Finance Committee on Oct. 8th, 2024

[Kelly Paleczny]

I meant to say around the world—my apologies.

We recognize, as I talked about in my commentary, that all levels of government need to participate. There are many examples around the world where you see various levels of government participating. That's really what we need, but we need everybody to be onside with that versus a one-off. Typically, we've seen the federal government providing infrastructure funding, with the operating falling to provincial and municipal. That may well work as long as everybody's on the same page and they all understand the role they have to play.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. If you later think of one that you think we should be adopting, given the different responsibilities we have constitutionally here, I'd be very grateful to hear it.

My next question is for the Green Budget Coalition. The Sustainable Jobs Act passed in June of this year, so we're very committed to it. In my riding of Davenport, we care about sustainable, inclusive growth. What is the next step in the Sustainable Jobs Act? What is it that you would recommend we move forward on that will accelerate our moving to more sustainable jobs?

[Jessica McIlroy]

If you require any further information afterward, I'm happy to follow up as this is an area of expertise of one of my colleagues. However, working from her excellent information that she provided, it is a focus. Many times, when a strategy or act comes forward—and reflecting what we also heard today from others—it's a time to invest, to really solidify those programs and policies and the investment that's required to move forward.

The recommendation features five key areas, with a large part of it being a focus on youth and youth training—the youth climate corps specifically—and the opportunity for hundreds of thousands of jobs across the country as we look to expand to youth.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you very much. I appreciate that.

My next question is for the Canadian Centre for Caregiving Excellence. Thank you so much for your presentation. It was excellent. You probably won't have time to do this here.... In my excellent riding of Davenport, one of the top issues from seniors, when I go to the doors, is that they feel very angry that they don't have a lot of options for where to move. We have a lot of seniors living alone. They would love to have.... They feel they don't have choices. They're not ready for long-term care, and there's not a lot of independent living. If you have specific recommendations you can actually send in to this committee about what we should be looking at—there are definitely some creative models around the world around this—I'll be very grateful to get this from you.

The other thing I wouldn't mind getting some data on is.... I'm a caregiver right now, and there are a lot of private caregiving services out there—very expensive—that actually could be offered from a public system at a much reduced rate, but we need a lot of coordination. If you have any data, statistics or recommendations around that, I'll be grateful to hear that as well.

I'll let you comment for a couple of seconds, and then I might try to slip in one more question.

[James Janeiro]

On the point about seniors, you're absolutely right about the need for creative models on this. I also throw out there that one in five caregivers in Canada is a senior as well, so in addition to being a senior and all the challenges that might come with that, one in five caregivers is also providing care to somebody else at the same time. There are a bunch of lessons we can put forward. I'm happy to connect on this separately as well.

[The Chair, Liberal, Peter Fonseca]

MP Morantz, go ahead, please.

This is our third round, members and witnesses.

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

Thank you, Mr. Chair.

Professor Lee, to touch on this questionable claim by the Minister of Finance that the increase in the capital gains inclusion rate only affects 0.13% of Canadians, in your earlier testimony you said you concurred with the analysis of Jack Mintz that this measure alone will blow a $90-billion hole in our GDP.

Wouldn't it be more true to say that increasing the capital gains inclusion rate doesn't only affect 0.13% of Canadians but, in fact, affects every Canadian?

[Dr. Ian Lee]

Yes, it affects Canadians directly and indirectly. There are ways of testing data all the time, claims by anybody, including elected officials. Just on the direct impact, when Ms. Freeland said that, I did several media interviews and said, “Look, all we have to do is look at the number of small and medium-sized businesses or farmers because they're all subject to capital gains when they sell an asset for a capital gain.” There are many more than the very tiny percentage, whatever it was, that was provided by the finance minister.

When you look at the number of owners, entrepreneurs who own a capital asset called a business, or farmers, and then you throw in secondary properties, of which there are several million, every one of those people are subject, ultimately. They may not sell today, but when that property is sold they will be hit with capital gains. I knew that the number was ridiculously underestimated because there are several million people who have capital assets. That's why, in my disclosure at the beginning, I was very careful to say that I'm an unusual person. I don't have any stocks, bonds or capital assets other than my house, which is tax-free, but there are millions who do and are subject to this tax, so the impact is much greater than was claimed.

