Finance Committee on Feb. 17th, 2022

[The Chair, Liberal, Peter Fonseca]

Welcome to meeting number 20 of the House of Commons Standing Committee on Finance.

Pursuant to the House of Commons order of reference adopted on Thursday, February 10, 2022, the committee is meeting on Bill C-8, an act to implement certain provisions of the economic and fiscal update tabled in Parliament on December 14, 2021 and other measures.

Today's meeting is taking place in a hybrid format pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. Proceedings will be made available via the House of Commons website. The webcast will always show the person speaking rather than the entirety of the committee.

Today's meeting is also taking place in the webinar format. Webinars are for public committee meetings and are available only to members, their staff and witnesses. Members enter immediately as active participants. All functionalities for active participants remain the same. Staff will be non-active participants. They can therefore only view the meeting in gallery view.

I'd like to take this opportunity to remind all participants to this meeting that screenshots or taking photos of your screen is not permitted.

Given the ongoing pandemic situation and in light of the recommendations from health authorities as well as the directive of the Board of Internal Economy on October 19, 2021, to remain healthy and safe, all those attending the meeting in person are to maintain a two-metre physical distancing and must wear a non-medical mask when circulating in the room. It is highly recommended that the mask be worn at all times, including when seated. Members must maintain proper hand hygiene by using the provided hand sanitizer at the room entrance. As the chair, I will be enforcing these measures for the duration of the meeting. I thank members in advance for their co-operation.

To ensure an orderly meeting, I'd like to outline a few rules to follow. Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of floor, English or French. If interpretation is lost, please inform me immediately, and we will ensure that interpretation is properly restored before resuming the proceedings. The “raise hand” feature at the bottom of the screen can be used at any time if you wish to speak or alert the chair.

For members participating in person, proceed as you usually would when the whole committee is meeting in person in the committee room. Keep in mind the Board of Internal Economy's guidelines for mask use and health protocols.

Before speaking, please wait until I recognize you by name. If you are on the video conference, please click on the microphone icon to unmute yourself. For those in the room, your microphone will be controlled as normal by the proceedings and verification officer. When speaking, please speak slowly and clearly. When you are not speaking, your mike should be on mute.

This is a reminder that all comments by members and witnesses should be addressed through the chair. With regard to a speaking list, the committee clerk and I will do the best that we can to maintain a consolidated order of speaking for all members, whether they are participating virtually or in person.

The committee agreed that, during these hearings, the chair will enforce the rule that the response by a witness to a question take no longer than the time taken to ask the question. That being said, I request that members and witnesses treat each other with respect and decorum. If you think the witness has gone beyond the time, it's a member's prerogative to interrupt or ask the next question and to be mindful of other members' time allocations during the meeting.

I also request that members not go much over their allotted question time. Though we will not interrupt during a member's allotted time, I'd like to keep you informed that our clerk has two clocks, one for our members and the other for witnesses.

I would now like to welcome our witnesses.

Joining us as an individual—

[Greg McLean, Conservative, Calgary Centre, AB]

I'm sorry, Mr. Chair. May I quickly interject and ask you to set aside 15 minutes at the end of this meeting so that we can discuss the business of this committee, numerous studies we have in front of us to be discussed next week and further, including the motion that we put in front of the committee earlier this week? Would that be okay for 15 minutes at the end?

[The Chair, Liberal, Peter Fonseca]

I look to the members. That would take up some of the time for witnesses.

[Some hon. members]

Agreed.

[The Chair, Liberal, Peter Fonseca]

It looks like members are in agreement. We'll allocate some time at the end of the meeting.

Thank you, MP McLean.

I apologize to our witnesses for that slight interruption.

As an individual, we have Patrick Taillon. He's a professor and associate director of the centre for constitutional and administrative law studies, faculty of law, Université Laval. We have, from the Canadian Chamber of Commerce, Mark Agnew, senior vice-president, policy and government relations. From the Office of the Parliamentary Budget Officer, we have Yves Giroux, Parliamentary Budget Officer, and Louis Perrault, director, economic analysis. From Transparency International Canada, we have James Cohen, the executive director.

