Finance Committee on Oct. 5th, 2023

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 103 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 83.1 and the motion adopted by the committee on Thursday, June 8, 2023, the committee is meeting to discuss the pre-budget consultations in advance of the 2024 budget.

Today's meeting is taking place in a hybrid format pursuant to the Standing Orders. Members are attending in person in the room and remotely using the Zoom application.

I would like to make a few comments for the benefit of the witnesses and members.

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking.

For interpretation for those on Zoom, you have the choice at the bottom of your screen of floor, English or French audio. For those in the room, you can use the earpiece and select the desired channel.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to a microphone. We therefore ask that all participants exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and safeguard the hearing health of our interpreters, I invite participants to ensure that they speak into the microphone into which their headset is plugged, and to avoid manipulating the earbuds, by placing them on the table away from the microphone when they are not in use.

I will remind you that all comments should be addressed through the chair. Members in the room, if you wish to speak, please raise your hand. Members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can, and we appreciate your patience and understanding in this regard.

In accordance with the committee's routine motion concerning connection tests for witnesses, I've been informed that everybody has been tested and everybody is good on the sound.

With us today are our witnesses: as an individual, senior fellow at the Macdonald-Laurier Institute, Mr. Philip Cross; also as an individual, associate professor of economics and philosophy at Carleton University, Vivek Dehejia; from the Canadian Federation of Agriculture, Keith Currie, president, and Brodie Berrigan, director of government relations and farm policy; from the Échec aux paradis fiscaux collective, Monsieur Philippe Hurteau, member of the coordination committee, and Mr. Edgar Lopez-Asselin, coordinator, via video conference; from the Council of Canadian Innovators, Laurent Carbonneau, director of policy and research, and Nicholas Schiavo, director of federal affairs; and from the Public Service Alliance of Canada, Chris Aylward, national president, and Michele Girash, national political action officer.

Welcome, all of you. You'll have an opportunity to make a statement of testimony for up to five minutes.

We're going to start with Mr. Philip Cross, please, for five minutes.

[Philip Cross, Senior Fellow, Macdonald-Laurier Institute, As an Individual]

Thanks for inviting me back.

Inflation as measured by the CPI accelerated from 2.8% in June to 3.3% in July and 4% in August. The upturn was widely expected by analysts, including those at the Bank of Canada, because of base year effects. Basically, the drop in gasoline prices last year is being replaced in the index by this summer's high gasoline prices. However, more than energy prices are pushing up inflation. Measures of core inflation remained stubbornly near 4% even as lowered gasoline prices pulled down headline inflation. The cost of services rose 4.3%, led by a surge in shelter, notably a 6.5% increase for renters as Canada's housing shortage worsened.

It is remarkable that the Bank of Canada and the Federal Reserve board in their latest projections do not see inflation returning to its target level until 2025. This admission of failing to achieve their inflation target for another two years was not accompanied by a change of policy. However, the growing realization that inflation will be higher for longer is pushing up longer-term interest rates anyway.

It was predictable that the deceleration of inflation during the first half of 2023 would not last. Most of the easing of headline inflation was due to the resolution of some supply issues, notably in the energy sector after Russia's invasion of Ukraine. The underlying trend of demand has barely slowed outside of new home construction, suggesting that interest rates still are not high enough to substantially lower demand.

This is especially true in an environment in which governments continue to run deficits, notably in the U.S., where the federal deficit of 8% of GDP in the year ending in July is stimulus that is usually associated with wars and not an economy operating at full employment. Meanwhile, households still have substantial savings accumulated from excessive government transfers during 2020 and 2021. One result is that, after an initial downturn in the spring in response to higher interest rates, house sales began to heat up again over the summer after the Bank of Canada prematurely indicated that it would pause in further interest rate hikes.

