Industry Committee on June 21st, 2022

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair. This is a very interesting discussion. I'm pleased to have a chance to sit in for it.

I'd like my questions to be directed to Mr. Macdonald.

To begin with, you mentioned at the outset the unprecedented levels of support that the business sector has received from the government during the pandemic. With the benefit of hindsight, I wonder how you would suggest that the government might have structured those business support programs differently to make them more effective, perhaps in a couple of key ways.

[David Macdonald]

Certainly, access to the wage subsidy program itself could have easily been restricted, such that large enterprises in particular could not gain access to it. We wouldn't have had the kinds of news stories that we had throughout the pandemic, when we found big profitable companies accessing this government program and clearly for money they didn't need.

Instead, it should have been more focused on the small and medium-sized businesses, which relied on it and, hopefully, were less likely to abuse the rules, as it were, or play fast and loose with the rules. I think that's probably the major piece. It probably would have saved the government the most money in terms of those programs.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

You mentioned the dramatic recovery and expansion of corporate profits as we've come out of the worst phase of the pandemic, especially relative to other recessions. You answered this a bit in your previous answer, but what has been the main driver behind that effect that you've witnessed?

[David Macdonald]

Well, what's interesting is that if you take a look at previous recessions after which corporate profits came out ahead of workers' wages in terms of the breakdown of GDP, you find the most similar episode in 1981, with the 1981 recession. What is similar between the present recession and that recession is the high rates of inflation, which weren't necessarily there in some of the other recessions.

In the other recessions, workers came out ahead, so they captured more GDP, whereas corporate profits captured less, and there was one recession where it was quite mixed. It may well be that in the initial phases of rapid inflation, the corporate sector is better able to capitalize on that through higher prices, therefore converting that into higher profit margins and higher corporate profits. The danger that economists often look to in inflation is the worker wage spiral, meaning that workers demand higher wages and they drive inflation.

The danger here may well be the corporate price spiral, which is that corporations have expanded profit margins in the initial phases in the recovery. They wish to maintain those margins, so, as a result, they continue to increase prices. If a company decides to increase prices by 10% because they think that's what inflation is going to be, that may well be what they create inflation to be, as they are right there, in fact, raising those prices, particularly in industries where there isn't a lot of competition.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you. I have a whole bunch of questions here, but I think I'm going to skip down to one.

You mentioned that, because of the supports, there are businesses that may not have been successful but have managed to survive. We've seen bankruptcy rates actually drop during the pandemic, something that I think many people would find counterintuitive and running counter to the popular narrative out there.

You also said that higher wages hurt low-margin employers and that as we see wage growth in those low-wage sectors there needs to be an off-ramp for businesses that are unable to operate in those low-margin environments. I wonder if there are certain sectors that would be particularly affected by that. I'm thinking of friends I know who own restaurants, a notoriously low-margin area of business with high risk.

Especially given the effect, as you said earlier, of low-wage workers moving to higher-wage positions when they were laid off, how do we ensure that family-owned restaurants, for instance, are able to survive the pressures you mentioned during your presentation?

[David Macdonald]

We should see a healthy level of turnover in businesses. It is not the government's responsibility to ensure that businesses never go bankrupt; I think it is the government's responsibility to ensure that those bankruptcies are orderly, so that folks can go on and start other businesses.

We don't want to create businesses that fundamentally are no longer sustainable in this new environment of higher wages, or no longer sustainable due to the postpandemic world. You can imagine that same family restaurant located in downtown Ottawa, for instance, which used to be populated by public sector workers and is no longer. Those workers may well not come back. Again, it's not necessarily, I don't think, the government's responsibility to maintain that business any longer than we realize it's no longer viable. In the end, it is going to be up to business owners to decide it's not viable.

Certainly, the debt that has been taken on by plenty of businesses, either through public programs like the CEBA or through private sector loans, will put further pressure on those businesses as interest rates rise and they are forced to make those payments. I think the issue in terms of those businesses is that we need to provide them with an off-ramp: If this business is no longer viable, for whatever reason, it's time to wrap that business up so somebody else can take that place with a new business model that hopefully makes sense in the new world. That is the painful reality, unfortunately.

[Taylor Bachrach, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll move to Mr. Kram for six minutes.

