Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 18 - Evidence - November 19, 2014
OTTAWA, Wednesday, November 19, 2014
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:50 p.m. to examine the subject
matter of those elements contained in Divisions 9, 12, 18, 22, 26, and 27 of Part 4 of Bill C-43, A second Act to
implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
Senator Irving Gerstein (Chair) in the chair.
The Chair: Good evening. I call this meeting of the Standing Senate Committee on Banking, Trade and Commerce
to order. Today we begin our pre-study of Bill C-43, Economic Action Plan 2014, Act No. 2, otherwise known as the
second act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other
Today we are pleased to welcome the Minister of Finance, the Honourable Joe Oliver. The minister is accompanied
by officials from Finance Canada: Paul Rochon, Deputy Minister, and Rob Stewart, Assistant Deputy Minister,
Financial Sector Policy Branch. I gather Mr. Ernewein is not going to be with us today. I'm sure you will be able to
carry on without him.
The minister will be with the committee for approximately 35 to 45 minutes, at which time we will go in camera at
the request of Senator Massicotte. At that time, the minister will go back to the House of Commons for a vote.
However, those Banking members who also sit on the Senate Finance Committee, of which there are approximately
three, will have the pleasure of back-to-back meetings with the Minister of Finance as he is appearing before the
Finance Committee commencing at 6:30 this evening.
Tomorrow, at an extended meeting, we will hear from a number of government officials who will review the
provisions that have been assigned to our committee, as well as from various outside witnesses.
Minister, welcome. The floor is yours, sir.
Hon. Joe Oliver, P.C., M.P., Minister of Finance: Senators, Mr. Chairman, thank you very much. I appreciate this
opportunity to meet with you and members of the Banking, Trade and Commerce Committee to speak to Bill C-43.
Economic Action Plan 2014 builds on a strong foundation with measures to create jobs, growth and long-term
As I indicated in last week's update of economic and fiscal projections, the Canadian economy remains resilient in
the face of global economic uncertainty, with over 1.2 million net new jobs having been created since the depths of the
global recession that erased $10 trillion of value from global markets.
As a great trading nation, Canada is not immune to developments outside our borders. Global demand has
softened, and the prices of commodities are down. That is why strengthening the economy remains one of our top
priorities. That is also why we will pursue our low-tax plan to create jobs and growth.
This is what our government has set out to do in this bill.
I would like to briefly touch on measures that create jobs and growth, support families and communities, and
strengthen the stability and fairness of our financial sector.
First, our government recognizes that small businesses create good jobs and drive growth. They employ about half
of the working men and women in Canada's private sector and account for two fifths of our country's business sector
GDP. It is, therefore, good for the economy when small business owners spend more of their time growing their
businesses and creating jobs.
Under this government, Canada is open for business. In 2013, Canada leapt from sixth to second place in
Bloomberg's ranking of the most attractive destinations for business. According to KPMG, total business tax costs in
Canada are the lowest in the G7 — 46 per cent lower than those in the United States.
But we need to do more, and that is why today's legislation introduces the new small business job credit. This new
credit will effectively lower small businesses' Employment Insurance premiums from $1.88 to $1.60 per $100 of
insurable earnings in 2015 and 2016.
Any firm that pays employer EI premiums equal to or less than $15,000 in those years would be eligible for the
rebate. That means 90 per cent of employers making EI contributions in Canada, about 780,000 in total, will directly
benefit from the credit.
Mr. Chairman, the second area I would like to highlight is strengthening support for families and communities,
including a recently announced measure for families.
As you well know, on October 9 the Prime Minister announced our government's intention to double the Children's
Fitness Tax Credit and make it refundable. Today's legislation confirms that the government will double the maximum
amount of expenses that may be claimed under the credit from its current limit to $1,000 for the 2014 tax year and
subsequent tax years. Making the credit refundable will increase the benefits to low-income families.
