Proceedings of the Standing Senate Committee on
National Finance
Issue 17 - Evidence - September 28, 2010
OTTAWA, Tuesday, September 28, 2010
The Standing Senate Committee on National Finance met this day at 9:32 a.m. to examine the costs and benefits of Canada's one-cent coin to Canadian taxpayers and the overall Canadian economy.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Welcome back from a short break, everyone.
On April 27 this year, this committee was authorized by the Senate to examine the costs and benefits of Canada's 1- cent coin to taxpayers and the Canadian economy in general. In May we held two meetings on the subject, and we heard from government officials and academics. This morning we will continue our study on this issue by hearing from representatives of the business community.
In this first panel, we are pleased to welcome Kim Lockie, President of the Canadian Automatic Merchandising Association.
[Translation]
We also have with us Gaston Lafleur, but we are going to begin with Mr. Lockie since Mr. Lafleur has been delayed.
[English]
Honourable senators, as usual, we will hear from our witness, Mr. Lockie, and then we will proceed to a question- and-answer period. If Mr. Lafleur arrives too late in this session, we will add him to the next panel.
This first panel, with one hour set aside for it, consists of Mr. Lockie alone, at this stage. Mr. Lockie, you have the floor.
Kim Lockie, President, Canadian Automatic Merchandising Association: I represent the vending industry in Canada. Only last week, we had our national vending show and convention in Calgary, as well as a board meeting and a membership meeting.
We discussed what would happen to our industry if the penny were gone. We determined that its disappearance would be a benefit and that no one in our industry uses pennies anymore.
We use pennies only when we receive requests from charities for which people donate their pennies to help out. Charities ask people in our industry to sort and wrap these coins, and the requests can bring in $1,000 or $2,000 worth of pennies at a time. If we volunteer for these requests, it costs our industry quite a bit in employee wages and wear and tear on the machines. Often pennies become sticky, and foreign objects can stick to them, damaging our machines.
In essence, with the wages and everything, it would be more beneficial to an operator like me to take the coins, cut the charities a cheque and dispose of the coins in some way, either through scrap metal or something else, because it costs me more in wages and wear and tear on the machines than what the penny is worth when it comes out the other end.
No one uses pennies in our industry, even the bulk vendors — the gumball machines and such, which are 25 cents or more. No vending machines take pennies, so we will notice no difference in sales.
I would also look at eliminating the nickel at the same time. Perhaps we can readjust our coins like New Zealand and Australia, where they have a 10-cent, 20-cent and 50-cent coin. The nickel is not used much. We use it a bit in our industry, but a dime will work as well. If you are thinking of eliminating one coin and if the public will be upset with losing one coin, you might as well eliminate both, in my opinion.
We have a lot of change in our industry. Different coins often come out. I deal with the Royal Canadian Mint quite a bit on the new issues of loonies and toonies coming out next year with a different alloy content. The new coins will affect our industry considerably. Every time alloy content is changed, our industry must visit every machine. In my operation, it will take one person two months of full time work to go to all our machines and reprogram for the loonie and toonie.
If you are looking at eliminating the penny and the nickel, we have to re-tool our machines anyways, and since our machines do not take pennies, the nickel would not take much to upgrade.
In terms of the penny, I work closely with the mint on different issues. We have checked the cost of making a penny and I believe it is 1.03 cents. In our opinion, through the Canadian Automatic Merchandising Association, CAMA, we think the government should run the same way business does: If it is not profitable, we do not do it. If it costs 1.03 cents to make a penny, the government loses money every time it puts one out and there is no purpose.
If we work it out, eliminating the penny and the nickel does not put the consumer ahead or behind, when we round up and down. There have been different studies working out the effect on consumers. Sometimes the consumer receives an extra couple of pennies and sometimes the consumer is short a couple of pennies, so the impact is fairly neutral.
As far as our industry is concerned, eliminating the penny is a good step and a smart business decision. We suggest the nickel go at the same time. If there is a little bit of a problem, we get it all over with at once. That is all I have to say for now.
The Chair: Thank you. There might well be questions, Mr. Lockie, with respect to that suggestion. You want us to look at eliminating the nickel as well and we will take note of that suggestion. I also made note that you suggest we keep 10-cent, 20-cent and 50-cent pieces, which means getting rid of the quarter, as well, I assume, making it worth 20 cents, or making another coin worth 20 cents.
Is there a specific reason for that suggestion, other than the fact that Australia did it?
Mr. Lockie: I think a 10-cent, 20-cent and 50-cent coin make it beneficial to make any kind of change needed, by rounding up to the 10 cents. Therefore, those three coins will cover 60 cents, 70 cents, 80 cents or 90 cents — we can give the correct change, if we had 10-cent, 20-cent and 50-cent coins.
The 25-cent piece does not fit in if you eliminate the nickel. If you eliminate only the penny, the existing coins will be fine. If you eliminate the nickel, you need to change the quarter because it does not fit into the change system because there will be no nickels to give out.
The Chair: Thank you.
Mr. Lockie: We had the mint at our presentation, as well, and I believe the nickel right now costs close to four cents to make, so it is not a profitable coin for the government, either.
The Chair: I am sure that answer will set the stage for other questions.
[Translation]
We would now like to welcome Gaston Lafleur. Mr. Lafleur is the president of the Conseil québécois du commerce de détail, Quebec's retail trade council.
Welcome, Mr. Lafleur. Would you like to say a few words before we move on to questions?
[English]
Gaston Lafleur, President, Conseil québécois du commerce de détail: I want to take a few minutes to explain who we are and what our position is in relation to the committee's mandate. If you do not mind, I will express myself in French.
[Translation]
I would like to thank the chair, as well as the members of the committee, for inviting us to participate in today's hearings regarding the possible disappearance or elimination of the penny.
The Conseil québécois du commerce de détail is an association that brings together retailers operating in Quebec. We represent the retail trade sector in Quebec.
First of all, I want to say that the Conseil québécois du commerce de détail does not object to removing the 1-cent coin from circulation. However, we do have some concerns.
And those concerns touch on a number of areas. Our first concern has to do with the potential rounding of the one cent. We believe that the rounding system should apply to cash payments. But we still have concerns regarding the impact of payment methods if, for instance, it is recommended that a rounding method apply to cash payments and that, for the other payment methods, be it the use of debit or credit cards, the transaction be allowed to proceed at its actual value. Furthermore, even though this may seem obvious, we believe the final bill amount should be rounded, after the taxes have been applied, and not before. We are especially concerned about the consequences of a rounding process on consumer legislation across the country.
I want to speak to the situation in Quebec, more specifically. Under Quebec's Consumer Protection Act, retailers must adhere to an accurate pricing policy, which ensures that the price indicated on the price tag or sign corresponds to the price paid at the cash register, in other words, at the point of sale.
If an upward or downward rounding process is used, the price displayed at the cash register may not necessarily reflect the price indicated on the tag or sign. In certain situations, that could raise doubts among consumers about price accuracy and lead to a sanction under Quebec legislation, whereby retailers have to pay a sum of ten dollars when the price is incorrect. Those considerations need to be taken into account.
Elsewhere in Canada, there may be other pieces of consumer legislation that apply.
Another consideration is the type of rounding proposed. Given the previous comments, it will likely be symmetrical. So, in that respect, we do not have any concerns about rounding one or two cents down to zero and rounding three or four cents up to five, and so forth.
However, there is an element we feel is important. It would be advisable to examine the consequences of the rounding system on tax laws in Canada, on commodity taxes. Would it require amendments to tax legislation with respect to commodity taxes at both the federal and provincial levels? In that regard, should the rounding principle not be applied within a context of tax legislation, if we are talking about treaties, of regulations regarding the final bill payable, which includes commodity taxes?
We would not recommend a two-phase adjustment process, that is, an adjustment of the final invoice before taxes and an adjustment or rounding when taxes are applied. In that case, rounding would occur twice. Obviously, this could have a significant effect on consumer perception.
We also have some concerns about the costs of this change. We know that it will have certain advantages. From the retailer's perspective, there will obviously be a reduction in the number of coins being handled, which gives rise to a certain degree of savings and efficiency.
