Finance Committee on May 20th, 2021

[The Chair, Liberal, Wayne Easter]

You're on. Go ahead.

[Daniel Kelly]

Just moments ago Ontario announced another two weeks of lockdown on top of another two weeks on top of another two weeks, so I was just blasting the Ford government seconds ago.

Let me switch gears to the federal budget. There is a lot in the budget that we commend and endorse and some pretty serious gaps that I want to highlight. I did send, through the clerk in both French and English, a side deck of some data from CFIB, as I have done several times in the past to the finance committee, just to give the latest on where small businesses stand.

Right now, at this late stage, 14 months into the pandemic, only 51% of small and medium-sized firms across Canada are fully open. That's 51%. It's a pretty serious situation. If you look at the normal levels of staffing, fewer than 40% of businesses have attracted back all of their workers at this stage—in most cases because they do not need them as they are locked down. Most worrisome of all, only about a quarter of small firms are actually at normal or better levels of revenue than they were at this point before. I reiterate: Only a quarter of small businesses are at normal levels of revenue.

I want to share with you some of the measures that we did like in the budget. It did do several things. It allowed small business owners the deduction of up to $1.5 million. That's a very positive measure. We're quite pleased to see that the government did include that. It was a surprise, and a positive one for business owners across Canada. There's a reference to further progress on reducing credit card processing fees. That's also something that we're quite pleased with. That is good news.

Beyond that, we were pleased with the extension of the rent and wage subsidies until the fall. I will note though that there is great consternation right now about the planned reductions in the subsidy levels in the summer months. Here I want to remind this committee that the rent and wage subsidies automatically adjust depending on the level of business losses that a business is incurring, so the subsidies aren't there for businesses that are not in serious jeopardy. There are so many businesses, especially given that we've got ongoing lockdowns, renewed lockdowns and fresh lockdowns in Nova Scotia and Manitoba, they are really worried about the intended reduction in both the CEWS and CERS.

We did like the new Canada recovery hiring program. That new hiring incentive, we believe, is a real positive and we compliment the government for listening to the advice of my organization and others that have called for such a measure. We believe that it will be a way to help wean businesses off of the wage subsidy and allow that to be eliminated over time, but our overall advice is that governments really can't start to withdraw these subsidy programs until such time as governments themselves—federal, provincial and local—can tell Canadians that it's time to go back to work, time to return to the office and time to go dining and travelling, including with an open border.

One of the other measures that does worry us.... One thing I just do want to highlight is that for Liberal MPs on this committee, I urge you to get the message to Minister Freeland, the Deputy Prime Minister, and to the Prime Minister that the government needs to make good on the latter's promise to new business owners in May 2020 to deliver support to them. That was something that I know the finance committee has talked about already, but it hasn't happened. It's a year into an emergency program and I believe it's deeply shameful that the government has not moved to allow new business owners to gain access to the wage and rent subsidies. That needs to be fixed.

The rent subsidy, while working well, also sadly excludes thousands of business owners, as it does not include those who have a holding company and an operating company. Even the previous CECRA program had a fix for that, and this one does not.

We've made a series of recommendations.

The other big worry that we have right now is the rising levels of debt on the books of small and medium-sized businesses. They have, on average, $170,000 in COVID-related debt to deal with. We urge the government to consider increasing the amount of the CEBA loan and increasing the percentage that is forgiven to 50%, and adding a forgivable percentage to the HASCAP program. These are some of the ways that we'll be able to lift some of the debt burden that businesses are facing and help them into the recovery.

There's lots more to unpack, but I'm happy to do that in response to the questions.

Thank you very much, Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Kelly.

We'll turn to the Chemistry Industry Association of Canada.

I introduced you for the last panel, but you weren't here, Bob. Welcome to Bob Masterson, president and CEO of the Chemistry Industry Association of Canada.

