Proceedings of the Standing Senate Committee on
National Finance
Issue No. 21 - Evidence - December 6, 2016
OTTAWA, Tuesday, December 6, 2016
The Standing Senate Committee on National Finance met this day at 1:02 p.m. to give consideration to the subject matter of all of Bill C-29, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.
Senator Larry W. Smith (Chair) in the chair.
[English]
The Chair: Good afternoon, colleagues. We have a full house here today. Good afternoon, minister. Welcome to the Standing Senate Committee on National Finance.
Colleagues and members of the viewing public, the mandate of this committee is to examine matters relating to federal estimates generally, as well as government finance.
My name is Larry Smith, senator for Quebec. I chair the committee. Let me briefly introduce the other members of the committee and all of us who are here today: to my left, Senator George Baker; to his left, Senator Grant Mitchell, Senator André Pratte, Senator Paul Massicotte, Senator Diane Bellemare. To my right, Senator Richard Neufeld, Senator Percy Mockler, Senator Nicole Eaton, Senator Beth Marshall, Senator Salma Ataullahjan.
Today we continue our consideration of the subject matter of Bill C-29, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.
Minister, we thank you very much for being with us. I know you have a busy schedule. We appreciate your time, and that of the team that is with you, Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch; and Nick Leswick, Assistant Deputy Minister, Economic and Fiscal Policy Branch.
I gather that there are a number of officials here in the audience ready to come to the table to answer questions if need be.
Minister, last Friday, with some of your officials, we began a study of the budget implementation act, 2016, No. 2. We're anxious to hear what you have to say about Bill C-29. We will, of course, have a question period after. We do understand that you can give us probably 45 minutes of your time if that's required, if that's okay. I actually have it written down that you say you'd like to leave at 1:50, but we'll manage ourselves through this according to your schedule as best we can.
We have your officials to remain with us to cover Parts 2 and 3 of the bill for the second part of our meeting.
Minister, the floor is yours.
Hon. Bill Morneau, P.C., M.P., Minister of Finance: Thank you, Mr. Chair. If you conclude that you would rather spend more time with my officials and less time with me, I will not be offended.
The Chair: No, no, no. We love the time that you can give us. And everybody in the back is shaking their heads, "No, no, no, we don't want to be here too long.'' Thank you. Go ahead, sir.
Mr. Morneau: I didn't think that would work, but it was worth a try.
[Translation]
Good afternoon Mr. Chair, deputy chair and members of the Standing Committee on National Finance. I am pleased to be here to talk about the second act to implement certain provisions of the budget and other measures. Thank you for this opportunity to report on the progress we have made for middle-class Canadians over the past year. I will be pleased to answer your questions.
[English]
As Minister of Finance, my priority is to grow the economy in the ways that will benefit families, workers and the most vulnerable members of our society.
You will have heard me say before that we simply can't claim success or progress together unless we all share in the progress and the prosperity that we generate.
I can tell you that this has now truly become a global challenge. The world's attention has been focused recently on the fact that many of our citizens haven't seen the benefits of the tremendous economic growth that we've had over the last several decades.
Unfortunately, hard work doesn't always equal progress anymore. It's what we're working on fixing, with measures like the ones contained in the budget implementation act that we're reviewing today. Only last month, I had the privilege of travelling to the United Kingdom to talk a bit about Canada's story. I met with students studying at the London School of Economics, my alma mater. I met with members of the editorial teams at The Economist and at the Financial Times, and I spent some time at the British Broadcasting Corporation. I met with investors who were looking for opportunities to invest in our country and in our people.
Across the board, the feedback that I got was this: It's really nice to hear from a country that has such a positive story to tell. It was a reminder of why I'm so very proud to be Canadian, not only when I'm here but when I travel abroad, and, of course, why we should all be.