The ongoing imbalance between aggregate demand and supply is reflected in continued low levels of unemployment. Low unemployment puts upward pressure on wages, with increases in average hourly earnings remaining close to 5%. The upward pressure on wages is continuing to build, with several high-profile strikes across North America. While an understandable reaction to higher inflation, continued high wage inflation risks making it difficult to return to 2% inflation. Jerome Powell, the federal chair, recently said that wage increases of 3% to 3.5% were consistent with its 2% inflation target. The implication is that sustaining current wage growth of well over 4% is not.

It is difficult to analyze the labour market after the pandemic. Many workers left their jobs during the pandemic, especially workers in such low-wage service jobs as accommodation and food and retailing. There was speculation that these workers would move to higher-paying jobs or upgrade their skills by returning to school. In the short run, we did see severe labour shortages in these industries. However, there has been no improvement in aggregate labour productivity. In fact, labour productivity has worsened significantly since early 2021, with eight declines in the last quarters. The only increase was 0.1%, for a total drop of nearly 6%. The slump in productivity cannot be blamed on the pandemic, as labour productivity fared markedly better in the U.S. than in Canada.

Comparing Canada and the U.S. also shows another glaring missed opportunity. Oil and gas production in the U.S. has risen 40% since 2017, fuelled by the technological innovation of fracking and higher prices, especially in Asia and then Europe after Russia's invasion of Ukraine. Faced with these same opportunities, oil and gas output in Canada eked out less than a 10% gain, hampered by a lack of pipeline capacity and regulatory uncertainty surrounding oil and gas extraction.

It is striking that the same circumstances produced such different results in Canada and the U.S. The surge in the U.S. shows there clearly was a business case to increase production. Nor did higher oil and gas production prevent the U.S. from substantial reductions in greenhouse gas emissions during this period, down 14% from its 2005 baseline versus only a 5% drop in Canada. Canada's attempt to straddle the middle of the road between the opposing lanes of faster economic growth and lower emissions led to it being run over in both directions: We achieved little economic income growth without lowering emissions significantly.

Underachieving has become habitual in Canada over the past decade as we have ignored or even been outright contemptuous of entrepreneurship and innovation.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Cross.

Now we'll hear from Mr. Dehejia.

[Vivek Dehejia, Associate Professor of Economics and Philosophy, Carleton University, As an Individual]

Thank you, Mr. Chair.

Canada's economy today stands at a crossroads. For the last quarter for which we have data, our GDP actually contracted. Inflation just clocked in at 4%, which is still well above the Bank of Canada's target. More rate increases, therefore, could be on the horizon.

Households in Canada have among the highest debt of any G7 country. Coupled with high house prices and insufficient new housing, many middle-class families can no longer afford to own a home, and many are fearful they won't be able to afford the monthly payments on homes they already own as rates keep ticking up and staying high.

There is a homelessness and drugs crisis on our streets making people feel unsafe. You only have to walk about five minutes from here to see that for yourself.

Meanwhile, the government's massive fiscal stimulus has reaped mixed dividends at best. A recent Fraser Institute study shows that most of the job creation in Canada since the pandemic has been in the public sector, not the private sector. In other words, not only is our economy becoming more socialized, but we haven't created enough new good jobs and new business to power growth into the future. In fact, Canada is probably at present the worst performer in the G7 after Germany.

I warned as long ago as the fall of 2021 in the National Post and before this committee about a year ago that the Bank of Canada needed to get serious about inflation. It was not transitory and supply shocks and Ukraine. The bank, in my judgment, began acting too late, and the problem has gotten worse. It now has to be more aggressive to fix the problem, which is making life more difficult for all of us who owe money—that's most of us—while profiting only the wealthy, who have spare cash to invest.

Where do we go from here? There's a real danger we will fall back into stagflation. That is stagnation in the economy and high inflation. We saw this movie before in the 1970s and again in Canada in the 1980s, and we know it doesn't end well, as we saw with wage and price controls at that time.

