THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
SASKATOON, Wednesday, November 8, 2017
The Standing Senate Committee on National Finance met this day at 9 a.m. to study the Minister of Finance’s proposed changes to the Income Tax Act respecting the taxation of private corporations and the tax planning strategies involved.
Senator Mockler: Good morning. We have a quorum, and I declare the meeting in session.
My name is Percy Mockler, a senator from New Brunswick, and at this time I ask the senators to introduce themselves.
Senator Jaffer: Good morning. My name is Mobina Jaffer, and I am from British Columbia. Welcome.
Senator Pratte: Good morning. André Pratte from Québec.
Senator Oh: Senator Oh, Ontario.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Neufeld: Richard Neufeld, British Columbia.
Senator Cools: Anne Cools, Toronto, Ontario.
Senator Mockler: Today, here in Saskatoon, our committee continues its special study on the proposed changes to the Income Tax Act respecting the taxation of private corporation and tax planning strategies involved.
The Senate of Canada gave an order of reference to the Standing Senate Committee on National Finance authorizing it to examine and report on the Minister of Finance’s proposed changes to the Income Tax Act respecting the taxation of private corporation and the tax planning strategies involved, in particular, income sprinkling, holding passive investment inside a private corporation and converting income into capital gains, and also from the Senate of Canada, ordered that the committee take particular note of the impact of the government's proposed changes on incorporated small businesses and professionals, economic growth and government finances, the fairness of the taxation of different types of income and other related matters, and that the committee submit its final report to the Senate no later than December 15, 2017 and retain all powers necessary to publicize its findings for 180 days after presenting the final report.
Yesterday we were in Calgary to hold public hearings, and it was our eighteenth public meeting. We have heard from close to 60 witnesses, received more than 30 written submissions, and they are still coming in.
There is a lot of interest in this study, and the committee felt more consultation was needed through the Senate of Canada. We decided to go across Canada to hear from Canadians about their concerns, their comments and their views. Over the course of the day we will have before us either witnesses who requested to appear or people whose names were submitted by senators or the public at large.
On our first panel, senators, this morning we have from the Saskatchewan Chamber of Commerce Mr. Steve McLellan, Chief Executive Officer; from the Greater Saskatoon Chamber of Commerce, Darla Lindbjerg, President and Chief Executive Officer; and from North Saskatoon Business Association, Keith Moen, Executive Director.
To the witnesses, thank you for accepting our invitation. I have been informed by the clerk that the first presenter will be Mr. McLellan, followed by Ms. Lindbjerg and then by Mr. Moen. Following your presentations the senators will be asking questions.
Mr. McLellan, please make your presentation.
Steve McLellan, CEO, Saskatchewan Chamber of Commerce: Thank you, honourable senators. First, let me say welcome to Saskatchewan. I hope you appreciate the very warm welcome we have given you, and we hope that your sessions are productive and the information that you gain will be useful in your endeavors. We appreciate the journey that you are taking to hear from Canadian organizations and, of course, Chambers of Commerce and individual businesspeople, and we know that the effort is not insignificant.
Again, let me say on behalf of our members thank you very kindly. It's an opportunity to be here today to talk about the work that we have done on this file as part of the Canadian Chamber Network with my colleague here to the left, and we will explain her organization's activities, which are, of course, significant as well.
In the kit in front of you is a series of documents that I will very quickly highlight. There is an overview sheet that gives a bit of a recap that goes out to all of our members that talks about the changes, and this has been a moving target, if you will, in terms of the information that's been presented by the Ministry of Finance, so I leave that with you.
We have also media releases that we have circulated in the past, and there is a particular singular briefing note in there on medical professionals, and I will reference that in just a few minutes, and the importance of that particular economic sector to Saskatchewan rural and urban.
We also have a background paper that we created early in the year through the good work of my colleague sitting behind me, our director of research and policy, Joshua Kurkjian, whom we stole from Ontario, I'll say with great glee, some months ago, and we are pleased to say he is going to be a Saskatchewanian for a very long time. But that documentation is there and was circulated to our chamber network across the province.
We also have in that, of course, our letter to you as chair of the committee and copies of letters we sent to Minister Morneau and to the Parliamentary Secretary to the Minister of Finance, and a second letter to Minister Morneau. One went in September, one in October. So if nothing else, you will have some reading on you trip time in-between hearings.
I want to talk about more broadly not just on the materials that are there but the process and some of the specifics. So, again, I say thanks for the opportunity for us on behalf of our members to be here this morning.
The Saskatchewan Chamber of Commerce undertook extensive discussions with our members, with our board of directors, as well as business leaders across the province, large and small. We spoke directly to accounting and tax planning experts, professional service firms, and business owners for their analysis.
We have published the backgrounder document, which I just referred to, that provides a summary and analysis of the original proposals. That report was circulated widely through the Saskatchewan chamber network by email and was updated as we had new information.
We submitted a letter to Minister Morneau outlining the Saskatchewan chambers concerns with the proposals and outlined our official position. We met with the Parliamentary Secretary to the Minister of Finance, Joël Lightbound, who is a very bright young man and I think has great things to look forward to in the future, but has suddenly become a very busy MP in his new role as the parliamentary secretary. He is young and energetic and will do great things. We told him about the challenges we saw for Saskatchewan, and at that meeting we had the mining associations and the agricultural groups with us, and they shared their collective concerns.
We created and published an online survey administered through our own website. We had 600 employers representing 15,000 employees. Those employees had their companies sign on to say how the changes that were proposed needed to be amended, and the work that was necessary had to be changed.
We also listened to Minister Morneau speak at the Canadian Chamber of Commerce's most recent annual conference in February. We listened with great interest to the minister, and with great respect as would expected for a minister of the Crown, and I spoke at a Chamber of Commerce conference hosted by Perrin Beatty just afterwards.
Now, I list those events because I wanted to demonstrate to you how active we have been as an organization. We didn't lead the charge, but we were active, as were other organizations, in the fight against the proposals as originally presented. I'll talk to the specifics, but I will also talk to the process at some length.
The key messages that I would like to leave with you include the process, and there will be people who will speak to you and will say, and I will be one of them, that there was some merit in the original objectives that the minister outlined, but what sidetracked the honourable goals of some of those objectives was the process. The process is what we are now part of in terms of trying to revisit, reset, if you will, the entire discussion. It began midsummer with a conversation with Canadians and Canadian businesses that looked like it was a done deal with legislation drafted; that, by design, it appeared, didn't really truly care for the input of the Canadian business community because of its release with such a short window.
We began our consultation immediately upon seeing the information. We sent out, as most organizations would, emails to the members. The number of bounce backs we got from people that said, “I'm sorry, I'm not in the office, I'm out enjoying a great Saskatchewan vacation,” meant that they couldn't fully absorb the information that was there. That, by design, I don't think was intended to be insulting, but it was as a process significantly in error, and that's one of the challenges that started this conversation with Canadians off on a very difficult foot.
The Government of Canada's communications around the tax proposals were terribly divisive and unfairly positioned business as tax cheats and thieves. If there was one single item that I think hurt the business community and our relationship with the federal government most significantly is that businesspeople who have invested their life and their fortunes into their business and their community and their country had been positioned suddenly, while they were on vacation, as tax thieves and cheats using loopholes to the disadvantage of other Canadians. It also positioned doctors against nurses and employers against employees in an unfair, unscientifically, not-fact-driven conversation. It was unnecessary that it be that way, and yet it got worse as the process carried forward.
I want to reference as well the specific proposal. Some areas of the original proposals caused deep concern not in their original objective of tax fairness and so on and clarity, but in the way that the rollout was done, and, indeed, what the unintended consequences were, in fact, going to produce and didn't seem to be known by the Ministry of Finance. It's impossible, I understand, for the minister to have every single unforeseen, unintended consequence identified well in advance, but on this particular file it would appear that he spoke to very few or at least uninformed individuals, and that led to the consequences you have seen.
I would suggest that in your hearings to date -- and I know my colleagues from MNP are appearing this afternoon, tax experts who will offer fair and sincere advice throughout the Canadian business community -- it's important for you to be able to listen to those experts. I would hope that, of course, they would have done it earlier, but I commend your audience of them today.
The important thing now maybe is to talk about the scaled-back tax measures that have been released, and we're encouraged by Minister Morneau's most recent announcement surrounding the amendments, notably the reduction in the federal portion of the small business tax rate from the current 10.5 to 9 per cent by 2019, and the decision to scrap an earlier proposal limiting access to lifetime capital gains exemptions. We think those make good sense for business. From a net revenue to the federal government perspective, you put all of those elements together, and I'm not sure that the government will net the kind of dollars that they have intended, but, nevertheless, we appreciate the efforts that have been done.
This announcement is a step in the right direction, but because of the fear that we have of the intent and the detail, we will be monitoring, as will every Canadian chamber and business organization, very deeply the detail that comes out of those measures because we have been given cause to be cautious, particularly on this supposed simplification of the reasonableness test as it relates to income splitting.
Also, the $50,000 per year threshold on passive investment income we think is good news overall, but a challenge in terms of us -- time?
Let me go right to the last page. This process went off the rails very early, and I think at the end of the day I would encourage you to do a full reset. The Canadian government needs to support and encourage right away, initiate right away, a royal commission style format to right our tax system with greater clarity and honesty amongst Canadians. The experts from the business community will assist, and the opportunity for truthful and sincere dialogue will be there, but unless we push reset on the entire tax system, we're going to have this fear and loathing situation for many years to come.
I'll leave it at that and answer your questions as they come. Thank you.
Senator Mockler: Mr. McLellan, there is no doubt the questions that will be asked will provide an opportunity to share additional information.
Ms. Lindbjerg, please.
Darla Lindbjerg, President, CEO, Greater Saskatoon Chamber of Commerce: I want to thank you for having us today. I want to thank my colleagues for also attending this morning and speaking to this issue. It's very important.
As the CEO of the Greater Saskatoon Chamber of Commerce, I am here today to represent the interests of over 1,400 businesses in Saskatoon. While as a chamber we represent businesses of all size, I want to stress the fact that over half of our membership is comprised of companies with ten employees or less, so these are true small business owners. They have put their heart and soul into creating their dreams and creating a reality from what they wanted to accomplish with their businesses.
When the proposed tax changes were announced, we polled our membership and we found that over 90 per cent of our members felt these tax changes would have significant and far-reaching negative impacts on themselves, their families, and their communities. The impact would not only expand across our country but across generations.