About a year ago, we were one of the first countries in the world to put our finger on the fact that when you have an economy that works for the middle class, you have a country that works for everyone. You know the story well, but I'd like to have a few examples here, some highlights of what this means. In the past year, we took some big and important steps toward helping families regain the confidence that they will need to drive our economy forward. We cut taxes for nearly 9 million people, and we introduced the Canada Child Benefit, which puts more money in the pockets of nine out of 10 families in this country with children.
With the budget implementation act we're discussing today, you'll help to ensure that the Canada Child Benefit will be indexed to inflation starting in 2020 so that families can count on the real value of this benefit well into the future.
Over the past year, we also increased the Canada Student Grants for students from low- and middle-income families and for part-time students. We increased monthly payments for the most vulnerable seniors and struck a historic deal with the provinces to strengthen the Canada Pension Plan so that this generation of young Canadians and future generations will be able to retire with dignity.
Know that we will be discussing ways of making the Canada Pension Plan even better at the upcoming meeting of provincial and territorial finance ministers in December in the context of our triennial review.
[Translation]
In our fall economic statement, we clearly indicated that Canada's future economic success depends on investment and openness. We do what confident countries do: we invest in our country and in our people, working now to promote the growth and prosperity of the middle class while stimulating economic growth for the future.
As a result of our measures, Canadians will be able to get home from work more quickly. They will spend more time with their children. They will be able to breathe clean air and have clean drinking water. They will be able to live in better neighbourhoods and will have confidence in their future.
[English]
Mr. Chair, allow me to come back specifically to the bill that we're studying today and to focus on two areas in addition to the ones I've already mentioned. The first is consumer protection; the second is tax fairness, a central pillar of the promise we made to middle-class Canadians.
Through this second budget implementation act, we want to amend the Bank Act in order to strengthen and modernize the financial consumer protection framework. We're introducing enhancements to financial consumer protection to strengthen access to basic banking services, business practices, disclosure, complaints handling, corporate governance and accountability. Together, these enhancements will make the regime easier to understand and will accommodate consumers' needs in a rapidly changing sector, as well as allow Canadians to benefit from an efficient national banking system from coast to coast to coast.
[Translation]
Consumer protection is central to our approach, and we want to work with all the interested parties to create a regime that protects Canadians' interests, first and foremost. To be clear, with this bill, we are seeking to improve consumer protection right across the country.
[English]
On tax fairness, I'd like to be very clear: We believe that everyone should pay their fair share of taxes. Budget 2016 committed $444 million in new resources for the Canada Revenue Agency to address tax evasion and aggressive tax avoidance.
This will enable the Canada Revenue Agency to enhance its assessment capabilities through the hiring of additional auditors and specialists who will have the resources needed to undertake more expansive and comprehensive investigative work.
In addition, we are committed to combating international tax evasion and aggressive tax avoidance by strengthening existing efforts at home and abroad and by introducing new measures.
The introduction of the Common Reporting Standard for the exchange of information between national revenue agencies on financial accounts held by non-residents is an important global development. Canada will implement the standard, consistent with our commitment to the G20 and similar commitments made by more than 100 other jurisdictions around the world.
Similarly, we are proposing to implement one of the key recommendations from the G20 and the Organisation for Economic Co-operation and Development to address base erosion and profit shifting, or BEPS, by multinational firms.
With our international partners, we are proposing to require large multinational enterprises to file a country-to-country report with the tax authority in their headquarters' jurisdiction. The reports will provide revenue agencies with a high-level overview of the firm's global operations to assist them in performing more effective risk assessments.
I want to thank the committee for your work on this important piece of legislation.
[Translation]
So, Mr. Chair, whether it is through the indexation of the Canada Child Benefit, consumer protection or tax fairness measures, you can see that our government is putting the interests of middle class families first. By supporting this second budget implementation act, you will enable us to continue with our plan to keep people at the heart of the economy and to give them the help they need now, while also making investments for the years and decades ahead.
I will be pleased to answer your questions. Thank you.
[English]
Senator Pratte: Minister, welcome to the committee.