We seem to have forgotten the important lessons that were painfully learned. The recipe for success is prudent fiscal policy, sound money and sensible regulation that protects consumers while not stifling business in red tape. That is the formula we used in Canada to right the ship under governments of different parties.

In Canada now, we have the opposite situation. Profligate government spending, the long-lasting, harmful effects of loose money and stifling regulation are giving us low growth, high inflation and a “doing business” environment that chokes new business creation and gives us low growth compared to our G7 peer group. This means that prospects for many young people coming into the workforce or looking to start a business are increasingly dim.

In thinking about the next budget, my suggestion to the committee is to look at the things we did right that gave us a booming economy, and what is wrong now. We need a combination of sensible tax cuts and spending cuts that help us balance the government's books in a prudent manner while lifting the burden on average Canadians. We need to hold the Bank of Canada accountable for its mandate to protect the value of our currency and not allow loose, irresponsible monetary policies that have created our present inflation and affordability crisis. Finally, we need to pare back excessive government interference in the economy, which kills entrepreneurship and holds the economy back.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Dehejia.

Now we'll go to the Canadian Federation of Agriculture and its president, Mr. Keith Currie, please.

[Keith Currie, President, Canadian Federation of Agriculture]

Thank you, Mr. Chair.

For those of you who do not know me, yes, the chair did introduce me, but I am an eighth-generation farmer here in Canada, and I represent the Canadian Federation of Agriculture, which is Canada's largest general farm organization, representing nearly 190,000 farmers, farm families and ranchers right across this great country of ours.

For those of you who had the benefit of eating today, on behalf of our farmers we thank you for choosing good-quality Canadian food. Thank you.

Our sector, like many others, has emerged from the global pandemic into a high inflation and high interest rate environment. As a result, the cost of critical farm inputs, such as fuel, fertilizer, feed, machinery, crop protection products, land and even labour have increased dramatically over the past few years, putting tremendous pressure on producers' farm financial health.

Recent numbers from Statistics Canada have shown that our net income dropped by almost 10% in 2022, mostly due to the growth in expenses that outpaced the rise in farm incomes. Coupled with an increasing series of extreme weather events that are testing the limits and effectiveness of Canada's suite of risk management programs, Canadian farmers are challenged like never before to meet Canada's ambitious climate change objectives.

In this context, our pre-budget submission lays out a series of recommendations aimed at ensuring farmers have the flexibility and tools they need to weather the current financial climate and support the transition to a low-carbon economy. At the end of the day, our concern is that we don't want financial insecurity to undermine our sector's ability and commitment to producing affordable food or supporting our sustainable objectives.

I'll focus my comments on a subset of recommendations that illustrate our priorities for budget 2024.

First, under the theme of helping farmers manage the increased costs of production, we're recommending that this government continue to support farmers through the advance payments program. Specifically, we need the interest-free limit for advances under the APP to be increased on a permanent basis to a level commensurate with today's increased costs of production and high inflation around critical farm inputs to ensure the program maintains its utility as a source of critical cash flow support.

Furthermore, one of the most effective ways to meet the dual challenge of increasing productivity while at the same time reducing emissions is through technology and innovation. That's why our second priority recommendation is that the Government of Canada introduce a permanent accelerated capital cost allowance across all classes of farm equipment that would allow producers to depreciate 100% of their capital allocated to purchases of farm equipment for the first fiscal year. This would support farmers in making necessary investments in technologies that improve their environmental performance at a time of increased financial pressures that would otherwise make access to working capital a real challenge.

Our third priority falls under the theme of ensuring risk management programs are responsive to today's threats. Increasing incidents of extreme weather events across Canada are having a direct impact on Canadian producers on a scale not seen in generations. That's why we're recommending that AAFC start the process of revising key risk management programs, including in particular AgriRecovery, to ensure they are more timely, responsive and predictable in the face of increasing disaster-related events caused by climate change.

