Finance Committee on Oct. 31st, 2024

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

Mr. Robson, I'll ask a similar question of you.

The Economist magazine also says that Canada is now “poorer than Alabama”, the fourth poorest state in the U.S. Over the past five years, U.S. economic growth has been nearly double that of Canada's. The Financial Post is reporting that Canada's standard of living decline is the worst in 40 years.

Do you think, under the circumstances that all these different sources have described, that increasing the capital gains inclusion rate is the right thing to do at this point in time?

[William Robson]

No, I do not think that increasing the capital gains inclusion rate is the right move. I've already spoken to the direction of its effects. The magnitudes are tough to calculate, but there's no way you can argue it's going to do anything good.

Because the luxury tax came up earlier, I'm going to mention that we've had a few tax changes in recent years that to me seem more motivated by maybe populist objectives than economic logic or the government's need for revenue. I put the capital gains tax change into that category. I think one of the difficulties we have in Canada right now when it comes to economic confidence is that people see the tax system being used in ways that really make revenue-raising a secondary consideration and put other goals more to the fore. The luxury tax is in that category. Some of the taxes on financial institutions are in that category. The capital gains inclusion rate increase is in that category.

I think Canada needs to have a change of direction that would give people a bit more confidence that the tax system will be broad-based, fair, have lower rates and not be subject to changes in the direction of the political wind. That makes people think twice about any kind of investment.

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

I agree with you entirely. In fact, I read your report, and in that you actually describe the array of tax changes this government has made as “capricious” and “populist”. I wonder if you could elaborate on why you think that is the case.

[William Robson]

What taxes really ought to be for, in many people's eyes, is funding government services. To do that, you want to find tax bases that are broadly acceptable to the population, have broad bases and have preferably quite low rates. When we have very substantial increases in government spending driven by increases in operating costs—Tim Sargent alluded to this earlier—and now we're seeing interest expense mounting again, there's a lot of strain on the tax system. Naturally people look ahead with some concern about how high rates are going to go.

If you also have this feature of the tax system that, rather than being used simply to raise revenue in the most acceptable and economically non-distorting way, it seems to be targeted towards whoever might be unpopular at the time, then that creates a very troubling environment for people who are wondering about making a long-term investment, because the environment they're operating in is so clearly not reliable. It's volatile.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Morantz.

We go now to Ms. Thompson, please.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you

Welcome to all the witnesses.

I would like to begin with you, Ms. Mearns. I believe you may have a Newfoundland and Labrador connection. Yes, I thought that.

It's a phenomenal project, removing Iqaluit from diesel to renewable energy. I've met with Growler Energy from my riding, who are a partner with you in this project. I know you are also involved in a series of other incredibly innovative, sustainable projects, and I think that shows tremendous leadership.

I realize government is part of this, and I'm very proud of that, but would you speak to the partnerships and how you, from a community-based place, have been able to work with partners and government? Really, you are leading sustainable solutions for northern communities, and I think what you are doing is phenomenal.

[Virginia Mearns]

Thank you very much.

It definitely is an exciting time for Inuit in particular in really pursuing the opportunities that have been made available to Inuit through the Nunavut Agreement, but then also through the maturing of Nunavut as a territory and really establishing our own relationships with government, with private industry and by looking at the opportunities that each of our communities have in front of them to be able to be innovative, to bring our own solutions to the table and to create circumstances or solutions that will be long-standing and beneficial for generations to come.

This notion has been a long-standing idea in Iqaluit, recognizing and looking in other jurisdictions, indigenous jurisdictions but also internationally, at what the benefits have been and being able to find ways in which to get the ball rolling. There are many steps that have to be undertaken to be able to even get to the point that we're at right now, and a lot of engagement has to take place with Inuit in our communities because a lot of these large-scale projects do have an impact on our environment and will have an impact on the wildlife that we need to access. We have to bring forward a very tricky balance in the decision-making that ultimately needs to take place.

The respect for that process really does determine the types of partnerships we need to pursue to ensure that Inuit rights are upheld, but also that the benefits are coming forward for Inuit.

Thank you.

[Joanne Thompson, Liberal, St. John's East, NL]

In my conversations with the team at Growler Energy, I was left with the impression that it was very much led by your community, which, of course, is how this should flow. You're showing that the model does work, and I want to really reference the work you're doing in marine renewable energy, the assessment, because it's so timely.

Would you just speak briefly to how you've been able to establish this model of true collaboration, which is really led within your community?

[Virginia Mearns]

Thank you, Mr. Chair.

If you'll allow, I'll ask my colleague to speak to that portion.

[Richard Paton, Assistant Executive Director, Marine and Wildlife Conservation, Qikiqtani Inuit Association]

Certainly.

I will also supplement the response by noting that through conversations with partnerships we have worked closely with Muskrat Falls in understanding the dynamics of hydroelectric power and the outputs that are needed in our region. I will say that, in those discussions, the hydroelectric dam that we are proposing in and around Iqaluit is founded on our knowledge of the environment. Inuit in the community are vested with maintaining the opportunity to speak about Inuit cultural continuity, maintaining who we are as a people.

As a part of that process, as we look to expand opportunities in renewable energy, we're doing so in a way that allows us to share our knowledge, our Inuit Qaujimajatuqangit traditional knowledge, and reflect with that knowledge on the importance of where renewable energy can interact with the opportunity for us to maintain the opportunity to harvest from the land and interact in a way that respects Inuit ongoing.

Over the last three years, we did a study and interacted with about 80 Inuit from Iqaluit, and that study allowed us to build on an understanding of the importance of where they traditionally go for camping, for hunting and for maintaining our lifestyle. Through that report, we were able to highlight the area that could be used for hydroelectricity that would mitigate the opportunity and interaction of Inuit in the region.

