Finance Committee on Nov. 5th, 2024

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 163 of the Standing Committee on Finance.

Today's meeting is taking place in a hybrid format. All witnesses have completed the required connection test in advance of the meeting.

Now I'd like to remind participants of the following points.

Please wait until I recognize you by name before speaking. All comments should be addressed through the chair.

Members, please raise your hand if you wish to speak, whether participating in person or via Zoom. The clerk and I will manage the speaking order as best we can.

Pursuant to Standing Order 83.1 and the motion adopted by the committee on Thursday, September 26, 2024, the committee is resuming its pre-budget consultations study in advance of the 2025 budget.

I'd now like to welcome our witnesses.

First, let me begin by thanking our witnesses for their patience. We did have a number of votes in the House. We are starting a fair bit later than our usual time.

With us today, we have Kim Moody from Moody's LLP Tax Advisors. I know that we had Kim Moody on before, and I guess we had some technical issues. Hopefully, everything has worked out this time and we'll be able to proceed and have you as a witness.

We also have with us, from the Canadian Steel Producers Association, the president and chief executive officer, Catherine Cobden, as well as the vice-president of trade and industry affairs, François Desmarais; from the Italian Canadian Savings and Credit Union Limited, Fausto Gaudio, president and chief executive officer; from the National Council of Canadian Muslims, Rizwan Mohammad, advocacy officer, and Manitoba advocacy officer Sadaf Ahmed; from the Toronto Police Association, its president, Clayton Campbell, via video conference; and from the Union québécoise des microdistilleries, Vincent Lambert, general secretary, and Nicolas Bériault, the co-founder of Distillerie 3 Lacs.

Welcome.

We are going to have each of the witnesses give their opening remarks for up to five minutes.

We are starting with Kim Moody for the first five minutes, please.

[Kim G. C. Moody, Moodys LLP Tax Advisors, As an Individual]

Thank you.

Good afternoon, committee members. Thank you for the opportunity to appear before this committee to discuss the capital gains proposals announced in budget 2024.

My name is Kim Moody. I'm a fellow of the Chartered Professional Accountants of Alberta and the founder of one of Canada's premier taxation and legal and accounting boutique advisory firms, Moodys Tax under Moodys Private Client. I have a very long history of serving the Canadian tax profession in a variety of significant leadership positions. I'm also a prolific writer and speaker on taxation matters. I write a weekly column on taxation for the Financial Post.

I spoke previously to this committee on September 24 about these matters, and I submitted my opening remarks at that time, but unfortunately, as noted by the chair, my remarks were marred by technology challenges, so I will simply update my remarks very briefly today.

With that, my updated comments are as follows.

Number one is the policy on capital gains. One can have a healthy and respectful debate on how capital gains are taxed. Should they be preferentially taxed? In my opinion, yes, absolutely, like they are in most countries around the world.

Prosperous countries realize that investors, including entrepreneurs, take significant risks that have extended, long-term benefits to society and the economy. Thus, the concerns when Canada introduced complex proposals earlier this year to increase the capital gains inclusion rate effective June 25, 2024.

For those who continue to mindlessly bleed out the “buck is a buck is a buck” line in support of the proposals, I'll repeat the comments made by former finance minister Edgar Benson in 1969. He said:

The government rejects the proposition that every increase in economic power, no matter what its source, should be treated the same for tax purposes. This proposition, put forward forcefully by the Royal Commission on Taxation, has often been summarized rather inelegantly as ‘a buck is a buck is a buck.’

But although the government does not accept this theory in all its splendid simplicity, neither does it believe that the distinction between a so-called ‘capital gain’ and an income receipt is either great enough or clear enough to warrant the tremendous difference from being completely exempt and being completely taxable.

I totally agree with that.

In addition, I often hear that employment risk is absolutely the same as entrepreneurial investor risk. Right? No, that's hogwash. To people who say so, I challenge them to put their money where their mouth is and put up their life savings, including their gold-plated pensions, and start a business. Do you think it's easy? Do you think it's a guarantee to riches? Do it. I dare you. By “starting a business”, I don't mean your one-man band consulting practice.

