Finance Committee on Feb. 19th, 2020

[Bill Morneau, Liberal, Toronto Centre, ON]

With respect, I wouldn't agree with that characterization. I think it's important for us to consider all the parties to this situation. That includes the peoples engaged themselves; that includes their elected representatives; that includes the hereditary chiefs, and of course that includes the businesses that are impacted and the people across Canada who are impacted by the situation.

So—

[Pierre Poilievre, Conservative, Carleton, ON]

So, no meetings with the—

[Bill Morneau, Liberal, Toronto Centre, ON]

I'm not quite finished yet.

We are not excluding anyone from those discussions, and we will work as hard as we can and in a co-operative fashion to get to a conclusion that will be positive for the people engaged in this and positive for our economy.

[Pierre Poilievre, Conservative, Carleton, ON]

So the minister doesn't know the cost of the blockade per day to the Canadian economy. He doesn't know the cost to governments of blocking the Teck Frontier mine. He won't tell us if he is engaged with the 20 first nations communities that support the Coastal GasLink.

This is my last question. The government has already introduced deficits with numbers that are much bigger than the numbers published before the election. These numbers that we now have do not include any of the spending measures that the Liberal Party of Canada put in its electoral platform. When all of those spending promises are implemented, how big will the deficit get?

[Bill Morneau, Liberal, Toronto Centre, ON]

I think it's an absolutely correct point that during the election campaign we talked about investments that we want to make in Canadians—as all the other parties did, by the way. That's an important part of the electoral process. We're working through our budget right now in order to think about how we can demonstrate fiscal responsibility and how we can ensure that Canadians can meet affordability challenges.

We remain committed to reducing our debt-to-GDP ratio. We were left by the previous Stephen Harper government, which you were part of, with a debt-to-GDP ratio and a rate of unemployment that were too high, as well as a challenging growth situation. We've been able to reduce our debt-to-GDP ratio. We've been able to significantly reduce unemployment. Of course, we've been able to increase growth, and we plan on continuing on that path.

[The Chair, Liberal, Wayne Easter]

Now we go over to Mr. Fragiskatos.

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

Thank you, Chair.

Thank you, Minister, for being here and for the work you're doing.

On the point of deficits, I know my colleagues have raised such matters in previous meetings through consultations. Could you tell us your thoughts on what the effects would be on the average Canadian and indeed the wider Canadian economy if, in the upcoming budget, our government was to immediately move towards balancing the budget in an austerity budget?

[Bill Morneau, Liberal, Toronto Centre, ON]

First of all, it's important for me not to engage in hypotheticals, so I just want to be absolutely clear that we are not thinking about changing our approach. We believe that investing in Canadians is important. We see that the advantage we've created in terms of growth and in terms of unemployment has been very advantageous for people and for our economy more broadly.

Clearly, taking a significant amount out of the economy rapidly would have a negative impact on growth and, as a result, would have a negative impact on things like employment and wage growth. The exact implications can be estimated, but we can't get to absolute certainty; however, we can absolutely see that there would be negative growth. It would be negative on employment, and negative on actual income to people. It's not a path that we intend to go down.

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

In your comments, you talked about the environmental focus of the government, and this is indeed one of the themes of the budget consultations that have been carried out.

Mark Carney, as you know, is working on such matters, looking at the economy and looking at the environment and the shift towards a green economy. I'm just going to read a quote that he recently put forward and get your thoughts on this. He says as follows:

There will be industries, sectors and firms that do very well during this process because they will be part of the solution. But there will also be ones that lag behind and they will be punished.... Companies that don't adapt will go bankrupt without question.

Can you tell us the work that the government has done and wants to continue doing to help the private sector transition to a green economy in Canada?

[Bill Morneau, Liberal, Toronto Centre, ON]

I think it's important that we work together as Canadians to ensure that businesses don't face the dire outcome that was predicted. Our goal is to make sure that we have economic growth and that we are able to turn to a cleaner, greener economy that allows our businesses to continue to be successful.

One of the things that I did, together with the Minister of the Environment last year, was start a sustainable finance review that came out with some important recommendations on how we could ensure that companies deal with the ramifications of climate change. This was to make sure that they represent their situation so investors can make appropriate decisions. That will encourage companies, I believe, to take those issues seriously and create a more sustainable path for themselves, and therefore a more sustainable path for our country and for the world. That's an important effort.

