Finance Committee on May 26th, 2022

[Jean-Denis Garon, Bloc, Mirabel, QC]

I understand.

One of the factors that may explain the potentially mistaken application of this new tax is that the federal government has no expertise in wine. In Quebec, for example, we have the Société des alcools du Québec, and the regulations respecting cider, which for a long time was illegal, have been amended.

Do you think that this was a good-faith error resulting from a lack of expertise and that it could be corrected by an amendment to Bill C‑19?

[Marc-Antoine Lasnier]

Pardon me, but would you please clarify your question?

[Jean-Denis Garon, Bloc, Mirabel, QC]

Do you think we should amend Bill C‑19 to apply the new tax solely to wine, the product at issue in the dispute?

[Marc-Antoine Lasnier]

That would obviously be a huge help to cider producers, mead and berry-based beverage producers and all the partners we've recently spoken to.

[Jean-Denis Garon, Bloc, Mirabel, QC]

This is a significant tax. It may range up to $0.16 per can. In the current inflationary climate, you can't and don't want to pass all of that tax on to consumers. So that'll have an impact on your production costs. Certain producers tell me it might encourage some to use fewer Canadian and Quebec apples and to bring in concentrates from other countries in order to survive.

Do you think that kind of problem might arise after the new tax is applied to your products?

[Marc-Antoine Lasnier]

Yes, absolutely, but we'd see that more in other provinces than Quebec because Quebec regulations prohibit the use of apples from other countries. Our hands are tied in Quebec. In the rest of Canada, however, apples or juice concentrates could be imported from China or the United States, for example.

[Jean-Denis Garon, Bloc, Mirabel, QC]

As far as you know, cider and mead aren't currently at issue in any trade dispute at the World Trade Organization, are they?

[Marc-Antoine Lasnier]

No, not at all; cider isn't an issue. There have also been negotiations between the WTO and federal and provincial governments, and cider wasn't the subject of any targeted negotiations with certain provinces.

[Jean-Denis Garon, Bloc, Mirabel, QC]

I understand.

Mr. Lasnier, you have approximately 1 minute and 20 seconds left.

As you know, we're considering Bill C‑19. Bills may be amended in committee. At the end of your opening remarks, you stated three very pragmatic demands to the committee. Would you please repeat them to the members of the Standing Committee on Finance?

[Marc-Antoine Lasnier]

We're asking that the budget allocate the necessary resources for the compensation program to support the cider industry as a whole.

We would also like the compensation program to be extended to 2030 to afford our businesses some predictability.

We also want to see a timeframe for the implementation of the excise duty so it coincides with the coming into force of the compensation program. As we understand it, the program could be introduced in 2023, but producers will be required to make disbursements in July of this year.

[Jean-Denis Garon, Bloc, Mirabel, QC]

I imagine you were informed of this new fiscal reality at the last minute. Since you're part of the wine industry, it came as a surprise and you need time to adjust, plan and adapt.

Is that consistent with what you've heard on the ground from members of your association and the industry?

[Marc-Antoine Lasnier]

I actually feel privileged to be appearing here today because I think producers on the ground aren't much aware of this issue, even though we've informed them about it and backed that up with numbers. What's coming will be tough on the industry.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you very much, Mr. Lasnier.

Thank you, Mr. Chair.

[Marc-Antoine Lasnier]

Thanks to you, Mr. Garon.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Garon.

We will now go to the NDP.

Welcome, MP McPherson. You have six minutes for questions.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you, Chair, and thank you to all our witnesses for sharing their testimony today. It's been very informative and very interesting. It's my very first time attending this committee, and I look forward to participating.

I'm going to follow up on some of the very brief testimony that we heard from Mr. Mangin and hopefully talk a bit about some of the issues around Bill S‑216 and the BIA.

