Finance Committee on May 17th, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 47 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 or remotely by using the Zoom application. As 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, and please mute yourself when you're not speaking. For interpretation, those on Zoom 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.

I remind you that 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, and we appreciate your patience and understanding in this regard. I request that members and witnesses mutually treat each other with respect and decorum.

I would now like to welcome today's witnesses.

As an individual, we have Pierre Laliberté, Commissioner for Workers. Welcome.

From the Canadian Federation of Independent Business, we have Corinne Pohlmann, who is the senior vice-president of national affairs and partnerships, and Jasmin Guénette, vice-president of national affairs. Welcome.

From the Quebec Council of Employers, we have Karl Blackburn, president and chief executive officer, and Norma Kozhaya, vice-president of research and chief economist. Welcome.

We will begin with Mr. Laliberté's opening remarks. You have up to five minutes, and the floor is yours.

[Pierre Laliberté, Commissioner for Workers, As an Individual]

Thank you, Mr. Chair.

Thank you all.

Certain measures in the budget document relate to employment insurance, and I am prepared to address all aspects of that subject that may interest you. With that said, I'm here to speak more specifically about division 32 of the Budget Implementation Act bill, which deals with appeal boards. These are not the most eye-catching provisions of the budget document, or the most spectacular, but they are important for employment insurance claimants and people who appeal decisions of the Canada Employment Insurance Commission.

Before getting to the heart of the matter, I would like to mention that I am not speaking only for myself; I am also speaking for my colleague who represents employers on the Commission, Nancy Healey.

After the budget implementation bill was introduced, we signed a joint letter to the minister that I will send you, expressing our concerns about division 32 concerning the Employment Insurance Board of Appeal and asking that the provisions be removed from the bill and examined in greater depth. Those provisions, which are not very well known, echo an announcement made by the government on August 15, 2019, concerning the return of appeal boards, a tripartite body under the aegis of the Employment Insurance Commission. Since then, implementation of the new structure had been put on ice, largely because of COVID-19, which explains why we are talking to you about it today.

The introduction of the bill therefore shows us certain details of the proposed structure for the first time.

Before diving in, it is worth remembering that the proposed structure is meant to replace the general division of the Social Security Tribunal, a tribunal that was created back in 2012 to replace the board of referees that had successfully administered appeals for the EI program since the 1940s.

It is also worth remembering that this 2012 reform was done with no proper and prior assessment or consultations at the time. For the most part, it seemed to have been driven, ultimately, by cost considerations. My predecessor in this position was informed of the change by senior officials while she was in a budget lock-up. That's just to say that this was not a topic of public discussion. As the disposition of the new SST was included in the Budget Implementation Act in 2012, the reform was essentially imposed with no public discussion whatsoever. This is a mistake we would not like to see repeated in this year's budget.

Over the following years, there was much public outcry over the dysfunction of the SST. This led the minister responsible for the program, Jean-Yves Duclos, to call for a third party review.

The finding of the review bore out the criticism levelled at the SST. It also established that the SST was more costly than the board of referees. The minister then set up a co-development working group with stakeholders from both the labour and the business communities with the objective of re-creating a light in-community road and structure that would deliver justice by peers in an efficient manner. This was done in a tripartite manner under the stewardship of the commission.

I would like to offer that what we have in front of us in division 32 is not what was discussed back in 2018, nor does it reflect, I believe, the vision the government had when it went forward. It seems that along the way, that vision was translated in a different manner.

For those reasons, we'd like to basically call a time out on those dispositions and ask that division 32 be removed from the budget bill and studied separately. The whole world does not hinge on that being included in the budget bill. We believe, given that the intentions of the government don't seem to be fully reflected in the current language, that it would be appropriate and time well spent to sit down and study this aspect with all the parties concerned.

I don't know if I have much time left.

[The Chair, Liberal, Peter Fonseca]

You have no time left.

