Proceedings of the Standing Senate Committee on
National Finance
Issue 42 - Evidence - June 6, 2013
OTTAWA, Thursday, June 6, 2013
The Standing Senate Committee on National Finance met this day at 2 p.m. to study the subject-matter of Bill C-60, An Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures, introduced in the House of Commons on April 29, 2013.
Part 3, Division 17
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Honourable senators, we are continuing our study of the subject-matter of Bill C-60, An Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures.
[English]
Honourable senators, this is the first half of our eleventh meeting on the subject matter of Bill C-60. In our first hour this afternoon, we will be looking at Part 3, Division 17, which is clauses 228 to 232, beginning on page 108 of the bill. It deals with amendments to the Financial Administration Act specific to negotiating mandates for Crown corporations.
We tried to have a number of Crown corporations come but have been unsuccessful because of the time that has been available. Canada Post has declined. VIA Rail, interestingly, is in negotiations at the present time, and this would impact on that to a degree. CBC sent us a letter, which has been circulated. Everyone has a copy of that, and that will form part of our record. Fair Pensions For All was unable to be here today. Friends of Canadian Broadcasting has sent us two letters, dated June 6 and May 22. One was from Friends of Canadian Broadcasting, June 6, and the other letter was from the law firm of Brian MacLeod Rogers, both on the same issue, and they regret that they are unable to be here.
We are very pleased to have with us the Canadian Media Guild, and we welcome Carmel Smyth, National President of the Canadian Media Guild; and Jeanne D'Arc Umurungi, Director of Communications. I understand each of you would like to participate in the introductory remarks. Who would like to start?
Carmel Smyth, National President, Canadian Media Guild: I would, if you do not mind. Thank you for having us. We are very happy to be here to share our concerns about this particular bill. Because it is short notice, we are not here with a formal brief, but I will speak to this bill wearing two hats, that of a 20-year veteran CBC television reporter and that of my current position as a union leader. Some might call me a union boss, but not often.
In my position as president of the Canadian Media Guild, I represent more than 6,000 journalists and media workers across the country, including those at CBC, in radio, television and online news and programming.
We are not a political organization and rarely speak out or criticize bills, but, in this particular case, we felt compelled to speak out, in the strongest possible terms, from the moment we realized the significant impact this bill could have on the country's largest news organization. I understand that the movers of this bill might not have foreseen the significant and, we think, even dangerous precedent inherent in it.
[Translation]
Jeanne D'Arc Umurungi, Director of Communications, Canadian Media Guild: In terms of the CBC budget, as most of you know, the government already appoints the CBC/Radio-Canada president and 11 members of the board of directors. The government also sets the CBC budget. In other words, the government of the day always has and continues to control the finances of the public broadcaster, which you probably know have decreased every year for the past 30 years.
You may also be interested to know the exceptional financial costs this bill may result in, because of its existence alongside Canada's Broadcasting Act.
We believe some of the unintended consequences of this bill may conflict with the act and, more alarmingly, could reduce the independence that is critical to news operations.
Here is a quote from the CBC/Radio-Canada president's presentation to the House of Commons Standing Committee on Finance:
The corporation's independence — meaning CBC/Radio-Canada — is considered so fundamental to its successful operation that the act protects the CBC from submitting "to the Treasury Board or to the Minister or the Minister of Finance any information the provision of which could reasonably be expected to compromise or constrain the journalistic, creative or programming independence of the Corporation.''
That line from the Broadcasting Act basically reinforces the fact that producing news is a unique business, and so sensitive to government encroachment that the act specifically bans closer ties, financial or otherwise. So even if the bill passes, it could mean years of expensive legal battles (using public money) to figure out how this bill and the Broadcasting Act can coexist.
Does this government really want to go on record passing a bill that inserts government into running the public broadcaster and forging closer ties between a political party and the public broadcaster, and directly influencing the news? What happens when another party is in power? Will it too want to put its stamp on the news?
[English]
Ms. Smyth: As my colleague has mentioned, because the government already controls the purse strings and the approval process, through the president and the government-appointed board of directors, we do not feel that this bill is about financial control.
Could it be a way to find out the salaries of television stars, always a salacious topic south of the border, where stars routinely earn millions of dollars? Sadly for us in the business, in Canada that almost never happens. The reality is much more mundane. A quick survey of our members shows what might be depressing, but perhaps informative, for this committee. Of the more than 4,000 CBC staff that we represent across the country, just 43 earn in excess of $120,000 a year in salary. In addition, many of these star performers are on special contracts for limited terms, so they have no guarantee of long-term employment. Also, the contracts can be renegotiated or ended at any particular time.
We have no way of knowing if such a sunshine list is the intent of the bill, but if it is, why not go back to the drawing board and come back with a clear and concise bill that asks just that question? It would be a bill that we still think is not necessary and does not serve the public interest, but at least it would not allow the same potential for government interference in the news business.
[Translation]
Ms. Umurungi: What about pensions? It has also been speculated that finding out what CBC/Radio-Canada staff pensions are might be the intent of this bill. Again, the reality is not particularly noteworthy. Both the CBC/Radio- Canada and its employees contribute to the pension, which is managed independently, and more importantly costs the government nothing extra.
CBC/Radio-Canada's portion comes from its yearly budget, so it does not cost the government a penny more than the decreasing amount it gives the CBC each year. The pension and salary are part of a pay package, and in fact salaries at CBC have increased only by 1.9 per cent on average over the last seven years. By comparison, salaries in the private sector have increased at nearly twice that rate, an average of 3 per cent in the same period.
Many of you understand pensions, the Broadcasting Act, and potential legal hurdles better than I do, but you may still wonder how Bill C-60 could influence what the news looks like.
[English]
Ms. Smyth: We see this potential influence happening through government involvement in collective bargaining. If a government appointee was sitting at the table with us, this is what we imagine they could influence. I will show you our collective agreement; it is a huge booklet, covering all ranges of things — more than you might expect.
There are things like changing the CBC's strict conflict of interest rules that ensure journalists act in the public interest; the definition of "news'' and "news programming''; the protection a producer has to refuse to do work they do not agree with; or the ability not to be fired or to be a reassigned from a story without justification; not to be discriminated against for political or other reasons; and the CBC's commitment to use CBC staff to produce the majority of news programming — that is in-house staff, and weakening this could allow for contracting out of CBC news to a potentially more government-friendly news outlet.
Ms. Umurungi: All of these elements of the collective agreement have been developed over the years to ensure the CBC serves the public interest. These clauses, designed to protect journalists from political and other interests and to ensure they do not have to fear retribution — including loss of their jobs — for reporting the news are at risk.
In light of all of this, we wonder: What problem is this bill trying to address?
Ms. Smyth: For all of those unanswered questions and all of the reasons, we and thousands of other Canadians oppose this part of the bill in this particular incarnation. You may have seen that the Friends have submitted their letters of opposition signed by 18 prominent journalists. We at the Canadian Media Guild have a similar protest letter signed by more than 50 prominent journalists and academics. It is three pages long. We will leave that with the clerk, in case you are interested in looking at it. We know there are at least two other petitions opposing this bill for a total of more than 200,000 Canadians who have signed it in a matter of weeks.
At this time, we urge you to take the CBC out of this bill and to reconsider Division 17 as a whole. Should this bill become law, we look to your support in repealing this when a new government is in place. We commit to monitoring this over the next two years to record any problems, so that we can provide specific details of what we believe will be the likely, long-term and unnecessary damage this bill could do to the CBC's reputation and the reputation of Canada as a respected democracy with a proud history of unbiased and trusted media.
Thank you for inviting us here today. We are very happy to attend.
The Chair: Thank you. That was a very good presentation. We received some other materials from you, as well, including a letter to the Prime Minister. These are all different documents that have been generated.
Ms. Smyth: That is correct. I draw your attention to another one, because I know it is kind of complicated. There is a handout that looks like this. It details the kind of journalistic integrity issues that would be discussed at a bargaining table.
The Chair: That expands on the point you made in your presentation.
Ms. Smyth: Yes.
The Chair: Thank you very much.
Senator Black: Thank you both for the presentation that you have provided here today.
I was hoping that I would not be the first questioner here today, but I have drawn the lucky straw. My reaction to this material is that you both are into heavy overreaction mode. I am a tremendous fan of the CBC and the work that you do, but I simply am at a loss to understand the state of commotion that you both have gotten yourselves into over this.
Help me — I could be wrong. I come from business, and I cannot conceive of a situation in business where the owners of a business would not give direction to an organization as to what a bargaining mandate would be, as to what acceptable salary ranges would be, what acceptable behaviour would be, and on and on. I understand your response, and this is what I want your help with, is that "our journalistic integrity would be affected by this interference.'' I am at a complete loss to understand that.
Ms. Smyth: I would say just in addressing your question that since the president of the CBC is appointed by the government and so are the board of directors, they are, in your view, the management who approves things, which they do. The system has been managed fine with that kind of management for decades. We do not see a particularly compelling reason to change that now.