The reason I want to do this is that we didn't get the opportunity to hear from Mr. Mangin, but this is an issue that's very, very important to me. I know it's very important to many members of Parliament, but I come at it from a bit of a special perspective, I guess, which is that I have been working on changing the direction and control legislation in this country since 2005. We have known that this is a paternalistic and a colonial piece of work within CRA that has needed to be changed for a very long time and has impacted the ability of the charitable sector to actually do the work they are mandated to do. It is in no way reflective of participatory, democratic good practice in charities. It needed to be changed.

When Senator Omidvar came to me and to many other parliamentarians to speak about the changes to direction and control within her bill, Bill S‑216, we of course were all delighted. We were all on board. We were all working with her. The sector has worked very closely with her, and legal experts have worked very closely with her and her team to develop a really strong piece of legislation.

Of course, when we saw in the BIA that it was named and that the spirit of Bill S‑216 was going to be implemented, I think many of us within the House of Commons and many more within the charitable sector were delighted. When we saw what was actually being proposed, the delight turned a bit to disappointment.

I'm going to read from a few different places for you, and I'd like to put some of this testimony into the record. Then I'm going to pose some questions to Mr. Mangin that he can respond to in writing, bilingually, when he's able to do so.

First of all, I want to start with a letter that was written to the government by Cooperation Canada. For those who don't know, Cooperation Canada is an organization that represents many of the charitable sector groups that work in Canada. It's a very long-standing organization that has been in place for over 50 years. It is very well respected and knowledgeable on this file and has certainly taken a lead on it.

In the letter they addressed to the government, they say:

...the BIA reinforces the colonial and paternalistic approach to the relationship between charities and the partner organizations supporting their charitable purposes. It makes the current regime more challenging for organizations to fulfill their charitable purpose by embedding a rigid and prescriptive approach to funding non-qualified donees inside and outside Canada in legislation. It makes the system more confusing, risky and challenging for registered charities and non-qualified donees to work together, and as such, impedes philanthropic and charitable resources flowing to communities that need them the most.

The serious concerns that the sector has with the BIA and that we would like to see changed within the BIA are the proposed definition of a qualifying disbursement, the proposed language relating to directed gifts and the prescribed conditions for qualifying disbursements to grantee organizations.

I know that this committee has received information from Imagine Canada; I wanted to make sure that that information from Cooperation Canada was also included.

I also wanted to give a little bit of insight into what this looks like on the ground. For example, if you're looking at perhaps an indigenous partnership and perhaps there is a requirement to work with indigenous groups that do not, for whatever reason, have charitable status, what we have in the BIA impedes the ability for charities to support indigenous groups that are doing the work within their communities. I think that's something that no Canadians want as we deal with truth and reconciliation in this country.

There's another example when we look at working internationally. Right now, we have an incredible crisis that is happening in Ukraine. I think it's really important that everyone on this committee recognizes that if we don't get this BIA right, if we don't get the direction and control right, those organizations that can do the best work in Ukraine and can do the best work with refugees who have fled Ukraine, Romania, Poland and other countries won't be able to work with Canadian charities because of the aspect of direction and control that we have in this BIA.

As Mr. Mangin was, I suspect, going to tell us, we need to amend the language on direct giving. This would allow Canadian charities to contribute to pooled funds and support non-qualified donees.

We need to remove the reference to disbursements meeting prescribed conditions and replace it with a requirement that the charity instead takes reasonable steps to ensure that the resources are disbursed and used exclusively in furtherance of a charitable purpose. We need to delete proposed regulation 3703 in its entirety. This would allow for regulations to remain in the CRA guidance documents.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP McPherson.

Members and witnesses, we're moving into our second round of questions. In this round, we will have the Conservatives up first. MP Baldinelli, you have five minutes.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you, Mr. Chair.

First of all, thank you to all the witnesses for joining us this morning.

Given the significant interest of Canada's wine industry in my riding of Niagara Falls, particularly in the town of Niagara-on-the-Lake, I'm going to be spending most of my time questioning Wine Growers of Canada and Mr. Paszkowski.

