Finance Committee on Nov. 14th, 2023

[The Chair, Liberal, Peter Fonseca]

We will pause.

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

There seems to be some feedback.

[The Chair, Liberal, Peter Fonseca]

We have to check the sound. We are having some interpretation issues.

We're going to get going again. Hopefully, everything will be in working order.

Go ahead, Mr. Polito.

[Joseph Polito]

Thank you.

The Wall Street Journal has a video of the invisible role taxes play in American's housing shortage. It rediscovers Adam Smith's 250-year-old strategy of the land value tax. Smith said, “A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.” Economists call this excess monopoly profit unearned income or economic rent or wealth extraction. Smith's tax was designed to recapture the unearned income, yet 250 years later the housing industry still charges what the market will bear, extracting whatever the purchaser can afford, particularity in the case of dual-income families.

If general income rises, the sale price rises. Conversely, competitive markets are about wealth creation. If general income rises, people can buy more goods at the same price. Land speculators compound the problem. They do not produce land but hope to make speculative profit as the growing community invests in roads, schools, fire stations, hospitals, etc.

In 1950 my parents bought a modest home for $13,000, which has increased 14,000% to $1.8 million today. The Bank of Canada inflation calculator equates the 1950 price to $160,000. As a tear-down, the lot would be $500 per square foot, yet the best farm land is $30,000 an acre, which is less than a dollar a square foot.

The shocking math of unaffordable housing cannot be bypassed.

The following recommendations are from brainstorming with my MP.

Recommendation one is that the federal government should partner with the provinces to build inexpensive campus residences on land owned by post-secondary institutions to free up off-campus residences.

Recommendation two is that the federal government should partner with the provinces and municipalities to build residences on their land.

Part (b) is that the land value tax encourages construction affordability. If property taxes were based on land value, it would encourage construction while discouraging land speculation. The current system is based on the buildings, which discourages construction. Higher land taxes make it too expensive to keep unproductive land, which would be sold to those who would develop the property fully.

Part (c) is about inclusionary zoning to address the flaw in the density strategy. In Professor Condon’s article “Radical Pro-Affordability”, he explains that Vancouver had a wonderful record from increasing density, but it had a terrible record on affordability. He has a graphic on the exponential land-price inflation despite high density. The increased density increases what a developer can pay for the lot, as per figure 12 in Condon's more detailed presentation. Inclusionary zoning enforces lower prices in rents, which reduce what developers can pay for land.

Recommendation three is to partner with provinces and municipalities to study inclusionary zones and the land tax, as California and Detroit are doing.

Recommendation four is to fund the expensive change in the property tax system.

Part (d) is that the role of banks is to fund housing bubbles while ignoring their own conservative high standards for business loans.

Recommendation five is to work with the banking industry to make it more conservative in its home appraisals.

Part (e) relates to a successful Canadian land tax precedent. I took a course with Marshall McLuhan in 1968. He liked to say that we drive into the future looking through the rear-view mirror. That's to remind us that we are not oracles and we must rely on our inventory of evidence-based knowledge, which we are prone to forget unfortunately. Adam Smith's land tax is a case in point. Smith's policy has repeated successes, including in Canada.

Professor England in “Land Value Taxation in Vancouver” explains how, in the early 20th century, land taxes curbed land and rent costs there, while increasing construction. Unfortunately, vested interests lobbied away the tax change, and Vancouver became extraordinarily expensive.

Part (f) is another tax change to discourage land speculation. I left this one for the end because it's a tax. Why do land sales qualify for capital gains exemptions? Land is not capital. Capital gains incentives are for productive ventures, not for land speculation.

Recommendation six is, to discourage land speculation and land-price inflation, slowly change our capital gains tax rules for commercial real estate sales so the land value gains are taxed as ordinary income.

Last, some other expert resources—I'll just say for now Milton Friedman, several Nobel Prize winners, major publications like The Economist magazine and the Financial Times—have all promoted the land value tax.

Thank you very much. I'll be happy to answer any questions later.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Polito.

Now we go to the Association québécoise de l'industrie du disque, du spectacle et de la vidéo. I understand that the time is being shared by Ms. Paré and Mr. Cash, who was formerly MP Cash.

