Finance Committee on May 19th, 2022

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Chair.

Thanks to all our witnesses for being here today.

Chair and colleagues, I'm having some Internet connectivity issues, so please let me know if it gets patchy.

I'd like to start my questions with the Aerospace Industries Association of Canada.

We've just been talking in a different context about the spending in the budget, but one of the areas where there was a great increase in spending, and one that I strongly agree is necessary, is defence. I'm wondering if you could speak to the importance of the new investments in the budget in defence and what impact you think that will have on our national security but also on your industry.

[Mike Mueller]

Excellent. Thanks for the question, MP Baker.

I must say that we really appreciate the support you've given us specifically. We had companies trying to respond to the needs in Ukraine, and I know that you were instrumental in helping connect some dots for us. It was all hands on deck and still continues to be, so I want to thank you for that. Also, then, I'll thank you for the support for our industry.

You're right. We have seen a significant increase in the funds in the last budget with respect to defence and NATO and NORAD modernization, which we were supportive of. There doesn't seem to be a lot of information coming from the government as to where that funding is going to go, so we're eager to work together with the government on that.

As I said in my opening remarks, budget 2021 also included some funding for the aerospace sector, with the direct rationale being because the industry had been hit harder. That's why I was trying to draw that distinction between the investments—which are good, which are needed and which will benefit the industry—and having a tax of up to 20% on the same industry on what has been a bright spot with respect to business aviation. We have a lot of concerns in this particular piece of legislation.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Okay. I appreciate that.

Thank you for the kind words. I'll return the favour and thank you and your members for all that you have done and are doing to support the people of Ukraine in this important fight. It's not just a fight for them; it's a fight for all of us. I think you used the expression, “it's all hands on deck”, and I think that means all hands on deck here in government but all hands on deck internationally as well. Thank you for being part of that fight.

If I may, I'll continue with you, Mike. What I want to hear your thoughts on is this: What types of investments? You talked about how the specifics aren't there yet on the spending, so let's talk about those specifics. What specifically would you like to see? What kinds of investments should the government be making, specifically, to drive growth in the aerospace sector?

[Mike Mueller]

That's a great question, MP Baker. Thanks for that.

With respect to investment, we're definitely looking at innovation across the board. We've seen phenomenal increases with our industry with respect to green aviation. That's a big focus. With respect to defence particularly, there are huge opportunities with respect to NORAD modernization and with our NATO contributions.

One of the things we've really been talking to the government and Minister Tassi about is that, as part of those investments, we want to see where the government would want to go with that. There are huge opportunities in surveillance and autonomous.... There's a whole host of things that Canada can be a world leader in. How do we leverage those procurements to make sure that we're building the industry here in Canada and that we are contributing to innovation for the next 20 or 30 years down the line, so that we can be successful as an industry?

We're concerned about the timeliness of a lot of these projects. The concern is about the government being able to spend that money in a timely manner. That's something we're really looking towards. We're also looking towards this defence policy review that's coming. We haven't heard anything about that. We'd like to be involved. We'd like to contribute to that. Part of our overall message to the government and parliamentarians is on the need for a national aerospace strategy that takes into account the defence spending. I think if we had a significant road map and strategic strategy for the sector as a whole, that would also solve some of the problems we're seeing on this luxury tax piece.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I appreciate that. I think I have only about 25 seconds left, so I won't ask another question. I will thank you and your members again for all that you're doing for the people of Ukraine and the people of Canada. Thanks very much for your input today.

[Mike Mueller]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker.

Now we'll move to the Bloc and Mr. Ste-Marie for six minutes.

Go ahead, please.

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

Thank you, Mr. Chair.

I welcome all the witnesses and thank them for their presentations and attendance.

My questions are for Mr. Mueller, from the Aerospace Industries Association of Canada, and Mr. Chartrand, from the International Association of Machinists and Aerospace Workers.

Bill C‑19 calls for a tax on personal luxury goods. Unfortunately, this tax will also apply to aircraft for corporate use.

The tax appears to be ill-conceived. It is rare that both business and labour agree that there is a problem and that it will impact the manufacturing sector. We cannot afford to weaken the aerospace cluster, which is very important in terms of expertise and jobs.

Mr. Mueller and Mr. Chartrand, your presentations could not have been more compelling. I hope the government will take note and act quickly.

Mr. Mueller, in your presentation, you said that this tax was problematic, and that if the government still wanted to keep it, the aerospace sector would have to be exempted. You went on to say that you had tabled recommendations to better support that industry, should the government want it to apply to that sector as well.

What are those recommendations?

