.
To support the stated objectives of the joint action plan on critical minerals collaboration signed between Canada and the United States, MAC recommends a suite of initial actions. These include, one, significantly enhanced funding for Natural Resources Canada's CanmetMining to develop state-of-the-art identification, extraction and refining processes, including from recycled existing mine waste streams; two, a commitment to a whole-of-supply-chain approach, including supports for downstream market development and value-added production; and three, the establishment of an interdepartmental joint government-industry task force to study, report and recommend back in one year additional policy options.
Finally, I would like to speak briefly about accelerating industrial decarbonization. There is a direct correlation in mining between remoteness and emissions intensity. Mining companies operating remotely are virtually exclusively reliant on diesel fuel for power generation and haul-fleet operations. For grid and pipe-connected mine sites, the need for diesel persists in mobile equipment almost universally. However, battery technologies are improving. Companies are committed to transitioning to cleaner, lower-carbon operations where possible. For example, Newmont's Borden mine in Ontario, now operational, is slated to be the first fully all-electric mine in Canada and will be carbon-neutral underground by 2021.
To support the industry in its transition to a lower-carbon economy, MAC respectfully recommends a two-tiered strategy to accelerate emissions reduction for power generation at off-grid sites and from haul fleets at grid-connected operations. The first piece of that would be to establish a $250-million fund for remote and northern industrial electrification. The second would be to extend the tax measure announced in the 2018 fall economic statement that enabled the full expensing for clean-energy equipment to include all types of battery-electric, trolly-assist and energy-efficient conveying equipment deployed in Canada's mining sector.
Thank you for your time. I'd be happy to take questions.
Liberal
The Chair Liberal Wayne Easter
Thank you, Brendan.
From MNP we have Ms. Drever, regional tax leader, and Ms. Lidder, senior VP.
Welcome.
Amanjit Lidder Senior Vice-President, Taxation Services, MNP LLP
Thank you, Mr. Chair.
It is an honour to address you, the new House of Commons finance committee, on budget 2020 today. It's nice to see some familiar faces and to meet the new members. Thank you for your continued leadership.
MNP is a leading national accounting, tax advisory and business consulting firm. We proudly serve 180,000 private enterprises and small business clients and 19,000 farms throughout Canada. MNP is the third-largest tax filer in the country.
Kim and I are here today to encourage fairness, certainty and a balanced approach on two of the government's policy initiatives for this budget. The first initiative is tax changes for family farm succession. We recommend that all businesses—a farm or any other family-owned business—be treated fairly and equally when transitioning within a family. Second, in regard to the government's election commitment to implement interest deductibility limitations, we encourage Parliament to undertake broad consultations and avoid harmful unintended consequences. The stakes are incredibly high on both of these issues. Let me briefly elaborate.
We commend the government for making family farm succession a priority. We believe this is an issue for every Canadian family business. Currently, Canadian business owners experience a penalty when selling a business within their family, such that there is often double tax. Both the parent and the child must pay tax on that same transaction. In our written submission, you can see Tracy and Marc's dilemma of selling their bakery to their daughter or to a third party. Marc and Tracy want to keep this business within the family. Our tax system encourages them to sell it outside of the family.
To remedy this, amend the existing provisions to allow all family businesses to use the lifetime capital gains exemption within the family. This isn't just about the lifetime capital gains exemption; we must also ensure that capital gains treatment is protected on every family sale.
On the second issue, we call for a cautious and prudent approach to the government's intention to limit business interest deductions. The parliamentary budget office estimates that businesses will be limited to deducting interest from their taxable income to no more than 30% of their earnings before interest, taxes and amortization. This increases the overall effective tax rate for businesses in Canada. This is like an interest rate hike.
Other countries have gone down this path. If we look to other OECD countries that have implemented interest deduction limitation rules, they typically use a three-pronged approach. There is introducing the interest deductibility limitation, lowering the corporate tax rate and introducing enhanced capital expenditure incentives. Canada should follow this three-pronged model. Just doing interest deduction limitations on their own will impact Canada's competitiveness. Highly leveraged companies across Canada, such as auto dealerships, hotels, home builders, commercial construction and family farming operations, will be harmed. In times of economic downturn, reduced earnings will limit the interest expense even further. Business decisions will change: Do we buy this asset? Do we expand? Do we buy this business? Do we remain in Canada?