There will be costs associated with changing point-of-sale systems. For the time being, there is no estimate of those costs. We would recommend that the Department of Finance, or other federal agency, conduct an impact study to assess the costs to businesses, retailers and others of changing and adapting their systems.
It is important to keep in mind the capacity of small businesses as compared with large ones, as far as this process is concerned.
If a legislative change is brought in, another aspect to consider may be tax breaks, for example. If the costs of adapting and converting systems are high, it may be advisable to anticipate some form of tax credit for businesses to offset those costs, which they will have to incur if the penny is eliminated.
We conducted a survey of our members. The preliminary results show that nearly 72 per cent of them would be in favour of eliminating the penny, providing that a set of conditions were met. However, almost 30 per cent expressed concerns about the need to change software or equipment if the penny were eliminated.
The second concern shared by a third of respondents had to do with adjusting prices after commodity taxes and how that would work.
Their third concern had to do with price representations. Throughout Canada, people are aware of the need to give consumers the correct price. Quebec, however, has a legislative framework in the form of the Consumer Protection Act, which is fairly binding. So that is a concern.
That is not to say that these concerns cannot be addressed through various measures, whether it be a communication- or information-based approach, that would need to be developed to reassure businesses about the process. That is certainly an important issue that either the government or Department of Finance will need to address if it intends to eliminate the penny.
We also surveyed consumers. Based on the results I was given last night —the survey is not yet complete — there were 603 respondents. The results had a margin of error of 4.1 per cent in 95 per cent of cases. This survey revealed that 59.2 per cent of respondents feel that the 1-cent coin should be removed from circulation in Canada, as compared with 36.7 per cent who do not. The council hired an independent firm to conduct the survey, which was part of a much broader survey. One question on the matter was quickly added. There was only one question, which asked if respondents were for or against the elimination of the penny.
The Chair: First off, is it possible to share that survey with us?
Mr. Lafleur: I would be pleased to send you the results and perhaps even a breakdown of the respondents by age and so forth.
The Chair: Yes, please.
Mr. Lafleur: I could provide that in writing within a week.
The Chair: Second, was the survey done by the members of the council?
Mr. Lafleur: No, the consumer survey was done by an independent polling firm, Altus Géocom. As for the member survey, we are the ones who asked the questions. Nevertheless, the results were compiled externally.
[English]
Senator Marshall: We have had previous hearings on this topic, and I am almost convinced that the penny should go. I am interested in hearing further comments on the removal of the nickel, to which Mr. Lockie spoke. My impression is that the 1-cent coin does not affect your industry much but that the removal of the nickel will have an effect.
Can you give us some idea as to cost to your industry to make the necessary changes if the penny were eliminated and if the nickel were eliminated? You made reference to the change of metal content of the loonie and toonie as a cost to your industry. Can you comment further on how these changes will affect your industry in terms of costs?
Mr. Lockie: As I indicated, no one in our industry accepts pennies in a vending machine of any kind, whether gumball, mechanical or electronic. Therefore, the cost to our industry of eliminating the penny is zero.
I will address the loonie and toonie. As well as being President of the CAMA, I have my own operating company with 1,100 machines. The direct cost to me and my industry to change the loonie and toonie will be about $15,000. One person in a vehicle for two months to go to all my machines to upgrade their software will cost me about $15,000. I am only one operator of thousands in Canada. It will cost companies like Coca-Cola and Pepsi considerably more because they have 10,000 to 50,000 machines. The change in the loonie and toonie will be a huge cost to us. In our industry, a coin mechanism reads the thickness, the diameter and the alloy content of the coin to determine whether it is genuine or a slug. Changing from nickel to plate steel will mean a change in the alloy content, and without a software upgrade, the machine's mechanism will not accept the new coin.
Senator Marshall: What about the nickel?
Mr. Lockie: Eliminating the nickel will be a cost to our industry. If you make changes, take the quarter out because it will cost us about the same. There will be a mechanical adjustment as well because in our coin mechanisms, tubes hold different-sized coins. We have to pull out a tube for the nickel and put in a tube for a dime, and change the software upgrade as well if the coins change. Again, it will cost our industry a fair bit, and we do not receive any help from anywhere. The cost, which is high, is a direct cost to operators. However, change is inevitable. The bills are changing at the same time in the next couple of years to polymers, which will cost me a fair bit. I will try to talk to someone today about at least putting them out all at once instead of in dribbles because we have to retool our machines each time. If you eliminate the penny, you might as well eliminate the nickel at the same time.
Senator Marshall: Mr. Lafleur, you mentioned that some of your members want to retain the penny. What is the primary reason? Is it the cost of converting their hardware?
Mr. Lafleur: Unfortunately, we did not ask why some members want to keep the penny. However, I will venture to say that when we talk about changes, some people have a tendency to be reluctant. Members might have different issues in that regard. We have not looked in depth at why they want to decline the elimination of the penny. We know that they have raised three main issues about the change in coins. Some retailers might think that these changes will have such a negative impact that it will eliminate any positive aspects of eliminating the penny. I am venturing a guess in response to that question.
Senator Callbeck: Good morning, gentlemen, and thank you for coming.
Mr. Lockie, in the first paragraph of your presentation you talk about charities receiving pennies that they ask your industry to deal with. Is that because you have machines?
Mr. Lockie: It is because we have machinery that can sort and roll the coins. It is expensive machinery.
Senator Callbeck: Do you charge them for the service?
Mr. Lockie: We do not charge them, and that is the catch. I find it cheaper to dispose of the pennies and cut the charities a cheque because I have to pay staff $25 per hour for 40 hours per week, which is $1,000, as well as the wear and tear on the machinery. It is cheaper for me to write them a cheque, take the coins and and dispose of them. I believe that in Canada there are one billion pennies in circulation, and the mint produces 500 million each year. There are lots of pennies out there.
Senator Callbeck: Roughly, how many requests does your industry receive in one year?
Mr. Lockie: I receive requests often but because we are in a different area, I cannot speak for other places. I am sure operators in other areas receive requests the same as I do. Charities might have a big penny run in town where schools and businesses alike save pennies in five-gallon water jugs. The charities bring in the pennies, and it usually takes two or three half-ton trucks just to carry them. A tonne of pennies generally equates to $1,000 to $2,000. It is probably worth more per pound for me to sell the pennies, provide the charity with a cheque and not deal with them further than that because it is costly to run pennies through the sorters. It takes time.
Senator Callbeck: Does your industry in general provide this service without a charge or is it only you who provides it without a charge?
Mr. Lockie: I assume others provide it without a charge as well because it is for a charity. Our industry tries to promote civic pride and helping people in the communities. I dare to venture that no one charges a charity to run these coins through their equipment. We usually suggest having a pizza and coin-rolling party but given the time it takes for people to roll their own coins, we think they are better off volunteering in a service industry somewhere or in a low- income job to be further ahead, moneywise. Pennies cost money and do not make money in our industry.
Senator Callbeck: Have you ever used pennies in vending machines?
Mr. Lockie: Back in the old days when prices were much cheaper, pennies were used, but no longer. They are not even used in gumball machines, where I believe the minimum is 25 cents for penny gum. The penny is not used in any of the coin acceptance industries that I am aware of.
Senator Callbeck: If it were decided to be beneficial to eliminate the penny, which approach do you prefer? Do you prefer to see a date and simply shut down the tap, or do you prefer to see the coin gradually phased out?
Mr. Lockie: I would rather see a definite date when production stops. It is probably a three-year process to have 80 per cent to 85 per cent of the coins returned to the mint. It is about a three-year process to have the nickel-plated loonies and toonies returned. They expect to have 85 per cent of the coins returned to the system and taken out of the system so I assume the transition for the penny will take three years. It might be a little longer because people tend to hoard pennies because they are not worth the time to roll them and take them in.
Senator Callbeck: Mr. Lafleur, you said you have no concerns if the penny were to be rounded up or down?
Mr. Lafleur: No; in fact, we do have concerns.
Senator Callbeck: I know at the end of your presentation, you expressed concerns about your membership, the 30 per cent. However, I thought you said that in your opening comments but perhaps you did not. You obviously have concerns.
