Proceedings of the Standing Senate Committee on
National Finance
Issue No. 17 - Evidence - November 1, 2016
OTTAWA, Tuesday, November 1, 2016
The Standing Senate Committee on National Finance met this day, at 9:32 a.m., to examine the subject matter of Bill C-2, An Act to Amend the Income Tax Act.
Senator Larry Smith (Chair) in the chair.
The Chair: Good morning. Welcome to the Standing Senate Committee on National Finance, colleagues and members of the viewing public. The mandate of the committee is to examine matters relating to federal estimates generally, as well as government finance.
[Translation]
We are continuing our study on Bill C-2: An Act to amend the Income Tax Act.
[English]
My name is Larry Smith, senator from Quebec, and I chair the committee. Let me introduce briefly the other members of our committee. To my left, by himself for just a little while, Senator André Pratte. Always on time. André, welcome.
[Translation]
To my right, Senator Mockler from New Brunswick.
[English]
To his right, from the north of British Columbia, Senator Richard Neufeld.
To his right, looking beautiful as always, from Toronto, Senator Nicole Eaton, and the boss, from the Rock, a former auditor general, Senator Elizabeth Marshall.
Today, to comment on Bill C-2, An Act to amend the Income Tax Act, we have invited representatives, in this case a representative because unfortunately we've had a cancellation. Therefore, this morning, we welcome our only witness. From CPAC, the Chartered Professional Accountants of Canada, we have Bruce Ball, National Tax Partner of BDO Canada LLP and Member of the CPAC Tax Policy Committee.
Welcome, Bruce. Thank you very much for being with us this morning to speak to us about Bill C-2.
[Translation]
We are anxious to hear what you have to say on Bill C-2.
[English]
We would like to hear your opening remarks, and we will have a question period. Members, as you know, we will go in camera for the second part of our meeting to discuss future business and future reports of our committee.
Mr. Ball, you have the floor.
Bruce Ball, National Tax Partner of BDO Canada LLP and Member of the CPA Canada Tax Policy Committee, Chartered Professional Accountants of Canada: Good morning everyone.
On behalf of the Chartered Professional Accountants of Canada, thank you very much for the opportunity. We appreciated being invited to appear today.
As mentioned, I'm Bruce Ball. I'm a member of CPA Canada's Tax Policy Committee, and I'm also a national tax partner of BDO Canada in my day job.
The Chartered Professional Accountant designation is Canada's only business and accounting designation. As I know some of you know, it and CPA Canada were established through the unification of three legacy designations, Chartered Accountant, CMA and CGA. CPA Canada is now one of the largest national professional bodies worldwide. We have more than 200,000 Canadian CPAs working both here in Canada and abroad.
CPA Canada recognizes that the tax measures in Bill C-2 were a commitment that the current government was elected on, and they received a majority. The first thing we want to mention is that we do respect the government's mandate.
Bill C-2 proposes three key amendments to the Income Tax Act: reducing one of the middle-income tax brackets, the rate that applies; introducing a new top rate that applies to income over a new threshold; and decreasing the annual Tax-Free Savings Account limit, effectively putting it back to where it was prior to when it was increased.
With every change to the tax system, there are potential benefits and costs and the risk of unintended results.
That was the key thing we wanted to focus on this morning. The tax system is a key lever for ensuring that our business environment remains competitive, that we attract and retain the best and brightest minds and that we achieve economic growth and prosperity.
Given the significance of our tax system, it is challenging to speak to the bill's three specific measures in isolation, without considering Canada's tax regime as a whole.
Going forward, we believe that before any additional tax measures are introduced or changed, Canada's tax system needs a top-to-bottom review. This review would focus on reducing complexity and improving efficiency and effectiveness and competitiveness. Such a review would benefit Canadian taxpayers, businesses, governments and the Canadian economy, making Canada an even more attractive place in which to live, invest and do business.
Allow me to outline the three reasons why we believe now is the time to conduct a comprehensive tax review.