[Bob Masterson, President and Chief Executive Officer, Chemistry Industry Association of Canada]

Thank you, Mr. Chair and committee members.

My apologies; this is the time I was assigned.

I am pleased to be with you on behalf of Canada's chemistry and plastics manufacturers. Combined, they represent nearly an $80 billion-a-year industry in Canada. It's the third-largest manufacturing sector. Most importantly, it serves all of your other important economic sectors, be they mining, forestry, automotive, aerospace, agriculture and agri-food, to name just a few.

With respect to Bill C-30, the budget implementation act, we offer three comments for you.

First, our chemistry and plastics sectors have been resilient, and for the most part—albeit it's been a little uneven—companies had already recovered or nearly recovered to pre-COVID levels by the end of 2020. Due to a wide variety of factors that have had the winds at the back of this industry in Canada this year, the sector is showing significant growth through the start of 2021.

Nevertheless, there are many other sectors and that are struggling. We've just heard from Mr. Kelly and others about these sectors and households. Canadian families and businesses have not had the opportunity yet to recover or participate in this recovery, and this budget will play a very important role in providing a supporting floor as the recovery takes hold in these more challenged sectors of the economy.

Second, I think there was a strong message in the budget that the challenge of a circular, net-carbon-zero economy is truly daunting to comprehend. In many areas, this budget does propose substantial early investments, which will send strong signals on the direction businesses and society must go in the coming years and decades.

Third, I do have to point out that those signals alone are not sufficient. Mr. Gill has already talked about this, but achieving a circular and a net-zero economy is going to require a complete recapitalization of the Canadian economy. Government expenditures alone will never be able to get the job done. Though I don't have an exact number for you, if you look at our chemistry sector alone, it will be well in excess of $100 billion, probably over $200 billion, to recapitalize the current industry we have to allow it to transform for a circular and net-zero economy. Only the private sector has the ability to allocate resources at any scale approaching that.

From our perspective, that's where the budget fell short and where we believe more attention is urgently needed. Make no mistake, global supply chains will recapitalize; they will be transformed completely for a net-zero and circular economy. The only question is whether Canada’s industrial and economic sectors will be able to participate or will just continue to be a flyover destination for the much-needed global investment.

As for the experience in our sector, I've talked to you folks about this a number of times. As a case in point, south of the border we've seen $300 billion in new investment in the last seven years. By historical measures, we should have seen $30 billion of that in Canada; we've seen just $7 billion. Yes, COVID has certainly delayed some investment activity south of the border and globally, but some of those trends I talked about are pointing to the sector already looking tight.

I think you can expect to see some global announcements of new investments, including in the United States, in the weeks and months to come. At this point, however, I would have to say that another round of investments is probably not on Canada's radar. We don't believe the budget offered anything to improve the chances of attracting that investment in the near future.

Prior to the next budget, we urge the committee to make further recommendations to underline those you've placed before to focus on improving Canada's investment climate. One of them already discussed is the 100% accelerated capital cost allowance that was introduced in the fall economic statement. Previously, you'll recall that it was a temporary measure. The clock is already running. Companies that had to go on hold for two years because of COVID now can't take advantage of the full allowance that you put in place for them. We'd encourage you to, at a minimum, extend that out to 2030, a full capital-cost cycle. If that's not sufficient, we'd certainly encourage you to make that permanent, like it is south of the border.

Second, please, we have to recycle these carbon revenues back into industrial sectors. We can't take hundreds of millions, if not billions, of dollars out of the productive economy, send it elsewhere and then expect the same sectors of the industrial economy to somehow magically come up with these hundreds of billions of dollars to invest in recapitalization. It's not going to happen. We have to find a way to get the revenues back to allow for that investment.

Third, and you've heard me say this before, as much as the federal government and provinces have collaborated to the benefit of all Canadians throughout this COVID pandemic, we need equal, shared and collaborative attention to building a sustainable investment climate that will attract global capital and retain Canadian capital in this country so that we have a chance to succeed in this transition to a circular and net-zero economy.