Number two is the disingenuous messaging. I have nothing further to add from my September 24, 2024, comments, other than to say I still shake my head at how this government is prepared to engage in misleading and shameful partisan politics to implement a simple tax grab. Canadians deserve better.

Number three is the implementation of the proposals. Again, I have nothing further to add other than a couple of quick comments. First, as we all know, today is November 5, 134 days after the proposals presumably became effective, and the very complex draft legislation is still not in the bill. What are taxpayers supposed to do? I wrote about that in my Financial Post article today. It's not simple. Frankly, it's shameful.

Overall, I'm very concerned about how these proposals will affect Canada's productivity, especially during a time of declining GDP per capita and the significant disincentive for entrepreneurs and/or investors to invest their capital and take strategic risks for the benefit of themselves and all of Canada. These poorly thought out proposals will cause significant damage to Canada.

Esteemed economist Jack Mintz recently wrote what the proposals will cause. He wrote that, “Canada’s capital stock will fall by $127 billion; employment would decline by 414,000; GDP will fall by almost $90 billion; and real per capita GDP will decline by 3 percent.” That is obviously significant and concerning.

Instead, we need, as Jack Mintz calls it, a “big-bang corporate tax reform”. I think we need a big bang personal tax reform as well that incentivizes and rewards Canadians to work harder and take risks. Frankly, it can't come soon enough.

Thank you. I'm happy to take questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Moody.

Now we'll hear from the Canadian Steel Producers Association and its president and chief executive officer, Catherine Cobden, please.

[Catherine Cobden, President and Chief Executive Officer, Canadian Steel Producers Association]

Thank you, Mr. Chair and members of the committee. François and I are pleased to join you today to discuss the priorities of Canada's steel industry related to the upcoming budget.

The Canadian Steel Producers Association is very proud to represent 100% of Canada's domestic steel production, as well as significant users of steel in our downstream market. Canada's domestic steel industry generates $15 billion in economic activity and supports 123,000 direct and indirect jobs, from Alberta through to Quebec. Our steel is fully recyclable and supports many other sectors of our economy, such as the automotive sector, the construction sector, the infrastructure sector, the energy sector and the defence sector. We play, as well, an outsized role in the economy of tomorrow, where major clean technologies will require steel.

Despite the strategic importance of our sector, we are facing economic headwinds. It is a tough industry. We struggle to compete due to a prevalence of unfair trade from global overcapacity. We face major decarbonization investments and substantial hurdles to attract that needed capital, along with a lack of available decarbonization solutions. Finally, we face uncertain circumstances in our largest export market, the United States. That economy is taking measures to protect their domestic industry and workforce, particularly in the steel sector, from the same devastating impacts of global overcapacity we face.

In the past several months, we have seen significant support from all political parties for measures that will help Canada's domestic steel sector. These measures have included a steel tariff regime against Chinese steel products, as well as the full implementation of a domestic “country of melt” monitoring requirement on all steel imports that will bring much needed transparency to our supply chain. Incidentally, that “melt and pour” requirement came into effect today. We've also seen significant investment in the Canada Border Services Agency. We're very grateful for these moves. They will indeed help.

However, there's more work to be done. In CSPA's recent submission to this committee, we highlight several items that we believe are crucial in our fight against global overcapacity. They will strengthen our partnership with the United States and ensure our climate transition takes place, while also protecting the competitiveness of our strategic sector.

Some of our recommendations follow.

Number one, further our fight against the destructive forces of overcapacity by improving our anti-circumvention legislation. At the present time, there are legal barriers that prevent us from using this anti-circumvention regime, despite growing concerns about circumvention issues. We urge the government to amend this legislation and take an approach similar to that of the United States.

Number two, update section 53 of the Customs Tariff Act to include labour, environment and national security provisions, improving this tool to reflect the broader range of challenges we face in today's modern world.

Number three, have no doubt that climate is the new trade tool for many nations. Canada must be prepared to respond to detrimental global tariff developments that will affect our steel industry. We believe the best course of action is proactive. Canada should pursue a unified carbon tariff approach with the United States for our sector. Given the integrated nature of the Canadian and U.S. steel industries and our shared climate emissions progress, we believe this unification would be of mutual value on both sides of the border.