The first one is related to time. There hasn't been a thorough review of the tax system, the sort review that we are thinking of, since the Royal Commission on Taxation in 1966. Fifty years — and it is fifty years now — is a long time. Canadian society has changed considerably since then. Globalization and technology have transformed the way business is conducted. People and capital are more mobile than ever, and, as a result, there is a greater need, we believe, for our tax system to be internationally competitive.
The second reason is that the tax system has become overly complex. This makes it excessively costly for compliance and administration. According to research the Fraser Institute has done, the annual compliance costs are estimated at $25 billion for taxpayers and businesses. It's estimated that for Canadian governments the cost is about $6.6 billion per year to administer the tax system.
The third reason we believe it's time is that there is widespread support for tax reform from major organizations, prominent economists and think tanks, and we understand as well that this committee heard this view expressed by a number of witnesses last week, witnesses who see the issue from very different perspectives.
We acknowledge that Finance Canada is currently conducting a review of tax expenditures. We agree that this is an important step, and we are eagerly awaiting the outcome of this review.
In addition, the House of Commons Standing Committee on National Finance passed a motion last June to undertake a comprehensive review of the Income Tax Act and the Canadian tax system and prepare a report. We also obviously support this intent and look forward to contributing to the committee's study.
CPA Canada believes that a comprehensive review should be guided by the following principles and outcomes: Keep the tax rates low and bases broad, and eliminate inefficient or ineffective tax preferences. The one thing that we noted specifically is that the new top tax rate has resulted in a combined personal rate that exceeds 50 per cent in some provinces. The one thing we can't forget is that there is only one taxpayer, in terms of these rates.
Another thing to consider is examining the income tax and consumption tax mix. It's our belief that Canada is out of step with the other OECD countries in terms of the tax mix when you compare income tax to consumption tax.
Another important point for us is not taxing personal savings. It's especially important in terms of change to the TFSA limit. Enhanced savings incentives are critical to assisting Canadians as they age in saving for retirement.
Our next suggestion is to keep corporate tax rates low to maintain a competitive edge. That's another important factor to attract new investment and create jobs.
We should focus on a pro-growth approach that encourages innovation, productivity and prosperity.
And our final point is to work with the provinces and territories to facilitate a coordinated approach that benefits all Canadians and, as mentioned, recognizes that is there is only one taxpayer.
To sum up, Canada needs a tax system built for the 21st century, not the current patchwork of rules, amendments and fixes that create complexities, uncertainties and unintended consequences.
We do fully understand the magnitude of this task, but in our view we believe that no single government initiative could have more impact on improving the business environment, spurring innovation, securing the tax base and promoting the well-being of Canadians. Modernizing the tax system is a key point.
We believe now is the best time to deal with such challenges. As I gather Craig Alexander pointed out here last week on the subject of tax reform, it's a good time for spring cleaning.
We hope you will be able to convey this message to your colleagues in the other chamber, in addition to considering it yourselves.
Thank you, and I'd be more than happy to answer any questions.
The Chair: Thank you, Mr. Ball. Welcome to Senator Andreychuk. We are glad to see you here.
On our list we start off with, from the beautiful province of Ontario and the magnificent city of Toronto, Senator Eaton.
Senator Eaton: Thank you. I agree with everything you say, so I'm in a conflict here.
I firmly believe we have too complex a system. What about if you knocked off the bottom $45,000 bracket? In other words, people don't pay taxes at $45,000. You could raise it to $60,000 or $70,000. You did not introduce that top tax rate for people who make above $200,000, but, on the other hand, you raised the GST.
Would that be a more efficient, fair way? Would that help the lower middle class, which is at a very minimum salary, by doing that? And would you make us more competitive if you didn't raise income taxes above $200,000?
What people forget is there's the provincial tax and GST on top of that, and if we get a carbon tax it's all piled on that same poor old taxpayer.