Mr. Chartrand may then comment.

[Mike Mueller]

Thank you very much for the question.

I really appreciate your support for the industry and your interest in it.

We're going to provide a written submission to the committee, but maybe just at a high level, these are some concerns that we've seen with the bill as it is.

Our first point would be let's remove aircraft from it. There is a reputational issue at stake here. We've talked about the good-paying jobs. I took note here of Mr. Tobin's comment on the quality jobs, which is exactly what we have in the aerospace sector. I believe wages are about 30% higher overall, so that's really something we want to protect.

Just quickly on high-level concerns, we have concerns about the rebate provisions of the legislation surrounding the tax and the exports that will have dramatic impacts on cash flow. The threshold currently in place in the bill to determine what is business use—90%—is extremely high. We're suggesting something more practical. The reporting mechanisms are onerous and burdensome on industry, so we're suggesting a daily analysis of flights to determine that threshold, which I talked about previously.

There's also the provision for liability on the manufacturer in case of a false statement, and there's a potential that the manufacturer could pay down the line if the plane's use changes over time. There's a huge liability over the long term, which we're very concerned about. Just on the daily reporting, that kind of liability makes no common sense to my mind.

Also, on the financial threshold, we have $100,000 for luxury cars. It's the same for planes. That doesn't make any sense, especially when boats are $250,000, so there needs to be a re-evaluation of that.

Last is the exemption of charter operations. We're seeing companies across the country that run charter operations domestically. This is going to impact their business models and impact jobs there also.

Maybe I'll just leave it there and make sure that David has time to speak also.

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

Thank you.

Mr. Chartrand, what do you think?

[David Chartrand]

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

What I want to say is that, of course, we can't not agree with what Mike has said industry is saying. As stakeholders in this, as the members who are working in this industry—and I said this in my opening statement—we've lost 30,000 jobs in the last two years. Mike has stated it, and others have talked about the quality of these jobs. These are great manufacturing jobs that we have in this country. We pay a high level of taxes because of the average wage in this industry, which is money going back into government to pay for social programs and other programs.

As I said, if there is one suggestion we want to make it's that we recommended that there be a study undertaken on the impacts of this tax on aerospace. There appear to be oversights in its design. Its potential implications for jobs in the industry are dangerous, so we strongly recommend that the federal government take a closer look at the impacts of this tax.

As part of the undertaking, we recommend that the government include an analysis of similar taxation frameworks in other countries, as we have said, including the lessons learned, namely with respect to those who are part of Canada's supply chain—we can look at those—and those we compete with, so that we can fully understand the impacts on this industry and the employment.

In essence, we completely agree with the industry, Mike and all the stakeholders that there needs to be more extensive work done on this.

Before there was a discussion on omnibus bills. I fully agree that omnibus bills are usually used to try to rush something through, to not do something properly, to not necessarily take a good look at the impacts that some of these things are going to have on Canadians. I strongly agree that omnibus bills are not necessarily in the best interests of our country. I think things should be looked at a little more closely to ensure that we don't lose any more jobs than we already have.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste-Marie.

Now we go to the NDP and MP Blaikie for six minutes of questions.

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

Thank you very much.

I want to start my round with Ms. Vipond and Mr. Roberts from the Canadian Labour Congress to talk a little bit about some of the reforms for the EI appeal board that are in Bill C-19.

I know the CLC and others have expressed concern about the reforms that are there. I wonder if you want to highlight some of the ways you believe Bill C-19 could be amended in order to address the concerns that are coming out of the labour community.

[Siobhan Vipond]

Thank you for the question.

Yes, we fundamentally believe that it is so important for our EI system to be robust and there for all workers, especially during situations like we've had in the past, where we have these economic crises and it needs to be there for workers to rely on.

Like we mentioned, we are happy that there is an address to move forward some of those elements in there, but I think we want to see that it is representative, because it has to be about workers, employers and the government. It is a tripartite commission that needs to be there. We want to make sure that those representatives are from the communities that they are, as they have a better knowledge of the work and a better knowledge of the experience, so that they'll be able to deal with those appeals that come.

When we talk about the appeals, we also think that workers have a right for the appeals to happen in their communities. They have to be able to be there in person. It is a huge barrier if they're not allowed to participate and have to be here in Ottawa, because they're not in person.... If you're in the EI system and you're working with an appeal, that is not an easy road, so we should be doing whatever we can for workers to be there. The recommendations that came out of 2018, we think, could be included in this. We're also worried about the amount of time it's going to take—2018 is a long time ago—so these changes should be implemented relatively swiftly.

