Public Accounts Committee on March 9th, 2021

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Wallace. I'm sorry to have to cut you off.

We will now go to Mr. Green for two and a half minutes.

[Matthew Green, NDP, Hamilton Centre, ON]

I'll pick up again on where we are with the Black class action and the decision of this government not to enter into good-faith mediation with a significant segment of its workforce who are bringing in not just complaints but, quite frankly, a plan coming from lived experience and coming from addressing the cultural inadequacies that have been presented and, quite frankly, admitted to in so many different ways throughout these conversations.

I'm going to go back to Ms. Sherman to ask this.

If it's the case that the government is unwilling to mediate and that it's going to drag this out and this is going to be a 15-year class action suit with infinite resources of the Crown, how are you then dealing with the equity issues around your Black workers in parallel with this claim? Is it going to be the government's position that, because there's a class action claim with Black workers, it is going to be unwilling to address these issues or perhaps get movement on some of the issues that have been brought forward? What happens? Does the issue then go into abeyance because of legality?

[Janine Sherman]

You've raised an important perspective, and I think what I've tried to put forward, without commenting on the government's approach on the class action and how that will be managed, is that it is going to have to progress through legal channels. We will not stop working collaboratively—

[Matthew Green, NDP, Hamilton Centre, ON]

Just to be clear—and I have only two and a half minutes—there was an opportunity to mediate. That was a decision that the government made. It could have worked to mediate this in a non-confrontational, non-adversarial way, but instead it's going to lawyer up. That was a choice.

[Janine Sherman]

I am not in a position to speak to that choice, but what I do want to say in the short time we have is that we are working very intensively and collaboratively with employee groups, such as the Federal Black Employee Caucus and the network of Black executives. All of those initiatives to continue this conversation, to bring some of these issues forward and to help us tackle those in the system that we are working in now are very important and tied to the call to action. They are tied to our focus, through renewal, on diversity and inclusion. That will not stop. In fact, it's all the more important that we make sure we have a workplace that is inclusive, that recognizes those concerns.

I don't want to position these two things. They are separate, and one is going to go through the legal system, but within the public service and the renewal focus that we have, we are very, very committed to doing that work with individuals and with communities.

[The Chair, Conservative, Kelly Block]

Thank you very much, Ms. Sherman.

With that, this hour has come to an end. I would like to thank you, Ms. Sherman, Mr. Wallace and Mr. Huppé, for joining us. Thank you for your testimony. I will invite you to leave, and we will suspend for one minute as we prepare for the second hour.

Thank you.

[The Chair, Conservative, Kelly Block]

Welcome back, committee.

Welcome to our witnesses.

Members, joining us for our second panel, from the Department of Finance, are Michael J. Sabia, deputy minister; and Andrew Marsland, senior assistant deputy minister, tax policy branch.

Mr. Sabia, you have five minutes for your opening remarks.

[Michael Sabia, Deputy Minister, Department of Finance]

Thank you, Madam Chair and members of the committee, for the invitation to Andrew and me to be here today.

In the department, although we continue to be very focused on the immediate issues related to the COVID-19 pandemic, the department nonetheless continues to work on a full range of other important issues facing the country, as does this committee with its work on taxation of electronic commerce.

Your work on the taxation of electronic commerce reflects the fact that our lives are moving online more and more.

The Department of Finance has been engaged for a number of years in working to ensure that firms that engage in electronic commerce collect the appropriate taxes on their activity in Canada. This recently culminated in the announcement in the 2020 fall economic statement of a number of changes that would level the playing field between foreign and domestic vendors, by ensuring that the GST applies to goods and services consumed in Canada, regardless of how they are supplied, or who supplies them.

Your committee has specifically asked us for an estimate of the revenues that might have been generated in 2017 from the extension of the GST to digital goods and services supplied by non-resident companies. In the department’s initial answer to that question from your committee, I understand that we noted that revenues were likely to be broadly in line with the estimate produced by the Office of the Auditor General, and I'll come back to that in a moment.

In the course of briefing ministers and the government, the department, as you know, produces numerous and successive estimates of the revenues that might be raised from a wide range of potential policy actions, or as a result of economic developments that affect the tax system. These estimates are often for economic activity that is not currently subject to taxation, and for which there is little or no data available on the underlying economic activity itself.

As a result, the department's estimates often change and evolve over time, sometimes significantly. Estimates evolve as more and better data become available, and as the department and other agencies such as Statistics Canada come to better understand the nature, scope and prevalence of the underlying economic activity.

This was the case with the development of electronic commerce, and its implications for the GST system. The department has been analyzing this activity for several years, and the Office of the Auditor General's 2019 spring audit found “that the Department of Finance Canada conducted sound analyses” in that regard.

All that being said, most recently the department did prepare estimates of the revenue that would be generated for the period 2021-22 to the period 2024-25, resulting from a specific proposal for the taxation of digital goods and services that was set out in the 2020 fall economic statement. As part of its ongoing analysis, and using the specific model of the tax changes proposed in the economic statement, the department has produced an estimate of the revenues that would have been generated in 2017 from such a tax.

This estimate suggests that revenues from such a tax in 2017-18 could have amounted to approximately $160 million. As I said at the outset, it's an estimate that's very close to the Auditor General's, which I think was at $169 million, so essentially the same number. That being said, I do want to reiterate that the figure is only an estimate. With such an estimate, as with lots of figures published in the fall statement, it's also likely to change as the data on the current and past level of e-commerce activity are revised.