While we support the idea of looking at the tax system in Canada in general, something that hasn't been done in 20 years, we feel the Federal Government's initial attempt at improving fairness resulted not in improvements to an overly-complex system, but instead uncertainty amongst the backbone of the Canadian economy.
Our primary concern with this is that the wrong process was taken, to reiterate Mr. McLellan's comments, and directed at the wrong target. Small business is not the group that the federal government should have been looking to impose these tax changes on. It is time that the government admits this and moves forward.
With our closest trading partner and closest competitor, the United States, looking at reducing the overall tax burden on business, are we really in a position to create added uncertainty and distrust of our tax system, potentially discouraging investment, risk taking and growth in our national economy that is only now starting to recover from the downturn in 2008? The answer is no. Small business owners who aren't confident in what the future will hold for them will make choices to reduce their exposure to risk, holding off on investment, hiring and taking chances. These are not the attributes of an entrepreneurial economy.
The good intentions of the federal government have fallen short, and whether it was delivered or not, the timing of the consultation period, limited access to roundtables and lack of information on the process undertaken did nothing to improve the situation, but instead put business owners at unease and created distrust with the system. While the federal government tells us these changes are in the name of fairness and simplification, we're hearing from our members and small business owners that they feel it is exactly the opposite, and Canadians are listening.
To this we echo the Canadian Chamber of Commerce's suggestion that the recent announcement scaling back the small business tax package is a step in the right direction, but more is needed to be done if Canadian businesses are to compete and that a complete review of the entire system should be undertaken in a responsible and reasonable manner.
To truly succeed in today's technology-driven global economy, Canada needs to develop and execute three distinct strategies, one for success and innovation, one for international competitiveness, and one for productivity. While we applaud the federal government's efforts around NAFTA as market access and free flow of products is a top priority, it is a moot point and one we cannot celebrate if our domestic economy erodes due to the policy decisions being put forward through the proposed tax on incorporated businesses across our country.
If our government is serious about productivity, innovation and competitiveness, we expect the following: To rethink the proposed tax changes to ensure that we grow small businesses across Canada and to continue to encourage entrepreneurship across our country, to launch meaningful consultations with the business community, to review tax policy without unfairly targeting independent businesses, to consider a comprehensive review of the Canadian tax system, as Mr. McLellan had mentioned, with a view towards fairness and simplification for all taxpayers and increasing competitive environment for all business across our country. Thank you.
Senator Mockler: Mr. Moen, please.
Keith Moen, Executive Officer, North Saskatoon Business Association: Thank you very much, honourable senators. We appreciate very much your attendance here today.
I'm the executive director of the NSBA, a dynamic business organization in Saskatoon that I will expand upon further in a moment.
First, let me reiterate my thanks to you for coming to Saskatoon and for the opportunity to address you here today. Also let me acknowledge the appreciation, admiration and respect I have for anyone elected to or serving in public office. I thank each of you for your respective commitment to public service for the betterment of our great nation.
The NSBA is a Saskatoon-based, member-driven business association that serves, promotes, and protects business throughout Saskatoon and beyond through our advocacy and lobbying efforts. Started some 50 years ago by a handful of businesses, today's NSBA consists of a membership in excess of 700 companies. Members range from single owner/operator proprietorships to large multinational corporations that employ thousands. Although diverse, our membership mainly consists of a strong community of small to medium-sized businesses that are largely owner managed by entrepreneurs. We our known for our pragmatic, common sense approach to getting things done.
We thank both chambers of government, the House and the Senate, for the opportunity to provide feedback on this issue and continue to stress that a considerably longer consultation and implementation period would have been better served to approach the issue of tax reform holistically. Similarly, we would continue to advocate for a new royal commission on taxation to ensure that our tax system is not being revised on a piecemeal basis without a true understanding of unintended consequences.
The consequence of the process thus far is that businesses are sitting in limbo with more questions than answers regarding the changes. The most recent announcements, particularly regarding passive income and the lowered small business tax rate, contain high-level details only, which has not provided the level of clarity necessary for businesses to plan their affairs moving forward. This point is supported by many tax professionals and firms who find it difficult to understand the rules and hence advise their clients.
It's our view that the key piece of the proposed legislation is the one regarding passive income. In addition to the lack of clarity surrounding the proposed $50,000 threshold, we are concerned with the status of a business's initial passive investment to create opportunity in economic development. If government impedes a business's ability to invest back into its business and grow, we have grave concerns with this, particularly because such opportunities in investment often have a price tag far in excess of $50,000.
We appreciate the moves to limit or scrap entirely the changes to lifetime capital gains exemption and converting capital gains to dividends. One of the biggest unintended consequences of these proposals would have made a business transfer within a family extremely difficult, which would affect key sectors of the Canadian community, such as agriculture, which has seen its share of economic hardships.
With regard to income sprinkling, the NSBA continues to have questions regarding the reasonableness test. We would note that an individual's contribution to the business cannot always be measured in terms of salary or hours worked, especially in the case of a small family-run business where family members feel the weight of the business's success or failure, regardless of whether they perform functions within it. Families may and often do forgo certain personal amenities in lieu of a business need, development or perceived opportunity. We also note that without a rigorous set of criteria and effective and consistent application of that criteria, the impact on a business could change from one CRA auditor to the next.
The NSBA is also wary of the change to lower the small business tax rate when that change is accompanied by a proposal to increase non-eligible dividend tax rates, possibly resulting in a higher tax bill than the status quo. If so, this seems like a bait-and-switch designed to bring businesses onboard with the government's proposal rather than an honest attempt to create a more effective tax system. Combined with potential knock-on effects at the provincial level -- for instance, Saskatchewan has already moved to reverse its decision to lower its corporate income tax rate -- this could certainly become a net loss for business.
Although we're critical of the piecemeal process, the NSBA is of the view that the recent revisions announced in mid-October have been a step in the right direction. A past analogy that I spoke of, however, was that the government was using an RPG to kill a fly when a flyswatter would suffice. Although it's difficult to definitively say because details, as noted, are still lacking, that analogy may have been now downgraded to a hand grenade.
In closing, we are disappointed by the politically-motivated, class warfare methodology that the federal government initiated through this process, as my colleague Mr. McLellon referred to. Rather, we strongly encourage them to take a holistic approach regarding taxation, which is to say a nonpartisan, apolitical stance for the betterment of the Canadian economy because when it comes to economic development, growth, job creation, and wealth distribution, the solution lies in the private sector, not in government. Thank you.
Senator Mockler: Thank you.
The first senator to ask a question and also to welcome us in Saskatchewan, her province, will be Senator Andreychuk.
Senator Andreychuk: Thank you. I trust that the people of Saskatoon welcomed you when you arrived yesterday. We have a very hospitable town and province. I'm very pleased that we included Saskatchewan in our hearings. Saskatoon is unique. It has a unique history. It's a very vibrant community in Saskatchewan, receiving people from all over the world within agricultural. We have been able to take that agricultural base and expand it with some pretty unique entrepreneurship, as some of the most talented people saw a problem on a farm and turned it into an industry. That has expanded virtually from that agricultural base to many other fields.
So I think you're going to hear a pragmatic approach, and I have heard that Saskatoon is always pragmatic. It raised me, and I've never faltered. They say I'm too pragmatic, and I say, “I'm proud of that; it's a Saskatchewan trait.”
With regard to the weather, we have lots of sunshine in this province, and it's a “crisp cold,” we say, but a very warm area.
I want to single out Mr. McLellan because he has been with the chamber for many years. He is there making comments in a positive way when governments move, and when it is not so helpful he is there too. As a result, the chamber can be commended.
I hope that committee members get out to see this part of Saskatchewan, and I'm sure that folks today will tell you a little bit more about it than you knew before, so thank you for including us.
By the way, this is my hometown. I was born and raised here, although I live in Regina, and have relatives spread around Saskatchewan. I'm rather proud to be from Saskatchewan and to have my colleagues here.
Senator Mockler: Thank you.
The first question will go to Senator Marshall, to be followed by Senators Pratte, Jaffer and Neufeld.
Senator Marshall: Thank you very much, everyone, for being here today.
Before we get into talking about the specific tax proposals, could each of you tell us about your members? Not all are private corporations, not all are going to be affected by the tax changes. Who are your members, who is big, who is small, who is incorporated, and if they are incorporated, what type of businesses are they, professional services, farmers, mining, whatever? Just give us a bit of an idea as to who you're representing.
Mr. McLellan: I could begin if you like. We have about 650 members around the province. Most of our members are larger companies, but I would challenge only to the point that you made, that not all of them will be directly impacted. In fact, this has impacted all of them, not so much from a tax perspective, but comfort in terms of the future of taxation in the country. That's not an insignificant scenario for us in the business community as chambers and as business organizations to deal with.
So we have members who are farmers. A Saskatchewan farmer is no longer very much the quarter-section and one small combine kind of operator. These are 5-acre to100,000-acre farms. We have small independent operators who are one and two-person businesses, and we also have, as do my colleagues here, the large multinationals like PotashCorp, Cameco, and others that not only have lots of small suppliers that they rely on that are directly impacted by these challenges and this tax plan, but, again, they are more universally challenged by the fact that these proposals make a difference to tax fairness and the comfort that our federal government is thinking with clarity on taxes. So that's who our members are, and I would argue, again, they all are impacted.
Senator Marshall: Thank you for that. Actually, on the point that just because you're not a private corporation you’re not impacted, we spent a fair amount of time yesterday afternoon talking about that and it really affects everybody. How many of your 650 members are CCPCs?
Mr. McLellan: I couldn't give you a number unfortunately, but it would be a small percentage, in fairness.
Senator Marshall: It would be small.
Mr. McLellan: Most of our members on the provincial chamber perspective are larger companies, larger employee basis and so on, but, again, each of them are impacted. Even if it's just as insignificant, to surmise, as their family doctor potentially leaving the province because they're a private corporation. That comfort level is gone.
Senator Marshall: So for the smaller companies that are CCPCs, what would you have, a variety of professional services, farmers?
Mr. McLellan: armers, accountants, consultants, doctors. We have many doctors. We have an insurance program as part of our chamber network, and many doctors are active with us. As a matter of fact, we're going out in the next while to brief the doctors on this piece and how it affects doctors specifically. I'll come back to that later on, but we have a whole range of small businesses.
Now, a taxi company with three or four cars would not generally be a member of ours. We would welcome them, but they're more drawn to the Saskatoon Chamber and perhaps NSBA. Of our 650 members, I would suggest, without statistical information in front of me, probably 175 would be directly impacted by the taxes.