Mr. Lafleur: We have concerns, but we are not opposed to the withdrawal of the penny. Our members and our organization have several concerns about the impact of this withdrawal, the cost, how we will manage the issue and, eventually, how consumers will deal with it. The result of our consumer survey indicated that the issue is not clear-cut at 59.2 per cent, and there is a margin of error with the statistical methodology. Although we did not conduct this survey all across Canada, it does tend to support the survey of the Royal Canadian Mint in 2007. The perception of consumers is not clear cut.
The Chair: I was trying to clarify a point. We had witnesses, including from the mint, prior to our summer break. I want to know whether you are able to confirm some figures. We understand that there is about $20 billion worth of pennies in circulation. You indicated about 500 million per year. Our records indicate that in 2006 over 1.2 billion were produced and placed into circulation; in 2007 there were 800 million; and in 2008 there were 780 million.
Mr. Lockie: I spoke to Paul Lefebvre from the mint last week, and I used the figures he gave me. My numbers could be wrong.
The Chair: The information we received from the mint indicates 25 per cent to 50 per cent more than that.
Mr. Lockie: That could be. I know that he gave me the figure of 1.03 cents to make a penny, which does not make sense from a business perspective
The Chair: We have been using the figure of 1.05.
Mr. Lockie: I am trying to remember the figures he gave me last week. That is what I understood. It is definitely over a penny. Regardless, it costs every time we make a penny, and it does not make business sense.
The Chair: We will try to confirm those figures more precisely, but they are the figures we have been working with.
[Translation]
Senator Ringuette: My question is for Mr. Lafleur. Mr. Lafleur, for the first time, you have raised a consideration that the committee has not yet heard: the issue of legislation, at both the provincial and federal levels and in terms of taxation. I think that the committee definitely needs to examine this situation a bit further, because the federal government cannot impose changes on provincial legislation. So there is a whole dynamic at play that needs to be recognized, as do the consequences.
Above all, I recognize that Quebec's Consumer Protection Act is certainly one of the most respected pieces of legislation at the provincial level. Thank you for bringing that incredibly important issue to our attention.
You also suggested the possibility of a tax credit for the transition period. If I look at it from the merchant's perspective and I consider all the cash registers that will need to be adjusted to accommodate rounding amounts either up or down to eliminate the 1-cent coin, it is clear that there needs to be a balance in all this. You also said that your association did not examine the exact cost of bringing cash register systems in line with this transition.
Why did you not study the cost? I would think that is one of the biggest concerns that your retailers have.
Mr. Lafleur: Thank you, senator. Indeed, the cost consideration requires a much more detailed examination of the processes, an exercise that we obviously did not have enough time to carry out in the short time we were given before we were called on to appear before the committee. But it is clearly an issue of concern affecting any business that has to handle money in the process. In our view, one aspect that we should probably focus on, in terms of legislation aimed at renewing or improving our monetary system, is cost.
What we are recommending is, to some extent, true for everything. When you launch a project of this magnitude and you know that, in one way or another, cost will have to be considered, our recommendation would be to carry out an independent study in order to obtain an accurate assessment, one that examines not only our sector, but also the restaurant industry and any others that are affected. This covers numerous transactions and has many implications, even though we are talking about just a penny.
What I see as a reasonable and realistic approach would be for the authority seeking to make the amendment and having the appropriate jurisdiction, in other words, the federal government or Department of Finance, to carry out that study.
We can conduct studies, but the way we see it, in order to gain all the necessary information as well as an understanding of the big picture, you would need, as decision makers and people who make policy recommendations, a much more comprehensive study than what we would be capable of producing.
Senator Ringuette: In terms of balance and rounding, I also think the new automated cash register system should, to some extent, be approved by the Department of National Revenue to make sure that the consumer is not on the losing end when it comes to eliminating the penny.
Mr. Lafleur: There is an issue that needs to be addressed: Will this ultimately involve rounding taxes?
Senator Ringuette: Yes, there is that as well.
Mr. Lafleur: At the end of the day, that is an important question, because we do not want our retailers to not be able to display the unit price, a price in cents and so forth. So, in our view, goods will continue to be provided and should continue to be provided in a free and unfettered manner. That could include prices along the lines of $19.99, similar to before. We know that rounding will occur at the end point, and that involves calculating the taxes. So if pennies are removed from circulation, consumers paying by credit card or cash cannot be penalized when it comes to calculating the taxes. If, for example, you have a total of $15.29 with taxes, what do you do? If you pay $15.30, does the extra penny go to taxes or the cost of the product?
Senator Ringuette: Indeed.
Mr. Lafleur: And it is not the same for all the provinces. Not all provinces have provincial sales tax.
Senator Ringuette: In places where the tax is harmonized.
Mr. Lafleur: In that case, yes, but there are places where it is not and places where there is no provincial tax. And then you have the whole issue of the order in which you calculate the total. At what point do you round, and what do you round?
In Quebec, for instance, since the federal sales tax is calculated and the last tax added on is the Quebec sales tax, that is where the rounding would take place, at the end point.
What we want is this: we want the consumer to really know who will benefit from this rounding up or down. Our retailers want to know that, as well.
When we discussed the third concern our retailers had, the matter of tax distribution, that has more to do with this issue. Obviously, we do not have the answers to these questions, but they are very serious questions that will come up at every transaction.
Senator Ringuette: Absolutely. How long do you think the transition period for retailers would be, if we were to eliminate the penny? A year?
Mr. Lafleur: I can give you examples from Australia and New Zealand. In New Zealand, it was agreed that the penny would be declared illegal after two years. Australia, however, let things run their course to allow for recovery of the coins.
From an environmental perspective, if it is a matter of leaving millions upon millions of coins without encouraging their recovery, I would be inclined to advise you against outlawing the penny.
It goes against the Bank of Canada's usual procedure, for that matter. Even if a coin is no longer in circulation, it is still legal tender in Canada. We believe the penny should continue to be legal tender. However, recovery of the coins should be encouraged, if only for environmental reasons so people do not have penny jars sitting around all over the place.
Therefore, we would be more in favour of eliminating the penny gradually over a reasonable period of time to allow for the recovery of the coins. Depending on the approach that is used, two or three years would be a reasonable amount of time.
The Chair: Mr. Lafleur, we heard from Bank of Canada officials, and they gave an example of how taxes would be applied, followed by rounding. We have a copy of a calculation table. Could you look it over and then comment on it? It is on page 2.
Mr. Lafleur: All it shows is that the rounding is not done on the price of the product but instead at the tax level. So the taxes are rounded. There are two problems with that, since it involves not only eliminating the penny, but also adjusting the tax cost because it is connected to the tax cost. It no longer has anything to do with the product or the cost of the product. It is a tax measure that affects commodity tax.
Senator Ringuette: So it affects the provincial sales tax. If we add to that example the provincial sales tax, which may or may not be harmonized, would the provincial or federal government be benefitting from the two extra cents? Find the mistake.
Mr. Lafleur: That is a big problem, because you would have an instance of double rounding. On one hand, you have the federal legislation trying to ensure that the commodity tax is rounded, because the penny will be out of circulation, but the same thing is going to happen at the provincial level. In Quebec, for example, where the QST is added to the total amount including the GST, the tax would be rounded twice.
Senator Ringuette: Exactly.
Mr. Lafleur: So it becomes more of a tax problem.
The Chair: Our researcher from the Library of Parliament will now elaborate on the Bank of Canada's position.
Sylvain Fleury, Analyst, Library of Parliament: I want to go back to the example and show that, with the rounding, the government is not losing a single cent of GST or sales tax and neither is the consumer, spread out over a number of transactions.
We have the example here of three items that add up to a total of $10.60. The GST is 53 cents; the government will receive 53 cents, because merchant payments to the government are done electronically. So that is the government's revenue. The total price in this case is the total of the three items, $10.60, to which 53 cents in GST is added. That makes a grand total of $11.13.
If the consumer were to pay by credit card, the payment would be $11.13. If the consumer were to pay by cash, the consumer would pay the merchant $11.15, and the merchant would receive $11.15. In this case, the merchant would receive two extra cents. But over the course of all transactions, it was shown that the merchant loses two cents here but gains two somewhere else. Everything evens out in the long run.