[Eve Paré, Executive Director, Association québécoise de l'industrie du disque, du spectacle et de la vidéo]

Good morning, ladies and gentlemen.

On behalf of the 200 member companies of the Association québécoise de l'industrie du disque, du spectacle et de la vidéo, ADISQ, I'd like to thank you for having us here to speak with you today.

My name is Paré, and I'm the executive director. Here with me is my colleague Simon Claus, the director of public affairs, and my counterpart from the Canadian Independent Music Association, Mr. Andrew Cash, the president and chief executive officer, who will also have a few words to say.

We are here today because the entire independent music industry is currently in an extremely worrisome situation. The proliferation of platforms has completely transformed how we discover and listen to music. As consumers, we have millions of songs at our fingertips. And yet, our artists have to compete against major international stars with vast marketing and promotional resources. Connecting with audiences has never been so difficult.

The entertainment industry is in the same boat. Since the pandemic, consumer habits have changed. People are buying tickets at the last minute. Economic circumstances have forced many households to reduce their spending on culture. Added to that is the labour shortage in a sector that was already having trouble recruiting staff. This has been undermining our companies' ability to invest and take risks. Hardest hit are original francophone productions by emerging artists and artists working in niche markets.

In 2018‑19, a $10 million increase had been awarded over a period of five years by the Canada Music Fund, the CMF, to meet industry needs. It's important to point out that this was not emergency pandemic-related assistance. After that, the Liberal Party, during an election campaign, made a commitment to increase the annual contribution to the Canada Music Fund to $50 million by 2024‑25, to meet the industry's financial requirements and to make its funding more predictable.

It's worth noting that the Canada Music Fund contributions are broken down as follows: 60% goes to the anglophone market, through FACTOR, and 40% to the francophone market, through Musicaction. In view of declining revenue, Musicaction has already had to make significant cutbacks to its programs. That, in fact, is why we are here today. The music sector needs a level of support that can address the problems it is currently facing.

To ensure enhanced and more stable funding, we are requesting a $60 million increase in annual contributions to the Canada Music Fund. This request is based on a commitment in the 2021 Liberal platform to increase the annual contribution, and it also factors in inflation, labour shortages, and the unique circumstances specific to live entertainment. This support would keep companies competitive at a time where financial margins are tightening, and would enable their artists to develop long-term careers and stand out from the foreign competition.

I'm giving the floor to Mr. Cash now.

[Andrew Cash, President and Chief Executive Officer, Canadian Independent Music Association, Association québécoise de l'industrie du disque, du spectacle et de la vidéo]

Thank you.

I have one quick word. I believe that in the interpretation it was said that the Liberal promise was to increase the Canada music fund to $500 million, but it's actually $50 million.

I just wanted to clarify that.

[Voices]

Oh, oh!

[The Chair, Liberal, Peter Fonseca]

Okay. Thank you.

[Andrew Cash]

Mr. Chair and honourable members of the committee, thank you for having us here today.

Here are a few artists' names: Jessie Reyez, The Weeknd, Tanya Tagaq, Feist, Patrick Watson, Jeremy Dutcher, George Canyon, Cadence Weapon, Blue Rodeo. They're just a few names you may recognize. They come from different genres and different parts of the country, but they all have been recipients, either directly or through the music companies they work with, of early career investments through the Foundation Assisting Canadian Talent on Recordings, otherwise known as FACTOR, the private non-profit organization that administers funds from Canada's private radio broadcasters and the Department of Canadian Heritage's Canada music fund, which is why we're here today.

Over the last five years, FACTOR has supported over 6,500 artists. These investments have been nothing but a groundbreaking, industry-building cultural success story, and it's all about to unravel. With plummeting radio revenue, if the Canada music fund does not receive a promised increase, FACTOR is at risk of seeing its annual operating budget cut in half over the next two years.

If that happens, companies will close. Those that don't will shed staff and release fewer artists. This will result in fewer shows across the country, harming an already precarious live music sector, affecting local economies and reducing revenues to government. Perhaps most significantly, the future Daniel Caesars, Aysanabees, Serena Ryders and The Beaches may go undeveloped and unnoticed.

