Finance Committee on Sept. 17th, 2024

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Davies.

Members and witnesses, we're moving into our second round of questions. The times will be a little different.

We're starting with MP Morantz for five minutes.

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

Thank you, Mr. Chair.

Mr. Lubberts, I want to start with you. I found your testimony very compelling. One thing that's clear to me is that although the Liberals and the NDP claim to care about building more affordable housing, they couldn't care less about it. If they really cared about it, they would adjust the tax system to encourage companies like yours to build more affordable housing. Instead, what they've done is the exact opposite. Would you agree?

[Matt Lubberts]

To some extent, yes, I think there are a lot of problems at a few different levels of government. I don't think there has been enough investment at all from the federal government into the affordable housing areas.

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

According to your testimony, increasing the capital gains tax makes it worse. Is that correct?

[Matt Lubberts]

It does. Yeah, that's correct.

I can give you an example. There are some developers I work with, and they build large, high-rise apartment buildings. Their profit margins are around 3% to 5%, so they're taking high risk on very low margins of profit when they view the performance. When they see municipal taxes, development charges or capital gains tax go up, all of these go into their margins on their performance, and when they reduce beyond the risk level that's acceptable by any investor, they have to back out of these projects.

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

They said that this tax will affect only 0.13% of Canadians, but the reality is, it doesn't just affect suits, it affects boots on the ground on these construction projects that are being shelved—

[Matt Lubberts]

That's correct.

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

—so the very people they claim to try and help, again, they really couldn't care less about. If they cared about them, they wouldn't bring in tax changes that would actually hurt people. For example, in the “about us” section of your website, it says you build affordable housing for indigenous people. According to your testimony, that increase means less affordable housing for indigenous people. Is that correct?

[Matt Lubberts]

Yes, the—

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

It says also that you build low-income housing for people with mental health or addiction issues. Based on this tax increase, that means less affordable housing for those people, too. Is that right?

[Matt Lubberts]

Yes, that's correct. With the developer—

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

Just to go on, recent immigrants, the working poor, veterans and racialized groups are being penalized because of the increase in the capital gains tax, because it will cause great companies like yours to build less affordable housing. Is that correct?

[Matt Lubberts]

That's correct.

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

Thank you, Mr. Chair. Those are my questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

Now we'll move to MP Dzerowicz for five minutes.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to say hello to all members. A warm welcome to Mr. Kelly and Mr. Berthold. Welcome to the committee today.

I want to thank all the presenters for their excellent presentations. I found them all very interesting.

Mr. Lee, I very much appreciated you starting off, giving sort of your five key points about why you very much support the capital gains tax inclusion rate change.

I'd also add that—I think you alluded to it, but I just wanted to reinforce it—there's very much a value beneath why it is that we actually decreased the capital gains tax. It's because we're trying to reduce inequality, and we want to try to make sure that we are actually giving more money to the younger generation and taking from the older, wealthier Canadians and those with better income. I think you very much have articulated that well.

In answer to some questions, Mr. Lubberts said the capital gains tax would stop housing investment and there would be some correspondingly fewer jobs for Canadians. How would you respond to that, Mr. Lee?

[Marc Lee]

As I said, yes, there are a number of reasons for investment in housing. The main slowdown we're seeing right now in terms of housing investment is largely due to higher interest rates.

These are the big, macro factors that are driving housing investment.

One of the challenges they're facing around housing here where I live, in Vancouver and in British Columbia more broadly, is just simply the cost of building housing. It's a lot: When you have to buy land and you have to pay for construction, interest rates and other fees, just to break even on a rental property is about $2,000 a month. That's without any profit at all.

If we're trying to rely on the for-profit housing development sector to build affordable housing for us, it's just not really possible, simply because of the math of the cost of construction, so we've been emphasizing much more that we need a generational build of non-market housing, which can be built at lower break-even rents for rental properties, because you're taking developer profits out of the equation and you don't have to worry about this funny calculus about whether developers think that having to pay slightly more tax on various capital gains way down the road will affect the decision-making. You're directly building the housing that is needed by Canadians.

I think that's kind of a better way of looking at this. I mean, I've been looking at housing as an issue for eight years. I've published a lot. We have a big report coming out tomorrow with recommendations for local, provincial and federal governments around next steps for next-generation housing policies, and the capital gains inclusion rate has never come up.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay. I very much appreciate that. That was a very appreciated answer.

I also appreciate your comments about more non-profit housing. I'm very much a big proponent of that.

The next question I have is this. I know that some professionals incorporate to get tax and liability benefits, whether it's your doctors or plumbers or other professionals. There have been criticisms that we're essentially killing working-class jobs or hindering entire sectors as a result of the inclusion rate tax change. What would be your response to this criticism?

[Marc Lee]

I think the specific change in mind in the 2024 budget is so very narrowly targeted that it's hard to see the types of impacts that you're talking about, particularly when a lot of the capital gains we're talking about are speculative forms of investment. They're not actually doing a whole lot to create jobs in the Canadian economy.

If we do want a fiscal framework that is more supportive of investment in terms of various subsidies or other things, there are other things we can do, like investment tax credits more specifically targeted, and you get the benefit of those only if those investments are made. To try to have all of that hang on capital gains inclusion rates seems to me to be very wrong-headed.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Dzerowicz.

Now we'll go back to MP Ste-Marie.

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

Thank you, Mr. Chair.

I will address Mr. Duceppe and Mr. Bélanger.

Did you have time to look at the part on proposed changes that would apply to businesses?

Do you have any comments to make about the concerns expressed by the Fédération des chambres de commerce du Québec, or FCCQ, or on what other witnesses have said so far?

[Yvan Duceppe]

I will let Mr. Bélanger answer your questions.

However, I just want to say that before, when the capital gains inclusion rate was at 50%, it did not prove to be the solution for creating more investment in Canada. Many other factors came into play.

[François Bélanger, Advisor, Economist, Research and Status of Women, Confédération des syndicats nationaux]

At the Confédération des syndicats nationaux, or CSN, we leaned a little on Jim Stanford's analysis from the Centre for Future Work. His analysis was based on the Canadian government's 2021 financial data, as well as a great deal of data from Statistics Canada.

One of the interesting things that emerged from this analysis was that capital gains primarily occurred in two very specific economic sectors: the financial sector, specifically through financial intermediation, which represents 35% of capital gains in Canada. So, the questions—

[The Chair, Liberal, Peter Fonseca]

I apologize for interjecting, but we need you to move the boom on your microphone up to between your nose and your mouth. That's good.