Senator Marshall: I have one last question, Mr. McLellan. Would members of your organization also be members of North Saskatchewan and Saskatoon chambers?
Mr. McLellan: The smart ones are, yes, because both of my colleagues have very good organizations. We do have a lot of crossover. This is a large family within Saskatchewan, so we'll have members that are members of the local chambers. Of our members, 97 per cent are also members of the community chamber where they live and have their head office. Indeed, there is lots of crossover.
Senator Marshall: Ms. Lindbjerg, realizing that some members for the Saskatchewan chamber might be your members also, just give us a flavour as to who your members are.
Ms. Lindbjerg: We have about twice as many members, but, like I mentioned, about half are smaller-sized businesses with 10 employees or less. Their interests range from mining, oil and gas, medical, forestry; we have a whole range of sectors.
We talk about Saskatoon as being a centre of influence for many different areas of innovation, and our membership very much represents that body, which we're very proud of. Also our members support or are a part of developing or creating a great quality of life in Saskatoon. Whether it is their business in particular or the supply chain that they have running up to their business operations, they are supporting and are working with many different businesses. Most of them, I would argue, are incorporated because incorporation is a tax status, a risk mitigator for businesses.
Senator Marshall: So how many members would you have?
Ms. Lindbjerg: We have over 1,400 businesses.
Senator Marshall: And how many would be a CCPC? Would you have any idea?
Ms. Lindbjerg: I would say we would have a significant number. I don't have the exact number for you, but I would suggest it could be between 70 to 80 per cent. I would suggest it is very high.
When we polled our membership, 90 per cent of those who responded said that this is a significant impact on my business. That to me says there is a lot going on for them whether it's impacting their business directly or indirectly through the companies that they work with.
Mr. Moen: Our membership is similar to Steve's, probably in the 700 to 750 range. As mentioned in my comments, we're largely considered to be owner managers, entrepreneurs, grassroots-based companies.
I hate generalizing, but we're always asked the question about what's the difference between the Saskatoon chamber and the NSBA, and although both organizations have a crossover, the last time we did an analysis, from our perspective, about 40 per cent of our members are also members of the Saskatoon chamber. We didn't do the similar analysis with the Saskatchewan chamber. However, in general terms, which I don't like to do, but just so you have a grasp, a lot of our members wear overalls, so blue-collar-type workers, in comparison to the chamber, which has more of a corporate dynamic. But that's, again, unfair because we have both segments within our respective organizations.
Senator Marshall: And of your members how many are CCPCs?
Mr. Moen: We don't collect that type of data, so I couldn't even give you a good guess. Let me go down the middle and say half.
Senator Marshall: It's a broad variety?
Mr. Moen: Absolutely. I would suggest that the base of our membership would be involved with the commodity supply chain, so mining, oil and gas, agriculture, forestry, these industrial type of applications.
Senator Marshall: Do I have time for one more question?
Senator Mockler: We will go to a second round. Thank you.
Next is Senator Pratte, followed by Senator Jaffer, followed by Senator Neufeld.
Senator Pratte: Thank you for being here. I want to go to the changes announced by the minister on the week of October 16, especially on the passive income proposal. The minister announced a threshold of $50,000, and I know he didn't go into details, but the general idea is there. I would like to know more about your members' reaction to this idea of a threshold. The capital protected would be $1 million presuming an interest rate of 5 per cent, therefore $50,000 a year. Is that viewed as a high enough threshold, a significant step in the right direction?
Mr. McLellan: It is certainly a step in the right direction, and, in fairness, $1 million for a lot of our companies is a significant amount of money, and many would not hold that level. For those that do, again, I can't overstate it, and I don't want to appear like a broken record, in terms of the comfort, that's where it's going to finish.
So the detail on this particular element of the proposals is not yet a 100 per cent made clear to all Canadian businesses, but the bottom line is, yes, we have a greater comfort with that degree of 50,000-dollar interest earned on investments of $1 million. I would also suggest that the passive income is used for a variety of things, and it's been positioned, and rightfully so in some cases, as the retirement fund for the employer.
The economy that we as a province have just gone through and are facing now is influenced by the cycles of commodities. When you live in an area where potash sales, uranium sales and agricultural products can cycle as they have, and do all the time, $1million to me sounds like an awful lot of money. However, for many of the companies who supply lentils or products to the mines, $1 million is chump change because they need that to battle through the downturns, to protect their staff and to make sure that their equipment is technologically advanced so they compete competitively. As Darla had said, competition is critical, and they need that kind of money in many of those companies.
So the bottom line is we have greater comfort in the $50,000 but we await, as we will on all elements, to see the detail. The confidence level in the detail is not what it was, I would argue, even a year ago. We would have perhaps looked at the $50,000 on the million and said this was good a year ago. Now we are saying that we'll just wait, and that's a damage that's been done of some significance.
Senator Pratte: Any others?
Ms. Lindbjerg: I agree with those comments. I would argue that it is not government's place to dictate how businesses grow and when they should grow.
We're talking about balance sheets, retained earnings and equity. As soon as those individuals, those business owners, pull that money out of their businesses, they're taxed like anyone else, so it's no advantage to them to keep it in their business and be taxed on that. It's a hindrance. Why would they not take their money and invest it somewhere else outside of Canada, another business, another industry? Let's make it the most appealing and attractive environment for our businesses who know their businesses, know their industries and know what they need to do to compete to put their money to best use and do that.
Mr. Moen: I'm in total agreement with my colleagues.
What I would suggest in terms of the threshold is that it's, as Mr. McLellan mentioned, a good start, but certainly not enough for many of our companies within the region. For example, a machining company, could have easily $30 million to $50 million of equipment on their floor that they have to keep busy or they go out of business or they begin to do piecemeal work off that equipment. That passive income is critical for businesses to maintain cash flow, their employment base and their market share. It's absolutely critical that they have the ability to use that capital in a way that will positively impact their business and keep people employed.
I can't stress enough that these measures, as they were originally introduced, are not good for the economy or the middle class or the employee base, not the employers, but the employees. It's absolutely critical that there be more capital. Like Darla said, why is government dictating what a business can and cannot do with their own money? It's theirs to use to invest.
Entrepreneurs are unique individuals. As Senator Andreychuk indicated about Saskatchewan farmers building things, they had no ability to get what they needed elsewhere, so they just built it. You can look at a guy like Jimmy Pattison. I don't even know how old Jimmy is. Does anybody know how old Jimmy is? He's a serial entrepreneur, and he does things to build things. He does things to keep people employed. He does things to build the economy for the good of the country. He has just donated $50 million to the Children's Hospital Foundation of Saskatchewan. I think he could retire. I'm pretty sure he could, you know, hang up his briefcase, but he chooses to remain active, so, is $50,000 enough for him? I don't think so.
Mr. McLellan: Just to follow up on that, and not to belabour the point, but we spoke to the issue of a royal commission so that we would hopefully get a tax system where a business makes decisions for the betterment of their family and their shareholders, for the betterment of their customers, for the growth to the extent that they want of that business, and not have to look backwards and say, “What's the tax implications of this?” We should have a tax system that's clear, transparent and fair, and doesn't penalize businesses.
The existing structures, at least the original ones, would penalize a farmer for selling his farm to his son and daughter. That tax system should not be the case, and that's what's happened. So the unintended consequences are significant. A person shouldn't decide to build or grow their business or buy a new piece of equipment because of the tax implications. It should be because it's a good business decision.
Senator Jaffer: Thank you to the three of you for your presentations. They have been very interesting.
I want to follow up on what Senator Pratte said on passive income. The minister has talked about passive income being dead money. That was really brought home to me when you were speaking about passive income. That is just so not connected with what people do with passive income. Briefly, how do you feel about the minister talking about passive income as being dead money.
Mr. McLellan: Well, it may have almost killed some of the business owners to earn it and set it aside. It may have killed some dreams of business expansion because they had to save a little money for the rainy day, but it is certainly not dead money. If the minister had originally intended to say we have lots of money on reserves, on our balance sheets in Canadian companies, let's figure out a way, Canada, to get that into action, that's a different conversation, one that we would value and encourage, but that's not the conversation that we had.
So, as you stated, it is absolutely not dead money. It is money that's owned by hardworking men and women across the country. Again, to suggest that they are, if you will, stealing from the rest of Canada by keeping money in their company is disrespectful, and it's because of that and other efforts of the minister that we have called for an apology to the Canadian business community. There is no need to insult Canadian businesses, and that particular issue is an example.
Ms. Lindbjerg: I would reiterate risk and reward is huge in terms of this conversation. Knowledge-based businesses, if you look at, say, the technology industry -- an area that both our provincial government and our federal government is looking to invest in and diversify our economy with – oftentimes, can take seven years to develop their idea. They put so much blood, sweat and tears into that concept, get investors onboard, and only after that much time has passed do they start seeing a return on investment. That's significant if you're talking about implementing penalties on income after they start seeing returns. They had to sacrifice for seven years. Most people aren't willing to do that. So why would someone who has an idea go forward with their idea in the future if they know they are going to be penalized for it down the road?
Mr. Moen: To elaborate on the comments made and to my last point with Mr. Pattison, entrepreneurs are opportunistic, looking for that next opportunity. To describe it as dead income or investment is, as Mr. McLellan said, unfair.
Doggone it, I had another point, Darla. Sorry, it's escaped me right now.
Senator Jaffer: In my other life I'm a business owner too, and it would not be prudent if I didn't have some money set aside. Every day is not the same. You have bad times when the bank, for example, may not give you the money because they won't take the risk, and you have to rely on your resources and your friends and families. You are being a prudent businessmen in having that income; it's not dead money. I don't want to say anything about the minister, but his not knowing the reality of businesspeople is a concern.
One of the things that this committee is doing, and you do especially as chambers of commerce, is bringing people together to move on, to build a community, a wealthy community. You talked about exploiting loopholes, and you also talked about pitting salaried employees and business owners against each other and that the damage from this will be difficult to undo in the years to come.
You spoke about the minister's apology. That's the first step. You people are the people who sew your communities together to have stronger businesses. I would appreciate, if not now, later, getting your suggestions of how we can restart this discussion so that we do not pit employees against employers. That does not build our communities. Do you have any suggestions that you could give now?
