Finance Committee on April 11th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 137 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of Monday, March 18, 2024, and the motion adopted on Monday, December 11, 2023, the committee is meeting to discuss Bill C-59, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023.

Today's meeting is taking place in a hybrid format, pursuant to Standing Order 15.1. Members are attending in person in the room and remotely using the Zoom application.

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

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 all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on, to prevent incidents and safeguard the hearing health of the 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.

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

All virtual witnesses for this meeting have been tested, and everybody is ready to go.

With us today, as we start our afternoon panels, from the Council of Canadian Innovators, we have Laurent Carbonneau, director of policy and research, and Nicholas Schiavo, director of federal affairs.

From the Daily Bread Food Bank, we have Neil Hetherington, chief executive officer.

From the Laurentian University Faculty Association, we have Fabrice Colin, president, and Linda St-Pierre, executive director and chief steward.

From the Union des municipalités du Québec, we have Martin Damphousse, president and mayor of Varennes, and Samuel Roy, strategic policy adviser. They are with us via video conference.

Welcome to all.

With that, we are going to start with opening remarks of up to five minutes.

We will start with the Council of Canadian Innovators.

Go ahead, Mr. Schiavo.

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

Thank you.

Good afternoon to the chair, the vice-chairs and members of the Standing Committee on Finance. Thank you for the opportunity to present today on Bill C-59 and the efforts to implement budget 2023 and the corresponding fall economic statement.

My name is Nick Schiavo, and I am the director of federal affairs for the Council of Canadian Innovators, or CCI. I am joined by my colleague Laurent Carbonneau, director of policy and research.

CCI is a national business council representing 150 of Canada's fastest-growing companies. Our member companies are headquartered here in Canada, 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.

There is no denying the tough economic position Canada finds itself in today. For years we've heard about this precarious position, often referred to as the great Canadian slump, as the lost decade or even most recently, by the senior deputy governor of the Bank of Canada, as a productivity “emergency”. Regardless of the choice of words, the warnings are clear: Canada is facing a rising cost of living, stagnating growth and declining productivity. Taken together, these factors are having a negative impact on our GDP per capita and, by extension, the quality of life that Canadians expect.

Currently this stagnation is predicted to make Canada the worst-performing economy in the OECD from 2030 to 2060. Taken together with a variety of structural challenges facing our country, such as climate change, war and cyberwarfare, health care issues and a lack of competition, the status quo is simply not working. Canada needs to chart a new path forward for sustained growth and prosperity rooted in a strong innovation economy.

Looking back to budget 2023 and the fall economic statement and, more importantly, looking ahead to budget 2024 and beyond, Canada must develop and implement a smart industrial strategy that builds wealth, enhances productivity and aligns with our other strategic priorities. At the heart of this strategic lens must be industry-led reforms to Canada's research and development frameworks and procurement mechanisms at all levels of government, alongside other important innovation levers, including a patent box regime.

In the spirit of the government's central theme of budget 2023 to build a stronger, more sustainable and more secure Canadian economy for everyone, today I'd like to speak to two opportunities to do exactly that.

First is enhancing the scientific research and experimental development tax credit to maximize the full benefits of R and D performed in our country, and second is reforming Canada's outdated procurement processes to spur economic growth and better service delivery for Canadians.

CCI has spent months engaging with Canadian innovators and the tech ecosystem to develop comprehensive research reports to enhance both SR and ED and procurement in Canada. These timely reports are tabled for the committee alongside these opening remarks.

Canada's scientific research and experimental development tax credit, or SR and ED, is the single largest science and innovation policy lever in the federal government's tool kit. For over five years, CCI has called on the government to update this critical innovation program, and we are pleased to see the ongoing consultation at this time. With an expected budget of nearly $4 billion in 2024, it is 10 times larger than any other science and innovation policy tool. Now more than ever, in a constrained fiscal environment, the government should be seeking to maximize the long-term benefits of SR and ED for the national economy.

