Finance Committee on May 26th, 2022

[Yves Giroux]

Yes, we use the same elasticity, because there is not much available data on demand elasticity for these types of goods. They are not particularly popular. There are not a lot of international studies, or at least studies for markets comparable to Canada's. The elasticity we used, if I recall correctly, is based on an American study that was done in recent years. Elasticity was therefore estimated to be -2.4 and I believe that was based on luxury vehicles. I'm trying to see in my notes whether that's really it, but I believe it is. We didn't use separate elasticity for vessels, vehicles and aircraft. We used the same figure, which, as you mentioned, is a source of uncertainty.

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

Yes, exactly. The purpose of my questions is precisely to understand what the boundaries of the study were, because we don't have much information owing to the few research studies that have been conducted in this area.

Of course I am particularly concerned about the aircraft sector, because that's an important driver for the Canadian and Quebec economy. Many people are worried about it.

For example, Bell Helicopter Textron will be affected by this tax on sales of luxury goods. The company is wondering whether helicopters were taken into consideration by your analyst in assessing the measure.

[Yves Giroux]

I believe so. However, it would be useful to check with the manufacturer, Bell helicopter Textron, to determine what proportion of its sales are to individuals. I would imagine that it's rather small, given that the market for helicopters is not a very big one.

I would therefore tell you—very tentatively, and I'd need to consult the analyst—but I believe helicopters were taken into account. Even if that's not the case, the results would be more or less the same, because they likely represent a very small percentage of sales in the aircraft category.

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

Okay. Thank you very much.

The industry is very worried about the impact of this part of the bill on business aircraft. The bill's intent is not to apply this luxury tax on these aircraft and yet, according to the almost incomprehensible 170 pages of the soon to be adopted bill on the new tax, they are. That's what we're being told.

There's the issue of the threshold and the activities of charter aircraft. When companies buy a business aircraft, and it is not in use, they can allow a charter aircraft company to use it, and there is a risk that the charter company will lease the aircraft for personal use. In cases like this, the aircraft manufacturer might be subject to the tax, even though it sold the aircraft to a company. In fact, if the aircraft is used for personal purposes for at least 10% of the time, the 20% tax could be applied.

In view of all this uncertainty, many clients have been cancelling their orders from builders of business aircraft. Most business helicopters and airplanes are exported, but the companies have to collect taxes. What they tell us is that they may have to wait a long time, sometimes up to six or even nine months, before the taxes are reimbursed. That generates significant cash flows, repercussions and uncertainty.

The factors I have mentioned are not measured directly in your note. But they should have been included in the Department of Finance impact study, should they not?

[Yves Giroux]

You've raised an excellent point.

[The Chair, Liberal, Peter Fonseca]

We need a very short answer, please.

[Yves Giroux]

We did give consideration to the fact that some legislative provisions included exemptions for business-related purchases. However, if provisions generate uncertainty, it's highly likely that buyers could postpone their purchases until the provisions, and how they will be applied, have become clear to them.

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

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

We will go to the NDP and MP McPherson for six minutes, please.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you, Mr. Chair.

I would also like to echo my colleagues in thanking the witnesses for being here today, sharing their expertise, and providing parliamentarians with the tools we need to do our job and to continue to play an important role as opposition members. Thank you very much.

My first question is for Mr. Giroux.

I understand that there was a costing note on the mobility tax deduction for tradespersons and indentured apprentices. I'm wondering if you would be able to walk the committee through the estimated costs and what data went into your projections.

[Yves Giroux]

First of all, thank you for the compliment. It's a team effort.

We looked at the data, based on Statistics Canada and some tax deductions, and the number of persons—apprentices and indentured tradespersons—who reported living at a certain distance from their primary place of work. Based on the number of these tradespersons and the estimated cost of travelling back and forth, we estimate that the tax deduction would amount to about—and I don't have the numbers in front of me—$100 million per year in tax relief for individuals who would benefit from this tax provision—that is, those who travel more than 80 kilometres to their place of work.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you very much. That's obviously very important for many working folks in Alberta. We have situations of people having to travel a great distance to get to their place of employment.

Here is my next question for you. In your budget 2022 analysis, you noted that the estimates and the budget once again had discrepancies. Would you be able to highlight some of the areas where you noticed discrepancies, as well as explain why you think a more aligned budget and main estimates process would be of benefit?

[Yves Giroux]

Dr. Yan just told me that in response to the previous question, the distance is 150 kilometres. I apologize for that.

With respect to your question on the alignment of the budget and the estimates, it's fairly easy to see which items were not in the main estimates that could have been in the main estimates. It's virtually all budget items that had expenditures or that have expenditures in the current fiscal year. Because the budget is not and was not tabled before the production of the main estimates by the Treasury Board Secretariat, these items could not be included in the main estimates. There are multiple expenditures that were included in the budget that are not in the main estimates. The list is very long. It's probably a few hundred items.

The impact is that when you as members of Parliament and your colleagues in the Senate look at the main estimates, you don't have the numbers when you look at specific departments or specific initiatives, or even the totals. You don't have the full picture of the government's plan when it comes to spending. You only have the state of the world as it was on March 1, so anything that's in the budget will be reflected later in supplementary estimates (A), supplementary estimates (B) or even supplementary estimates (C). It makes your job significantly more complicated, because you have to approve main estimates that are a very incomplete picture of the government's plans when it comes to spending.

