Finance Committee on May 17th, 2022

[Karl Blackburn]

Once again, I can start the answer off and ask Ms. Kozhaya to add to it.

However, what you are saying, sir, is of the utmost concern to me. When I hear officials say we will see, we will adapt and we will adjust once the bill has passed, that ultimately means that we're going to get hit and when we are on our knees and hurting badly, they will listen to us. After all that, their answer will be that nothing can be changed, because that's how the law is written. So I think we have to take the opportunity we have right now.

Parliament's reasoning is basically good. Taxing these luxury items may make sense. In the implementation rules, however, we see that some things may be harder to apply for the Canadian industry. I go back to the example that Ms. Kozhaya gave earlier, talking about manufacturing an airplane. For example, the manufacturer has manufactured its plane, but it sends it to subcontractors to have the interior finished with luxury wood from Quebec, with leather products from Quebec or Canada, and with products from other important economic sectors in Canada. It takes several months to complete. Even if the plane hasn't yet been delivered, the aircraft manufacturer will have had to pay the tax. That is where a major cash flow challenge arises.

Expecting adjustments after the harm is done seems to me to be underestimating the consequences. We work from the same premises concerning the usage rate. Let's not wait to see whether there will be a lower usage rate. If a 50 per cent rate is already used in other sectors, why not use the same rate as in those other sectors and not put the aerospace industry, for example, which has been hard hit, at a disadvantage?

I listened to my colleague from the Canadian Federation of Independent Business answer the previous member regarding the extension of certain measures. I would say that striking a balance, having a debt reduction plan and asking for supplementary measures for certain sectors, seems to me to be going off the track very quickly.

The position taken by the Quebec Employers Council is this: the hardest hit sectors, such as aerospace, tourism, food services or accommodation, should be able to count on government measures up to the end of 2022, to get them through another economic cycle. Those sectors are directly connected with fluctuations in economic cycles. Giving them access to an economic cycle that promises to be very good this summer will get them to the end of the year. As well, being able to count on programs that help them get through this cycle seems logical to us. It has nothing to do with the concerns people in Canadian businesses have about the debt that is being created by the federal government.

Three or four years ago, when it came time to spend $1 billion, people were very concerned. They undertook all sorts of consultations before doing it. Now, whether it's $5 billion or $10 billion or $20 billion, it doesn't seem to be a big deal. In fact, however, somebody will have to pay for it.

I join with the Canadian Federation of Independent Business in saying that we will be capable of generating growth, prosperity and collective wealth if we have a strong economy. So let's support that economy so that it is even stronger and let's choose certain sectors that may be less deserving of getting help now and focus our efforts and go after the most we can get in terms of economic growth. It's a win-win all round.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

Now we'll hear from the NDP. MP Blaikie, you have six minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

Monsieur Laliberté, I was hoping we could come back to the question of the EI appeal board reforms. I believe you made mention of the system that existed before the Conservative reforms.

I wonder if you could talk about the three stages here: the pre-Conservative reforms, what the case was after the Conservative reforms and what the government appears to be doing in the budget implementation act.

[Pierre Laliberté]

Okay. This is a long history, but in short, we had, from the 1940s to 2012, a system that was referred to as a board of referees. Basically, we had, in most communities in Canada, referees who were selected from business and labour, and also named by the government, to oversee appeal processes locally. This is a system that actually was light-footed. It wasn't particularly expensive, because people were being paid per diems per cause per claim, essentially per cause heard. Basically, it did the job. Here and there, there might have been complaints about an individual or something, but for the most part, when you have a system that works for 70 years....

In 2012, there was an unfortunate decision to do away with that. I don't want to remove the responsibility from whoever was there, but I do think there is a certain mentality in the bureaucracy, if I may say so, that processes can be centralized and made more efficient. I think that there was a great deal of that at work at the time, the belief that somehow we could have cost savings by just pooling the OAS, CPP and EI appeals processes together.

As it turns out, it was not that good an idea. A few years later we had to revisit this because there were problems with it, and I think that there was a lot of rose-coloured thinking when it was all put together.

The SST at the time that this reform was being discussed with constituents out there, business and labour groups, was not delivering. It was wholly inefficient and costly, as I said. The government actually did the right thing and basically got a third party to look at it. It bore out, as I said, what we were hearing on the ground, and then they proceeded to have a working group to redesign something that was pretty darn close to what the board of referees' vision was like. As I said, this was announced with some fanfare back in August of 2019, and for some reason, that vision got translated differently along the way.

Now what we have is not a structure that reports to the commission: It reports to the president of the commission, and that's a big difference. That means it reports to the deputy minister of ESDC. There's nothing wrong with the person, but that's not the same thing. That's not what people were aiming at.

One of the problems we've had with the SST as a commission is the reporting. When the SST started getting dysfunctional, it was impossible for us at the commission to get the proper accountability because they were independent. Now what we're doing is exactly the same thing. We're recreating an independent structure that doesn't report to the commission. To us, this does not reflect the stakeholders and the discussions we've had with the government.

