Finance Committee on Feb. 17th, 2022

[The Chair, Liberal, Peter Fonseca]

Thank you. That is the time, Mrs. Chatel.

Members, we are moving to the third round. This will be the final round before we take some time for other business.

We have the Conservatives up first with Mr. McLean for five minutes.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

Welcome witnesses. I'm pleased to see a few people I'm used to seeing at some of these committees. Mr. Giroux, Mr. Perrault, thank you for coming.

My first question will go to Mr. Perrault or Mr. Giroux, whichever one of you would like to answer.

I know you're both adept at finance. If you were an investor, in an inflationary environment like Canada has been designed to be by the fiscal monetary policies of this government, would you accept a 1% tax on a safe investment when you're getting a 28% return per year on a Canadian housing investment?

[Yves Giroux]

That's a hypothetical question. I would probably personally decline such a proposition, because I probably don't have enough money, but also because it's probably not the promise of great returns.

[Greg McLean, Conservative, Calgary Centre, AB]

I'm sorry, Mr. Giroux. What was the last part of that?

[Yves Giroux]

There's probably not a great return on that investment going forward, but that should not be construed as providing investment advice.

[Greg McLean, Conservative, Calgary Centre, AB]

Mr. Giroux, I'm sorry. I'm pulling this out of your report that we received this morning.

According to your report, the average house price is up 43% in Canada in the last two years. It's up 97% since December 2015, about the time when this government took office. More or less it has doubled since this government started instituting their housing policies versus the ones that preceded them. Obviously, something is not going right as far as housing affordability goes and the policies associated therewith.

Are you telling me that a nominal investor wouldn't accept a 1% tax on a 28% return?

[Yves Giroux]

That's based on past returns. Going forward, I'm not sure I would make that investment. I understood your question that way. I'm sorry if I misunderstood.

Based on past returns, yes, a 1% tax would probably not make much of a difference, but going forward with the increase that's on the horizon in interest rates and the expected and relatively slow growth in household incomes, I don't personally think there is that much more room for house prices to go up. That's just my personal view and it's based on the mismatch that we have seen, or the delinking of house prices with the affordability that average households are seeing.

Again, this is not to be perceived as any type of investment advice....

[Greg McLean, Conservative, Calgary Centre, AB]

Mr. Giroux, I appreciate that.

For a typical house in Canada it was a 26% increase year over year in December and a 28% increase year over year in January. The inflationary effects are continuing in real assets in Canada. I would suggest, and you might be able to verify, that it's largely because of fiscal and monetary policies that are leading to an inflationary environment, which is particularly reflected in asset inflation. Would you say that?

[Yves Giroux]

That has played a role and we outline in our report that household incomes have gone up and in part due to COVID-19 supports. That being said, it's not the only factor. Given that housing markets differ from region to region and from city to city, there's obviously much more than one factor at play. Demographic issues and supply issues are also important factors.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Giroux. I'll move to Mr. Cohen now.

Mr. Cohen, thank you for your testimony today as well.

I really appreciated what you referred to as condos being a safety deposit box for illicit funds in Canada. We allow a lot of illicit money to be parked in Canada. It's, as you say, a safety deposit box in Canadian real estate, primarily condominiums. We've also seen a rise in crime in the neighbourhoods where those properties are being bought. That crime includes the negative effects of fentanyl overdoses and other homelessness activities affecting the social fabric of this country.

Is that something you look at as a linkage, illicit money and the nature of the illicit money leading to societal decline due to higher crime rates and addiction, because what flows with illicit money is illicit activity?

[James Cohen]

There's definitely a link with the mechanisms that money launderers provide to the person committing the crime. Inevitably, at the end of the day, you're inevitably trying to get that dirty money into the licit economy.

