Finance Committee on May 17th, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 46 of the House of Commons Standing Committee on Finance.

Pursuant to the order of reference of May 10, 2022, the committee is meeting on Bill C-19, an act to implement certain provisions of the budget tabled in Parliament on April 7, 2022, 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 by using the Zoom application. Per the directive of the Board of Internal Economy on March 10, 2022, all those attending the meeting in person must wear a mask, except for members who are at their place during proceedings.

I'd like to make a few comments for the benefit of the witnesses and members. Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike. Please mute yourself when you're not speaking. For interpretation for those on Zoom, you have the choice at the bottom of your screen of either “floor”, “English” or “French”. For those in the room, you can use the earpiece and select the desired channel. All comments should be addressed through the chair.

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard. I request that members and witnesses treat each other with mutual respect and decorum.

I would now like to welcome today's witnesses. From the Coalition of Canadian Independent Craft Brewers, we have Brad Goddard. From Boating BC Association, we have Bruce Hayne, executive director. From Campaign 2000, we have Leila Sarangi, national director. From the Fédération québécoise des municipalités, we have Jacques Demers, president, and David Boulet, an economist with the policy section.

We will now begin with Mr. Goddard from the Coalition of Canadian Independent Craft Brewers for his opening remarks.

Mr. Goddard, you have up to five minutes.

[Brad Goddard, Coalition of Canadian Independent Craft Brewers]

Thank you for having me present to the committee today.

My name is Brad Goddard. I am the chair of the Coalition of Canadian Independent Craft Brewers, an organization representing 16 of Canada’s leading independent craft brewers.

In 2021, under the advice of the government, our group undertook to engage MNP, a large national accounting firm, to conduct the first-ever economic impact study of our unique manufacturing sector. Knowing that we couldn’t get a full picture of the state of craft brewing in Canada by polling just our small membership, we were able to align our interests with the Canadian Craft Brewers Association, a relatively new national trade association representing Canada’s 1,200 craft brewers from coast to coast to coast. We were able to agree on the definition of “craft” for the study, which was no mean feat. For the purposes of this joint study, we defined craft as Canadian-owned, independent and producing less than one million hectolitres per year. A hectolitre is 100 litres.

Our study was able to show that craft brewing creates jobs—in fact, some 17,340 jobs, not to be too specific—across Canadian communities, both big and small. In terms of direct employment, Canadian craft brewing represents 96% of the brewing industry’s total employment. Our operations are what we call, rather romantically, “beautifully inefficient”. It takes a lot of people to make our beers. We do it without the global procurement advantages or scale that Canada’s largest brewers have. This means that our sector not only hires local; we also buy local inputs, use local logistics companies and stimulate the economies right outside our front door.

Our community of brewers is telling us that there are major barriers not just to growth but also to survival right now. Our study told us that most craft breweries producing less than 10,000 hectolitres a year, which is most craft breweries, are not profitable. If these entrepreneurs can survive until they reach 20,000 hectolitres, the majority of them will then become profitable. Now mash in runaway inflation and the bubbles in our beer quickly start to disappear. Our research tells us that malt prices, the backbone of our product, have increased between 20% and 50% this year; aluminum by 15% to 20%; and fuel surcharges, which is how our materials get to us and our beers go off and find their consumers, by 75% to 100%.

The answer for managing these costs would typically be to raise prices, but what we see in Canada is that beer, our national beverage, the affordable luxury during tough times, is relatively inelastic in terms of pricing. Our customers and our consumers are getting squeezed to such a degree that they’re drawing the line on beer and saying they cannot afford price increases. Beer Canada’s most recent statistics show a sustained decline in the volume of beer sold, with people drinking less beer, flat beer prices and Canadians refusing to pay more.

We’re a sector in rapid growth and we're tight on free cash. What little cash we have is just barely covering our rapidly increasing costs. Our study did look at options to help our sector not only survive but thrive. The answer is to modernize beer excise schedules. Beer excise has been untouched since the government made adjustments in 2006. The reduced rates that went into effect on Canada Day of that year supported a brewing industry poised for growth. At that time there were 88 craft breweries, and growth was capped at 75,000 hectolitres. Fast-forward to today, and that number has grown over 1,000% to 1,200 craft breweries, with much of that growth happening over the last seven years.