[Pierre Laliberté]

Well, I'll be happy to go into more of the details of the reasons that bring us here.

[The Chair, Liberal, Peter Fonseca]

Sure, you can do that during question time.

Thank you, Mr. Laliberté.

Now we will hear from the Canadian Federation of Independent Business.

[Corinne Pohlmann, Senior Vice-President, National Affairs and Partnerships, Canadian Federation of Independent Business]

Thank you.

Thanks for the opportunity to be here today. I am joined by my colleague Jasmin Guenette, who will help with answering some of the questions when we get to that point.

First of all, CFIB is a non-partisan, not-for-profit organization that represents 95,000 small and medium-sized companies across Canada. Our members come from all regions of the country and are representative of all sectors of the economy.

It's important to remember that small businesses are still feeling the impacts of the pandemic. Only two in five are making normal sales. Just over a third are reporting no pandemic-related debt. Fewer than one in five indicate that they're not holding any pandemic-related stress. This means that two-thirds of small businesses are dealing with, on average, about $160,000 in pandemic-related debt. More than 80% are still dealing with the mental health impacts of COVID.

While we're pleased that restrictions have lifted, COVID support programs have now ended. Small businesses are now facing a host of new challenges. The most notable are rising prices and inflation, supply chain challenges, increasing government costs and labour shortages, all of which contribute to the rising cost of doing business. In fact, over nine in 10 small businesses are telling us that their costs have increased substantially since the pandemic began and that this is now the number one issue facing Canada's small and medium-sized businesses.

As you might expect, our focus going into this budget was to push for initiatives that might help small businesses deal with their costs, or at least do no further harm. This is also the lens we brought to our reaction to Bill C-19, the budget implementation act. We feel that there are some elements in the act that certainly can help, but there are also a few things that worry us and a number of things that we think are still missing.

Starting with what we liked, we are pleased to see that immediate expensing is finally moving forward after being announced in budget 2021. We've had many calls from small business owners hoping to leverage this incentive, as it was supposed to come into effect as of April 2021. However, without legislation, CRA could not process claims, delaying the use of this incentive at a time when some businesses could really have used it. It's also going to unfortunately result in extra paperwork, as those businesses that may have claimed now have to refile to get the incentive passed back over to them.

We were also pleased to see the labour mobility deduction as part of this bill, as labour shortages continue to cause major issues right across Canada. Having a deduction that allows sought-after tradespeople to deduct up to $4,000 in travel and/or relocation expenses will help make it easier for some of them to accept jobs in more remote areas that struggle to find the skilled workers they need.

We were also pleased to see some provisions that would provide CRA with the discretion to accept late applications for the Canada emergency wage subsidy, the rent subsidy and the hiring program. These programs have been essential for the survival of many small businesses but can be very complex and challenging to apply for. Giving CRA some flexibility with applications will go a long way in making sure businesses that have legitimate claims are still able to access those funds.

However, there are also several elements that we feel were missing from Bill C-19 that could have helped alleviate some of the challenges currently facing small businesses and their economic recovery.

First, we noted that one of the most significant elements of budget 2022, which was to raise the taxable capital limit to access the small business tax rate from $15 million to $50 million, was not included in the bill. This provision is important, as the taxable capital limit has not changed in more than 20 years, and it would allow more small businesses to access the small business tax rate. It's disappointing that it's not part of this bill. We hope to see it implemented very soon.

Similarly, the employee ownership trust is another announcement from that particular budget that was very well received by small business owners but is not included in this bill. Again, we would like to see some movement on that, because it's an important new option for those looking to exit their business.

We were also disappointed to see nothing to help hard-hit small businesses deal with their debt. As mentioned, there are substantial amounts of debt, averaging about $160,000 among about two-thirds of small businesses, and we had hoped the government would respond by potentially doing something like increasing the forgivable portion of the CEBA loan or potentially extending the deadline to pay it off another year.