So the government receives all the GST; the consumer who uses an electronic method of payment sees no difference, and the consumer who uses cash pays two cents more one time and two cents less another time. That way, there is no problem in terms of taxes. Do you have a question about that example?
The Chair: Or a comment?
Mr. Lafleur: As a consumer, I would wonder why I was being penalized for paying cash. And that leads into the whole matter of methods of payment. You have credit cards, debit cards, cheques and cash. That is fine for the GST, but what about the provincial tax? The QST is added on, and the penny factor again needs to be taken into account.
Mr. Fleury: Similarly, the provincial sales tax could be calculated, and the provincial governments could receive the exact amounts of tax they are owed. Then the total would be added up, and the rounding would occur at the final stage.
Mr. Lafleur: Okay. But, as a consumer, I always pay. And if by chance, one day, I have five transactions that end in 13 cents, 17 cents or 18 cents, I have to pay two cents more every time. I understand that, in the grand scheme of things, nothing is lost, nothing is added and that, on the total sum, the amount ends up being equivalent. The consumer can be in a situation where they are always paying two cents more. It could happen when the consumer has a number of transactions in one day.
The issue we are wondering about is whether the rounding should be done by legal means, so there are no misunderstandings on the consumer's part, and that would mean an adjustment for everybody and it would be clear. Regardless of the method of payment.
The other issue that could be raised is how this will affect the consumer's behaviour in terms of payment method. Yes, it is only two cents, but I was reading comments where a senator gave the example of someone who goes to get gas and there is a difference. He was saying that it could be increased by two cents and there could end up being two more cents of gas.
We have seen how consumers react when comparing the prices of two different gas stations: they choose to go across the street to fill up at a gas station whose price is merely a fraction of a cent cheaper. So you can appreciate that this is by no means insignificant. Consumer behaviour is a major consideration for us.
How do we solve the problem? If it is a taxation issue, and the consumer's perception is that the cost is adjusted at the tax level, because it is the final cost, someone somewhere will need to stand up and tell consumers: Okay, we are going to round the taxes at the end so that your bill comes out to the nearest five cents.
Senator Ringuette: Now I understand the complexity of cash register payment systems. The cash register system has to apply the rounding if the consumer is paying by cash but not if they are paying by credit card.
Mr. Lafleur: That is correct.
Senator Ringuette: This would be another instance of encouraging people to pay by credit card, which would increase the profits of banks and financial institutions at the expense of the consumer, who would pay by cash once again.
We need to make every effort to ensure that the consumer is not subject to discrimination at the end of the line. It is all well and good to say that this will save us $25 million a year, but if it ends up costing consumers and merchants $50 million, the Canadian economy is no further ahead.
Mr. Lafleur: Exactly. And that raises the fundamental concern that this initiative must not influence consumption patterns when it comes to cash payments versus other methods of payment. I do not want to get into another debate, but you rightly pointed out the high costs that retailers currently assume in terms of credit and debit card fees.
Senator Ringuette: Absolutely.
Mr. Lafleur: That is a huge problem for the industry. An attempt to save a few million dollars could end up increasing costs that our businesses already see as exorbitant and wholly unjustified.
Senator Ringuette: On the number of transactions.
Mr. Lafleur: We are talking a lot about the concerns our retailers have when it comes to taxes, but the payment method is also a factor.
[English]
The Chair: This issue is an interesting one that we will want to think about. We clearly do not want to make recommendations that will cost the Canadian consumer more, so we want to be satisfied about that through a statistical analysis. Sometimes the cost will be rounded up and sometimes it will be rounded down. We have heard what the Bank of Canada and the Department of Finance has said. From a tax point of view, they will not be put out in any way by the elimination of the penny. However, we should also think about the consumer.
My clerk tells me that the Consumer Association of Canada will be here tomorrow.
[Translation]
The Chair: Thank you, Mr. Lafleur, for pointing out these potential problems. I would also like to thank Mr. Lockie for being here today and giving his presentation.
[English]
We are still trying to explore all the ramifications of possibly eliminating one coin or a number of coins. You have raised a number of issues, interesting points, including the 5-cent piece, which we will want to think about. If we eliminate that coin, then the 25-cent piece poses problems, so we will have to change to a 20-cent piece. All of that information is to be put into our thought pattern.
On behalf of the Standing Senate Committee on National Finance, thank you for being here.
Senator Murray: Have we had testimony, chair, at any point in this study — I do not recall — as to whether the federal Parliament has the authority to dictate or to decide on the type of rounding to take place, whether symmetrical or otherwise?
The Chair: I think that issue has been raised in consumer protection legislation at the provincial level, and it is something we need to look into.
Senator Murray: Obviously, we have the authority to tax by any means. We brought in the Goods and Services Tax, GST, on that basis. However, I do not know the answer to the question of whether we have the right to go to the retail level and tell them that they must round up or down symmetrically or otherwise.
The Chair: Nor do I.
Senator Murray: I am surprised it did not come up when we had the government witnesses here, such as the Bank of Canada, the Royal Canadian Mint and so forth.
The Chair: We discussed that issue here at the table during the presentation. That issue was raised. Senator Murray, we thought we would start by asking the Library of Parliament to provide us with a background paper on that issue. Then we can determine which witnesses we may want to bring in to clarify it. If you can clarify it, that would be helpful.
Mr. Lockie: I will make one point. Mr. Lafleur mentioned that the retailer must pay to accept Visa, MasterCard or debit. As a retailer, I pay to deposit cash into the bank. To deposit coin, there is a cost on top of that charge. As well, the banks will charge us for accepting the penny, so there is that cost to consider as well. I pay per roll to deposit my money, and I deposit about 300 pounds of coin a day. I wanted to make sure you understood that point. Do not think Visa and MasterCard are expensive and cash is not. As retailers, cash costs us money as well.
The Chair: Especially coin.
Mr. Lockie: Especially coin.
Senator Callbeck: How long has that charge been in effect with the banks?
Mr. Lockie: My company has been paying it for at least 10 years plus. The banks charge us to deposit notes and coin. I am a fairly large retailer, and certain banks will turn me down because I have too much cash. My deposits far exceed $10,000 a day. I deposit around $40,000 to $50,000 a day in cash and coins.
In our small town of 80,000, there is only one bank that will accept my coin. The rest refuse my business because I have too much coin. If they did accept it, the costs would be so astronomical I could not afford to deal with them. Currently, I am looking at Visa, MasterCard and other methods of payment to cut my costs considerably, although the retail industry looks at that as an expense.
Senator Ringuette: Your machine does not take Visa?
Mr. Lockie: We do not take it yet, but our industry is looking into it. The Canadian banking standards are tougher right now so we can change other stations and not have to provide receipts. We have it stated that we do not have to provide receipts for MasterCard and Visa for sales under $25, but I need the same situation for debit so I do not have to provide a receipt for sales under $25 because I cannot print on my remote machines. I am moving to remote monitoring so I can see every machine and accept Visa, MasterCard and debit probably within the next 12 to 18 months. With respect to the rest of the industry, some operators accept it now and some are looking at putting it in within the next few years. In the U.S., they are accepted for most vending machines. We look at that medium because the banks charge us so much to deposit the coins when someone has to count and roll them. The banks charge me to take the coins.
Senator Ringuette: By any means, it is good to collect a fee.
Mr. Lockie: I was a banker for 26 years, but I have a different appreciation for banks now that I sit on the other side of the table.
Senator Callbeck: How much do they charge you?
Mr. Lockie: Some banks charge 10 cents per roll of pennies so how much would I make at that rate? I believe I have a better deal than that. My fees are $2,000 per month to take coin and bills at my business. That fee is to accept the money that I take to the banks. They do not accept money free.
The Chair: If it were possible logistically, have you ever tried to transfer money in cash and coin to the Canada Revenue Agency as a form of payment?
Mr. Lockie: Are you asking if I give them coin?
The Chair: Yes.
Mr. Lockie: The problem is that I am in a remote area. I would love to go there with a half-ton truck full of coins for them to take.
The Chair: I had such a picture in my mind.
Mr. Lockie: I pay $30,000 per month in taxes so it would be a lot of coin to haul there. It would be a little heavy.
