Finance Committee on May 18th, 2023

[Alex Gray]

I think it was imperative for the government to match the U.S. fundamentally. We have such an integrated economy with them. It would leave us in a very difficult economic position if we didn't recognize the moves they've made in that sense. We are grateful to see the government recognize that not acting to respond—whether it's to the IRA or the CHIPS Act—would be a fundamental problem for the Canadian economy.

We have heard from members, however, that there is a higher degree of difficulty in it in accessing what the Canadian subsidies would look like relative to the U.S. I don't mean to raise that as a critique. However, I would think, strategically, if you were trying to compete with a neighbour that had a much larger purchasing power, the one thing we could do is at least make our program as easy to access.

You had a second point. I'm so sorry. I forgot it.

[Sophie Chatel, Liberal, Pontiac, QC]

There are a number of important measures in the budget—I won't name them all—but what do you think are the most relevant or important ones, the ones we should focus on?

[Alex Gray]

I think the fundamental one that our members have agreed upon and praised the government for is the investments in clean electricity. This is going to underpin the transition to EVs. It's going to underpin the electrification of homes, and possibly even appliances, running on battery power rather than on and off the grid, so as to stabilize demand throughout.

It's a competitive advantage upon which Canada can capitalize. Your province, Quebec, already has some of the cheapest electricity out there. We hear from several of our members, as wide-ranging as the cannabis sector, that having low-cost, reliable electricity is a competitive advantage that allows them to ship their goods worldwide cost-effectively.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Chatel.

Now we'll hear from the Bloc, and Mr. Ste-Marie.

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

Thank you, Mr. Chair.

Mr. Robertson, in Bill C‑47, there seems to be some confusion regarding services and businesses, how it's done in Canada and how it's done elsewhere. You suggested an amendment to the bill that would solve the problems, but I believe you ran out of time before you could present it.

You have a solution, so I'm listening.

[David Robertson]

Thank you very much for the question. I appreciate Mr. Blaikie's question as well about identifying the recipient of the supply.

The officials—we've listened to the testimony—have consistently said, “Well, with the blockchain, you can't identify who's transferring; therefore, the GST rules can't apply.” For every member of our coalition, I have a contract, and I can identify exactly who they are selling their services to. They're selling their services to non-resident mining pools. Their services are allowing their computing resources to be used by those non-resident mining pools.

As has been emphasized, the reason I know this is bad GST law is that if this industry doesn't get an exemption, businesses in Quebec and Atlantic Canada will incur a 15% additional cost in their operations in Quebec and Atlantic Canada, where it's clean hydroelectric power. They are incentivized to move their businesses—taking all the computing services, the electricity and everything else—to Alberta, my home province, where they will incur only 5% non-recoverable GST on those costs, or move outside of Canada completely.

I know there are concerns about electricity and the amount of power the bitcoin network uses, but the very next thing, which takes even more, is AI. These organizations have brought high-speed Internet to the rural communities they serve. They are employing individuals with high-paying, sophisticated jobs to maintain these networks. My challenge is.... I've asked the officials who have testified in front you. I have walked them through and said, what am I missing in terms of the explanation? It's the non-residents of Canada—those non-resident mining pools that they're selling their services to—that are receiving the transfer fees from the transfer orders on this nebulous thing called the Bitcoin network. The Canadians are being side-swiped by this legislation.

As my friend noted, the legislation was drafted when Mr. Morneau was still the minister of finance. What's been presented and brought forward is first, legislation in February of last year, now revised based in part on our comments. The Finance officials say they recognize that there needs to be an exemption. We're asking for a very simple exemption that provides clarity for the sector: If you are a Canadian and you have a server farm with a whole bunch of computers, and you're selling your computing resources to a non-resident of Canada, let the normal GST rules apply. You get your input tax credits. You can recover the GST on your expenses, like every other exporter in Canada. That exemption is provided. In that circumstance there's no incentive for anyone to move from Quebec or from Newfoundland and Labrador to Alberta.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, Mr. Ste-Marie.

Mr. Blaikie.

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

Thank you very much.

Just following up on this, I've been trying to track the interprovincial component. It seems to me that it hinges on the HST. Is that the case?

The provincial and federal sales taxes are tied up in certain provinces and not others.

[Daniel Brock]

The competitive imbalance is created because of the different provincial and federal taxes. HST jurisdictions tend to be closer to 15%. For non-HST or jurisdictions with no sales tax, it would be 5%.

To be clear, if this law is passed as is, everywhere GST is charged, people would be paying the GST. What is problematic and what the GST should never do is create an incentive for a business to move from one province to another. Provincial governments are free to incentivize businesses to come to their provinces as much as they would like, but federal GST should be neutral on this. This law is not neutral.

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

Strictly speaking, from the carbon perspective, it might incent companies to move not just to Alberta but to Manitoba or B.C., where there's an abundance of hydroelectricity. I think it's something like 98.5% of electricity in Manitoba is generated with renewable hydroelectric capacity. We don't participate in the HST in Manitoba. That would be another potential jurisdiction folks might be looking to move to.

[David Robertson]

The challenge with that is that there is provincial sales tax with respect to the commercial use of electricity. In terms of the incentives....

The reason I've emphasized it in Alberta is that there's no provincial.... All provinces have some form of provincial tax. For some it's through HST, some QST, and for some a provincial sales tax. Alberta is the example where you're seeing a challenge with this piece of legislation.

Here's the reason I know it's wrong. When we harmonized in 2010—Ontario joined the HST system and Quebec's system followed afterwards—the mutual fund industry said they were going to pick up from Ontario and move to Alberta. Rules were specifically introduced, called the selected listed financial institutions rules. They were heavily modified in order to ensure there wasn't a competitive advantage.