I thank you once again for this opportunity to be with you today.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Masterson.

We'll turn to Green Economy Canada. We have Ms. Lloyd, executive director.

[Priyanka Lloyd, Executive Director, Green Economy Canada]

Thank you very much, Mr. Chair and members of the committee.

I appreciate the opportunity to appear today, and I'm pleased to be joining you from Waterloo, Ontario, traditional territory of the Neutral, Anishnabe, and Haudenosaunee peoples.

Green Economy Canada is a national non-profit that supports a network of green economy hubs in communities across the country. These hubs are engaging 300 businesses of all sectors and sizes to take action on climate change while increasing their profitability and overall competitiveness. Eighty-five per cent of the businesses engaged in our network are small and medium-sized enterprises, a segment of our economy that, as you know and others have said today, has been really hard hit by the impacts of COVID-19.

There has been a big spotlight on the importance of small businesses and what's needed to help them survive throughout this pandemic. The perspective that I'd like to share with you today is that we need to be thinking more broadly about supports for small business, specifically, how we are helping them to build back in a way that prepares them to thrive in a transition to a net-zero future.

We know that climate change poses significant threats to the business community and that globally there is a $26-trillion economic opportunity in making the shift to net zero. Overall, we're pleased to see that this budget makes significant investments to address climate change, with $17.6 billion allocated towards a green recovery. Investments will help to decarbonize heavy industry, spark green tech manufacturing, support agriculture and help thousands of households reduce their energy consumption. These investments are important and a step in the right direction to put us on a path to meeting our climate commitments, but they're insufficient to get us all the way there.

One notable gap in the budget was investments targeted at small businesses specifically to help them green their operations. SMEs make up more than 99% of businesses in Canada. They employ nine in 10 private sector workers and contribute more than half of our GDP. Yet, despite the vital role that small businesses play in job creation, innovation, and the vibrancy of our communities, they have been chronically overlooked in how they can help Canada achieve its climate action goals and how helping them to green their operations can boost their competitiveness.

The reality is that we can't have a strong economy without a strong small business community, and we won't have a strong and resilient small business community if we're not helping to prepare them for the needs and opportunities of a low-carbon future.

The budget included tax incentives for businesses generally to adopt clean tech and for small businesses that manufacture clean tech. These measures are welcome, but they will do little to benefit the majority of businesses in Canada that fall outside of heavy industry and clean-tech manufacturing to green their operations. Without dedicated investments to support small businesses to reduce their emissions, this critical segment of our economy risks getting left behind and will find it difficult to adapt to important regulations like the $170 per tonne carbon price by 2030.

Moreover, we know that reducing emissions often leads to business benefits like reduced operating costs, increased sales and an increased stability to attract and retain the next generation of employees who want to work for companies that are aligning profits and purpose.

Based on feedback from our network and our own experience with previous climate action programs, we urge the Government of Canada to invest directly in incentives and support programs that can help small businesses to reduce their emissions and build sustainability into their core way of operating. We hear time and time again that many small businesses are concerned about climate change and want to do their fair share, but they need more direct support to overcome the very real time, knowledge, and financial barriers they face to doing so.

The measures that can help include developing a small-business focused retrofit program to provide incentives that reduce the upfront capital costs of undertaking energy efficiency projects. These programs need to be well resourced and designed with small businesses in mind so that the application processes are simpler, the project thresholds are smaller, and the turnaround time to be told if they received funding is quicker.

To reduce the time and knowledge barriers small businesses face, we need to make it easier and more financially affordable for small businesses to access third-party support to help them figure out what short and long-term actions they should be taking. Our green economy hubs offer this kind of support to businesses, so we've seen first-hand what a big difference it can make to helping them undertake this sustainability work.

Lastly, investing in training and skills development for existing staff in small businesses to understand where their emissions come from and how to change their operating models to decouple growth from emissions will also be critical.