You mentioned having a uniform national framework for consumer protection and the banking industry. Having and imposing this uniform regime may have the effect of strengthening the federal regime now in place, but in fact it weakens consumer protections in provinces where there is already a strong regime in place. At least that's the way I and many others see it. It also tramples provincial jurisdiction as recognized by the Supreme Court in the Marcotte consumer protection decision of 2014.
There may be a debate as to whether this is so or not and whose jurisdiction it falls under — whether it's federal jurisdiction in banking or provincial jurisdiction in consumer protection that carries the day — but it raises complex questions. I am becoming increasingly concerned, as many other senators certainly are as they become aware of this. I'm wondering whether you would consider taking that part of the bill out so that we can vote for this budgetary bill — Bill C-29 — and study further these changes to the Bank Act.
Mr. Morneau: Thank you for the question. I appreciate you asking me in English because I can be more clear in my mother tongue.
Senator Pratte: I hope the question was clear, even though I asked it in English.
Mr. Morneau: The question was very clear.
How the Senate reviews the bill, of course, is a Senate issue. From our perspective, this is a budget measure and something that fits in our broader context. We've been quite clear with Canadians that we are moving forward with a budget that enhances the situation of middle-class Canadians, improves Canadians' situations through measures we're taking and protects their situations through measures we are taking.
We view this as a budget bill in its entirety, and that's why we're putting it forward in this way.
To the heart of your question, I believe I should respond. We see that it's clear that the Constitution says that banking is a federal responsibility. We see this as a measure that protects consumers and enhances consumer protections. We want to make sure that consumers are protected across the country so that people, irrespective of what jurisdiction they are in within our country, are protected in their banking services.
We don't want someone in one part of the country to be put in a worse position than someone in another part of the country, so this measure would enhance the protections versus the protections that there are at present. It would clarify the jurisdiction in a way that would help consumers to understand that, and it will create efficiency in the banking system that will be to the benefit of all consumers.
We see this as an important measure, and we believe that the bill should be adopted in its entirety.
Senator Pratte: I want to read the paramountcy clause of the bill that amends the bank act:
This Part is intended to be, except as otherwise specified under it, paramount to any provision of a law or regulation of a province that relates to the protection of consumers . . . .
In fact, what that says is that anything that exists as far as protection of consumers regarding banks in a province would be null and void. That means, for instance, in the case of Quebec, where they have a very strong consumer protections act that was said to apply to banks by the Supreme Court in 2014, that act would not apply anymore.
I don't see how weakening consumer protections in a province where those protections are very strong would benefit consumers. Provinces like Quebec, B.C. and Ontario have protections that are stronger than what is in the bill now.
I understand that in a province where protection is weak, having a system that would strengthen it is good, but where protection is stronger already than what you foresee in the bill, why wouldn't you simply allow those provinces to keep it as it is and have a national framework for other provinces?
Mr. Morneau: Again, we see the federal jurisdiction as the jurisdiction that's responsible for banking in this country, and we believe this approach will clarify that for consumers. We believe that we're enhancing consumer protections across the country. We believe that we're enabling consumers to have better access to resolving issues through the approach that we've put forward, in a way that will ensure that they are well served, consistently and efficiently, across the country.
We think this is important for consumer protection, and that's why we're moving forward with it.
Senator Marshall: Thank you, minister, for being here. We had a meeting with your officials on Friday to discuss the bill. We discussed the financial implications of a number of the changes. All of the changes we spoke about resulted in increased revenues for the government, and none of them resulted in decreased revenues.
My own impression from that meeting is that the increased spending — and you referenced some of the reasons for the increased spending, such as the new child credit, the grants and things of that nature, which you mentioned in your opening remarks. My feeling was that the government is looking for other sources of revenue to reduce the outward pressures on the deficit for the year.
Can you tell us how much revenue will be raised with the implementation of Bill C-29? What is the total estimated revenue?
