Finance Committee on May 7th, 2024

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

Thank you, Mr. Chair.

Good afternoon, Minister and Mr. Jovanovic. Thank you for being here.

There are four areas I'd like to discuss today, if I have time. However, I'm going to focus on just one topic during this round.

I'm talking about the part of the bill that regulates open banking. We understand that there will be a follow-up to Bill C‑69 in the fall to regulate consumer protection and other aspects. In this bill, though, you're laying the groundwork for open banking.

I am really concerned because the purpose of the proposed regulations is to ensure that everything is controlled by the federal government. However, you could have chosen to use the co‑operative model in the area of securities, where each province has equivalent standards and there is mutual acceptance among the provinces.

So I am concerned about the possibility of a two-tiered system. Banks in Toronto are under federal jurisdiction, but caisses populaires such as Desjardins, credit unions and financial institutions such as Alberta Treasury Branches Financial come under Quebec and provincial legislation. If those institutions want to enter the 21st century and participate in open banking, they must have the authorization of their province, which must then give up its right to legislate to the federal government.

It would be a concentration and a centralization of powers. In addition, based on what we have heard, the provinces were not consulted on this until very recently.

Why did you choose to do that?

[Chrystia Freeland, Liberal, University—Rosedale, ON]

Thank you for the question, which is concrete and specific.

I would like to begin by reassuring you that we respect the role of the provinces and territories in the financial system. We are not going to and do not want to impose anything. We understand the importance of working closely with the provinces and territories, and that is what we will be doing by moving forward with this system.

I would also like to take this opportunity to thank Quebec's Minister of Finance, Eric Girard, with whom I have an excellent relationship. Our entire team works in co‑operation with Quebec and all the provinces, but perhaps somewhat particularly with Quebec. This is an important issue, and we take it seriously.

I also take seriously the role of credit unions, which you mentioned. They are an important part of our financial system and we must always include them. There's another thing we need to think about: The world is moving forward, as you said, and it's important to have open banking in order to have a modern, productive economy in this country.

However, I really want to reassure you by telling you that, as we move forward with this, we will take very seriously the position, ideas and wishes of the provinces and territories, including those of Quebec, and that the role of the caisses populaires is very important to us.

I would like to make another point. Quebec investors, innovators and entrepreneurs already play a key role in the financial technology ecosystem. That group of entrepreneurs is among the most advanced in this system. In my conversations with entrepreneurs in Quebec, I am being told that it is important for our country to move forward because we already have the capacity to innovate in this sector.

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

Thank you for your answers and comments, as well as for your show of respect toward Quebec and the provinces, their areas of jurisdiction and institutions such as the caisses populaires Desjardins.

However, the choice put forward in Bill C‑69 is to stay in the 20th century or to move forward into the 21st century. However, if institutions under provincial jurisdiction want to move forward into the 21st century, the first step is to regulate open banking. Given the architecture of Bill C-69, that step goes through the province, which must voluntarily relinquish its jurisdiction and announce to institutions that the portion of their operations under open banking will be regulated by the federal government from now on.

Ultimately, it is worrisome to see that it's the province that would give up one of its areas of jurisdiction. In addition, institutions that would remain under provincial jurisdiction would have to double their legal services in order to comply with the requirements of the province on the one hand, and those of the federal government on the other hand, as a result of open banking. That would be a competition issue. Why would an institution want to remain under provincial jurisdiction if costs were higher?

So there is a real fear that the federal government will go for a power grab and could use its power over the banks to regulate all businesses that interact with them. In my opinion, what your government is trying to do with this bill is to squeeze out Quebec and the provinces in the world of finance. Based on the skeleton of the proposed system, that gives me some concerns.

In order to respect jurisdictions, could you not instead consider a system such as the one for securities, or a system such as Interac, where there is self-regulation?

[The Chair, Liberal, Peter Fonseca]

I'm sorry, MP Ste-Marie, but you're going to have to hold on to that. Ms. Freeland can answer that in another round, because we're way over time. I'm sure you'll also have an informal chat to speak to that issue.

MP Davies, go ahead, please.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Minister, for being with us today.

Minister, I know we have about a $40-billion deficit and that there are different ways of addressing deficits over time. We can cut expenditures, as I think the Conservatives would do, and there's growth in the economy, which I think everybody hopes for, and there's raising revenue in, hopefully, a fair and measured way.

Given that oil and gas extraction companies in Canada made a record $63 billion in profits in 2022 and that they are, I think, on track to come close to that in 2023, can you explain why your government has declined to impose an excess profits tax on the oil and gas sector, as it did for banks and insurance companies in 2022, which made significantly lower profits?

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

That's a very good question.

[Chrystia Freeland, Liberal, University—Rosedale, ON]

I'm going to start just with a little lighthearted commentary, okay? You guys have to forgive me, and I hope you will forgive me, because Mr. Davies and I have known each other for longer than anybody else in this room has known each other.

The question I want to start with is this: Who are you cheering for, the Oilers or the Canucks? It's a tough question. I was facing similar challenges in my own house, but the Leafs are out.

[Don Davies, NDP, Vancouver Kingsway, BC]

Given where my voters live, it's an easy one to answer—go, Canucks, go!

[Chrystia Freeland, Liberal, University—Rosedale, ON]

Okay.

Well then, one thing we are going to differ on is that my house is now cheering for the Oilers with a clear conscience.

[Don Davies, NDP, Vancouver Kingsway, BC]

As long as a Canadian team wins the Stanley Cup, I'm happy.