Mr. McLellan: We have a line in our chamber, that we provide comfortable tables for uncomfortable conversations. We need as Canadians sometimes to have uncomfortable conversations, but at a respectful table like this. There will be people who will disagree with what the minister has done, and many that will agree. They can be uncomfortable. But the point I would make is that as chambers, as business organizations, we offer those tables. We need them. You have had them as families, you have had them as senators, you have had them in your previous lives and your current lives in the communities, so that's what we need to have, and with the experts.
This is the piece that I think Minister Morneau missed, that it has to be with the experts around the table, both the individuals who own that dead money and the individuals who are advising him in terms of taxes. They will have an honest conversation. They will have an honest conversation that says, “Listen, there is too much latitude here, it would be better for Canada if we had clarity there, and here is the other thing that I think if you made this change would improve our ability and our desire to have greater investment using some of the monies.” So the outcomes that they could put on the table in an open and fair conversation could be great solutions found, but until we have that trusting table for those uncomfortable conversations, we are not going to move ahead.
Ms. Lindbjerg: I would agree. I would also suggest that we've got a lot of really legitimate business organizations across this country, the Chamber of Commerce would be one, the NSBA and the CFIB others. We've got a whole bunch of business organizations that are representing the voice of business, and the whole reason these businesses are investing in a membership with these organizations is that, number one, they don't want to be on their own. It's very risky to speak out with an independent voice and not be penalized as a business owner or individual. Also, there's power in numbers, you've got access to a lot of information, you've got a lot of voices at the table.
If only there was some sort of a standardized process that we could flow through. I know you met with Perrin Beatty from the Canadian chamber. There's 200,000 businesses right there through that network that could be accessed and utilized. If you had some sort of a standardized process where you're getting back the right data and standardized information in order to have the answers to questions that this committee and other groups put together, a process that answers such questions as who do we need to consult, what do we want to know, and when do we need to know it, and that communicate properly with these organizations. I think that one of the major breakdowns in this whole process was communication. Nobody knew what was happening, nobody knew when it was happening, nobody knew why it was happening. Well, they had suspicions, but it was difficult to go through that process.
When it comes to businesses, one of the major areas that they are looking for is access to capital funding as well as access to talent. Those are the two major drivers for a lot of businesses. Was that question even asked, how are these changes going to affect our access to capital or access to talent? I would suggest with these changes our quality of life would likely change, making access to talent harder. Access to capital is already happening through the passive income and other tax tools that are in place. However, the government has said, “We're going to peel that away; we're going to take it away.” It is leaving businesses wondering what is going to happen, how am I going to fund my operations, what am I going to do going forward when I don't even understand this, my accountant doesn't even understood this, the CRA doesn't even understand this, so how are we going to understand this system when nobody has a common definition of what it is?
Mr. Moen: Just briefly, I finally remember my other point, which actually ties into this question as well. We are continually building bridges as opposed to walls in terms of educating people around the positive impact of business and how it's not an us-versus-them scenario. My point that I had forgotten earlier carries on from Darla's comment about risk and reward. Entrepreneurship is not easy, and if it was, everyone would do it. Everyone would be a business owner because look at all this passive income. Look at how rich you can become. Absolutely there are opportunities for people to do that, but it is not an easy, simple process. It's anything but.
Senator Neufeld: Thank you all for your presentations. They are not much different than what we have heard from other chambers of commerce, which tells me that the views are pretty universal across the country.
Before I go any further, I come from northeastern British Columbia, and I want to thank Saskatchewan for all the people who came to northeastern British Columbia many years ago to do those things like farming and business.
Mr. McLellan, you said that you agreed with some of the changes that the government put in place. Could you tell me briefly what you meant, or did I misunderstand you?
Mr. McLellan: We agreed with two areas. In the first consult, the objectives as we understood them, at least, to move as much cash, capital, passive capital, out of balance sheets and into working capital where that made sense; that's a conversation we agreed with. Obviously the more money that's invested in Saskatchewan businesses the better in terms of active new machinery, new employees, expanded markets, we agreed with that principle. We agreed with the fact that we needed to look at the income sprinkling because there was some challenge to that in terms of clarity.
We have talked a couple of times here about the CRA. Perhaps we'll get into it later, but the reality is if you don't like the first answer you get from CRA, hang up and call back; you'll get another one. I've heard that from senators in previous conversations. That shouldn't be the case.
The third area is the capital gains. There should be clarity so that a family, as I indicated earlier, whether it's a farmer or business, isn't looking at the tax disadvantage by selling the company to the son or daughter or family members versus selling it to a stranger on the street, and the family dreams of McLellan & Sons were put asunder by the process that came through.
So we agreed that this discussion was necessary on the original principles, and the amendments that came forward more recently, we think have added some clarity. The $50,000 on the passive income, that's great. It's a step in the right direction. Again, we're more nervous about the details than we should have been or would have been a year ago, but we're enlightened a little and encouraged a little by some of what we've seen.
But what I do agree with is the need for conversation on those elements, and I will reiterate very quickly is that we need a bigger conversation. All of these are Band-Aids, and we need a cleansing to say let's make our tax system as simple as possible. We didn't get that. It's more Band-Aids and more Band-Aids put on sideways and upside down on a tax system that's already difficult to follow. So on the principles that they originally said, we agree.
Senator Neufeld: Ms. Lindbjerg, you said that small business shouldn't have been the target. What should have been the target?
Ms. Lindbjerg: I think there are larger organizations or different organizations that have misused some of the tools that are in place. They should be looked at on a case-by-case basis. It shouldn't be a broad swipe across our whole economy. That's not good for anyone, especially small businesses. If you're talking farming, what is it; a 45 per cent tax if you sell to a family member and 25 per cent tax if you sell to anyone else.
I come from a farming family. My parents were farmers. I was part of the income sprinkling. My parents couldn't have made it without that type of a structure. They were a small entity, a small farm. We've got a lot of small entrepreneurs across the province, across the country who are in the same situation. Those individuals should not be targeted. Those individuals are actually the drivers of our economy. We don't want to stop that machine from running. It's not going to help anyone.
Mr. McLellan: Just for clarity, not to disagree at all with my colleague, but, just for clarity, this isn't an issue that is large versus small, and I don't want to you to take that from perhaps Darla's comments. This is an issue about tax fairness everywhere and tax clarity everywhere. So whether you're a PotashCorp or Joe's Welding, you should know what your taxes are and pay a fair amount. It's about fairness, not large or small, but our small businesses absolutely need to make sure that they're not being taxed into oblivion, but our large businesses, they also pay a fair share of taxes and want to.
Senator Neufeld: The minister is on record in our committees as saying that funds that are held back and passive income should be used for business purposes only and should not be used for retirement. I tend to disagree with that. In my previous life before I got into politics, I was an entrepreneur, I had a number of businesses. My sense was that I want this company to make some money so that at some point in time in my life I'm going to be able to retire comfortably. How would you respond to a statement like that from the minister? I would like a response from all three of you, please.
Mr. McLellan: I think your perspective is exactly right, and I would say that even if you weren't a senator I was presenting to. As the owner of the company, you should be able to make decisions on which way that money goes. You have worked for it, you have invested and risked your family's capital and perhaps your home and the wellness and the ability to fund education and so on. You should be able to decide. Once you have paid a fair amount of taxes, that money is sitting there, and only you should decide does it go into equipment or retirement, and that's the challenge. With all due respect to the many decisions on our everyday lives, business lives and personal lives we expect and want the federal government to participate in, that's not a decision the federal government tax system should make. It is your money, you have worked for it, and if they want to involve themselves in making sure that it's spent, will they also be there to cover should the business not succeed? I would argue they shouldn’t be, I would argue they're not, so therefore they shouldn't be when the sun is shining.
Good luck on your retirement plans. I hope you're enjoying your life of travelling across the country.
Ms. Lindbjerg: I would agree with all of those comments. I have completely the same perspective. I think that if a business owner wants to invest their income in their retirement, in equipment, as was mentioned, or even their community, that should be their choice.
And we have a lot of strong community builders across our country who have been successful business owners who have put away money, who have grown their business, who have then transitioned their business to family members to keep growing that business and keep contributing to our economy, but on top of it they're also contributing back to their communities in terms of donations, time and investment.
Mr. Moen: Thank you for the question. Entrepreneurs are different. They have different rules, and should be offered different rewards. For instance, there are no pensions, no employer pensions for an entrepreneur, there is no CPP employer contribution because you're double paying essentially, there's no maternity leave, there's no matching RRSP program because you're paying yourself, there are no guarantees, there's no golden handshake. If you are a poor leader or manager, you can't fire yourself and give yourself a nice severance package. It's just not the same to be an employer as it is an employee. So, I would suggest that your perspective, is absolutely correct in that that is a very valuable tool for an entrepreneur to use as a retirement option.
Senator Neufeld: I guess you would all agree with me, that the $50,000 amount that was put in place as the amount that you could actually collect should not be there? I don't think that should be there at all. I will be very clear. I think, much like you people have said, that the entrepreneur should be able to make that decision. Would you agree with me, a quick yes?
Mr. McLellan: Yes.
Ms. Lindbjerg: Yes.
Mr. Moen: Yes.
Senator Neufeld: Thank you.
Senator Oh: Thank you to the witnesses. Today you're representing the voice of hardworking men and women in Saskatchewan. I love to be here, and although it's minus 13, it feels warm.
I heard earlier that you want a clear, transparent, fair tax system in Canada because that would eventually lead to innovation and international trade. Another item you mentioned is that now everyone is confused and worried for all the farmers and businesses here.
It is very unlikely that the Minister of Finance will abandon the proposed changes despite growing calls to pause, reassess or to look at other options. Our committee is looking for a specific recommendation that would help to mitigate the micro and macroeconomic changes. Could each of you please provide one specific recommendation that will address your concerns on behalf of the people of Saskatchewan.
Mr. McLellan: My one and most significant recommendation would be that the minister call for a royal commission on the Canadian tax system, how it's charged, what the level of transparency is and how it benefits both Canadian taxpayers and businesses, and with the objective of competitiveness in the country that will allow us to continue to grow and employ people and that ensures that a fair amount of taxation is paid by all Canadians, individually as well as corporately. A royal commission, sir, would be the answer.
Ms. Lindbjerg: I would agree with that, but I'm sure you want a different answer. To be quite pragmatic, honestly, spend less, or if you're spending money, have a plan around it, communicate that plan, and get everyone onboard before you spend the money. That would be my recommendation.