So what’s our bright idea? Eliminate excise on beer volumes under 10,000 hectolitres and then use a progressive tax structure as independent brewers invest and scale their businesses to a new volume cap of one million hectolitres. I realize that growing the excise cap from 75,000 hectolitres to one million hectolitres feels like a big jump, but some of Canada’s largest craft brewing markets, such as British Columbia, Alberta and Saskatchewan, defined craft brewing at 400,000 hectolitres. That spurred a renaissance of rural brewers setting up shop in small communities across those provinces.

To take some more sticker shock away, MNP’s work on our revised excise schedule shows a meagre net reduction in tax revenue for the Government of Canada of $4 million. The more craft brewing grows, the more people we hire, the more we spend and the better off Canadian communities are.

I know that this committee has heard from sectors that are contemplating paying excise for the first time. Our industry has done a lot of the heavy lifting when it comes to excise, and now we need the government to choose to invest in our sector to help us grow through these challenging times.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you very much for those remarks. I appreciate them.

Now I will hear from the Boating BC Association and Mr. Hayne.

[Bruce Hayne, Executive Director, Boating BC Association]

Thank you very much, Mr. Chair.

Thank you to the committee for allowing us to present today. I don't think I will take the full five minutes to do the introduction, but I would like to frame some of my remarks for discussion later.

My name is Bruce Hayne. I am the executive director of the Boating BC Association, which represents over 300 recreational marine businesses in the province of British Columbia. While I don't speak for all of my counterparts across Canada, we're certainly united on many of the discussion points today.

Just to frame it a bit, B.C. accounts for 25% of the recreational boating industry in Canada. We have revenues of over $2.5 billion in the province each year. Recreational boating represents over 20,000 jobs in our province of British Columbia.

First and foremost, we're opposed to the recreational tax on recreational boats in excess of $250,000. It has been two years since we've been discussing this on Parliament Hill. We came here a little over two years ago in a blizzard in January. At the time, we felt that the 10% luxury tax was the worst thing that could possibly happen to our sector.

Little did we know that six or seven weeks later we would be hit by the pandemic. Since that time, as an example, our association has not been able to hold the Vancouver International Boat Show, which sees 30,000 people come through the doors of BC Place each year. That represents over 70% of the revenue to our association.

Fundamentally, as I've said, we are opposed to the tax. It has not worked anywhere in the world where it's been tried, whether that's in Spain, in Italy, in New Zealand or in Southeast Asia. Recreational taxes on boats have been a dismal failure, and they've been repealed everywhere in the world where they've been tried.

This tax was meant to ask the wealthy to pay a little bit more. While that's a terrific sound bite and on the face of it seems like a logical argument, what it does is actually hurt middle-class jobs. It hurts jobs in manufacturing and in dealers and brokers. It hurt jobs in marinas where boats are stored, in repair shops and in the hospitality industry. On the manufacturing, as an example, just in B.C. we have several large manufacturers in this province that are going to have to scale back. One of the manufacturers has in fact pulled out of its manufacturing in Canada and is now moving to the States.

Also, this tax is fundamentally unfair. For instance, there is no proposed luxury tax on luxury motor homes, as an example, but there is on recreational boats. We simply don't understand why this tax is targeted to a specific industry.

Next is the blue economy. The government has stated that the blue economy—in other words, the economy of the oceans, both on the east coast and the west coast—is going to play a fundamental role in our economic recovery from COVID-19. This tax quite frankly flies in the face of that statement.

There are so many people who simply cannot afford vacation property or waterfront property in B.C. or anywhere across Canada. For many folks and for many families, a recreational boat is their waterfront property. They get to spend time with their family on the water each and every weekend, and that is their vacation home.

Many people, of course, think that a $250,000 boat may be a luxury yacht. It simply isn't. A $250,000 boat is a sport boat. It's a fishing boat that dad and son can go out in and that the family can go out in on the weekend and enjoy. These are the recreational opportunities that so many families are looking for.

