Finance Committee on April 11th, 2024

[Angella MacEwen, Senior Economist, National Services, Canadian Union of Public Employees]

Thank you for the opportunity to present CUPE's views on Bill C-59.

The Canadian Union of Public Employees is Canada's largest union, with over 750,000 members. CUPE members take great pride in delivering quality services in communities across Canada as they work in a broad cross-section of the economy, including health care, education, municipalities, libraries, universities and colleges, social services, public utilities, emergency services, transportation and airlines.

Bill C-59 has a number of elements related to taxation that we think are important to economic fairness.

Prominent tax economist Gabriel Zucman has estimated that corporations shifted more than $25 billion U.S. in profits out of Canada in 2019 by reporting income that they earned in Canada in a different tax jurisdiction. This cost Canada an estimated $4.5 billion in corporate income tax revenue for 2019 alone.

Implementing a digital services tax is an important part of closing that gap and levelling the playing field for Canadian businesses. CUPE has long advocated in favour of a digital services tax. We followed the negotiations at the OECD on base erosion and profit shifting very closely. We were disappointed when the process on pillar one stalled and when the proposals there were watered down from what's needed.

We think that Canada is smart to move forward with its own digital services tax. Pillar one continues to face roadblocks, and its future remains uncertain. The legislation put forward here in this bill is much more effective than what's currently on the table in the OECD process.

However, the DST as proposed explicitly excludes the sale, licensing and streaming of digital content, as well as the sale of other digital goods and services. This is a giant, glaring hole. It excludes revenues associated with Netflix, Amazon Prime, Apple Music, Spotify and many more services. We believe that a fair tax model is a better approach than other approaches we're taking in that industry.

We're also disappointed to see that the deadline for the implementation has been removed from this bill.

Even if these improvements were made, the digital services tax is not enough to close this gap. We encourage the federal government to go further. Greater transparency of multinationals' tax and financial information is another powerful deterrent to profit-shifting. Australia and the EU are far ahead of us on this.

Requiring multinationals to publicly report country-by-country financial information would give us more insight into how much tax is being paid or avoided. This would assist in the administration of the digital tax.

We also encourage the federal government to welcome the new United Nations process on international tax governance. As part of this process, international labour groups have called for a framework tax convention that would formalize international tax governance at the United Nations under an inclusive, accountable and more effective institutional setting than what we've seen with the OECD.

CUPE is also very interested in the establishment of the proposed department of housing, infrastructure and communities. Much of the preamble located in this bill reflects CUPE's views about the importance of public infrastructure to healthy local communities and our national economy. However, we believe that the clause referring to the use of innovative financial tools to attract investment from the private sector puts all of those benefits at risk. This approach has consistently failed to result in building the type and scale of public infrastructure that is required to foster a healthy, equitable, prosperous economy and society.

Finally, I personally have concerns about employee ownership trusts being used to avoid taxation. However, I was encouraged to see several elements in this legislation that move toward a more democratic involvement of employees in determining the direction of the trust.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Now we'll hear from the C.D. Howe Institute and Mr. Robson.

[William Robson, Chief Executive Officer, C.D. Howe Institute]

Thank you very much for having me. It's an honour to be invited to present to this group. I apologize for doing it online.

I accepted right away when invited to appear in front of the committee. It's part of my job and, as I said, an honour, but I have to admit that after accepting, I had doubts. You know this already, but I'll stress that Bill C-59 is 524 pages long. The summary at the front alone is six pages. I counted very quickly about 60 bullet points, or bullet-like points, about provisions that are explicitly identified as affecting 20 pieces of legislation. I don't know how many more are not explicitly identified.

The Liberal Party's 2015 election platform contained a plank to ban omnibus legislation, and it's unfortunate that it didn't happen. Critics say that omnibus bills prevent parliamentarians from doing their jobs, and I agree. I don't think parliamentarians should acquiesce in things that prevent them from doing their jobs.

Given the size and heterogeneity of Bill C-59, I think it's better to use the rest of my opening time to underline the scale of the challenge facing Canada’s economy and Canadian living standards.