We're now going to hear opening statements from each of the witnesses, one from each of the groups. They'll have up to five minutes to make their opening remarks before we move to members' questions.

We'll start with Patrick Taillon, as an individual, for five minutes, please.

[Patrick Taillon, Professor and Associate Director of the Centre for Constitutional and Administrative Law Studies , Faculty of Law, Université Laval, As an Individual]

Thank you, Mr. Chair.

I would like to start by thanking the members of the committee for inviting me today.

I will keep my remarks brief, focusing only on the underused housing tax.

Let me be clear. I am not criticizing the appropriateness of the policy measure. In the midst of a housing crisis, with prices soaring, the measure is probably a good idea. As a citizen, at least, I see it as a good idea. As a public law professor, I don't have the expertise to say whether the measure can be effective.

However, being a good idea is not an excuse to flout our constitutional principles. From the Charter of Rights and Freedoms to the division of powers, the spirit and letter of the Constitution must be respected. Without the prior consultation of the provinces or an agreement with them—in other words, without some legal due diligence—this good idea has vulnerabilities.

It is clear that the pith and substance of the measure involve the regulation of housing law, and there is no doubt that the provinces have exclusive jurisdiction over housing when it comes to private law, specifically, property and civil law and, generally, in relation to social policies and local affairs.

To overcome that obstacle, to find a way around the division of powers set out in the Canadian Constitution, the drafters of the bill have endeavoured to disguise a regulatory measure—one intended to penalize certain housing practices—as a tax, a new tax. With this tax, the federal government is, for the first time in the history of Confederation, at least, to my knowledge, encroaching on a form of taxation thus far left, and rightly so, in the hands of local authorities at the municipal and provincial levels. I am referring to the property tax.

I see two possible scenarios. The first is to frame the measure as a way of regulating housing law, which would likely make the measure unconstitutional because it goes beyond the jurisdiction of Parliament.

In other words, the bill is obviously and directly linked to the housing law. Therefore, the bill is unconstitutional. The essential character of the bill, its pith and substance, is provincial.

That is the most logical way of framing the measure. Ultimately, only the courts can confirm that interpretation of the situation, after the fact, and if they do, it will automatically lead to the nullity of the measure.

Otherwise, the second scenario, or possible interpretation, is to conceal the true character of the measure behind the tax penalty associated with this federal regulation of housing law. To do so would be to claim that this is merely a tax, setting a dangerous precedent. Introduced without the benefit of co‑operative federalism, the measure would likely upset the delicate fiscal balance of the Canadian federation.

In other words, if the bill is interpreted as a new tax, the bill will be unfair. Without negotiations and the co-operation with the provinces, a federal property tax compromises our fiscal balance. Since Confederation, the property tax has been a local and provincial tool. It's not a good idea to borrow this tool from local authorities.

In short, if co‑operative federalism means anything, the very least the government can do is consult the provinces and negotiate agreements to implement this policy, in keeping with the spirit and letter of the Constitution. The co‑operative mechanism should not, for that matter, allow the federal government to exert any authority over property tax.

To be sure, Canadian federalism involves competition over taxation. The federal government has the right to use all fiscal tools, but the measure in question would genuinely have to be a tax.

It's not enough to call it a tax for the courts to believe it. In all cases, federal authorities must act with a minimum of co‑operation to give every partner in Confederation the necessary and appropriate fiscal space to do what it needs to do.

History has taught us that, once the federal government enters into a taxation arena, it never leaves. During the First World War, the corporate income tax that was introduced was supposed to be temporary. During the Second World War, the personal income tax, warranted under the exceptional circumstances at the time, was also supposed to be temporary. Ultimately, when the government levies a form of taxation, it has a hard time rolling it back.

In conclusion, property taxation is a highly valuable tool, not just for the provinces, but also for local authorities under provincial jurisdiction, so school boards and municipalities.