From a public policy perspective, interest deductibility concerns stem mainly from ensuring that profits are not shifted outside of Canada without being taxed. Canada already has rules to address this. If cross-border tax issues are the motivation for these changes, the solution should be specific to cross-border issues. We would like to reiterate that businesses do not borrow money for the sole purpose of taking an interest deduction. Our written submission shares the example of Marie and Jacques. They are trying to start up an organic family farm. With these interest limitations, their family business may never get off the ground.
As parliamentarians, you have a great responsibility. We encourage you to eliminate the disadvantage of selling a family business within the family. We encourage you to do a thorough consultation on interest deductibility limitations before you proceed. Canadian family businesses and our country's competitiveness are at stake.
Thank you. Kim would be happy to take any questions you may have.
Liberal
The Chair Liberal Wayne Easter
Thanks, both of you.
We're turning to FADOQ, with Ms. Tassé-Goodman, president.
Welcome.
Gisèle Tassé-Goodman President, Provincial Secretariat, Réseau FADOQ
Mr. Chair and members of Parliament, my name is Gisèle Tassé-Goodman. I'm the president of the Réseau FADOQ.
I want to thank the committee members for this invitation to provide the Réseau FADOQ's perspective on its budget priorities.
The Réseau FADOQ has over 535,000 members aged 50 and over. Our organization makes presentations to different political bodies to maintain and enhance seniors' quality of life, today and tomorrow. To this end, the Réseau FADOQ uses every occasion, including this one, to raise awareness and make the voices of seniors heard and, on political issues especially, taken into account.
Our organization makes a point of presenting its budget priorities each year, and this year is no exception.
The first component concerns support for the most disadvantaged people.
The guaranteed income supplement should be increased by at least $50 per month per senior.
We also encourage the Government of Canada to fulfill its election promise by increasing old age security benefits for seniors aged 75 and over by 10%. This encouragement is reiterated when it comes to the Government of Canada's election promise to increase Canada and Quebec pension plan survivor benefits by 25%.
We're also asking the government to show compassion. When a person dies, we propose that the benefits paid under the old age security program be extended for three months and transferred to the surviving spouse.
The second component concerns support for family caregivers.
The maximum weekly income threshold on which family caregiver benefits are based should be raised so that the payment is more in line with the income of program beneficiaries.
We're also asking for an extension of the employment insurance benefit period to a maximum of 52 weeks for family caregivers.
Lastly, the credit for informal caregivers should be modified so that this tax measure becomes a refundable tax credit.
The third and final component concerns support for provincial health care systems.
The Canada health transfer should be indexed by 6% annually. Moreover, we strongly believe that the current calculation method for the Canada health transfer should include a variable that accounts for population aging in the provinces and territories.
Once again, I want to thank the committee members for inviting us.
I would be pleased to answer any questions.
Liberal
The Chair Liberal Wayne Easter
Thanks, all of you, for your presentations.
Seeing as we're making good time, I believe we can go to our regular time slot. We'll start our six-minute rounds with Mr. Poilievre and then go over to Mr. McLeod.
Conservative
Pierre Poilievre Conservative Carleton, ON
For the witnesses from MNP, I'm looking at page 4 of the package you presented, “Fairness and Certainty in Budget 2020”. There, you lay out a scenario whereby a family selling its business to its children is taxed at a significantly higher rate than if the same family sold its business to a third party.
I just want to make sure I properly understand the table. In it, you indicate that if the family sells the business to a child personally, then the family could take advantage of the lifetime capital gains exemption. Is that so?
Conservative
Pierre Poilievre Conservative Carleton, ON
What would be the tax applied on the portion not exempted by the lifetime exemption?
Regional Tax Leader, MNP LLP
What happens is that, when you transition a business to the next generation, they would have to take funds out of that company to get cash personally, pay tax on those funds and then pay the parents the money.
In our first column there, we have the transitioning of a business of $2.75 million. That is what we valued this business at.
Regional Tax Leader, MNP LLP
The parents could sell this business and could get their capital gain exemption on the portion that was within the limit. They were paying tax on the result, the capital gain in excess of the capital gain exemption. They were going to have $271,000 of tax to pay.