Number four, treat vulnerable sectors within Canada's carbon pricing regime differently. As outlined in the important work of Canada's Commission on Carbon Competitiveness, differentiated approaches are justified in order to prevent carbon leakage in Canada's most vulnerable sectors, particularly steel. Based on CSPA members' own analysis, we are seeking a freeze on stringency and price until 2040, in order to allow sufficient time for solutions and a successful transition to the low-carbon economy.

Finally, we should continue to provide support for research, development and the adoption of low-carbon production technologies through tax incentives, through programs and through addressing impediments to clean energy access across the country. We recognize the important partnerships that we have seen in the steel sector to date, notably Algoma and ArcelorMittal Dofasco's announcements. There is government and industry collaboration, which will take six million tonnes of CO2 out of the atmosphere, as well as our collaboration in research and development. Canada's steel sector has an impressive track record of announced projects to date. Six million tonnes is significant not just for the industry but also, I believe, for the entire Canadian economy.

However, we have more reductions that we can achieve, and we will need partnerships to get there. Governments around the world recognize that we're in a race for these investments, and Canada must recognize this as well.

Thank you for your time and attention.

We look forward to answering any questions.

[The Chair, Liberal, Peter Fonseca]

Thank you. I'm sure there will be many questions.

Now we're going to hear from the president and CEO of the Italian Canadian Savings & Credit Union Limited, Fausto Gaudio.

Fausto, many of the members here on this committee.... Actually, you serve many of our constituents, so thank you very much for the service you provide to many of our residents.

[Fausto Gaudio, President and Chief Executive Officer, Italian Canadian Savings & Credit Union Limited]

Thank you, Chair.

Thank you, committee, for allowing me to make this presentation.

I'm going to talk about what I think is a major distortion in the single-family housing market, particularly in the GTA. I'm referring to single-family housing, not multi-family dwellings. I'm going to start with an ask that may not be all that popular in light of some comments I've already heard with respect to capital gains taxes.

I'm here to ask you to consider a punitive capital gains tax on speculative investments in non-principal-residence single-family homes if not held for a minimum period of two years. I am the CEO of the Italian Canadian Savings & Credit Union. We are deeply rooted in the real estate development and construction sectors of the GTA. As mortgage lenders, we've seen increasing speculation in new high-rise condo builds, such that by 2019 speculators accounted for up to 80% of unit purchases and possibly more. In their recent economic report, the chief economist of CIBC reported this number to be north of 70%.

This trend, I maintain, had the result of shifting the demand curve upwards. Speculators have not historically dominated the market to this extent, and they have different interests. Families buy a home to hold and raise kids and are often financially stressed, while speculators look for short-term gains and often have more money than families do. This shift resulted in housing becoming unaffordable for families. Additionally, this buying frenzy spilled over to other types of homes, including detached suburban homes. Private equity funds have been building portfolios of detached single-family homes to hold for capital gains. Families can't compete with the purchasing power of private equity funds.

Speculators bet on short-term gain. The primary intent of these investors is to flip their purchase contracts. In normal markets there are also investors that buy to hold. These are not the investors being referred to in this discussion.

This hyperdemand increased developers' margins very substantially. This is important to take note of. By some accounts, margins increased to as much as $400,000 per unit. As the various sector partners took note of the developers' increased margins, contractors bid up their contracts, labour negotiated for more, prices of building materials increased and of course municipalities demanded more.

Rapid increases in interest rates in 2022 were very effective in taking the speculators out of the market. Urbanation, a real estate research and consulting firm specializing in condominiums, reports that there are currently 40,000 condo units for sale in the GTA, including unsold units in development, assignment listings and resale listings on MLS. They state that it will likely take up to 50 months for the market to absorb these units based on current sales rates.

A long-term strategy to return the single-family housing market to families is paramount for our social and economic well-being. If speculators or flippers return to dominate the market as interest rates moderate, families and first-time buyers will continue to be shut out of the market. Another significant effect will be a housing market that resembles a commodities market, whereby only people with money will invest and trade housing units as between themselves. There's already much evidence of that.

