Finance Committee on Nov. 5th, 2024

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

Can you clarify, then? Are the Prime Minister and the leader of the Liberal Party the same person?

[Julie Dzerowicz, Liberal, Davenport, ON]

Yes.

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

Okay. That's good. I'm glad we clarified that.

Mark Carney is the adviser to Justin Trudeau, who is the Prime Minister of Canada and leader of the Liberal Party. Are we all okay with that?

Okay. That's good. Thank you.

The question, then, was whether or not this could be seen as a rather spectacular example of businesses choosing the tax domicile or the business location that's in the best interest of their shareholders.

[Kim G. C. Moody]

Well, if you want a quick comment, I mean, certainly I don't know the insights, but do I think that it's a rather high-profile example of what I see in my practice day to day? Absolutely.

I'm sure that taxation has been a part of that overall equation. Obviously, I don't know, but I can tell you that in the files I deal with day in and day out, taxation in the last nine years—in particular, the last five—has been a significant factor for successful Canadians leaving Canada and it's concerning.

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

That's capital flight—

[Kim G. C. Moody]

Yes.

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

—and this results.... What are some of the consequences of this? Unemployment...?

[Kim G. C. Moody]

Unemployment, loss of taxation revenues on the investment dollars that were otherwise placed in Canada, the business loss: It's just a shame.

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

You spoke about Dr. Mintz's projection on how this will suppress the stock of capital. How does that affect working people, the people who rely on investment to give them the opportunity to earn better paycheques?

[Kim G. C. Moody]

Here's a real-life example that I'm working on right now. There's a manufacturing outfit in Ontario that I've been working on to move to—of all places—Florida. There could be a loss of 225 jobs because of that. Is high taxation a significant factor for that? Absolutely it is: There are other reasons, but taxation is towards the top of the list.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we'll go to MP Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank all the witnesses for their presentations today. They are very, very important. I won't have time to ask all of you questions, but I'm hoping to get to a couple of you.

I'm going to start off with Mr. Gaudio from the Italian Canadian Savings and Credit Union Limited.

Thank you for being here. We haven't heard the perspective of someone who runs a bank and has a lot of experience in seeing a lot of people take out mortgages, so thank you for being here.

If I heard you correctly, you said speculative buyers—I also use the word "investors", because there are lots of people listening at home, and I want to make sure I'm simplifying—are buying single-family homes. They're fixing them up and then selling them at higher prices within a two-year time frame. They're basically flipping them. This pushes up not only the housing prices but demand, and this also pushes up developer margins, and contractors up their prices as well.

Your solution is a punitive capital gains tax on non-principal residences that are not held for at least two years. Do I get that right?

[Fausto Gaudio]

That's almost right.

[Julie Dzerowicz, Liberal, Davenport, ON]

Okay.

[Fausto Gaudio]

It isn't so much an investor who's buying a property and improves the property and then sells it within two years. That's not it. This is about investors who buy from developers three years before a project is finished, or possibly earlier. They buy a condominium unit and then hope to sell the contract before that unit comes to market. There have been many of these investors. CIBC says north of 70% of the purchases are of those type. I maintain that it's higher and the developers I talk to maintain that it's higher. These investors enter into a contract and then try to sell the contract before the unit comes to market.

[Julie Dzerowicz, Liberal, Davenport, ON]

Are they able to sell that unit at a much higher price than they bought it for?

[Fausto Gaudio]

That has been the case, as we know, since the recession of the 1990s corrected, i.e., when prices began to increase again in 1995. By about 2000-01, these increases in real estate in general continued. Speculators came into the market in a very, very big way, and my position is that they now dominate the market because they buy substantially all of the new-build condominium units, and subsequently there was what I refer to as a "buying frenzy". Of course, they buy it with the expectation of making a capital gain by selling that contract, by flipping that.

[Julie Dzerowicz, Liberal, Davenport, ON]

If I understand correctly, this whole scenario influences what developers want to build, because they can make quite a bit of money from this. Is that true?

[Fausto Gaudio]

I think we all know that there's been a huge build of microunits in downtown Toronto. I think these microunits—apartments of 400 square feet or 500 square feet—were all intended to capture more and more investors, in other words, smaller investors. By the way, there are a number of big investors, but many of them are quite small.

I think that these microunits that were built in downtown Toronto were intended to capture smaller investors. In 1995, in the recession of the 1990s, there was a phrase that said, "When the little guy gets in, it's time to get out." I think that's the point we're at now.

[Julie Dzerowicz, Liberal, Davenport, ON]

You've been mentioning punitive capital gains tax on non-principal residences not held. What do you mean by "non-principal residences" That's for those who might be listening.

[Fausto Gaudio]

It means that it isn't somebody who buys a unit because they intend to live in it or they live in it. It's just a unit that they hold as an investment. It's not a multiple-family unit, a triplex or a a multiplex. It's just a single-family unit.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

I'm going to turn my attention to the Canadian Steel Producers Association.

We talk a lot about productivity and competition. If we look at global competitiveness, we know that the EU—and depending on who wins in the U.S. today—and the U.S. will likely have in place a cross-border adjustment. This impacts our trade with two of our biggest trading partners in the world.

From your perspective, how do we remain competitive if our products will be subject to high tariffs for not keeping up with the standard of greening our products and greening our economy?

[Catherine Cobden]

Thank you very much for the question.

In fact, global benchmarking demonstrates that Canadian steel is among the greenest in the world, so it's not that we haven't kept up. It's that we may still continue to allow for trade with nations that don't have the same requirements and may practice unfair trade.

Specifically, in one of my recommendations, I asked for the government to consider carbon tariffs. A CBAM—carbon border adjustment mechanism—that you are referring to is a very specific type of carbon tariff. We suggest that we should be very serious about that, to your point. It is a potential threat, so we don't want to be caught off guard. We should proactively prepare for it. Furthermore, we should do that in collaboration with our largest trading partner, the United States.

You rightly point out that the U.S. is doing the investigative work to prepare for carbon tariffs on steel, in particular. Our view is that this won't be a function of whoever is in the administration. We think either outcome of tonight's election means that carbon tariffs will very much be a trade tool the U.S. will contemplate.

Thank you.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

[The Chair, Liberal, Peter Fonseca]

We will now go to MP DeBellefeuille.