If you had a chance to look at the Bank of Canada’s Monetary Policy Report yesterday, there was an eye-catching figure showing that real GDP per person has been falling since the third quarter of 2022. The bank expects that decline to continue through the first half of this year. We know people are feeling squeezed and having trouble making ends meet. Eight quarters in a row of declining real output per person will do that. The average Canadian has fewer resources for food, clothing, housing and paying taxes, let alone supporting cultural institutions or donating to charities.

Why is that happening? It's because of low investment. Capital investment creates the tools that make people more productive. It makes people able to earn more for every hour they work, but capital in Canada per worker is falling. Nothing like this has happened since the 1930s and the Second World War.

I want to underline that it's also not happening anywhere else in the developed world, and it's certainly not happening in the United States. At the C.D. Howe Institute, we track business investment per member of the workforce in Canada versus the United States, adjusting for purchasing power. We've never quite been on a level, but 15 years ago, for every dollar of new investment that the typical U.S. worker enjoyed every year, the typical Canadian worker got close to 75¢, about three-quarters as much. Ten years ago, for every dollar of new investment per U.S. worker, the Canadian worker got about 66¢, so we were down to two-thirds as much. By the end of last year, in the fourth quarter of 2023, for every dollar of new investment per U.S. worker, her or his Canadian counterpart got 52¢—barely half as much.

That spells trouble for competitiveness and the future earnings of Canadian workers. My friend and former federal finance minister Bill Morneau warns in his book that a steady erosion of Canadian living standards will make Canada less attractive to talent, and this is a vicious circle playing out as we speak.

What could turn this around? We'll be happy to take questions on that.

To conclude, I want to return to the impossibility of scrutinizing long and heterogeneous bills such as this one properly. Other witnesses have commented on specific provisions they thought were poorly drafted or could stand improvement. I note that the bill itself corrects some drafting problems in previous legislation.

One of the discouragements that I hear a lot about, when it comes to people speculating about why investment in Canada is weak—this includes members of the C.D. Howe Institute’s monetary policy council, who think low investments and low productivity growth are making inflation harder to control and thus keeping interest rates up—is policy uncertainty.

That's true on every level. Some of it is the threat of more populist tax measures, and I think we have a couple in this bill. It's also just sheer incompetence in execution. I'll mention in passing the bare trust debacle. You need effective parliamentary scrutiny to avoid confidence-destroying mistakes, and a bill of this length and heterogeneity precludes effective parliamentary scrutiny.

Thank you for having me here, and I'm sorry to conclude on a down note. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you for joining us.

Now we're going to hear from Fintechs Canada and Alexander Vronces.

[Alexander Vronces, Executive Director, Fintechs Canada]

Thank you so much for having us here today. It's always an honour.

Fintechs Canada is an industry association of Canada's most innovative financial technology companies. Our mission is to make Canada's financial sector more responsive to the needs of Canadians.

A few years ago, the White House issued an executive order that would get the whole of the U.S. government to promote more competition in the American economy. Not long afterward, the American financial consumer protection regulator put out a draft rule to jump-start competition in American banking.

“Making banks work harder for you”—that's literally what the government of the United Kingdom said it would do in 2016. The United Kingdom had already set the foundation for a more competitive banking system by modernizing its payment system. In 2016 the U.K. said it would do more—it would implement open banking. It delivered on that promise just a couple of years later.

Canada has yet to do what our peers have done to make banks work harder for Canadians.

In competitive markets, two things are supposed to happen: Prices are supposed to go down, and the quality of services is supposed to go up. In Canadian banking, we're not seeing that. Prices are going up. Our banks are making more money from non-interest income—in other words, the fees they charge Canadians, the service fees on bank accounts, investment management fees, payment processing fees and administrative fees on mortgages and other loans.

We can see, based on public data, that the fee-based income banks are making per Canadian account holder has increased by 8% over the past five years to just under $3,000 in 2023. That's per year, and banking has largely stayed the same. My banking—how I save my money and how I pay my bills—hasn't changed for years. There are Canadians who wonder why they're paying more but not getting more.