This commoditization or financialization of the single-family housing market may also impact mortgage financing in the long term. The security of having a fixed-rate mortgage together with a long amortization period are traditionally intended to make it easier for average income earners to buy a home.

Mortgage lenders have historically not questioned the risk associated with these features, as the value of real estate has traditionally been predictable. As the housing market becomes more like a commodities market, though, and therefore, more volatile, the question becomes whether mortgage lending should be more like commodities lending. Should mortgages look like margin loans, whereby, like with commodities loans, the lender can call a loan if the value of the house drops?

As I'm sure you're aware, the federal government holds substantially all of the risk for residential mortgages through CMHC's securitization plans.

In its economic and social report dated May 2024, Statistics Canada reported that “it is not yet clear” whether “inflation...in 2022 was driven by demand [or by supply] factors”, and that rent paid “for housing contributed significantly to the high inflation in all four quarters of 2022.”

There is no long-term upside in having speculators dominate the housing market, and left to interest rate policy alone, speculators will come back as rates stabilize. A fiscal policy that includes a very significant capital gains tax on flipping single-family homes may be more effective in correcting this anomaly. It will have the effect of stabilizing demand and reducing construction costs, and it will return the Canadian dream of home ownership back to families.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Gaudio.

I'm sure there will be a lot of opportunity during members' questions to expand.

Now we're going to hear from Rizwan Mohammad from the National Council of Canadian Muslims, please.

[Rizwan Mohammad, Advocacy Officer, National Council of Canadian Muslims]

Thank you, Mr. Chair and honourable members of this committee, for allowing us an opportunity to make recommendations as part of your pre-budget consultations.

My name is Rizwan Mohammad, and I am joined today by my colleague, Sadaf Ahmed.

Muslims comprise only about 5% of Canada's population, yet violent Islamophobia has resulted in more targeted killings of Muslims than in any other G7 country since 2017. This last year we've seen a massive spike in attacks on our community, including a massive surge of anti-Palestinian racism.

We are encouraged by the commitment—certainly in words—of all major parties to name and to address Islamophobia with the seriousness it deserves. To that end, we are here to recommend common-sense ways in which we can continue to work together to challenge Islamophobia and uphold our commitments to civil liberties and human rights. These will be further expanded upon in a longer brief that will be sent to this committee.

[Sadaf Ahmed, Manitoba Advocacy Officer, National Council of Canadian Muslims]

Our first recommendation is to invest in a dedicated, national anti-Islamophobia strategy. The persistent rise of violent and systemic Islamophobia demands proactive measures. We suggest two top priorities.

First, let's support good policy work in government and amongst the public. To that end, we recommend increased funding to both the special representative on Islamophobia and the York University Islamophobia research hub, which is providing strategic, non-partisan and evidence-based approaches to challenging Islamophobia and its intersections with anti-Palestinian racism.

Second, let's invest in public education campaigns to drive down anti-Muslim sentiment. As we know, Islamophobia kills and will continue to kill in Canada unless we take more proactive measures. We need to deal with it as we do any other public health problem: by investing in public education campaigns.

[Rizwan Mohammad]

Our second recommendation is to continue to commit international humanitarian assistance to wherever there is the most need as quickly as possible. Canada has a strong history of providing humanitarian support to vulnerable populations, to prevent crises from escalating and to foster a more peaceful world. Such stability helps ensure Canada's safety and the stability of our democracy both at home and abroad.

Budget 2024 proposed providing an additional $350 million over two years to Global Affairs Canada to enhance Canada's ability to respond to humanitarian crises around the world. We recommend that Canada actively review its position and consider increasing international humanitarian assistance by an additional $500 million to commit to wherever the need is greatest, from Sudan to Ukraine, but especially to people experiencing the most severe poverty and in need of the most medical support. Specifically, we recommend increasing Canada's support for UNRWA, given the humanitarian disaster affecting Gazan children and given that UNRWA is the best placed organization to deliver that aid.

Our third recommendation is to commit a budget line allocation to a new Canada Revenue Agency oversight body. Muslim charities have been unfairly surveilled in Canada. The government has admitted there was a potential problem and called for a review into how the CRA audits Muslim charities.