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

Thank you.

I'm sure that you, over the years, studied the issue of tax fairness as well. One thing I find very curious about the policy is that, if you're an individual or a sole proprietorship unincorporated, when you sell your capital asset, you get the first $250,000 with an inclusion rate of 50%, but if you happen to own the exact same business across the street and are incorporated, you don't get that. You can have exactly the same two businesses that are exactly the same size with exactly the same asset mix, but one person gets a break and the other one doesn't.

Can you comment on the inherent unfairness of that?

[Dr. Ian Lee]

It is unfair, but I think that the Income Tax Act, over many years, has become riddled with a lot of inequities. I've been arguing this for several years. I really do think we need another—I won't call it a royal commission—blue-chip panel that investigates this from stem to stern with experts like Jack Mintz analyzing, because there are a lot of inequities in the Income Tax Act.

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

In my last couple of minutes, I want to get your take on the issue of the disturbing trend of the reduction in per capita GDP and productivity vis-à-vis the United States and the OECD that you commented on earlier. This is a trend that's not going in the right direction; it's going the wrong way.

If you were advising the government today, what suite of policies would you suggest they adopt to stem this very disturbing trend and reverse it?

[Dr. Ian Lee]

I think productivity is the number one crisis facing Canada, because it drives the wealth and future prosperity of every Canadian. Even though some people's eyes glaze over when they hear it, it's not some tangential or second-order issue. It trumps everything else.

I was here in April or May with your committee, and I sat beside the commissioner of the Competition Bureau. We were both in complete agreement on competition. This is in massive amounts of research, I assure you. When you have markets that are not protected—and we're famous for protecting a lot of markets like telecom that we won't let the Americans in, and airlines, banking, etc.—that protection is pernicious, destructive and harmful to Canadians because, and Schumpeter taught us this 75 years ago, companies innovate because they have to because of competition.

If you have a nice, cozy, protected market provided by you, the parliamentarians, why should I innovate? Why should I invest in R and D? Why should I do any of that? I have a nice, cozy, protected market.

I said at that presentation—probably I offended some people here—that many of you parliamentarians have created many of these problems by creating these protected markets like the telecom market and the dairy market. All we've done is hurt ourselves. We are causing harm to ourselves as individual Canadians.

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

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Morantz.

Now we'll go to MP Sorbara, please.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

Good afternoon, everyone. It's great to see some familiar faces and some friends.

Professor Lee, for many years we've had a number of conversations, so it's really nice to see you. I'm glad you're still at the university teaching our youth and our future leaders on the importance of competition and economic policy.

I want to ask one question and subsets of it.

Right now in Canada, we have a deficit to GDP of about 1%, or thereabouts. The equivalent in the United States is over 6%. Today BMO came out with a really nice chart. Their deficit for fiscal year 2024 is nearly $2 trillion. If we were running the same deficit to GDP in Canada, which we are not, our deficit would be probably $250 billion and maybe closer to $300 billion.

We in our government have been excellent fiscal stewards in terms of maintaining our AAA credit rating and maintaining a strong fiscal framework. The PBO, in the most recent report on the state of the government finances, when he looked at the national and subnational levels, indicated that as well. It is a strength.

You would have to agree on that level that Canada's fiscal finances are very strong both on an absolute and relative basis. Would you not agree?

[Dr. Ian Lee]

I will give a more nuanced answer.

I fully acknowledge that the United States is profligate with their deficit.

Every MP here should listen to the blog with David Rosenberg last May, with former deputy prime minister John Manley and David Dodge, talking about the 1995 downsizing and the current problem in the States. All three argued that it's not sustainable. They're going to run into a fiscal wall. It won't ruin the United States, but they'll be doing a haircut on all their social programs, because they're the three largest drivers of the deficit. Seventy-five per cent of all the spending of the U.S. government is social security and medicare. You know that.

To your question, the reason I said I want to nuance it is that there's no reason to run deficits. This is straight out of Keynes. There's no reason to run deficits when the economy is growing. You run deficits when the economy is in the tank, and then you pay them back. That just violates fiscal policy.