The fiscal balance within the Canadian federation is already extremely delicate, but will grow more so in the years ahead. Federal underfunding of health care, coupled with skyrocketing needs and backlogs caused by the COVID‑19 pandemic, will put a significant strain on provinces' financial resources. This is not the time to borrow from their fiscal tool box.

Under federalism, the exclusive jurisdiction of the provinces over housing is supposed to be respected and the obligation of co‑operation among the partners in Confederation is supposed to be fulfilled, especially in the area of taxation. There are many ways to solve the problem. It might seem as though they require more time and negotiation, but that is always preferable to a court decision repealing the measure after the fact.

In its current form, the bill has legal vulnerabilities. Even if the courts were to deem it valid, it would likely stifle, or compete with, the very modest fiscal capacity of municipalities and school boards, not to mention provinces.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Taillon.

We now have the Canadian Chamber of Commerce.

Mr. Agnew, you have five minutes.

[Mark Agnew, Senior Vice-President, Policy and Government Relations, Canadian Chamber of Commerce]

Chair and honourable members, it's a pleasure to be back at this committee.

The economic and fiscal update, which I'll call EFU for short, included a number of critical elements for Canadian businesses. I want to focus my remarks on both the elements within Bill C-8 and provide a broader perspective on some of the elements from the EFU.

The first element where I want to underscore our strong support is the funding that was brought in for rapid testing. The Canadian Chamber has seen first-hand the benefits of rapid testing through our rapid testing initiative that distributed over eight million rapid test kits across the country through local chambers directly to small and medium-sized enterprises. Simply put, these kits are helping many businesses stay open, increasing both employee and consumer confidence. Certainly, we believe the rapid tests will remain a critical part of the tool kit as we navigate the endemic existence of COVID-19 in the months and years ahead.

The second element where I want to voice our support is related to the small businesses air quality improvement tax credit. Given the transmission vectors for COVID, we need to maintain support for ventilation to again ensure safe workplaces that will build confidence for consumers as these consumer-facing businesses continue to ramp up their capacity under provincial health regulations.

The third element I want to briefly highlight is the refundable tax credit to support farmers. The impacts of climate change on agriculture have given the industry a stake in taking action, and it is ready to do its part. However, inflationary costs are affecting farmers who face unique needs in Canada. The credit in Bill C-8 is a welcome start, but some of the industry will certainly need more. For example, in harsh climates, where grain drying is important or heating for livestock is needed, higher proportions of carbon-based energy products are used. Certainly, we encourage parliamentarians to look at building on Bill C-8 going forward, such as the study of Bill C-234.

Shifting briefly to the contents of the broader EFU, I want to highlight a few other areas of interest to parliamentarians and the Canadian business community.

The Canadian Chamber was glad to see an extension to HASCAP, given the challenges still facing businesses, as well as the streamlined deduction for home office exemptions, given that we're expecting remote working to continue for the remainder of the 2022 calendar year for many business operations.

We also noted in the EFU the subsequent extension that was announced for CEBA payments to December 2023. This is a welcome step for many of our members, and we hope there can be a further 12-month extension through to December 2024. Underscoring the support, I'd like to point out to members that we had our chamber annual general meeting last autumn, where the extension through to December 2024 was voted on and supported overwhelmingly by delegates from across the country to support those from the hardest-hit sectors.

We also noted the government's continued intent in the EFU to move ahead with a digital services tax, which was recently affirmed in a ways and means motion tabled just before the Christmas recess. The chamber continues to have concerns with not only the design features in the bill but also the retroactive application and the issues that it poses in our relationship with the United States. We hope the government will instead prioritize its efforts toward the multilateral digital services tax agreement that's been agreed by the OECD and G20.

Finally, we also noted that the EFU underscored the government's intent to move ahead with a tax incentive to support carbon capture, utilization and storage. Again, that is welcome news for our members, and as the country makes a transition toward net zero 2050, there is certainly no panacea. With a range of tools, CCUS will be a critical item for the realities of the Canadian economy, not only for the oil and gas sector but also for other sectors like fertilizer, cement and utilities. The tax credit's design and rates not only need to ensure the credit is viable but also recognize that CCUS is going to be a critical part of Canada's transition toward net zero 2050 and also our short-term 2030 climate targets.

