Finance Committee on Oct. 31st, 2024

[The Chair, Liberal, Peter Fonseca]

Thank you. That's great.

We have MP Davies.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Robson, when the Mulroney Conservative government raised the capital gains inclusion rate from 50% to 66% and change in 1988, as was just done recently, what was the impact on jobs and investment?

[William Robson]

I do not know. I can look into that and get back to you, but I don't have it in front of me.

[Don Davies, NDP, Vancouver Kingsway, BC]

You don't know. It would surprise you, then, to know that in 1990, two years later, they raised it again to 75%, so either it had no negative impact, or they weren't paying attention to the economy at all. Would that be correct?

[William Robson]

I think it's important to remember that we had very high tax rates in a number of areas back in the 1980s. One of the things that was done very markedly under the governments of Jean Chrétien and Paul Martin was to lower tax rates in a variety of areas. I don't think it's a coincidence that Canada's economic performance improved. In fact, the gap between our living standards and those elsewhere in the OECD and in the United States closed over a period of years, so I don't think high tax rates are helpful.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Robson, I'm not asking about high tax rates. It's so funny. I've had economists come to this committee with all sorts of numbers about what's going to happen to the Canadian economy in terms of investment and lost jobs over the rise in the capital gains inclusion rate that just happened weeks ago. The best data available to economists, you would think, would be when we last did it, in 1988, in the real world, yet nobody seems to have studied that. I don't understand that. It strikes me as wilful blindness, where someone's not paying attention to what happened the last time because the data does not support the position being advocated today.

My last question is going to be for Ms. Mearns.

Ms. Mearns, thank you for bringing the voice of the north here.

Decisions made about the economy in the south often have grave impacts. I'm wondering what you can tell us about the impact in terms of the climate crisis on the environment. What are you seeing in Nunavut in terms of the changes to the environment up there as a result of activities in the south?

[Virginia Mearns]

Thank you for the question.

I think it's a narrative that more Canadians are becoming familiar with. The impacts of climate change have a direct impact on Inuit and on other indigenous groups that live in the Arctic. It is certainly impacting our ability to continue our traditional ways of life, harvesting and travelling across the land and the sea ice. However, it's also creating a greater interest globally as to what's available in the Canadian Arctic, with minimal engagement from southern Canada on the ways in which Canada is going to support Inuit and indigenous peoples in our communities, with that heightened global interest in our area.

It's going to continue to bring proposals for long-standing investments from other countries to address infrastructure issues. It's going to increase traffic in our waters, so there has to be stronger dialogue, north and south, east and west, within Canada, on how we're going to not only ensure the safety of the people who live there, but also ensure that the environment is protected in a way that can be managed for generations to come.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Davies.

Now we'll go to MP Hallan.

You have five minutes.

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

Thank you.

Mr. Sargent, I agree with everything you've said today, except for one thing that I cannot agree with you on. You said in your opening statement that it takes 10 to 15 years to get a mine built, but by the government's own admission, it takes 25 years in this country to build one. It all ties back to the over-regulation and the taxes that you talked about.

When Canadians are watching this, they hear from the government about the rosy picture it wants to make Canada seem to be. If you were to hear Mr. Sorbara's unhinged rant or what they talk about, Canadians have never had it better. However, a really damning stat came out this year that food bank usage is above two million people now in a single month, in the month of March, and it's doubled since 2019. Canadians' standards of living are getting worse. That's clear to see with the GDP per capita decline.

Can you put this into more common terms for those Canadians watching? For that Tim Hortons worker working in Timmins or for other people who work, what does it mean that Canadians' standards of living are declining?

[Timothy Sargent]

Quite simply, it just means there's less income to go around. Typical families don't have as much money to buy food or spend on rent or go on holiday or all of these kinds of things that people want to do.

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

Mr. Robson, can I get your feedback on that as well?

[William Robson]

Yes, it's very much as Tim Sargent just said. When real earnings are declining, it means that what you're getting from your work relative to the food, clothing, shelter and other things you want to buy is less adequate to cover it. Certainly when you see year after year of that kind of decline, it pinches people.

We notice it very much because of the increases in prices, but people are now looking back to pre-COVID times and realizing what a difference there is in what they're able to afford now and what they were able to afford then.

It's a problem in terms of material living standards, and I think it's also a problem in terms of people's optimism about the future.

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

For both of you—Mr. Sargent first and then Mr. Robson—in the spirit of this being a PBC, pre-budget consultation, can you give us some testimony or input on what measures can be taken today that wouldn't cost anything but would help Canada's productivity?

[Timothy Sargent]

I think I would go to regulatory reform. We often think of government in terms of spending and taxes, but regulations reach everywhere in the economy. Interprovincial trade barriers, for instance, are a huge barrier in Canada. The IMF has called that out. I talked about the regulatory system for major projects. That costs Canada investment dollars. Also, just around the country, there are so many businesses complaining about red tape.

[William Robson]

I would cite similar things.

I think reducing the size of the federal government would save money and, in some cases, would help to spur growth by freeing up resources elsewhere.

On regulation, a lot of the housing problems are not the federal government's remit, but it's an astonishing thing, when you look at the increases and the improvements in the technology of home construction over the years, that the time to complete a house has actually gotten longer. That seems to be a consequence of regulation.

Interprovincial trade barriers I would mention as well.

Just to throw something out that hasn't come up yet but I think is quite important as we think about ways of getting more investment, including from pension funds in Canada, the Canadian government has assets that are underperforming, including airports, for example. You would not lose any money by making those available for private investment. I think it would improve infrastructure and it would improve our supply chains and generally give the economy a bit of a boost.