[Chrystia Freeland, Liberal, University—Rosedale, ON]

I think maybe the committee could have unanimous consent around that idea.

I'm sorry to take up that time. I just couldn't resist.

Our government does believe that part of a responsible and effective economic plan that delivers fairness for every generation means you have to make the investments that Canadians need. To do that in a fiscally responsible way, you have to raise revenue.

As you know—because I heard you talk about this in the House earlier this week—the main way to raise revenue in this budget is to increase the capital gains inclusion rate. That is the right thing to do. That really is a way to deliver fairness for every generation. I think that measure, appropriately, asks those who have benefited the most from everything that is great about Canada to contribute a little bit more for the next generation. I think it does that without hurting, and it does it in a way that maintains Canada's strength as an investment destination, Canada's economic strength and the ability of our economy to grow. That's why we chose that particular measure.

I have more to say, but I think you want to say something, so I had better shut up.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you. Maybe I can give you some more room on that. You may have anticipated a bit where I'm going to go, because another potential revenue item is corporate taxes generally.

I think I've put this to you before. In the United States, President Biden is proposing to increase the U.S. corporate income tax rate to 28% from the current 21%.

I know that it seems to be a key economic feature in Canada that we need to keep Canadian corporate taxes competitive relative to those in the United States, and I think we all accept that. Right now we're at 15%, and they're at 21%. If the U.S. is raising their corporate tax rate to 28%—another 7%—do you agree with me that it opens up room for us to have a measured increase in corporate tax rates in Canada that would help with revenue for the federal government while also keeping Canadian businesses competitive vis-à-vis the U.S.?

[Chrystia Freeland, Liberal, University—Rosedale, ON]

Mr. Davies, a thing I learned very early on in the NAFTA negotiations—and it became a rule that I set for myself—was to never make commitments based on a hypothetical, particularly when it comes to political events in the United States. However, I am going to make two general comments, because I think you raise an important issue.

Number one, I do think all of us need to be thoughtful about Canada's global competitiveness. At the Department of Finance, Mio is the head of tax policy, so he's in charge of all the harder stuff that the finance department does. The other finance people will be mad that I said that, but he has an internationally respected kind of engine that calculates METR, the marginal effective tax rate, comparing Canada to other economies.

We have a table for METR in the budget, and we look at that closely all the time to be sure we are competitive. It's a relative measure.

The second thing I'll say is that I do think that we, as people in western democracies, have been living through a period of a race to the bottom when it comes to taxation. You've seen in every single country a real corporate push to drive rates down and to tell citizens that they have to accept this because otherwise the capital will move to another jurisdiction. That's why I think the OECD two-pillar process is so important in trying to put a floor on that. I do think that this kind of collective action helps us as western democracies to maintain the revenue base that we need to make the investments that, in our case, Canadians need.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thanks.

Mr. Chair, do I have some time?

[The Chair, Liberal, Peter Fonseca]

You do, for a really quick question and answer.

[Don Davies, NDP, Vancouver Kingsway, BC]

On the Canada disability benefit, you know that 1.4 million Canadians are living in poverty. You promised that your proposal would help lift about 600,000 people out of poverty, but it's only $200 a month.

Minister, are you willing to increase that amount in this budget, and are you willing to look at the eligibility criteria so that every Canadian living with a disability and living in poverty in this country will actually be lifted out of poverty?

[Chrystia Freeland, Liberal, University—Rosedale, ON]

You know, Mr. Davies, that it's a very significant investment in the budget right now. It's a big deal that as a country, for the first time, we're putting a benefit in place.

Our government and I personally certainly share your aspiration that this needs to be just a first step and that we need to go further. I do think it's important to take it step by step and to carefully get the system in place. Something I think we need to be thoughtful about is to ensure that additional federal spending actually goes to the people who need it and doesn't get lost through clawbacks of various kinds, and I think acting in a step-by-step way is the best way to ensure that.

[The Chair, Liberal, Peter Fonseca]

Thank you, Minister.

Thank you, MP Davies.

Members, we are moving into our second round. This will be our final round, and I am going to have to hold pretty tightly to the timeline so that we can get through it.

We're starting with MP Lawrence for five minutes. Go ahead, please.

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

Thank you, Minister, for appearing before the committee today.

Minister, I have a simple, straightforward question for you: Which country in the G7 has had the worst per-person income drop in the last five years?

[Chrystia Freeland, Liberal, University—Rosedale, ON]

It's very good to see you, Mr. Lawrence.

I think I can see the direction you're wanting to travel in, and so let me reassure you by pointing out that in the last quarter of 2023, Canada had a healthy move in GDP. The first quarter of this year shows strong GDP growth—2.5%—and we're seeing that reflected in the productivity numbers too.

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

Thank you, Minister.

What was the per capita GDP growth in Q4?

[Chrystia Freeland, Liberal, University—Rosedale, ON]

As I said, I can see the direction you're going. That's why I will take this opportunity to highlight good, solid GDP numbers in Q4 of 2023 and really good GDP numbers in the first quarter of this year. In terms of productivity and per capita GDP, I think the outlook for this year is really quite positive.

To take one project alone, the Trans Mountain pipeline, the Governor of the Bank of Canada estimates that it's going to add 0.25% to GDP growth in the second quarter of this year alone.

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

Thank you.

[Chrystia Freeland, Liberal, University—Rosedale, ON]

Stephen Poloz thinks it's going to be 0.5%, and that will translate into the per capita numbers.

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

Thank you.

I'm glad you're a fan of oil and gas there. That's good to hear.

I want to get back to my original question: Which country had the worst per-person income drop in the G7 over the last five years?