Thank you for the opportunity to comment on both the contents of Bill C-8 as well as the broader economic and fiscal update.

I look forward to taking questions from members in the Q and A.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Agnew.

We are now going to hear from the Office of the Parliamentary Budget Officer.

Monsieur Giroux and Monsieur Perrault, you have five minutes, please.

[Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer]

Good afternoon, Mr. Chair, vice-chairs and members of the committee.

Thank you for inviting me to appear today.

With me today, I have Louis Perrault, director, economic analysis.

My office has published costing notes addressing several measures in part 1 of Bill C‑8. First, we prepared a costing of the measure to increase the eligible educator school supply tax credit from 15% to 25% for eligible teaching supplies of up to $1,000. We found that this measure would cost approximately $7 million in each tax year.

On January 31, we also released a costing of the underused housing tax act measure, which would implement a 1% tax on the value of dwellings owned by non-resident, non-Canadians that are vacant or underused. We estimated that this measure would generate $130 million in tax revenues in 2022‑23 and an estimated total tax revenue of $600 million over the next five years.

We also costed the small businesses air quality improvement tax credit, which would provide a 25% refundable tax credit for the installation or upgrade of ventilation and air filtration systems in small and medium-sized businesses. We estimate that this credit would cost $165 million over the next five years, beginning in the current fiscal year.

Finally, we released a report this morning providing an assessment of house prices relative to a household's capacity to borrow and pay for the purchase of a house in selected Canadian cities. We found that, at the end of 2021, the average house price was more than 50% above what a household earning average income can afford in Hamilton, Toronto, Halifax and Ottawa, and between 30% and 45% of what the average household could afford in Vancouver, Victoria and Montreal.

I would be pleased to answer any questions you may have about our work as a whole. My office and I look forward to reviewing your suggestions on how we can best serve the committee and help you in your work examining Bill C-8 and throughout the 44th Parliament.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Giroux.

Now we'll hear from Transparency International Canada and James Cohen.

[James Cohen, Executive Director, Transparency International Canada]

Mr. Chairman and members of the committee, thank you for inviting me back to speak to you today.

My name is James Cohen, and I am the executive director of Transparency International Canada. TI Canada is a registered charity and is the Canadian chapter of Transparency International, the world's leading anti-corruption movement.

Concerning Bill C-8, I would like to focus my remarks on part 2, the underused housing tax act. Here I would draw the committee's attention to the difficulty that the government will face identifying what is outlined under “Interpretation and General Rules of Application” as “specified Canadian corporation”.

Canada has had weak beneficial ownership laws, which have allowed individuals to hide their identity behind anonymous corporations, trusts and nominees. A foreign buyer of Canadian property could funnel their funds, whether licit or illicit, through various jurisdictions, ultimately landing in an anonymous Canadian incorporated company with nominee directors signing for it.

In 2016, TI Canada's report “No Reason to Hide” found that out of the 100 most valuable properties in Vancouver, no one truly knew who owned 46% of them. In a 2016 report called “Opacity: Why Criminals Love Canadian Real Estate (And How to Fix It)”, TI Canada and our partners conducted a risk assessment of money laundering vulnerabilities in greater Toronto area real estate. Between 2008 and 2018, we found that companies owned 37% of homes valued at more than $5 million, and more than half of homes over $7 million.

I would like to stress that there is nothing inherently illegal about establishing a numbered company or purchasing a property through one. However, I flag these numbers to the committee as a warning on a critical hurdle that will face the underused housing tax act.

Thankfully, there is progress being made on beneficial ownership transparency in Canada. TI Canada applauded the government for proposing a publicly accessible corporate beneficial ownership registry in the 2021 budget. The government recommitted to this proposal on the world stage at the U.S.-hosted Summit for Democracy in December last year. Canada has to wait some time for the registry, however, as it has been pledged for 2025.