Mr. Ball: I could probably answer some of that but not all of it. Probably the part I'm not as familiar with is the impact of thresholds for lower-income people. There are various ways to get people out of the tax system.
The one thing I would mention is that we at CPA have been in favour of looking at thresholds, generally, for things. That would include personal tax, but it also could include the GST limit. Could you get smaller businesses out of that and simplify it?
As I mentioned, we are in favour of more emphasis on consumption tax and less on personal tax, so we'd probably agree with that aspect of it.
The other thing I'd point out is it's their rates that complicate the system, but it's also the basic rules around computing income as well. The complexity issue is just a factor of changes being piled on changes for 50 years, and then you end up with a really complex system.
Senator Eaton: So, you believe that raising the tax rate for a threshold over $200,000 will not help us attract the most talented young people and skilled workers?
Mr. Ball: The main thing I wanted to make sure everyone is aware of is that my day job is primarily as a tax practitioner, not an economist. I can say on the basis of what you read is that compliance, in general, for tax goes down as rates go up, and the same thing about the attractiveness of a country. But as I'm not an economist, I actually don't know the numbers and the trends, but we definitely agree that as you raise tax rates there can be a negative impact, for sure.
Senator Neufeld: You say you're not an economist, but I'm going to try this question anyhow. If the tax system were changed, as you suggest — and I'm not disputing that for a minute — what effect do you think that would have on GDP growth in Canada? I ask this in contrast to what the government is doing: going out and borrowings billions of dollars and trying to say they know best how to increase the GDP in Canada with borrowed money and that we're going to actually kick-start everything.
What comparison would you give us, in general terms?
Mr. Ball: Again, as a non-economist, I could probably not add much to the idea of borrowing money and its impact on GDP.
In terms of tax more specifically, though, we do believe that the corporate tax rate, as an example, has an impact on the level of business in the country. One of our key points is that the business tax rate on corporations should be competitive to attract business.
We do believe that consumption taxes are a more efficient way to raise money than personal tax, so I can answer part of your question, I think.
Senator Neufeld: You say a tax review costs $6.6 billion to administer. Is that for all taxes? Would that be correct?
Mr. Ball: I believe that's what the number would be, yes.
Senator Neufeld: Do you know what of that $6.6 billion is for personal income tax?
Mr. Ball: Not offhand, no.
Senator Neufeld: Could you get that for us?
Mr. Ball: Yes, we could do that.
Senator Neufeld: If you send it to the clerk, they will make sure it gets around to everybody.
Mr. Ball: I should preface by saying that we'll do that if we can, because it wasn't in our research. We'll look to see if we can find more details on it.
Senator Neufeld: As long as I've been around government, governments have always been talking about looking at the tax system and simplifying it, but to date it's only become more complex. Some days I think I've been around the government too long. I've certainly heard that echoed for a long time.
We had one witness here speaking about enhanced savings and TFSAs who was in favour of not only reducing the limit from $10,000 to $5,500, but also putting a lifetime cap on it. What's your response to that? I believe that for a senior who has owned their home for 50 years and is struggling to get by, but the value of their asset has increased 20- or 30-fold, I think that's fine. If they want to take a reverse mortgage and take some of that money and invest it in a TFSA and actually make their life better, I think we should do that. That's from a 50,000-foot level, where I come from. I would be interested in your opinion.
Mr. Ball: I guess this plays into a couple of our views. One is that we would like to have a comprehensive review of the system. And, of course, we also believe that the tax burden should be reduced on retirement savings, in particular, and personal savings.
I guess our view would be that we'd like to see a review of all the RRSPs and other expenditures and see what's working. There does appear to be more interest in TFSAs than in RRSPs, given how they are growing. RRSPs have been around longer, but I think TFSAs are enjoying faster growth.
One of the key things, too, is that the people who probably need the savings the most might be the ones making more use of TFSAs, because they do seem to appeal more to lower-income people than those with higher incomes.