Mr. Moen: I agree with my colleague Mr. McLellan about the royal commission. I might ask the minister and the Prime Minister the question, though, what is your objective? What are you trying to achieve?
Senator Mockler: To end the first round, Senator Andreychuk.
Senator Andreychuk: I keep hearing, both in this hearing and otherwise, that we're not quite sure why the government did what it did in the way it did it, and we haven't received any answers. We have heard from others and there have been suspicions as to why; you have said that perhaps it was for more money for programming. That might be a valid reason, that the government is looking for sources to match their spending. But I hear from other departments, other ministers who seem to get it, that small and medium business are the future of Canada. We can't survive, we can't grow the economy without understanding what's happening in the United States, what's happening in Asia, and they're battling with how to get these entrepreneurs going, how to get the ingenuity going.
I hear very positive messages on a broader front. We did a trade study, we looked at why Canada is so risk adverse. No one quite answered that, but a lot of our systems make us risk adverse as well as our tendency to be secure. So they get the risk. They get that they need some support from government. We need to build a culture of young people who understand the world dynamics because they're changing so quickly.
So I hear these positive messages and supports, not yet fleshed out programs. It's a government that’s two years in and yet we're waiting to see where they're going. Then, all of a sudden, the Finance Minister finds a negative, and it seems to be small and medium-sized businesses. Yet it wasn't quite a negative when it came to offshore accounts. It was, “We don't have the management in CRA to handle it.” So money was put into that, some $1billion more for people. Why are we doing that in finance? Have you raised with the Prime Minister, not the minister, the question that you're doing this over here and it seems to be a positive thing? But this is utterly hurting all of that, and all of those other initiatives have been signaled, but we can go somewhere else, is what I'm hearing. Why are you only targeting Minister Morneau?
Mr. McLellan: If I may, I don't think that we are, although on this particular issue, the community chamber network and the business community generally has focused on Minister Morneau for the processes that are in front of us. Your point is valid. I would much rather be here today offering you thoughts from our membership on how to expand Canadian business, how to get tax fairness that is part of your mandate and increase the tax revenues of the country. I would much rather have a conversations on that rather than what has distracted us. I value the conversation today, and thank you again for being here, but I would rather have a conversation on building Canada instead of fixing a process issue.
We had a conversation recently with Minister Goodale in Regina, and we were talking with other business organizations about marijuana and the challenges we see going forward. At the beginning of that important conversation was a conversation about tax process and changes that I think has distracted us from other important files.
Now, I come into work every day and say, “I have a hundred files on my desk, and that's the best thing about my job.” The worst thing about my job is I come into work every day and I have a hundred files on my desk. Over the last four months this file has taken a lot of that effort. So we need to get smarter on this. One of the takeaways I would leave for you to recommend to the federal government is be careful in how you launch ideas and new programs so that they don't take the honourable objectives and take everybody in Ottawa off track, and that's what it's done.
Ms. Lindbjerg: I would agree that this has been a huge distraction for our chamber and our community. We have seen significant response from our business community, and that is not isolated around Saskatoon; that is across the country. This is the largest response that the chamber network, according to Perrin Beatty, has received in the last ten years. That's why we've been so focused on it. We're not necessarily attacking or targeting Minister Morneau; however, he is responsible for this file. This was his decision ultimately in conjunction with the Prime Minister, and he is not off the hook for it. We hold him responsible as well.
I think that we need to look at our economy not as though we sit in a bubble, and right now the way the proposed tax changes have been laid out, it treats our economy as though we are in a bubble because we're not looking at the U.S., the U.K., or China, we're not necessarily seeing or anticipating what the impact is going to be on our local business community because of these changes.
Now, there are a lot of good files going on as well like CETA and NAFTA, and we're hoping to see positive results, but our local economy is our heartbeat. We need to focus on that first and foremost, and when we as business associations start to see an issue with the pattern in our heartbeat, we pay attention, and that's going to be our number one objective.
Mr. Moen: Thank you for the question, Senator Andreychuk. I think the focus has been on Minister Morneau because, frankly, the business community feels attacked, our integrity and our values and so on. So we have become quite defensive about that because most business owners, entrepreneurs are the staples of any community; as was mentioned earlier, the donation from Mr. Pattison.
The other part is that there seems to be a fairly hypocritical position or set of circumstances surrounding the minister, and so I think he has opened himself up to some criticism by virtue of that.
And from a political standpoint, it's my understanding that if these tax changes were to be implemented, we're talking about revenues of $250 million. And it's also my understanding that if there is a 1 point raise on GST, 1 per cent raise, that that's about a $12 billion increase to the general revenue fund.
So what's the purpose? That's my question again. Why are you doing this? Are you looking for money? There are better ways of going about it.
Senator Andreychuk: As a follow-up, Saskatchewan is unique. We were agricultural based and we were a have-not province. We were as amorous as any other province, but only one or two kids could stay home and the rest populated the rest of Canada.
Thank you, Senator Neufeld, for reminding us of that.
Over the decades all governments here have really tried to keep people in Saskatchewan, and the response from business and agriculture has been great. I mean, we grew wheat, barley and oats, and if you talked about lentils or chick peas in the 1970s, it was about garden plots. Agriculture is still important, but it isn't the agriculture I grew up with. So the innovation has been there, and it's very important that it's generational too. It's the safety of the food chain, and we know when it's not safe.
But we have also developed our potash and a lot of others businesses, but I'm also interested in new immigrants, the Aboriginal community, where we're just taking hold with small entrepreneurs in very small towns where they live. My concern is that that is all going to stop and we're going to have an outflow again. I find Saskatchewan unique in that regard, we're are just on the cusp of so many good things and I see a standstill coming. Am I correct?
Ms. Lindbjerg: Saskatchewan, I would say, is a shining example for the rest of the county right now. We have done very well over the past few years compared to other provinces in the country.
Saskatoon I can speak to as an example. We are a centre of excellence for innovation. I mentioned it before, but we've got the cornerstones to that already built. What we haven't done is educated everyone else around that and talked about exactly what we're doing and how we're doing it. Everyone is talking about technology, autonomous vehicles. We already will have them, but in farm equipment. So we're ahead of the curve in a lot of ways, but we're not celebrating or talking about that enough.
But I think our provincial government is also very interested. We sent a letter to the federal government in support of increasing immigration levels in Saskatchewan because we see a need for that as well as desire from those outside of our province and country to move into Saskatchewan. So I'm hoping we will not see an outflow. I don't anticipate we will see an outflow, but it's always a risk that we need to keep in the corner of our mind.
Senator Marshall: Mr. McLellan, in your opening remarks, you mentioned that the tax proposals target the private corporations, but it really affects everybody. We talked about that yesterday at our hearings in Calgary. There is a lot of uncertainty out there right now. We're talking about NAFTA, the tax changes in the US, the 33 per cent new tax rate here in Canada, and Ms. Lindbjerg mentioned the targeting of retained earnings. Private corporations aren't the only ones with retained earnings.
The impression I'm getting is that these changes, while they target the private corporations, is sending a chill through the business community. You sort of alluded to that in your opening remarks. I would be interested in hearing from each of you on what you're hearing from your members who aren't going to be directly impacted by these specific tax proposals.
Mr. McLellan: When people would ask how things are in Saskatchewan six months ago and a year ago, and I said it's nervous. People were uncomfortable because we had come through a decade of significant growth, and we had hit a plateau. We haven't tipped, but we've hit a plateau. Now, that nervousness has extended into the future planning of organizations and businesses because of this kind of uncertainty. Minister Morneau and the Prime Minister standing next to him are not insignificant players in setting the stage and the processes, so businesses have to pay attention, and, of course, we have.
It involves the business supply chain, as Darla mentioned earlier, even a company like PotashCorp, which employs thousands of people in the province. For every one of those employees there are three or four employees of their subcontractors, and every one of those employees is saying, “How does this impact you, boss, because I see you going to your accountant more often than you used to.” The owner of that supply chain company, the small electrical business or the people who sell water to them, is saying, “Well, I'm not sure how it's doing, but I'm confident that we're going to continue moving forward, and we have clients and so on.” That uncertainty is not productive.
This morning in Saskatoon should we have businesses that are sitting at their desks, talking to their customers or training their employees, or should we have those same business people trying to rethink their corporate tax plan because the uncertainty is there? Even their future plans right now are done in pencil. That's not the way to grow a country.
Ms. Lindbjerg: I would agree with that. Uncertainty is very dangerous for an economy, for a country at large. Those that haven't been affected by these changes or won't be affected by these changes are still impacted by these changes through their quality of life in their communities. I haven't met one person that isn't impacted by these changes who says that they don't know anyone who is impacted or that this isn't going to impact me in some way. Usually you have a friend, a family member, someone you do business with that will be impacted in some way, shape or form. It may not be monetarily, but ultimately it will impact you. So that's significant. Uncertainty is something we don't want.
I would say also from a perception perspective, I know our Prime Minister has visited Saskatoon I believe it's three times in the last year. Not once has he come to visit with the business community, which creates a negative perception within that community. So perception is big, uncertainty is huge. I think we need to tackle those, and I think we need to be very aware and vigilant around them.
Mr. Moen: I won't reiterate the comments that my colleagues have made because I agree with them entirely, but perhaps one thing that we haven't touched on, which I think is equally important, is around corporate social responsibility and just benevolence in general on the part of a business owner.
You know, you look at little Johnny's soccer team that needs the jerseys, and you look at companies that have been so successful that they have had to develop policy around how they give back to their employees' requests for their children's activities. It's absolutely astounding. I couldn't imagine what the price tag would be on that type of benevolence and giving, and it would not happen if businesses did not have the ability to be viable and to create profit.
Senator Marshall: Actually, we spoke about that yesterday in Calgary and were being told that, yes, it will impact what companies are doing for the community. One of our objectives is to look at how these proposed tax changes are going to impact the economy, so it's not just the individual corporations that are going to be impacted; it's really the whole economy.
Senator Pratte: The goal of the government, as I understand it, with regard to passive income is that an employee receives $100 from his employment, is taxed 50 per cent, and then has $50 to invest; that $50 brings in income that gets taxed. That then is compared to a business owner who is taxed 15 per cent, has $85 to invest. The government wants those two taxpayers to get the same net revenue in the end. The government says that the small business owner of a CCPC, taxed at 15 per cent, has $85 to invest, compared to $50 for the employee. Therefore, the owner of a CCPC has an advantage because he or she can invest $85. That's the goal of the policy, to put the two taxpayers on equal footing. Isn't that a legitimate goal?