Unfortunately, despite the long history of SR and ED dating back to the 1940s and other research tax incentives, gross expenditure on research and development and business enterprise R and D, also known as BERD, is low in Canada by the standards of other advanced economies. In 2020, Canada's BERD was the second lowest in the G7 after Italy, despite having more generous tax support for business R and D than all but the U.K. and France. Canadian firms also make less use of intangible assets compared to global firms. For context, intangible assets like intellectual property make up 70% of the value of firms listed on the TSX and over 90% on the S&P 500.

As such, Canada should incentivize early investment in IP development and protection so that firms maintain the ability to export into large markets. This is referred to as the freedom to operate, and it is critical for companies looking to scale, export, compete globally and ensure strong economic growth for the Canadian economy.

Additionally, SR and ED needs more transparency. The net benefits of the program to Canada should be made public on an ongoing basis so that Canadians understand what SR and ED is doing for their economy. Wherever possible, more of the benefits should flow directly to firms performing innovative activities and less to intermediaries such as tax preparation consultants by simplifying administration.

Similarly, the current culture of government procurement, both federally and provincially, is not serving the Canadian economy and is not serving government's own purposes. In fact, in 2021, procurement amounted to 14.6% of Canada's GDP, translating into billions of dollars and a meaningful force that shapes our economy. Canadian governments especially struggle to buy innovative, novel products and services, which does little to help Canada’s other innovation problems.

There is no single solution to improving our performance in government technology procurement. However, the government should begin by tackling the big problems—excessive risk aversion, processes that don’t allow for iterative innovation, low capacity and expertise and a lack of pathways from procurement to the market—and use a variety of tools to address them in tandem.

Ultimately, governments across Canada need to build a culture where an empowered public service can find novel solutions to the problems they face, where innovators are confident that selling innovative products and services to government will be worth their time and will help grow their business and where the public ultimately benefits from more agile, solutions-oriented government.

Thank you. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Schiavo.

Next we're going to Mr. Hetherington of the Daily Bread Food Bank for five minutes.

[Neil Hetherington, Chief Executive Officer, Daily Bread Food Bank]

Good afternoon.

I have the awesome privilege of being the CEO of the Daily Bread Food Bank. We are Toronto's primary food bank, and we have a clear vision that one day every Canadian's right to food will be realized.

I am grateful to have the opportunity to share with you what we are seeing on the ground and to share with you why, as policy-makers, you should be gravely concerned about the state of food insecurity in Canada now and in the coming months.

Before the pandemic, we saw about 65,000 client visits per month. This was problematic. The pandemic doubled that to a crisis level of 120,000 client visits per month. Then inflation took hold, and in February 2023 it was 215,000. Finally, this past February, we were horrified that there were 301,000 client visits in Toronto alone. I do not have the words to describe the state that we currently face.

The national numbers are also concerning, as they show 30% year-over-year growth, and there was 40% growth in Ontario this past year. The trend cannot continue, but it is. Where we used to see 2,000 individuals in Toronto each month make use of a food bank for the first time, we are now seeing 13,000 people every single month coming to a food bank for the first time.

The underlying reasons for this are complex, but I can summarize them in one sentence: People do not have enough income to afford the most basic costs of living, and this at a time when unemployment continues to be low. This should be worrying to you. In the past, food bank usage was always correlated to unemployment, but that's no longer the case. As a result, I have a lot of grey hair from thinking about what will happen if unemployment begins to rise.

For those interested in reducing the numbers, here are three policy buckets for your consideration.

The first is providing assistance to those on disability benefits. If you take nothing else from my testimony today, please consider the challenge of my friend Bobby Giles. Bobby, like one in five food bank clients, derives his income from disability benefits. He receives about $1,300 a month to survive on, which is a full $1,000 below the poverty line. Bobby’s reality is common not just in Ontario but nationally too. Indeed, there are over one million Canadians who rely on disability benefits, and we as a nation legislate each one of them, like Bobby, to live in deep poverty.