Our fourth priority falls under the theme of ensuring that sustainability issues are farmer focused and provide support to help them adapt to the effects of climate change. If the sustainable agriculture strategy is going to position the sector to advance agriculture's capacity as a climate solution provider while remaining competitive, we need to ensure that a whole-of-government approach is put in place to support robust incentives for the adoption of best management practices, alongside investments to advance research and extension services to ensure farmers have on-the-ground support for best management practices adoption.

Finally, under the theme of supporting farm succession and the next generation of farmers, we're recommending that the lifetime capital gains exemption be increased to reflect inflation in farmland values and other capital costs, and that provisions advanced through budget 2023's commitment to regulate intergenerational transfers do not discourage genuine family transfers from taking place. Taken together, these measures will create a more favourable tax environment for younger generations of farmers seeking to enter the sector and continue the long tradition of farming here in Canada.

Thanks for this opportunity to speak today. I'll be happy to answer any questions you may have.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Currie, for your opening statement. The 200,000-plus farm families you represent really appreciate that.

Now we'll hear from the Échec aux paradis fiscaux collective. I believe it's via video conference. Mr. Edgar Lopez-Asselin will be providing a statement for up to five minutes.

[Edgar Lopez-Asselin, Coordinator, Collectif Échec aux paradis fiscaux]

Thank you, Mr. Chair.

Good morning, honourable members.

As the chair mentioned, my name is Edgar Lopez‑Asselin, and I am the coordinator of the Échec aux paradis fiscaux collective. Joining me today is my colleague Philippe Hurteau, who is in charge of research at one of our member organizations. He is also on the collective's coordination committee.

We are here today representing the Échec aux paradis fiscaux collective, a coalition of union and community organizations in Quebec. Our mandate is to foster public debate on the use of tax havens, and to develop and support solutions to shut them down. Our collective has some 20 members, representing a total of 1.7 million people across Quebec.

I'd like to start with a few figures that illustrate the extent of tax avoidance in Canada. According to the Canada Revenue Agency's overall federal tax gap report, released in June 2022, the net tax gap for 2018 is between $18.1 billion and $23.4 billion Canadian. That same report indicates that reporting non-compliance by large corporations alone—and that obviously includes big multinationals—accounts for 70% of the corporate income tax gap.

Our collective looks at the problem from a rather unique perspective. We apply a citizen-centred democratic lens to the fight for tax fairness. To address a problem all too often seen as the exclusive domain of experts, we take an approach built specifically on policy. Our approach can be summed up in three keywords.

First, in order to crack down on tax havens, we need to expose them. That means shining a light on mechanisms that make it possible to engage in tax avoidance.

Second, we need to penalize—use the means available through the criminal justice system to deter those who engage in tax evasion.

Third and finally, we need to collect, in other words, recover the money that tax avoidance represents and use it to fund public services and social programs.

Those three keywords are reflected in a series of recommendations—13, to be exact—that appear in the brief we submitted for the pre-budget consultations in advance of the 2024 federal budget.

I do want to point out that the Parliament of Canada and the Standing Committee on Finance have made progress in a number of areas related to our recommendations. The creation of a Canadian beneficial ownership registry, provided for in Bill C‑42, and the modernization of the much-discussed general anti-avoidance rule represent two of those areas. Those are both measures that our collective has long supported. The bills have yet to be passed, of course, with Parliament still needing to examine an area. Nevertheless, when it comes to cracking down on tax havens in Canada, we see it as a huge step forward that the discussion has reached this stage.

I'll wrap up this short presentation with a few of our collective's priorities for the coming year. I'm referring to two things in particular, the recent legislative consultations and the UN's role in international tax co‑operation.

As far as the recent legislative consultations are concerned, the collective worries about the democratic deficit associated with the recent legislative consultations on tax policy, specifically, consultations on the reform and modernization of Canada's transfer pricing rules and on the implementation of the global minimum tax.