That's why I'm saying, and I've been saying for a little while now, that it would be beneficial for transparency purposes and it would facilitate your work as legislators if the budget items were included in the mains. That would mean either tabling the main estimates later or—and more easily done, I think—by tabling the budget sooner, so that officials in the Treasury Board Secretariat have sufficient time to incorporate these items into the main estimates.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

You spoke of hundreds of examples. Are there any that are particularly noteworthy from your perspective that you could highlight, even if it's just a couple?

[Yves Giroux]

I could flip to any page in the budget. I have the budget here, so I can look at several of the items. There are so many things in the budget that I cannot think of one in particular, but if you think of any departmental spending that's highlighted in the budget, it is probably.... Any example is a good example, I think. I would be remiss if I singled out one or two.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

As much as we try to get you to single one out, I appreciate your honesty and integrity in not doing that.

In your budget 2022 report, you mentioned increased spending on tax compliance. I'm wondering if you could walk the committee through what measures you looked at and what your findings were with regard to that. We know CRA is quick to enforce tax compliance for low-income Canadians, but is less quick to enforce for large corporations. I'd love to hear your insight on how budget 2022 chalks up in that regard.

[Yves Giroux]

In response to your previous question, additional money for CRA that was not in the mains is a very good example. It could have been, had the budget been tabled earlier or the main estimates tabled a bit later.

When we look at additional money for the CRA for enforcement of tax provisions, we find that the expected returns that the CRA or the government expects seem to be going down. That's a bit surprising, because the additional money that the government indicated would be recovered through previous exercises or previous investments or spending initiatives was slightly higher. There's not a lot of detail, so it's a bit surprising in that it doesn't indicate to us why the government would be expecting lower returns with this series of additional spending for the CRA.

However, what we have also noted in the budget is that there's no provision—or no explicit provision, at least—for subsequent activities after additional audit activities. There's no significant amount that's identified. Maybe it's there, but it's implicit rather than explicit. There are no additional amounts for what will inevitably lead to or result in additional opposition to and appeals of these additional audits.

It's one thing that we have flagged in addition to an absence of significant details on the areas that will be the focus of these additional sums for CRA.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP McPherson.

Members, that concludes our first round. Moving into our second round, we have the Conservatives up. MP Stewart has five minutes.

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

Thank you, Mr. Chair.

My first question is to the Office of the PBO.

There was a stunning negative revelation outlined in your update document, which stated that the new luxury tax will result in over $2.8 billion in lost sales over five years. Someone called it a “torpedo tax” before you ask the questions, and I think this might work. I've heard it called this a few times. I've heard other members call it a torpedo tax, and that is valid. I liken what this government has chosen to do as being similar to a submarine targeting an unsuspecting merchant ship in the dead of night. This government is firing a massive torpedo at the Canadian car, boating and aerospace manufacturing sectors, among others.

Considering the struggle that all sectors are having after the pandemic, including manufacturing, are you of the opinion that this tax needs to be put on hold or done away with altogether?

[Yves Giroux]

That's a question that I think is better answered by you collectively as parliamentarians.

My job—and I like it a lot—is to provide you with the facts, the numbers, and I it to people who have been elected who are collectively much smarter than I am to make these decisions. I'll provide you with the numbers, and you collectively decide whether it's worth pursuing and amending, or not. Therefore, I won't pronounce on that.

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

I appreciate that. I was certain you were going to bite on that, but I tried. I know what your job is and you do it very well, by the way.

Obviously, I think the luxury tax is really hurting, and I think it's the wrong thing to do altogether, but you know that's political, and I guess you can't do that either.

The second question I have is this: Considering the 15% decline in sales projected in the PBO report as a result of the luxury goods tax, does the PBO expect job losses as a result of the reduction in sales caused by the tax?

[Yves Giroux]

Normally we would expect, yes, some job losses. The extent of these job losses would be determined after a much more in-depth study of the market. By that I mean whether there would be a greater impact on domestically produced vessels, cars and aircraft, or whether there would be a bigger impact on imported goods.

Not having a very firm grasp of the market and the split between domestic and foreign vessels, aircraft, cars, it's difficult to determine the extent of these job losses, but it is quite clear that with such a reduction in sales, there would certainly be job losses. However, the extent of these job losses can only be determined after a much more in-depth study of the market.

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

Thank you for your answer.

In view of potentially significant job losses as a result of the tax, would it be reasonable, then, to expect a reduction in federal and provincial income tax revenue due to jobs lost as a result of the tax?

[Yves Giroux]

It's clear that with a reduction in sales, there would be a reduction in sales taxes, both provincial and federal.

With the reduction in sales, as I mentioned, there would be a reduction or loss of jobs, but the subsequent reduction in personal and corporate income taxes resulting from these job losses would obviously depend on the magnitude of these jobs that would be lost as a result of the reduction in sales. That would be something that could be assessed once a deeper economic assessment is done, as some of your colleagues have suggested the Department of Finance could do. I think they'd be in a good position. After having performed that economic analysis, they'd be in a good position to determine the impact on government finances.