We at the Daily Bread Food Bank have been part of a coalition of dozens of organizations from coast to coast to coast that have said that enough is enough. It is time to fully fund the all-party-supported Canada disability benefit on Tuesday, April 16.

Disability Without Poverty recently released an Angus Reid poll that found 91% of Canadians across all party lines support this benefit. Why is there unanimous support for the Canada disability benefit? It is because it aligns with our values as Canadians, because we know we can no longer outsource food insecurity to charity, because we know that targeted benefits are effective and because we know that not addressing poverty costs more. Indeed, poverty is estimated to cost some $30 billion in Ontario annually.

The second policy bucket I want to speak about is affordable housing. Of clients at food banks, 70% are paying more than half of their income for housing, putting them at high risk of homelessness. Almost one in five food bank clients is putting 100% of their income towards housing, leaving absolutely nothing for food and other expenses. The fall economic statement and recent announcements present opportunities for investments that recognize and seek to remedy the challenges we are all facing nationally when it comes to housing. We applaud these efforts.

The third and final policy bucket is providing support for employed Canadians who cannot make ends meet. We at the food bank are seeing a rise in the number of people with employment as their primary income source. In fact, food bank usage among this segment doubled this past year from 15% to 33%. Within that group are people who generally have precarious employment in temporary or contract roles, low wages and few or no benefits. The government announced a process to reform EI, but we have not yet seen the outcomes. As a result, thousands of Canadians continue to not qualify, because the program does not reflect the modern reality of work, which includes gig work and self-employment.

In summary, solving poverty is complex. However, the good news is that we know what will work. Targeted benefits like the Canada child benefit and the guaranteed income supplement have had significant impacts and have reduced the severity of food insecurity. We have it within our power as a nation to eliminate poverty and food insecurity among Canadians with disabilities through the Canada disability benefit.

I implore you to seize this opportunity. Until food bank usage begins to subside, we will be there for everybody who needs it. I also implore you to think about these three policy buckets as you consider the financial distribution and resource allocations ahead of you.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Hetherington.

Now we'll go to Laurentian University Faculty Association. We have Mr. Colin and Ms. St-Pierre.

I believe you're going to be splitting your time.

[Fabrice Colin, President, Laurentian University Faculty Association]

Thank you, Mr. Chair.

Members of the committee, thank you for the opportunity to speak with you today. I'm joined by my colleague Linda St‑Pierre, and we represent the Laurentian University Faculty Association, or LUFA.

Laurentian University is located in Sudbury, Ontario. The LUFA union represents over 500 academic staff. Tomorrow marks exactly three years since one dark Monday in April 2021, when nearly 200 people lost their jobs and 69 programs were cut, including nearly 30 French‑language programs. In February 2021, Laurentian University became the first publicly funded university to file for protection under the Companies' Creditors Arrangement Act. The impact on students, workers and the community has been profound and devastating. Among other things, the cuts affected the indigenous studies program as well as the only bilingual midwifery program in the country. The disruption was felt throughout northern Ontario, which obviously relies heavily on the university. Francophone and indigenous communities have been disproportionately affected.

The Auditor General of Ontario found that this use of the Companies' Creditors Arrangement Act was unnecessary, inappropriate, costly and destructive. This recourse was strategically planned by the administration, on the advice of an outside law firm, in order to circumvent the provisions of the collective agreement reached with the teachers' union. As a result, a piece of federal legislation was used to circumvent obligations under labour relations legislation.

If any job loss is devastating, recourse to the Companies' Creditors Arrangement Act has resulted in our members losing the additional protections and benefits to which they were entitled. The university used the courts to its advantage to protect itself, at the expense of students, workers and public education. One of our colleagues lost her job when she was nine months pregnant. Even worse, she was not entitled to maternity leave and the related benefits that her family was depending on. Many others have not only lost their jobs, but also their severance pay and group health insurance. Our students found themselves unable to complete their studies and their post‑graduate research projects. In addition, their future prospects have been turned upside down.