The Chair: Thank you both; you have given us much to think about.
In our second panel, we are pleased to welcome Diane J. Brisebois, President and Chief Executive Officer of the Retail Council of Canada; and David Wilkes, Senior Vice-President of Trade and Business Development with the Canadian Council of Grocery Distributors. You were both here and heard the discussion in the earlier panel. If you wish to comment or help us to clarify any of those interesting points, we would welcome it. I know you will have your own points that you wish to raise.
[Translation]
Diane J. Brisebois, President and Chief Executive Officer, Retail Council of Canada: Thank you, Mr. Chair.
[English]
You have my speaking notes before you, but I will try to cut some comments because our colleague, Mr. Lafleur, from the Retail Council of Quebec, covered several of the issues. I will highlight some of the other concerns that we have heard from our industry and then let Mr. Wilkes make his presentation so there is more time for questions. That might be the more interesting part of the presentation.
As most of you know, the Retail Council of Canada represents over 40,000 retail stores across the country. It is important to note that while we represent the mass merchants in the large chains, we also represent thousands of independent merchants. It will be interesting to bring their perspectives to this discussion.
Obviously, one concern that we want to bring forward is the impact of the elimination of the penny on the retail sector, specifically on independent merchants who might not have the technology in place to ensure that if the penny were eliminated they could round up or round down.
[Translation]
It is important to note that the majority of merchants, as Mr. Lafleur mentioned, are in favour of eliminating the penny.
[English]
They want to ensure several issues are taken into consideration. Given that the penny might be taken out of circulation sometime in the future, the message from our retailers is that this committee should be aware of their concerns, how the process might unfold and the impact it might have on consumer spending and tax treatment. Those two issues were discussed.
Like most ideas, the devil is in the details. The rubber hits the road when the consumer goes into a store and pays for a product or a service, whether online, with a bank card or in cash. Depending on the model used for rounding, pricing strategies and practices of many retailers can be affected.
In Canada's tax system, the addition of the GST, Provincial Sales Tax, PST, and Harmonized Sales Tax, HST, will result frequently in a final price to the consumer that does not end in a five or a zero. As we heard earlier, at the end of the day everything might equal out but in the eyes of the consumer at the time, it might not seem as though it will equal out.
Mr. Lafleur mentioned the tax accounting implications that will affect the way our retailers remit tax, the way consumers pay tax and the perception of the amount of tax paid at the point of sale. There will be situations when rounding up will move the total pre-tax price of the goods or service to a higher GST or PST bracket. A similar challenge will be experienced when rounding down. While governments and other stakeholders may conclude that these fluctuations even themselves out over time, we must be sensitive to the consumer perceptions of how this issue is handled at the point of sale.
Some issues can be dealt with by moving toward tax and pricing. We have heard that argument. The tax theory behind a retail sales tax requires that prices be shown before tax. Provincial legislation is written in this way. As we have heard, the Quebec government and several others are looking at consumer protection legislation to look at the ways in which prices of goods are advertised both in catalogues and on the shelves in stores so that the consumer is not surprised when paying for the product. Mr. Lafleur mentioned that this issue is referred to as price accuracy.
Additionally, tax-in pricing will assume that tax harmonization across Canada exists. In fact, it does not exist, as you know. Unless it exists so we can talk about the same rates, we need to be careful when discussing tax-in pricing because it has huge impacts on supply chains, operating systems, advertising and marketing costs and efficiencies.
As noted during other presentations, consumers are embracing electronic means of payment. Taking this trend into account with similar rounding up or rounding down rules applying to all transactions including non-cash payments, will different rules apply if one pays in cash in a store or if one chooses to pay with a credit card? That issue also was discussed earlier.
In considering the elimination of the penny, many believe that Canada's value-focused consumers will be receptive to claims that the elimination of the penny will increase prices.
Many studies have been conducted, and I am sure that the Bank of Canada has fine opinions from various agencies and experts, but retailers face the consumer every day at the cash register. The last thing retailers want to do is try to explain why a price is rounded up rather than rounded down. Consumers want to go through the cash register as quickly as possible, and ignoring the interface between consumer and retailer will be at our peril.
Retailers and consumers must have clear answers from government on how rounding will work, particularly with multiple tax systems, since most consumers are wary of any changes in relation to taxes.
Finally, rules and regulations relating to the elimination of the penny must be applied throughout Canada and within all sectors affected, including retail, to ensure a level playing field and to address consumer concerns and needs.
Senator Eggleton asked whether we have the authority to dictate whether a price should be rounded up or rounded down. The sector will support the elimination of the penny only if rules are in place that all merchants and service sector businesses must follow, rather than letting people make the decision as they see fit at the point of sale.
The Chair: Before we go to Mr. Wilkes, is it your position that the provinces must agree to this set of rules because consumer protection legislation, at least in part, is provincial?
Ms. Brisebois: Yes, it is extremely important to have a discussion with both the tax side and the consumer protection side of the provincial government. Because of the changes that were passed in Quebec, their Consumer Protection Act was updated. It is the first provincial legislation in the country that is specific about the way the price must be advertised, both at the end of the purchase as well as at the beginning. Discussions must take place to ensure that harmonized rules are developed. I do not think that issue is a major one. It is simply that at the end of the day, we must all work under the same rules.
David Wilkes, Senior Vice-President, Trade and Business Development, Canadian Council of Grocery Distributors: It is a pleasure to be back before this committee. I always enjoy coming to Ottawa and exchanging views with you, and I look forward to continuing that discussion on this and other issues you have before you.
The Canadian Council of Grocery Distributors, as you know from my previous appearances, represents grocery retailers and food service distributors in more than 12,000 communities across Canada. Given the nature of our business, our members bring a unique perspective to this debate.
Canadians visit our members' stores once a week, and over the course of the year, over 99 per cent of Canadians will shop in our members' stores for their grocery needs. Our members also process a substantial number of payments and, by the nature of the products we sell, process a lot of small value purchases which end in 1, 2, 3, 4, 6, 7, 8 and 9 cents. We handle a tremendous number of pennies in the course of doing business for those types of products. By one estimate, based on member information, we handle over 10 million pennies a year, which brings with them the costs referred to by the earlier witnesses.
Certain savings will be made through the elimination of the penny, not only to the retail community but also to those referred to earlier by the witnesses from the Royal Canadian Mint. We must not lose sight of that opportunity as we consider how to implement this change.
Over the last few years, our members have seen a migration away from cash payments. Over 70 per cent of the payments in our members' stores are made through either debit or credit cards. These payments, too, call into question the viability of the penny in the future and the viability of those types of cash transactions.
Having said that, and with the cautions that have been given by other witnesses, which I will reinforce, our members support the elimination of the penny. However, it is incumbent upon the government to have clearly defined rounding rules across the country. There can be only one set of rules applying to all retailers and all people performing transactions. Without that set of rules, this change will only invite chaos. It is the responsibility of the government to eliminate chaos by having harmonized rules.
We need appropriate lead time. From consultations with our members, we anticipate that lead time to be approximately one year in advance of the change. We also need clarity on taxing rules, on whether the penny will continue to be legal tender, and on whether the rounding rules will apply only to cash payments or to all payments.
We view these questions as fundamental to the success of a change like this one. We believe that government has the responsibility to propose answers and to ensure, through consultations with the retail community, that the answers are workable.
We have received questions from our members about how this rounding will apply. It will be necessary to indicate clearly that rounding will apply only at the final stage of transactions. We will continue to see prices in our stores of $1.89, $1.99 and $1.97, and rounding will apply only at the final point of sale.
This idea is an interesting opportunity that our members believe is worth discussing. We believe savings and efficiencies can be created at the checkout. However, we also believe that there are complications that need to be clarified, for without clarity there will be chaos.
I look forward to having a robust conversation on these issues.
The Chair: Is it your understanding that, if the penny is eliminated, there will be rounding on cash payments but not on credit card payments?
Mr. Wilkes: That issue will have to be clarified. Do we want to influence a consumer's choice of form of payment based on rounding? I do not have an opinion on that issue. However, rules must be clearly established and understood. It is the responsibility of the regulator to ensure that we do not have chaos and confusion.