Mr. Morneau: We would be happy to get back to you if you have a specific question on a specific number. I will tell you the intent of our budget bill, as mentioned, was to improve the situation of Canadians. The measures I referenced in my opening remarks included the Canada Child Benefit, which is improving the situation for nine out of 10 families with children; and the Guaranteed Income Supplement — the 10 per cent increase for single and vulnerable seniors will have almost a $1,000 impact on those individuals annually. Clearly, the measures in totality will put many Canadians in a better situation.
If you'd like a specific number, we'd be happy to provide you with a specific number.
Senator Marshall: I'd like to know the total estimated amount of revenue that will be raised with the implementation of this bill.
Second, you released your revised deficit figure last month — the $25.1 billion. That's our new projected deficit for the year. Have the revenues that will be raised as a result of Bill C-29 also been taken into consideration in coming up with the $25.1 million deficit?
Those were my two questions.
Mr. Morneau: The information that we released in our fall economic statement includes our expectation of the budgetary situation, including revenues raised and benefits provided.
Senator Marshall: If I could get the item for Bill C-29, it would be very much appreciated.
Also, I'd like to know how much revenue is going to result from limiting the access to the small-business deduction. You probably aren't aware, but we've been getting a lot of correspondence from physicians who are going to be impacted by that change, so I'd also like to know what the impact will be on the government's revenue by implementing that change.
Mr. Morneau: To be clear, what we are doing with respect to small businesses is clarifying that one small business gets one small-business deduction, simply put. That's the intent of the tax act, and that's what we're clarifying.
Senator Marshall: As a result, that will give increased revenues to the government. I would like to know what that estimate is.
Mr. Morneau: To be clear, we published that in the budget. It was $70 million for the two technical measures.
Senator Marshall: The restriction to the small-business deduction is $70 million?
Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada: There were two technical measures, the multiplication and the associated corporation rules. Taken together, they were $70 million.
The Chair: Is that public information?
Mr. Marsland: It was published in the budget.
Senator Marshall: It's in the budget document?
Mr. Marsland: Yes.
Senator Eaton: In your speech, you said, ". . . allow Canadians to benefit from an efficient national bank system from coast to coast to coast.'' Just to pick up on what Senator Pratt was asking you about, I thought Canada's banks were held up as an example of the best in the world. Especially in 2008, when we watched the American and several European banks get into trouble, I thought the Canadian banking system was always very sound, good and well organized. Your words, "a rapidly changing sector, as well as allow Canadians to benefit from an efficient national banking system,'' seem to imply that we don't have an efficient national banking system.
Would you comment? It's kind of upsetting to me.
Mr. Morneau: What we're trying to do with the consumer protection measures in this budget implementation act is to ensure that Canadians are protected in their relationship with their banks.
Senator Eaton: Didn't 2008 prove that we were?
Mr. Morneau: It's in no way intended to be critical of banks. It's recognizing that Canadians want to have protections. We believe it's a federal jurisdiction and responsibility for us to ensure that consumers are protected in their relationships with their banks and that they have an approach for dealing with any complaints they might have.
It was not intended to be, and I would hope that you would in no way take it as, a criticism of banks. Rather, it is just recognition that we should have a regime in place that appropriately protects people, as we do in many areas of day-to-day commerce, whether in food safety or regarding safety in our cities and provinces.
Senator Eaton: Could you give me an example, or could some your officials give me an example, of how much better you will protect consumers by what you're doing in this bill? What's missing in the Bank Act?
Glenn Campbell, Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: I'd be happy to follow up on the question.
First, may I say that the reference to a modernizing environment refers to changing consumer preferences and the ability to do —
Senator Eaton: Can you give me an example of that?
Mr. Campbell: I meant to say that moving online and onto the Internet is suggesting that the sector is changing, and therefore the consumer provisions need to adapt as well and allow flexibility and assurances for consumers that when they start to conduct business more and more electronically, they are protected.
So there are targeted enhancements in the bill that, first, improve access to basic banking by allowing more flexibility for consumers on the identification products that they need to demonstrate to open a bank account or to cash a government cheque.