Our sector already faces major challenges with the constant disruption due to new technology, changing consumer behaviour, the impacts of AI and the continued effects of the pandemic on the live sector, as well as market imbalances due to decades of global corporate consolidation of the music industry. Investing in FACTOR and Musicaction by the Canada music fund is the critical tool that has enabled the Canadian independent music sector to survive and thrive against such strong headwinds. This is what we've all built together, and this is what we are at risk of losing if the promised modest increased investment to the Canada music fund is not fulfilled in budget 2024.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Cash and Ms. Paré.

Now we'll go to Ron Butler, please.

[Ron Butler, Mortgage Broker, Butler Mortgage Inc.]

I want to thank the committee for having me back.

As a quick note, I spent a day observing how things work in Ottawa, and I have to say, people show up on time, stay late, are prepared and ask good questions. The clerk and his team do a great job. I spend 40 hours a week immersed in social media and nobody takes as much abuse as politicians, so I salute you for the work that you do.

I try to stay reasonable, although I've been somewhat adolescent towards the Bank of Canada governor.

You all do really important jobs. I apologize for what happens within social media, even though I'm not totally responsible for it.

[The Chair, Liberal, Peter Fonseca]

I think we may have to give Mr. Butler some extra time.

[Voices]

Oh, oh!

[Ron Butler]

To refresh a few ideas that I've spoken to the committee about previously, the banning of short-term rentals is a fantastic idea. Even though it falls mainly within the provincial world, maybe there's some way to adjust or consider federal-provincial transfers in a way that would encourage provinces to bring an end to this terrible scourge—effectively, illegal hotels—which removes inventory for first-time homeowners and removes inventory from long-term rentals. That is all a good thing, and illegal hotels are just a bad thing.

Realistically, and somewhat to Mr. Polito's point, provincial and municipal approvals for new homes and new developments are ridiculously long, laborious and complicated. We built so many homes in the seventies. Roughly 250% more than today is what we built in the seventies, and approvals were fast. They were efficient. Inspections were quick.

What's happened is the opposite, so why has it happened?

A lot of it has to do with the development of enormous bureaucracies at municipal levels. They have to justify their work and to find a reason to exist, and it's become incredibly complicated to have new homes and new developments approved. This doesn't really make any sense. We need the housing, so there has to be a way—again, not necessarily in the federal purview—to speed it up.

With regard to changes in mortgage rules, I've discussed this before. It makes no sense that you can do 100% financing for a rental property. You can extract money from your existing residence through a line of credit or through another mortgage, go out and get a mortgage on the balance and effectively end up with a 100% funded rental property. This is fantastically different from what a first-time homebuyer has to do to come up with the cash to find the down payment. They're, therefore, at a great disadvantage.

That has to be an easy move—it's a simple move—for the bank regulator to make, and it's actually technically simple to check off.

There is a massive imbalance between ongoing property taxes in most municipalities and development fees. This is really a crazy concept, because the people who pay property tax typically enjoy the use of their municipal services for years, if not decades, yet they are underwritten by astronomical costs associated with new homebuyers purchasing in new developments.

This is a very strange idea, but it develops from the fact that municipal councils want to protect their seats, and they know that the maddest people are the people who get increases in property taxes. Why burden new homebuyers and long-term rental people with unmanageable development fees: $170,000 for a condo unit in Toronto. On the housing side, it goes much higher. A townhouse can sometimes reach up to $300,000 in taxes, levies and development fees. This is putting new homebuyers behind the eight ball.

I believe that some things can be addressed by the committee, some of them the federal government can address and some of them are provincial matters, but it's still vitally important to try to level the playing field for people who want to get into the housing market.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Butler.

Now we'll hear from the Canadian Gas Association and Mr. Paul Cheliak.

[Paul Cheliak, Vice-President, Strategy and Delivery, Canadian Gas Association]

Thanks.

I'll echo Ron's point about social media.

I would also like to commend the committee for travelling. I know it's not easy. I know it takes agreement among all of you. As I would call it, “the cast of characters” you have here today is quite unique. I'm learning something. I appreciate being able to be in Toronto to see you versus in Ottawa. I know Canadians respect and honour the time they get to spend with you.

