Industry Committee on Nov. 4th, 2024

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you very much.

The reason I'm bringing this up is that it's related to the food prices Canadians feel. We often hear the Conservatives standing up in the House of Commons and talking about food prices as a key concern Canadians have. I certainly hear that in my community, too, so I don't disagree that food prices are something Canadians are still feeling a lot of household pressure around.

I want to ask you this, though: Some individuals keep claiming that carbon pricing is having a bigger impact on food prices than I think is merited, given the data. In fact, climate change is actually having a bigger impact on food prices, perhaps. I want to go back to the carbon pricing issue, because it comes up a lot in our daily conversations in the House of Commons.

Mr. Stanford—

[The Chair, Liberal, Joël Lightbound]

Wait one second, Mr. Turnbull. I have a point of order by Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

I know we have a wide scope in trying to deal with this, but I noticed, in this meeting and the last meeting, that we're getting very far away from credit card costs and so forth. I give the parliamentary secretary credit for raising an important issue, but could it at least be somehow tied to credit cards and those expenses for consumers? I don't want to dissuade discussion on anything. At the same time, we're getting into food pricing and carbon from a number of different members here. I think the last meeting was almost predominantly taken up by that argument.

I'll leave it at that.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Masse.

It's a good point. However, regarding the last meeting, I'll say we had a witness who, in his testimony, talked about the idea of buying food now and paying later as it pertains to credit card rates and so on and so forth. I think that opened the door.

I will ask members to try to remind themselves of the topic of this particular study, though I've been pretty lenient with everyone across the aisles.

Mr. Garon, did you want to speak?

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

I don't want to go into too much detail, Mr. Chair, but I agree with your comments. Furthermore, some witnesses here are lobbying parliamentarians to scrap the carbon tax. These witnesses include the Canadian Federation of Independent Business. I know that, at times, we may appear to be straying from the topic of the study. However, with all due respect to my colleague, Mr. Masse, I believe that letting Mr. Turnbull continue is entirely appropriate in this situation.

[The Chair, Liberal, Joël Lightbound]

Thank you for your input, Mr. Garon.

I'll let the members of Parliament use their time to ask the witnesses any questions that they see fit. Last week, I let Mr. Patzer argue against pollution pricing for a good ten minutes. Everyone is free to decide how they want to use their time, while sticking as close to the topic as possible.

[Ryan Turnbull, Liberal, Whitby, ON]

Mr. Stanford, if I could, I'll just wrap up. I want to get your view on whether there's a correlation between carbon pricing and food price inflation.

Can you comment on that? It seems like there are a lot of overblown statements being made in the House of Commons. That's my view.

[Dr. Jim Stanford]

In other research I've done, sir, which is published on our Centre for Future Work website, I've shown there's no empirical correlation between the carbon price in Canada and the rate of inflation, period, including inflation on food items. I have identified other factors that are certainly more culpable for high food prices, including the fact that retail profit margins in the grocery industry have more than doubled and stayed unusually high since the pandemic.

I would conclude that carbon pricing is not relevant to the food price challenges that many Canadians have been facing.

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you, Mr. Stanford.

Going now more to the point of credit card pricing and interchange fees, Mr. Kelly said—actually, I think it was Ms. Auger—that 66% of your members were eligible for the interchange fee reductions that our government negotiated with Visa and Mastercard.

How much would the savings be? What would we expect for small firms for every $100,000 in Visa and Mastercard sales?

Could you or Mr. Kelly speak to that?

[Michelle Auger]

Sure.

What we mentioned is that for Visa, we're thinking it's going to be about a 25% to 35% reduction in economy savings. We're thinking it will be about $300 or $400 per $100,000 in annual sales. That's for 56% of our members, based on our data.

For Mastercard, we estimate about 20% in reductions, which is about $200 for each $100,000 in annual sales. That's for about 66% of our members, based on our data.

[Daniel Kelly]

When you look at it as a whole, we feel that most firms that have about $1 million or less in total sales will qualify for the savings. Credit cards, of course, are a big part of retail sales, but they're not the only way consumers pay. Debit, of course, is low cost in Canada, thank goodness. We have good rates there.