Senator Neufeld: Regarding keeping corporate tax rates low — and I believe in that philosophy — are we not a lot lower than the U.S. now? We kind of get compared to the U.S. The U.S. has a higher corporate tax rate, and sometimes we point to the U.S. and say, "They have a better system,'' and sometimes we say they don't. Lately, I guess they don't have a better system but for different reasons.
What is your opinion on that?
Mr. Ball: The U.S. is a little difficult to pin down because it varies significantly by state or even by city. Generally, we are competitive with the U.S. That said, we're not as competitive in terms of the OECD and the top 35 industrialized countries. We're in the mid-twenties, I guess, in terms of tax rate there.
Also, does it make sense to be equal to the U.S. or actually be superior to it? That would be another thing that would have to be considered in terms of setting a rate.
Senator Neufeld: In studying the tax system, you say we should try to do both collectively so that we end up with something that's similar or at least competitive?
Mr. Ball: I think so. Again, hopefully it's possible with data to compare the impact of reducing tax rates on the increase and the economy, too, to try and nail down where the sweet spot is in terms of balancing revenue and stimulating the economy.
Senator Marshall: I have a specific question on the new tax rates and the tax band. If you look at the new bands and rates, you will see that everybody is going to have a reduction in their income tax, except the group that's now into the 33 per cent category.
You were saying in your opening remarks — and I think I am quoting you right — that we have to have a business environment that remains competitive — that we attract and retain the best and brightest minds.
Do you think that change in the upper tax rate is going to have an impact on our broader economy with regard to individuals in that income bracket?
Mr. Ball: Again, I'm not an economist, so it's more observation. If I were to look at it from the point of view of whether it gets the attention of our clients, it certainly did in terms of the rate change. I'm not sure if it changed their behaviour, necessarily, but it certainly got their attention.
It might be a little early to tell what people would actually do because of the increase.
Senator Marshall: We're in November now, so people have known for a while that this is going to be what their new tax rate is. Have you seen any changes with regard to tax planning? That's the business you're in. I'm not asking for any personal information but a general idea what you see or what you think is coming down on this issue.
Mr. Ball: The corporate system does integrate with the personal system as well. Included with the rate changes, they did raise the rate of refundable tax in corporations, so they stay matched up with each other.
There was some planning last year for people who had a choice to recognize income early before the rates changed. After that, it gets a little more difficult, because if you are in Canada and are compliant with the tax system, the options are fairly limited in terms of what you can do.
It has an impact more if someone wants to take money out of their business corporation; for example, it will impact a little bit those calculations and how they do it. I'm not sure it's creating yet any sort of direct behaviour, though. Like I say, there aren't a whole lot of things you can do about the rates.
Senator Marshall: We did have some witnesses who indicated that the estimate provided by the Department of Finance with regard to increased revenue from that tax category would actually be less than that. You wouldn't have any comment on that, would you?
Mr. Ball: No, not other than just reading the same thing you did.
Senator Marshall: One of the issues we talked about at one of the earlier meetings is that if you look at the tax bands now on the tax rates that everybody under the $200,000 — everybody will have tax savings except the group that is in the 33 per cent category.
Do you have any opinion as to whether it would have been more beneficial if those in the upper categories, say $126,000 or higher, had their tax rates reduced so that they didn't realize tax savings?
Mr. Ball: Not knowing how it all works economically, it would be hard for me to say what range makes more sense for stimulating the economy.
Senator Pratte: I have a follow-up maybe on Senator Neufeld's question. I too have heard the government saying and promising to simplify the tax system, and somehow it always gets more complicated. I've started wondering whether it is really possible to simplify it. Maybe it's not possible.
As an accountant, you are really convinced that it is possible to simplify it. If you were the Minister of National Revenue today, what would you start with? Can you really see examples? Can you give examples of things that, in your mind, would be possible to simplify today?
Mr. Ball: I'll start off with how we see a simplification review.