We will continue to think about ways we can ensure that companies are moving in the right direction. Certainly putting a price on carbon provides a price method for companies to make the correct decisions. We can also think about not only sticks but carrots, things we can invest in together with other Canadians to get us to a greener future. That's some of the thinking we're doing right now as we look towards budget 2020.

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

I've asked a question relating to the private sector when it comes to the environment. I also want to ask you a question that really pertains to our work with municipalities.

In our pre-budget consultations, we heard at least four organizations, including one mayor, the mayor of London, Ontario, testify on the need to help municipalities with their transit fleets. They're very interested in electric buses. I just wanted to put it to you, Minister. What, in your mind, can the federal government do to assist in the transition? Obviously, it's a complex one, because there is the necessary charging infrastructure and the buses. This is new technology. There have been a few pilot projects in the past, but nothing en masse. Do you have any thoughts on how the federal government can effectively work with municipalities in this regard as they seek to transition from diesel fleets to electrified fleets?

[Bill Morneau, Liberal, Toronto Centre, ON]

That's something I also heard when I met with the mayors a couple of weeks ago. It's an initiative they're keen on. It's clearly one that has different impacts for different cities across the country that are in different situations. I think the focus of your work around pre-budget consultations is helping to get those sorts of ideas to the fore so we can analyze them and determine the things we should be trying to invest in, the things that are going to have the biggest impact on reducing our carbon emissions. That is certainly one.

I don't have any details on what we might or might not do in the budget yet. It's not appropriate to do that.

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

That's fine.

[Bill Morneau, Liberal, Toronto Centre, ON]

But as we think about places to invest, we will be thinking about the biggest opportunity from those investments. Of course, in the case of municipalities, we always need to think about how the actual delivery mechanism would work. We need to work together with provinces and municipalities. That's forefront in our minds as well. We want to ensure that the desired impact actually happens through the mechanisms available to us.

[The Chair, Liberal, Wayne Easter]

Thank you, both.

We'll turn to Mr. Ste-Marie, and then Mr. Julian.

Mr. Ste-Marie.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, Mr. Minister.

Mr. Minister, I would like to draw your attention to one point in the mandate letter that the Prime Minister issued to you. It reads as follows:

Modernize anti-avoidance rules to stop large multinational companies from being able to shop for lower tax rates by constructing complex schemes between countries.

When I read that, I gather that it is about something immoral being made illegal, namely the legal use of tax havens by large companies. I am referring to what the IMF calls offshore financial centres. In those countries, companies pay no taxes, or they pay peanuts, and then they use the principle of non-double taxation in order to pay nothing here. That is one example of a complex tax scheme and, for me, it is so unfair as to be despicable.

In Canada, two paragraphs in section 5907 of the Income Tax Act Regulations make this scheme legal. The first is paragraph 5907(11.2)(c), which specifies that the exclusion of companies that enjoy a special tax benefit in Barbados simply does not apply. It invalidates article XXX of the treaty between Canada and Barbados. As a result, despite what the treaty says, despite what the legislation says, Canadian companies will be able to repatriate the profits from their affiliates in Barbados without paying tax.

In 2009, in a schedule attached to one of the mammoth budget implementation bills, the government included a section called "tax credit for medical expenses". It had nothing to do with a tax credit and contained a proposed amendment to the Income Tax Act Regulations that had nothing to do with medical expenses. Subsection 5907(11) in the Income Tax Act Regulations was amended to specify that, although information exchange agreements are not treaties, and although the Income Tax Act exempts only income and companies protected by treaty, income is exempted if it comes from a country with which Canada has entered into a comprehensive tax information exchange agreement.

It was put into effect retroactively, as of 2007. We therefore ended up with 22 new tax havens, and another three have been added subsequently. For example, in the last Parliament, Grenada was added, where the income tax rate is 0%. As it is 0%, the country does ask companies to provide an annual report or declare its income. So no information can be found. This is just so the provision can be used.