The Children's Fitness Tax Credit was introduced by our government in Budget 2006 to help promote physical
fitness among children by making it more affordable for Canadian families to register their kids in fitness activities.
Enhancing the tax credit will deliver additional tax relief to about 850,000 families who enroll their children in eligible
Finally, Mr. Chairman, let me touch on several measures related to the financial sector.
Since the start of the global financial crisis, the government has implemented a number of measures to maintain
Canada's financial sector advantage. They are designed to reinforce the stability of the sector and encourage
In 2012, Canadians made roughly 24 billion payments worth more than $44 trillion. The payments system is vital to
consumers and to the continued strength of the Canadian economy. Advances in information and communications
technology are changing the way Canadians pay for goods and services. While payments systems are evolving, they
must always be safe and sound so Canadians can have confidence in them.
As a first step, today's legislation proposes to amend the Canadian Payments Act to reform the governance
structure of the Canadian Payments Association by introducing greater independent decision-making to its board of
directors and improving its accountability to government and strengthening ministerial directive powers. This will
ensure that Canada's payments clearing and settlement infrastructure is operated for the benefit of Canadians and the
In addition, BIA II proposes to expand and enhance the oversight powers of the Bank of Canada by amending the
Payment Clearing and Settlement Act so it can better identify and respond to risks to payments systems in a proactive
and timely manner.
The government is also moving forward with its dual agenda with respect to credit unions, ensuring the regulatory
framework is clear and supporting those provincial credit unions who want to be federally regulated.
The credit union system needs regulators who can identify risks and manage them effectively. The Office of the
Superintendent of Financial Institutions, known as OSFI, does not oversee provincial credit unions, which limits its
ability to identify risks facing provincial credit union centrals. The provision of prudential oversight and support for
provincial institutions is the job of provincial authorities.
Bill C-43 delivers on the announcement made in Economic Action Plan 2014 to withdraw OSFI's supervision of
provincial credit union centrals and to clarify access to federal intervention tools for provincial credit union centrals,
credit unions and caisses populaires.
In order to continue to grow, some credit unions are looking at becoming a federal credit union. The bill before you
proposes streamlining the process of amalgamations of provincial credit unions that may wish to move to the federal
framework to make it less costly and complex. These actions empower the Canadian financial sector, but we're also
taking action to ensure it is not abused by those who would do us harm.
Senators, our government is committed to a strong and comprehensive financial regime that is at the forefront of the
global fight against money laundering and terrorist financing. It is important to continually improve Canada's regime
to address emerging risks so we can maintain Canada's international leadership.
To this end, your committee undertook a five-year review of the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act and issued its final report in March 2013. Concurrently, the government consulted with
stakeholders to solicit their views on specific proposals and identify additional measures for consideration.
Following this review process, the Economic Action Plan 2014 Act, No. 1, introduced various amendments to the
Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the Customs Act and the Income Tax Act to
strengthen Canada's anti-money laundering and anti-terrorist financing regime.
Today's legislation introduces an amendment to clarify the types of foreign entities that could be subject to
To conclude, while I have had the opportunity to highlight only some of the bill's measures, I strongly believe that
all our initiatives will greatly benefit the people of Canada by creating jobs, growth and long-term prosperity. Thank
you, senators. I will now be pleased to take your questions.
The Chair: Thank you very much, minister. I will go directly to the list of questioners, starting with Senator
Bellemare to be followed by Senator Massicotte.
Senator Bellemare: Minister, I have a macroeconomic question that ties into what the Governor of the Bank of
Canada, Mr. Poloz, recently told the committee. He said that Canada's resources and production capacity were still
underused and that monetary policy could only do so much.
My question pertains to the recent measures you introduced to support Canadian families, including income
splitting and the enhancement of the Universal Child Care Benefit, costing a total of about $4.6 billion.