Until it is up and running and developed to a high standard to verify data, there is still the problem of anonymous corporations being used to purchase property. As well, the provinces and territories need to help this effort by also legislating beneficial ownership transparency. British Columbia has the land ownership transparency registry, although it has flaws. Quebec passed Bill 78, which will make beneficial ownership information publicly available on their corporate registry.

Going forward, I would encourage all federal parties to converge on agreement about the need for the publicly accessible beneficial ownership registry and speak with provincial and territorial counterparts to bring them on board. In the context of housing, it will help to add supply without even hammering a nail.

Thank you. I am happy to take any questions from the committee.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Cohen.

I'm sure the committee members have many questions for all our witnesses. We are going to start with our first round of questions from members.

Each party has up to six minutes to ask those questions, and we're starting with the Conservatives and MP Lawrence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

I'd like to thank all of you for your testimony. It's very much appreciated.

As you are all aware, Bill C-8 was a fiscal aid update. Its stated purpose was to help the Canadian economy recover from the pandemic. However, in the interim, we've had another significant event. The government's escalation of the Ottawa protest has now led to the invocation of the Emergencies Act. Among the powers the government has given itself is the ability to freeze dissenters' bank accounts. I'll read from the proclamation. It says that payment processors must:

...report certain transactions to the Financial Transactions and Reports Analysis Centre of Canada and to require any financial service provider to determine whether they have in their possession or control property that belongs to a person who participates in the blockade....

In the justice minister's comments to the media, he clearly included political dissent in those comments.

My concern is for the economy and the economic impact that will have.

Perhaps I'll start with you, Mr. Taillon. If, in fact, the government overreached with these powers and Canadians felt as though their assets were exposed and could potentially be frozen because of political dissent, what impact could that have on the economy?

[Patrick Taillon]

I am mainly here to comment on the measure to tax underused dwellings. My sense is that the tax will not take a significant amount of money away from individuals and put it in the government's coffers. As I see it, this is more of a regulatory measure in disguise, aimed at penalizing certain harmful practices in the housing market. I don't think the measure is likely to bring in much tax revenue.

As for your question, specifically, I gather you are referring to announcements that were made this week. Unfortunately, I haven't had the opportunity to take a close look at that information.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you.

To Mr. Cohen, in a similar vein, do you believe that the government has been transparent—

[Sophie Chatel, Liberal, Pontiac, QC]

I have a point of order, Mr. Chair.

The witnesses are here to debate Bill C-8, not the Emergencies Act. Thank you.

[The Chair, Liberal, Peter Fonseca]

Yes. On the point of relevance, MP Lawrence, keep it to Bill C-8. Thank you.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I believe that I have a wide view, and I've already started those comments, so I'm going to continue.

Mr. Cohen, do you believe the government has been transparent with respect to the implementation of the financial aspects of the Emergencies Act?

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I have a point of order.

Chair, again, the question has nothing to do with Bill C-8. We're here to study Bill C-8 and the witnesses have been invited to discuss Bill C-8. I would ask that all members focus on the bill before us, which is why the witnesses are here.

[The Chair, Liberal, Peter Fonseca]

Yes, the witnesses are here for Bill C-8. Those are the remarks they've made, on Bill C-8.

MP Lawrence, please stick to Bill C-8.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I appreciate the chair's comment, but I'll continue with the question.

Mr. Cohen, please go ahead.

[Sophie Chatel, Liberal, Pontiac, QC]

I have a point of order.

It's not just us, but the witnesses. The earlier witness said too that he's here to answer questions on Bill C-8. That's why we have invited our witnesses today, not to discuss the Emergencies Act and hypothetical results.

I don't know how to reframe it for my colleague Mr. Lawrence, but it's not relevant to Bill C-8.

[The Chair, Liberal, Peter Fonseca]

Keep it relevant to Bill C-8 and respect the witnesses. That's what they are here for.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, but these events intercede with our economy, which is what we are here to study with Bill C-8. This forms the very background, which has really changed dramatically our discourse, including the discourse on Bill C-8.

Mr. Cohen, kindly respond. I'm hoping my time is being adjusted for the interruptions.