Then there is this notion that somehow we're going to have full-time members who will be transferred from the Social Security Tribunal and tagged on with some part-time members on per diems to do.... It's not going to work. It's going to create an acrimonious culture. You're going to have people who are full-time with full benefits, full everything, and then part-timers, who will feel constantly disadvantaged. It's not a good way to start a new slate.

One thing that is absent and is absolutely crucial in all of this—this was really what we heard the most over the years—is the local presence, having members in at the regional level, the local level, who can hear cases in person so that it's not just a theoretical possibility to be heard in person, but it's actual. On this, the bill is absolutely silent, and it's key.

This means that essentially we're going to create a new management structure that will have quite a bit of latitude as to how this thing will be set up in the end. We think that's a mistake. There should be a requirement in there that there is regional representation—reasonable, of course—from all communities across the country so that people can be heard by peers from local communities across the country.

I'll stop here.

[The Chair, Liberal, Peter Fonseca]

Thank you, Monsieur Laliberté. MP Blaikie, that's the time.

Members, we are moving now into our second round. We'll commence with the Conservatives.

MP Stewart, you have the floor for five minutes.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Mr. Chair.

My questions are for the Canadian Federation of Independent Business. I'm perfectly fine with either of the two, whether it's the senior vice-president or the vice-president, to answer, and I thank you for being here today.

With respect to the luxury tax, are you concerned that the highly complex nature of the tax will add to the already significant compliance costs that your members are facing?

[Corinne Pohlmann]

Certainly. Any time you introduce a new tax, it's going to have that impact. The group that we heard the most from when it was first introduced was, as I said earlier, the boating industry. Marinas, for example, which are often small companies, were very worried about the impact this would have on their businesses.

You're right. The burden that's associated with complying with these taxes is always an issue. When we look at regulatory burdens on small businesses and ask about the most burdensome regulations that they face, tax issues come up as numbers one, two and three. There's no doubt in my mind that this would no different. For those that have to pay, it will likely—especially if you're a small company—have a significant impact.

Yes, it would likely have a fairly significant impact.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Ms. Pohlmann.

In Miramichi—Grand Lake, I have a number of small marinas where I live. Near the Miramichi Bay area there are a lot of different marinas and small boating industries locally. I've definitely had people reach out to me and share their concerns on the tax.

Taking into consideration the added compliance costs associated with the luxury tax, the hit to sales revenue through buyers possibly reconsidering purchases because of the added taxes, and then adding in significantly high fuel costs and COVID-related debt carrying costs, do you feel that the budget should have done more, and through what means? You can elaborate on that freely.

[Corinne Pohlmann]

Certainly. We did ask our members right after the budget, in trying to explain to them some of the highlights of it, what they thought of it and whether they thought it was a budget that was good for small business. Unfortunately, very few felt it was a budget that was good for small business. I think a few folks obviously saw some advantages in things like the changes to the small business tax rate and taxable capital limit. Again, it's a very narrow group that would benefit, but it's still a good thing going forward.

What was missing, of course, were initiatives to deal with the debt. What was missing, of course, was how to at least not increase the costs of doing business. Unfortunately, the increases coming in CPP, employment insurance and carbon taxes for the foreseeable future are definitely not going to help. Again, we'd like to see some kind of recognition of the costs that these types of taxes have on smaller companies. The payroll taxes in particular can be really difficult to absorb.

That would definitely be another area where we would like to have seen a bit more recognition on how to help smaller companies through that. The shortage of labour is just another thing added to the mix of challenges that they're facing. Certainly the labour mobility deduction was a very good initiative. Also, the temporary foreign worker program changes that happened just prior to the budget were also a very good initiative. That's going to help many businesses.

There were pieces that were quite helpful, but overall, in the broader picture, I think there's still more that we thought could be done. We recognize that a lot has been done for smaller companies, but unfortunately, as I said earlier, only 40% are back to normal revenues. A lot of them are still struggling to get back on their feet. We need just a little bit more recognition, and maybe not do any more harm and help them get one more step back to recovery.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

I appreciate that, Ms. Pohlmann. I do find that the government recently has been talking about having everyone's back and now they're deeply concerned with affordability, but we're not seeing it in any measures they're putting forth.

I appreciate your answers here today. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Stewart.

We're moving to the Liberals, with five minutes for MP Chatel.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you, Mr. Chair.

I'd like to thank all the witnesses who are with us today. First, I have a question for Mr. Blackburn and Ms. Kozhaya from the Quebec Employers Council.

The pandemic hasn't been easy for anyone. We have had to spend a lot of money. I am still reassured, however, because Canada has the best net debt to GDP ratio in the G7 countries. We also rank very high among the members of the OECD, the Organization for Economic Cooperation and Development.