The first thing, probably, is what I mentioned before: It's 50 years of laying tax changes on each other. To go to your first point, is it a problem? I think it's getting worse. It's almost like writing computer software: As you keep changing it, it gets bigger and less efficient, and at some point it starts breaking down.
So there is a concern that it will become just too complicated for people to deal with, especially when you lay change over change, because then you start having different things that might apply to the same situation.
Senator Pratte: But it's good for your business.
Mr. Ball: It is but it isn't. We don't like to see clients spend excessive amounts on just complying with tax, either. There are other things we could help them with, such as helping them plan for their business and things like that.
In terms of a review, the one thing we probably wouldn't like to see is just jumping in and changing things. I'd like to see a general start: Where should we start? What are the key things that need change the most? That might be the complexity of the rules, how many people it impacts or probably a combination of different factors like that.
There probably has to be another factor going forward too. The government will block things that people are doing, but I think more weight has to be put on weighing, blocking or whatever it is they want to prevent, but not making it onerous for people who just want to be compliant as well.
It is going to be a major undertaking for sure, but we do think it's important.
Senator Pratte: What should be the end goal of all of this? I know, for instance, that the government promises that people should be able to fill in their tax forms themselves. Practically each year they say, "Most of you will be able to fill in your form; it will be one sheet of paper and that's it.'' Of course, it never is, except for practically people who don't have any income tax to pay.
What should the end goal be? How simple can it become?
Mr. Ball: Yes, that's a good question. A lot of people use computer software or programs on the Internet to do their taxes, too, so that kind of changes things up a bit.
It's hard to say whether people should be able to do that themselves or not, because it goes to what people's strengths and weaknesses are in terms of what they're good at. Some people just don't want to do it, either, and they are happy to pay somebody to do it.
From that perspective, even if it is simplified and you do use someone else, presumably the costs will go down, so it's still a positive factor. It's hard to say whether everyone either wants or could do their own tax returns.
Senator Pratte: The problem is you lose control; the moment you give it to a computer or to an accountant, you lose control or you lose track of what's going on. That's not a very good thing, is it?
Mr. Ball: That's true. It is important that taxpayers understand how their tax is being calculated, yes.
Senator Neufeld: My question is on the same question. Governments, if they review it, to be perfectly frank, will take the number they're getting now and that they expect to get five years from now, and they're going to design another system that might be just as complicated to get to that number.
Would it not make a little bit more sense if you had the private sector, some organization or group — there is your own; there are different ones — get together and push the whole tax system aside and say, "We're going to just blue sky here a little bit and start talking about what we could do to actually raise money, which will grow the economy at the end of day''? It's not about extracting more out of the same amount of people. It's about growing the pie so that you have a bigger pie to take less money out of to meet the needs. Would that be something an organization like yours, along with other ones that review tax policy all the time, would actually look favourably at?
Mr. Ball: Yes. Actually, that describes fairly well what we'd like to see. We wanted the involvement of an expert panel, for example, so that would be quite similar, I think, to what you're saying. Design the tax system first in terms of how it works and then maybe plug the rates into it later because then you do have to figure out how to raise the appropriate amount of money. If I understood your question, it sounded almost like a two-stage approach: get the framework first, and then figure out how to use it.
Senator Andreychuk: Regarding a few comments you made about what you wanted to see in the tax system, you said keep taxes low and broad. I know what keeping taxes low would mean, but what is broad, in your sense? Your next statement somewhere was to exempt some people, so how do you keep that?
Mr. Ball: I will deal with the broad part first. Broad would be reviewing the tax expenditures fairly carefully and just making sure they are functioning properly. There are a lot, especially for individuals, I guess, specific tax credits for various things. I gather that part of the expenditure review will be looking at those and seeing whether they are effective or not. If you were to reduce the number of these specialty incentives and reduce the tax rate, that would be sort of what we were getting at in terms of broadening the tax base but also lowering the rate.