By paving the way for dialogue on a wide range of issues in this area, the federal government has gotten the public used to a more democratic approach. Unfortunately, the recent consultation process largely limited the opportunity for dialogue, focusing on draft legislation informed by OECD discussions instead of a genuine dialogue with civil society stakeholders. However, well-known solutions to address both of those issues already exist and are being discussed at the international level. We feel the Canadian public should be able to debate the issues in an open and democratic forum.

Lastly, with respect to the UN's role in international tax co‑operation, we urge Canada's elected representatives to pay close attention to efforts aimed at strengthening the UN's role in this arena. For its part, the OECD has done a significant amount of work to clean up tax relationships between states, through the base erosion and profit shifting project and the two-pillar solution.

Nevertheless, these efforts have not led to the reforms civil society wants to see. In our view, the talks regarding the UN's taxation initiative are an opportunity to deliver the reforms initiated under the auspices of the OECD. It is our hope that Canada will duly consider the possibilities this renewed momentum opens up.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lopez-Asselin.

Now, we will hear from the Council of Canadian Innovators. I believe it's Mr. Nicholas Schiavo who is going to be speaking.

You have up to five minutes, please. Thanks.

[Nicholas Schiavo, Director, Federal Affairs, Council of Canadian Innovators]

Good morning to the chair, vice-chairs and members of the Standing Committee on Finance. Thank you for the opportunity to present the recommendations of the Council of Canadian Innovators in advance of the 2024 budget.

My name is Nick Schiavo. I'm appearing today as the director of federal affairs on behalf of CCI. I'm joined by my colleague Laurent Carbonneau, our director of policy and research.

CCI is a national business council representing 150 of Canada's leading technology companies. We are dedicated to advocating for policies that promote innovation, economic growth and long-term prosperity for all Canadians. Our member companies are headquartered here in Canada. They employ north of 52,000 employees across Canada and are market leaders in the sectors of health, clean and financial technologies, cybersecurity, AI and more.

Last week these 150 CEOs were in Ottawa for Canada's CEO Summit to share the successes and challenges that face their businesses, their priorities and how the Government of Canada can support them in their global pursuit of scale. I look forward to sharing some of these discussions with you today.

As we approach budget 2024, CCI recognizes that Canada's economy faces real challenges. Despite our strengths, slowing productivity growth is a threat to Canadian prosperity and our standard of living. Likewise, shifting geopolitical tensions underscore the need to take security and the digital world much more seriously. There has never been a greater need for a strong, stable domestic technology industry that can create long-term economic growth.

Our nation possesses a wealth of talent, creativity and innovation potential, but Canada must develop and implement a smart industrial strategy that builds wealth and resilience in coordination with the provinces and territories. A smart industrial strategy begins with recognizing that in a globalized knowledge- and data-driven economy, companies compete on realizing the value of intangible assets like intellectual property rather than raw materials. Canada must ensure that our most innovative companies can scale and compete, catalyzing a flywheel of reinvestment and business know-how that will build wealth and serve as a solid foundation for a more competitive Canadian economy.

Acknowledging this, CCI developed our budget 2024 recommendations around three key themes—unleashing economic growth by enhancing marketplace frameworks, increasing the global competitiveness of Canadian businesses by expanding access to customers, and increasing return on investment by streamlining access to government capital.

Let's delve deeper into some of the recommendations from our pre-budget submission, starting with artificial intelligence. Despite the pan-Canadian artificial intelligence strategy launch in 2017, the Canadian government's efforts have not adequately bolstered domestic firms in the commercialization of intellectual property. This oversight has resulted in a regrettable exodus of talent and patents to other jurisdictions, severely compromising the competitiveness of the Canadian AI industry. To remedy this, we propose the development of a dedicated AI commercialization and IP strategy with a focus on scaling our domestic AI technology firms. I encourage you to review “A Roadmap for Responsible AI Leadership in Canada”, our recent road map that provides comprehensive insights into this crucial endeavour and understanding the innovation economy driven by IP, data and other intangible assets.