Mr. McLellan: If I may, the reality in tax fairness does not mean treating everybody equally. And it's not that one person who owns a business should be inherently treated better. The truth, and this is where the devil in the detail comes in, is that a business owner out of that $85 has to pay his own retirement, he has to set aside money for benefit plans and so on. All of the different benefits that a regular employee has an employer doesn't always have.
Now, they can buy their own insurance programs and so on, but the reality of it is, it's not 85 and 50. It is apples to apples. Let’s say 85 is an orange and 50 is the apple. I'm probably taking that analogy poorly, but the bottom line is they are not equal, they're not being treated fairly. Businesses don't want an unfair advantage; we just want to be treated fairly. That's part of the challenge. When it was portrayed by Minister Morneau, if you read it in the newspaper, it looks like one person is getting 85 and one gets 50. That's unfair. That is not the whole picture. So paint the correct picture, and then let's have that conversation as Canadians.
Ms. Lindbjerg: As I mentioned, when a business owner keeps income in their business, they get a tax advantage, but the only reason they're getting that tax advantage is so that they can reinvest, expand their business, grow our economy and create more jobs. There is a reason we have the tax system the way we do. If that person was to pull that $100 out the same day that individual got their $100, each would have $50 to invest.
So they're taking a risk. They're putting their dollars into their business and investing in our economy; whereas that person that is employed may look at a U.S. company or a Chinese company and say, “I want to invest my $50 there,” and they may see return on it, but it's not helping our economy necessarily.
Mr. Moen: Capital is mobile, as Ms. Lindbjerg alluded to, and equal is not fair, as Mr. McLellan stated. I would also add that there is only so much money to go around, and people don't necessarily understand that. They think that business has this unlimited supply of capital and resources for employees to do wonderful things and to have more wealth that can then be distributed in an equal and fair way. There is only so much money. Therefore, when challenges come to business, they look at expense management and reduction, and almost unilaterally the number one line item that costs businesses the most is their HR, so people will be losing their jobs for more money to be distributed equally amongst those who are lucky enough to remain employed. Thank you.
Senator Mockler: The last question will go to Senator Andreychuk.
Senator Andreychuk: There are many more questions with regard to tax fairness. I work in the human rights. It's not equality that drives justice or fairness, so I don't see how that can be applied in tax. We have these new amendments that came forward two weeks ago, and we have met with the minister.
We have met with CRA, and they're saying it's going to even complicate the situation because there are more unintended consequences that could arise on how to administer it. The government said two things. It said it was not going to do a full tax review, not stopping the process, at least that's the signal we're getting now. These amendments are going to survive and go into effect in two months. Is that a fair time to consult the business community? Have you heard whether you will be consulted on the implementation? I have found in my years in the Senate that sometimes the implementation of those good ideas goes sideways, and we now have two months. Is that sufficient time?
Mr. McLellan: It is not sufficient time. It adds to the insult and the injury that has happened, and we will continue to push for the broader tax discussion that may cost business more in the end, but at the end of the day it's a fair system.
Ms. Lindbjerg: Absolutely not. We have members who submitted letters to the federal government that were received two days before the changes were announced by Minister Morneau. Same with this process, it's too short. They are not going to receive the input they need in time. It creates skepticism, suspicion and uncertainty, and that's not good for anyone.
Mr. Moen: Thank you for the question. I'll be even a little more frank. I think it's disingenuous and insulting. It's my understanding that a bill typically takes two years of consultation followed by another two years of debate in the house, and they're talking originally about a 75-day consultation period and a five-month window within which to make significant changes to the tax law. I'm shaking my head for a reason. It's a head shaker. Unbelievable.
Senator Mockler: Thank you for your testimony today. You have been very informative.
The next witness is Dr. Joanne Sivertson, President of the Saskatchewan Medical Association.
Dr. Sivertson, thank you for accepting our invitation. We ask that you to make your presentation, to be followed by questions from senators.
Dr. Joanne Sivertson, President, Saskatchewan Medical Association: Good morning, senators. I really appreciate the opportunity to come here and speak with you today on behalf of the Saskatchewan physicians.
I understand you have heard from many of my colleagues, including business colleagues from this morning, but also physician colleagues from provincial and national bodies across the county, so I'm not going to belabour the excellent points that I know many of them have already made. What I would like to focus on today are the issues that may be a bit more specific to Saskatchewan.
To give you a little bit of background, in Saskatchewan we have a little over 2,500 physicians, and about 75 per cent of those physicians are incorporated. More than 50 per cent of our docs are international medical graduates, which is also a significant number compared to other areas in the country. Our rural population is huge. About 55 per cent of our population resides outside of Saskatoon and Regina, our major centres, and only 26 per cent of physicians work outside of Saskatoon and Regina.
So we are extremely concerned about ongoing access for patients in light of the potential changes, as this can impact the decisions that physicians make and where they will practice. Doctors who choose to work outside of Saskatoon and Regina are often moving their families to areas where there are fewer opportunities for their spouses to work.
Physicians are educated people, they are usually driven, highly motivated, and almost always their spouses are as well, and it is really difficult for a spouse to accept the fact that they will move to smaller centre where they may not be able to work in their chosen profession, and the ability to income split has impacted a lot of physicians' choices in doing so.
In addition, especially if we're talking rural, it's really very difficult to find reliable childcare and to find it at all hours of the day or night that a physician needs to work. So while I understand that the job of child rearing remains relatively undervalued in our capitalist society, there really is an important role for the spouse, be it a male or a female, to be available to take care of those children when a physician gets called out at 3 in the morning to take care of an emergency. There isn't time for the doctor to recruit somebody to come and take care of their children at that time of day.
Our rural physicians are on all the time. They are so dedicated. They are wildly under resourced, as I've just mentioned, for the number of population to the number of physicians, and they are doing the best job that they can, but I do believe that the support that they get from their family allows them to be able to practice medicine in this way.
So while there are going to be provisions under the new rules that may allow people to income split under a reasonableness condition, what is reasonable? It is actually going to be very difficult for physicians to be able to continue to provide the kind of service that they need to in our rural settings without the ability to value their spouse for taking care of their children.
We are also highly dependent on international medical graduates, as I mentioned. They make up more than 50 per cent of our doctors, and many of them are working outside of our major centres, so our rural communities rely on international medical graduates. By their very nature, being international, they are mobile, and they don't have the roots in these communities either. We're hearing from a lot of our international medical graduates that if the taxation situation changes significantly, there is really no incentive for them to stay in Canada and especially in rural Saskatchewan. They can move elsewhere. They have got credentials elsewhere. It is not a difficult thing for them to pick up and go.
So Saskatchewan in particular, those are our major concerns. Of course you have heard the general messaging, incorporation is tax deferral, but it's not evasion. Once physicians pull a wage out of their corporation, they still get taxed at their marginal tax rate as does a nurse and any other employee. The messaging that physicians have heard that has suggested that perhaps they have been dishonest or that they are avoiding paying their fair share of tax has led them to feel less and less inclined to continue to take that step above and beyond to providing access. New physicians are not considering potentially moving out to a smaller community.
I had a recruitment wine and dine with a resident last night, as a matter of fact. I work in Prince Albert which has a population of 40,000. She is going to be done in June and has an opportunity to work in Saskatoon. She has been considering Prince Albert because of the kind of work that she can do. The indigenous population there provides us with really interesting challenges in medicine. It keeps the medicine fascinating, and we feel appreciated. It's really good work. Her husband, who is a geologist and has a job in Saskatoon, would not be able to work. He wants to move with her and support her in her job. He said to me, “I worked for 15 years, and I have had my chance. Now I need to support her. I understand that I won't be able to work, but what does this incorporation change mean? Does this mean that I can't participate in her business?” So even for a community of 40,000, which isn't tiny, it may impact our ability to get physicians to come and work with us.
We appreciate that fact that it seems the government has been listening and that there have been some modifications to some of the proposals, but we don't think that the modifications have been enough. We would like to request that the process be slowed down, as you've heard this morning, to do a full assessment to avoid the unintended consequences and to try and ensure that we can continue to provide care for our underserved population in our rural settings.
We would also like to reconsider the ability for a physician to income split at least with their spouse. We think that this will continue to help us maintain care to our patients in the periphery.
We would also like provisions for physicians who are in their mid to late careers who have structured their financial lives around the current rules as there may not be the same opportunity for them to make adjustments. They may not have RRSP contribution room to take advantage of, and there may be other problems. In other words, we would like a full assessment of what this might mean for them in the plans they've made.
With regard to the passive income amount, we worry the $50,000 may be too low, and that what's appropriate now may not be an appropriate amount in ten years, for example. So we would like a reconsideration on the amount of the passive investment as well. Those are our asks.
Senator Mockler: The first questioner will be Senator Marshall, to be followed by Senator Andreychuk.
Senator Marshall: Thank you very much for being here this morning. I'm interested more in background. One of our objectives is to assess the impact on the economy. You were talking about the international graduates. Could you just give us an overview of the composition of the physicians in Saskatchewan? You have one medical school. I just want an idea as to the composition of your total population of physicians. I know everybody is mobile, but some are more mobile than others.
Dr. Sivertson: I don't know all of the exact percentages, but I can tell you that 52 per cent of our physician population are international graduates. They did their medical school outside of Canada. Many of them are South Africans. I don't have a number, but Saskatchewan does seem to be a hotbed for South African physicians in the country. Of the 48 per cent who are Canadian graduates, although more and more coming out of medical school across the country are female, we have a lower proportion of female physicians than many other provinces do. Of the 26 per cent of doctors who work outside of Saskatoon and Regina, the majority work in our smaller urban centres -- Prince Albert, Moose Jaw, Swift Current. We do have rural physicians. Some of them still work alone in solo practices in smaller towns and have been maintaining that town for 40 years. We are hearing from some of them that they may just consider packing up shop and closing their doors if these changes come in because they're not seeing a lot of value in continuing to work the way that they're working.
Senator Marshall: For physicians that have already left, where are they going?
Dr. Sivertson: This morning somebody thanked us for providing them with so many wonderful people out of Saskatchewan. Many of the physicians who have left the province have gone to Alberta, B.C., other areas in the country, and we do know that we lose some to the United States. I don't know percentage-wise how many. We lose some to Australia, and it seems the U.K. actually has been an area that some people have been migrating to these days.
Senator Marshall: So what are you hearing from your colleagues with regard to these proposed tax changes? Can you give us an idea of what the potential impact could be?
