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