I would like to know whether your department has done the math on something. It is said that the measures will
slightly reduce the deficit margin but stimulate the economy. Can you tell me whether your department analyzed the
impact of these measures, which are quite substantial, on the country's economic growth?
Mr. Oliver: Thank you for your question. Obviously, the purpose of such measures is to put more money in the
pockets of taxpayers, the Canadian families who need it. One of our government's goals is to give Canadians more
money since they have to spend more to support their families.
We calculated the direct cost — which is not really a cost but, rather, a decrease in revenue — and included it in our
surplus forecast for next year, an estimated $1.9 billion that will go into a contingency fund.
We firmly believe that parents know best how to spend or save their income. So we cannot determine exactly how
much they will spend or invest. We did not calculate that specifically.
Senator Massicotte: Minister, I would like to thank you and your team for being with us this evening. We greatly
I am going to stick to macroeconomics. As you know, since 2008-09, different countries have responded differently
to the lessons they learned from the 2007-08 global recession. Some countries, England and others, opted to centralize
many powers within their central bank authorities.
When I look at all the amendments, it occurs to me that this may be the first time we have come across any changes
being made to the board of directors of the Canadian Payments Association. In addition, the Bank of Canada is
assuming an expanded role under the Payment Clearing and Settlement Act but will not have much involvement with
the Business Development Bank of Canada.
In Canada, we decided to leave in place an informal board on which the finance minister sits with the leaders of
these organizations. We opted to rely on this rather informal structure. In reading these three amendments in the bill, I
wonder whether any directives or trends exist. How are we going to manage the next crisis? Will the proposed
amendments improve our ability to manage a crisis?
Mr. Oliver: As you know, in Canada, unlike in many other countries, we did not have to step in to help a single
bank. That is why the World Economic Forum rated our banking system as the soundest in the world.
We proposed amendments, yes, but we did not need to make any drastic changes to the system because it works well
and performed well during the worst recession since the Great Depression. That tells you something.
Nevertheless, together with our international partners, we are in the midst of changing the rules that govern bank
capital in certain circumstances. We continue to work with other developed nations, but there is no need to imitate
everything they are doing.
Senator Massicotte: As regards the amendment to the Investment Canada Act, a foreign mortgage creditor lends
money and occasionally that money does not come back to it. That is why 80 per cent of lenders pay more than the
prime rate, to offset the risk of default.
Under the proposed amendments, is there a risk that foreign lenders might be reluctant to lend money to a
Canadian company? The proposed amendments to the Investment Canada Act would now subject the foreign investor
to a notification requirement.
Mr. Oliver: The amendments are there to protect investors. I do not think they will deter foreign investors from
investing in our banks.
Senator Massicotte: Not just in banks, but all clients. If I understand correctly, if the client defaults, the bank takes
control of the assets in liquidation; it is insolvent. The bank takes over the entity and, as a result, has to provide
notification and publicly disclose certain information. It is another procedure that may make it more cumbersome for a
creditor to take control of assets in the event of a default. I would not want Canadian companies to find themselves in
a situation where American or European companies no longer want to lend them money. After all, they would be at a
significant disadvantage, if that were the case.
Mr. Oliver: I am having a bit of trouble. Perhaps I could answer your question in English, if you do not mind.
Senator Massicotte: Sure.
Mr. Oliver: If you're talking about depositors, the depositors are going to be protected by any changes that are
being contemplated. If you're talking about investors in the bank —
Senator Massicotte: No, I'm not.
Mr. Oliver: Are you talking about people buying bonds from the banks?
Senator Massicotte: No. I'm talking about a Canadian company that borrows money, say, from the Bank of
America, and that company defaults on a loan, and therefore the Bank of America will then be deemed to be in control
of a Canadian corporation. Under subclause 1.1 he used to have an exemption, and now he doesn't any longer. So now
he must advise the registrar that he's taking control, obviously, of a Canadian entity.
Mr. Oliver: I understand we're reviewing that, but in each case there has to be a decision made. Perhaps my official
could address that point.