In November 2022, the taxpayers' ombudsman expressed concerns to the Senate committee on human rights that the review he had been tasked with had major gaps because of a lack of access to the files his office needed to conduct a fulsome review. In 2023, the Senate human rights committee's report on Islamophobia found that within the CRA's review and analysis division, or RAD, three-quarters of the decisions to revoke an organization's charitable status were directed at Muslim charities, despite Muslim charities representing less than 1% of all Canadian charities.

We also recognize that there has been bipartisan recognition by the Liberals, Conservatives and the NDP that there is systemic Islamophobia at the CRA and that there needs to be action.

Now, while we have long called for the RAD to be dismantled and we continue to make calls for urgent reform, we propose that a budget line be committed for the Department of Justice to introduce legislation that establishes an independent, civilian body to review decisions of the CRA's RAD to provide timely decisions on appeals. The CRA, unlike CSIS, the RCMP and the CBSA, lacks an appropriate oversight body, as seen by the failure of the taxpayers' ombudsman's report, despite his best efforts.

Our fourth recommendation is to strengthen Canada's weapons permit and procurement policies to ensure that our country does not support war crimes. More and more Canadians are asking for clarity and transparency about the ways in which our weapons export permit policy functions and the ways weapons procurement operates at the highest possible ethical standard.

In 2021, the House foreign affairs committee issued a report entitled “Assessing Risk, Preventing Diversion And Increasing Transparency: Strengthening Canada’s Arms Export Controls in a Volatile World”. Given the recommendations of that report and the International Court of Justice's recent decisions and opinions on the need for all countries that support the international, rules-based order to be in compliance with it, we recommend a specific line to boost the transparency of Canada's weapons export permit and procurement rules to ensure that our government is in compliance with those rulings.

Subject to your questions, these are our submissions.

[The Chair, Liberal, Peter Fonseca]

Thank you very much.

Now we'll hear from the Toronto Police Association's president, Clayton Campbell, please.

[Clayton Campbell, President, Toronto Police Association]

Good afternoon, Chair, Vice-Chair, members of the standing committee and legislative staff. Thank you for allowing me to take part in your pre-budget consultations.

My name is Clayton Campbell, and I'm the president of the Toronto Police Association. The TPA represents more than 8,000 members of the Toronto Police Service, including frontline police officers, special constables, criminal investigators, community response officers and civilian members. Our police members cannot speak on matters publicly. They must remain impartial in the execution of their duties. Today, I'm here to speak for them. I'm also here to advocate for the communities we serve, because there's little difference between what we want, as police members, and what our communities want: safe and healthy neighbourhoods. The fact is that safe and healthy neighbourhoods need well-staffed police services. Right now, our numbers are dangerously insufficient.

Using Toronto as an example, our population has grown by more than 20% since 2010, while the number of police officers has decreased by 2%. Over the same time—since 2010—our percentage of the City of Toronto's budget has decreased by almost 3%. This deficit has a direct impact on how and when we deliver basic policing services to the public. We receive more than two million calls for service every year in Toronto, but our response time for the most urgent emergency calls is almost 18 minutes. That is unacceptable. There are simply not enough members to respond properly.

Although issues with recruitment and retention are directly tied to our battle with the City of Toronto and the Toronto Police Service Board refusing to pay our members what they deserve, we believe there is a role for the federal government. For instance, the 2025 budget could prioritize setting up a comprehensive strategy aimed at enhancing police recruitment nationwide. This strategy could highlight the positive aspects of a career in law enforcement and the diverse opportunities available within police services across Canada.

I would also be remiss if I did not mention that the lack of police resources is only one contributing factor to our community's sense of well-being. This is in large part due to the increase of gun violence and the prevalence of repeat violent offenders out of custody, on our streets.

On gun violence, efforts must be focused on the criminal use of firearms. I am not aware of any evidence that gun bans are effective in reducing gun violence, and Toronto is a strong example of that. So far this year, we have experienced a 43% increase in shootings, and the number of gun-related homicides has grown by 67%. Our members have seized approximately 600 crime guns. At least 85% of those can be traced to the United States. The federal government's gun regulations cost millions of dollars, but it's only a burden for lawful gun owners. We call on the federal government to end the handgun ban and the so-called buyback program with this budget, and to redirect those resources to all police agencies—not just the RCMP and CBSA—in order to address the influx of illegally smuggled firearms.