Let me pass it to my colleague Chris.

[Chris Roberts, Director, Social and Economic Policy, Canadian Labour Congress]

Thanks.

Just to add to the violent agreement about the shortcomings of omnibus bills, this is another example of where removing division 32 from Bill C-19 for separate study would be a service to parliamentarians and to all stakeholders of the EI system who want to see this fundamental institutional reform happen prudently and with the right amount of accountability, so that we don't repeat the experience of the Social Security Tribunal.

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

Thank you very much.

Mr. Chartrand, on the question of the luxury tax, part of what I'm hearing is that there is a design problem in terms of the way that manufacturers are targeted in the design of the tax. I'm wondering if you have some suggestions for how a luxury tax might be structured in the aerospace industry that would put less of a burden on manufacturers while still honouring the principle behind the luxury tax.

[David Chartrand]

There are already existing provisions in the legislation where we can tax people. We can tax on the usage of aircraft like that. One of the things that we also could do is take a look at used business aircraft. Right now, we're taxing the manufacturer in the way that we're doing things, and we're impeding the production of new aircraft and all that, where most of the jobs are.

When you're looking at the resale of used aircraft, usually that's where somebody who is rich, who has a lot of money and is using it for personal use will go and purchase an aircraft. There's nothing being done on that side. When you're looking, through the pandemic and prepandemic, at the used business aircraft segment, you see that the percentage of sales went up, contrary to the new manufacturing side, where sales went down by 20%.

What we would be doing, if we're not looking at the used market instead of the brand new market, is hurting the industry where all the workers are and where all the jobs are. That's one of the things that we can do. We also could lower the level. The level of taxation is very high. The obligation at 90% is extremely high, so that's another thing we can look at—lowering the percentage. Of course, we'd rather that business aircraft were removed. If that's impossible, there are other things that we can look at.

Always, of course, we're looking at it with the intent of saving as many jobs as possible. We're talking about a thousand jobs, and those are direct jobs. You also have all the indirect jobs that you're talking about, so it's a huge impact on the communities.

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

Thank you.

Mr. Mueller, is there anything that you would care to add on that topic?

[Mike Mueller]

Thank you for the question.

I would just say that part of it is the manufacturing, but one part that's also there is the maintenance, repair and overhaul on those used planes. There's a segment of the supply chain that would be impacted regardless. David is right. There is a personal use benefit taxation already in place, but when you place the tax on manufacturing and then indirectly on the maintenance, repair and overhaul, what we're hearing from companies is that it might be easier just to operate these planes out of the U.S. If you do that, the modifications happen there, the repair happens there, and it's just an absolute devastation to the industry and the workers.

Again, it doesn't make a lot of sense to me, considering the impacts that this will have on the industry, with a thousand jobs lost and a billion dollars in revenue lost. Also, then, once you start taking into account the modifications, the repairs that go along with it and the maintenance, it's quite significant. My concern is that the impacts of this piece of legislation aren't doing what the government would like them to do.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Blaikie.

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

Thank you.

[The Chair, Liberal, Peter Fonseca]

Members and witnesses, we're moving into our second round. In this round, the Conservatives are up first.

MP Stewart, you have five minutes.

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

Thank you, Mr. Chair.

My first questions are to the C.D. Howe Institute with regard to your presentation earlier this afternoon. What did you mean by part of Bill C-19 being “unconstitutional”? I did hear that comment, and it really intrigued me. Could you explain what you meant by that comment?

By all means go into detail so that we can really understand what was being projected there.

[Benjamin Dachis]

Thank you very much for the question.

The changes proposed in the BIA result in corporations now facing administrative monetary penalties, or AMPs, of up to 3% of annual worldwide gross revenues. Let me talk a little bit about the legal process first. If an AMP is penal in nature rather than just a deterrent, then it's effectively a criminal penalty. The alleged offender must be tried in accordance with due process requirements of section 11 of the Canadian Charter of Rights and Freedoms. Neither the misleading advertising nor the abuse of dominance provisions that attract these new significant penalties are criminal offences. The burden of proof to be convicted in these areas is a lower balance of probability standard of proof. The increase to the fines to be set on global revenues of the firm, where the penalties could easily be in the billions of dollars and—this is the critical part—are not directly related to the harms of the practice, greatly raise the likelihood that the fines could be found as penal and, therefore, unconstitutional.

With these large potential penalties, not only is there a risk of unconstitutionality. There's also a risk of overdeterrence. Firms may shy away from some of the practices that are going to be beneficial for Canadians. These potential fines raise reputational risks for Canada as well of not being supportive of foreign direct investment.