In terms of personal savings, that was more a goal just around helping individuals to save for retirement. Again, I believe that that would be something the tax expenditure review would look at, but we should be looking at whether the system we have is the most efficient for meeting goals of helping people to save.
Senator Andreychuk: Having been around the Senate for quite some time, it seems to me that every new government that comes in wants to reduce or erase what the other governments did and to do better for the taxpayers in their system. I'm not sure we will ever get a simple system because it will be like the Criminal Code; you can modernize it and put it together again more simplified, but, inevitably, it's going to grow.
The more important issue I think is whether it is a fair tax system. Is it helping Canadians? It is helping us in our productivity? Is it helping us in our competitive edge? That doesn't necessarily come with simple; it comes with a fair tax system.
Mr. Ball: I think that would be accurate. It would be partly the rate that's set compared with other countries and that sort of thing if you are looking at productivity.
Simple does, though, help people to deal with the tax system in terms of reducing costs, so there is that aspect to the economy as well if a system is simple. We are not actually saying that we are focusing on just one thing. We were looking at simplifying and being competitive as different things, and I think the review of the tax system would have to take all of that into account as well — what is equitable, what's best for the economy, what reduces compliance costs, a number of different things.
Senator Andreychuk: You said we were in the middle or the lower end of the OECD countries. What are the ones at the top doing better in their tax schemes?
Mr. Ball: I'd have to look at all of them, but I would imagine that the ones that have lower corporate rates are probably relying more heavily on consumption taxes. That would be true in Europe, I think, especially. There is a higher emphasis.
Senator Eaton: Would that be fifteen per cent in England and some countries?
Senator Andreychuk: Twenty-three.
Mr. Ball: They'd have a lower corporate rate there too, I believe. I'd have to check that.
Senator Andreychuk: Certainly, some countries in Europe have a variable VAT system, which is not simple. Go into a store, and you don't know. If you're buying jewellery, it's one thing; if you're buying something more practical for your home, it's less. So you are constantly having to work at figuring out what the VAT is. It's not straight across the board, either.
Mr. Ball: Our views would be similar on the GST, HST — again, fewer special rules and broader base so that the rate is more or less the same for everyone because it makes compliance simpler from that perspective.
Senator Andreychuk: You said that you want an expert panel, and it likely would take about five years. So I would say it would likely take longer, as most commissions do.
Does that not bring instability at a very unusual time now to be advocating that? I wouldn't know, if I were in business, what I would do because I'm not sure what is coming down the line.
Mr. Ball: I think that would be a concern.
I did say that it's not a simple thing to do. The Carter commission, I think, did a lot of work releasing a report in 1966. A lot of that didn't make it into the tax system for three or four years, at least, after that. It does take time, but I think the flip side is that you don't want to just rush it and get it wrong, either, because it is such an important thing. So you can look at it two different ways, I suppose. If you jump right into it and it's not exactly working the way you would've wanted, that's not good either.
Senator Mockler: Thank you, Mr. Chair.
To Mr. Ball, we've had numerous witnesses as late as three days ago. Saturday afternoon I was having coffee at the McDonald's in St. Leonard and somebody asked me, "Percy, did the Finance Committee identify who is the middle class?'' So I responded, "So you're listening to the Finance Committee.'' They said, "Yes, we do.'' Not all, but some did. Can you identify or describe, in Canadian language, what is the middle class in Canada today?
Mr. Ball: No, I don't think I can, to be honest with you. It's kind of a nebulous concept. Again, being more of a tax person, it's not really my area of expertise to speculate on that.
Senator Mockler: But, as a tax person, not to be nebulous, can you identify what would be, in the tax bracket and the revenues of Canadians, the middle class?
Mr. Ball: I couldn't, myself, better than the government. There are statistics from the CRA where they lay out the number of taxpayers in each bracket. They do track those kinds of statistics. I don't know if the committee has seen that, but we could certainly find that for you.
Senator Mockler: Maybe he could share it, Mr. Chair?
The Chair: If you could, sir, that would be great. Give it to our clerk.