However, I have a piece of legislation related to a highly mobile industry—computer servers with electricity, selling that computing power through high-speed Internet to non-residents of Canada—that can easily pick up and move.

On the legislation, my biggest challenge in dealing with the Finance officials is when I've said, here's the fact pattern; tell me what I'm missing. I can identify who the recipient of the supply is. You keep telling everyone you can't identify them. I can tell you exactly who the counterparty is. Why are you bringing them into this legislation? The answer I've received so far is, I don't really agree with it, but I can't express why.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Blaikie.

Now we go to Mr. Lawrence for five minutes, please.

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

Thank you very much, Mr. Chair.

After hearing the collective testimony, I noted that, as often happens in these budget consultations, there are very disparate topics here today. Once again, thank you. We've heard about everything from beer to banking today.

I'm struck, though, with one overwhelming commonality. After eight years, this government is failing all of your industries. The failures are as varied as your industries, from creating investor uncertainty through the inclusion of retroactive taxation, to undermining the hotel industry with a failing immigration system.

Even positives in this budget are merely band-aid solutions to self-inflicted wounds. The cap on the Excise Tax Act would not be needed if this government had not implemented the escalator tax.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I have a point of order, Mr. Chair.

Mr. Lawrence raised a point of order at the end of my time last time, arguing that this is not the time to be answering our own questions, but a time to ask questions of the witnesses. That's not something that I did, but that is something that he is now doing.

I would ask you to remind him of why we're here, and perhaps ask him to abide by his own point of order.

[The Chair, Liberal, Peter Fonseca]

I know we're a collegial bunch here. I'll keep it to that.

You know what? Go on, Mr. Lawrence.

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

I hope my time was preserved through this point of order. Thank you.

[The Chair, Liberal, Peter Fonseca]

Yes.

I'm sure you want to get questions to the witnesses. They're eager to answer them.

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

I do. Exactly. Let's pick up where I left off.

Even the positives in this budget are merely band-aid solutions on self-inflicted wounds. The cap on the Excise Tax Act would not be needed if this government had not implemented an escalator tax. The interswitching provisions would not have been necessary if the government had not cancelled the program from 2014.

I'm truly sorry for what this Liberal government has done to your collective industries and how it has let you down.

I'd like to start with one of the most serious issues. This is productivity, which, in fact, the Liberal Minister of Finance has said is the Achilles heel of the economy.

Mr. Gray, you talked a little about the disincentives to work. You mentioned seniors specifically, but I would broaden that also to parents and other taxpayers who are subject to clawbacks.

Low-income seniors are individuals earning less than $30,000 a year. With clawbacks, they are often faced with paying more than 50 cents per dollar if they wish to return to work. That means, if I'm a senior contemplating going back to work to help out, perhaps, the hotel industry or other industries in their time of labour need.... Maybe they want to make a little extra money. Maybe they want to give their grandkids a present. Whatever they want to do with those dollars, they have to hand over to the federal Government of Canada 50 cents on every dollar. These are people earning $30,000 a year. This is unconscionable.

Mr. Gray, perhaps you could talk about the impact on disincentives to work, such as the GIS clawbacks and other clawbacks and taxes this government is imposing on seniors and parents.

[Alex Gray]

I'm happy to discuss the matter. Thank you.

Seniors are some of our most knowledgeable and experienced workers, by virtue of their time in the workforce. At a time of a labour shortage, it would be a quick remedy to be able to make some of these changes, such as those you proposed.

We've also come out in support of initiatives such as making CPP and EI contributions optional for our seniors over, say, 65 or 70. These are not likely to be people who are going to be dipping in and out of the workforce, so to speak. These are people who are probably going for one last job for a few years and then trying to enjoy retirement.

Equally, we've called for reform of the mandatory RRIF withdrawals at 71 years of age. The RRSP system hasn't been reformed since its inception in 1957, when people could be expected to work until 65 and then pretty much die at 75. That's no longer the case, so forcing seniors to make withdrawals at 71....

I mean, a lot of Canadian tax planning is essentially a game of trying to minimize your income so that you maximize government benefits, isn't it? It's clearly an impediment to meeting the workforce demands of our country. We would be happy to collaborate with anyone here on reducing seniors' disincentives to work.

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

Thank you.

I think nearly all here would be aware and would agree with me, in your varied industries, that one of the challenges that the Canadian economy is facing is with respect to productivity. Of course, we are undermining productivity through the disincentives to work, whether they be substantial tax rates or clawbacks.

The other significant issue—and I'll turn to you, Mr. Hannah, on this—is capital investment. We are scheduled to have the worst capital investment in the OECD over the next 20 years. Do you believe that increasing regulatory uncertainty or taxation uncertainty through retroactive taxation will further undermine the confidence of international investors, perhaps making our already desperate issue, with respect to capital investment, worse?

[The Chair, Liberal, Peter Fonseca]

Give a short answer, please.

[Darren Hannah]

Absolutely.

Is that short enough?

[Voices]

Oh, oh!

[The Chair, Liberal, Peter Fonseca]

Ms. Dzerowicz, the floor is yours.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to say thanks to all of the excellent witnesses for the important testimony that they have given today. Unfortunately, I have only less than five minutes to be able to ask some questions.

Because I'm always curious about labour and immigration, my first question is for Mr. Gray.

You talked about labour needs. Ms. Grynol also did so. We are bringing in a historic number of immigrants. You have identified and said to the committee that there are three areas we could focus on: express entry, credentialing across the country, and seniors.

What specifically do we have to do better to make sure we are matching those who are coming in and immigrating to our country...with the labour needs across our country?