Ms. Umurungi: The bill destroys the arm's-length relationship that has always specifically existed as part of the Broadcasting Act between government — necessarily so — and these organizations, such as CBC. That is what will change, because they are not usually there to decide these things at the bargaining table. They are not the owner. This is a public broadcaster, with public interest, and they support it financially, along with all the tools that my colleague just spoke about, but they are not the managers of this, specifically to avoid that kind of interference and that kind of problematic issue.
Senator Black: They are certainly not the managers, I agree, but we Canadians, through the Government of Canada, are the owners. We have a board of directors designated to advance interests, and that is acceptable, too. However, at the end of the day, the shareholders can direct the board of directors to do whatever they wish to do. That is how things work.
I am not sure why you think you should be exempt from how things work.
Ms. Smyth: I would say they can do that now. We do not need a new bill. They have the authority to make the changes they would like — significant changes — already.
Ms. Umurungi: They appoint the board, as we just mentioned; they appoint the president; and they determine the budget for the broadcaster. The CBC is specifically at arm's length from the government precisely because it is unnatural, really, to have the public broadcaster news organization being dictated to by a government — of the day or otherwise.
Senator Black: No one is talking about dictation here. We are talking about giving a negotiating mandate. This is my problem with what you have both said. It is overreaction. No one is talking about dictating. We have talked about the government of the day, appropriately, giving a mandate.
Ms. Umurungi: Giving a mandate, sending someone to the negotiating table, and having a veto power over the outcome that could be reached at any time — that is way too much presence.
Senator Black: I do not understand that someone sits at the negotiating table; I understand it is an option to have a person in the room as an observer, but I could be wrong.
Ms. Umurungi: Everything is there. They can be at the negotiating table. It is the mandate before and the veto after for whatever is reached, even for the person at the negotiating table. That is what we find absolutely incredible.
Senator Black: Because you have an owner saying, "This is how we want the business to proceed.''
Ms. Umurungi: It is at arm's length. Generally at the negotiating table, as we mentioned, our collective agreement discusses all kinds of journalistic stuff, including the independence of journalists, the definition of news and how assignments are made. We do not just sit there and talk about salary and benefits, which is great to talk about, as well.
Ms. Smyth: I think Ms. Umurungi's point — and Hubert Lacroix, the president of CBC, has made the point on several occasions toward accountability — is that the CBC is accountable through the CRTC to Parliament, to the board of directors, to the president — all those layers exist currently.
Senator Black: We will agree to disagree.
[Translation]
Senator Chaput: Good afternoon, ladies. The provision under the Broadcasting Act places the CBC on an equal footing with other public broadcasters in free, democratic countries. Protection from government interference is what characterizes public broadcasters around the world. How do things work abroad? I am thinking particularly of the BBC, which is probably the best known public broadcaster in the world. How do things work at the BBC?
Ms. Umurungi: Many studies have been conducted recently in a number of countries. It seems that all countries experience tension between the government in power and public broadcasters. That is nothing new. Previous Canadian governments also had a hard time managing those tensions and challenges. Those problems have always been around, but never before has the government been invited to sit down with the public broadcaster at discussions on journalism and independence. That is always very difficult for many people, such as in France and the Netherlands. Many studies have been done. I think our colleagues from another union have recently conducted a study on that. Of course there is tension, but it is always very important to draw the line somewhere and say that a political party or the government in power does not belong at the bargaining table in the country's largest newsroom.
Senator Chaput: Very well. We received a legal opinion that states that there is a conflict between Bill C-60 and sections 35(2) and 50(2) of the Broadcasting Act.
If Bill C-60 is passed in its current form, there are two options: the matter will either end up in court, which Mr. Lacroix is prepared to do, or—and this scares me—sections 35(2) and 50(2) of the Broadcasting Act will be amended. What do you think about this next stage?
[English]
Ms. Smyth: We cannot speak for the CBC, but I think you have the president's letter in front of you where he suggests that there would be difficulties with the bill and the Broadcasting Act coexisting. We believe he is correct; there will be problems, and perhaps expensive problems.
[Translation]
Senator Chaput: If Bill C-60 is passed without amendment, do you think any government could then amend the provisions in its own interest, with serious consequences for Canadian democracy?
Ms. Umurungi: Absolutely.
Senator Chaput: Could you give us some examples?
Ms. Umurungi: As we were saying, this has to do with discussions at the bargaining table, dealing with the definition of news in particular. I could read this from our collective agreement, if you have time, but you can find the discussion on what news is on page 41 of our collective agreement. When we are at the bargaining table, we talk about all those issues. We also talk about the power producers have. We talk about what they can and cannot do, what they are entitled to, and this independence. Everything revolves around journalistic independence.
We feel that all those items are open to negotiation. Nothing in the bill, as it stands right now, says that we will not talk about journalism. When they are at the bargaining table, we will talk about all those issues. And as my colleague said, if it was just a question of discussing salaries and benefits, we could very well do that at other levels, when discussing budgets, with the board of directors and the president. We feel that it is very odd for the government to say that, in order to talk about salaries and benefits or to have some say on this or that, it will take part in all our day-to- day activities.
We must remember that this newsroom deals with issues that are sometimes outside the comfort zone of the government in power or those in power in general. We are not really sure what will happen, but we think this will all be up for discussion once those provisions become law.
Senator Chaput: I have a document here from the Canadian Media Guild (CMG). I think you circulated it today. It says that the CMG-CBC collective agreement deals with journalism in the following ways — and there are four boxes.
In the fourth box, it is written in red that: "Weakening these provisions could allow for direct political control of CBC programming, or even the contracting out of CBC news to a government-friendly news outlet.''
Do you think that might be a possibility?
Ms. Umurungi: Yes, absolutely. That could be one of the aspects discussed in the negotiations of our collective agreement. Journalists cannot be fired or reassigned without a legitimate reason. Management is committed to using CBC staff to produce a significant majority of news programming and our collective agreement states that the use of CBC employees helps to ensure a high standard of quality and creativity. That is something that could be discussed and we do not know where this might go after the negotiations.
Senator Chaput: Thank you very much.
Senator Bellemare: I am going to continue along the same lines as the previous questions.
Could you indicate which part of Bill C-60, clause by clause — I think it is clause 229, subclause 89.8 — really makes you feel that your freedom is in jeopardy and could you refer to specific clauses?
The reason why you are here is to propose amendments. So what do you suggest as amendments?
I also have some questions about other Crown corporations as compared to you.
[English]
Ms. Smyth: We do not have any specific suggestions for amendments. We fail to see a rationale for why the bill is necessary and what problem it is resolving.
[Translation]
Senator Bellemare: The bill talks about conditions of employment. Generally speaking, conditions of employment deal especially with material, financial conditions of employment, fringe benefits, salaries, vacation, and so on. The conditions of employment are usually different from the organization of the work.
My understanding is that, in your collective agreement, you are also negotiating items that deal with the organization of work and that you are afraid that, if there was an observer and if the government had the opportunity, the right or the veto to approve the collective agreement, your rights would be violated.
It is also clear in all the clauses that it is always a question of conditions of employment. I agree with Senator Black that perhaps you are overreacting a little. That is why I would like specifics.
Since you have none, I will move on to my second question. How is CBC, in terms of having a specific mandate from the Treasury Board — which is very different, for instance, from the Bank of Canada or the Investment Board where the information is also sensitive — different from other Crown corporations?
[English]
Ms. Smyth: I will read you something here. I am quoting now from a letter from the president of CBC to the Standing Committee on Finance.
He does address our feeling that the public broadcaster is a distinct and unique Crown corporation and not public servants, as such. He said:
The Broadcasting Act sets out our Corporation's mandate as well as its structure and reporting relationship with Government. It ensures that the Corporation is both a comprehensive reporting structure to Parliament, and specific safeguards to guarantee arm's-length independence of its activities. For example, it is the Broadcasting Act which gives the Board of Directors the explicit authority to determine the salaries of CBC/Radio-Canada employees. The Act also specifies that CBC/Radio-Canada employees are not public servants.
[Translation]
Senator Bellemare: Many people work for the Bank of Canada and not all of them are the governor of the bank. How do you compare yourselves? You say that you are unique because of the information. That is what you are saying, correct?
Ms. Smyth: Yes.
Senator Bellemare: I have another question. As a Crown corporation funded with public money, is it possible for taxpayers to have a quid pro quo or the right to look at the remuneration and the conditions of employment for CBC as opposed to all the other people who are paid with public money?
[English]
Ms. Smyth: They have a significant say, and have had for the last 50 years. Since the government appoints the president and the board of directors, the CBC has to report to the CRTC. There are all kinds of public hearings at various times when they have to present information. The CBC is accountable sufficiently, probably to suit most taxpayers, with the current situation.
[Translation]
Senator Bellemare: That is very problematic. In many countries, usually — since we are talking about working conditions here — the conditions of employment in the public sector take after the private sector, because in many countries, the private sector, which is unionized, sets the tone for negotiations. Here, in Canada, that is not how things work.
It is important that the person who negotiates still has some power. When a third party bargains — a board of directors whose members are appointed, not the taxpayers directly — there will always be a degree of bias in the negotiations on the conditions of employment.