[Linda St-Pierre, Executive Director and Chief Steward, Laurentian University Faculty Association]

The CCAA is designed as a remedy for commercial companies, not for our public universities. The public good that universities offer is undermined by an insolvency law designed for private companies that put the interest of big creditors ahead of the mission of our universities.

When Laurentian University filed for protection under the CCAA, it meant that decisions on what happened at a public university supported by taxpayer dollars were made based on a balance sheet and not what is best for students or public education and research.

Post-secondary institutions have commercial elements, but they are not governed by the market interest alone—or even primarily. They meet a variety of socio-economic considerations, such as linguistic and cultural diversity, and regional and equity development. Unless public post-secondary education institutions are removed from being under the CCAA, they are at risk of being defined solely by commercial interests, which is the opposite of what they should be.

In the case of Laurentian University, the use of the CCAA also meant additional costs for a public institution. The process is needlessly expensive compared to the normal financial exigency option, where universities work collaboratively with the provincial government and the faculty association in times of true financial stress.

The Auditor General's report highlighted that Laurentian University administration spent tens of millions of dollars on lawyers and consultants to work through the CCAA process. Instead of using university funds—which come largely from government grants and student tuition fees—to save education programs and mitigate the damage of their financial situation, they went to lawyers and consultants.

Division 7 of Bill C-59 changes the definition of “corporation” and “company” in the CCAA and the Bankruptcy and Insolvency Act to exclude post-secondary education institutions. We were happy to see this included in Bill C-59. This is an essential step to making sure that what happened at Laurentian doesn't happen at another public institution. It creates a more secure future for post-secondary education.

I urge the committee to support this section of the legislation, particularly in light of the harsh lessons learned from Laurentian University.

Marsi. Meegwetch. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we will hear from Monsieur Damphousse from the Union des municipalités du Québec.

[Martin Damphousse, President, Union des municipalités du Québec, and Mayor of Varennes]

Thank you very much, Mr. Chair.

Ladies and gentlemen of the committee, I'd like to thank you for giving us the opportunity today to share our comments on important issues such as infrastructure, housing and transportation. With me today is Samuel Roy, strategic policy advisor at the Union des municipalités du Québec, whose members represent over 85% of Quebec's population and territory.

First, we would like to address the urgent need for action to ensure that the funds earmarked for the Canada community‑building fund are paid out. These amounts are essential to funding municipal infrastructure through the gas tax and Quebec's contribution program.

In Quebec, our infrastructure is aging and in urgent need of attention. We are facing a $45 billion deficit to maintain municipal water infrastructure assets. This figure doesn't take into account the additional costs required to extend pipes, increase the capacity of our infrastructure or adapt it to climate change. At present, infrastructure is at maximum capacity in many areas, slowing down or completely halting the construction of new housing units. In the context of a housing crisis, we can't collectively afford to put our infrastructure rehabilitation projects on hold.

As the construction season gets under way, it's vital that these funds be released without delay, without getting bogged down in major program revisions, and without adding new conditions. We're still waiting on an agreement between the federal government and the Government of Quebec. We reiterate that urgent action is needed.

On the housing front, faced with a 32% drop in housing starts and a vacancy rate of just 1.3% in 2023, it's crucial that Quebec benefit equitably from federal investments. The flexibility and agility of federal programs, their alignment with Quebec programs and the speed of an agreement with Quebec for the transfer of funds are key elements that will enable Quebec municipalities to play their full role in the fight in combatting the housing crisis. In addition, adding conditions related to housing types and urban planning bylaws is not desirable. Municipalities are, and continue to be, best placed to plan their land use according to the specific characteristics of each community. One size does not fit all.

It's also crucial to provide substantial, predictable and sustainable funding for housing for people experiencing homelessness, whose numbers increased by 44% in Quebec between 2018 and 2022. The federal reaching home program, which has funded various projects to combat homelessness in 16 regions of Quebec, must be maintained and enhanced.