[Michael Kram, Conservative, Regina—Wascana, SK]

Thank you very much, Mr. Chair.

Thank you to all the witnesses for joining us today. One of the most enjoyable parts about being a member of Parliament is that you get to hear different perspectives from different parts of the country about how we can solve many of the common problems this country has.

Mr. Couillard, I was particularly interested in your proposal. You said that the government should not impose income tax on retirees who go back to work. That's an idea I hadn't thought of before, to be honest. Could you elaborate a little on your proposal? Is it for all taxes, or just income tax from work? Exactly how would your proposal shape up?

I believe you're on mute, Monsieur Couillard.

[Jean-Guy Couillard]

What I'm proposing is to stop collecting income tax on income that people earn when they return to the labour market. Taxes would still be collected on income earned before retirement. This measure would only apply to employment income earned after retirement.

Is that clear?

[Michael Kram, Conservative, Regina—Wascana, SK]

Yes. Thank you very much.

Do you have an idea in mind as to how many years one must be away from work before one could qualify for your proposal?

[Jean-Guy Couillard]

This measure would take effect when the person retires. At that point, any income earned when the person returns to the labour market would be non-taxable.

[Michael Kram, Conservative, Regina—Wascana, SK]

That sounds like a very short retirement, if I can say so. Would there have to be a particular age criteria for one to qualify?

[Jean-Guy Couillard]

As I said, this measure is only for retirees 65 or older. Once a person retires, at age 65, any employment income earned would not be taxed. If the person returns to work at age 70, the same thing would apply. That person would not pay income tax on their employment income.

[Michael Kram, Conservative, Regina—Wascana, SK]

I see.

Monsieur Couillard, I didn't quite understand from your opening statement what line of work you are in and were in.

[Jean-Guy Couillard]

I worked for the Desjardins Group. After I retired, I was self-employed for 15 years. I stopped for two years, but found that I wasn't doing well and my doctor said that I needed to exercise. The co‑op where I work now didn't have enough employees, so I began working there to help out. It wasn't about the pay; I just wanted to stay in shape.

Today, we need employees, and we'd like to hire retirees to keep them healthy and, at the same time, address the staffing shortage. Retirees don't want to return to the labour market because they don't want to pay taxes. They feel that there's no point in working if they're going to pay taxes on that income.

[Michael Kram, Conservative, Regina—Wascana, SK]

Understood.

The committee has heard in the past that there's a higher level of job satisfaction when senior workers can mentor younger workers who are just entering the workforce. Can you elaborate on whether you share that view?

[Jean-Guy Couillard]

I didn't hear the question. Could you repeat it?

[The Chair, Liberal, Joël Lightbound]

Please be brief, Mr. Kram.

[Michael Kram, Conservative, Regina—Wascana, SK]

Yes.

Have you had the opportunity to mentor younger workers since you have returned to work?

[Jean-Guy Couillard]

Yes, I train young employees, but there aren't many who work there or who want to work there, either because they're too young or because they find the pay to be too low. We're trying to recruit retirees, but they don't want to pay income taxes on the work they do.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Couillard and Mr. Kram.

Mr. Erskine‑Smith, you have the floor.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

Mr. Dachis, you mentioned interprovincial trade. I've heard some experts speak about the need to incentivize provinces. We've tried to have round tables. We've had discussions. We've had consultations, and still there are many barriers. Has C.D. Howe done any work on what incentives might look like to spur greater interprovincial trade and reduce barriers?

[Benjamin Dachis]

Yes. We need to encourage provinces to welcome being sued. Let me explain. If you're the minister of whatever in Ontario, of agriculture or some other line ministry, you have specific regulations that your constituents support. Every regulation is there for a reason. You have no incentive to remove barriers that protect your constituents, your stakeholders, when they block people from other jurisdictions who don't vote for you.

No internal force will take these down, so what we've been recommending is that the federal government introduce a fund that enables private litigants, small businesses from across the country, to have a low-risk way of suing governments that are in contravention of the CFTA, the Canadian Free Trade Agreement.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Why not just have a fund that would effectively be a transfer fund that says to provinces, “Reduce these barriers and you get federal cash, but the federal cash is an amount that would be less than the total economic benefit you'd see from reducing interprovincial trade”?