By way of background, the Canadian Gas Association members deliver natural gas to 25 million Canadians. We meet 40% of all the energy used in the country. We do so through around 600,000 kilometres of infrastructure that spans the country.

The scope and scale of its contribution to Canada's energy needs is not well understood. We're the largest source of energy for the building sector, such as we're in today, the manufacturing sector and the industrial sector.

Our success is largely because we're affordable and our infrastructure is buried underground. When there's inclement weather, the gas doesn't go out. Further, our domestic story is only improving—

[The Chair, Liberal, Peter Fonseca]

Excuse me, Mr. Cheliak.

Members, do we need to suspend for sound issues?

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

The volume is too low for the interpreters to do their work.

[The Chair, Liberal, Peter Fonseca]

It looks like we got a thumbs-up.

We did stop your time, but we're going to get started again.

Mr. Cheliak, you're on.

[Paul Cheliak]

Canada's domestic story is one that's only improving. We produced and consumed record volumes of our product in 2022. We produced record volumes of renewable product, which is known as renewable natural gas, and hydrogen in 2022. In 2025, we'll enter the global market for natural gas with the first exports of liquefied natural gas off the coast of British Columbia.

The question is, how can Canada position itself to take advantage of this opportunity? I bring to you today two recommendations. The first is around Canada's proposed investment tax credit regime, and the second is around pending federal interest deductibility legislation.

On the first, the committee is aware that the U.S. has taken the clean-tech world by storm with the Inflation Reduction Act. Canada has in turn responded through proposed investment tax credits, which we believe are both economically feasible and a productive way of tackling the clean-tech challenge. The issue is that, for industry, traditional funding programs are lengthy. Investment tax credits, which we highly support, leave the decision to industry. They are more efficient. They take bureaucracy out of the system, and they allow business to do what business does best, which is to pick economic projects that meet the needs of their shareholders.

However, we believe the ITCs as outlined have some deficiencies. The clean hydrogen investment tax credit excludes a central technology solution called “methane pyrolysis”, which allows you to take natural gas and create hydrogen and something called “carbon black”. The benefit of pyrolysis is that it requires no underground geological storage, so in parts of the country such as where we are today, without the liberty that Alberta has to put carbon underground, you can monetize methane pyrolysis.

Second, we need a biofuels investment tax credit. Biofuels were noticeably absent from the ITC regime. We're recommending that they be brought in and that, specifically for our industry, there be a renewable natural gas investment tax credit. Renewable natural gas is being produced all across Canada from landfills and waste-water treatment plants. There's a facility here in Toronto in which they take that gas and put it into garbage trucks as a renewable fuel. The garbage trucks do their deliveries, and they go and refill again at the landfill where there's a collection site for that methane that is produced organically from the landfill.

The U.S. Inflation Reduction Act has fairly rich incentives for renewal natural gas. Should we not bring in a comparable ITC in Canada, capital will continue flowing to the U.S. versus staying in Canada.

Third, we have to get them done. These have been proposed. We know that the enabling legislation and regulation is coming, but every week that we're not at the table with an investment tax credit regime that is real and signed into law is a week in which, frankly, the United States eats our lunch. We recommend that Canada introduce both the methane pyrolysis addition and a biofuel investment tax credit in or before budget 2024.

The second is about the interest deductibility legislation. I don't know how much this committee has worked with that. It's known as EIFEL. EIFEL proposes to limit the amount of interest on debt that can be deducted from a corporate tax sheet. Our issue is that, as a utility industry, we are told by our regulators how much debt we can have. We don't get to pick it. We're heavily debt structured: 50% to 75% of all the business we do is debt. By law, all of the interest on our debt is passed on directly to end-use energy consumers in Canada, not from a dividend and not from share buybacks. It's simply a pass-through cost to consumers.

We and Electricity Canada, who serve every single voter in this country with electricity and/or natural gas, are recommending an exemption from the proposed interest deductibility legislation, which we believe will be coming in its final form in near weeks or months.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Cheliak. There will be a lot of time during the questions from members to expand.

Now we'll hear from the City of London, before we get into our questions.

Go ahead, please.