Paul Rochon, Deputy Minister, Department of Finance Canada: Sure. I think the changes to the Investment Canada
Act that are proposed here are structured in a way that effectively a foreign entity doesn't take over control of a
Canadian corporation through default and, effectively, through that process get around the provisions that are in the
Investment Canada Act. I don't think it's the case that it would discourage investment. In fact, the foreign entity could
very well end up controlling the Canadian enterprise or asset. They would simply need to go through due process, just
like any other investor that wanted to take control of a Canadian corporation.
Senator Massicotte: Am I correct that they used to be exempt before this amendment?
Mr. Rochon: There was the possibility that they could take control of a Canadian corporation previous to this
Senator Massicotte: I can appreciate your concern. You don't want to find a roundabout way to get there, but you
realize that trillions of dollars are lent every year to Canadian corporations either through the bond market or from
American banks. The American banks says ''Before I can get recourse of my assets —'' because the banks, generally
speaking, become the controller. The junk creditors are lost. The concern I have is, if it becomes difficult for them to
exercise control of the asset, he's going to say ''Forget it.'' There's a lot of U.S. lending to Canadian companies.
Mr. Rochon: Right, but the lending would have to be so large that in the case of bankruptcy the U.S. lender
effectively takes over control of the corporation.
Senator Massicotte: That's usually the case. That's often the case, though. Anyway, I think you understand my
Mr. Rochon: Understood, yes.
Senator Tkachuk: First, minister, I agree with your overall objective of leaving more money in the hands of
taxpayers, and I'm glad that we're continuing the same program that we've been running over the last number of years
and the direction we're taking, but I was wondering if you could explain something. Perhaps we have an opportunity
here with public broadcast and also a number of senators in the room who will be debating this in the chamber,
On the question of income splitting that was announced by the Prime Minister, it seemed to me it was a little
different than the income splitting for seniors. I'm wondering if you could go through it and explain it to us in as simple
terms as possible so we can fully understand it.
Mr. Oliver: I can do that, but I think it's important to also understand that we presented an integrated family benefit
Senator Tkachuk: I understand that.
Mr. Oliver: Just like when we introduced income splitting for seniors, they were the only ones who directly
benefited. If you weren't a senior, you didn't benefit. There was some indirect benefit for others. Not every particular
program affects all Canadians, but this package of programs does affect positively every single family with children,
and that's over 4 million.
In respect to the income splitting, it permits up to $50,000 to be transferred from one spouse to another, a spouse
who is in a higher tax bracket to a spouse in a lower tax bracket, to achieve a tax benefit up to a maximum of $2,000.
What that's designed to deal with is what economists call ''horizontal equity.'' It's not fair that one family with the
same income pays a lot more tax than another family with the same income simply because in one case they're earning
the same amount of money and in the other case one is earning a lot more than the other. That's what it's designed to
address, and it does that.
However, when we presented that, we wanted to make sure that the package we presented to Canadians was very
broad, so it's a family program that affects 100 per cent of the families with children. I think the average benefit will be
about $1,100. We've increased the Universal Child Care Benefit by $60 a month, so it moves from $100 to $160,
bringing the total amount to $120 per year per child. Then we introduced the benefit for children between 6 and 17 of
$60 a month for a total of $720 a year. That brings the total up to the number that I mentioned. It brings fairness for
families with stay-at-home parents, but it also brings fairness to families where both parents are working.
There's been a lot of critique on this because people have focused on only one part of the total package. The
important point to remember is the biggest majority of benefits go to lower-income and middle-income Canadians.
That's a fact. And 25 per cent will go to families earning less than $30,000 a year, so it's a very fair package overall.
Senator Tannas: I'm sorry to be so granular. I just wanted to understand this as well. So the transfer of $50,000 as a
maximum to a spouse, would that $50,000 then count for that spouse's RRSP contribution? If a spouse had zero,
would it, in fact, create 18 per cent of $50,000 for RRSP contribution room?