Ms. Umurungi: It is not quite like that. If we are bargaining, we are talking about salaries and we want to talk about the level of compensation, I think that is always done through the budget that is established; it is also done through all the statements we provide at different levels, such as Parliament, as my colleague just said. It is also done by the board of directors whose members were appointed by the government and who the government must trust, we feel, as well as the president. We do not feel that there is a need for someone to sit in at the bargaining table, while we discuss all sorts of other issues that require some distance between the government in power and a news service. That is all we are trying to say.
All we are talking about here is the journalistic aspect, CBC's journalistic independence, which seems to be set out in the Broadcasting Act and we would like to keep it that way. We are asking that the part in the bill that affects this very delicate balance between the government and the broadcaster be removed. If we have the freedom to talk about those issues, we have no problem discussing salaries, because we do that anyway. However, that is not the only thing we do; we also talk about delicate issues.
Senator Bellemare: It would have been interesting to have a brief on the bill we are studying here, in order to better understand your concerns.
Ms. Umurungi: The bill is really about this presence at the negotiating table, as you know.
Senator Bellemare: As an observer.
Ms. Umurungi: Our argument is that if you are at the negotiating table, you can discuss everything as an observer, but you have the mandate and a veto after an agreement has been negotiated.
So we feel this is excessive, and we hope that this is something you will be able help us resolve at this stage in the study of the bill.
[English]
Senator Ringuette: I have been around Parliament Hill for 20 years, and I see more and more bizarre things happening. Could you talk to us more specifically about the CRTC and the proposed legislation and your responsibility at CBC? It needs to be clearer, in my mind, how this bill will affect that relationship.
Ms. Smyth: We do not speak for the CBC, although many times I wish I could — I think you understand.
Senator Ringuette: Could you highlight the issue with the CRTC and the proposed legislation before us?
Ms. Smyth: I cannot answer that question.
Senator Ringuette: I have to corroborate what you have been saying. CBC is a Crown corporation, distinct from the rest of Canadian Crown corporations. CBC is the only Crown corporation for which the government directly appoints the top jobs. For VIA Rail and Canada Post, there is a public invitation for the top jobs.
It should be an indication to the members of this committee that a president of CBC appointed by the current government will fight this bill in order to safeguard the freedom of the press at CBC.
[Translation]
In French we say "chapeau!'' — congratulations. I tip my hat to your president because he has the courage to face the reality we must also face, unfortunately, as a minority. We have to be aware of what is going on in our democracy, what is happening to our freedom of association and our freedom of expression. This is an attack.
[English]
I understand and support what you are saying. However, you also have to realize that we as a minority are limited in how we can react and endorse what you are saying.
Senator Gerstein: Before I ask the question, I would like to declare that for over 30 years I was a director of the CTV Network and its predecessor Baton Broadcasting.
Ms. Smyth, how would you differentiate the journalistic integrity of CBC versus CTV and Global?
Ms. Smyth: Now that is a question. All journalists are proud to think of themselves as unbiased and fair reporters of the facts as they find them. You may not know, but many reporters do not vote. For years when I was reporting, I did not vote. We do not join political parties. I have worked with reporters at banquets who would not eat. You do not want to do anything that could be assumed to put you in a position where you owe someone a favour. Some influence that may be well intended might later suggest —
Senator Gerstein: That is not the question. The question is: How do you differentiate between CBC, Global and CTV?
Ms. Smyth: I do not. I think all reporters take the same care in doing their stories for any network.
Senator Gerstein: I accept that. That is a great answer. If that is the case, why would you think that CBC should require a different type of oversight than Global or CTV?
Ms. Smyth: I would not say that is coming from me. I would say the public broadcaster has been enshrined in Canada for decades. It is the public broadcaster.
Senator Gerstein: You are saying the oversight, as you are indicating, the journalistic integrity of both the other networks is not compromised because of the oversight that they have of being corporations as they are structured.
Ms. Umurungi: The government is not at the CTV or at these other networks.
Senator Gerstein: That is my point. We are not questioning the journalistic integrity of the others, either.
Ms. Umurungi: No; of course not. They are not there at the negotiating table. It is a powerful —
Senator Gerstein: You do not think at CTV or Global that —
The Chair: Senator Gerstein, you have to let them finish their comment.
Ms. Smyth: We do not think it is an equal comparison.
Senator Gerstein: You do not?
Ms. Umurungi: No. They have managers that manage and oversee; we have that as well. They do not have the government coming in, and we do not want the government to come in.
Ms. Smyth: Like yourself, they have a board of directors that they are accountable to; we have a board of governors we are accountable to.
Senator Gerstein: And you do not think —
The Chair: Let them finish, please.
Senator Gerstein: She is finished.
The Chair: No she was not.
Senator Gerstein: Would you like to add something to it?
Ms. Smyth: I think I have finished.
Senator Gerstein: I was right, she had finished.
The Chair: I wish you had added something.
Ms. Smyth: I know. I felt I should not.
Senator Gerstein: I am missing the connection here.
Ms. Smyth: We are not questioning a reporter's ability and/or any other news network's ability. We are not commenting on anyone else's situation. We are just looking at our situation and the potential impact. Albeit you may think we are extreme, but we do not know how it will play out.
Senator Gerstein: Now you do not know how it will play out. That is just supporting Senator Black's position that I think it is getting overblown from the perspective that you have two other fine national institutions here, CTV and Global, and they do have oversight. Certainly they would have input, whether it is the CEO or the board, in terms of how something will be negotiated. Why would you have to differentiate that CBC would be concerned with being faced with the same issues?
Ms. Umurungi: I am sorry; that is not the same —
Ms. Smyth: We do not understand —
The Chair: Now I will have to ask you to speak one at a time.
Ms. Umurungi: We are not objecting to oversight by the structure the way it is today. They have a president, they have a board; we have a board, we have a president. There is oversight there and all kinds of other structures. That is agreed; the other networks have it.
What we are talking about is the government being there. The government is not at those other networks from what I know, and we do not want it to interfere in the negotiations. When we talk about journalistic integrity, journalism, the definition of news and all of those things made it so there is an arm's-length relationship that has been around for this many years exactly to prevent any unnecessary interference from powerful interests such as the government of the day. That is a separate issue, I think.
Senator Gerstein: I subscribe to what Senator Black said. We disagree.
Senator Callbeck: Thank you both for coming today. I, too, am a fan of CBC and your work. The situation right now, as I understand it, then, is that so much money is allocated to CBC in the budget. The management and the union negotiate a collective agreement. That is approved by the board, and the board members and the president are appointed by the government; is that correct?
Ms. Smyth: Correct.
Ms. Umurungi: Yes.
Senator Callbeck: Then at the end of the year you submit an annual report?
Ms. Smyth: Yes.
Senator Callbeck: Really what is going to happen here, you say that before you go into negotiations there has to be a mandate from Treasury Board. Regarding the mandate you mentioned, can that be anything in that collective agreement?
Ms. Smyth: Yes; correct.
Senator Callbeck: It covers a wide area of things. The Treasury Board can give you direction on it, and cabinet can appoint someone from Treasury Board to sit in on all those collective agreements. The bottom line is that Treasury Board has to approve it; they can veto that. Really Treasury Board is taking over the power from the board of directors.
Ms. Smyth: Some would see it that way, yes.
Ms. Umurungi: That is what is new for us. That is what is new with this bill, namely that interference. It was not there before, and for the organization and the structures that were there, it seems to challenge that. We do not know what that means. We just find it very strange and we think that it is unacceptable in a democracy. We are trying to ask, in any way we know how to, that this be stopped and that there be more thoughtful consideration of what this means for news, for journalism and for the country.
Senator Callbeck: I wanted to put that out there so that I fully understood, and I do.
I am looking at a letter here from the Friends of Canadian Broadcasting, signed by Ian Morrison. It refers here to Bill C-60 giving cabinet the right to direct Treasury Board, that Treasury Board must approve CBC's negotiating mandate for any collective agreement and impose any requirement on that mandate.
What, in your opinion, would be the worst requirements they could impose on that mandate?
Ms. Smyth: I do not think we are in a position to answer that.
Ms. Umurungi: We worry about anything that touches journalism, hurts journalistic integrity and hurts the way journalists do their work.
Senator Callbeck: That would be covered in that mandate?
Ms. Umurungi: We do not know.
Ms. Smyth: It is unclear, but yes, potentially.
Ms. Umurungi: If you are discussing what we are discussing at the negotiating table, that is included.
The Chair: We have 15 minutes left in this session and we have three senators in the first round and two in the second.
Senator Wells: Thank you very much for your presentations and responses thus far. I want you to help me. What seems to be the main threat? My mother used to say to me when I was a child, "The more reasons you give, the less each one weighs.'' I remembered that then and I remember that now, and it is true. I did not realize it then but I realize it now.
Is it the journalistic integrity? Ms. Smyth, you were a journalist, as you said. Would your integrity as a journalist be changed by additional oversight at the negotiating table? I would find it hard to believe it would be. Or is it redundancy — that is, the additional oversight? Everyone associated with the Senate now recognizes that additional oversight 10 years ago would have been a great thing. What is it?