Second, I don't quite agree with the statement made by the government comparing itself to other countries because they're cherry-picking. They're taking the federal debt and saying that it is a percentage of total GDP. The OECD and all econometricians do not measure it that way. They measure the totality of government debt—federal, provincial, municipal—because there's only one taxpayer. When you use that number, we are nowhere near doing as well as is claimed.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I would respectfully disagree. The OECD and IMF take into account both the national and subnational levels of debt in their calculations.

That is done there. I think that's straight there. We can take that off-line. I do want to switch gears.

We can have an economics discussion. Look, I agree with you on competition and Schumpeter. There are a number of economists that I, as an economist myself, really prescribe to for different reasons. Schumpeter's creative destruction is a beautiful thing. We need more of it in Canada.

[Dr. Ian Lee]

Yes.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

There's competition in Canada with a number of industries.

The Biden administration put in the Competition Council under Janet Yellen. We've done the same thing with Minister Champagne and Deputy Prime Minister Freeland. We have done a lot of stuff with the Competition Bureau and the Competition Act. There's the act we brought in. There's Bill C-34 that we've done. We have a lot more to do. A lot of governments have not been successful there. I think time will tell. I think we've done a lot of things that will prove successful.

Now I'm going over to James on the caregiving side, in my limited time.

You know the situation we have in our family with my little nephew being a special needs child. I don't want to say he needs constant care, but if his parents weren't there.... If we had to pay his parents to do what they do, it would be in the hundreds of thousands of dollars every year with the expenses they incur for little Ethan, my nephew. This is really near and dear to me.

A caregiving strategy needs to be in place, especially for our most vulnerable. I'll give you the remaining time to add colour on that front, please.

[James Janeiro]

Certainly. Hats off to you. I know your family puts a lot of effort and a lot of time into making your nephew's life as wonderful as possible.

I'm in the same situation. My favourite nephew has significant special needs. My job is to teach him Portuguese and to sing to him. I don't speak Portuguese well nor do I sing well, but he's happy when I do it.

As a take-home message, I guess, attached to the role of families in this, is that if you were to replace them—not that you ever would, of course—but if you want to put a number on how many paid staff it would take to replace what families and friends are doing for people with disabilities and seniors and so on across the country, we're upwards of five million or six million staff that we don't have budgets for and that we don't have room for in our economy. People are otherwise consumed with other jobs.

These families are doing yeoman's work. I would argue that one of the roles of the state is to support families with the help they need to look after the people they love.

I do hope everyone will join us in our call to make this strategy real and see some good stuff coming out soon.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Sorbara. That's the time.

Now we are going to MP Ste-Marie, please.

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

Thank you, Mr. Chair.

Mr. Roy, I would now like to talk about your second recommendation. You explained it well in your presentation. In the case of the two programs, the Canada arts presentation fund and the building communities through arts and heritage program, you recommend integrating one-time amounts into the base budget to address uncertainty and the lack of predictability.

Can you explain that recommendation again in the two remaining minutes? If not, I invite you to talk about your recommendations more generally.

[Martin Roy]

I would like to add a clarification to what I said earlier. The amounts added to the base budgets are also extremely difficult to manage, both for the federal government and for festivals and events. The budget was presented this year in March or April—I'm not sure which—but festivals start in May or June. By the time the applications are sent to Treasury Board, the file comes back and the cheques are sent by Canadian Heritage to all the festivals and events, they are already finished. I don't think that's an optimal way to spend that money.

We were talking about predictability earlier; that's also what this is about. If we can know in advance what we'll have, it will be much easier than if we receive the cheque two months after the event. I think that summarizes the problem right now.

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

So it's a matter of organization. Those in charge have to be smart about how to manage the money and when to make announcements so that the money arrives before the event and can be used. Unfortunately, this is the situation we see with a lot of federal programs: The money is released at the last minute and must almost already be spent before it has even been announced and sent.

I'll give you the last word.

[Martin Roy]

I think it shows how very useful it would be to integrate these additional amounts into the budget base. That would be in the interest of Canada's entire cultural community. Once again, I am not speaking only on behalf of festivals and events, but on behalf of broadcasters in general. That would be an extremely promising measure for the cultural sector.