Here's what I want to ask you: in order to address that point in your mandate letter, do you plan to drop those provisions in the Income Tax Act Regulations that allow tax havens to be legally used? If so, can we expect to see that in the budget?

[Bill Morneau, Liberal, Toronto Centre, ON]

That is quite the question!

As you know, it is very important for us to make sure that our system is functioning and that the results are fair. As you explained, our mandate letters require us to find out how to assure Canadians that our system is working. We are in the process of doing that. We have done a lot about it in the last four and a half years.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I do not agree.

[Bill Morneau, Liberal, Toronto Centre, ON]

Actually, we have accomplished things in collaboration with other countries, including the common reporting system, which was developed with the Organization for Economic Cooperation and Development, the OECD, and the BEPS reports. Given the changes in our international system, it is very important to work in collaboration, because if we do not, we will have other problems later.

However, I believe that Mr. Marsland, who teaches in the field of taxation, can briefly tell you what we are doing to make sure that the necessary measures will be considered this year and in coming years. We must continue to create such measures, because the situation is constantly changing. Companies never fail to find ways to improve their situation.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

Before Mr. Marsland comments, let me remind you that Canada is always behind other countries in applying the measures proposed by the OECD. So there is a lot to do in that respect. It is like the fight against climate change. It will have to be done together with other countries. But we have to start somewhere, and not wait for everything to be settled elsewhere and for everyone to be in agreement. Otherwise, nothing will ever be done.

Moreover, those two regulations could well be totally illegal, in my opinion, given that they violate the act. However, since they have never been challenged, they remain in effect. So let me invite you to turn your attention to those regulations.

I am now ready to hear from Mr. Marsland.

[Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you very much for the question. As the minister indicated, it's important to point out that these issues are best approached in a multilateral fashion, the base erosion and profit shifting approach being one aspect of that. It's also important to understand how profits are taxed across countries. For example, Canada, like most other countries, does not tax active business income derived from abroad; on the other hand, we have a very rigid and strict approach to taxing investment income abroad—the foreign accrual property income rules.

We've made a number of changes over recent years, like the common reporting standard, a multilateral instrument that essentially addresses treaty shopping issues, but does so in an organized fashion with other countries. We've also invested very significant amounts in international audit activity by the Canada Revenue Agency.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there.

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

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks very much, Minister Morneau, for being here today.

You'll recall that the last time I questioned you at finance committee we talked about the cost of the Trans Mountain pipeline. At the time, you indicated there was no updated construction schedule around Trans Mountain, and you thought the figures at the time, $7.4 billion, did not need to be updated. Subsequent to that, of course, we found out that the construction costs have now ballooned to more than $12 billion, $12.6 billion. Including the purchase cost, we're now talking about over $17 billion—I'll assume by the public purse—at the same time as Trans Mountain is losing, after interest charges, you'll agree, about $150 million a year.

We had important testimony on February 3 from your finance officials, who basically said that the financing of Trans Mountain on the public dime would occur through the Canada account of the EDC, which is subject to approval from you and the Minister of International Trade.

Therefore, my first question is this: What is the limit in terms of what you are prepared to have the taxpayers assume around Trans Mountain? What are the criteria? Already, even from the estimate two weeks ago, construction costs seem to be increasing, so we could well have other surprises.

Second, the fact that Trans Mountain has now admitted that construction costs have increased allows the shippers now to pull out with the revised fee schedule. There are only two doors: One is that there's a revised fee schedule, shippers pull out and the whole Trans Mountain house of cards collapses; the other is subsidies from the federal government to under-support the actual cost of shipping. Is the federal government, the ministry of finance, contemplating subsidies to the shippers to keep Trans Mountain afloat?

Those are my two questions to start.

[Bill Morneau, Liberal, Toronto Centre, ON]

You started by talking about previous discussions around this table. I think it's important to note that the previous estimates were made by Kinder Morgan a number of years ago.

The costs that were announced by the company a couple of weeks ago were the costs that they determined based on the status of the project, the time that's gone on from the previous estimate of the previous company, the improved environmental standards, the increased consultations with indigenous peoples and the increased benefit agreements that came as a result of that. There was a significant change in that, of course. In a transparent way, the company came forward with their costs.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Sorry, Minister, I have only six minutes.