Now I'd like to say a few words about transportation. The vitality and economic development of all the regions depend on an adequate public transit supply. To enable the development of our communities, Quebec municipalities want transportation to become a national priority. To promote the development of our communities, Quebec municipalities are calling on the federal government to provide financial support to municipalities so that they can maintain their infrastructure and invest in modern and efficient public transit services.

Thank you for your attention.

[The Chair, Liberal, Peter Fonseca]

Thank you. We appreciate all the witnesses' opening remarks.

To members and witnesses, we have limited time and have a number of panels still today, so there will be only one round of questions. Each party will have up to about seven or eight minutes to ask questions in that one round. You can share your time among yourselves if you want to.

I had MP Perkins on my list but I don't see him here, so I'm going to MP Morantz to begin.

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

Thank you, Mr. Chair.

Mr. Hetherington, I'll start with you.

It's certainly a very dire picture that you're painting of the situation, particularly in Toronto. I recall that you and I spoke in this committee last year, and the situation was dire then, but this sounds even worse.

In the policy suggestions you made, you didn't touch on the economy itself. We've been hearing testimony on that today. We know, for example, the senior deputy bank governor, Carolyn Rogers, said last week that Canada is in a productivity emergency and that “it's time to break the glass”. We've heard testimony that per capita GDP is now at 2018 levels. The OECD says that Canada is forecast to have the worst economic growth in the OECD until 2060.

Since 2015, the federal government has doubled the national debt from roughly $600 billion to $1.2 trillion, yet we have these terrible fiscal results. To me, that's tantamount to economic malpractice.

I'm just wondering if you lay any of the blame for this problem—seeing 300,000 people in February 2024 compared to just 65,000 people just before the pandemic—on the economic mismanagement by the Liberal government.

[Neil Hetherington]

Obviously, as a charity, we are non-partisan, so I won't be able to comment on that. I will say that it should be alarming that unemployment is as low as it is and we find ourselves in the state we do. That is troubling to me.

As we look towards the upcoming budget, I think we need to focus on who is most vulnerable to the acute shocks that we've had to the system. There are the declines that you've mentioned in productivity and per capita portions of GDP. These are all important factors, but if we look to who is most vulnerable and who is most challenged by them, I think we need only turn to those on fixed incomes. For that, I think we need to look at what the cost of poverty is. It's extraordinary what the cost is, and if you want to reduce that cost, you need to address it upstream. That would include the Canada disability benefit.

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

It's fair enough that you want to be non-partisan, but you did make policy suggestions, none of which were focused on improving economic performance in Canada. I'm just wondering why you wouldn't make policy suggestions that would improve Canada's productivity, because it seems to me that's the biggest thing that could happen. It's the old saying that the best social program out there is a job.

You're obviously saying there are a lot of serious problems. I note that in the interview you gave last November, you talked about first-time users. Last year when we spoke, I think you said that double-income families are now utilizing the food bank's services. This is the number that really blew me away: one in 10 Torontonians is availing themselves of food bank services. Surely some policy around economic performance directed at the government and this budget is in order, is it not?

[Neil Hetherington]

I don't think it's either-or. Yes, of course we need a strong economy, but what do we need in order to make that happen? We need to make sure that each of the levers the government holds is being appropriately used in both fiscal and monetary policies.

We have seen a positive result when it comes to driving down food prices. The inflationary impact on food has started to subside, and that is positive. I am with you when it comes to making sure that we have decent employment across the country, and we have low unemployment numbers. The question, which was addressed in my testimony, is this: Is that employment enough so that somebody can thrive in the community? Currently, the answer is no.

How do you set up a system where somebody working full time is able to ensure they have all the basics? I think part of that is making sure that for this demographic, there is decent, affordable housing and there are transferable benefits. These types of policies allow for a strong economy to thrive.