Something that's been in the news a lot, especially in British Columbia, is this Vancouver model of money laundering, this idea of the money coming over from underground banks in mainland China into Canada into underground banks and being used to purchase property. The one thing, though, is that the money gets mixed in with things like the fentanyl trade in Canada. While there's usually an emphasis on the foreign funds in this, there are also illicit funds within Canada that are being moved through our property systems or the other tools and gaps that money launderers will find.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP McLean.

We are now moving to the Liberals, and we have MP MacDonald up for five minutes.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Chair.

Thank you to the guests. I want to go to Mr. Agnew in regard to his comments on the digital services tax and a multilateral agreement with the U.S.

Can you expand on that conversation and tell us what the benefits would be?

[Mark Agnew]

Given the complexities of the digital economy that we're all in, having a single global set of rules is absolutely critical. I think the OECD has done a good job of delivering that.

The concern that we have is on the current legislative proposals to push forward with a sort of made-in-Canada digital services tax proposal. We think the focus should be on the multilateral deal and implementing that.

Another area of concern with the current legislative proposals would be the retroactive application. There are a number of things that companies have to do to get ready. Given that we're already a couple of months into the year and there's going to be a retroactive application of about two years, certainly it would be administratively quite complex to be able to do that.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

I have a couple of comments. Where I came from, the benefits were forthcoming and well received in small to medium-sized businesses, which are the majority of our businesses in Prince Edward Island.

I'm curious. What are your performance objectives or indicators that say this is a success or this is a failure? How do you do that from the national chamber office in regard to what has worked and what hasn't worked?

[Mark Agnew]

In regard to what specifically? I'm sorry. I didn't understand.

[Heath MacDonald, Liberal, Malpeque, PE]

It's in some of the programs that are initiated by the federal government.

[Mark Agnew]

Certainly job retention is quite an important metric. You've heard throughout the pandemic a lot of people speaking about the connectivity between the employer and the employee. Given labour shortages, employers need to retain those connections. One thing that a number of these programs did was keep workers employed. When we're now in a phase with things starting to open up, employers aren't having to go from scratch and compete for talent.

[Heath MacDonald, Liberal, Malpeque, PE]

I have one question on what you brought up around farmers, Bill C-8 and climate change.

With regard to risk assessments from climate change vis-à-vis financial institutions, are you hearing that lending authorities are going to start asking for specific reports relevant to a business and how they're participating in climate change or reducing their GHGs? Do you believe that will be a criteria for many of your businesses going forward in accessing money from lending institutions?

[Mark Agnew]

That's becoming a bigger and bigger theme, particularly from large institutions that are lending out. One of the things that is becoming a problem is the proliferation of the ways that reporting has to be done and the number of frameworks that have to be done. As much as the goals are laudable to support a transition to net zero 2050, we need to have a way that's not overly cumbersome administratively for businesses. That we've certainly heard from a lot of our members.

[Heath MacDonald, Liberal, Malpeque, PE]

Do you have any numbers on the insolvency in the last two years in relationship, possibly, or in close proximity to COVID-19 for businesses across the country?

[Mark Agnew]

We have numbers through the Canadian survey on business conditions. I don't have those on hand, but I would be happy to pass those back through the chair and the clerk to you.

[Heath MacDonald, Liberal, Malpeque, PE]

Were there any surprises? Were they higher or lower? In normal circumstances, were they comparable?

[Mark Agnew]

It's hard to say. We're in an unprecedented pandemic period. It's been elevated, but with an emphasis on the travel and hospitality industries, as they've faced the strongest public health restrictions on their ability to operate at capacity.

[Heath MacDonald, Liberal, Malpeque, PE]

Looking back now, these programs that started out in COVID-19 through the federal government, whether it be CERB or CEWS or what have you, were beneficial to small to medium-sized businesses across the country.

I have a quick question on proof of vaccinations. They had a positive effect—I believe and you can tell me otherwise—on small businesses. Now some of those regulations are being lifted across the country as well. Many businesses are saying that they're going to keep them. I want to know what you're hearing.