Senator Mockler: Are you concerned, in your association, about the increase — not to say that Canadians have a culture of debtors — the deficit of our government, the way it is shaping up? Are you concerned with that?
Mr. Ball: I think we're sort of waiting to see what happens more than anything. The big thing we wanted to see is a commitment of the government to eliminate the deficit within their term. So we believe they are on track.
Our position is that we're waiting to see how that works. We would be concerned if the deficit becomes more of a permanent thing for sure. But, that said, we also understand that they felt it was important to stimulate the economy and increase spending, so I guess, at this point, we're — the best way to describe it is — sitting on the fence hoping that it does get resolved within this term. We'll sort of analyze it as we see each budget.
Senator Mockler: My last question is this: According to your knowledge, what is the expected impact of the proposed marginal personal income tax? I will give you changes from the labour supply decision for individual in two taxable income groups: those with taxable income between $45,000 and $90,000 and those with taxable income exceeding $200,000. Based on your experience, what is the expected impact on the savings decisions on individuals in each of those groups?
Mr. Ball: I'm not sure if there is a lot of impact in terms of how that changes how they look at things. I don't think I'm seeing any difference in behaviours at different levels as things change. I think if someone is motivated to save for retirement, for example, they will continue to do that.
It's very hard. Again, I'm not an economist, so you have to look at numbers as a whole. Some people are more motivated by spending on consumption than others, so it's hard to say, given the relatively small number of people we deal with, how that would work.
Senator Eaton: I agree with most of everything the witness is saying, so I don't have any further questions.
The Chair: Sir, one thing you did mention was reducing the middle-class income tax bracket as one of the three things that Bill C-2 proposes. Were you able to analyze the actual impact of the idea of taxing the $200,000 group? We know there are about 331,000 Canadians who earn over $200,000, but did you do a bracket-by-bracket analysis on what it meant in terms of actual reduction? We did, and what we found out was that from under $45,000 there is no benefit. From $45,000 to $60,000, there is $261 savings for an individual, and $696 from $45,000 to $90,000. From $90,000 to $140,000 it's $766.37, and from $140,000 to $200,000, it's $820.43.
The question we were asking was, does Bill C-2 deliver on its objective? This is why one of the questions you were asked was about the definition of middle class. We have asked that of everyone and have been given the same answer. Yours was the most unique because you just did it with body language, shrugged your shoulders and said, "It's difficult to define what middle class is.'' Realistically, are we saying that everybody who does not earn over $200,000 is in the middle class? If you did analysis to ask whether there is a benefit, does Bill C-2 deliver on its objective to help the $45,000 to $90,000 group?
Mr. Ball: The answer to the basic question of whether we did analyze it to see if it did that would be no. It would not be something we would look at, specifically, especially because the rates were set out when they were running for election. It wouldn't be something that our group would analyze with a specific goal to see if they met it or not.
Senator Eaton: Getting back to the point about complexity, in the past, several people both here and in the United States have advocated for a flat tax. Would it get rid of the loopholes to have a flat tax? Would that be more beneficial to more people and to the economy, and would that make us more competitive on a worldwide basis?
Mr. Ball: Actually, our position was that we're not averse to graduated rates, but we would like to see the base simplified. Our position would be that it wouldn't necessarily have to be a flat tax, but we would like to see a broadened base to which tax rates are applied. Fewer is probably better in terms of tax rates.
Senator Eaton: You can see, now, a lot of European countries have a huge VAT compared to ours. In countries like India and China, if the word got around that if you came to Canada there was one flat tax, that could make us competitive, could it not?
Mr. Ball: I'm not sure I could really say one way or another.
Senator Eaton: No, it's speculation. Hope springs eternal.
Senator Mockler: I just want to make another link, Mr. Ball, with what the chair just said. We're trying to find out where the benefit lies for Canadian workers. Do you agree that that's where that budget must go?