We were disappointed to see that federal payroll taxes like CPP and EI are scheduled to go up again in 2023—well, for CPP again, and EI for the first time in three years. These types of taxes are actually particularly challenging, as they are profit-insensitive and difficult for smaller businesses to absorb. As a result, when these taxes are increased, they tend to eat into the training costs, the wages they can pay and their ability to grow their business. Finding some ways to offset these costs, at least partially—maybe through an EI tax credit, for example, that allows them to keep some of these costs in the business—would be welcome in the future.

There were also a number of other tax changes that were narrower in scope but would nonetheless have an impact on many different small businesses in the sectors affected by them. These include the introduction of a luxury tax, the ongoing escalator of the beer tax, the elimination of the excise tax exemption for Canadian wine and the introduction of an excise tax on vaping products.

While each may have a purpose on its own, it's really the accumulation of all these taxes that can be devastating for small businesses already reeling under lots of debt, dealing with higher costs of shipping and supplies and trying to find staff who can help them keep their businesses afloat.

The coming months are going to be challenging as we transition Canada from a COVID pandemic with lots of supports to a post-COVID economy with no supports but many new challenges. While supports may no longer be the right policy choices, governments must remain focused on making sure that policy decisions do not make things worse for small business.

Thank you. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Pohlmann.

Now we'll hear from the Quebec Council of Employers.

[Karl Blackburn, President and Chief Executive Officer, Quebec Council of Employers]

Thank you, Mr. Chair.

Good afternoon, members of the committee.

My name is Karl Blackburn and I am the President and Chief Executive Officer of the Quebec Employers Council, the QEC. With me today is Norma Kozhaya, Vice-President of Research and Chief Economist.

Our organization was created in 1969 and is a confederation of almost 100 sector-based associations and a number of member companies that represent the interests of over 70,000 employers of all sizes and in all regions of Quebec in the private and parapublic sectors.

In general, the QEC welcomes the introduction of the federal budget with plans to invest in productivity and the green transition. The QEC is particularly pleased with the tax incentives for manufacturing zero emission technologies and for companies that invest in clean energy equipment. The ecological transition and greening of our economy can also be sources of profitability, competitiveness and wealth for Canada as a whole.

Innovation comes out ahead in this budget since there are both significant and diversified funds that support investments. I am thinking, in particular, of the creation of the Canadian Innovation and Investment Agency and the Canada Growth Fund, which we will learn the details of in the fall.

On that subject, however, I must point out that the luxury items tax that was presented in the budget sends a signal that is inconsistent with the measures I have just listed. In addition, it might have a negative impact on the Canadian aerospace sector, to the benefit of foreign manufacturers.

I want to stress two elements in particular. First, the mechanism providing for payment on delivery followed by a rebate on export of an aircraft will have a significant impact on the working capital of Canadian firms in the aerospace sector. Second, the proposed 90 per cent threshold for the business use exemption is much too high, compared to what exists in other regulations.

On a more positive note, the proposed shift to the green economy provides a significant incentive for business. The amounts provided encompass a wide range of structuring measures, including measures to support decarbonization projects. I would also note certain measures associated with training and the investments to expedite immigration procedures.

Before concluding, I am going to address a few matters that we believe deserve particular attention. First, some projects deserve a boost from the federal government, and in particular incentives for experienced workers, given the labour shortage situation and the extension of assistance programs in certain economic sectors experiencing problems.

Finally, the federal government should quickly initiate a discussion about controlling deficits and the public debt load with the extension or creation of relatively hefty social programs.

Mr. Chair, Norma Kozhaya and I look forward to answering questions from members of the committee.

Thank you for your attention.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Blackburn.

Witnesses, members, we'll now move to our rounds of questions.

In our first round, each party will have up to six minutes to ask questions of our witnesses.

We'll commence with the Conservative Party, and I have MP Albas up first for six minutes.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair, and thank you to all of our witnesses for sharing your expertise on Bill C-19.