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

Don't you think policies directed at economic performance would provide the best result would reduce the numbers you're seeing? As I said, we've seen literally a doubling of the national debt, with nothing to show for it.

You spoke about some fairly substantive policy initiatives in your opening statement, but why is there nothing directed at increasing productivity? We have a situation where our productivity is declining. The United States is booming. We're not seeing the kind of thing that's happening in the United States happening in Canada.

You've used words in your public statements like this situation is “obscene” and “beyond the pale”. You've said everything except it's time to break the glass. Maybe this is your opportunity. I too share your concerns.

[Neil Hetherington]

Let me use this opportunity to be very clear. It's not either-or. We need to have strong economic conditions, with both fiscal and monetary policies that drive our economy so that everybody who is able can have a position that allows them to thrive.

At the same time, we need to make sure that there are restraints in play that ensure everybody thrives within that economic boom. That includes the most vulnerable. Specifically, I would like to make sure that those who are unable to derive their income from employment—those currently on disability benefits—are able to access the basic funds they need.

I want to be very clear. It's not either-or. I'm with you. I want to make sure that we have a healthy, thriving and productive economy. At the same time, I want to make sure that nobody is left out of that.

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

That's fair enough.

Mr. Schiavo, I have a similar line of questioning for you.

In Canada, we have what is really tantamount to economic malpractice. There's a doubling of the national debt, and our debt-to-GDP ratio is hovering around 50%. It was around 30% before the pandemic. The Parliamentary Budget Officer came out with a report saying that roughly $200 billion spent during the pandemic, including on things like the arrive scam app, had nothing to do with the problem.

I'm wondering what substantive policy suggestions you have for this government in order to enhance our productivity, because it seems to me that a thriving economy would go a long way toward solving a lot of these problems.

[The Chair, Liberal, Peter Fonseca]

This will be the final question. You can answer, and then we'll move on to the next member.

[Nicholas Schiavo]

Sure.

I appreciate the seriousness of your question, and I would agree that with productivity on the decline, now is the time to sound the alarm.

I also appreciate your focus on solutions. For us, it's really important that we have a strong R and D framework in our country for our fastest-growing companies, which are investing not only in research but, most importantly, in commercialization and how they turn that research into economic growth for Canadians.

I also think, and you alluded to this, that procurement as it currently stands is not working for Canadians and is not working for governments. We're not seeing the economic boost that we could be seeing, while other advanced economies are from their procurement systems. Moving toward a more agile, more modern form of procurement would do wonders for productivity and the economy as a whole.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

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

Thank you.

[The Chair, Liberal, Peter Fonseca]

Now we're going to MP Thompson.

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

Thank you. I will share my time.

I'd like to begin with the Laurentian University Faculty Association. I'm not sure which one of you would like to answer, or if you'll both want to come in on this.

Certainly, changes in the bill have been a long time coming, and you know this from your difficult experiences in 2021. Ontario's Auditor General said there was a strong argument that the CCAA is an inappropriate and perhaps damaging remedy for public entities. Bill C-59 moves in the same vein.

How do you see the provisions in the bill protecting institutions like yours in the future and promoting alternative ways of dealing with financial challenges?

[Fabrice Colin]

There are already tools in place to deal with critical financial situations, an emergency plan is already in place in virtually every collective agreement across the country to manage these critical financial situations so that the university's mission, rather than commercial interests, remains the primary concern, which is paramount. This changes a lot of things in that, for example, cuts in all other sectors have to be considered before cuts in the university sector. If cuts in the university sector become necessary, they will be painful and will result in the closure of programs or departments, of course, but they will be made in a way that respects the rights that have been negotiated in collective agreements.

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

Thank you.

I'm going to ask Mr. Hetherington one more question before I pass this over.

Thank you for your opening comments. I happen to agree that government is able to have strong fiscal policy and at the same time ensure that there's strong social policy so that no one is left behind.

With that in mind, could you speak to the significance of the school lunch program and its potential to impact child food insecurity?