Evidence of meeting #157 for Finance in the 44th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was caregivers.
A video is available from Parliament.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you very much for being here, Mr. Roy.
I would also like to thank all our guests. We have taken note of their requests.
Liberal
NDP
Don Davies NDP Vancouver Kingsway, BC
Thank you.
Dr. Lee, I really appreciate your reliance on data. When we talk about the capital gains inclusion, we have maybe the best data of all, because we have history. The inclusion rate that has just been announced in this budget of 66.6% on income over $250,000 is exactly the inclusion rate that was established in 1988. At that time, the Mulroney Progressive Conservative government raised the inclusion rate from 50% to 66.6% in 1988. They then increased it again in 1990 to 75%. It stayed at that level for 10 years until the year 2000 when I think the Liberal government reduced it to 50%, where it stayed for some time.
I just did some quick research. We've had data presented to this committee that showed the impact on business investment in Canada, on machinery and equipment and on technology and innovation, between 1990 and 2000. It went up. It did not go down. In fact, between 2000, when the capital gains inclusion rate was reduced to 50%, and today, we have seen a gradual erosion and reduction in business investment in Canada.
Can you help me explain that? If Mr. Mintz's prognoses are correct, why is it that when we raised capital gains inclusion rates before, it did not have the effect of chasing investment or increasing investment in Canada in machine equipment but had the opposite effect?
Associate Professor, Sprott School of Business, Carleton University, As an Individual
There are a lot of drivers involved in the economy. It's not just one single decision. I had the senior vice-president of GE Capital out. He was a German stationed in Brazil. He spoke Portuguese; he spoke five or six languages. He came out to my class to talk about country risk analysis and investment and what drives investment. He said, of course, capital gains taxes are huge, but so are interest rates and so are political conditions. What's the risk of expropriation?
I'm not trying to set this up as a monocausal explanation and saying that, if the capital gains tax goes up, you're toast. I am saying it's an important and significant influence on investment. I'm sorry for repeating myself, but we are in this unusual situation. Not every country in the world is smack dab next to the largest and most dynamic economy in the world, but we are. That is a very real consideration. As a generic policy, we should make sure all our taxes on the corporate world are a little bit below the Americans', not above, because we want a tax advantage, not a tax disadvantage.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you very much, Mr. Chair.
To be fair to the rest of the panellists here, I'll give you a forewarning. I'm going to ask each of you if you have a recommendation that does not cost the government any money. I'll give you some time to think about that, and I'll give you all an opportunity to discuss while I follow up with Mr. Lee.
Mr. Lee, I don't presume to know how old you are, but I don't know if you are aware that you can apply to become a senator. If you would like an endorsement from me, I'd be happy to write you a letter. I'm not sure whether it would be persuasive.
There is some discussion about whether the government should consider a wealth tax. Is that something you would support?
Associate Professor, Sprott School of Business, Carleton University, As an Individual
No. I've spoken on this multiple times in debates with the Canadian Centre for Policy Alternatives, and I think it would be catastrophic.
There are two problems with a wealth tax. You get into the whole problem of measurement of wealth or you get into the question of timing, because then we're typically talking about taxing wealth that has not been liquidated. You're going to somebody and saying they are sitting on some stocks, so we're going to take some of it.
Again, it's going to drive people to other countries because we're not the only country in the world. If we do that, people will go to the States.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you very much.
This is an academic question. I know some people in the Office of the Parliamentary Budget Officer watch this committee and they follow what's happening, as do people in the Department of Finance.
Are you familiar with the term “dynamic scoring”? For example, there are three taxes the government has increased—the luxury tax, the capital gains tax and the carbon tax—and for each of these examples, the government produces what they believe to be the increase of revenues that will be associated with those taxes. The problem is that they present the gross taxes of revenue increase without adjusting for the net effect of lost HST revenues, specifically as it relates to the luxury tax, or a reduction in GDP and, therefore, a reduction in general tax revenues.