High fees aren't the only cost of a banking sector closed off from competition. The lack of competition also hinders Canada's productivity growth. Banks aren't just vaults for our money; they are also intermediaries investing in other sectors to make them more productive—at least, that is what's supposed to happen,. However, a C.D. Howe Institute report from 2019 says that our financial sector's contribution to productivity growth has been underwhelming. To be more productive, we need our businesses to grow. It has been said that Canada is good at getting businesses started but not good at getting businesses growing.

One of the reasons is that small businesses in this country aren't getting what they need from banks to fuel their growth. According to OECD data, loans are more costly for small businesses in Canada than they are in other advanced economies.

According to the CFIB, 15% to 25% of loan applications end up being rejected by the big five banks. In fact, from 2012 to 2022, the total number of loan applications approved for small businesses decreased by almost 30%. The lack of competition in banking costs us not just as customers of banks but as Canadians.

Fintechs Canada believes in whole-of-government approaches to complex issues. Promoting more competition in the financial sector is one part of the broader solution to make Canada a more affordable and productive place to live. That's why we're glad to see Bill C-59 contain amendments to the Canadian Payments Act. These changes will promote competition in banking by giving fintech companies and credit unions access to the new payment system being built by Payments Canada. Industry insiders call this new payment system Real-Time Rail.

These changes are good for competition because you can't operate in the financial sector if you can't access a payment system. Outdated laws give only Canada's biggest banks access to the system right now. These biggest banks in turn resell their privileged access to everyone else. This puts the competition in an untenable position. They have to do business with their competitors in order to compete with them.

Access to Real-Time Rail will level the playing field as it is right now. For that to happen, though, we need Payments Canada to actually launch Real-Time Rail, with no more delays. According to the World Bank, Canada is one of the few countries in the world without Real-Time Rail. We support the amendments to the Canadian Payments Act in Bill C-59, but by themselves they're not enough. Our G7 counterparts have done so much more. If we want to make Canada a more affordable and productive place to live, it's time that we also do more.

Thanks again for having us. It's been an honour to share our perspective with all of you.

[The Chair, Liberal, Peter Fonseca]

Thank you. We look forward to the questions we will ask you.

Now we're moving to the Mouvement autonome et solidaire des sans-emploi.

Ms. Labelle, go ahead.

[Fanny Labelle, Administrator, Board of directors, Mouvement autonome et solidaire des sans-emploi]

Good afternoon.

I am appearing before you on behalf of the Mouvement autonome et solidaire des sans-emploi, or MASSE, which represents 17 groups advocating for the rights of the unemployed workers of Quebec and New Brunswick. We will celebrate our 25th anniversary this year. The organization acts as a kind of collective memory in the unemployment field.

First of all, MASSE truly applauds the addition of 15 weeks of benefits in the case of adoptions because that was lacking. We believe that this measure helps in recognizing many valid parenting models and that it will have a positive effect on the rights of LGBTQ+ persons.

However, since I'm not here just to make compliments, allow me to put these benefits in the specific context of Canadian parents and to discuss the actual role of the employment insurance fund.

Did you know that, when a person—it's usually a woman—loses her job during, or too infrequently after, her maternity leave and parental benefits period, she winds up without an income? We have been requesting a change to this situation for a very long time. It would be easy to do by amending the act to rescind the rule, provided in subsection 12(6), regarding the combining of weeks of benefits to a maximum of 50 and by including, as a ground for extending the benefit period, the fact that the claimant has received maternity, parental or adoption benefits.

Nowhere in Bill C‑59 is any attempt made to achieve the fundamental objective of providing protection in the event of unemployment, which is the purpose of the employment insurance. Parents who take leave to care for their children shouldn't have to worry about whether they'll have an income once their leave is over. These people will often lose their jobs as a result of restructuring or because positions have been cut.

Nearly 3,000 women a year are denied employment insurance because they haven't accumulated enough insurable hours as a result of maternity leave. Our elected representatives are aware of this situation, which is unjust and discriminatory toward women. Press conferences have been held and testimony given in the House of Commons. MASSE condemns the government's refusal to act as long as the constitutional appeal of six women represented by the Mouvement action-chômage de Montréal is before the courts. In our view, this shows a clear lack of political will on the government's part.