Dr. Sivertson: On top of the many comments from our rural docs who are talking about moving away from rural, we have heard many of our physicians, and especially our international medical graduates, say that the States or Australia have been looking better and better to them.
We actually just finished our president's tour. I spent September and October travelling 4,700 kilometres across Saskatchewan, up and down and all around, and I'm very tired. We really did get an earful, especially in towns like Yorkton and other communities that have a high proportion of international medical graduates. They were quite vocal about saying, you know, I don't have a reason to stay here. I'm going to look elsewhere if I can keep more of my money.
Senator Marshall: A lot of the provinces have changed the rules for physicians, for example, Newfoundland, Labrador, over the past decade. We heard from the Ontario physicians. They threaten to leave, but usually what happens is they adjust to the new rules and they stay, so the threat never materializes. Would you have any comment on that?
Dr. Sivertson: Many will stay. Many have family here and have their practices, and their kids are playing in their communities and going to school. I have no doubt that many physicians will stay, but I really don't have reason to doubt our international medical graduate colleagues who say to me, “All my family is in the United States. I have been here for this long doing this kind of work, and now not only am I going to keep less of my money, I am being told that I'm a tax cheat for doing so. Thanks, but I'm now disillusioned with Canada, and I see opportunity elsewhere.”
Senator Andreychuk: Can you comment a bit about what a doctor brings to a small community in Saskatchewan and how it may affect small businesses in the area.
We have an aging population. We have, as you pointed out, an Aboriginal population with special concerns in isolated communities up north, and we are trying to attract Aboriginal students to stay.
I’m looking at the whole dynamic of the welfare of the communities. I lived through the times when premiers were going begging almost for doctors to come here and providing incentives to go outside of Saskatoon and Regina. How are we going to handle the shortage if we have any movement?
Also, as doctors have told me, they're aging, so it's not a question of moving; it's just a question of slowing down.
Dr. Sivertson: All true, and if I forget some of your questions, you can remind me.
Senator Andreychuk: It's a broad question.
Dr. Sivertson: That's right. I am consistently humbled by the response that we hear from patients about the importance that their physicians hold in their communities. It really does seem that there is an incredible sense of pride in the community when they have a physician, especially a physician that's dedicated to the people in that community and has stayed there and built a practice. I really do feel like when a community loses a physician, the entire community seems to be dejected, the spirit is lost a little bit.
I haven't worked in a small community, so I'm not trying to speak for myself here. It's been remarkable to watch the communities fundraise and promote their doctors and just really try to support them and to support the health care facilities and all the health care workers who are there. Those communities seem to thrive, and I think then small business is also affected in that way as well. The community in general continues healthy and happy.
I think we know that the further patients have to travel for their care, the less likely they are to go for care, the less likely they are to follow the suggestions of those physicians. There is a lack of understanding in the bigger centres of what those impacts may be for people in a rural community on a limited income, or even just saying, you know, you need to get out to the gym, you need to exercise. There may not be a gym in that community. You have to be able to give advice to patients on their turf.
Some communities are just holding on from a medical perspective. There may be three or four doctors in that community, and if even one leaves, the amount of work left on the physicians who are left behind can be so overwhelming that the whole group then implodes and they leave, and the community is left with no one or very few.
So I realize that some may be making empty threats about leaving, but I think even a few people leaving will have a huge impact on our rural communities and our underserved population. Does that answer your question?
Senator Andreychuk: Yes. There is the issue of doctors and the payment thing. It seems be Ontario centered. The provincial government got involved in the negotiations, and we have heard some comments to the effect that you have some guaranteed income from government, so why are you complaining? That's one part of it. The other is that we went this route of incorporation because we were encouraged to do that. You've obviously talked to your counterparts across Canada. Was the eye of the storm about doctors in Ontario and perhaps Québec as opposed to across Canada, and you're all now trapped in that perception of doctors?
Dr. Sivertson: I think Ontario has had the most angst amongst their membership with regard to the relationship that exists between physicians and government. We in Saskatchewan enjoy a very positive relationship with our government. That being said, we negotiated the ability to incorporate in lieu of fee increases back in 1998 as well, so this isn't an Ontario-specific situation, and any amount that hits the bottom line for physicians will end up coming back around to the negotiation table at some point, I'm certain.
You're right, we do have a very reliable source of income, so the risk that exists there is not the same as it may be for other small businesses, but the costs are rising for physicians as well. We have done the president's tour, and we also held the representatives assembly. The family physicians in Regina have seen a 30 per cent increase in their overhead in the past five years. As a result, the amount that they get to keep to try to do passive investments and such is much lower, and some of the revenue that has been sitting in their corporations is being used to fund the overhead that they have to pay.
A lot of physicians continue to innovate and to try and provide the best care that they can, such as radiologists providing new equipment. For example, I could purchase a handheld hysteroscopy machine, which is a camera that I could use in my office to look inside a uterus that could prevent a patient from having to go to the operating room. All of these things cost increasing amounts of money, and it gets quite expensive as the cost of these devices goes up to continue to provide optimal care for our patients. So there is some need to have some ability to buffer the fluxes in the economic world as well in medicine.
Senator Jaffer: Thank you for your presentation. As I was listening to you I was wishing we were in Ottawa and this was being televised. I think that all Canadians would benefit from what you have said.
One bad thing these proposals have done is made doctors look like the cheats and the nurses as the poor victims and it's caused grief, I'm sure, around your area too.
I don't need you to comment on that because it's just the reality caused, that one is a victim and the other is a cheat. It has not led to good relations in small communities. I wish people could have heard you present, and I want to personally thank you for that.
When you mention international doctors, do you mean doctors who are not born here or doctors who went and studied abroad?
Dr. Sivertson: They're both included in that international medical graduate designation, and unfortunately I don't have numbers that would say how many were born here and how many were born abroad. We are seeing increasing numbers now who do leave Canada to train outside and then come back, but I think the most common language in Prince Albert is English, then Dene, and then Afrikaans, so I'm pretty sure that many, many of our doctors are still born outside of Canada.
Senator Jaffer: I'm from Africa, and I can tell you that those South Africans have come to Saskatchewan because they have found another home. They genuinely believe that's their home, so I don't they are going to rush anywhere. I can't speak for them, but I'm just saying that this is their home, so what I have heard from many is that they have found another home when the home that they had was taken away from them.
You raised the issue of rural doctors, rural practices, and how difficult that is from practising, say, in Saskatoon, Vancouver or Regina. What are the challenges of being a rural doctor?
Dr. Sivertson: I could go on for many hours but I will try not to do that. I think that the succinct way I can say it is that they are performing the broadest scope of care with the least resources available both material resources and human resources. A family physician in a rural setting is often much more than a physician. They are the social worker, psychologist, phlebotomist in many cases, and sometimes the pharmacist. They are performing so many jobs, and the pay they get does not represent the work they are doing. They get to bill a visit like any other physician gets to bill a visit, but in large centres, in primary health care units there are many other people who support them to do that work. Our rural physicians don't have those supports in many situations. So not only are they performing above and beyond, but we're probably grossly underpaying them, and they are relying on their spouse at home, be that a male or female spouse, to support them in their ability to be present for their patients at any time, day or night, in any capacity that they need to be.
It's not a small thing. It's not something that someone can appreciate, I don't think, until you've lived it, that call that happens at 2:30 in the morning from a patient you know is in crisis -- you need to immediately awake, you need to get to work, you know that you've got a full clinic tomorrow, and you have a family at home that you are now leaving behind for an indefinite period of time. The kind of support that you need at home to be able to do your job well, there aren't words for it. It's critical. You need that. If you don't have that support, people burn out in the periphery all the time, so they leave rural communities and move to a place where there are more supports.
Senator Jaffer: Doctor, I have a challenge for you, as president of the doctors here in Saskatchewan, and I think for my colleagues as well, with regard to the portrayal of doctors. It has been very unfair, and we have a job to really set out the reality of what you all do. I appreciate you coming here to do that with us.
Dr. Sivertson: Thank you very much.
Senator Pratte: Thank you for being here this morning.
On the proposals themselves, you discussed the changes made to the proposals, in particular, on passive income, the threshold of $50,000. I think I understood you to say that $50,000 seemed maybe not high enough. Also, you thought that there should be a way to protect physicians who have already made their plans, that therefore there should be a way to sort of protect the plans that were already made. Would you care to elaborate on both aspects? Some business associations that have appeared, both in Ottawa and on our western trip, seemed to say that $50,000 for most small companies would be enough.
Dr. Sivertson: I can happily say that we don't entirely know the right number, so I don't have a value in mind. Again, $50,000 today will not be $50,000 in ten years. I know we can always revisit numbers and such, but with the rate of change that occurs in the medical field with new technologies and new equipment and the associated costs, $50,000 probably does seem low -- for example, ophthalmologists who have $100,000-pieces of equipment, radiologists who have $100,000, even $1 million-pieces of equipment in some cases.
So there are situations where the ability to grow bigger amounts in that corporation allow, then, bigger investments to maintain high-quality equipment, and it's necessary in our medical community that we continue to use the best equipment available for our patients. Just as the drug companies come up with bigger and better drugs that are getting more and more expensive, it is the same with the equipment and the technology field sector in medicine.
So I think the ability to buffer the changes that happen there is critical. I don't know a number. We are very pleased that there has been recognition of some of the suggestions to have a limit out there, but, you know, we worry it won't be sufficient in the medical setting.
Sorry, your other question?
Senator Pratte: Protecting physicians who have already made plans.
Dr. Sivertson: Many physicians under direction from their accountants and such may have taken less of a wage from their corporation and more pay as dividends, for example. When you take from dividends, you don't build any RRSP contribution room. The ability now to pull money out of the corporation without being additionally taxed is compromised for them because they don't have any RRSP room, contribution room or anything of the sort. This was done intentionally under the rules that exist, and if the rules are going to change, there needs to be some recognition of that fact. Somehow we have to make some provision to allow people to be able to fund their own retirements at the end of the day.
Senator Pratte: On income sharing, we had the people from the Department of Finance before us a couple of weeks ago, and I asked a question specifically of one of the officials about this situation where many businesspeople or professionals need the help of a spouse to run their business, to have the time to run the business. The official replied that this was, in fact, a personal choice, that in other cases employees also invested a lot of time in their jobs, and it was the family unit's choice to have the other spouse spend all their time in the family. That was the official saying that therefore there shouldn't be any special treatment for the spouse of a business owner or a small business owner. What is your response to that?