Small businesses don't have the in-house sustainability teams or specialized sustainability staff that larger organizations have and helping employees build their internal knowledge and skills for the green economy will be really important. I would be happy to speak further about any of these recommendations in the Q and A.

In closing, I want to applaud the federal government for its commitment to climate action and for making significant investments that can drive a green recovery. However, to ensure that our economy thrives in the transition to a net-zero future, we cannot forget to invest in small businesses to do their part. The support we provide to small businesses now will determine not just Canada's ability to meet our international commitments, but also, if we are successful, in setting the vast majority of businesses in Canada on a path to a stronger and more resilient future.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Lloyd.

For committee members, the lineup for the start of questions will be Mr. Fast, Ms. Koutrakis, Mr. Ste-Marie and Mr. Julian.

We'll turn to our last witnesses, Restaurants Canada, with Mr. Bourbeau, vice-president, federal and Quebec; and Mr. Elliott, senior economist.

I'm not sure who is leading off, but the floor is yours.

[Olivier Bourbeau, Vice-President, Federal and Quebec, Restaurants Canada]

Thank you very much. I thought you had forgotten about us, but it's a good idea to keep restaurants as a dessert.

I'm Olivier Bourbeau, vice-president, federal and Quebec affairs, Restaurants Canada. I have also brought along Restaurants Canada's chief economist, Chris Elliott. He's going to participate in the Q and A.

Our association represents a $95 billion industry, made up of more than 98,000 establishments from coast to coast to coast who serve about 22 million customers every day and contribute 4% of the country's GDP. At least, this was the case before the COVID-19 pandemic struck. We estimate that at least 10% of our restaurant operations across the country have had to permanently close down due to the ongoing economic and public health crisis. That's about 10,000 establishments that are now gone for good.

Here's a statistic that's even more concerning: According to the April labour force survey from Statistics Canada, more than two-thirds of the 500,000 jobs that were lost during the pandemic and are still missing from the Canadian economy are in the food services sector. The measures contained in the long-awaited budget we're discussing today are not only of vital importance to the survival of the rest of our hardest-hit sector, but are also key to ensuring that restaurants have what they need to continue feeding Canada's economic recovery and bringing Canadians back to work.

Restaurants and the many small and medium-sized businesses that make up the Canadian food services sector are an absolutely critical pillar of our culture, economy and local communities. Something that most Canadians do not realize is that at least 95¢ in every dollar we spend at a restaurant usually goes directly back into our communities. That's because, even during the best of times, a typical Canadian restaurant has a pre-tax profit margin of less than 5%. No other sector keeps so little in profit, and returns so much to our economy. Ninety-five per cent of all restaurant revenue typically goes toward local jobs; purchases from Canadian farmers, food and beverage producers, and other food services industry suppliers; contributions to charity and more. Unfortunately, the COVID-19 pandemic has stretched their resilience to the limits.

Given the exceptional challenges still facing our hardest-hit industry, we are calling for a sector-specific restaurant survival support package. Our key recommendations are, first and foremost, an exemption from the scheduled phase-out of the rent and wage subsidies for the highly affected food services sector and an extension of these vital programs for restaurants until at least April 2022. This extension is needed, as our survey data have consistently revealed that restaurant operators expect they will need a year to return back to profitability.

We are also asking for the option for any restaurant operators eligible for the wage subsidy to be able to apply for added funding through the Canada recovery hiring program so that they can hire new workers in addition to keeping the ones they already have on payroll with the wage subsidy.

Our members also tell us they need partial forgiveness of all government-backed loans and an extension of the application deadlines for existing programs. Currently, loan forgiveness is only available through CEBA. We would like to see this as well for HASCAP and any other loan program the government introduces to help businesses recover from the pandemic. Restaurant operators simply can't afford to take on any more debt to pay for the debt they've already had to incur to pay for previous pandemic debt.