Mr. Oliver: I don't believe it would. We'll confirm that. Yes, it is a credit, and it's done in a way which will not
impact on the provincial taxes. We understood that would be a concern. We technically avoided that so it would have
Senator Tkachuk: It doesn't become two taxpayers, right? When you transfer it, it's still the one taxpayer, right? It's
just a transfer of the credit?
Mr. Rochon: I would say it is a credit that can be claimed to achieve the objectives of transferring income. There's
not an actual transfer of income that is calculated.
Senator Tkachuk: So then there wouldn't be an RRSP concern. Thank you.
Senator Maltais: Welcome, minister. Thank you for meeting with the committee today. We always benefit greatly
when we have the opportunity to hear from the finance minister.
I think we can all agree with your policy to put more money in the hands of Canadian taxpayers and families. This
morning, Quebec newspapers were reporting that a $60-million gift was on the way.
Clearly, provincial governments are going to collect taxes on any amounts received by families, $60 a month, for
example. After doing some quick math, the reporters estimated that some $60 million would be going back into the
coffers of the Quebec government.
The provinces and territories are going to take their cut. Do you have an idea of how much they will be able to
collect through this measure?
Mr. Oliver: I do not have the exact answer to your question.
Mr. Rochon: We have not done those calculations. It is true that the child benefit will be taxable. It would depend on
the average rate per province. We did not calculate the impact the measure would have on provincial budgets.
Senator Maltais: I see. The money could be considered an indirect equalization payment, though. With a population
of 8 million, Quebec will take in $60 million. If you calculate the amounts that Ontario, the Maritimes and Western
provinces will collect, we are talking about a tidy sum that will go into the provinces' coffers indirectly thanks to a
measure aimed at helping families.
Mr. Oliver: That is true. That is the nature of our confederation.
Senator Maltais: Thank you, minister.
Senator Ringuette: Thank you, Mr. Minister. It's very nice to have you here. I'd like to spend the day with you, but I
guess that's not possible. I have many issues to talk about with you.
Did I read right that the child package that you've announced is applicable in this fiscal year?
Mr. Oliver: Parts of it are. The Universal Child Care Benefit will start accruing in January, but, for technical reasons
that my officials can explain, we can't get the actual dollars into their mailboxes until about June. It will be retroactive
to January. That part of it starts next year. The income splitting part starts this year. It's for this entire fiscal year.
Senator Ringuette: To confirm my understanding, the Canadian tax benefit is going to be eliminated next fiscal year
at the same time that the new program starts in January?
Mr. Oliver: Yes, the tax credit.
Senator Ringuette: So there's a match there.
Mr. Oliver: The Child Tax Credit.
Senator Ringuette: Yes. The Child Tax Credit is a direct credit of $120 a month, and the current program for a child
from 0 to 5 years old provides $100 a month, which is taxable. All in all, right now, the current system for a child from
0 to 5 is the equivalent of $220 a month, and 60 per cent of it is taxable. With the new proposal starting in January, for
a child from 0 to 5, it will become $160 taxable. I'm looking at this and wondering about the advantage.
Then I go further on and look at from the age of 6 to under 18. Right now, the Canadian tax benefit for this group
of children is $120 a month. For that age group, under the current Income Tax Act and the Canadian benefit, two
parents, one or two of them, for the group aged 6 to under 18, it is equal to $120, which is a direct benefit. It is not
taxable. For that child group age, you're going from $120 non-taxable to $60 taxable, starting in January.
The Chair: Thank you for the question. I believe we have somebody who joined the panel.
Senator Ringuette: I know this guy. I've seen him often.
Mr. Oliver: Let me give you a broad answer, and then we can get into the details.