We have seen many examples in the last six months that consumers take seriously any charge that they do not understand at the point of sale. Without clearly understood rules, there will be confusion, concerns about equity, and concerns about the validity of the direction.
Ms. Brisebois: It is important to note the rules in the Consumer Protection Act in Quebec around price accuracy. If rounding up or down takes place at the cash register, that situation may contravene the rules around price accuracy based on the consumer protection legislation in Quebec. The price of a television, for example, may be advertised as $1,100. The current legislation allows retailers to break down the price to show included fees, such as an eco fee, but the size of type is to be smaller. It is the final price that the customer pays at the cash register that must be advertised, not only in the store, but on any kind of publicity and marketing.
Therefore, the rounding up and down of the price may be considered as contravening the Consumer Protection Act, and it is worth obtaining an opinion in that regard.
Senator Murray: I do not know what the sponsor of the bill, Senator Gerstein, had in mind. However, so you know, the briefing we have had from our advisers is, first, that rounding will be necessary only for cash transactions. I think the operative word there, Mr. Wilkes and Ms. Brisebois, is "necessary." Rounding will apply only to the total after taxes and not to the price of each individual item.
If rounding prices were symmetrical, rounding down where final prices end in 1, 2, 6 or 7 cents would be made up for by rounding up where final prices end in 3, 4, 8 and 9 cents. I put that information on the table. That is the understanding we are proceeding with at the moment.
Mr. Wilkes: I agree. I think the rounding will be clear and it will be only on the total price. I do not want to repeat everything that Senator Murray has offered, but I think that rounding must be understood clearly and must be consistent.
We are not here to say no; we are here to say this change is an opportunity but it is an opportunity that must be articulated clearly, and the rules around it must be specified clearly.
Senator Murray: Do you have a view as to whether we, at the federal level, have the authority to enter into that amount of detail as to retail transactions?
Mr. Wilkes: I do not have a specific opinion at this point in time. However, I have an opinion regarding what Ms. Brisebois said; namely, if we do not have that clarity and consistency, we will have chaos. I think that if you do not have that authority, it seriously calls into question the ability to make this change effectively.
Senator Gerstein: Regarding a comment Senator Murray made, I believe we are dealing with a study; we are not considering a bill at the present time. A study is the purpose for having these witnesses.
Senator Runciman: My memory might be failing me, chair, but Senator Murray said the rounding we are talking about comes after tax and is incorporated in the bill. I was becoming confused by that point because we are talking about tax-end pricing here and how that pricing will affect rounding.
Is that the intent we have been talking about here; namely, that rounding will occur on top of the tax?
The Chair: I think because we are conducting a study, we want to explore all the possibilities. However, we had the government officials here. Table 2, given to Mr. Lafleur, explained that point. He suggested they can go either way and it becomes complicated if they round out and then tax.
I think we have to pursue this point so we have a full understanding of its breadth.
[Translation]
Senator Poulin: Thank you, Mr. Chair. I want to thank our witnesses for their outstanding presentations.
The two of you represent all Canadians. On one hand, we have to shop for groceries, and on the other, we also have to shop for all of our needs and wants through retailers.
[English]
My first question is to you, Mr. Wilkes. How many members do you represent? I see that you are in 12,000 communities and that you also represent the grocery or the food service distribution, both at the regional and national level, and that representation includes the whole process of the food chain. How many members do you have?
Mr. Wilkes: We have a concentrated industry, so we do not have a lot of members. On the food service side, we are under 10, and the number is similar on the retail distribution side. We have a variety of "allied members," as we call them, which bring up that number substantially. However, given the concentration of the numbers, we have relatively few members.
[Translation]
Senator Poulin: Ms. Brisebois, you said you represent major chains as well as independent merchants.
Ms. Brisebois: Yes.
Senator Poulin: I listened to both of you, and I was waiting to hear your recommendations.
[English]
If the decision were made to abolish the penny, what recommendation would you make that we might enter in our report? This is what I heard as a summary, but I want to hear more. You talked about the importance of the rules regarding rounding up and down: the consistency; clarity; lead time; and then, on another level, the importance in respect of existing provincial laws.
Are there any other recommendations you want to make to this committee and this study to ensure the implementation is as easy as possible for the most important person, the consumer?
Ms. Brisebois: As the senator mentioned, this is a study, and one of the recommendations or suggestions we want to make to this committee is to look into the possibility of bringing some of the key retailers in the country together for a simulation to develop a sense of it and to work with others. I am sure that my colleagues Mr. Lafleur and Mr. Wilkes will agree.
I will give you an example with Canadian Tire. The company has a special school where they put consumers as well as retailers through their store of the future, for example. We thought it might be helpful for us to try to simulate different situations within retail: to look at how the change affects a small-, mid- and large-size business as well as a business that deals only in one province or intra-provincially; and to look at how consumers will react. We can also test the education, for example.
[Translation]
If you look at the New Zealand and Australia models, for example, you see that no efforts were made to educate consumers.
[English]
It was hit-and-miss. Information existed, but when we spoke to the Australian association, they said they really did not work in cooperation with government agencies. We would not make that recommendation.
We must be honest: Most of our mid- to large-size retailers indicated they will not lose any sleep if the penny is eliminated. However, because they have complex businesses, they need time to ensure that such elimination is implemented properly. Most importantly, they are the mirror to society in that they see consumers every day. If the information is not clear and does not appear to be equitable for the consumer, then I think both businesses and government will lose.
Mr. Wilkes: I agree with everything Ms. Brisebois has indicated, and I will add or emphasize two points. There must be sufficient time for implementation. Recognizing the normal business cycle that retailers go through, they must be given sufficient time, whether that timeline is 12 to 18 months, not to make this change unique but a change made as part of their point of sale updating, which is done on a regular basis.
The clear recommendation I encourage this committee to make is consumer education. If this change is made, it must be supported by clear education for consumers. Our members would be willing to help with that education.
As we look at point-of-sale, as Ms. Brisebois has indicated, retailers are mirrors to society. However, without that education, without consistent understanding and knowledge that this change will be equitable and supported by the right information, it is something we do not want to entertain. I reiterate that the change is something in which we believe there is an opportunity. I do not want us to become discouraged by the complexity of this change and not to continue down this path to look at how big an opportunity it might be.
Ms. Brisebois: I think it is also extremely important to consider the relationship of the aging population and financial institutions. We heard from a witness earlier on, and we hear it from our small members, that they are paying outrageous fees to deposit cash. While it is one way of encouraging businesses to embrace technology, it also has a huge impact on the bottom line.
We are dealing with a soft recovery, at best. People are counting their pennies. We need to remember that, and we need to ensure that small businesses are not penalized throughout the process to eliminate the penny. We also need to ensure that consumers and, more importantly, seniors, who often hoard their pennies, not be penalized for returning a roll of pennies for a period of time if, in fact, those fees do exist. We may want to consider eliminating those fees for a period of time.
The Chair: That is a good point.
Mr. Wilkes: Is the penny legal tender, returning to the point that Mr. Lafleur raised earlier? There should be clarity around that issue. If the penny is to be eliminated totally from circulation, over what period of time, supporting what Ms. Brisebois said? That point is yet another one where a clear decision must be made.
Senator Eggleton: This action has been taken in other countries. You mentioned Australia. I am sure there are counterparts to your organizations in these other countries. I trust you have talked with them, or you have some information about how it all happened and how it unfolded in their cases. Did they have any big surprises? Did they have any regrets? Were they able to make the change smoothly? What measures of particular interest to your sister organizations in those countries were taken or not taken?
Ms. Brisebois: Part of the recommendations we made today, and that we will continue making, are a reflection of what we learned from our sister associations in other countries. You mentioned Australia and New Zealand, but as you know, there are other countries that have eliminated the penny.
Time was a recommendation: to make sure there is enough time for all types of businesses to comply. Make sure the rules are clear and that the decision to round up or round down is not left up to different businesses. Ultimately, that decision will have a negative impact on the entire sector.
Senator Eggleton: People manipulate the system. Some will say, "We will take it down" even if it is —
Ms. Brisebois: You only need one bad apple.
Senator Eggleton: It confuses people.