Ms. Smyth: Having someone appointed to sit in on bargaining who has significant authority could change the outcome, as we have mentioned, of all kinds of working conditions — maybe even the atmosphere of working at the CBC. Maybe serious journalists would question whether they want to work in an environment that may not be seen to be unbiased because of closer ties to the government. Maybe our stories would not be as critical.
We have no idea how it might play out. We are just sharing our concerns that potentially these kinds of things could happen.
Senator Wells: Anyone who sits at a bargaining table already has significant authority. You have mentioned that. Whether these people actually sit at the table, of course not, but the president and the board of directors are appointed by the government and the government is, if I can stretch the language a bit, appointed by the electorate under our system. These same people who appoint the government, or elect the government, are also the ones who pay the bills at CBC. I find it difficult to understand why that additional oversight of those the taxpayers have decided should be the overseers would be a bad thing.
Ms. Smyth: It sounds like you are suggesting more bureaucracy.
Senator Wells: No. This has nothing to do with bureaucracy; it is oversight.
Ms. Smyth: We are not opposed to oversight. Again I will quote for you because we do not speak for the CBC. I will quote to you something from the letter of CBC's president. I think you have copies:
Bill C-60 would strip CBC/Radio-Canada's Board of Directors of its two fundamental responsibilities: to ensure responsible supervision of the Corporation's activities and its independence from the Government of the day.
We think that kind of supervision already exists.
Senator Wells: If it already exists, what is wrong with it being there? Redundancy is the issue; that is what it sounds like.
Ms. Smyth: We do not think there needs to be an additional appointed person sitting in when you already have several layers of accountability.
Ms. Umurungi: From the government of the day; that is the difficulty.
Senator Wells: You have already said it is close enough with the government appointing the president and the board of directors.
Ms. Umurungi: It is close enough. It still maintains an arm's-length distance that we think is healthy in a democracy and around everything to do with newsgathering and telling the stories that Canadians need to know, in as independent a way as possible. That is what we think the Broadcasting Act has set in place, and we think this jeopardizes that.
It is not about oversight. I think it is unfair to characterize it as being about oversight. There is oversight. We can debate how the structure is today, but having the government of the day setting the mandate, sitting in the negotiations when we are discussing journalism and how news is done, in the largest newsroom of the country, and then later on having the possibility of a veto by the same government of the day, we think that is inappropriate. We would like for this bill to be stopped now so that we can have a conversation in other venues. For now, this is absolutely impossible, tacked on to the omnibus bill, creating all kinds of challenges that we think are really problematic for democracy, newsgathering, journalism and all the things we have said today.
It is not about oversight. It is really unfair to think that it is about oversight. It is about the government of the day sitting in during discussions when we are talking about journalism, about independence and about how we report the news of the day. I think everybody understands that.
Someone asked us about what it is in other countries. We know the difference between the countries that have an arm's-length relationship between government and journalism and the ones that do not. We know there is a difference there, and we want to maintain that difference for Canada.
Senator Wells: I will try to repeat what you said but in about 10 words. The journalists who work at CBC, their integrity will be under threat?
Ms. Umurungi: The independence of how they do their work is challenged. We discuss this every time at the negotiating table. If the government is there, they are also privy to these discussions, and we do not think that is appropriate. It is not the journalists. They will do what they can. They have been doing it over these years, under very difficult circumstances, with budget cuts every year, for the last 30 years. We understand that. That is a different discussion.
We are saying that this bill, with this additional mandate, sitting at the negotiating table and vetoing any negotiation that is made, is inappropriate. It is not about redundancy. It is an interesting question, mind you. We think that the board and the president have a lot of power. They are set up to be at arm's length. That is the way it is set up. That is certainly sufficient. I do not know if it could even be changed. The government of the day sitting at the table when we talk about how we do news is what we have a huge problem with.
Senator Wells: At end of the day, the product that is put out to the Canadian people is the product developed by the journalists?
Ms. Umurungi: Yes, and under what conditions. We define "news'' in our collective agreement. Will that be discussed with the government in place there? The producer's authority, how people are hired and fired, how assignments are made, journalists covering news abroad, where our country is involved in any other ways, those are all things we talk about when we are at the negotiating table.
In terms of the integrity of journalists, journalists will always try to do their work, as my colleague has said, who is a journalist. I am not a journalist, but my colleague is a journalist. Yes, they will always try to do it. They do it in all kinds of conditions. That is not what we are talking about. We are talking about why we are creating this stress; why does the government need to have even more power?
Senator Wells: What would remove all stress is to have no oversight.
Ms. Umurungi: Power. It is the power of the government in discussing journalism.
Senator De Bané: Ms. Smyth, your answer to my colleague, Senator Wells, prompts me to read to you an excerpt of a unanimous report by the CRTC to the Government of Canada. This is what the CRTC said unanimously:
There seems to be a good deal of anxiety, both inside the CBC and outside it, about protecting the CBC in its present form. We believe that this feeling is out of touch with the reality of the situation now. It seems to spring from a fear that the CBC may lose its present degree of autonomy and be taken over as a spokesman for the government or, rather, for the party in power in Ottawa.
Then this unanimous report by the CRTC says the following:
It seems to us that the danger is remote, and we have tried to show that the present status of the CBC, in which it has autonomy without true accountability, is a far more immediate danger and one which threatens the continued existence of the CBC itself.
This is what they say. That fear, as they say, is not the fear. The problem is that the corporation is not accountable. The people here are the trustees of the taxpayers of this country.
For Parliament to be democratic, you need to guarantee immunity to the members of Parliament. However, that does not prevent them from having their salaries public. You know what each member of Parliament, each minister and the Prime Minister earns. What does that have to do with the liberty, autonomy and immunity to say what whatever they want in Parliament?
When I asked CBC/Radio-Canada why they do not deploy their most senior journalists across the land instead of having them all in Montreal, they told me, "Well, we have signed a collective agreement that we cannot move the most senior journalists outside of Montreal.'' Is that really good management? Do not tell me this is freedom of the press that they have the right to stay in Montreal and not be based in Regina, Edmonton, Calgary, Vancouver, St. John's, et cetera.
Let us put aside the smokescreen. You want to maintain what exists at the moment. Canadians have the right to know what the Prime Minister of Canada earns, but not Peter Mansbridge? Oh, no; this is a state secret. That will impinge on the freedom of the press. I have difficulty with that.
The Chair: Senator De Bané, before I call on the witness to comment, could you give us the citation for that CRTC hearing?
Senator De Bané: Committee of Inquiry into the National Broadcasting Service Established by the Canadian Radio- television and Telecommunications Commission, March 14, 1977.
Senator Ringuette: 1977?
Senator De Bané: Yes. It is the same thing; nothing has changed. This is page 70, the unanimous report, submitted to the government by the chairman of the CRTC, Mr. Harry Boyle. Not one iota has changed since then.
The Chair: Ms. Smyth, did you wish to comment on that?
Ms. Smyth: Just very briefly. You are asking me to tell the CBC how to manage their staff. Let me tell you that I have been trying to do that for years. We are not getting anywhere.
We cannot speak for the CBC. We are with the union that represents their staff. We do not speak for the CBC.
I will just say that, as we mentioned earlier, if indeed the question is knowing the salaries of the CBC employees, then why not have a bill that says that? If you want to have the salaries and information, make it clear, I think that could be discussed. I personally do not think it is of any benefit. If you wanted to have that, it exists already. The Province of Ontario has it. Have that.
Senator Buth: First, I just want to confirm that CBC is a Crown corporation responsible to the Government of Canada.
The Chair: Was there an answer to that?
Ms. Smyth: Oh, yes. I thought it was redundant.
Ms. Umurungi: A Crown corporation at arm's length, yes.
Senator Buth: Do you know what the federal government's budget is for the CBC, what it contributes to the CBC?
Ms. Umurungi: I think in one of the letters it is $1.1 billion.
Senator Buth: That is correct, $1.1 billion. What would happen — heaven forbid because I am a strong fan of the CBC — if the CBC went bankrupt?
Ms. Smyth: I do not think we are in a position to comment on that.
Senator Buth: Would you be concerned as a taxpayer if CBC went bankrupt?
Ms. Smyth: I hope I never live to see the day that CBC goes bankrupt.
Senator Buth: Me too. Not in terms of your representing CBC but in terms of the Canadian Media Guild, are you aware of what Treasury Board has in mind with respect to how they will provide this oversight?
Ms. Smyth: We have no idea. We have no details. Probably you know more than we do.
Senator Buth: I will just comment because we did have Treasury Board Secretariat in here, and, of course, their remarks are part of public record. I will read this to you so I can get your reaction to it.
This is Mr. Belovich, and I cannot recall the day he was here, but it is part of the public record. He was being asked how they would deal with different Crown corporations because they clearly have very different backgrounds. They do have experience dealing with organizations right now in terms of how they deal with them.