When it comes to bail reform, change is desperately needed. It is a daily occurrence for our members to arrest someone out on bail. They're being released back into our community only moments after committing very violent offences, such as carjackings and gun-related crimes. I am imploring the federal government, through this budget, to stop placating us with the system you think we need, and to give us the system we're asking for. At the very least, if you're not going to make the legislative changes needed, invest in the enforcement we need to keep tabs on those released into our communities. In Toronto, we used to have robust bail compliance units. Without adequate funding to maintain these units, the responsibility falls on local divisions. As I already mentioned, they are just barely managing to provide basic policing services.

In closing, there's no doubt you will receive thousands of recommendations during this period. While no voice should be larger than the other, I think it's safe to say that our suggestions would be echoed by many other police services and associations across the country.

Again, thank you for the invitation. I welcome any questions you may have.

[The Chair, Liberal, Peter Fonseca]

Thank you.

We're going to hear from Union québécoise des microdistilleries and its general secretary Vincent Lambert.

[Vincent Lambert, General Secretary, Union québécoise des microdistilleries]

Thank you very much, Mr. Chair.

Mr. Chair and members of the committee, thank you for your time and attention today.

My name is Vincent Lambert and I am the general secretary of the Union québécoise des microdistilleries, or UQMD. I also serve as the Quebec representative on the board of the Canadian Craft Distillers Alliance, or CCDA, which represents more than 300 Canadian distilleries. Joining me today is Nicolas Bériault, a member of the UQMD board of directors and co-founder of Distillerie 3 Lacs, located in Salaberry-de-Valleyfield.

The 50 members of UQMD generate over $100 million in spirits sales annually. Our mission is to support the development of the microdistillery industry, to promote the production of local spirits, and to promote them here and abroad.

Since our meeting last May, when I had the opportunity to present our excise duty reform proposal for Canadian spirits, it has been supported by the Canadian Craft Distillers Alliance, which is an association of Canada's provincial craft distillers associations. This pan-Canadian support is a testament to the unity of our sector around this much-needed reform. As the director of the CCDA for Quebec, I am also presenting this national mandate in speaking to you today.

Over the past few years, there has been a real interest in Canadian craft distilleries, which is very similar to the rise of microbreweries in the country. Despite this growth, our distilleries are facing increased competition, especially from the United States, which makes it more crucial than ever to update our taxation model.

In stark contrast, Canadian distilleries are subject to an excise duty of $13.57 per litre of absolute alcohol, compared to only $0.98 in the United States. A Canadian bottle of spirits is therefore subject to approximately $4 in excise duty, compared to $0.29 per American bottle. This difference undermines the competitiveness of our spirits in the marketplace and makes it extremely difficult for our distilleries to expand and compete on a level playing field.

If we take the example of Quebec, taxes and markups account for about 75% of the price of a bottle. For example, for a bottle sold for $40 to the consumer, barely $10 goes back to the distillery. This greatly limits our industry's ability to invest in its growth and to contribute as much as it can to local economies.

Starting in 2018, the United States introduced excise duty reductions for small and medium-sized spirits producers. This has allowed the sector to grow rapidly and generate significant economic benefits. This strategy has created over 1,000 distilleries, tens of thousands of jobs and hundreds of millions of dollars in local economic benefits in every region of the United States. Drawing on this model and that of our own brewing industry in Canada, we propose a progressive taxation system based on production volumes that is designed to ease the tax burden on small and medium-sized producers so that they can become the Canadian economic engines they are intended to be.

Many countries have demonstrated the effectiveness of similar tax policies in stimulating their domestic industries. By applying an excise duty reduction for the three production levels in the spirits sector, we can create an environment conducive to the growth of local distilleries, which will allow Canadian distillers to achieve a level of economic development comparable to economies with similar approaches. This model is consistent with the principles of the World Trade Organization, which encourages policies that promote economic development without impeding free trade.

