International Trade Committee on June 5th, 2023

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Out of curiosity, what strategies are you guys using? We're also looking at various things. What things have been successful in New York State to deal with affordable housing?

[Brian Higgins]

There are things like affordable housing tax credits and providing tax incentives for developers to build in areas they historically would not. That is a strategy that we've used.

Has there been some success? Yes. Is it all the success we hoped for? No.

[The Vice-Chair, Conservative, Kyle Seeback]

That's the time, so we're going to move on to Monsieur Savard-Tremblay for two and a half minutes.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chair.

Mr. Higgins, despite the imperfections of the tax, I think everyone agrees that the problem of real estate speculation and the resulting scourge of the housing crisis, which this tax is trying to address, are real and well founded.

I know that there is also a housing crisis in the United States. So I would like some clarification, since we are in the process of considering the terms of this tax. On the American side, how are you fighting speculation and the housing crisis?

[Brian Higgins]

In Canada...?

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

No, in the United States. What you tell us may inspire the committee.

[Brian Higgins]

As I mentioned, historical tax credits and affordable housing tax credits are used to provide market-based incentives for developers to undertake those kinds of projects that would make housing available for people of modest means.

The nature of developers, as you know, is to speculate about not the current value of property but the future value of property. I think that creates problems in the United States. It obviously creates problems in Canada as well. I think that was the origin of the vacant and underutilized tax that was approved in 2021.

When I look at my community of Buffalo, the fastest-growing neighbourhood in western New York is downtown Buffalo. Why is that? With the use of historical tax credits, we have a lot of historical buildings that were built 130 years ago, but they were vacant for a long time with the changing economy. The tax credit was put in place to provide, in some cases, a 30% to 40% incentive for a developer to undertake a project.

For example, if there was a $10-million project in downtown Buffalo that a developer would have to take on, its historical nature made it a very expensive project to convert, if you will, from office space to residential space. If it's a $10-million project and you can save $3 million because of a historical tax credit, then a $10-million project becomes a $7-million project.

The justification for providing that tax credit is that the project would not have been undertaken because it was cost-prohibitive without the tax credit. It's a good investment that not only works for the developer but also works for the people who will eventually live there.

[The Vice-Chair, Conservative, Kyle Seeback]

That's the time we have for that.

We'll go to Mr. Cannings for two and a half minutes.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you.

I'll let Representative Higgins answer the question I rambled on about at the end of my time earlier.

Is this a Lake Erie shore problem? Do you hear from colleagues of yours, like Rick Larsen, about similar situations? I'm wondering how we can carve this out. I'm kind of bothered by a definition of a cottage being a small house used seasonally because.... Well, I can get to that later.

Can you talk about how widespread this situation is?

[Brian Higgins]

I think it depends on the geographic area. I think some areas are more affected than others.

In this case, you talk about urban versus rural and those distinctions. Buffalo is an urban centre. Niagara Falls, New York, is an urban centre. That's one of the reasons I think Canada—and those beaches I talked about in particular—is an attractive place. During the summer months people are able to vacation at these cottages.

I think if you look at the 120 land ports of entry, there are probably similarities to Buffalo and the Niagara region of southern Ontario, but there are probably distinctions as well. I think the kind of structure that it is.... When you see it, you know it. Cottages typically don't have basements. They don't have a lot of things you would have to do to a home to make it suitable or livable all year round. I think cottages are particularly unique.

When you drive through places like Bay Beach or Crystal Beach, you see how those structures are unique.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

If you were writing an amendment to this legislation, how would you define “small” in legal terms? That's what I'm concerned about when we talk about those descriptions.

[The Vice-Chair, Conservative, Kyle Seeback]

Representative, there are about 20 seconds left. I'm going to suggest that, if you want, you submit to the committee in writing what you think that proposal is.

Given the time, committee members, I suggest that, for this last round, we do three minutes each for the Conservatives and the Liberals.

Ms. Gladu, you have three minutes.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

Thank you, Chair.

I want to follow up on my colleagues' comments. I'm from the riding of Sarnia—Lambton, also a border community. We have lots of cottages. Across the province and across the country, there are ski chalets, fishing camps, moose camps and lots of different kinds of properties that Americans own and use intermittently.

The difficulties I see with the way the regulations were rolled out are in the example that you mentioned, Representative Higgins. Crystal Beach is defined as an urban community, so the 28-day exemption doesn't apply. I think some clarity is needed to make sure that we get rid of the urban-rural definition, which doesn't seem to be capturing it. We also need to address the things that are meant to help the affordable housing situation and exclude all those things that really have no bearing on it, which, in my mind, are many of the things in your area.

Are there any similar taxes put in place in the U.S. that you know about?

[Brian Higgins]

No, not a federal tax.... Obviously, there are jurisdictions that also have taxing authority, be it a county in Florida or a state. They certainly may exist. Perhaps that is where this is different. There isn't a federal tax on property owned by Canadians, for example. I wouldn't be familiar with that.

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

If this isn't expediently resolved, what do think the timing would be when this would be raised with the USMCA through the American channels?

[Brian Higgins]

I don't know. I would push to have it done as soon a possible, but we're approaching this from several different angles, including that one. My objective would be just to continue raising concerns about this.

We are all economic actors. When we're confident, we move. When we aren't, we don't. The greatest inducement to travel is ease of travel. I think that, on the part of all Canadian citizens and citizens of the United States, travel between our two countries, at least in terms of using the land ports of entry, has become much more difficult. My concern is that, over time, people will adjust their economic behaviour to avoid the cross-border experience at those land ports of entry. I don't think that is good for Canada. I don't think it's good for the United States.

Those are the kinds of things that, in the aggregate, will influence people's decisions about whether or not they are going to decide to travel. We talked about your golf courses over in Canada—

[The Vice-Chair, Conservative, Kyle Seeback]

Again, I'm going to have to interrupt. We're about 30 seconds over.

We have Mr. Arya, our last questioner, for three minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

Representative Higgins, thank you so much for coming before our committee. Canada and the U.S have a long-standing relationship and the biggest trading partnership in the world. Sometimes there will be small differences in terms of policies, but we always resolve them by law through the means available.

I have a quick question. I believe that you have written to the United States trade representative that this tax is inconsistent with the Canada-United States-Mexico agreement. Has the USTR confirmed and agreed with you that this is inconsistent with the CUSMA agreement?

[Brian Higgins]

I'm a member of the House of Representatives ways and means committee and the subcommittee on trade. I helped in the development of the trade agreement. I believe that—I've shared this with many of you—we should have had a binational approach to a tri-national agreement. Canada is a country of 38 million people. You have an economy of a little over $2 trillion. We are a country of 330 million. We have an economy of $24 trillion. Canadians value the same things as Americans: worker rights, the environment, etc. We're very similar in that regard.

The objective of free trade agreements is to bring everybody's standard of living to a higher level. When you look at the standard of living in the United States and Canada, they are very similar. When you look at Mexico and the fact that they have a—

[Chandra Arya, Liberal, Nepean, ON]

Please, I think I have less than one minute.

[Brian Higgins]

I'm sorry. Go ahead.

[Chandra Arya, Liberal, Nepean, ON]

I believe in May 2022, in Inside U.S. Trade, you wrote an article saying that the UHT violates the 1984 convention between Canada and the United States of America with respect to taxes on income and capital, the tax treaty. Have you gotten any feedback from the U.S. administration on your contention?

[Brian Higgins]

The tax treaty of 1984...? Is that what you mentioned, sir?

[Chandra Arya, Liberal, Nepean, ON]

Yes.

[Brian Higgins]

No, I haven't.