Mr. Belovich makes the following comment:
However, certainly what we do with separate agencies, and my understanding is that this will be a similar process pursued with Crown corporations identified, is we need to sit down with a Crown corporation. We have to understand what their operational requirements and priorities are. All the Crown corporations currently do corporate plans annually anyway that are approved by the Treasury Board, so there is a degree of understanding of the operational requirements and uniqueness of the various Crown corporations that will certainly help to inform us on moving forward . . .
Then, later in the conversation, there is a question from Senator Black:
Would it cover independent contractors in these organizations?
I think this statement is important because Mr. Belovich says:
Solely the focus here is on the setting of compensation that would otherwise be established by the employer and not contracting relations.
Senator Black says:
What if I am an on-air personality with CBC but I am not an employee. I am a commentator on lacrosse and I am a highly paid commentator. Would you or the government have any ability to control what is paid to me?
Mr. Belovich says:
Through these proposed changes, I cannot see how that can be affected.
Ms. Smyth: Sorry, what was the question?
Senator Buth: I was just about to ask it. Does this provide you, as representing the Canadian Media Guild, with any clarity in terms of how Treasury Board would handle this oversight as an observer?
Ms. Smyth: I am sorry; I may have misunderstood the question, but I would still think the CBC is responsible for reporting to five different levels of government already. Most people would think that sounds sufficient. We still fail to see that we need more oversight than currently exists.
Senator Buth: It is an oversight issue for you, then?
Ms. Smyth: Correct.
The Chair: We are out of time, but I have two senators who indicated that they would like to be heard on second round. I will ask each of you to put your question.
[Translation]
Senator Bellemare: I don't have a good understanding of the articles of your collective agreement which you linked to the negotiation affecting the news. To me, working conditions have nothing to do with delivering the news, do you see what I mean? Perhaps you could table that with the clerk?
Senator Chaput: I listened to you carefully and I understand that the government already controls CBC/Radio- Canada with regard to the budget, borrowings, obligations, the president, the board of directors. Is the point that irritates you the most in this bill the presence of an employee of the Treasury Board Secretariat who will be there as an observer at your collective bargaining table? Is that the main irritant?
The Chair: Could you provide a brief answer? Otherwise, perhaps you could send it by mail.
[English]
Ms. Smyth: We will send the correspondence, including the copies you requested. We will email them to the clerk.
The Chair: If you will do that, we will see that it gets circulated. I am sorry we ran over time, but that is just an indication of how much interest there was in your presentation.
Ms. Umurungi: Thank you very much for taking the time to listen to us.
The Chair: Thank you. Canadian Media Guild has been our witness.
Our next panel has now arrived. Honourable senators, this is our second session for this afternoon.
[Translation]
Honourable senators, this afternoon we are continuing our study of the subject matter of Bill C-60, An Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures.
[English]
In our second session this afternoon, we will be looking at two different parts of the bill. I will refer you to those parts. First, we will be looking at Part 3, Division 2, clauses 104 to 109, beginning at page 53 of the bill, which deals with financial institutions and director residency requirements.
To speak on this part of the bill, we welcome two officials from the Canadian Life and Health Insurance Association, Frank Swedlove, President, and Ron Sanderson, Director, Policyholder Taxation and Pensions.
We will also be looking at Part 1, clause 15, which is at page 7 and deals with the additional deduction for credit unions.
To speak on the credit union part of the bill, we welcome Jack Mintz, appearing today by video conference. Dr. Mintz is an economist and Palmer Chair in Public Policy for the University of Calgary. Likewise with respect to this particular section at page 7, we welcome Gary Rogers, Vice President, Financial Policy at Credit Union Central of Canada.
I would ask those who would like to make introductory remarks to try to keep them to approximately five minutes to give us an overview and your reaction to these government initiatives we are dealing with in Bill C-60. We will go to Calgary first. Dr. Mintz, you have been waiting the longest for us.
Jack Mintz, Director and Palmer Chair in Public Policy, University of Calgary School of Public Policy: Thank you very much. It is a pleasure to speak to the committee again. I have been asked particularly to address the issue around the credit union tax preference with respect to the bill, which will be removing it. Effectively, it provided small business level taxation to the credit unions to allow them to be more competitive relative to other financial institutions.
To go back in terms of my philosophy about taxation, especially with respect to the business tax system, I think there are two very important principles that are involved. One principle is keeping tax rates that are internationally competitive relatively low, partly to attract and to encourage investment and other activities by businesses. Also, it is good for governments because it allows them to maintain revenues and reduce the incentive for businesses to shift the tax base out of the country to other low-tax jurisdictions, which I think has been a significant factor behind tax reforms in the past number of years.
The other principle is what I call neutrality, that all businesses should be subject to similar rates of tax or tax burdens on their activities. This is a way of keeping the government out of the board rooms of the nation, letting businesses decide the best places to invest and to make profits. When you have differential taxation on businesses, it leads to poorer economic returns because you end up encouraging more investment that results in lower economic returns on a pre-tax basis than what you are taxing elsewhere. If you equalize the burdens, then you end up allowing the business sector to allocate its resources to where best to make profit, which actually tends to maximize the returns, as well as the productivity of an economy, as the governments interfere less with capital allocation decisions.
Those two principles were part of the Technical Committee on Business Taxation report, a committee that I chaired for the Honourable Paul Martin, when I was Clifford Clark Visiting Economist in the Department of Finance back in 1996-97. That report eventually led to a lot of the significant tax reforms we had in Canada with respect to business taxation from the year 2000 onwards, even until the past year. I think governments could be commended for doing a good job in getting our tax rates down to more comprehensive levels. It has been good for them, as I mentioned, in terms of maintaining the revenue base. However, I think governments have been remiss in moving further or doing the kinds of things needed to ensure neutrality in the business tax system.
Even the Technical Committee back in 1997 recommended that the special preference for credit unions be removed on the grounds that there is no reason why they should be subject to a different level of business taxation under the corporate income tax compared to other businesses. In fact, I was delighted in the past budget that we are seeing this provision finally being introduced. I do think it is quite appropriate because we should try to tax all financial institutions on a level playing field. Thank you.
The Chair: Thank you, doctor. We appreciate that. Mr. Rogers, did you have anything further to comment on this particular area of credit unions?
Gary Rogers, Vice President, Financial Policy, Credit Union Central of Canada: Yes, I have some prepared remarks. We appreciate this opportunity to discuss taxation of credit unions with you today, specifically clause 15 of Bill C-60.
I have been with Credit Union Central of Canada, the national trade association for credit unions outside of Quebec, for 28 years. Throughout that time, the credit union system has enjoyed excellent working relationships with officials from the department, government ministers and members of this committee, which has always been very supportive of a strong, cooperative financial sector. We have worked together very productively on files such as retirement income, tax-free savings accounts, the introduction of GST, which I was very involved in, federally chartered credit unions and, of course, income taxation of credit unions.
Until now, I cannot recall any significant disagreement about tax policy affecting credit unions or their products. Today's appearance before you is quite extraordinary as we are here to profoundly disagree with the termination of the additional deduction for credit unions and the lack of any process leading to this decision.
Clause 15 will eliminate the small business tax rate from most of our sector, increasing the federal tax rate from 11 to 15 per cent. We will be taxed like banks, which we are not.
Credit unions have enjoyed an easy partnership with the federal government because we share so many public policy objectives. Canadians need a competitive alternative to the five big banks. We provide that second tier through 348 distinct, innovative credit unions. Small or remote communities require financial services where banks have abandoned or never attempted to serve. These are high-cost locations, but credit unions continue to serve 382 communities that otherwise would not have retail financial services.
Villages, towns and cities require good, enduring jobs. Credit unions employ more than 27,000 people widely dispersed across the country. During economic downturns, Canadians need financial institutions they can rely on. Our community-based democratic control means we do not pull back on lending at times when the local need is greatest. Small and micro-sized businesses require funding. Credit unions are the favourite financial services provider to small business. You may have read last week that the CFIB, the Canadian Federation of Independent Business, members rated credit unions number one as their preferred source of financial services; this is a segment that the banks find time- consuming and expensive to serve.
Credit unions first became taxable in 1972, more than 40 years ago. That only happened after extensive consultation between the federal government and the credit union movement that resulted in a tax regime that was different from that of banks and recognized the need to encourage the growth of retained earnings, a financial cooperative's primary source of capital. As a result, in the most recent year, credit unions paid more than $100 million in federal and provincial income taxes. The federal rules do not tax us at the same rate as big banks but as small businesses, because we are the small business of the retail, deposit-taking financial services sector. The value of this tax arrangement was affirmed by the MacKay Task Force in its 1998 report.
However, without any discussion or consultation, the recent federal budget eliminated the small business tax rate for most of our sector. It is fair to say that no other federal decision in memory has been met by this degree of surprise, consternation and anger from credit unions. This occurs at a time when we are facing some key business pressures: reduced financial margins; higher regulatory capital requirements that create challenges unique for cooperatives; incredibly complex compliance rules that are proportionately greater for small, independent financial institutions, and I cite anti-money laundering and FATCA as only two of those examples; a higher cost structure because we operate as small, independent entities, often in communities the banks cannot afford to serve; and the critical need for investment in technology just to keep up with our much larger competitors.