We nevertheless wish to note that the employment insurance fund was established to compensate workers who have lost their jobs, not for the purpose of introducing social measures. The government stopped contributing to the fund in 1990. It has denied its responsibility for unemployment and special measures and for special benefits, which are part of the present program. Payments of special benefits continue to increase. In 1999, they represented barely 17% of total benefits paid by the program but have since increased by 36% in 2023‑2324.

It would be impossible for me to complete my remarks without claiming better protection in the event of loss of employment. For us, better protection would mean broader eligibility for the plan. We believe that applicants should be eligible for benefits once they have accumulated 350 hours for 13 weeks of work.

Better protection should also include a 70% benefit rate. A period of unemployment currently triggers a descent into poverty and indebtedness. The 55% benefit rate makes no sense in the current context of inflation and housing crisis.

We also believe that the government would solve the seasonal industry's black hole problem by providing a minimum of 35 weeks of benefits for everyone rather than add pilot project after pilot project, as was announced in the fall economic statement.

I will conclude by saying that we applaud the new measure providing 15 weeks of benefits in case of adoption, but we lament the fact that, for many years now, there have been interminable consultation phases and no genuine employment insurance reform.

Thank you

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we're going to have an opportunity for questions from the members. We are starting the first round. Each party will have up to six minutes.

We have MP Lawrence for the first six minutes.

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

Thank you very much.

Thank you to all the panellists for being here today. It is greatly appreciated.

I'm going to spend the majority of my time talking to you, Mr. Robson.

I want to continue with the theme that you started to talk about and hopefully give you the opportunity to discuss some of the solutions you might have for the productivity crisis we are facing.

I want to talk a bit about some current data that seems to validate, and even accelerate, your thesis, which is that there's a growing divergence between the U.S. and Canadian economies.

We recently saw in the United States that inflation there is increasing, perhaps showing that its economy is starting to overheat, whereas in Canada, we recently saw our unemployment rate grow. We have six quarters of per capita GDP shrinking. It doesn't look like our economy is going to get any better in the future. We're seeing an even greater divergence or acceleration.

I would like to get your comments on that.

[William Robson]

It concerns me very much. I think for a period of time it was possible in Canada, back around the middle of the last decade, to say, well, we had an oil price collapse and the resource industries were under pressure, and then with COVID and so on, different countries reacted in different ways, but now that we've come out of that, it's quite disturbing to see how Canada is struggling compared with other countries, particularly the United States. The strong U.S. economy is actually buoying us right now. It's helping our trade balance and making us look a little better than we otherwise might.

We like having them as a trading partner, but they're also competitors. They compete with us for talent. A recent study out of Statistics Canada showed how difficult a time Canada has in retaining talented immigrants. One place they naturally tend to go to—if you've already uprooted yourself once, it's easier to do it again—is the United States.

This gap does concern me. One of the points made by one of my fellow panellists concerned open banking and the lack of investment in some technological opportunities that other countries are taking advantage of. I didn't want to overwhelm the group with numbers when I was comparing investment, but if you look at machinery and equipment investment, an area that people often associate with more technological innovation and better future prospects, the overall gap between Canada and the United States in terms of investment is about 50¢ on the dollar. For M and E it's only 40¢, and in intellectual property products or software and so on, the area where we expect a lot of progress in the new economy, it's only about 30¢ on the dollar.

If U.S. workers are getting two and a half times as much machinery and equipment investment per person as Canadian workers are, and more than three times the amount of intellectual property products investment, then, to use a construction analogy, they're using excavators and we're digging with shovels or maybe even with our bare hands.

This concerns me a lot. It's quite a new development to see this gap opening up the way that it is. Provisions on interest deductibility or certain types of taxes or even, as I said, drafting of competition policy that was clearly done in haste and that sort of thing, in addition to some of the headline issues like corporate tax rates, and so on, are discouraging to people. They tend to avoid jurisdictions that don't seem to be able to get their act together.

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

Thank you, Mr. Robson.

You've certainly been a prolific writer with respect to some of the solutions as well. Perhaps I won't prejudge which solutions I prefer and will just give you the floor for the rest of my time if you want to discuss some of the solutions that you and the C.D. Howe Institute have written about, many of which I agree with.