Two —
Senator Eaton: Can you stop right there? They have to show what?
Mr. Campbell: In order to open a bank account, any citizen needs to show pieces of identification. There are right now restrictive rules over the categories of acceptable documents. The provisions in the bill provide more flexibility and more options to ensure that a bank can accept identification for a Canadian to open an account and still respect all of the international norms around money laundering but also facilitate the cashing of government cheques for someone who either has a bank account or merely presents themselves to a branch of a bank and wants to have a Government of Canada cheque cashed.
Senator Eaton: I'm sorry that I took it that way. It's just the way the minister worded it and said it, it was as if the whole Canadian banking system was rotten to the core.
Mr. Campbell: I think the point, senator, during the 2008 banking —
Mr. Morneau: Maybe can I interrupt. Clearly we have a strong —
Senator Eaton: No —
Mr. Morneau: — respect for —
Senator Eaton: — "to benefit from an efficient banking system.'' What does that mean?
Mr. Morneau: We have a strong level of respect for Canadian bankers. We do see the necessity for ensuring that we have an approach to protect consumers as well.
Senator Eaton: Did the bank have input into this?
Mr. Campbell: All consumers were consulted, as well as stakeholders and the affected banks themselves, through a long process of consultation. We also consulted the provinces and other regulators. It was a wide-open consultation over several years, including the affected banks.
Senator Andreychuk: As a lot of people do when they contact me, I continue to struggle with what "middle class'' means. We've struggled in this committee and gone to "middle income'' and categorized it. I see the middle class as the justification for a lot of things we do internationally and nationally.
Will you not define "middle class'' for us?
Mr. Morneau: As I said previously at this committee, we endeavour to ensure that the Canadians who are in some of the lowest-income groups, as well as in middle-income groups, are finding themselves in a better position as a result of the measures we're taking.
We see that the Canada Child Benefit is helping Canadians from low income until it's means tested away with a family income of $175,000. The benefit declines at higher income levels and is entirely means tested away at that amount. We made a reduction in taxes for the tax bracket between $45,000 and $90,000, which obviously is something that helps anyone who's earning between those numbers, but also people who are earning more until the tax rate goes up at the highest tax rate of $200,000.
We've done it in a way that we know we're helping a broad cross-section of Canadians that would be considered middle class, and also those who would see themselves in a lower income bracket who are striving to be successful in a challenging economy.
Senator Andreychuk: The test will be after a time what the Child Tax Benefit does to other benefits that have been taken away or are provincial. We're going to have to see per person at income tax time what it does for them. That's why I continue to say people think they're going to benefit, but they're already coming back and saying that in certain cases they're afraid they're not.
I'm going to encourage you to explain what you mean by "middle class.'' It's much easier if you tell me I'm $45,000 and this is going to happen to me, and $90,000, but when you lump us all together, it's very hard. We've done the number crunching.
You're proposing to require large multinational enterprises to file country-by-country reports with tax authorities, and you're going to be working with the G20. Have you factored in the movement of multinationals beyond G20 and what that's going to look like? Will it have movement outside of the G20, which you will not be able to control? Second, what is the American situation going to be when you go to this meeting? Are you reasonably certain that the G20 will remain the same?
Mr. Morneau: The Canada Child Benefit will help nine out of 10 Canadian families. We have not had any changes in provincial jurisdictions that are clawing back that tax. Canadians will see the benefit. It will go to them, if they're in that income category, on a tax-free basis. So we can already know the math and the situation Canadians find themselves in. There should be no ambiguity. I do not understand the ambiguity you are suggesting is there, because there is none. There is clarity in terms of what they're getting and how that will improve their situation.
Senator Andreychuk: We can get those figures?
Mr. Morneau: You can get those figures. We have done estimates to show that it will significantly change the levels of child poverty in this country. We did the calculations, and we are seeing the results across the country in direct ways — for example, people going to food banks and lots of anecdotal evidence. We will continue to follow up on that.