I will first address the representatives of the Quebec Employers Council.

Mr. Blackburn, you could start by telling us about the luxury items tax that has been proposed by the government. What will the impact of that tax be on your industries, particularly when it comes to the rebates?

[Karl Blackburn]

I'm going to answer you and then I will turn the floor over to my colleague, Ms. Kozhaya, who will be able to give you more precise information.

First, the aerospace industry, in the present circumstances, after getting through some very difficult times, will obviously suffer the negative effects of that tax, particularly if we take into account international competition, which is very fierce. The two measures I mentioned in our brief presentation are inevitably going to cause a major cash flow problem for the aerospace sector and aircraft manufacturers in Canada.

Second, by raising the business use threshold for an aircraft to 90 per cent in order for it to be considered to be used for a commercial operation and not personal use, it will inevitably create a distortion in the market, when a 50 per cent threshold is used in other comparable sectors.

This is a somewhat general answer, but if I may, I'm going to ask my colleague, Ms. Kozhaya, to give you a fuller explanation in answer to the precise question you have asked.

[Norma Kozhaya, Vice-President of Research and Chief Economist, Quebec Council of Employers]

Thank you for your question.

Yes, as Mr. Blackburn explained, the problem is that the tax is paid directly at the time an aircraft is sold. But the aircraft may stay in Canada for several months to undergo modifications, for example, or for other reasons. Only after the plane is exported is the rebate given. In the meantime, there may be cash flow problems on the order of several million dollars, problems that other manufacturers in other countries aren't subject to.

Obviously, the tax itself is problematic, but assuming that there are reasons that make it acceptable, in our opinion, it is aimed more at individuals, the customers who buy an aircraft for personal use, and not for commercial use. Under the bill, to be exempt from the tax, the aircraft must be used for business purposes at least 90 per cent of the time, or nearly 100 per cent of the time. As well, the calculation is pretty complex.

We also know that the United States had a similar tax in the 1990s that was ultimately abolished, because it turned out not to be a good idea. It puts Canadian manufacturers at a disadvantage. As well, we know that it is an important value chain, for both manufacturers and their suppliers.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Right.

You want us to change the bill to improve the situation and reduce the tax to 50 per cent. Is that it?

[Norma Kozhaya]

It's not the tax, it's...

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

You mean change the usage at 50%. Pardon me.

[Norma Kozhaya]

That's right.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Perfect.

I'll just quickly zip over to the Canadian Federation of Independent Business.

Ms. Pohlmann, would you agree with the Quebec council of employers on their point about changing the personal use category on the luxury tax? Would you also share some of the same concerns about the cash rebates system the government proposes?

[Corinne Pohlmann]

I couldn't really comment as much on that.

On the luxury tax side of the equation, where we heard the most concern from a small business perspective was on the boat and marina side, and the impacts on the boats that were going to be sold. I know that the threshold for buying boats was increased from $100,000 to $250,000, so it's a bit different from airlines and luxury cars. I think our colleagues at the Conseil du patronat were talking more about the airlines. I don't know that we have a clear position on those particular pieces of the luxury tax, because it hasn't necessarily affected our members on the airline side the same way. It's been more on the boat side.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

While I have you here, then, we've had the cider association, craft brewers and the mead association of Quebec all come forward and say that they're having issues with the July 1 drop-dead date of the exemption being removed.

Would your organization favour a six-month reprieve before this new one takes effect?

[Corinne Pohlmann]

Yes, we would.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Do you think six months is adequate for industry to be able to at least make changes and get supplies in for bottling?

[Corinne Pohlmann]

It's a good question. I don't know, but I think we need to sort of give a little bit more time for adjustments to be made.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Great.

How much time do I have?

[The Chair, Liberal, Peter Fonseca]

You have 30 seconds.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

In regard to the EI suggestion that you had for small businesses, could you just reiterate what part of the bill we would need to change, or is that just a general ask of the CFIB in general?