Finally, the business operators in our hardest-hit industry need tax credits to defer the significant costs they've incurred from COVID-19 health and safety expenditures over the course of the pandemic. Our survey data have shown us that eight out of 10 food services businesses have been operating at a loss or barely breaking even throughout the entire pandemic. In fact, nearly half of all restaurant operations have consistently been losing money for more than a year. This was the case even after dining rooms reopened across all jurisdictions last summer, and even once the federal rent and wage subsidies and other forms of government support became available. Essentially, these emergency aid subsidies have been providing our hardest-hit industry with vital needed life support. Even with Canadians now looking forward to hopefully enjoying a one-dose summer, we know that this won't mean restaurants can operate at 100% capacity. We expect that physical distancing requirements will remain in place throughout the summer, at least, and maybe even into the fall and winter, and probably even more in Ontario—we never know.

We appreciate that the government has listened to our industry and is extending the critically necessary rent and wage subsidies beyond June. This was an important first step in this budget. However, if this budget is implemented without any changes, we are essentially pulling out the support ramp right before relaunch and putting half of our restaurants at risk of being left behind.

Losing half of our restaurants would not only be a huge loss for our main streets, but we would also be leaving nearly half a million Canadians without work. Restaurants are key to bringing these jobs back, but we need the government supports to help us get there.

Thank you very much for your time. I look forward to answering any questions you might have.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Bourbeau; and to all the witnesses, thank you for your presentations.

We will start with a six-minute round, with Mr. Fast, followed by Ms. Koutrakis.

[Ed Fast, Conservative, Abbotsford, BC]

I'm going to go directly to Ms. Drigola and Mr. Gill.

I believe I heard Mr. Gill reference the fiscal anchor. Could you just repeat your comments on that?

[Patrick Gill]

We're suggesting that moving towards a fiscal anchor rather than a fiscal guardrail is warranted to guide and control expenditure choices over the long term.

We recognize that the pandemic caused governments everywhere to shoulder more debts so that people and businesses didn't have to, but let's all remember.

Thank you.

[Ed Fast, Conservative, Abbotsford, BC]

Are you aware that Minister Freeland has actually claimed that her budget did contain a fiscal anchor? It's one that effectively has no targets. It's sort of pinned to a trajectory, but in fact, some have called it a floating anchor.

Would you concur with her assessment or disagree with her that the budget contains a fiscal anchor?

[Patrick Gill]

The budget provides fiscal projections in the near term.

[Ed Fast, Conservative, Abbotsford, BC]

No, not projections; I'm talking about a fiscal anchor as you've defined it yourself.

[Patrick Gill]

No, the budget does not contain a fiscal anchor. It contains what I characterize as fiscal guardrails and projections over the near term.

[Ed Fast, Conservative, Abbotsford, BC]

Okay. Thank you for that clarification.

I'm going to go to Mr. Kelly.

Dan, I've never heard so exercised about an issue, namely, with how this government has shamefully treated new businesses. You rarely go out on a limb like that. Therefore, obviously this is something that represents a bit of a betrayal on the part of the government.

Could you just expand a little more on why this is so important to new businesses?

[Daniel Kelly]

Yes. I've been telling new business owners who have been contacting me in huge numbers to just stick with it, that the government is serious about this. The Prime Minister himself promised to do something for new business owners back in May of last year.

A full calendar year later, during a worldwide pandemic, the government has not moved on this measure. Meanwhile, most of the provincial support programs, many of them admittedly with tons of problems, from the NDP in British Columbia to the Conservatives in Ontario, have fixed this issue and allowed access to new business owners.

It is more complicated, but it's not impossible. We've laid out several ways that the government can do that: removing the requirements for a business number before March 1, a payroll account number before March 1. If they don't have a comparable month in 2019 because they weren't around in 2019, allow them to at least compare themselves against the industry average, say for a restaurant in Manitoba, and use that as the amount to get the subsidy.