The first point is that we have set aside next year $5 billion out of the budget for benefits for families. That is a
significant amount of money. We have made sure that the combination of the elimination of the tax credit and the
increase in the UCCB will be such that every single family will benefit, without exception, but those at the lower level of
income will benefit more because of the operation of the tax act. It's progressive.
Senator Ringuette: So that this committee can appreciate it, and you indicated that you've made the analysis and
you're making sure, could you provide us with that data and that analysis, please?
Mr. Oliver: Sure. If you want to hear more detail, I can give you as much as you want.
Brian Ernewein, General Director, Tax Policy Branch, Department of Finance Canada: Thank you, gentlemen. I
perhaps misjudged that I was going to be required here because tax wasn't part of the committee's remit here, but I'm
happy to add a couple of words.
To emphasize the point that the minister made, yes, the Child Tax Credit is a federal tax credit. It's a little north of
$2,000, 15 per cent rate, and delivers a little bit north of $300 of value. The UCCB is $60 extra a month for every child
from 0 to 17, or $720 a month. It's taxed on the lower-income spouse, but even if that lower-income spouse is taxed at
the maximum rate, they will have more after tax from that UCCB increase than they would from having lost the Child
Tax Credit. As the minister said, everybody down in the lower incomes does much better, and those not paying tax at
all get the UCCB where they wouldn't have received anything through the Child Tax Credit.
Senator Ringuette: I'm looking forward to the analysis.
Senator Massicotte: The only problem is that you need to have kids to benefit, but that's not my question.
I'm looking at the Investment Canada Act, as well as the BDC Act. I congratulate you, because I've been involved
in some debates for many years now about how you should manage and how you should control those entities. What
you're really doing with the Investment Canada Act, and I should say the Canada Payment Act, is you're going
basically to modern governance. You're trying to create a real board that has responsibility, where basically people
report to the board. In fact, you're giving a bit more flexibility to BDC with it having a real chairman. All of that is
very good from a governance point of view.
The only concern I have is that many boards, as you know, don't work very well. The concern I would have, for
instance, with the Canada payment board is now you're really delegating authority to the board and trying to make it
as effective as possible, but many people who sit on those boards are there not because of their competency but because
they have good political connections. They don't take their job that seriously, and they say the government is there
anyway and the minister will interfere or the minister's office will make sure it's well run. You're taking a risk there,
but obviously you're comfortable with the risk. What could go wrong, though?
Mr. Oliver: The amendments, we believe, will improve the Canada Payments Association's governance by
introducing greater independent decision making of its board, but also improving its accountability to government and
to the public and expanding the power of the Minister of Finance to issue directives to the CPA. We're comfortable
that that combination of measures will provide the right direction and the right oversight.
This is an important association. The payments system is, of course, vitally important, as I mentioned in my opening
remarks, and we wanted to make it a stronger, more accountable organization.
Senator Massicotte: Obviously what's critical is the board. I presume that organization already has set out what
should be the appropriate membership of their board, some type of outline. Will the Governor-in-Council follow those
directions to ensure the board is strong and represents the necessary expertise?
Mr. Oliver: Yes, we've had some pretty good experience with a number of our boards, like the CMHC and, of
course, the Bank of Canada. The CPP board is a little bit different; it's jointly with the provinces. We look at those
board appointments very carefully. We check out people's track record, their business and educational background,
and we make the decisions very carefully.
What this would do is reduce the size of the board to 13 directors from 16, and if you've had board experience, as I
know you have, you'll know that at a certain size it starts losing its accountability rather than gaining it. It would
consist of three directors representing direct participants, that is, members whose system connects directly with the
CPA; and two directors representing other members; and then seven independent directors. We've given some thought
to it, and we think it's right.
Mr. Chairman, I have a vote. I think it's at 5:45.
The Chair: We will conclude with your presentation now. We greatly appreciate you and your officials being with us
today. On behalf of all of the members of the Senate Banking Committee, we thank you.
I ask members of the committee to stay as we go in camera.