We realize that the government is determined to implement this tax, and we've been fighting it, as I've said, for over two years. Fundamentally, we're opposed to it. However, we understand that in all likelihood this tax is going to be implemented, so we're going to ask for four things if and when this tax is implemented.

The first is an exemption from tax for all deals signed before the legislation comes into effect, regardless of delivery date.

Currently, retail deliveries completed and registered before September 1, 2022, and contracts completed before December 31, 2021, would be exempt, but our supply chain disruptions mean that many of these vessels are not going to appear in Canada for the next two years. We're asking for an exemption from the tax for any legitimate deal that is pending prior to the implementation.

The second thing that we're asking for is to tax the net price of the vessel, not the gross price, which is, quite frankly, the way that cars and boats are sold now. If you buy a $50,000 car and you have a $20,000 trade-in, your GST or HST is obviously on the net $30,000. That's not the way that this tax is proposed to be implemented.

Third, we would like to provide an exemption for businesses that are purchasing vessels for rental. Currently the way the legislation is written, any recreational vessel with a berth—in other words, with a bed—would have the tax applied. That means that houseboats, for example, on the Shuswap in the interior of British Columbia, or fishing charters and so on with berths in them would be required to pay the tax. We simply don't see that as being fair.

Finally, we'd like to exclude the luxury tax from the HST, or the GST in the case of British Columbia. As written, it would be on top of the luxury tax final price, so it would be a tax on tax. We're asking that there not be a tax on tax.

With that, I've gone over my time.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you very much, Mr. Hayne.

We're now moving to Campaign 2000 and Ms. Sarangi.

[Leila Sarangi, National Director, Campaign 2000]

Hello. Thank you very much for inviting me to appear today to speak to Bill C-19.

My name is Leila Sarangi and I'm the national director of Campaign 2000, which is a coalition of over 120 organizations working to end child and family poverty.

Today, more than one in six children in Canada lives in poverty. There are measures in budget 2022 that are extremely important for these children and families: dental care for children, starting this year, and new investments in Jordan's principle to advance equitable access to services for first nations children. Infrastructure investment in housing and child care, if designed well and targeted, would also eventually help low-income children and families, but that is still years away. Today, low-income and marginalized families continue to struggle with poverty and the ongoing effects of the pandemic.

We know this budget wants to turn the page on income supports to individuals. This is where I'm going to focus my comments today, because it's so crucial to the families I'm representing.

On May 7, just over a week ago, all pandemic-related income benefits to individuals expired. This included the lockdown benefit, the sickness benefit and the caregiving benefit. Temporary EI eligibility requirements are set to expire on September 25 of this year, and promised permanent reform is not allocated in this budget. We have not yet turned the page on the virus and it is still out there making people sick, but now there are no income supports for people who need to isolate or care for family.

Further, budget 2022 does not deal with the punitive clawbacks to income benefits experienced by low- and moderate-income families. These clawbacks started almost immediately for people who received social and disability assistance. Taxes filed last year triggered further clawbacks on GIS and Canada child benefit payments, as well as to a range of provincial and territorial benefits. In July of this year, we expect yet another round of clawbacks to refundable tax credits, including additional clawbacks to the Canada child benefit, a program that we know is crucial to lifting children out of poverty.

I want to be really clear on this point: These clawbacks are detrimental and punitive. From the outset of the pandemic, we have been collecting stories about how income benefits help low-income earners meet their basic needs. People shopped locally and buoyed local economies with their purchases. We have been collecting stories about the shock of these clawbacks, which were not expected. These families do not have the financial resiliency to deal with unforeseen reductions, or even foreseen reductions, to their monthly budgets—budgets that have to account for every nickel and dime, because there is so little money, especially right now with rising inflation and the rising cost of living.

Now the government is seeking CERB and CRB repayments. Letters have been sent out by Service Canada and the CRA. Maternity benefits are already being garnisheed by 50% for new mothers. We understand that flexible payment plans are being offered on an individual basis, which is a nice gesture, but even a $25 monthly repayment plan means that families will skip a meal, medication or Internet bill payment to make that payment.

