Finance Committee on Oct. 5th, 2023

[Joanne Thompson, Liberal, St. John's East, NL]

What are the benefits of a modernized Competition Act, particularly when you're supporting Canadian scale-ups?

[Nicholas Schiavo]

Canadian scale-ups are the anchors of economic activity. Our problem here in Canada is that we have many strengths and a wealth of research and talent. We have more start-ups per capita than many countries in the OECD.

However, when they start to scale—when they start to commercialize and create products that are viable, or create economic activity—is often when we see them struggle. They move to foreign jurisdictions or get bought out.

Without commercializing those products and services, and without creating the intellectual property that will create those economic rents for the long term, we're not going to see that effect on prosperity in the economy as a whole. Our budget submission is around how we help these companies receive the freedom to operate to scale, in order to succeed and ultimately feed back into the Canadian economy.

[Joanne Thompson, Liberal, St. John's East, NL]

Do you have anything that you want to add?

[Laurent Carbonneau]

I would say that we talked a bit about smart industrial strategy in Nick's opening statement. Having a more open competitive innovation economy is part of that. Zooming out, we have to look at these kinds of dynamics, but none of them in isolation, because Canada has had a long-standing productivity growth and innovation problem. It didn't happen overnight. It's a product of industrial structure and public policy over many generations. Some of that is that we're swimming against the current. Some of it is that we've made bad choices.

All that is to say that the competition policy is very much part of the discussion around marketplace frameworks that we should be having. It's not the only one, but I think there are definitely some steps in the right direction around efficiency.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

In your opening comments, I picked up on two things. One was grants over loans, and you've referenced that, but you also mentioned talent acquisition. Would you just provide some more background on that and why it's important?

[Nicholas Schiavo]

Often, what happens is that when you have these foreign multinationals that come into Canada and operate a branch plant, not only are they gobbling up the intellectual property and the ingenuity that creates those economic grants, but they also gobble up talent. Ultimately Canadians want them to have good-paying jobs, and they're free to go where they want, but, by gobbling up that talent, you're pulling from that ecosystem, and all those smaller players, those scale-ups, are now starved for the talent they need to grow. As a result, they are either shutting their doors or considering other options in other jurisdictions.

Again, when we talk about foreign direct investment, when we talk about these foreign multinationals, we are for a level playing field. Of course they're welcome to come here and invest, but we need to make sure that we take into consideration those adverse impacts on the economy as a whole and on the labour force.

[The Chair, Liberal, Peter Fonseca]

That's time. I know it goes quickly.

MP Thompson, thank you very much, and thanks to the witnesses for that testimony.

Now we're moving to the Bloc, with MP Ste-Marie, please.

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

Thank you, Mr. Chair.

I have a point of order, to start. It's a question for the clerk. Last week, officials from the Canada Mortgage and Housing Corporation, or CMHC, appeared before the committee. They were asked to provide information broken down by province. They were asked about the minister's authority. Finally, they were asked to update their study to take into account more current population growth rates.

We were told an updated study would take CMHC a few weeks, but I'd like to ask the clerk whether we've received any information from the agency in response to the other questions.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Ste-Marie.

I'll go to the clerk.

[The Clerk of the Committee, Mr. Alexandre Roger]

We haven't received anything yet, Mr. Ste‑Marie. Since they need a few weeks, I'm not sure whether they're going to wait and send everything at the same time. I can reach out to them to see whether they can send us what they have now and get back to us with the rest later.

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

Thank you, Mr. Roger.

That's all for my point of order, Mr. Chair.

Yet again, we have a very informative panel.

Good morning to the witnesses. Just because we don't have enough time to ask you questions doesn't mean that we won't include your recommendations in our report on the consultations. We are taking notes, and we thank you for being here today.

My questions are for the Échec aux paradis fiscaux collective representatives, Mr. Lopez‑Asselin and Mr. Hurteau.

Thank you for your presentation and your written submissions, gentlemen. Under the policy proposal put forward by the OECD and G20, multinationals would be subject to a global minimum tax rate of 15%, which you say is too low.

I believe members of the U.S. Congress didn't want to endorse the proposal.

Can you tell us where things stand on the global minimum tax?

[Edgar Lopez-Asselin]

Thank you for your question, Mr. Ste‑Marie.

On the situation in the U.S., I'll say quickly that the updated rules to implement the global minimum tax took into account the much talked-about global intangible low-taxed income regulations the U.S. adopted or is in the process of adopting. It's therefore important to keep in mind that, for the time being, what the OECD has put together—so the sources, figures and data elements—takes into account the passage of a bill similar to the OECD's proposal, but not identical.

In Canada, the federal government is getting ready to adopt the main rule. It's clear that there's somewhat of a consensus around the matter in G20 countries. Nevertheless, the 15% threshold, in particular, has drawn significant criticism from civil society stakeholders and non-governmental organizations. The rate is seen as much too low, as compared with the actual tax rates set by most OECD countries. That is all the more true in developing countries. One problem is that the OECD forum for these discussions isn't open enough for developing and certain other countries to contribute to the talks in a fair way.

That's where things stand currently. There is an agreement within the OECD, a consensus. Now we need to see whether the UN's efforts will bring about the additional reforms that are needed.

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

Thank you very much.

In connection with the global minimum tax, which is too low, Ottawa is dealing with another issue, taxing the tech giants or collecting a portion of their revenue.

Where do you stand on the government's pledge to move forward on that front with the global minimum tax not being in force?