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

Mr. Robson, you've talked about government deficits. Can you expand a little further? The PBO recently said that the government is going to blow through its $40-billion budget by $7 billion.

This is a trend. This is not something new for this government. Can you tell us the impact that has when it comes to investment?

[William Robson]

Tim Sargent alluded earlier to the fact that it can be appropriate to run deficits during recessions, but when the economy is operating at capacity—and clearly it was operating beyond capacity at times recently, because we had a huge increase in inflation—government borrowing is going to be taking away resources that could have been used for investment.

One of the problems we have in Canada, and certainly have had over a number of years now, is that for every dollar of income we generate in the economy, we consume a certain amount as households.

There's a lot that has been invested in residential construction with population growth and we're very glad to have had that, but after you've done those two things, you don't have a lot left for non-residential investment. If the government is borrowing money that might have been used for investment and it's turned into consumption instead, that's one of the reasons why we are getting poorer.

I will just mention with respect to fiscal targets that I'm very old-fashioned. I think that, as in the C.D. Howe Institute, we're a not-for-profit. What do we aim for on the bottom line? You don't aim for a deficit. As soon as you've gone below zero, it means that people aren't taking the money as seriously. You don't have to justify an extra dollar here with what you would cut somewhere else.

I think that running deficits all the time really undermines budgetary discipline, and I think it's one of the reasons we've seen such big spending increases—without much for it in many cases. The CRA has increased its head count enormously. Are they better at processing our taxes than they were? They're not.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Hallan.

This will be our final questioner. It will be MP Dzerowicz for the last five minutes.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank all of our witnesses again for coming out today.

I just want to start off, Mr. Chair, for two seconds to say I'm very disappointed by Mr. Hallan's new motion. I think it misrepresented what the governor was trying to do. I think he was trying to not respond to any policy decisions, but I think he was very fair in his testimony.

I'll also add to some of the comments that Mr. Sorbara mentioned around our economy.

Mr. Robson, I read a lot of your stuff and agree with some of it. I will say to you that the productivity issues that we've had are not just over the last 10 years. They've been over the last 30 years, at least. We have a lot of work to do. Unlike what my Conservative colleagues are saying, I don't believe everything's perfect in our Canadian economy.

I will say that it's really important to highlight that, over the last 10 years, we've had to grapple with a massive pandemic. We've had huge geopolitical changes. We have two wars going on. We have continuing impact on global supply chains. We have climate change that's under way. All of that is impacting all economies, and I would say that most economies are still recovering after the pandemic.

In fact, Canada is actually doing far better than most in terms of jobs, in terms of growth and in terms of our debt levels. It doesn't mean that we don't have a lot to do and that we don't have some challenges.

I have question for maybe Mr. Mueller.

One thing you mentioned was around SR and ED. If you had one recommendation that would be helpful to the aerospace sector or one change that we can make to SR and ED that would be helpful, what would it be?

[Mike Mueller]

I would say maintain it. There's a lot of talk going on right now of reviewing it. It's incredibly important to maintain that program for our industry. Maintain it.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

I would say, though, that I hear a lot from Canadian innovators and smaller companies. They say that a lot of it goes to more multinational and foreign companies as opposed to Canadian companies. I think that is something we need to look at.

Mr. Robson, I know that there's been a lot of talk today about interprovincial trade barriers. I've had a motion before this committee, both in the last session and in this session, and no one's agreed to actually look at it.

Interprovincial trade barriers are a massive undertaking. One of the key recommendations that has come before this committee is for us to actually begin by creating a registry that's very transparent on what the interprovincial trade barriers are, so that we could start from a transparent perspective to see what the list is and then start to tackle it.

Would you agree that this is a good next step to start tackling interprovincial trade barriers?

[William Robson]

One comment that I often hear about interprovincial trade barriers is that it's the nitty-gritty, tiny details like the specs for fire extinguishers on trucks, axle weights and so on. This just makes it an unattractive thing to tackle.

My response is that this is where the payoff is. For the federal government to take the lead when it comes to compiling the information, sharing the information and then of course using its power to lean in sounds like a good idea. I don't know the specific proposal you're referring to, but I do want to underline that some of this work is not very glamorous. Some of it is very technical, but that's the level on which you need to proceed if you really want to make headway in this area.

The federal government can look at its own measures that sometimes fragment the internal market. It'll often follow provincial rules that it doesn't need to follow. Supply management came up earlier. There, you have a fragmentation of the internal market that the federal government supports. I know that's a very delicate one.

The federal government itself can do a number of things. Anything that helps us through that massive technical detail, I think, has to be helpful.

[Julie Dzerowicz, Liberal, Davenport, ON]

Do you think a registry would be very helpful?

[William Robson]

I don't know the specifics of that proposal, but on the basis of what I understand from what you've said so far, it does sound like a good idea.

Thank you.

[Julie Dzerowicz, Liberal, Davenport, ON]

Yes, this is definitely not a trick question.

I will tell you, I was meeting with Fertilizer Canada, which said that the truck weight limits are different in every single province in this country and that causes them difficulty in terms of moving across our country, as opposed to sending things to the United States. On top of that, if you have a truck going between Quebec and Ontario, you actually have to change your tires because the width limits are different in Quebec than they are in Ontario.

Those are just two of the insane things that we have under way here. I think that with a simple registry that actually starts outlining not only the regulatory issues but I'd also say the interprovincial trade barriers that are stopping us, that transparency will actually move us to some immediate action.

Thank you so much, Mr. Chair.