The budget documents state that this substantial tax increase will improve the neutrality and fairness of the tax system. Their reasoning seems to be that raising the credit union tax rate to the level of banks will be fairer — fairer to banks, we presume. We take issue with that logic. A review of the fairness and neutrality of the tax system should take into account more than a single tax rate.
I would be pleased to elaborate why we disagree with this change to the current competitive balance because we think there are other parts of the tax system that should be reviewed at the same time.
Also, I will be pleased to comment during our time today on the amount of this increase, which credit unions will be affected and what the likely impacts will be.
We have heard suggestions that the credit unions now rival the banks and should be taxed at the same rate, but the size of credit unions that will be impacted by this measure is a tiny fraction of the size of their competitors. Their market share of deposits and loans has been stable for many years. There is no evidence that a favourable income tax rate has resulted in unfair competition for our big banks. The success of credit unions is not proof that the small business tax rate is not needed; it is proof that it is working.
I look forward to our discussion, Mr. Chairman.
Frank Swedlove, President, Canadian Life and Health Insurance Association Inc.: Mr. Chair, the area I will look at is maybe a little less interesting than the discussion that will take place with respect to credit unions, but nevertheless, in my view, it is very important.
[Translation]
With your permission, I would like to make some very short introductory comments. The Canadian Life and Health Insurance Association represents life and health insurance companies accounting for 99 per cent of the life and health insurance in force across Canada. The Canadian life and health insurance industry provides products which include individual and group life insurance, disability insurance, supplementary health insurance, individual and group annuities, and pensions.
The industry protects almost 27 million Canadians and over 45 million people abroad.
[English]
The industry makes benefit payments to Canadians of $64 billion a year, has more than $570 billion invested in the Canadian economy and provides employment to about 139,000 Canadians.
Life and health insurers are regulated at the federal level under the Insurance Companies Act, the ICA, and are also subject to the rules and regulations that are set out in provincial insurance acts.
[Translation]
Mr. Chair, we welcome this opportunity to appear before the committee as it seeks to develop its report to Parliament. The industry is supportive of the provisions contained in part 3, division 2, of the bill. Let me comment briefly on these.
[English]
Part 3, Division 2 would make amendments to federal financial services legislation, including the Insurance Companies Act. The ICA now provides that the majority of directors of a domestic insurer must be resident Canadians. In the case of a subsidiary of a foreign institution, at least one half of the board members must be resident Canadian. The ICA also provides that these proportions of Canadian resident requirements apply when directors of a company are transacting business at a meeting of directors or at a meeting of a committee of directors.
The amendments in Bill C-60 provide that the residency requirements would no longer apply with respect to meetings of committees of directors. There are no changes with respect to the board itself.
There are a variety of benefits that flow from these amendments. Most importantly, they would enable companies to put the best qualified people on their board committees. They would allow Canadian export-oriented companies to more easily develop foreign markets by adding foreign directors.
Honourable senators, this matter is very important to us. Canadian life and health insurers are internationally successful. Over half of our assets are held abroad. Our companies operate in 20 countries and territories worldwide, and three Canadian insurers rank in the top 20 of the world's largest life and health insurance companies. We are one of the largest service export industries in this country. Therefore, the added flexibility these amendments offer would be most welcome.
I would be pleased to answer any questions you may have. Thank you.
The Chair: Thank you. Did you indicate there was consultation in relation to these changes with your industry?
Mr. Swedlove: I had not made reference to that, but we had submitted this idea to the government as a possible measure that could be dealt with in the budget, and we were pleased to see it was included.
The Chair: Thank you. Mr. Sanderson, did you have anything to add?
Ron Sanderson, Director, Policyholder Taxation and Pensions, Canadian Life and Health Insurance Association Inc.: Not at this time. Thank you.
Senator Ringuette: My first question, to put all of this into perspective, is with respect to the payday loans industry. What is their taxation? Are they taxed at the same rate as banks, or are they taxed as a small and medium-sized business?
Mr. Rogers: I can only speculate because we are not in that industry. The small business tax rate is available to small businesses, and the test is capital. If a small business has capital between $10 million and $15 million, it can still access the small business tax rate. It would depend on the size of the enterprise.
Mr. Mintz: I would assume that is actually the right answer. It would simply be with respect to the current small business tax regime.
Senator Ringuette: They are all franchises, so their capital would be on an individual branch.
Mr. Mintz: Right. Unless they are associated companies, and then there will be an aggregation of associated companies.
Senator Ringuette: Yes. We all know where payday loans stand and what they do. Why would they benefit from a small and medium-sized business tax, and the cooperatives that are mostly in rural areas providing services to rural communities, farming communities, forestry communities, fisheries communities and northern communities, why would they, not being a bank — and we have been through that legislation within the last few years — why would they be subject to the same rate as our big five banks? In the last few days we have seen articles that the CEOs of Canada's big five banks are the best paid bankers in the world? Why would we penalize our small cooperatives and not look at what is happening at the big five banks and in the payday loans industry?
Mr. Mintz: Let me first make two important comments. If you read some of the work I have done recently, including a School of Public Policy paper on the small business deduction, you will find I am not in favour of the small business deduction either. I think it is the antithesis to growth. It keeps small companies small. In fact, I think we should be like a number of other countries and move to a regime where we do not have differential corporate income taxes between small and large firms. There are a number of countries that do that — not all, but a number of them do. I think it does create a distortion. I would argue that the small business reduction, and we did some numbers on this, actually is a significant benefit to many households with income more than $100,000 because of their ability to shift away from the personal income tax base into a corporate status to arrange their affairs.
You can talk about these things, but I would even attack the small business deduction if I had my druthers as a minister of finance. You would probably never want me as minister of finance.
With respect to financial institutions in general, the reason I argue for equal taxation of all business activities is not just with respect to within the sector itself but across all sectors and business activities. With respect to financial institutions, there are a large number of them. We are not just talking about banks. We also have to remember there is a large number of other taxes and fees.
Again, smaller companies tend to get more relief compared to the large companies. I think, in fairness, it would be appropriate to look at all of these sorts of questions. I remember the time, in 1997, when we looked at it. There were a host of capital taxes on financial institutions, which are now coming back in a number of provinces. There were deposit insurance fees, et cetera, that tended to fall more heavily on larger financial institutions — and I do not mean just banks but also insurance companies, et cetera — compared to smaller ones. The small business treatment of credit unions was quite an anomaly in the system. There, I particularly believe that we should try to have a similar corporate income tax rate applying to all business activities, partly to avoid complexity and partly to avoid base erosion and income shifting and also to ensure that governments achieve a better allocation of resources in the Canadian economy.
Mr. Rogers: I would like to make some comments about Dr. Mintz's comments. I certainly agree that one of the fundamental objectives of the tax system is to achieve some type of balance and neutrality. If we are only looking at the small business versus the regular tax rate, though, we are missing all the rest of the tax system and what those impacts might be. Some have been identified that might apply only to the very largest financial institutions. There is a capital tax on the very largest ones. Some of the things that would balance out the treatment that we have now I would like to mention.
Let us think of GST for a moment. A network of small, independent financial institutions has much less opportunity to self-supply services than a large, integrated bank. Remember, financial institutions do not get input tax credits. They do not get a refund of the GST they pay. When you are a small credit union, you are buying human resource services, accounting services, legal services and all kinds of things like that that you pay GST on that are self-supplied, through salaries, within a bank. There is a disproportionate amount of GST on a small financial institution. That should be recognized. There is a major tax preference item — a tax expenditure — in the income tax system. That relates to capital gains. When someone invests in a bank and those shares increase in value, half of that is tax free. By the way, that has a legitimate purpose. It is to assist in the accumulation of capital. It is the capital formation incentive. There is nothing similar that assists a credit union. The only thing that helps a credit union to accumulate capital is a lower tax rate. That helps them to keep more of their earnings as retained earnings. Remember, credit unions do not issue shares that increase in value. There is no appreciation. There is no capital gain. I think those are two very significant differences that were not contemplated here, and there are others. I will not burden the committee with others at the moment, but I could go down a list.
The Chair: If you have anything in writing, do not hesitate, at any time, to send that along to us. It can be circulated.
I appreciate your intervention at this time.
[Translation]
Senator Bellemare: I am interested in its impact on the Canadian regions. Will there also be an impact on individuals or will it simply affect credit unions?
I would also like you to compare small financial institutions with the Mouvement des Caisses populaires Desjardins, for instance. I would like you to tell us whether there are differences or similarities, because I believe they too are affected by this bill.
[English]
Mr. Rogers: I think there were two broad questions there. I will start with the impact on credit unions but then evolve into citizens as well.
We have heard a number of people comment on this change, saying that the small business deduction will still apply. The small business tax rate will still apply to a lot of credit unions. Indeed, that is true. The majority of credit unions will not be affected by this. However — and this is important — that is not the measure of the impact here. Eighty per cent of our locations, 85 per cent of our members, 91 per cent of our assets and 90 per cent of our earnings will see an increase in tax. What remains is about 10 per cent of the system, and about 90 per cent of the system loses the low tax rate.