Madam Chair, I hope that this information is useful to the committee.

I want to reiterate that revenue estimates of this nature, where the underlying activity is unobserved or unobservable, can rapidly evolve and therefore lose meaning and value as more and better data become available.

Before I wrap up, I just want to say and I want to emphasize that we in the Department of Finance very much recognize the value and importance of transparency with this committee, hence our willingness to present that number to you today. By the way, if you want the numbers for subsequent years, we're happy to provide those as well.

We certainly recognize the importance of doing that, and we will endeavour to act in a manner consistent with that principle of transparency, recognizing, obviously, as we also do, the importance of our ability to provide confidential advice to ministers.

I think with that I'll stop. Andrew and I would be more than happy to answer any questions you might have.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Sabia.

We will now go to our rounds of questioning, starting with our six-minute round.

Mr. Lawrence.

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

Thank you, Mr. Sabia and Mr. Marsland, for attending today. I very much appreciate it.

My questions all will revolve around Mr. Leswick's testimony last time and the responses thereto. I have no intention of playing gotcha, but I think there were some mistakes made, and I would like to give you the opportunity to clarify a couple of issues.

Mr. Leswick said, when talking about the carbon tax, “It does go back...through the climate action incentive payment, which is administered through the personal income tax system. It doesn't go back to the government of jurisdiction”. Isn't it true that this is not a completely true statement, as in fact a portion of it goes back to the provinces, municipalities and other levels of government?

[Michael Sabia]

Andrew, do you want to...?

[Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Yes. Thank you for the question, Madam Chair.

If I understand the question correctly—and let me state my understanding of it—it's that where the federal backstop applies, the fuel charge, revenues are raised in a particular province, and the approach there is that approximately 90% of those revenues are returned to households—in advance, actually. When individuals in that province file their tax returns, the climate action incentive payment in aggregate represents about 90% of those amounts. The remaining 10% are directed through programming to support small and medium enterprises and other entities in specific support programs, the principle being that 100% of the proceeds of the fuel charge—

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

Thank you, Mr. Marsland, but the reality is that those redirected funds, as you mention, actually go through the government. It is fair to say that while there may be an argument that the carbon tax could be revenue-neutral, it is certainly not expense-neutral to the individual, as only 90% is returned directly to taxpayers. Is that correct?

[Andrew Marsland]

Ninety per cent is returned through the climate action incentive program, approximately, and the remaining 10% is returned through other mechanisms.

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

In addition to that, it affects different people differently, in that people have different lifestyles. People out in the rural areas are disproportionately hurt in terms of the amount of money they usually spend on carbon taxes. They drive longer and they may use other fuels to heat their homes, so it's not a perfect fit. In fact, there will be many Canadians—perhaps millions of Canadians—who actually pay more in carbon tax than they receive for the rebate.

Is that correct? Do you have numbers telling us how many Canadians are out of pocket because of the carbon tax?

[Andrew Marsland]

Unfortunately, Madam Chair, I don't have the numbers with me at the moment, but the reality is that the majority of households receive more back than the incidence.... Now, as the question accurately notes, I mean, it depends entirely on the expenditures of a particular household, but in aggregate, the majority of households receive more back than they actually pay.

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

Unfortunately, Mr. Marsland, Canadians don't live in aggregate; they live in individual lives, and for many of them it's a burden that they can't afford.

In addition to that, in response to my question on whether GST is payable on the carbon tax, Mr. Leswick said, no, I'm sorry. So he responded in the negative. But that's not true, is it? In fact, that's a very misleading statement, isn't it, Mr. Marsland?

[Andrew Marsland]

The way the fuel charge works is that it is applied at the fuel distribution level, so it's built into prices. To the extent that the product being bought is subject to GST, then GST will apply on that product.

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

Yes, so Mr. Leswick misspoke there.

In addition, is that GST always returned to Canadians, or is that an additional cost that wouldn't exist without the carbon tax that's not always returned to the taxpayers?

[Andrew Marsland]

I think the question depends on whether or not more GST is collected in aggregate, given that obviously expenditure patterns change. But the GST isn't calculated into the climate action incentive payment, no.

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

In sum, the GST that is charged on top of the carbon tax is not returned to Canadians. That's a tax on a tax. In addition to that, at least 10% of the carbon tax is not returned directly to taxpayers, so it is certainly not, and cannot in any way be thought to be, expenditure-neutral for our consumers, for Canadian taxpayers.

[Michael Sabia]

I think there's a point here that needs to be made. Andrew, correct me if I'm wrong, but given the way it applies, it applies to businesses, in addition to others. Depending on the final incidence, it could well be the case—and in fact we believe it very much is the case—that in refunding the tax to individuals and households, it is very likely that we are refunding to individuals and households somewhat more than they would actually pay, because some of the incidence of that tax falls on companies and it's individuals who are fully compensated for it through the refund process.

Andrew, have I got that right?

[Andrew Marsland]

That's correct. The incidence is calculated both by the direct and indirect impacts on houses, but of course the climate action payment is an definitive amount. And to the extent that businesses pay the GST, they would receive an input tax credit, of course.

[The Chair, Conservative, Kelly Block]

Thank you very much.

[Andrew Marsland]

Maybe I could just add one—