Finance Committee on Oct. 24th, 2022

[Daniel Kelly]

Yes, 100%. The carbon tax is a profit-insensitive tax. It's put on critical business inputs for small firms.

Again, there are mixed views as to whether there should be a carbon tax or not, but even those who love the idea of carbon taxation are telling us that the way the current government has structured it in the carbon backstop provinces is completely inappropriate in a small firm. The concept of getting money back to incent you to reduce carbon usage in other areas doesn't hold when you get zero of that money back.

The feds did put two streams in place, when they first introduced it, for rebate programs for small firms, targeting those communities. Neither program was developed or administered any money. I think the federal government has admitted that small firms have not received any money back from this, so for them it is just a cost driver that is leading to cost inflation for them as they inevitably pass on these costs to their consumers.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

I'm going to go back to the CFIB and agriculture.

One of my understandings is that if a farmer or a business owner has more capital, they will be more likely to invest it in sustainable technology. Currently, Canada is last in the OECD in capital investments. For every dollar that the U.S. invests in capital investments we invest 43¢.

When we take money away from our farmers and our business owners, we limit their ability to invest in more sustainable technologies that can help reduce emissions.

Mr. Kelly, do you think that's a fair statement or would you disagree?

[Daniel Kelly]

Yes, it is, but I will add that the federal government has used a variety of things, such as accelerated depreciation and accelerated CCA, and several ways to try to stimulate more business investment. Some of them have worked imperfectly, but there have been attempts made to do that and we give the government credit for those. However, when you add the carbon tax to the mix and some of the other profit-insensitive forms of taxation, like the payroll-based taxes we're seeing increases in right now, it really hurts.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence. That's your this time.

We're moving to the Liberals. I have MP MacDonald for five minutes.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Chair.

I want to go to the Federation of Agriculture.

We've gone through Fiona on Prince Edward Island as you guys are very well aware. I'm sure Mary keeps you up to date on some of the devastation that we're faced with.

It was interesting to talk to several farmers. You keep hearing a bit of the same message that, yes, they're insured, but they're not insured for the future. I think what they mean by that is that they can build back but they're not going to be able to build back better with the insurance policy they presently have.

Let's say there was a dairy farm with a canopy dairy barn that has been blown down. It's been there for 13 years and has already gone through several storms and a hurricane, but this time it has been destroyed. What's a recommendation from your group in regard to ensuring that these farmers can build back better? I mean not just build what they had and not just deal with the depreciation, but enhance their resiliency and their infrastructure.

[Scott Ross]

There are a few different avenues through this.

First and foremost I would highlight the recommendations in our pre-budget submission around AgriRecovery and AgriStability. When we look at the business risk management programs Canada offers to farmers to help them manage severe situations like this, they need to work in an integrated fashion. That starts with having participation in AgriStability, the margin-based insurance program, essentially, that is offered to farmers. We continue to hear from our members that the degree to which a loss must occur before they can trigger a payment is a real concern. It is driving many from participating in the program. I think for us the starting point is ensuring that we are getting people into that program.

Second, with the AgriRecovery framework, which actually helps with those extraordinary recovery costs, let's ensure that when a disaster like hurricane Fiona happens, we get together afterwards to identify prevention and mitigation measures and start taking steps together between producers and governments to make the steps needed to mitigate a similar instance, if one were to occur in the future. We are seeing more extreme weather events more frequently, and we need to take every advantage we possible can to learn from what we've seen in the past and make sure we do better the next time around.

On top of that, it's really about ensuring that there is continued investment in ecological goods and services programming. Farmers provide such a host of co-benefits environmentally. Ensuring that there is a return on the public good that's being offered there as a more resilient revenue source for this sector is really critical.

[Heath MacDonald, Liberal, Malpeque, PE]

I know you touched on this a bit—and I see it in my riding; I'm from Prince Edward Island—but farmers are good stewards of the land. We know that GHG emissions are 1.6% globally, and in Canada we're at less than 8% of that, I believe. You can correct me if I'm wrong.

You talked about the measurement of climate change. That's extremely important and I think sometimes it gets overlooked.

How do we go forward and ensure that we are measuring crop rotation and measuring everything farmers are doing to eliminate GHG emissions?

[Keith Currie]

I'll start, and then I'll let Scott jump in.

With any kind of initiative that the government embarks upon implementing, we on the ground want to make sure it's practically implementable. Governments around the world have set targets for climate change initiatives without talking to people on the ground to see whether they can implement those practices to reach the goals. The first step is to have a conversation with us about what that's going to look like.

As Scott mentioned about environmental co-benefits, we don't do environmental programs or environmental stewardship in isolation. If we're doing something to reduce nutrient runoff, it's also going to improve the soil structure and sequester carbon. It's going to have multiple benefits.

Take a look at the big picture, but also recognize that there needs to be a plan almost regionally. What happens in Prince Edward Island, on the island, doesn't necessarily happen next door in New Brunswick. We need to make sure that we keep that bigger focus in mind.

I'll turn it over to Scott to get into some details.

[Heath MacDonald, Liberal, Malpeque, PE]

Mr. Ross, I have another quick question. I know I'm going to run out of time, and I may not get another chance.

Where I come from aquaculture is obviously huge. The farming entity is too. One of your recommendations, which I'm very interested in, is to “Formalize an aquaculture sector development mandate at Agriculture and Agri-food Canada”.

Is that something you're pursuing along with that group?

[Scott Ross]

Yes—

[The Chair, Liberal, Peter Fonseca]

I need a 10-second answer.