With respect to the work we're doing with the G20 countries, we are working to ensure that companies around the world are paying their fair share of taxes in the countries in which they're doing business so that they're not inappropriately moving profits to other jurisdictions. That is an ongoing effort. It's not an effort that is just including G20 countries. It's a broader effort around the world.
I believe we have all countries signed on, do we not?
Mr. Marsland: Certainly at the OECD level. I don't have the number for country-by-country reporting. As the minister mentioned, the Common Reporting Standard is over 100 countries.
Mr. Morneau: Yes. It's not purely the G20. It's led by the G20, but it's an effort to get all countries involved that need to be to ensure that we do not have tax avoidance going on through tax havens and that we are dealing with multinationals in a way that ensures we are collecting tax in the appropriate jurisdiction.
Senator Ataullahjan: Minister, the Canadian Medical Association has been a very vocal advocate against the proposed changes in the tax code because they argue that certain changes tabled in the budget will prevent them from using small-business tax cuts provided to physicians in corporations and partnerships, and that this change has the potential to force physicians in Canada to pay thousands of dollars in extra income tax. Generally, when you tax something, they pass the extra taxation down, but the physicians cannot do that because their fees are regulated by the government.
Why do you think physicians should not be excluded from the change to the small-business deduction? Don't you expect this to have a negative impact on Canada's ability to attract and keep physicians, especially specialists, because we are already losing a huge number to the country to the south?
Mr. Morneau: To be clear, we are not treating physicians differently from other professionals or other small businesses. What we're saying is that one small business is able to have one small-business deduction, simply put. That's the conclusion. So physicians are being treated the same way other professionals would be that are incorporating as a small business or in the way that other small businesses are being treated.
In effect, this means that those small businesses, if there were any businesses that were using more than one small-business deduction, they are now able to defer paying less tax. The calculation that should be made is that the amount of loss is the amount of after-tax income they might have made on the money that was deferred from a tax standpoint. That's the calculation we've done, and we believe the approach we've taken is fair across small businesses.
Senator Ataullahjan: Do we have any idea how much revenue this tax on physicians will generate?
Mr. Morneau: That question was asked by the senator to your left.
Senator Ataullahjan: But I'm asking on physicians.
The Chair: The answer is $70 million.
[Translation]
Senator Massicotte: I would like to thank Minister Morneau and his colleagues for agreeing to appear before our committee today.
[English]
I want to follow up on the point that Senator Pratte mentioned to do with a subsection of section 627. It is my opinion, and the opinion of most experts, that your proposed amendments will dilute and reduce consumer protection in many provinces. Certainly those provinces that are more active in consumer protection, such as Quebec and B.C.
You make the argument that for the sake of efficiency and clarity, you want to make sure every Canadian gets at least the minimum protection you're proposing. I can appreciate why the banks want this. It is so much easier to deal with one set of regulations than multiple provinces and the federal. I am still quite concerned, in spite of that advantage, that many consumers will see a reduction in their protection. Having said that, you make the argument that you did that it would resolve it all. The Supreme Court decision in Marcotte, 2014, basically talked about Canada being a federation, and you can have laws in different provinces, including the federal government, and they can all apply.
The words you used in the proposed amendments, "paramountcy'' and prépondérance, make it clear that federal law applies, consistent with the Supreme Court judgment. If you simply remove that word and simply suggest these improvements concerning production, then the Marcotte decision could reside. For provinces that have superior protection, they still get it, and the federal government still gets it. Every Canadian would at least have what the federal government is proposing, but it would not diminish those provinces which have greater consumer rights.
Why wouldn't you consider removing a couple of words, "paramountcy,'' and basically all consumers will be happy about it and you would get the efficiency you're seeking?
You said that earlier in your research and in preparing these amendments, you consulted widely. I'm not so sure the provinces understand what is happening with this paragraph.