I would like to know your reaction to our budget, which is meant to be fiscally prudent, but which also contains investments in a green transition and innovation, as you pointed out. Are we on the right track?

[Karl Blackburn]

First, I was rude earlier, because I didn't leave time for my colleague to speak. So I'm simply going to tell you that we had very positive reactions when the budget was released. I'm now going to let my colleague, Ms. Kozhaya, give you more information, out of fairness.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you.

[Norma Kozhaya]

Thank you for your question.

The net debt to GDP ratio is favourable for Canada, true. However, the gross debt to GDP ratio has deteriorated further, and the gross debt is what we pay interest on. At present, we are expecting interest rates to rise, so we have to take a long-term view.

Yes, the government made investments to support the economy during the pandemic. The last budget contained a lot of measures for the green transition, that we welcomed and that we believe are necessary. We have to combine fighting climate change and business competitiveness and use them to create new opportunities. However, we think there are also other programs that could be expensive over time, when interest rates are going to rise. So most importantly, we have to take a long-term view.

There are other things that worry us. For example, at some point, is the tax burden going to have to be increased? We think that we don't have a lot of leeway in this regard, especially for businesses, if we look at what is being done elsewhere. That's why we believe we have to continue to be concerned about controlling the debt in the long term. That is part of the sound management of public finances for all orders of government. We also acknowledge the need to make investments to stimulate the economy when it's necessary and, most importantly, to make the green transition. In addition, we are facing demographic aging everywhere in Canada, and even more so in Quebec. That challenge will bring other needs with it.

All these considerations have to be kept in mind. Canada does have a good track record in some respects, but it also has challenges to meet.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you. I would just like to clarify one point.

The economists I worked with at the OECD always told me that in Canada's case, we had to go by the net debt, because our pension funds are capitalized, whereas the ones in the European countries aren't. It's a gross debt. Since we capitalize them, they have to be deducted from GDP. I respect the economists who gave me good advice on that point. In that case, we have a very good track record, but we can't ignore the efforts we will have to make.

On the subject of the transition to a green, innovative economy, my colleagues at the OECD, and even at the United Nations, often say that the next decade is the decade of action, and that if we don't invest in key sectors, we will no longer be adapted to the economy of tomorrow.

Can you tell us about that, Mr. Blackburn?

[Karl Blackburn]

I'm going to ask my colleague, Ms. Kozhaya, to start the answer off, again, and I will add to it if there is still time.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you.

[Norma Kozhaya]

Absolutely. In fact, the measures that appeared in the last budget showed a desire to develop supply chains around the sectors of electrification, batteries, and critical minerals. Those are things that are important for the next decade and maybe even for the next decades. They are connected with this green transition, which is desirable and enables us to achieve environmental, economic and social objectives at the same time. We think that in the efforts to make a just transition, we also have to pay attention to workers and businesses.

I don't know whether that was the meaning of your question, but those are actually necessary investments that involve both the public sector and the private sector. The private sector has to contribute to it, and the public sector has to support it. There is also the Canada growth fund. We believe this collaboration between the public sector and the private sector, the matching funds, is an important measure.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Chatel.

Now we're moving to the Bloc and MP Ste-Marie for two and a half minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I'm going to address my questions to Mr. Guénette.

Just before doing that, I'd just like to point out that Mr. Giroux, the parliamentary budget officer, does studies every year and shows us that the federal government has more leeway than the provinces. Because transfers have been cut in recent years, we have to be worried about the problem that the debt load represents in the provinces, which Mr. Giroux tells us will continue to grow.

Mr. Guénette, how does Bill C‑19 meet your members' needs and respond to their requests?

If not, what is missing from Bill C-19 that should be in it, in particular regarding the labour shortage?

[Jasmin Guénette, Vice-President, National Affairs, Canadian Federation of Independent Business]

Thank you for your question, Mr. Ste-Marie.

I'm going to reiterate the comments that were made at the beginning of the presentation by my colleague, Ms. Pohlmann.

One of the things we would have liked to see in the budget is the effort to reduce operating costs for small and medium-sized businesses in Quebec and Canada. There has been no announcement about lightening their tax burden. We would have liked to see some announcements about this. There has also been no announcement concerning lightening the debt load that small businesses have had to assume in order to deal with the COVID-19 pandemic.

I want to point out that a very large number of small businesses are in a tough situation, not because they have made bad business or investment choices, but because they have had to deal with mandated restrictions or closings, for example.

The average debt in Canada is $160,000. We would have liked to see measures to lighten small businesses' debt. That is why one thing we are recommending is to increase the grant portion of the Canada Emergency Business Account to 50 per cent. That is also why we are asking that the repayment time for the loan that was received in order to be entitled to the grant portion of the Canada Emergency Business Account be pushed back another year, to give small businesses more leeway so they can find more cash flow to repay these debts.

I would say that these are really the two missing pieces in this budget, for small businesses. There has been no effort made in terms of operating expenses or debt reduction.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.