Clawbacks to GIS for low-income seniors have been reversed, repayment relief has been given to the self-employed and partial relief has been provided to students. Our recommendation today is to provide what we have been calling a “full CERB amnesty”. This includes immediately ceasing pursuit of people living on low or moderate incomes for repayments of CERB and CRB; legislating the reinstatement of pandemic income benefits at the full $500 weekly amount until employment insurance is reformed; refunding all lost benefit amounts related to CERB and CRB receipt; and ensuring social and disability assistance adequacy through increased investments in the Canada social transfer, tied to adequacy standards and accountability mechanisms.

Thank you for your time today. I look forward to answering any questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Sarangi.

We'll now hear from the Fédération québécoise des municipalités for up to five minutes.

[Jacques Demers, President, Fédération québécoise des municipalités]

Good morning, everyone.

I am very proud to be here today to discuss the federal budget with you.

My name is Jacques Demers, and I am the mayor of Sainte-Catherine-de-Hatley, the prefect of the Regional County Municipality, or RCM, of Memphrémagog and president of the Fédération québécoise des municipalités, or FQM.

I am accompanied by David Boulet, FQM's economic adviser. I will be sharing my speaking time with him.

I will start by briefly explaining what the federation is.

FQM, which has 1,025 member Quebec municipalities, is the municipal organization that represents the most municipalities across the province. FQM represents the regions, territories and the rural world. A great deal of economic development takes place in the RCMs.

What we want to do today is show you the impact the budget has on investment in our structures. Quebec has recently taken major steps and will be taking more over the next few months, particularly with regard to Internet access. It will also have to examine the cellular network. We will have to invest in a great deal of important infrastructure, such as roads and dams.

I will now turn the floor over to Mr. Boulet, who will provide you with more technical details.

[David Boulet, Economic Advisor, Fédération québécoise des municipalités]

Thank you, Mr. Demers.

Good afternoon, members of the committee.

The rural world definitely has its particular features. Every one of Quebec's regions is unique. Investment needs are different in the regions, and public policies must be adjusted accordingly.

We often see underinvestment in regional infrastructure and services, and it always seems more difficult to convince governments to invest in sectors with low-density populations. Today we will try to show you how important investment in infrastructure or climate change mitigation, for example, actually is.

The federal budget includes some positive measures for Quebec's regions. In housing, for example, the announcement of a more than $11 billion investment in affordable housing is good news for development in the regions. All the initiatives designed to increase the number of housing units are worth highlighting. However, the implementation of those measures will still entail many challenges. A cohesive relationship between the federal and provincial governments will be essential to the success of that rollout.

Housing has become a critical problem in the past few years, and it's no longer limited to the cities and urbanized areas. Quebec's regions face housing challenges. The task is no longer merely to provide social or affordable house, but also to house workers and newcomers. This is even more important in the context of the present labour shortage. The housing shortage also prevents certain regions from taking full advantage of the current interest in Quebec's regions, which rose during the COVID‑19 pandemic and has been accelerating since it began.

The federal budget also includes new funding for regional economic development. A total of $1.5 billion is earmarked for development agencies to support the economic recovery. We welcome that initiative.

Now I want to discuss FQM's priorities, which do not necessarily appear in the budget, but which are key to the development of Quebec's regions.

[The Chair, Liberal, Peter Fonseca]

Monsieur Boulet, you have about 40 seconds or so.

[David Boulet]

All right.

Does that take into account the technical tests we did earlier?

[The Chair, Liberal, Peter Fonseca]

I did add some time, but go ahead. If you can....

[David Boulet]

The priority for Quebec and its regions is really cellular coverage. Operation High Speed, which was implemented jointly with the Quebec government last year, will provide Quebec households with high-speed Internet access by September 2022. FQM would like to see a similar investment for cellular coverage to provide services to all areas and to enable families to settle anywhere across Quebec's regions. It will help provide this essential service to all citizens as well.

It's also important for safety reasons.

I wanted to talk about infrastructure, but I imagine we'll be discussing it later.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Boulet and Mr. Demers.

I'm sure you will have a lot of opportunity as members ask questions to go more in depth in what you want to say.