Ms. Brisebois: Yes; ultimately, most retail associations we spoke to said it is all about the consumer. If consumers understand and do not feel they are being short-changed, if the rules are clear, then usually the transition is fairly smooth. However, time is also extremely important to allow businesses to make the appropriate changes.
Mr. Wilkes: I will add two points. Do not make this rounding a point of competition between the retailers. It was interesting, as I have learned from others, that there did not seem to be an overall inflationary impact. As retailers rounded up or down, equity was eventually reached. That information is an important point of education going forward with, obviously, the background facts. That was the observation I made from the experience of others; rounding seemed to be neutral.
Ms. Brisebois: The other suggestion, and I think the gentleman who was here earlier mentioned it, is that if there are other changes in currency at the same time as the elimination of the penny, the change in the $10 bill, that the changes all be coordinated and harmonized because they are expensive.
We forget that most businesses need to change not only the software to calculate the round-up, but they will need new drawers, for example. Sometimes for the dollar, for example, for paper money, they must invest in new security machines to ensure that the money is not counterfeit.
Many things go into ensuring that one is able to receive currency and give currency back. If changes are anticipated, I recommend that this study or this report encourage both the mint and the bank to work together so that any changes are introduced together in a timely manner.
Senator Eggleton: If someone is at the cash register and their total comes to $29.98, they are then given the choice of $29.98 by credit card or $30 in cash, a nice round sum of money — maybe I should not have picked that one — but I guess the illustration here is that it may be only 2 cents, but a lower amount is paid by credit card. Do you think people's habits of payment might be affected by that situation?
Senator Ringuette: Absolutely.
Senator Eggleton: By a mere two cents?
Ms. Brisebois: I believe it will. We have seen consumers cross the U.S. bridge to save 20 cents on an item when it costs them $2 in gas. The saving is perception more than reality. Especially today, it is interesting that we are talking about the elimination of the penny when we are seeing consumers tighten their wallets even more and count every penny. I think the difference will influence the way they pay for their product.
Senator Eggleton: In terms of more use of credit cards, is that use good for retailers or not so good for retailers?
Mr. Wilkes: Here we go to another conversation.
Senator Eggleton: We heard earlier that depositing all those coins costs money too, but we have had controversies over this issue of how much retailers have to pay in terms of the credit card.
Mr. Wilkes: As a retailer, we look at two factors in payment options: lowest cost and security. Those factors are the driving ones. With debit and the debit model that we have in this country, Interac, debit is a low-cost, secure way of paying for transactions, and those factors will not necessarily migrate to credit cards. I do not want to make the assumption that an electronic payment will be by credit card. In our stores, the most popular payment is debit.
The views of both the Retail Council of Canada and the Canadian Council of Grocery Distributors on the costs associated with debit and credit are well articulated and understood, and we spoke about those views before this committee. We could probably spend the rest of the day chatting about them, but there are costs involved. There are costs involved with cash as well.
The issue I am concerned about with this policy is that we do not want the debate at the point-of-sale around whether it applies for debit, cash or credit. There must be that clarity. As a retailer, we want the option to ensure for our members' business that we have the ability to accept the payment option that makes sense for our business as we serve our consumers.
Senator Eggleton: You do not have much choice nowadays. Everyone accepts credit cards.
Mr. Wilkes: There is no question that we accept all three forms of payment, and there is an evolution in payment types coming forward. We recently made our submission to the payments task force. This debate is evolving. However, at the same time, we want to ensure that we have the ability to choose. We want to be able to say, for example, that this payment type is not practical and that we only accept debit. We do not want to be in a situation where we are dictated to as to the choice to make. That debate is different.
Senator Eggleton: You would lose me; I like the travel points.
Mr. Wilkes: I will also pick up on a point made earlier. I believe a two-cent difference will influence consumer behaviour.
Ms. Brisebois: May I add a different twist? I am not always known as being politically savvy, but in today's world, we need to consider a group of consumers that might use cash over debit and credit for the reason that they do not have access to debit or credit. Many times, these people are new Canadians or low-income families.
My only concern from a political perspective and from a retailer perspective is that we will appear to disadvantage those who can pay only by cash. The argument then will be that they can obtain a cheap credit card. However, if that credit card charges the consumer 28 per cent interest, the government might fall into that other political black hole by appearing to force someone into debt so they can save two pennies. This situation might sound far-fetched but when I spoke with the consumer association, I heard such comments.
We need to be sensitive to the issue so that we do not appear to force someone into a method of payment.
Senator Eggleton: It would be interesting to see how consumer habits change.
You are agreeable to the elimination of the penny. What about the nickel? How far do you want to go?
Ms. Brisebois: We are just getting our heads around the penny.
Mr. Wilkes: I think that eliminating the nickel would be a stretch. If there were a need to eliminate the nickel for cost savings, efficiency and other reasons that appear to be driving this study to eliminate the penny, I suggest only caution and time. You cannot do it all together.
Senator Eggleton: All of you have said that.
Ms. Brisebois: I agree with that comment.
Senator Neufeld: I thank both of you for an interesting conversation.
Ms. Brisebois, is Quebec the only province or territory in Canada that has such consumer protection legislation, or do other provinces or territories that you are aware of have it as well?
Ms. Brisebois: Quebec is the only province that has legislation around price accuracy and how prices are posted both virtually and in stores. Quebec tends to be ahead of the game in developing consumer protection legislation. The province often looks at the European model. Other provinces are looking at what Quebec has put in place.
Quebec is the only province in Canada that also has fines tied to its pricing accuracy regulations. The rest of Canada works with the Competition Bureau and a voluntary code. In the current environment, different associations work together to encourage their members to put best practices in place.
Senator Neufeld: Mr. Wilkes, can you give me the number again? I believe you said that a huge increase in debit and credit card purchases in the grocery business is taking place. What percentage of purchases are made with debit and credit cards?
Mr. Wilkes: We have seen a migration away from cash to credit card payments. Currently, our members' profile indicates that 75 per cent of payments are electronic, the majority of which is debit.
Senator Neufeld: That is interesting. Without any change to coinage, the general public in grocery stores is moving toward the use of debit and credit cards, but mostly debit cards.
Mr. Wilkes: There are many reasons, such as convenience, security and efficiency. There are other potential incentives, which Senator Eggleton referred to, with other forms of payment. There are various reasons.
Senator Neufeld: I appreciate that. Eliminating the penny will encourage more people to use debit and credit cards. People already seem to use them more.
Mr. Wilkes: If we are talking about cash payments, it affects only 30 per cent of the business.
Senator Neufeld: Ms. Brisebois, in the retail business do you have a similar experience?
Ms. Brisebois: If we put convenience store businesses and dollar stores aside, our percentage of debit and credit use is even higher than it is in grocery stores. For example, people shopping at the Gap pay with debit or credit cards. In most cases, people rarely pay in cash for a big-ticket item. We see cash used more often with purchases under $25. In most fashion chains and hardware stores, unless someone is buying a small item, most items are purchased with a debit or credit card.
Senator Neufeld: That point is an interesting one for us to take into account.
When we talk about educating consumers and taking a long time to make the transition, I do not have any problem in removing the penny. However, if we have to take this time and offer this education every time we change a coin, should we not take a bigger bite? Mr. Lockie talked about 10-cent, 20-cent and 50-cent pieces. The mint is talking about going to a $5 coin to replace the $5 bill. I might suggest that people use debit and credit cards more because they are light in weight to carry in a pocket or a purse. My debit card has never worn a hole in my pocket. Toonies and loonies can wear such a hole and they usually end up in a jar with most of the pennies.
Before we eliminate the penny, should we look at having a broader larger consultation with Canadians about changing all our lower-denomination coinage to learn consumers' opinions on the issue, given the current trend?
About the retail market, you are right in saying that not many people walk in with $150 in cash to buy a pair of jeans and a shirt. Rather, they use a debit or credit card.
Ms. Brisebois: If this committee looks at the elimination of coins or certain coins, it makes sense to look at the penny and the nickel. I am not in a position to speak to the impact it will have on the sector, but it will not be difficult to find out. If things are to change, they might as well be changed together, assuming that the changes have been tested.