Thank you, MP MacDonald.

[Scott Ross]

We are supporting the Canadian Aquaculture Industry Alliance in their work in that regard, and we very much view it as an important measure for us.

[The Chair, Liberal, Peter Fonseca]

Thank you. That is the time. I know it goes quickly.

We'll now hear questions from the Bloc.

MP Ste-Marie, you have two and a half minutes.

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

Thank you, Mr. Chair.

I have two quick questions for Mr. Viau.

According to Electric Mobility Canada, the lack of zero-emission vehicles is attributable to the lack of binding legislation. Should we move in that direction?

My other question is about funding for public transit companies.

As you said, people are driving on the roads in cars and not using public transportation as much as they did before the pandemic, as if they have lost the habit.

As I understand it, public transit companies receive less funding because there are fewer riders. So they need to be supported while people get used to taking public transit again. Is that correct?

[Marc-André Viau]

With respect to the question about zero-emission vehicle regulations, we note that provinces and territories with stringent regulations, such as Quebec, a forerunner in this area, and British Columbia, are the most successful in terms of sales. These regulatory mechanisms create obligations for zero-emission vehicle sales. As a result, vehicle producers, dealers and manufacturers are obligated to make such vehicles available.

The reason countries like Norway manage to have electric vehicles account for 80% to 90% of sales is because they have obligations to do so. If you don't force the car industry to do this, they will just take the subsidies that are given to them and not respond to the request. So it is necessary to impose such constraints. We strongly encourage the completion of the ongoing process of establishing zero-emission vehicle regulations for all of Canada.

With respect to public transit, we note that it is more popular in Montreal, where it is at 70% of pre-pandemic ridership. On the other hand, the utilization rate of bridges and roads is at 115% to 120%, compared with before. So we're seeing that a lot of people who were using public transit before the pandemic have not returned to their pre-pandemic habits. That affects public transit companies' revenues, of course, but it also affects congestion and pollution. Congestion also affects the economy. If we want to make long-term gains, we need to support public transit not just in the short term, but also in the long term.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Viau and Mr. Ste‑Marie.

We'll now go to the NDP for two and a half minutes.

Go ahead, MP Gazan.

[Leah Gazan, NDP, Winnipeg Centre, MB]

Thank you.

My question is for Mr. Macdonald.

This past summer there was a report that the government recorded a surplus of $6.33 billion in the first four months 2022-23. This was reported in Reuters. I have the article right here. It claims that the surplus was directly correlated to higher tax revenues.

I also have a report from Canadians for Tax Fairness, which indicates that the government lost $30 billion in revenue in 2021 and that corporate tax avoidance doubled. The $30 billion is a huge number, especially since we know that people across Canada are struggling right now. I know 30 billion things I could have spent it on in the riding of Winnipeg Centre, which competes for the third-poorest riding in the country at any given moment.

I'm hoping you can help me bridge the gap between these reports—for people listening at home—and explain why. It is absolutely offensive to hear the Minister of Finance signalling that things are about to get harder for people. All the while, the government is leaving billions of dollars on the table in tax loopholes for corporations, something that we're calling greedflation.

[David Macdonald]

Certainly, one of the things that both provincial and federal books have experienced in 2022-23 is huge increases in revenue that were completely unexpected at the start of the year. They were even completely unexpected in the spring. This is certainly happening provincially, and we will see an update of that in the federal books in the coming months when we get the fall fiscal update. It is being driven primarily by much higher than expected corporate income tax revenues, which itself is being driven by a record high corporate income tax portion of GDP, as well as record high corporate margins.

Over the course of the entirety of 2022-23, it's unlikely that this will turn the currently projected deficit into a surplus, but it is almost certainly clear the deficit will be much smaller than initially anticipated in the spring budget of 2022.

To your second point on corporate income tax avoidance, what's being measured there is the difference between the statutory rate, which is the 15% that corporations technically owe, and what they owe after a variety of tax loopholes and so on that they're taking advantage of.

One of the biggest factors in 2022-23 is going to be the carry-forward. If companies lost money in the past, they can claim that against profits in the future. If they lost money during the pandemic, in some cases they won't have to pay corporate income taxes for years, even if they are making plenty of money. This, among a variety of other corporate tax loopholes, means that companies are paying far less than the statutory rate of 15%. There's just a lot more leeway, frankly, in corporate accounting than there is on the personal side to avoid taxation.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Macdonald and MP Gazan.

We'll now go to the Conservatives, with MP Morantz for five minutes.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

I want to start with the Chamber of Commerce.

One thing I'm curious about—and I think you've done some research on this—has to do with the interest deductibility rules. The idea, basically, is to combat what is called base erosion and offshoring profits.

In your analysis, are you concerned that the definition of excluded entities might be too narrow and that some Canadian corporations that aren't engaged in this practice and aren't really multinational corporations, which is what this intends to deal with, could be caught by these regulations and inhibited from deducting their true, legitimate business interest costs?

[Alex Gray]

That's a fair statement. Understanding the extent to which these are effectively anti-avoidance measures, the chamber does have concerns about taxpayers whose dealings are not motivated by tax avoidance.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I'm sorry, but could you say that again?

[Alex Gray]

The chamber does share those concerns; we agree. Mainly, they centre on the fact that these are designed to combat tax avoidance. Ultimately, there are many Canadian companies that are not obviously motivated by such intents.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

If you had the chance to suggest changes to the definition of excluded entities, where would you go with that?

[Alex Gray]

That's a good question. We'd have to get back to you in writing for a more fulsome definition.