[Edgar Lopez-Asselin]

Thank you.

We are in favour of this measure, with some nuances, of course. The digital services tax is not the ideal tool. There is a high risk that the additional cost of this tax will be passed on to the consumer. Nevertheless, until the implementation of the first pillar, which is still on the back burner, there is very little information. There is still no consensus on the implementation rules, for instance, and we feel that this digital services tax is a minimum to ensure that web giants pay their share to the Canadian treasury.

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

Thank you again for your answer.

You make 13 recommendations in your brief concerning pre-budget consultations.

Can you explain some of those recommendations in two minutes? We can come back to the others next time I have the floor.

[Edgar Lopez-Asselin]

One of the things I can come back to is the unitary taxation issue. This solution has been proposed for some 40 years by economists and university researchers. It is now also defended by most of the major international tax organizations.

The unitary tax is a way to stop dealing with the transfer pricing issue as it is now. Today, we are comparing the incomparable—that is to say, we are comparing transactions between subsidiaries of large multinationals that have common goals with transactions that have been made or could be made between two companies that are not affiliated.

Today, with country-by-country reporting and the aggregation of that information, there is more information than ever before to shed light on those kinds of situations. However, we do not have the methodological principle that would enable us to make full use of that information.

What the unitary tax does is propose to treat each multinational as a single company. In other words, we will take the profits made by these multinationals in all the countries in which they operate, and then we will redefine the tax rights on those profits based on the actual activities carried out by the multinational in the various countries.

The actual activity is measured through a number of indices. You can look at payroll, you can look at natural resource extraction, you can look at market share, and so on. At the moment, we are a long way from that kind of a situation. They continue to treat the many subsidiaries that make up multinationals as different companies, and they refuse to take into account the fact that the multinational is an economic model that is very different from that of national companies, which do not have access to this kind of format.

I can go back to the GAAR. We had two opportunities to participate in the rounds of consultations on the bill. We are very pleased that this piece of legislation is moving forward. We think the Parliament of Canada is doing a very good job.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lopez-Asselin.

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

Thank you.

We'll come back to that.

[The Chair, Liberal, Peter Fonseca]

Merci, Monsieur Ste-Marie. There will be more time in subsequent rounds.

Now we're going to the video conference with MP Blaikie, who is coming to us, probably, from Winnipeg. Is that right?

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Indeed, Mr. Chair. Thank you very much.

Mr. Aylward, I want to follow up on some of your presentation about Phoenix. Either before electronic payroll at all or, certainly, before Phoenix, was there anything like this scale of a problem that we're seeing in making payroll for the Government of Canada?

[Chris Aylward]

No, not at all. There was nothing close to this scale at all. We're talking about a pay system that affects 300,000 people. It has never worked right from day one in 2016, and it's still not working right in 2023.

Daniel, thanks for the question, but no. I've never seen anything on a scale like Phoenix.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

There are other organizations with large payrolls with hundreds of thousands of people on them that are able to properly pay employees according to the predetermined pay period. Am I right?

Is this a problem of scale, or is this a problem that is very particular, in this case, to the Government of Canada?

[Chris Aylward]

No, it is very much a Government of Canada problem.

Again, we've never seen anything like this. With the Government of Canada not being able to pay its own employees on time and properly, that's why we're calling for a national inquiry into this. It's eight years later, and federal public sector workers are still not being paid properly.

Some Conservative members of this committee unfortunately think that's funny and that it's a joke. Unfortunately, for the 140,000 federal public sector workers we represent in the federal public service, it's no joke. It's no laughing matter when you can't get paid on time.

I did not appreciate the laughter coming from the Conservatives on this, Mr. Chair. We're talking about federal public sector workers not being paid on time and paid properly, and the Conservatives think that's funny. I'm sorry, but I take offence to that.

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

On a point of order, can I just respond to that?

I do not think that's funny at all. What I was saying is that it's something the Conservatives have been mentioning for eight years: Everything in this country feels broken. We are a hundred percent on board. This Phoenix system should have been fixed a long time ago.

I'm a hundred percent in agreement with you, sir.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Very well.

I can certainly understand the strong feelings. I've heard from a lot of folks in Elmwood—Transcona who work for the federal public service and have had their lives turned upside down by the failure of the government to make payroll in a timely way.

I appreciate the point you made in the opening statement about the government putting the emphasis on recovering overpayments instead of ensuring that people get what they are entitled to for the work they do, and that they set their monthly budgets accordingly as well. We know that when there are big shortfalls in your monthly budget, it makes a big difference.

I'm wondering if you can share with the committee—I know you spoke to some of this during your opening remarks—some things that you think could be done right away.

I remember years ago suggesting that if the government had to devolve payroll to local managers to do it by hand, it looked like we'd be a lot better off than what it's currently trying to do, yet it has persisted in the strategy of trying to use an electronic payroll system that simply doesn't work.

I don't think anyone wants to see the government doing payroll by hand, but if it's better than the alternative.... It's a reflection of the sorry state of the status quo, but there has to be a way. If we could do government payroll well in the 1970s, there has to be a way that we can do it well today.

What are some things you think the government can do right now that it's not doing and that it needs to do in order to, at the very least, mitigate the negative consequences of this fiasco for its workers, with an eye to getting this sorted once and for all, so that Canadian federal workers can depend on a reliable paycheque, according to the terms and conditions agreed to in their letter of offer?