As for vending machines, it was interesting that Mr. Lockie did not mention the cash cards that many young people use in places such as McDonald's, Tim Hortons and some vending machines. We are testing mobile payments via BlackBerry or other cell phones. Eventually, we will put nickels in jars, at the bottom of our socks or wherever we currently put our coins.
Senator Neufeld: I suggest that we put ourselves at the front of those changes.
Ms. Brisebois: We need to find out how consumers will react and what the impact will be. That makes sense.
Senator Gerstein: I thank our witnesses for an enlightening presentation.
Senator Neufeld raised the point: When we talk about payment methods — cash, credit cards or debit cards — we have a tendency to lump credit cards and debit cards together. Am I correct in thinking that payments with the debit card are substantially greater? When you talk about electronic payments, what portion of those payments are made with debit cards?
Mr. Wilkes: From our members' perspective, about 50 per cent are by debit.
Senator Gerstein: Is that 50 per cent of all electronic payments or all payments?
Mr. Wilkes: That is overall. Credit cards make up the balance.
Senator Gerstein: Debit cards are used in 50 per cent of all payments.
Mr. Wilkes: In a grocery store, 50 per cent of all payments are by debit. About 20 per cent or 30 per cent are by credit card. The most popular payment method is definitely debit for a variety of reasons. It is important to note that the credit card companies took the opportunity to look at the markets where they did not have high penetration and they increased their advertising focus on such things as double-your-points shopping at a grocery store, for example. As a result, we have seen the penetration of credit card companies increase significantly over the last few years.
Senator Gerstein: However, the use of debit cards is ever increasing. Is that increase coming from cash?
Mr. Wilkes: It is coming from cash.
Senator Gerstein: It is not coming from debit cards?
Mr. Wilkes: Cash is migrating to both.
Senator Gerstein: Ms. Brisebois, you indicated that this trend is even more pronounced in your group than in the grocery stores.
Ms. Brisebois: Yes.
Senator Gerstein: I am not in any way trying to put words in your mouth, but may I take from your presentations that both of your organizations support the elimination of the 1-cent coin? We greatly appreciate that you clearly pointed out that the devil is in the details, and you focused on the need for clarity because without clarity there will be chaos. However, both your organizations support the concept of eliminating the 1-cent coin?
Ms. Brisebois: With that caveat, yes.
Mr. Wilkes: For the record, yes.
Senator Gerstein: The committee will pursue this study with the Bank of New Zealand, and we will have a presentation from them. Am I correct that New Zealand had some push-back on eliminating their one-cent and two- cent coins but after only a few years, had no push-back on eliminating the five-cent coin?
Ms. Brisebois: We have read that literature as well. We will speak to some of our retailer friends in New Zealand to try to understand exactly why they supported the elimination of one versus the other. We hope to be able to provide you with more information. That was odd, to say the least.
We have also conducted research in the field and are hoping to work with the Quebec council of grocers in a more in-depth consumer study. We have approached firms like Ipsos Reid with regard to conducting research, the results of which we will share with you, specifically on the elimination of the penny. Based on this discussion, we may now consider asking about more than the elimination of the penny.
Mr. Wilkes: Part of the devil is looking at the demographics, as Ms. Brisebois mentioned earlier. My own daughter does not use cash. One end of the consumer spectrum is migrating further away from cash and the other traditional payment methodologies that we talked about to mobile payments. Another group in our society relies on cash as the only payment form they trust.
Our consumer is heterogeneous, so in considering where the education will need to be focused, my child and her colleagues will have no problem with this change while for others it will be a serious change.
Those personal illustrations demonstrate the complexity of where we are moving as a society and the role played by the penny, which has been part of this country for a long time.
Senator Ringuette: I understand that the use of debit cards is increasing, although I personally think that the trend has reached a summit for grocery payments, and we will see the invasion of the credit card. Nonetheless, we must understand that to have a debit card, we need a bank account. Millions of Canadians do not have a bank account because we are one of the few countries in the world that has no legislation forbidding banks from refusing to open accounts. Banks in downtown Ottawa are refusing to open bank accounts for Canadians today, because we do not have federal legislation that forbids banking institutions to refuse to open bank accounts for citizens simply because they do not have enough money.
Therefore, 30 per cent of our cash society is footing the bill, and they are the ones who have the least financial means with regard to the use of debit cards and credit cards.
I understand the cost that this change will impose on merchants who have to educate consumers on it. A cost is associated with time and human resources. To balance this cost, there must be some form of incentive and compensation for merchants to accept the elimination of the 1-cent coin. It must also be accepted that Canadians should not be denied a bank account that provides them with a debit card.
I could talk all day about banking issues. Until we address the real cost of cash to the Canadian economy, talking about this one-penny issue is like running around in a circle.
Senator Runciman: Ms. Brisebois, in your submission you spoke about moving toward tax-in pricing. Is that a position that your organization advocates?
Ms. Brisebois: It may be the way it is presented in the speaking notes, but we do not. We are well known for speaking against tax-in pricing, for all sorts of reasons. Specifically, on the practical side, there is no harmonized system across the country. Second, retailers tend to want to ensure that consumers know how much tax they are paying. While tax-in pricing may have advantages from a process perspective, assuming all taxes are equal across the country, our members feel strongly that consumers should know the taxes they pay. Members look at the experience in Europe with tax-in pricing and how high it climbed. Our members tend to be conservative in how they look at taxation.
Many large retailers would support tax-in pricing if it were harmonized at the same level. Many small- to mid-sized businesses would be concerned about being forced to hide the tax in the price of goods.
Senator Runciman: I would hope consumer organizations would be concerned as well. I appreciate your perspective on that issue, because tax-in prices hide taxes from the buying public. The eco-fee issue in Ontario recently is a good example of where transparency can have an impact on how governments approach these kinds of issues.
Senator Dickson: Thank you, witnesses, for your excellent presentations. I am concerned about the education of the consumer. What is your best guess of the cost of this education in Canada and what portion the government would assume?
Ms. Brisebois: Unfortunately, I do not have estimates for you, but it will not be difficult for us to obtain a sense from our sister associations of how large the initiative was in these countries and where the funds came from. I think it was a collaborative approach.
I can speak only on behalf of the Retail Council of Canada but, at the end of the day, we see this education as an important investment to ensure that everyone has a harmonized message and consumers are not confused. At the end of the day, that outcome is the desired one.
While retailers are known for being able to squeeze blood out of the penny, I think they would open their wallets a little to ensure there is no confusion.
Senator Dickson: After you have further discussions, I will be interested in a follow-up as to your estimate of the cost in other jurisdictions and what it might be here in Canada.
You also made reference to a centre that Canadian Tire has. Can you elaborate on that centre?
Ms. Brisebois: Some of the large retailers have training centres. This is where they work. Some of the centres are internationally famous. The retailers even bring their people from around the world to be trained in Canada.
Canadian Tire is an example where they bring both their product and service suppliers, in addition to their consumers and store franchisees, and they test store designs, products and systems. IBM also works closely with Ryerson University and supports the School of Retail. We use the centres to conduct simulations.
That is not unusual. When we were dealing with tax-in pricing in Atlantic Canada, we used a few stores as simulators to see how tax-in pricing could be implemented.
Retailers tend to be realistic in that they live today to deal with consumers today. Therefore, retailers are a good way of finding out if a system or concept works well or not.
Senator Dickson: Is it possible to design a simulation package and invite members of the committee to be observers when the study is conducted?
Ms. Brisebois: Absolutely: It would be an honour.
This issue has a huge impact on my colleagues' members and our members. They deal with currency, day in and day out. They would be pleased to put a simulation together. We need to work with this committee, chair, to decide what is most important and what needs to be tested, but we would be pleased to do so.
The Chair: Will you be our contact to help set that up?
Ms. Brisebois: I will be your contact.
The Chair: Good suggestion.
On behalf of the Standing Senate Committee on National Finance, Ms. Brisebois and Mr. Wilkes, I thank you for giving us an understanding and appreciation of the membership of the Retail Council of Canada and the Canadian Council of Grocery Distributors, and an appreciation of the impact this potential proposal of the elimination of the 1- cent coin might have. You have given us good suggestions and recommendations. Thank you both.
(The committee adjourned.)