Finance Committee on Feb. 6th, 2020

[James Cumming, Conservative, Edmonton Centre, AB]

Thank you, Mr. Chair.

Thank you all for coming today.

I'll direct my first questions to the pair from MNP.

It was a great presentation, very concise and very helpful, with treatment of both interest and succession in family business. I can assure you, from my years of experience in business, that I can't think of one time when I wanted to borrow money for an interest deduction, so I think you're on the right track.

However, on the unintended consequences of that, I think it has big consequences on business growth, particularly for medium-sized business. Can you speak to that? I see a working capital issue. It has very far-reaching effects.

[Jennifer Kim Drever]

We agree with that. We think there are a lot of unintended consequences. I don't think we have even thought about what they would all be yet.

There are far-reaching effects even when the economy is not so great, and there might be losses for businesses. Now, in times of losses, those depend on what the criteria are for exempting small businesses. If they're tied to businesses that have more than $10 million of capital, then if you have less than $10 million of capital you might be okay, but if you have more than $10 million of capital, which the vast majority of businesses would, there would be limitations on your interest expense. You would have losses—at a time when cash is king and you need to get your loss carry-backs—that wouldn't be on the table for a big part of it, and if this interest were carried forward and used sometime in the future, would you ever even get to claim it?

There are consequences for all different types of businesses. When we were looking at these rules, I pulled up the financial statements of some normal-sized farms, and they would be caught. They would have their interest limited, and the cost of borrowing was going up 70 basis points for them. This isn't even in tough times. It would be a significant consequence for all businesses. Whether they expand, whether they hire, whether they grow, whether they start a new venture, whether they hire more employees, it's going to have a significant impact.

What we're really asking for is that we look at this very closely. We want a thorough consultation on this issue, an examination of what the OECD countries did and why they did what they did, and the balancing of a three-pronged approach.

[James Cumming, Conservative, Edmonton Centre, AB]

I want to ask you about another thing, which is not in your presentation, but it relates to the fairness of the application of some of the new rules, the TOSI rules, which I know you are very familiar with. It seems to me that for a lot of small businesses, particularly husband and wife operations, the rules appear to be quite discriminatory against the spouse.

Can you comment a little bit on that? I know it is a big issue. We've heard from many presenters about the TOSI rules.

[Jennifer Kim Drever]

We have been here many times over the years to talk about the TOSI rules. These rules are very punitive to family-owned businesses. They're very punitive to the spouse. There is this general presumption that someone maybe isn't doing his or her fair share to earn the income out of the company, and it is very concerning when we start having to defend what every single person does in the family business to earn their income.

[James Cumming, Conservative, Edmonton Centre, AB]

Do I have some time left?

[The Chair, Liberal, Wayne Easter]

You do.

[James Cumming, Conservative, Edmonton Centre, AB]

I want to shift to Mr. Chapman.

I'm learning a lot today that I didn't realize. I'm new to Parliament. A beer caucus is something I haven't heard of.

[Luke Chapman]

You're all welcome to be part of it. Actually, we have a meeting coming up in the next couple of months, and there will be beer there as well, so it's something to put on the calendar. I could have brought some here if you guys had given me the heads-up.

[James Cumming, Conservative, Edmonton Centre, AB]

Your proposal is pretty straightforward, but I want to shift gears a bit about some of the things I hear about the industry and the struggles of the industry or growth of the industry for a lot of start-up breweries, a lot of microbreweries.

Can you talk a little bit about barriers, particularly interprovincial trade barriers and how they've been affecting the industry?

[Luke Chapman]

Absolutely. We get this question quite often.

There's been a huge growth in the number of breweries operating in Canada right now. It's essentially gone from 240 breweries 10 years ago to around a thousand now. There seems to be this misconception that the industry must be doing well and it must be growing right along with this growth in the number of breweries, but if you look at domestic beer sales over the last decade, you see quite steady declines in the volume of beer sold. What's happening is that some smaller regional breweries are doing well, but the industry as a whole is not growing. It has a lot of these members quite concerned.