Dr. Sivertson: I would respond that while it is absolutely a choice to have family or not have family, and it would also be the choice, then, of many physicians to work in rural or not work in rural. If we're going to support physicians to provide care in an area that's underserved, we should facilitate that by making choices and policy that would allow them to operate at their optimal ability. It's choice, and we can choose to not support rural. That's fine.
Senator Neufeld: Thank you, doctor, for being here. I'm sorry I missed your presentation, but I was out trying to find someone to help me with my cold. I had to walk a ways up and down the street here to find any Halls, and I should have just talked to you probably.
Anyhow, I was the one that said some people from Saskatchewan are coming to British Columbia. I live in northeastern British Columbia. I didn't mean that in a derogatory way, but there are people who move back and forth. But if there are doctors coming, I can guarantee they're going to Vancouver. I don't live in Vancouver. I live 1,100 kilometres north of Vancouver and those communities in northeastern B.C. fight constantly for doctors, and they all do different things to try and facilitate doctors to come.
The stats say that we are “over-doctored” in British Columbia, but the doctors are all in the lower mainland, the Okanogan or the great Vancouver Island, not actually where they should be practising. It bothers me a whole bunch when I see the federal government coming forward and saying that we're going to penalize some people because that just makes it tougher for us. You have explained that very well, but it is totally different than if you live in Montreal or Ottawa or wherever. When you live in a rural part of the country, it is tough to get doctors.
The question was asked about the $50,000 passive income level, and I always go back to Minister Morneau who told the committee that the government recognizes the need to retain funds within a corporation for business purposes, but it wants to discourage using private corporations to save for retirement. That's quite something to say, and obviously maybe he didn't know about issues that you bring forward to the committee or that I myself have experienced.
When you go around and talk to businesses, some of them say, “Oh, that might be enough for me; I don't know.” Other businesses will say “That doesn't even start to be helpful.” We visited one yesterday that said, “My goodness, we buy stuff to build compressors that cost a $ 1million, and we need money in an account to be able to do that when a customer calls for something.”
With regard to the $50,000 level, no one can seem to find out where that number came from. Someone suggested the bureaucracy or someone else said, “Hey, that's a good number,” They pulled it out of the sky. Would you agree with me that there should be no number there? If the federal government wants to do that it should facilitate the difference when people would lose, such as yourself practising in rural Saskatchewan, and do something different with how they fund health care.
To be perfectly frank, we have taken doctors from Australia, all over the world, for a long time to be able to maintain the number of doctors that we need. At some point in time we need to retain the ones that we get. Is there something that you can think of that could actually alleviate this problem about the $50,000?
I think it's a lousy number. I was an entrepreneur before I came here, and I didn't need government to tell me when I needed to invest and when I didn't need to invest. The academics will tell you that that's what should happen, but, again, they have never been out in the entrepreneurial world.
Dr. Sivertson: I think that physicians have always been opposed to the changes on passive income, so no number would be lovely. Things have been working the way they have for a long time. Physicians are funding their retirements, they're funding their own benefits, their own CME, they're on sabbaticals. Physicians, again, as I said, are driven people. They have a really heightened sense of responsibility to the community. Many of our doctors take time away from their practice and go back and get additional degrees. They get degrees in law. We have physicians who are educators and all kinds of additional degrees. Many of them can do that because of the money in their corporation that allows them to buffer their time away from clinical practice.
I think that we need to continue to encourage our well-educated workforce to do this, and it it's very unlikely that we're going to see the government paying for them to get these kinds of degrees. Maternity leave, all of that's important, and you've heard lots about that, but the ability to continue to grow our skill and our labour population in the country, this measure facilitates that. People can take the time they need to do what they need to do to better themselves.
Of course, we need to fund our retirement. I'm not sure what the alternative solution is -- pull the money out and put it into a private retirement fund through various companies in the country. I'm not sure what they're hoping we might do with that.
Senator Neufeld: So you agree with me there is not one thing that fits everyone?
Dr. Sivertson: Of course not.
Senator Neufeld: It's completely different depending on who you are, what kind of business you have, whether you're a doctor or whether you're an entrepreneur that's building compressors or selling ice cream.
Dr. Sivertson: Absolutely.
Senator Neufeld: There is a difference, and the government would do well to recognize those differences and do away with the arbitrary $50,000.
Dr. Sivertson: As was absolutely clearly said earlier today, equal is not fair.
Senator Cools: Thank you so much, Joanne Sivertson, for appearing. I want to tell you, if my family would have had their way, I would have been a doctor. I just had different choices in mind. But I must tell you, in my family we have about half a dozen doctors, so I'm very well-aware of the sacrifice that the practice of medicine involves.
Throughout my professional years and my years as a senator over many different committees and over many different societies I have always concluded that it is fallacious to view the practice of medicine as a profession. The practice of medicine is a vocation. Doctors who do not have the personality fit soon discover that and take their services into other aspects of medicine. My doctor friends have always told me that what sustains them is watching their patients respond to healing. If their patients are healing nicely, they are happy and feeling good about what they are doing, and if they are not, they get uncomfortable. This is a human thing and part of that wonderful human and humane interaction that is a part of the patient/doctor relationship.
Some years ago I had an encounter with ovarian cancer. I was at stage two, so it was very good. I encountered the most wonderful woman surgeon. She was so skilled and so good in her work that I just took on a new respect for physicians. These people labour all day, and it's tough work, hard work, and they are giving all the time.
So I must admit to my colleagues here that I took a little objection -- maybe not such a little objection -- to the minister and to the government's references to physicians in less than thoughtful ways. That hit me a little bit hard, and I intend to propose as we move along in our studies a recommendation asking the government to re-examine the approach to doctors as stated in their proposals on the very grounds that doctors are a vocation and ever in short supply whatever the nature of their profession.
I know that medicine involves a long period of study. Medicine has possibly one of the longest training periods of all. Doctors are 30 years old before they even really start to work. The big specialties can take 12 years of study, and I think that governments should take note of that sort of thing.
We held meetings with a panel of doctors who told us of the problems they were facing. It seems to me that governments should wrap their minds around ensuring and guaranteeing that doctors have the equipment that they need in their offices. I am told that more and more doctors are teaming up and pooling resources to have more scientific equipment available in their facilities.
Having said that, I would just like to say, and I think I can speak for the committee, that the committee intends and hopes to bring forth a recommendation that we hope will be pleasing to your people
Senator Mockler: Do you have a comment?
Dr. Sivertson: No.
Senator Cools: You're a happy camper now.
Dr. Sivertson: Yes.
Senator Mockler: Therefore, we will move on and conclude with Senator Marshall, please.
Senator Marshall: I'm still thinking about the 52 per cent for international graduates and the outside medical schools. What percentage of graduates are you retaining from your own medical school? It must be minimal if the international graduates are the majority in Saskatchewan. Do you have any information on that?
Dr. Sivertson: I really should have those numbers. I did about a year ago. Our retention numbers were abysmal, really bad. They were probably sitting at best in the 40-per cent range. I am happy to say that right around the time that I finished, and it has gotten better in the years since, we have started to retain more and more of our grads. I think the numbers now are actually sitting in the 60 to 70 per cent range, which is pretty good.
Senator Marshall: Did you say they're going to other provinces?
Dr. Sivertson: Most are going to other provinces.
Senator Marshall: You said some are going to the States.
Dr. Sivertson: That's right.
Senator Marshall: I'm just trying to get an idea of what the implications will be of these proposed tax changes.
Dr. Sivertson: So we have our own medical school. The numbers have gone from 50 to 100 per class over the course of about five or six years. We've been at that level for the last six years, give or take. We weren't putting out a whole whack of physicians, but of those, less than half, for sure, were staying 15 years ago.
Senator Marshall: So they were training elsewhere?
Dr. Sivertson: Exactly. We were putting a lot of money into training them elsewhere, and then a lot of money into recruiting from other countries, and it was a losing prospect.
Many things have been done in Saskatchewan to try and stop the brain drain. We have Saskdocs, a physician recruitment agency that has done a better job of getting people in, and it also focuses on retention, keeping people to stay. We do exit interviews almost across the board when we face losing a physician, and we know that for a lot of them their spouses couldn't get work, even in Saskatchewan in general, and especially in smaller centres in their chosen profession. So any highly-technical or highly-trained professional may not be able to work here with their spouse.
Senator Marshall: It just goes back to your comment on how integral spouses are to your profession. I mean, it wouldn't just be your profession, but other professions also.
Dr. Sivertson: Of course.
Senator Andreychuk: If we think the tax act is complicated and needs simplifying, the whole medical system is facing even more issues with the aging population, the changing demographics, the cultural differences. Part of it in Saskatchewan though is that we train doctors who came here because they were accepted in the medical school, and naturally they may go back to where they came from.
The other aspect is the specialties that attract. We have some excellent specialties where you can keep training, but you really have to go out of province for some specialties that are absolutely necessary. I argue that we don't even have enough of them in Canada yet, so that's all in the mix, and then retaining doctors in Saskatchewan. Would you agree with me that it's not just a Saskatchewan problem, it's a whole health care issue?
Dr. Sivertson: Absolutely. I'm just here to tell you about Saskatchewan, but, yes, this is a problem across the country.
One of the things I think Saskatchewan is doing that's exciting is we are trying to get our graduates to train outside of Saskatoon and Regina because we know if they train in a location they're more likely to work in the location.
As a physician who trained in a tertiary center and was planning to go to Prince Albert at the time, a secondary centre, I thought I was being incredibly brave. You're moving outside your comfort zone; there isn't the same backup supports as in hospitals all the time. If you can picture going farther and farther out, the more remote you go, the more nervous people are about working independently or coming out to practice in those settings.
We have been working very hard to promote a distributed medical education model that really has been working to move our own grads out into the periphery. We're seeing the results of that, but now we're seeing it halt a little bit. We have been working towards doing some health system redesign. You're absolutely correct, the system was designed 60-plus years ago, and it's not capable of providing the care that it needs to in this current day and age.
We had actually agreements with our provincial government on how we would move forward on trying some pilot projects. All of those things have come almost to a grinding halt because the ability to fund that work is now in question. Physicians do fund a lot of the system themselves, and we are seeing people being far too scared to continue to put themselves out there and to innovate.
Senator Mockler: Doctor, there is no doubt, for the record, that you have been very informative and educational. I also think that it has been enlightening for your profession from coast to coast to coast.
(The committee adjourned.)