Staying on this topic, in the intangible economy, foreign direct investment, or FDI, requires careful analysis to understand both the positive and negative impacts to domestic technology firms. Unlike in the tangible, production-based economy, where most foreign investments result in positive economic spillovers, the innovation economy often sees FDI take the form of a business in one country gaining ownership of a foreign branch plant in another, leading to negative spillovers. We strongly advocate for a comprehensive examination of the adverse consequences of FDI in the technology sector, particularly with regard to talent acquisition.

Moreover, in the upcoming budget we hope to see a commitment for a comprehensive review of innovation programs to eliminate duplication and establish “freedom to operate” structures, or FTOs. FTO is indispensable for encouraging increased business expenditure on R and D, thereby fortifying our economy's productivity. Likewise, the imminent launch of the Canada innovation corporation should prioritize addressing FTO issues, which have hindered increased business expenditure on R and D by Canadian companies.

I've included a copy of our recent economic newsletter, Mooseworks, which focuses specifically on the freedom to operate challenges of high-growth companies. I was informed by the clerk that my email didn't go through, so my apologies to members of the committee. I will follow up on that.

Complementing the review of innovation programs should be a comprehensive review of all capital programs designed to support innovators, encompassing the scientific research and experimental development tax credit, or SR and ED; the Business Development Bank of Canada; the strategic innovation fund; and the development agencies.

Our members believe the government should prioritize grants over loans, augment funding thresholds where it makes sense, and mandate the formulation of strategic IP plans to yield sustained economic dividends for Canada.

In conclusion, these recommendations are more than mere policy proposals. They serve as a strategic blueprint to revitalize Canada's innovation ecosystem, foster economic growth and secure our nation's prosperity. Our members want to collaborate with the government and this esteemed committee to implement these pivotal measures, all of which are designed for the benefit of all Canadians.

Thank you for your time today. We look forward to addressing your questions and engaging in further discussion regarding these recommendations.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Schiavo.

Now we'll hear from the national president of the Public Service Alliance of Canada, please, Mr. Chris Aylward.

[Chris Aylward, National President, Public Service Alliance of Canada]

Thank you, Chair, and thank you to the members of the committee for this opportunity.

The Public Service Alliance of Canada is the largest federal public sector union, representing over 230,000 workers. Today, I will speak about three critical issues that impact these members in the federal public service. Our submission provides additional information, which I hope the committee will also consider.

First, the release of the 2024 federal budget will occur just before the eighth anniversary of the onset of the Phoenix pay disaster. There have been errors in each and every pay period since it was implemented in 2016. Tens of thousands of public sector employees, including some now retired, in other jobs or deceased, have yet to receive outstanding pay. This has impacted their benefits, their retirement pensions, their severance pay and their ability to advance in their careers, yet the government is currently focused on recovering overpayments, regardless of the ongoing harm to its own employees, even though it is still unable to pay its employees either correctly or on time.

While some increases in hiring of pay advisers have occurred, the government must find ways to not only hire and train these employees but to also retain them. Attrition is too high, resulting in constant turnover and loss of expertise from the pay centre program.

The negotiated memorandum of agreement on damages expired in April 2020, yet pay problems continue for federal workers in all bargaining groups. The memorandum of agreement needs to be renewed.

Finally, it is time for a national inquiry into why this crisis happened, how it could have been prevented and, most important, why eight years later it has not yet been fixed. Only through a thorough investigation will Canadians be sure that such a problem will be prevented in the future.

Second, and equally concerning, there are the proposed cuts to the federal public service announced in budget 2023. Cutting $15 billion from the federal public service would create significant pressure to downsize the workforce at a time when the pressure on these services has never been greater.

