Madam Speaker, I am pleased to follow such a great speech from my colleague from Bay of Quinte.
I would remind those watching at home and my constituents what we are discussing today. Today we are discussing a report done by the Standing Committee on Industry and Technology of the House of Commons, entitled “Development and Support of the Aerospace Industry”. It was tabled in this Parliament in June 2022, but is actually a study that spans two Parliaments. It was started in the last Parliament before the last election when the now Conservative leader was the vice-chair of the committee and then continued in this Parliament after COVID. It is quite a span of time, but affects a lot of the tone and position of where the industry is.
I should start by saying that we are all mentioning aerospace companies within our regions or ridings. There is a company in my riding, the beautiful UNESCO heritage town called Lunenburg, which everyone may have heard of. The company is called Stelia North America, which makes parts for the Airbus 737 Max and the F-35 aircraft. Unfortunately, because of the dithering by the government on the purchasing of the aircraft that it said it was not going to buy and now has ended up buying, a lot of jobs were lost in that interim period in Lunenburg that it now has to try get back since the government is now going to buy the aircraft it said it was not going to buy.
It is important to understand what has happened to this industry. There is a really interesting section in this report, on page 6, that says, “Canada’s aerospace sector had fallen from the fifth-largest in the world in the 1980s to the ninth largest.” It goes on to say, “Canada was once the fourth-largest aircraft manufacturer but it has dropped to the 12th”. Recommendation 5 in the report has been mentioned before, which talks about having an aerospace strategy. There were aerospace strategies in previous governments that led us to be a much larger player in the world than we are now, but in the last eight years of the Liberal government, we have not had any strategies, and that is what this unanimous report points out in recommendation 5. I would point out that the Liberals agreed with this, too.
After eight years, what has been the Liberal strategy? The Liberal strategy was to bring in a luxury tax on aircraft. That was their strategy because they have never met a tax they did not like. In fact, the Minister of Finance said, when she introduced it last year, that this would make the wealthy pay their fair share. However, the reality is that when we look at the numbers and the performance of the industry, the cost of this tax is actually being borne by the workers in the aerospace industry, not by the corporations. I will go through that in a few minutes.
There was a report done by an economist out of Montreal, Jacques Roy, who words for HEC, an economic think tank in Montreal. He talks about that tax, which was introduced on September 1, 2022, by the Liberals, and the impact it had. The tax revenues expected from the new aircraft tax he says are negligible. A May 2022 Parliamentary Budget Officer report estimated the tax on cars, planes and boats, which were all included in that tax, would raise $163 million in 2023-24, but only an insignificant $9 million of this total was expected to come from the aircraft tax. The PBO also projected an annual reduction in aircraft sales, as a result of that tax, of $30 million. Obviously, the impact is much greater on jobs and the economy than the tax benefits the government.
That tax also affects the reputation of our industry. The PBO cautioned that estimates were qualified by several uncertainties and unknown behavioural responses to the tax. There are always behavioural responses to taxes when they are brought in. This economist did a deeper dive into the impacts of that tax, and I will share with the House what the findings of that were.
It has a qualification that it has to be 90% business use in order to be exempted from the tax. That has proven to be unworkable because the jets that companies like Bombardier sell are not used by that company 100% of the time. Because of the way those jets are utilized, the qualification does not apply to the businesses. Commentators have noted that the 90% threshold is harsh in comparison with the primary use standard; in other countries that have done this, this is usually only 50%. This is commonly used in the United States and Europe as an alternative source of determining whether the tax applies to the jets.
The PBO's research expressed a concern about the narrowness of the exception. Although the tax targets aircraft sold to private individuals for nonbusiness use, it also applies in practice to situations involving mixed use; that is, for some business use and some personal use where it cannot be confidently determined that the 90% test has been met. In this regard, it is important to understand the unique practices of the aerospace sector. Buyers of business jets and helicopters usually outsource the management, servicing and maintenance of these aircraft to management and leasing companies. Even owners who acquire a jet principally for business purposes, and do not intend for it to be used for personal purposes, will face considerable difficulty in determining whether that 90% test applies. They will ask leasing companies to rent the aircraft out to other customers when they are not using them.
This is where the issue comes into play. Canadian-based leasing companies may rent these aircraft to U.S.-based charter brokers. They, in turn, may charter the aircraft for their own clients. The person who is subrenting or leasing it may use the aircraft for business or personal use. Very limited information, if any, is available to the owner regarding the other uses of the aircraft in these circumstances, partially because of privacy laws. It may therefore be quite challenging, if not impossible, to determine whether the purpose of the trips taken in such cases is business or personal. That makes the determination of whether the 90% test has been met especially difficult.
According to the PBO's interviews in doing this research, the introduction of the luxury tax has already had a huge impact. The negative reaction from clients has translated into lost sales for Canadian aerospace manufacturers and their supply chain. It is estimated that the business aircraft segment experienced a drop of 8% in sales in 2022 because of the tax. This represents roughly $480 million in lost sales. That figure is significantly higher than the $30 million projected by the Parliamentary Budget Officer. He estimated that this drop in sales would result in the loss of approximately 750 direct jobs in Canada. The estimate is based on the number of direct jobs required to produce the aircraft for which sales have been lost. Personal income taxes paid by just these individuals exceed the annual revenues expected by the government from the luxury tax.
For helicopters, research indicates that private individuals are likely to postpone or abandon the purchase of approximately five new helicopters per year or to buy a used model. This will result in the loss of 15 full-time jobs and lost annual salaries of approximately $1.3 million.
The impact of lost sales also ripples down through the aerospace industry and supply chain. For business jets alone, it is estimated that the loss of 750 direct jobs will cause the loss of an additional 1,200 jobs in the industry's Canadian supply chain. The PBO estimates that these workers' personal income taxes at the federal level alone will be approximately $14.3 million.
In my view, these figures are fairly conservative. They would be much higher if we were to add the figures for all of the indirect and induced job losses in the industry. These figures also underestimate the impact of the maintenance, repair and overhaul activities on other small and medium-sized enterprises not interviewed in the course of the research.
I am running out of time, so I will just say that the strategy called for in this report is a strategy to tax. That is the only one we have after eight years with the Liberal government. That is where the government goes to, and the result will be massive job and economic losses for our country.
