Yes.
Evidence of meeting #153 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was changes.
A video is available from Parliament.
Evidence of meeting #153 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was changes.
A video is available from Parliament.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Chair.
It's great to be here this afternoon, colleagues.
To the witnesses, I'd like to speak to the individual from my alma mater, Simon Fraser University. That's where I did my undergrad degree in economics. Is that individual still there?
Adjunct Professor of Health Policy, Simon Fraser University, As an Individual
Yes, I'm here.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Good afternoon, Mr. Lewis, at Burnaby Mountain. It's a lovely part of this beautiful country that we live in.
Mr. Lewis, we know that a tax system is designed to raise revenue to pay for services that Canadians need, be it their health care, education for their kids, roads, running various government departments, old age security and so forth.
We also know we want to design a tax system with few inefficiencies, with as much neutrality as possible, with this concept called integration and in which we avoid such practices as surplus stripping for tax avoidance strategies that some corporations and individuals can currently take advantage of to lower their tax bills, which I don't think is efficient or fair. We want a tax system that does not result in, as you point out, extreme wealth inequality. That's something we need to look at.
We have a progressive tax system, but we also have a tax system right now where there's a differential in the tax rates between dividends, interest and capital gains. We have moved to put more integration in the tax system.
I'm going back to your comments on health care because I truly believe our doctors and professionals should not really be depending on our tax system to create wealth for themselves. They should be depending on their salaries. They should be compensated fairly for that.
There was the debate on passive and active income, and there is now the debate on capital gains. At the provincial level, we need to understand that our doctors need to be paid more. I think in the province of British Columbia they are going down that route. The compensation system needs to change because we shouldn't even be having that argument or conversation about how we pay our doctors. We need to pay them well. They're very important, but they should not have to depend on generating capital gains within their corporation for their livelihood.
Would you not agree with that, sir?
Adjunct Professor of Health Policy, Simon Fraser University, As an Individual
In general, yes. If you have a problem with how much people are paid in a public utility, essentially, like health care, then first of all, verify if it's the case. If it's the case, pay them more and see if it has the desired impact.
On the more general principle, governments have to decide how much revenue they need. That's obviously a fungible proposition, and people can debate it—that's fair enough—but then who do you get it from?
To me, this debate is actually a little bit simpler than all of the arcane arguments about incentives and so on. If we need more revenues, either to balance the books or to fund programs people want and the government in power wants to pursue, you have to decide who you get it from. This gets a little bit more from the people who have more. From a health perspective, equity is better. Equity means better health status and probably, in the long run, reduces demand on the health care system.
I doubt you will find many population health researchers—or anybody who is concerned about health status and the productivity that's associated with people who have poor health status and all of those other things—who don't point to examples around the world where less equal societies, both in terms of income and wealth concentration, aren't healthier. They are healthier.
I'm a health policy person. I've been in the health field all of my life. As you say, I'm also an entrepreneur who uses the tax system in all of the ridiculous ways the tax system creates incentives for me to use it. I have gotten richer because of the capital gains tax as it was before, the treatment of dividends and the ability to smooth out my income, etc.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I know my time is short.
As an economist and someone who did his degree at Simon Fraser, before going to U of T, I concur with your thoughts. Our goal is to raise the standard of living for all Canadians, create wealth and create jobs, but also not create wealth inequality while we're doing that. That's the last thing we should be doing.
The capital gains effective tax rate is at 25% right now. Literally, people selling stock or a piece of land that they've owned for a long time do very well, especially when the government has put in infrastructure around that land. Think about this. The taxpayers fund all the infrastructure around a piece of land. The person who has owned the land for many years now benefits, because the value of the land has increased exponentially, while the cost of making that value increase was borne by the taxpayers of Canada or by a region.
We have many instances of that in the GTA. The person then sells the land and benefits handsomely. There's nothing wrong with that individual paying and providing a little bit more, so we can provide such programs as the Canadian dental care plan, the Canada child benefit and an early learning and national day care plan.
I look forward to having that debate in the weeks and months ahead.
Thank you.
Liberal
The Chair Liberal Peter Fonseca
Thank you for that, MP Sorbara.
We'll now go to MP Ste-Marie, please.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
My question is for Mr. Giroux.
Critics of the inclusion rate proposal often say that it will discourage business investment and, by extension, productivity.
Is that something you've considered? Do you have any information to share with us in that regard?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Generally speaking, the more something is subject to taxation, the less of it we have. This is the case when it comes to increasing the capital gains inclusion rate. We haven't done a specific analysis of the impact it would have on investment and productivity. However, as I mentioned, when something is subject to taxation, people tend to provide a little less of it, so presumably this measure would have a negative impact on investment.
However, there are measures that have the opposite effect. One example is the Canadian entrepreneur incentive, through which the portion of capital gains that will be exempt will increase by $200,000 a year until 2035, I believe.