Over the past year, increasing attention has been paid to the lack of a national government staffing plan and the reliance on private contractors to provide public services. While the 2023 budget committed to significantly cutting outsourcing, there was no obvious corresponding investment for in-house staffing.

A system-wide staffing plan should be developed that considers the needs of all who receive services, both within the government and in the public. This plan should acknowledge the evidence that in-house provision of public services, including management consulting, results in a better quality of service at a more appropriate cost. No cuts should be planned until a system-wide analysis of staffing needs, developed with bargaining agents, is in place.

Finally, budget 2024 needs to put public safety officers employed by the federal government, including National Defence firefighters and CBSA border officers, on par with their counterparts who work in other jurisdictions. It has been several years now since Treasury Board made a commitment to these workers that they would be eligible to retire with full pensions after the same length of service as all other public safety officers within and outside of the federal government.

This promise has yet to be fulfilled. Firefighters and border officers often put their lives on the line and face unique health and safety risks that increase with each additional year of service. By the time they reach eligibility for retirement, they are often managing a serious illness or coping with a disability. The workers who keep us safe by battling fires and protecting our borders deserve to retire in dignity.

Thank you for your time today. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Aylward.

Now there is going to be a lot of opportunity for questions. We're moving into our first round.

For our witnesses, each party in our first round will have up to six minutes to ask you questions.

We're starting with MP Morantz from the Conservatives, please.

You have six minutes.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Mr. Dehejia, I want to ask you a question about Bill C-56 in the context of the comments you made about loose money, the money supply and the effect that this could have on inflation. This bill is the so-called affordable housing and groceries act.

It might be reasonable for Canadians who are reading the title of this act to conclude that this bill is designed to make housing more affordable and groceries more affordable, but the reality is that it doesn't do either of those things.

I want to draw your attention to the comments of Michael Osborne, the chair of Cozen O'Connor's Canadian competition law practice. On this point, he says that “competition law...is not designed to solve macroeconomic problems like inflation.”

What he's referring to is an amendment to the Competition Act that would.... There are a number of amendments, but the main amendment would be to get rid of something called the efficiencies defence, which is an argument that large corporations will make to support the idea that government should permit a merger.

Mr. Osborne goes on to say, “By design, competition law cannot limit increases in the money supply; that’s the job of central banks.” He also says, “If a lack of competition is responsible for rising grocery prices, then competition law might be able to help. But the evidence doesn’t support this.”

Can you give me your view of those comments?

[Vivek Dehejia]

Certainly. I share concerns about this bill and the attempt to alter the competition law of Canada. Keeping in the spirit of my remarks, I think we've really unlearned the lessons that we learned in the 1970s and 1980s. We saw wage and price controls under a previous government in the 1970s, Pierre Trudeau's government, and that just didn't work. This is a basic lesson that economists have known for decades or longer: that wage and price controls never fix inflation or lower prices, that all they do is cause scarcity.

Again, our previous flirtation with wage and price controls—it was the same thing in the U.S. under President Nixon—was disastrous. You can't fix inflation until you recognize that loose monetary policy, let loose after the financial crisis in the pandemic, is the real culprit. Wage and price controls or tinkering with competition won't fix that problem.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I think that's consistent with the point that Mr. Osborne is making.

I know that the Business Council of Canada has also been highly critical of the bill. It has said that Ottawa wants Canadians to think that the bill will improve affordability for families by giving consumers more choice, but this is not its purpose or what it will achieve. There are a lot of concerns about the bill.

Of course, Conservatives support the idea of removing the efficiencies defence, but we would never claim that it would be a tool to actually reduce the price of groceries, because that would be a false claim.

Mr. Cross, I want to make sure that we get you back on the record about some of the things that you've said in the past. You said, “One manifestation of chronic weak business investment and low productivity is the OECD’s forecast that Canada’s per capita GDP growth between 2020 and 2060 will be the lowest among its 29 member nations”.