These are businesses not set up with the full understanding of the pandemic behind them. These are business owners that often started in 2019. Some of them have laid out $400,000 or $600,000 to invest in a brand new 100-seat restaurant that was supposed to open in March 2020, but delayed because of pandemic restrictions until June, and opened with a trickle of business income, and have not had a nickel of federal support despite the Prime Minister's personal commitment to do that. That's why I'm so unhappy about this.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you for that clarification.

Bob Masterson, from the Chemistry Industry Association, it's good to have you here. It's nice to see you again.

You focused on foreign direct investment and the fact that we're lagging behind. We're not going to be attracting the kind of investment that we should be expecting, and the budget doesn't actually do much to change that environment.

Can you expand a little more on what you would expect to see in a budget to reattract investment from abroad to re-energize your industry here in Canada?

[Bob Masterson]

Thank you, sir.

To clarify, it's not just the challenge of attracting foreign capital into Canada as we saw in the earlier Barton report not that many years back; we also have a problem with the outflow of Canadian capital. Canadians aren't investing in Canada, nor are global investors. That is the crux of the problem.

We were very surprised that there wasn't even a message that the capital cost allowance that had been in place would be extended for at least the two years covering this pandemic, because again, if you have a set-up with a seven-year window for one of these large plants that you're about to build and suddenly you've lost two years, you can't count that time in the business case when you're trying to go to your investors and say here's why we should invest in Canada.

As we know, south of the border, accelerated capital cost is a permanent measure. It's not a temporary measure. It doesn't have a finite window. Therefore, it's not a matter of treating Canadians even better than elsewhere. At a minimum, let's at least match the closest competition we have, and that's the United States. It was a very positive message and measure to have put the accelerated capital cost allowance in place through that earlier fall economic statement, but we don't get the benefit of that because of COVID. We had soundly expected that this would get acknowledged and the benefit would be extended. We would encourage that to be done with haste, and even again, to relook at the idea of making this permanent.

As you know, anything that reduces the upfront cost to capital is a winner when it comes to attracting investment, and that's a really important mechanism.

Thank you.

[The Chair, Liberal, Wayne Easter]

Okay, we are going to move on to Ms. Koutrakis, followed by Mr. Ste-Marie.

Annie.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair; and thank you to all our witnesses this afternoon.

My first question is for Bob Masterson.

Bob, it's really nice to see you again, and thank you for your thoughtful testimony and very thoughtful critique of the government. In order to amend policies, we need to have this exchange, so thank you for your honest testimony.

Your organization has said that this budget sends important signals and provides foundational fiscal supports for the future direction of the Canadian economy as it transitions to net-zero emissions.

Can you expand on this statement and comment on the budget items that work toward a net-zero future?

[Bob Masterson]

Ms. Lloyd articulated the total amount. Her number was much higher than the one I had in mind. I think our estimate was close to $9 billion of government expenditures that would send that strong signal that this economy has to transition to a net-zero economy in the coming decades, and that includes, of course, the net-zero accelerator fund and others.

I don't have the full list in front of me. I was looking more at the large amount. It's a big amount of money, bigger than anything we've seen before and it's important, but again, our message is that it sends the signal, but we can't get there through government expenditure alone. It's not going to happen.

[Annie Koutrakis, Liberal, Vimy, QC]

I know that in your testimony you were kind of hoping to see $30 billion for the strategic innovation fund. We're starting with $7 billion.

If I misquoted you, I apologize.

[Bob Masterson]

Yes, that's not correct, but please continue.

[Annie Koutrakis, Liberal, Vimy, QC]

Okay. This budget includes a significant commitment of $7 billion to the SIF, which has been an effective program in helping businesses grow and innovate.

How do you see the chemical and plastics industry making use of the $5 billion in funding for decarbonization of industry through the net-zero accelerator?