How does that impact members? I have heard from a lot of credit union CEOs and CFOs about the impact, and there is no single one of course. Any business, when it is faced with a major new expense — and that is what this is — will look at a variety of ways to mitigate it. I have heard people in credit unions saying that the first thing you look at is your operating expenses, but we have been cutting costs for years. There really is not logical room to cut costs.
Then you look to other parts of your operations. We are operating branches in many small communities where it is costly to do that. There will be some pressure on that. There will be pressure on the distributions back to members, the, I will add, fully taxable distributions to members — patronage dividends and dividends on shares. There will be pressure in a number of different ways that will impact members of credit unions.
I have already forgotten your second question.
[Translation]
Senator Bellemare: Can you draw a comparison with the Desjardins Movement in order to highlight the differences or similarities? Basically, the Desjardins Movement is a cooperative movement, but it is a large one now and is also affected by these fiscal provisions. I would like to hear your comments on that.
[English]
Mr. Rogers: Of course, Caisses populaires Desjardins are credit unions within the definition of the Income Tax Act. We are not appearing on their behalf, but they will be affected equally. Caisses populaires, whether in New Brunswick, Manitoba or Quebec, will pay more income tax.
I do not know their specific numbers, but there are the same principles there as well.
[Translation]
Senator Bellemare: I have heard it said that the impact would be much greater on the Desjardins Movement than on other credit unions elsewhere. Can you confirm that? Or is that not the case, because of the numbers involved?
[English]
Mr. Rogers: I am not aware that that is the case. The tax rate will move from 11 per cent to 15 per cent for them as well. Their business is concentrated in one province, and therefore it might become more visible. Ours is dispersed more widely across the country, but it is the same impact.
[Translation]
Senator Chaput: Good afternoon. I am from Manitoba and there are a number of credit unions in Manitoba. Manitoba francophones built this credit union and it has 26 branches throughout Manitoba. They are small and are often located in more remote communities, but they offer financial services as well as long-term jobs, which are very important for these small isolated communities.
The Canadian Federation of Independent Business just released a report a few days ago and the credit unions rank first among the preferred providers of financial services among its members. We are talking about credit unions and not banks.
The credit unions are now going to pay more income tax, as you just mentioned; that will surely have consequences and lead to changes that will reduce their income and eventually their capacity to amass funds for their reserve; is that not the case? Since they have and must maintain a reserve, there will surely be consequences on the dividends they distribute to their members, that is to say that they will be smaller. Would you agree with that?
[English]
Mr. Rogers: I agree that there will be pressure on dividends. There will be pressure on a number of aspects of the business operations. I do not think it is fair to say that all of the impact will show in reduced dividends. It will show in a myriad of different ways.
Senator Chaput: What could those ways be? What about the reserve fund?
Mr. Rogers: Are you referring to the retained earnings when you ask about the reserve fund?
Senator Chaput: Yes.
Mr. Rogers: Okay. We are at a situation now where Basel III is requiring increased capital for financial institutions. Credit unions are regulated by provincial governments; they have not imposed Basel III to the letter yet, but it is coming. Most of the shares of credit unions do not qualify as tier 1 capital because they are redeemable; they are eventually refundable back to the members.
The true capital then is retained earnings. If your earnings after tax each year go down, then there is pressure on the ability to increase those retained earnings — it is automatic. We are having conflicting pressures and now a new one from the income tax side.
Senator Buth: Thank you very much for being here today. Mr. Rogers, could you comment on the consolidation that has occurred in the credit union movement?
Mr. Rogers: I mentioned I have been with the movement for 28 years. I think when I joined there were approximately 2,800 credit unions. Now there are 438. That is a good thing.
In order to achieve efficiencies — and believe you me, CEOs and boards of credit unions are entrepreneurial, highly so — they have to make a dollar stretch a long way. The burden of compliance, the burden of capital, this whole onrushing technology — these are all creating pressures on small financial institutions. I like to call it a "creeping crisis of complexity'' out there. That is forcing amalgamations of credit unions; it is forcing smaller, more inefficient ones to merge with other credit unions to create economies of scale.
Many of those then are the small, rural ones that are merging with bigger ones. I hear people say, "This will only affect large credit unions.'' Yes it will, but those are the credit unions that are operating the branches in the small communities.
In talking to some CFOs of credit unions, they are saying this will slow that down. Even though it is in the public good to have some of these mergers, it will now be more costly. First, they will have fewer dollars to achieve those mergers, and then they will be bringing a low-rate credit union into a high-rate credit union, which will not make a lot of economic sense, either. There will be some distortions.
The senator is from Manitoba, and my mother's side of the family is from Manitoba as well. I like to personalize things back to those communities. I am speaking of southwest Manitoba, the Brandon and Souris River area. The credit union that services that area will pay about $251,000 more in income tax. That is the credit union that serves Belmont, population 220; Cartwright, population 308; Rivers, population 1,200; and Swan Lake, 237. There are no other financial institutions in those communities. This will put pressure on a credit union like that and its small branches.
Senator Buth: Are you aware of any of other provinces having programs like this special tax treatment?
Mr. Rogers: Yes, most do; most parallel the federal tax treatment, but not all.
Senator Buth: I was under the impression that the provinces had actually eliminated the special tax treatment for credit unions. Is that is not accurate?
Mr. Rogers: What you may have heard many times is that Quebec eliminated the low rate in 2003. Indeed, that is true. The Desjardins caisse populaire system and the Quebec government work very well together; they consult a lot. When there are changes made to tax treatment, they have both parties involved, and they end up with a compromise that works.
Yes, the tax rate changed, but at the end of the day, the Desjardins caisse populaire system was relatively satisfied with the outcome.
Senator Callbeck: Thank you all for coming today. Certainly, the credit unions are extremely important in my province. They are there for the small businesspeople, the farmers and the fishermen. The credit unions go where banks will not. Without them, I think there would certainly be a big void, especially in the rural areas. We are having a tough time now in rural areas.
I said "about lending money,'' but the credit unions are just a part of the community. Whatever cause is there — if the community is raising money for something — the credit unions are there. I certainly support them 100 per cent.
Do you feel that any credit unions will be forced to close?
Mr. Rogers: I cannot say that would be the case. There is a five-year phase-in for this, so only one fifth of this change will impact 2013; it is actually slightly less than one fifth. There is time to talk and have a conversation. If this change is to be implemented, there may be some other mitigating changes that can be made that will assist credit unions.
It would be alarmist to say any individual credit union would close. We hope to have a conversation with government.
Closure would be the last resort, because that credit union is owned by its members. They will do everything they can to keep it going, or to merge with another credit union that might be able to absorb them. However, it will become more difficult.
You mentioned the credit unions in P.E.I., and some will not be affected by this because they are so small, but some will. I have in front of me a couple of statistics. If we compare two of the credit unions that will be affected to the smallest of the big five banks, the smallest of the big five banks is 2,017 times as large as one of those credit unions and 1,450 times as large as the other of those two credit unions in Prince Edward Island. Should they be taxed at the same rate? Should they have the same tax treatment?
Senator Callbeck: I certainly would say no.
Dr. Mintz, you mentioned about the small business deduction and that if you had your way, we would not have that. I disagree with that. I know this is getting off what we are supposed to be here today to discuss.
Do you have a paper on that subject that you could send to the committee, putting forward your view?
Mr. Mintz: Yes, there is a published paper specifically on that. I would be happy to send it.
By the way, a lot of the discussion I am hearing now even strengthens my view about the value of getting rid of this particular deduction available for credit unions, I am sorry to say.
I was at a specific event. I was listening to someone from the credit union movement criticizing the tax exemption for the Agricultural Credit Corporation, which is a Crown corporation. I totally agree with that individual, although I was very tempted to ask, "What about your preferential treatment under the corporation income tax?''
I think we do need to ensure there is a level playing field. The fact that you can have something like Desjardins that grows to a very significant impact does suggest that we may not necessarily get the most efficiency in the financial markets system.
Let me go back to what we mean by "efficiency.'' It is critical in my view that we remember what the whole point of financial intermediation is, whether it is provided by credit unions or anyone else. The idea is to try to have the costs of financial intermediation as low as possible. I would actually maybe argue for lowering all corporate taxes, as we have done in the past number of years.
If you ask that question, it is also very important that we try to have most the most efficient suppliers of capital. Although everyone keeps comparing banks to credit unions, the financial sector is much bigger than just thinking about banks and credit unions, so I think it is important that we have the best suppliers operating.
We also need to look more at how well credit unions supply capital. I agree that perhaps we do not have all the answers with respect to that, but it would be nice to have some independent studies that look at how efficiently credit unions operate in this country.
Senator Callbeck: I looked forward to reading that paper.
Senator Black: Dr. Mintz, as I recall, you are the leader of the leading public policy school in Canada, located in Calgary, Alberta. As I am a senator from Alberta, I needed to make that connection.
Dr. Mintz, building on what you just said, could you help me understand why you think that the government of the day determined at this time that the credit unions should, on an incremental basis, lose this tax advantage or credit?