You could expect, as a small merchant, if you have a few hundred thousand dollars in savings, that you might save $1,000 or $1,200 a year. It's not going to change your life, but it certainly is nice to see one cost come down, especially when you're facing so many cost increases on other lines of your budget.

[Ryan Turnbull, Liberal, Whitby, ON]

If you have $1 million in sales, you would get approximately $3,000 to $4,000 in savings, or less, depending on whether you're with Visa or Mastercard.

[Daniel Kelly]

It is hard to say, of course, because it absolutely depends on the volume you have with Visa and the volume you have with Mastercard. The reductions are different between the two companies. I would say, safely, if you're at the maximum level of sales—$300,000 with Visa and $175,000 with Mastercard—you might save $1,500, or perhaps $2,000 on the outside. That's for in-store sales. If your sales are primarily online, the savings are very small. There will be a fraction of that, about 10 basis points, or 0.1 of 1%.

[Ryan Turnbull, Liberal, Whitby, ON]

Why is that?

[Daniel Kelly]

The savings are very much front end-loaded to in-store transactions. There was—and I'm pleased with it—a small reduction that was negotiated between the Government of Canada and Visa and Mastercard for e-commerce, but those savings are much more modest. The fees for e-commerce are dramatically higher than they are.... If you use Stripe, for example, I think you're charged 2.9% of the sale plus 30¢ per transaction, so almost 3% of your sale is going every time there's an e-commerce transaction. That's a lot of money.

[Ryan Turnbull, Liberal, Whitby, ON]

I know I'm wrapping up here, but I have a quick comment. I know that CFIB had advocated for the Canada carbon rebate for small businesses. I know that's in addition to the interchange fee reductions that we've negotiated. I feel like these are two big wins for our small businesses across Canada—600,000 businesses getting $2.5 billion that's going to go out between December 15 and the end of December.

Can you comment on that, Mr. Kelly?

[Daniel Kelly]

Sure. We are very relieved that after five years of steady pressure, the government is finally going to be passing on the money that it owes small businesses in the carbon rebate back to them. It is not an insignificant amount of money, but the only reason it is so big is that the Government of Canada sat on this for five straight years. It's going out this December. The timing is good. I'm very pleased that small businesses are finally going to get the money back.

I will say, as Monsieur Garon mentioned a second ago, unfortunately, because of what has happened and the delays in getting this money back, now a total of 82% of our members oppose the carbon tax fully and want to see it gone.

[The Chair, Liberal, Joël Lightbound]

That's interesting. Thank you very much, Mr. Kelly and Mr. Turnbull.

Mr. Garon, you have the floor for six minutes.

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

Thank you, Mr. Chair.

I would like to thank all the witnesses for joining us today.

Mr. Kelly, we won't talk about the carbon tax. The federal tax doesn't apply in Quebec. I'll leave this matter to the people in the other provinces and territories. You can have your fun with the other parties that represent them.

That said, as I pointed out a number of times to the committee, saying that Visa, Mastercard and the federal government reached an agreement seems like a misuse of language. There hasn't been any agreement. The government threatened to impose regulations. The credit card companies then came up with their own proposal, and the government backed down. There wasn't any agreement. It was a waste of time. The credit card companies were then free to do what they had always done, which is just about anything.

However, we now need to impose regulations. The committee heard from the Convenience Industry Council of Canada, which told us that this agreement affected 0% of its members. We understand that it affects some of your members, the ones with low sales figures. We also heard from the Conseil québécois du commerce au détail, which is calling for federal regulations.

That said, I must admit that the Canadian Federation of Independent Business's documents stand out. It seems that you have the same concerns as the other associations. You wanted things to remain voluntary by means of a code of conduct, something that bypasses the regulatory power of the government.

This surprises me. The government didn't impose any regulations. In recent months and years, the government has completely abdicated its responsibility. Yet you come here and attack an adviser to the Prime Minister. I don't understand that. If you must come to the committee to attack a person who sits on the board of a United States‑based company that hasn't passed on the reductions to its members, then surely this shows the need for regulations and that your preferred approach isn't the correct one?