The proposed measure therefore contains a number of things. It could be felt that some elements will reduce investment incentives, but that others will encourage investments in certain categories, particularly as regards the incentive for Canadian entrepreneurs. That said, there are eligibility criteria. For eligible sectors, it will increase investment incentives in certain sectors and in a certain income bracket.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
So you haven't looked at the elasticity of that effect, as to whether companies are reacting a lot to this change in inclusion rate for their investment projects. It's not something you've looked at.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, we've looked at the academic analyses in which attempts have been made to estimate elasticity in several cases. That said, it is difficult to assess elasticity for tax measures. In general, elasticity is assessed when dealing with minor changes, specific countries or particular tax situations. As a result, a certain elasticity was applied to businesses and individuals. However, there is no guarantee as to how individuals and businesses respond to the measure or change their behaviour. There is no certainty that the elasticity has been accurately and fairly assessed. It must be said that estimates elsewhere vary greatly, depending on the particular changes being considered.
September 24th, 2024 / 5:30 p.m.
Liberal
NDP
Don Davies NDP Vancouver Kingsway, BC
Thank you, Mr. Chair.
Ms. Miller, ever since the 1960s, when the Macdonald commission, which studied our taxation system, came up with the famous axiom that a buck is a buck is a buck. We have been seized with the idea that a dollar of income should be taxed the same, as a fundamental matter of principle.
If you're lucky enough to be wealthy and you can get income in the form of a dividend, then you get a dividend tax credit. If you're fortunate enough to have some of your income come in the form of a capital gain, you get half of your capital gain, up to $250,000, tax free. This measure is saying, simply, that one-third of the income above $250,000 will still be tax free.
What do you have to say about that principle of treating tax dollars the same, especially when people like waiters and waitresses, nurses, teachers, plumbers, truck drivers and warehouse people have to pay taxes on 100% of their incomes and don't have these privileges.
What's your sense about the impact of that on our tax system?
Executive Director, Canadians for Tax Fairness
Earlier this year we did a study with the Canadian Centre for Policy Alternatives, which showed that, in the overall tax burden as it's spread among Canadians, we have a regressive system. Those who have the least tax burden in our society are, in fact, the richest in our society, and those who have the greatest tax burden are, in fact, the middle class. The reason is that we aren't treating a buck as a buck, which is a really important concept that, I think, has been a Canadian value in driving our tax system for many decades now.
The capital gains inclusion rate change that's being offered up does get us closer but still allows, as you mentioned, for one-third of that capital gains to be tax free, so there is still an inequity in the capital gains taxation inclusion rate as it is being offered up. That is why, frankly, from a principled point of view, we suggest that it really should be a full inclusion rate of inflation in adjusted dollars. We think that's how we come to a fair system of taxation in terms of a buck of wage equalling a buck of capital gains.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Davies.
There are about 10 seconds left, so we move now to MP Kelly. There are two and a half minutes in this round.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you.
Mr. Moody, earlier we had several witnesses who disputed or downplayed the notion that there's a difference in risk or that, just because a person is self-employed or an entrepreneur, they don't really endure risk. It's occurred to me that you forgo all kinds of other protections in law that employees have. You have unlimited liability for anything that your employees might do. Your family's assets are all at risk. You lack access to benefits. You don't get paid for vacation. You don't even get a minimum wage. You might actually work and get paid less than that would allow. In your opening statement—the first time you tried it, anyway—you talked about the differences in risk.
Can you talk about how self-employed people, who have a corporate structure and have to save for their own retirements, do, in fact, endure risk, and how the system is supposed to mitigate some of that risk and allow people an opportunity to save for themselves and for their retirements?
Moodys LLP Tax Advisors, As an Individual
Thank you, Mr. Kelly. Yes, I was trying to go down that avenue.
A simple, blunt response to the statement that entrepreneurial risk and employment risk, for example, are equal is that's just nonsense. I always challenge people who say that to put their money where their mouth is. If they think it's equal, then go and start a business, go and buy a building, because it's pretty damned risky.
I experienced it myself. All of my clients who are entrepreneurs—we have many of them—experience the ups and downs, and there are a lot of downs. The short answer is that the tax system, in my view, has done a nice job historically of acknowledging that risk and encouraging entrepreneurs to take that risk.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
There's a productivity crisis in this country, and I think you alluded to that in your remarks. I think it's pretty widely understood that productivity is in decline. Living standards have declined, and per-capita GDP is lower now than it was 10 years ago.
Is this the time to disincentivize investment?
Moodys LLP Tax Advisors, As an Individual
Absolutely not, and I've been on record many times in my writings and speaking.... Absolutely not. We encourage entrepreneurship.
Conservative
Moodys LLP Tax Advisors, As an Individual
Absolutely, it does. Notwithstanding what other witnesses have said, it very much does.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
From your own professional practice, can you talk about how these kinds of changes to taxation affect people's investment decisions?
Moodys LLP Tax Advisors, As an Individual
They greatly impact them. I go back to one question that was asked of me earlier, which was, “Are people leaving Canada because of this?” The short answer is yes, and they're taking their investment dollars with them and placing them in a more friendly environment. In this mobile world, you don't have to place your money in Canada. Foreigners don't have to place their money in Canada, and we're not seeing a lot of foreign investment.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
The capital flow from Canada is outward. Canadians are taking their money and investing it in other countries. What impact does that have on employment in Canada?