Mr. Mintz: I cannot speak to why the government particularly looked at this provision. There were a number of things in the last budget to try to create a more neutral corporate tax base, including reducing depreciation deductions for mining and oil and gas firms, as an example. This is with respect to their development and exploration expenses and the new mine asset deduction.
This was another measure with respect to credit unions. In the year 2000 we had really high corporate income tax rates in this country. They were 43 per cent then, which at that time was the highest among all OECD countries, and we had a narrow base with many special preferences in the system.
Since that time we have lowered the corporate income tax rate in Canada, at both the federal and provincial levels, to close to 26 per cent, on average. That is a 17 per cent reduction. The government has perhaps decided that it is time to broaden the tax base. In fact, the best type of business tax structure is one with low rates and broad bases. While there may be some other regulatory changes and things like that which may be important to the credit union that perhaps can be looked at, the idea of trying to get to a much more neutral corporate tax base with lower rates is a worthwhile objective. I would say it has done the country a world of good in terms of moving toward more neutrality. Every industry makes their special pleas for why they should get their special preference but, frankly, the best preference is to try to keep corporate tax rates as low as possible.
Senator Black: Mr. Rogers, you are a very fair-minded person, there is no doubt, and it comes across clearly to me in your comments.
Mr. Rogers: Thank you.
Senator Black: Having said that, I have a question for you, given that you are so fair-minded. I read the outstanding contributions that the credit union movement makes. They are very well outlined on page 1 of your letter in the four bullets there. You would not have us believe, though, that much of that is put at risk because of this, would you?
Mr. Rogers: I would not say that it is at risk of disappearing. My point is that you are putting pressures that will manifest themselves in a number of ways, and I mentioned several of them before. Another would be lending to small business. One of the CFOs of credit unions told me that the way they might mitigate this is a little less small business lending, because that requires more capital. Maybe we should be concentrating more on residential mortgages. I do not think that is the public policy result you are looking for.
Senator Black: You indicated that a conversation will be continued, and I would encourage you to continue that conversation.
Mr. Rogers: It has not started.
Senator Black: I encourage you to start it.
Senator L. Smith: Mr. Rogers is concerned with smaller regional areas. There are 8 million Quebecers, of which probably 6.5 million are francophone, so a huge market has been developed by the caisses populaires. At one time there were over 1,400 branches. They have consolidated down to about 500 after going through a rationalization that led to higher earnings.
If the credit unions in regional areas with low populations disappear or go through consolidation, what would replace them? That is a question for both of you.
Mr. Mintz: That is exactly the question I was thinking of. In fairness, I am not sure that we do not have a proper study to understand that. If there is really no one else to serve the market, then I do not think the credit unions will disappear in those regions, because no one else will be coming in. We are talking about competition. If there is someone else who could come in, but they end up paying more taxes than the credit unions and that is why they do not come in, I do not see why you would necessarily get a negative result with that point.
My main point is that if you do have almost a monopoly, where credit unions are the only providers of capital in these areas and no one else will come in, certainly going to the full corporate income tax rate of 15 per cent — we are only really talking about 11 to 15 per cent, by the way, after all the reductions over the years — will not cause the end of the credit union movement in the regional areas. In fact, I would suspect they would not be heavily affected. There will be some impact because you are putting on higher taxes. Likely it will end up hitting either the equivalent to the depositors in the credit unions, the ones that leave money in the credit union, or it will go into somewhat higher interest rates, so I suspect that the impact will not be significant. We have to remember that patronage dividends are all deductible from the corporate tax base, and we also have to remember that those dividends that are not will get the higher small business tax credit when they are subject to the 15 per cent tax rate.
Mr. Rogers: If those credit unions and those locations continue, the impact will be higher costs for the people who live in those areas. If the only issue is competition, and if there is a monopoly, which I do not agree with, then costs would go up, I believe.
Typically, in many of these small communities these are branches of credit unions that provide service in other areas. There is a fair bit of cross-subsidization there to keep that service available. There certainly will be pressures to close some of those unprofitable, small, rural financial service locations.
Senator L. Smith: If they follow the same model as the caisses did, going from 400 credit unions down to 200 or 150, it may also provide more strength for the 150 that remain. It may be harder on individuals who have to travel or deal at geographic distances, which could change the service provider.
Mr. Rogers: Yes.
The Chair: Is this provision of 50 per cent members of the boards of Canadian companies under the Insurance Companies Act just a relic of the past or a make-work program for accountants and lawyers? Why do we have this?
Mr. Swedlove: The rationale in the past presumably was a desire to see, with respect to Canadian financial institutions, a Canadian approach and a Canadian look by the board on dealing with all issues related to that financial institution.
The requirement under the Canada Business Corporations Act is for 25 per cent resident, while for federal financial institutions it is 50 per cent. It is a higher standard. We are not disagreeing with the concept of having a majority rule for the board level
The difficulty arises with the committees because, by definition, committees are subsets of boards and smaller. Yet, there is enormous pressure in corporate governance these days to get the expertise on the board and to apply that expertise in the areas where they are best suited to be applied. It is extremely important on committees that you get that expertise.
When you are dealing with international institutions, which almost by definition should have foreign participants on the board, to get the mix right, you need to have flexibility at the committee level. It may not be so necessary at the board level.
The Chair: Mr. Swedlove, if you had the choice and you were writing it from the beginning, would you write in a requirement for the board to be 50 per cent Canadian?
Mr. Swedlove: It is in there already.
The Chair: I understand that. You are not taking exception to that.
Mr. Swedlove: We are not taking exception to that.
The Chair: Are you encouraging the government to keep it?
Mr. Swedlove: I do not think we would say actively that one should keep it. At the same time, we understand why it is there and the desire to have it; and we do not object.
The Chair: Dr. Mintz, you were not called in to comment on this particular area, but it might be an area where you have interest. I give you the chance to comment, if you wish.
Mr. Mintz: I have two quick points. It would be worth looking at this a bit more. I agree with Mr. Swedlove that it is a good idea for the committees not to have this regulation. This is a good example — both the audit and the compensation committees — because much more attention is paid now to expertise and the decisions they make at the board level. Therefore, when you put on constraints, you can affect who would be the best people to sit on these committees within the board. As long as the board has the representation needed for Canadian status, I do not see why you would put that constraint on the committees.
There is one other aspect of this. I am not an expert on this, but I know that under the Canadian income tax system, residency of a corporation is based on effective mind and control of the company. One of the tests is with respect to the membership of the board of directors. I suspect that a lot of Canadian companies tend to have a significant number of members on the board that are Canadian in order to make sure that they enjoy that residency status. The 50 per cent rule probably gives an added protection to that. Perhaps it was developed for regulatory reasons, although I have to admit, I am not exactly sure what the value of it is from the public policy perspective.
The Chair: I wonder if this is the first step towards something broader; and I was interested in your comment. I hesitate to go any further down this road of residency at this time. I will pass to my colleague, Senator Chaput.
[Translation]
Senator Chaput: I believe, concerning this topic and the credit unions, that we have to understand and accept the reality for these remote communities, and often they are rural communities; we have to accept the reality that the credit union, or the branch, offers services to those communities. And it is not a matter of having a monopoly. The simple reality is that the banks tried and withdrew, because their costs were higher, their income was lower and there were not enough clients. Fortunately the credit unions have a different mandate than the banks. There is a community aspect in their mandates and that is why they are still there.
As parliamentarians, I think we have to support this type of institution, because the reality is that these remote rural communities need all the support we can give them.
My last question is for Mr. Rogers. You said in your presentation that you would be pleased to talk to us about the amounts involved in these tax increases.
[English]
What would be the amount of this tax increase?
Mr. Rogers: We did a survey of our credit unions because that is not the type of statistic that we typically keep as a trade association. What we heard back is that about 141 of our 348 credit unions will be affected by this. As I mentioned earlier, the smaller ones are merging with the larger ones, so the proportion affected will be increasing to 80 per cent of the branches, 87 per cent of the members, 91 per cent of the assets, and 90 per cent of the earnings.
In dollar terms, had this been applied to the most recent tax year, it would have been about $28 million. Government papers like to accumulate in five-year periods. Because there is a phase-in, of course, that would not be the impact in 2013. If we just took our most recent tax year and applied the phase-in percentages to the 2012 income, not assuming any increase in income, it would be about $82 million.
Senator Chaput: Thank you.
Senator De Bané: The tax system in this country has clause after clause of special provisions to obtain certain objectives. The credit unions in this country fill a need that no bank does. Has the system of the credit unions ever been modified without thorough consultation with the cooperative movement? Has there been any precedent for this kind of radical change?
Mr. Rogers: No, there is no precedent. One of my heroes is John Crosbie, who would say, "There has not been a jot or a tittle of consultation.''
Senator De Bané: Thank you.
The Chair: This concludes our witnesses with respect to Bill C-60. I would like to thank, Mr. Rogers, Mr. Mintz, Mr. Swedlove and Mr. Sanderson. This meeting is concluded.
(The committee adjourned.)