Would you support either the Parliamentary Budget Officer or the finance department including dynamic scoring, or what is commonly referred to as dynamic scoring, in their models?
Associate Professor, Sprott School of Business, Carleton University, As an Individual
I am familiar with it, because I talk about that all the time in my classes, explaining that economies are dynamic.
One of the criticisms I have of academia is that we look at everything when we're studying government and we think that's it and it's fixed. Then we say, we can't do this because. However, that doesn't account for dynamism, and that's dynamic modelling. Dynamic modelling takes into account.... In the behavioural finance literature, this is a very important part, because people change their behaviour in terms of the response.
I have one more quick point if I have time to get it in. I'm always struck by people who will tell you over and over how important the carbon tax is, because it changes your behaviour. However, they do not acknowledge that any other tax changes our behaviour too. The whole idea of a Pigou tax, which is a carbon tax named after Professor Pigou at Cambridge, is that prices go up and you consume less of it. This applies to any tax. It changes our behaviour.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you very much, Professor. I'd love to come audit any of your classes.
I have about a minute and a half left. I'm happy to go either in order, or does anyone have a suggestion that doesn't include an expense to the government?
Go ahead, Mr. Janeiro. Also, please keep it short so we have enough time for the rest.
Director, Policy and Government Relations, Canadian Centre for Caregiving Excellence
I hope this isn't cheating, but make the disability tax credit easier to access.
Conservative
Adam Chambers Conservative Simcoe North, ON
That's fair enough. That's very good. Thank you very much. That's a great suggestion.
Sir.
Manager, Green Budget Coalition
We have a number of recommendations that are no cost—
Manager, Green Budget Coalition
—and one that can bring in revenues. I'll just quickly go over them. There's about $2 billion in existing funding that we could dedicate to restoration programs across Canada. Also, we're suggesting that we make better progress on removing subsidies to fossil fuels and on reducing subsidies that are harmful to nature. We also have a recommendation for a windfall profits tax on oil and gas companies that could generate funding.
Chair, Grain Growers of Canada
Thank you.
I'd love to talk about the capital gains tax and the carbon tax, but I think that costs money. Anyway, for us, interswitching would cost zero money and would actually benefit the agricultural industry greatly.
Conservative
Executive Director, Festivals and Major Events Canada
I'm not cheating, but I'll stick to recommendation number two, which is to integrate in the base budget the amounts. It won't cost more to integrate them into the base budget.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you very much.
I think we have one more witness online.
Chair, Canadian Urban Transit Association
Yes. I would just reiterate our fourth recommendation, which was to encourage the government to take a leadership role in that national task force to talk about the best path forward for public transit systems in this country.
Conservative
Adam Chambers Conservative Simcoe North, ON
Mr. Chair, that's my time. I'm right on time.
Thank you very much, everyone.
Liberal
The Chair Liberal Peter Fonseca
That was five minutes. Thank you for that, MP Chambers.
Now we go to PS Bendayan.
Liberal
Rachel Bendayan Liberal Outremont, QC
Thank you, Mr. Chair.
Thank you for that speed round. Of course, as parliamentary secretary, I'm very interested to hear your views and to have read your submissions. I am accompanied by the finance team behind me.
I would like to ask a few questions of the Green Budget Coalition.
Thank you for appearing before me.
I actually have the pleasure of representing Équiterre in my riding.
I also work with For Our Kids, which is another great environmental organization.
I would like to hear you speak further about the importance of our price on pollution. I heard you mention earlier that a price on pollution is important in order to lower emissions but also to protect the environment. Do you have a view on the idea currently being debated of exempting certain fuels or certain activities from carbon pricing, such as grain drying for example?
Manager, Buildings, Pembina Institute, Green Budget Coalition
As the Green Budget Coalition, those who have worked on the carbon pricing and mechanism recommendation don't have recommendations that are specific to those types of applications or uses. I would say that we still maintain a general position that it is an important mechanism in the suite of mechanisms that are needed for putting a price on pollution and addressing climate change.