Mr. Paszkowski, in your testimony you had talked about how the sector had flourished since 2006 with the excise exemption that the previous Conservative government had brought in, and since that time how the sector has grown. Near the end of your commentary, unfortunately, you were getting to the end of your time.

I'm hoping you can get your comments into the record on how you think this new excise tax that will apply as of July 1 will impact the sector. How is it at risk?

[Dan Paszkowski]

Thank you very much.

Yes, as I mentioned, there's been significant growth as a result of the excise exemption that was put into place.

You have to understand that the excise duty takes place right after the producer's price on a bottle of wine. As that moves through the price chain, ending up all the way down to the liquor retailer, it's picking up a lot of different ad valorem taxes at the liquor retail level, such as the GST and PST, etc.

The 52¢ per bottle tax, depending on what jurisdiction you're in, will more than double. In the case of the LCBO, that 52¢ per bottle may increase the price of a bottle of wine by roughly $1.15. When you only own 30% of your market, if we pass that tax on but the imports don't, we're going to lose that consumer to imported wine. It's a significant tax that hurts every single wine producer in Canada.

We still don't have the final details of the wine support program. We worked with trade lawyers and experts from agriculture, finance and global affairs to develop a trade-legal program that allowed all wine produced in Canada from fresh fruit to benefit through a grant program based upon the litres of wine produced in Canada. It could not be concentrate or imported concentrate but had to be from fresh fruit, and it applied to both domestic and imported fresh fruit.

By putting a program like that in place, you'd allow the producers to get funding from the federal government to be able to address the investments that they need to make, as they have over the past 16 years under the excise exemption, which grew the industry significantly. That program would work 100% for every wine, cider, mead and sake producer in this country. Every apple producer and grape grower would be a significant beneficiary as a result.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

You mentioned last year's budget and the $101 million that was allocated for a program. Now we're looking at a budget that indicates about $135 million coming in.

Has the government indicated to the stakeholder groups that this extra $34 million in revenue will be flowing back to the grape and wine sector? They promised to make the industry whole. What are they telling you on that?

[Dan Paszkowski]

We have four weeks left until we lose the exemption. I do know, from in my discussions with officials, that they are looking at the funding element, given that $101 million is clearly insufficient to cover off all of the wine produced in Canada. Budget 2021 allocated $35 million in year one, which wouldn't be enough to cover off the grape wine industry, let alone anybody else.

Our understanding is that the dollar component is being looked at, clearly as a result of the projections in excise revenue collected as a result of the loss of the excise exemption, but we still don't have any definite answers.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Mr. Paszkowski, I have one quick question. I believe there are only 36 days until that new tax comes into effect, and we still don't know the details of this program. How does a sector prepare for a tax that's coming in 36 days? Several other organizations, such as the cideries and the craft breweries, have asked for a reprieve on the implementation date, such as extending it for six months. Do you agree with those assertions?

[Dan Paszkowski]

We have obligations under the Canada-Australia negotiated settlement, but there is a new government in Australia right now. If there was an opportunity to get an extension to the end of this year or the beginning of next year, given the fact that we don't know what the funding elements are right now.... We don't know what the details of the wine support program are. Will they follow what we put together with senior officials?

We have elements with the Canada Revenue Agency in terms of moving packaged wine products into retail sectors that have not been addressed yet. We have a problem in terms of July 1; all wine that's packaged before that will remain excise exempt, but in this pandemic, not only have bottle prices more than doubled, but we also have supply chain problems. We can't get our hands on bottles. Even if we want to bottle wine to take advantage of the exemption up until midnight on June 29, which is the deadline, we can't get enough bottles to bottle the wine. That becomes a problem for every single winery in this country.

If there was an opportunity to extend, yes, that would be a good idea.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Paszkowski and MP Baldinelli.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you.