In conclusion, this proposal goes far beyond simple tax modernization. It is a true economic lever for a dynamic, innovative and growing industry. Reducing excise duties based on production volumes will create a multiplier effect that will benefit many related sectors. This measure will not only support local businesses, but also stimulate regional value chains, which will create thousands of high-quality, well-paying jobs and generate millions of dollars in economic development for our communities in all regions of our great country.

I'll leave you with that thought. Every bottle of spirits produced in Canada represents approximately $20 in local economic development, including the value of the farm inputs used, distribution and associated tourism activities. If Canadians are consuming spirits, should we not find ways to ensure that those products are made here as much as possible, by businesses that are thriving? We could capture not only the tax revenue, but also that $20 per bottle, in addition to the thousands of jobs that could be generated in all regions of the country.

Thank you for your time. We are available to answer any questions you may have.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Lambert.

Witnesses, thank you for your opening remarks.

We are going to move to members' questions. Each party will have up to six minutes in this first round.

We're starting with MP Kelly for the first six minutes.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Mr. Moody, thanks for your remarks and for pointing out that successive Conservative and Liberal governments have rejected the simplicity of the “buck is a buck” quote from the Carter commission period.

I want to take you back to remarks you made earlier when you spoke about the capital gains tax changes being a “proposal that blows a hole in the policy of integration, which has been a core principle of Canadian [taxation] for decades and decades" and that would “cause [various] distortions that are simply not good.” This is partly because of the disconnection between, say, a small business owner with a private corporation and an individual, who are not treated the same, with the small business owner not getting the $250,000 exemption.

Can you comment on the distortions that this policy, as presented, creates?

[Kim G. C. Moody]

Sure, and thank you for the question.

Yes, integration has been a long-standing core principle—and a good one, for that matter—for decades in Canada. It goes simply like this. From an investment perspective, people should be neutral as to where they place their investment dollars in a particular legal vehicle. In other words, if you invest your dollars individually, the tax results should ultimately be the same on the investment income you receive on that, including capital gains.

If you invest in a corporation, like a Canadian-controlled private corporation—a small business corporation, for example—and if you realize investment income, the ultimate corporate tax and the tax on the dividend should roughly be the same compared to the individual.

Now, with the $250,000 threshold, individuals get that annual 50% inclusion rate, but corporations, which are apparently evil, do not. They're taxed on a two-thirds inclusion rate right from the first dollar. That incentivizes investors—smaller investors, of course—to invest personally as opposed to corporately, and that can cause a lot of distortions.

For example, it might be better to invest in a corporation for a variety of reasons—to reinvest in a business, to creditor protect, etc., but now Canadians will be incentivized to invest personally.

I'm concerned about that. The complexity it adds to the tax system is tremendous.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Will that positively or negatively impact the investment climate in Canada? When there's a productivity crisis with an enormous investment deficit in Canada when compared with the United States, is this going to make that better or worse?

[Kim G. C. Moody]

Overall, it will be worse. The integration is one thing, but just the increased rate and tax is another thing as well. I think that, overall, the answer to your question is that it's very negative all the way around, including the complexity. You have to pay clowns like me, you know, expensive amounts of money to interpret this legislation, and that's just not right.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

The high cost of compliance drives away investment and is a drag on productivity. Is that fair to say?

[Kim G. C. Moody]

Absolutely, yes.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I know that in your practice you advise people about where to allocate capital and how to minimize their taxes. I couldn't help but notice that for Brookfield Asset Management, which is chaired by the Liberal leader's adviser—the Liberal leader is, of course, the Prime Minister, so this is the Prime Minister's adviser—his company has relocated from Canada to the United States. Is this just a really in-your-face example of how—

[Julie Dzerowicz, Liberal, Davenport, ON]

I have a point of information, Mr. Chair.

I'm sorry. It's a point of order.

I just wanted to say that Mark Carney is actually the Liberal Party of Canada's adviser, not ourPrime Minister's adviser.

Thank you so much.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Maybe I need to be clarified on this point of order, then, so as not to take from my time.

[The Chair, Liberal, Peter Fonseca]

Go ahead, MP Kelly.