[William Robson]

I'll just say that we do have high taxes in Canada. I've heard some comments in favour of making taxes higher. Taxes in Canada are already high. Arguably, taxpayers might be getting a little more disillusioned when it comes to what they're getting for their taxes. People will pay taxes quite happily as individuals if they think they're getting good service for what they're paying, but with marginal tax rates just about everywhere in Canada already up over 50% and often cutting in at quite low levels of income, I think it's reasonable to think that a lot of people are wondering whether they really are getting their money's worth.

Corporate income tax rates are quite high in Canada as well. It's not so much because we've been raising them, although in a couple of cases we've seen some discriminatory tax increases. When I say that, I mean picking sectors that seem politically unpopular at the time and going after them. We've seen some tax increases, but by and large, the problem we face in Canada is that other countries have been bringing their corporate tax rates down. It's hard to say how much of this is a difference in philosophical orientation. Corporations are legal fictions, after all. Ultimately, taxes are paid by people, whether it's the owners of the companies or the people who work for the companies or the people who buy from them.

In Canada, as other countries have been bringing their rates down, we've been getting less competitive. When I see investment rates much lower in Canada than they are in other OECD countries—especially, as I emphasized, the United States—I can't help but think that maybe they've gotten a bit ahead of us there. If they have a larger market and if incomes are rising faster so that it's more attractive to come into those markets, then it's a problem for Canada.

We can turn it around, but it would be nice to see us a little bit less focused on using taxes as weapons against, to use the phrase I heard earlier, “web giants”. Okay, maybe we don't love them, but let's think harder about whether our being irritated with a company is really the basis for tax measures, because with that type of thing, what goes around comes around.

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

Thank—

[William Robson]

It's quite logical for people in various lines of businesses in Canada to be saying, “Well, they hit the banks and the insurers last time, and now they're going after the Internet companies. I'm in groceries or something else. Maybe I'm next.” That's not a good atmosphere for investment.

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

Thank you very much, Mr. Robson.

I'm sorry. The chair was trying to give me the eye, but I appreciate your comments and your elevation of the discourse.

[The Chair, Liberal, Peter Fonseca]

All right.

As I said about MP Williams, we have another special guest here with us. We have MP Scarpaleggia, who's also the chair of the environment committee. I know he has a lot of questions for the witnesses here over the next six minutes.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

It's a pleasure to be here.

I'd like to focus on the productivity issue, Mr. Robson. To go goes back to basics, productivity is output per worker, and output is measured as price times the quantity of a particular good. Is that correct?

[William Robson]

Yes. What you're doing is looking at output, and you're trying to correct for prices—

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Right. If the oil price goes up and Canada pumps and exports more oil, but the number of workers in the oil patch stays the same, is the productivity of the sector determined to have gone up?

[William Robson]

That is a deep question, which you may have anticipated in asking it.

Income per worker will go up. The way productivity gets measured in the short run is it's an attempt to look at the inputs per unit of output in volume terms. Sometimes in the short run, when you get an increase in the price of something, you get a perverse-looking productivity effect. If it's in mining, for example—say, the oil sands—you're going to be digging more bitumen to get the resource out.

It's a bit complicated, but over time, if you look over a period of years and if you compare Canada to other OECD countries, it's very clear that productivity as it's conventionally measured is very tightly linked to living standards—

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Yes. I'll stop you there, because I don't have much time.

I guess what I'm trying to say is you could see productivity go up in the oil patch—forgetting about the price of oil—yet it's a mature industry, and that's not where the innovation of tomorrow is going to come from. Innovation is what drives productivity as well.

There's been an idea bandied about that the fuel charge, the price on carbon at the pump, is somehow harming our economic productivity. What do you think about that argument?

[William Robson]

Let me just say quickly that the investment comparisons actually favour Canada more in those resource industries. I highlighted machinery and equipment and intellectual property products as particularly bad, so—

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Mr. Robson, I'm asking you about the price on carbon.

[William Robson]

That's right.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Do you think the price on carbon, the fuel charge at the pump, is decreasing Canada's productivity problem? It's being made out to be the big culprit in this issue.