[Daniel Kelly]

There is no perfect road anywhere in the world on this file. We followed closely the situation in Australia, New Zealand and Europe, where there, in fact, is price regulation for the credit card industry. The EU, for example, has a cap of 30 basis points, so 0.3 of 1% on credit card transactions. However, that isn't what the small business pays in Europe. When I've spoken to small business owners in France, in my travels, for example, they're paying dramatically higher rates than the regulated amount. One of the challenges with command and control regulation is that banks, typically, aren't the types to just say, “Oops, well, we lost $1 billion. Oh well, we'll just move on.” History has shown that if they're looking for this, they'll look for the revenue elsewhere, in other fees, and that's exactly what happened in these other markets. It's what convinced Jim Flaherty, I think, when he was finance minister, that we needed a different tool in Canada, and that's why we proposed the code of conduct.

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

I'm not criticizing the approach. I'm trying to understand it. You're talking about the Flaherty period. I know that you were involved in preparing the code of conduct for the credit and debit card industry in Canada. By the way, I think that it's a fine piece of work. However, the world has changed.

Let me give you an example. The arrival of financial technology worries me when it comes to this type of code. Think of car repairs. There used to be a code of conduct among the major manufacturers and a type of open system for diagnostics. Then new electric vehicle manufacturers, such as Tesla, came into the picture. The system changed. These new manufacturers said that they wanted to enter the market, but that they weren't interested in the code of conduct. This broke the system.

A Stripe representative spoke to the committee. He basically told us that he wasn't interested in the code of conduct for the credit and debit card industry in Canada. However, it isn't just Stripe. There's also the association of financial technology companies, which includes many small businesses. This isn't Visa, Mastercard, American Express or a handful of others. The representative told the committee that, if the government did one thing or another, its members would pay themselves back in another way. He also told us that the association wasn't interested in the code, that it wouldn't comply with the code and that it would work around the code. He said that directly to us.

Doesn't this show the need to reconsider the approach that you've been using for a number of years? Perhaps we should consider regulations, as requested by all the other associations.

[Daniel Kelly]

I do respect the other associations that have pursued more of a regulatory approach. My point is, though, that those approaches, where applied elsewhere in the world, haven't been perfect either. You're absolutely right, though, that this is messy. Our view is the best thing that can happen right now is to make sure that we get these companies, which are not following the rules as they've been laid out and the expectations that have been laid out, back to the altar by applying both political pressure and external pressure, like the beating that we are giving Stripe every day in the media and advertising with small businesses.

That, in my opinion, is what's going to get them back to the table. I will say that Square, during one of the previous rate reductions—I can't remember if it was the one under the Conservatives or the Liberals—did not pass on the savings to small firms. We freaked out. Some phone calls were made, and then they moved positively on this. It's messy.

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

Clearly, for a parliamentarian, seeing an association appear before a committee and come down hard on a person close to the Prime Minister, deeming it unacceptable for that person to sit on a board of directors, is quite something. Furthermore, that association is telling committee members that it isn't even asking the Prime Minister to regulate the sector. It doesn't make sense.

Consider the case of credit cards in Europe. As you know, the European Union and Canadian credit card systems don't work the same way. We can look at English‑speaking countries such as Great Britain and New Zealand, or the United States. The United States Federal Reserve recommended regulations. When we look at the interchange rates in OECD countries, Canada is roughly in the middle of the pack. Countries whose fees are lower than Canada's have regulations, while countries whose fees are higher than Canada's generally don't have any regulations.

Doesn't this somewhat contradict your approach whereby it's enough to make life hard for companies that disagree with you in the media and to adopt a code of conduct? Are you open to possible regulations?

[Daniel Kelly]

Look, I actually say our official position at CFIB has never been to oppose outright regulation. Our view has been, just as we supply to small businesses, that regulation isn't always the answer. It's often what governments look to first. We think about it from a small business perspective. We don't love it when government just jumps in with command and control regulations right away. We try other instruments first, and if those don't work, then, of course, regulation remains an option for government in these instances.

The only piece I would challenge, though, is that while the posted rate, the advertised rate, in Europe is 30 basis points, that is not the effective rate that is paid by small companies. The benefits are construed primarily to large merchants, and small firms have other fees that are added on by other players in the marketplace, which means that the rates are not dramatically different from what they are in Canada right now. It is not a panacea. Regulation is not a panacea for small firms. That's my point, but is there an openness on our part? Yes, there is.

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

Thank you.