[Lynne Livingstone, City Manager, City of London]

Good morning.

Thank you, Chair and honourable members of the committee, for the opportunity to speak with you this morning.

In addition to having our roles in our organization, Scott and I also chair—

[The Chair, Liberal, Peter Fonseca]

I'm sorry, but we have an issue again.

Do you want to start from the top?

[Lynne Livingstone]

Sure. I was just saying thank you for the opportunity this morning.

In addition to the roles that Mr. Courtice and I play in our organizations, we also co-chair our community's efforts to address our health and homelessness crisis, and that's what we'd like to speak with you about this morning.

London is experiencing a desperate and devastating health and homelessness crisis. You may be somewhat familiar with what's happening in our community, because we've received some recent national media attention, both for our problem but also for our whole-of-community response to address the crisis.

In our community, since 2020 over 200 homeless individuals have died on our streets. As of this morning, that number is 43 for 2023 alone. Since 2020, the number of people living unsheltered has more than doubled, from 900 to over 2,000, and the number of people living with the most complex needs—terrible physical health, mental health and substance use problems—has grown from 100 people to 600 people.

The impacts of this are devastating, not only for the individuals and their families but for our health care system, first responders, businesses and our neighbourhoods.

To put that into perspective, I will share this. Our base system of shelters and homeless-serving organizations is absolutely overwhelmed and beyond capacity. This population results in 10 to 11 EMS calls per day. They have 100% interaction with police, 6,300 emergency room visits a year and businesses are closing in areas that are most impacted. We've had a spread of encampments beyond our downtown core, affecting many more neighbourhoods across our community.

We know that this problem was not created overnight—not even over the last few years. This is decades in the making, and it transcends many governments and political parties. This crisis impacts your communities.

We know that London is not unique in the challenge, but we believe our solution is. Designed by over 200 individuals from 70 local organizations, spanning health and social services, business, land and housing development and levels of government, and supported by a very generous donor family who believe in this plan and have dedicated $25 million to it, we have created what we call a whole-of-community system response. This is government, community and philanthropy working together to address the problem.

The solution is focused on those with the most complex needs who are causing the greatest impacts—the 600 people. It's anchored in two foundational elements: hubs and highly supportive housing.

Hubs exist to help people move safely indoors, access supports and become sustainably housed. Every single interaction in a hub is designed to help the person to their next step to housing through accessing a range of supports, from basic needs to physical health and addiction supports to transitional beds as they prepare for housing.

The second component of the solution is highly supportive housing. We know that by providing these individuals with keys to an apartment, it won't be successful. Time and time again, it has been demonstrated that it's not successful for them or their neighbours. Many will, at least initially, need 24-7, on-site support to be stably housed.

To meet the needs in our community, we believe we need up to 10 hubs and approximately 600 units of highly supportive housing. Now while we only began developing this solution a year ago, we are already implementing. Two hubs will open next month, and last month 70 people moved into new, highly supportive housing units. We have a plan, we are executing the plan and we believe we are making a difference for our community. We also believe that our plan could be a blueprint for other communities across the country.

We need your help. To address this crisis, it will take all of us. We have leveraged all municipal dollars, available provincial and federal allocations and significant donations from Londoners. We are grateful to be the first city in Canada to receive the housing accelerator funding, which will significantly assist with much-needed capital, but it not enough to address this crisis.

What every community needs help with is sustainable and predictable operating funds to support new and creative solutions for this problem. This could be an increase to the annual allocations for Reaching Home or a similar program designed to address this crisis across Canada.

For London, this would mean a commitment of $6 million in Reaching Home funding or a similar program. This would allow us to stabilize our programs and bring on more hubs and highly supportive housing for the most marginalized and chronically homeless people in our community.

With this much-needed assistance, London can continue to implement our whole-of-community system response and meaningfully address the crisis we are experiencing. We can also offer a blueprint for other communities across the country in a time when challenges are dire and there is an urgent need for new and creative solutions.

I'll conclude by thanking you for the opportunity to be here today to share our experiences: both our problems and our solutions. We believe we are on the right path and are making a meaningful difference. With your help, we will address our crisis and help other communities to address theirs.

Thank you.