In our first round, each party has up to six minutes to ask questions, and we're starting with the Conservatives.

I have MP Chambers up for six minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses who have appeared on very short notice. Thank you for rearranging your schedules to be with us here today.

I have a few questions for our panel. I'd like to start with Mr. Hayne from the B.C. boating association.

You alluded to it in your opening remarks. Typically, who is an individual or a family? What do they look like? Who's a regular purchaser of a vessel that would be caught under the boat tax?

[Bruce Hayne]

Thanks for that question.

Through the chair, $250,000 is the threshold for the tax. A $250,000 boat could be a wakesetter boat, which is a sport boat that people would use for waterskiing, surfing or wakeboarding behind. Those boats are very much in that range. They could easily be an aluminum 28-foot to 32-foot fishing boat that has some electronics on it and power behind it. Those boats could easily exceed $250,000. These are not necessarily yachts.

When the Financial Post and the National Post did articles talking about boats over $250,000 when the proposal of this tax originally came out, the picture they attached to article was of a vessel that was probably $2.5 million or $3 million. This is not the case. These boats are family boats.

On the west coast, particularly when people go out for the weekend and sleep overnight in their boats and go up and down the coast, this is a very average family type of boat. It's capturing many, many people with this price range.

[Adam Chambers, Conservative, Simcoe North, ON]

It's not nearly the 0.1% or even the 1%. Based on what I heard you say, these are families who are looking for recreation alternatives.

As someone who's familiar with the financing of some of these vessels, can a family who's looking to purchase a boat, maybe a family weekender, finance the luxury tax? Is that something they can receive financing for?

[Bruce Hayne]

Typically they would receive financing for an all-in price. Yes, they could finance the tax, but of course today's interest rates—and the interest rates continue to go up—are just going to increase the cost for families.

Many families are going to feel that this is pricing them out of range. When you add a 10% luxury tax on top of existing taxes—GST, PST or HST—and then you put financing charges on top of that, it simply is putting it out of range for many folks.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

Do you have an estimate of how many jobs would be negatively affected just in British Columbia, or maybe some anecdotes that you've heard so far?

[Bruce Hayne]

We're currently surveying our membership to see how many jobs are currently being affected by this proposal.

I was just at a boat show in Sidney, B.C., on the island over the weekend, and many of the dealers and brokers were saying they're laying off staff at this point already. Campion boats, as an example, in Kelowna, is in the process of moving their manufacturing to the States. That's in excess of 60 jobs. Neptunus Yachts in Kitchener, Ontario, is going to have to lay off about 50 people. They simply aren't going to be able to sell boats in Canada with the luxury tax on them.

[Adam Chambers, Conservative, Simcoe North, ON]

Would it surprise you to learn that the government did not complete an economic impact assessment before making this policy change?

[Bruce Hayne]

Through the chair, thank you.

We've been asking for the past two and a half years to look at the impact on the economy. We've done our own independent studies and presented them to the Minister of Finance and to the government. Every time that we've come up with a logical answer or a logical argument to the tax, we've been met with roadblocks. This is about the appearance of taxing the rich, if you will, rather than the impact on the economy or even the tax revenues for the government.

[Adam Chambers, Conservative, Simcoe North, ON]

I like to say that it's the government's version of “let's eat the rich”.

Mr. Hayne, I have a final question. You rely a lot in British Columbia on cross-border tourism. Are you following or are you aware of the small vessel crossings that CBSA has shut down? It was over 400 small vessel crossings. It has now been limited to 84 crossings.

Do you have any border communities that rely on tourists coming from America that may be impacted by this?

[Bruce Hayne]

Through the chair, yes, we are very concerned about the reduction of the CBSA border crossing points.

Many of our communities on the island and in southern British Columbia see American vessels coming through. During COVID, when there was a restriction on vessels or an elimination of cross-border recreational boat travel, many of our members up and down the coast were dramatically affected. Some of them went out of business as a result of that—fishing charters, resorts and things like that.

This is a real concern for us, because we need to have those American vessels coming through and spending their recreational dollars in Canada over the summer.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much for your time.