From an interprovincial trade perspective, which is an issue we look at from time to time, certain provinces have pretty strict requirements in place that determine whether or not you can sell through certain retail systems in those provinces. Definitely, for a small brewery that's operating in a province like Alberta, it can be a barrier to get outside of their home market. I do know that the government right now is exploring opportunities to repeal some of those trade barriers, and we're happy to participate in that conversation. Definitely, from a small to mid-sized brewery perspective, you don't see too many of them getting their products to markets outside of their own province. It is an issue.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to Mr. Fragiskatos, and then to Mr. Morantz.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chairman.

Thank you to the witnesses for being here.

Mr. Chapman, as you well know, London is home to Labatt. It's the founding city and where it started. The business has a long history there. Actually, for Christmas I bought my father Prohibition, the 0% alcohol. He was mad at me, to begin with, but then he tried it, and he can't.... He's a happy man, let's put it that way.

[Voices]

Oh, oh!

[Peter Fragiskatos, Liberal, London North Centre, ON]

It's brewed in London, Ontario, as well.

What you're really talking about here are incentives, incenting a different look among consumers so that they think about more healthy options. I know that there are mandate letters that talk about moving in that direction. For example, the Minister of Health's mandate letter talks about encouraging Canadians to eat more healthily. Well, if you're eating, then you can talk about drinking too. I think what you're calling for falls in line within that overall framework.

Could you provide us with any information on the overall health impacts of what you're talking about should the change you're talking about go through?

[Luke Chapman]

Absolutely. I'm happy to touch on that.

From an industry perspective, we always like to say that beer has a lot of positive attributes. It's a product that is made from raw agricultural inputs. Canadian brewers purchase over 300,000 tonnes of prairie malt barley every year. We're very proud of that. It's also low in alcohol, compared with some other beverage alcohol categories. It's also low in sugar. I'm not sure if many people around this table are aware, but last year the federal government did take the step of amending the federal definition of beer. By law, a product that's labelled as a beer in Canada must contain less than 4% by weight of sugar. Thank you for the initiative on that. We're happy that we were able to get that through last year.

The proposal we're talking about here was put forward for two reasons. Yes, the first reason was to stimulate some growth in investment in an underdeveloped segment of a struggling beer industry. It was also put forward as a response to Canada's national alcohol strategy and the World Health Organization's global alcohol strategy, which call on governments to introduce these types of incentives to promote more production of lower-alcohol products as a way to reduce alcohol-related harms and also as a way to reduce a person's total alcohol consumption.

I just want to emphasize that, first of all, what we're putting forward here today requires very little government investment. It's also not new. A lot of other countries have similar excise systems in place. There's no excise tax in Spain on non-alcohol beer. The U.K. just introduced some changes. The European Commission put forward a directive last year that allows European countries to raise the alcohol content from 2.8% to 3.5% ABV that they apply reduced rates to. There is evidence that this is a good way to encourage a healthy lifestyle.

Outside of the alcohol conversation, I'm not sure if you guys have sampled many of the non-alcoholic beers on the market today, but you'll find that they are also low in calories. You can get really tasty ones. Prohibition is one of them, but there are others as well.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I was just advocating for my riding.

[Luke Chapman]

Yes. There's that one and there are many others as well. You'll find that they contain a lot fewer calories. They're a good alternative for people after a hockey game or some other time when they don't want to drink alcohol. We're starting to see the flavour improving as well, as you highlighted, Peter.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

How many Canadians work directly in the beer sector, Mr. Chapman?

[Luke Chapman]

Our last count was in 2018. About 15,000 Canadians are employed by breweries. Those 15,000 Canadians earn a total of $1 billion in salaries and wages. These are good middle-class types of jobs.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

There are many indirect jobs as well, obviously.

[Luke Chapman]

Yes. There are a lot more indirect jobs, around 149,000.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

Do I have about two minutes left, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

No, you have time for a very short one.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

A very short one?

[The Chair, Liberal, Wayne Easter]

That would be unusual.