Mr. Ball: I guess I could agree that it was marketed as benefiting the middle class, but as I mentioned we didn't do any specific analysis to actually determine that.
Senator Mockler: They are giving us numbers that suggest that, across Canada, 65 per cent of Canadians earn less than $45,000 a year. So, based on your experience in the industry, whom does this budget help?
Mr. Ball: Well, in terms of the industry, again, I'm not sure I can answer from that perspective. The other complication in this is there was a change to the child benefit rules, as well, and that could have an impact on lower- income people. Again, I didn't bring any math today on that sort of thing, so I don't think I can really address that one.
Senator Neufeld: On the issue of the flat tax, we've had experience with this in Canada: Alberta had a flat tax for a number of years. You didn't sound all that enthusiastic about a flat tax, but maybe I misinterpreted that. Have you done any work on a flat tax that was not federal, but, obviously, provincial?
Mr. Ball: We've had conversations about a flat tax, internally, at CPA. Just to clarify, I didn't say I was against a flat tax, but I guess what I was trying to say is that I don't think simplification has to involve a flat tax.
Senator Neufeld: Did I hear you say the tax rates were set in the election, or after the election? Maybe I misinterpreted what you said.
Mr. Ball: I believe they talked about the tax reduction during the election.
Senator Neufeld: Early in the election. Okay. Thank you.
The Chair: Thank you, senator. Are there any other questions from our panel?
Well, thank you, Mr. Ball. It was a pleasure to have had you here. Senator Cools.
Senator Cools: I often wonder where these numbers come from and who creates the language that quickly becomes so standardized and conventional. I find it very staggering that 65 per cent of Canadians make under $45,000 a year. Would you be able to identify what these numbers mean? Is that individual Canadians, or is that households? When you read these numbers, what exactly do some of them mean?
Mr. Ball: I don't know exactly where that number came from. If it came from the Canada Revenue Agency — because they do track taxable income statistics — then that would be for individual taxpayers.
Senator Cools: And on the other point raised by Mr. Ball, which was the definition of middle class, there was a time when we were all clear what middle class meant because it was always used as a means of describing social stratification. There were the lower classes, the middle classes and the upper classes, but over time other language developed, like the working classes and professional classes.
Would you have any idea as to why a government, in such a large measure, would employ that term and make pledges based on it if it is so vague and so difficult to define? Do you have any ideas?
Mr. Ball: I don't think I can speak to that.
Senator Cools: Okay. But you know you accountants are interesting people.
I'm doing a lot of thinking on some of these issues, and I have served on this committee before and I remember an occasion where we had the Auditor General's people before us, and at the time they were challenging the Treasury Board's people. Both groups were professional accountants, all trained in the same universities, same professional standards and same ethics, but they came to opposite conclusions. The real issue was that the Auditor General's accountants were disagreeing with what the Treasury Board accountants were doing, so it was a policy question at the end of day.
However, you leave it with me; I will sort this out intellectually, and hopefully I will make a contribution in that way. It's a serious matter that a major policy initiative is couched in uncertain, unclear and indefinite language.
The Chair: Thank you, senator.
Mr. Ball, you mentioned there were three elements of the key amendments of Bill C-2, and the third was decreasing the annual TFSA contribution limit. Do you have a clear position on whether the impact is good or bad? Could you give us a 30-second summary of your thoughts?
Mr. Ball: No, not specifically; I don't believe we have a clear position, other than we would like the whole system around personal savings to be reviewed to make sure it's working properly. We'd like to see a wider review, as part of the expenditure review perhaps, to make sure all the pieces are fitting together.
I'm not speaking for CPA, but I'm a little concerned about the number of different options and whether people fully understand what a Tax-Free Savings Account is for, what an RRSP is for and what the Registered Education Savings Plan is for. There are so many different things. We'd like to see a review of the personal savings system as a whole as part of the tax expenditure review.
The Chair: Sir, thank you very much for your time with us. We appreciate your comments.
(The committee continued in camera.)