This is something that I think we really need to sound the alarm bells on. It's a very disturbing trend. One of the things you said that I thought was really quite apt was this: “There is a growing [sentiment in Canada] that Canada has wasted a decade of low interest rates on [more] government debt” rather than investing in “business investment”.

Can you elaborate on those sentiments?

[Philip Cross]

Sure. Before I get to your question, one thing I'll add to the previous response is that just because something is given a name doesn't mean that's what the intent is. Biden has created something called the Inflation Reduction Act. It is the most inflationary source of upward pressure in prices in North America today, so just because an act is called a certain thing doesn't mean anything.

To go back to your question, I think the most telling remark I've heard recently is the comment by former Maclean's columnist Paul Wells that if you run a successful business in this country, you are made to feel like you have done something wrong. I can't think of anything that summarizes better what has gone wrong with the climate for business investment and entrepreneurship in this country.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I've heard you reiterate Mr. Wells's comment before. I think what you're touching on is a cultural difference between Canada and the United States. You're absolutely right. For my four years in the House of Commons.... Every day, I sit there and listen to Liberal and NDP politicians beat up on successful business people, when, really, their accomplishments should be lauded in our society. They are lauded in American society.

I think the sentiment you and Mr. Wells described is quite correct.

Thank you for your responses, gentlemen.

[The Chair, Liberal, Peter Fonseca]

MP Thompson, you have six minutes.

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

Thank you.

Welcome to all the witnesses.

I'm going to begin with the Council of Canadian Innovators.

I'll ask you what your thoughts are on the competition aspects of Bill C-56 and the amendment.

Both of you, please feel free to speak.

[Nicholas Schiavo]

I'll say this: We didn't come here to address that bill specifically. That being said, the CCI believes we need greater competition in Canada. We agree that removing the efficiencies defence is a good first step. The reality is that we have several sectors here in Canada that are monopolies. This costs Canadians more. For example, for financial services, we were promised open banking in Canada by January 2023, but we have yet to see that. This means there is less competition, innovation and security, and all of that costs Canadians more.

We support the spirit of the bill, in terms of creating more competition and innovation.

Laurent, I don't know whether you have anything to add.

[Laurent Carbonneau, Director, Policy and Research, Council of Canadian Innovators]

I would simply add this: The problem with the Canadian economy is certainly not that there has been too much competition in key oligopolistic sectors over the last several years. As Nicholas said, we're broadly supportive of changes to the Competition Act. We made a submission last spring pursuant to that. I especially think that removing the efficiencies defence is a very good place to start.

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

Thank you.

We realize there are some innovation challenges, but what are your views on competition reform in driving prosperity and innovation in Canada?

[Nicholas Schiavo]

One of the things that are unique to our industry is the fact that intangible assets like data are very different from raw products. Every dataset you own makes the previous one more valuable. They accentuate each other. Without competition, it tends to favour those data-hungry foreign multinational giants.

There is, I think, a unique element to our industry and the intangible economy that may be different in some other sectors.

[Laurent Carbonneau]

I can add to that, as well.

Zooming out on the broader dynamics of innovation, it's been pretty well observed over decades that there is a certain “winner take most” effect to innovation-heavy industries—especially, as Nicholas said, industries where you have assets like data and IP that have the function of locking competitors out. To some extent, that's a healthy dynamic. If you innovate and create a good product or service, and if you're able to commercialize that effectively, that's good.

However, there are limits to this. I think what we've seen, especially with the big tech giants, is that they're sitting on IP they've extracted from this country via hiring. They create these research branch plants, commercialize the IP abroad, and then sell the products back to Canadians while sitting on data assets that are the products of a very large program of surveillance. This is essentially bad for Canadians and competition.

The innovation dynamics of competition, I think, are a bit underappreciated in competition policy discourse in this country. That's why we made our submission this spring, to try to change the channel a bit and increase awareness of how our sector is particularly impacted in the competition policy space.