[The Chair, Liberal, Peter Fonseca]

Now we'll go to MP Ste-Marie.

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

Thank you, Mr. Chair.

Mr. Mueller, I'm going to fire off two questions.

With 4,000 jobs at stake, the luxury tax seems to be a tax on manufacturing.

First, do you know where the affected jobs are?

Second, do you know how much income tax the government would not collect if those 4,000 jobs disappeared or weren't created?

[Mike Mueller]

Thank you for the question.

These jobs are right across the country. We obviously have a large aerospace manufacturing hub in the Montreal area, but this is not just there. This is right across the country. This is in Manitoba, in British Columbia and in Ontario. We see the effects right across the country.

As an example, I was just in Winnipeg last year speaking about the negative impacts of this tax. The number of companies that came up to me in Winnipeg saying that it is impacting them was absolutely phenomenal. It is something that is right across the country.

We did ask Professor Roy to look at some of the tax implications both from that lost revenue and from the workers' perspective. Again, these are good-paying, family-supporting jobs, oftentimes with 30% higher wages than average manufacturing. We've seen that across the board. If those 4,000 jobs are impacted, which we predict they will be, it would represent about $90 million in income tax for the federal government.

Again, the tax is bringing in $15 million. It's costing the government $19 million to administer. It has lost the industry $1.8 billion in revenue, which represents $90 million in lost GST. Then you take a look at the workers, who are of the utmost concern to me because our aerospace industry is made up workers. We do amazing things, but it's the people behind it. That's $90 million in lost income tax.

Again, I don't see the benefit of this anywhere. There was a comment before about taxes being used to raise money for services. This is actually costing the government money. When we take a look internationally, there's no other jurisdiction in the world that taxes aircraft manufacturing in this manner. That's number one.

There is an example from the United States. Two years after this tax was implemented, they repealed it. Why? It's because they were seeing the same negative impacts that we are seeing here. My request, again, is for the committee to, vocally and loudly, please recommend that this tax be repealed from aircraft because it is devastating to our industry right across the country.

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

Thank you.

[The Chair, Liberal, Peter Fonseca]

Go ahead, MP Davies.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair.

Mr. Mueller, I'd like to continue with you on that.

I also had the benefit of having met with you, Bombardier and, I believe it was, the International Association of Machinists, who all take the same position. I've heard you clearly call for the repeal of the tax, which I understand is a 10% tax on the sale of an aircraft in Canada over $100,000. Do I have that right?

I heard another proposal from them that may achieve the same benefit. I understand that the tax is not payable if the use of the aircraft purchased is more than 90% used for business purposes. I've heard that another option would be to reduce that to 50% business use. I'm also told that sometimes when corporations or high-net individuals purchase an aircraft, they can't use it all the time, so they'll put that aircraft into a lease pool.

The second request would be to automatically count all revenue from the lease pool as business use because apparently now you have to keep track of every hour of the plane and it's administratively a nightmare.

Would that be an acceptable solution to you, if we reduced it to 50% and counted all lease-pool revenue automatically as business use?

[Mike Mueller]

Thank you for the question and also for your interest in this file because it is critically important.

Our ask is to repeal the tax on aircraft manufacturing. There are certain areas that could be adjusted to help minimize that impact, but it will not eliminate that impact. By the numbers that we've gone through and that we're seeing now by the government's own account, it does not make sense to me why the government would have a tax on aircraft manufacturing that is losing so much money out of the industry—$1.8 billion—and also the tax revenue that goes along with that.

Yes, you are correct. There are some areas that could be looked at, but it would not eliminate that. It would help to mitigate.

Again, the impact is so drastic that we are recommending a repeal.

[Don Davies, NDP, Vancouver Kingsway, BC]

Let's quickly get this on the record. I'll just say one sentence if I could.

Bombardier told us that it was selling about 10 aircraft per year and that after the tax was brought in, it was reduced to one. That's how dramatic the impact was.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we'll go to MP Hallan for five minutes, please.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Mr. Sargent, in Canada, as we've heard, the GDP per capita has declined in eight out of the last nine quarters, and it has fallen 4% since 2022. In your opinion, is Canada basically in a GDP-per-capita recession?

[Timothy Sargent]

Absolutely. Normally we think of a recession as when the total national income falls, but what matters to individuals, of course, is not the total sum of what income is but what they, themselves, get.

Declining GDP per capita is exactly what we've seen in Canada. Outside of a major recession, that's very unusual to see.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Canada has also fallen in global ranking for tax competitiveness. This especially happened after the job-killing capital gains tax hike was introduced by the Liberal-NDP government. Also, at the same time, it introduced a digital services tax that contributed to that, as well as other taxes that they've been hiking up.

We know that the gap between the United States' GDP per capita and Canada's GDP per capita has only widened, and to quite a significant level. In your opinion, does Canada's having a carbon tax and the United States' not having a carbon tax contribute to that gap?

[Timothy Sargent]

I think so. Canada is getting a reputation as being a very high-tax country, and it is discouraging investment.

It's interesting. There was a recent RBC study on this. There used to be as much money flowing out of Canada as there was direct investment coming in, so there was rough balance—

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

I'm sorry, but I have a limited amount of time, and I have a lot of questions to ask you.

Would you also agree that the taxes being lower in the U.S. compared to Canada contributes to that widening gap between the U.S. and Canada?

[Timothy Sargent]

Absolutely. International capital is very mobile, and it moves around quite quickly. Canada is uncompetitive, not just compared to the U.S. but also compared to quite a lot of other countries.