It should be dealt with separately. This paragraph should be amended or removed, and we should have further discussion. We have a responsibility as senators to make sure the provinces understand what's happening.
Again, why would you object? In fact, in your election platform, you made it very clear that budget bills would not include other provisions and that these omnibus bills would be separated.
It makes it difficult for senators because we don't want to vote against your budget bill, but this is not a budget issue. This is a consumer protection issue.
I say remove it. We'll deal with it separately. Or at least take the words "paramountcy'' and prépondérance out.
Mr. Morneau: We see this as one bill in its entirety. We see the need to improve Canadians' situations, which we've put in our budget. We see the need to protect Canadians, which we've put in our budget. We are putting down with clarity the constitutionally required approach that the federal government has the exclusive jurisdiction over the banking sector. That's something we want to be absolutely clear on.
We view the consumer protections we're putting in as an enhancement of consumer protections across this country. By asserting the federal supremacy in this regard, we're ensuring that those consumer protections stay appropriate and do protect consumers in the way we're trying to do across the country consistently over time.
Senator Massicotte: Why would you use the words twice, "preponderance'' or "absolute''? Why is it necessary that the federal government have absolute authority over these issues — for decades you've shared it with the provinces — especially when experts are telling you it is lesser protection? What is so important, given the preponderance at this point in time, when you know you're diluting consumer rights?
Mr. Morneau: We don't see it that way. We believe we're enhancing consumer protections and ensuring consistency across the country.
Mr. Campbell: To supplement what the minister said and to refer to your question, the Supreme Court did reaffirm federal jurisdiction over banking and the Bank Act. The paramountcy clause that is included here is a very narrow application to specifically the provisions in provincial laws that pertain to consumer protection. It is not a wide application. It is a very narrow use of paramountcy that demonstrates that the federal regime already exists.
It is comprehensive in nature. It is effective, consistent and can be applied. It does not assert paramountcy over those many other provincial statutes that will apply, including contract law.
It is a narrow use of the "paramountcy'' term inside the act, and it's all integrated. The enhanced targeted protections, the clarity, the revamping and reasserting paramountcy is one integrated package.
Senator Massicotte: We've studied these specific sections in our Banking and Commerce Committee. I certainly appreciate that what you're proposing improves the existing consumer protection of the banking system. I agree, but I want to make sure the point is clear.
I'm not talking only about that. I'm talking about the existing consumer protection that resides in provinces that before this amendment would continue to apply. I'm suggesting to you that what you are proposing is weaker than what some provinces have. You're saying no, in spite of that, for the sake of simplicity and efficiency — and I can appreciate that the banks only want one regulator — but it is a diminishment of consumer rights.
Mr. Campbell: First off, senator, we are all guided by the Marcotte decision, which is a very narrow decision about the application of a very narrow set of rules. The government has taken guidance on how to move forward.
The court did suggest the federal government make clearer its intent in this area, so in a sense, they did create the expectation that the Government of Canada would respond. The government is responding in a very narrow and targeted way to suggest that this is the best way to approach national consumer protection.
From an official's point of view, I don't think I would concede that the provincial standards are higher. In many respects, they're different. In this case, it's often difficult, from the consumer's perspective, to know what rules and rights apply to them.
This is not from what the banks want. This is clearly an aspiration of Canadians and consumers to have very clear and effective consumer protection with respect to their banks.
Senator Mockler: When we talk about the efficiency of national banking, coming from New Brunswick, minister, I have to share with you that when I travel and meet the business community and financial institution representatives and they talk about financial institutions, I say to them, "Our former Governor of the Bank of Canada, guess where he is?'' We are doing something right.
Could you guarantee that what Senators Pratte, Eaton and Massicotte raised will not have a negative impact on what Quebec and B.C. are doing now?
Mr. Campbell: How a province responds is clearly up to the province. In this respect, I can say that the federal regulator, the Financial Consumer Agency of Canada, in the spirit of cooperative federalism, will continue to work with its provincial counterparts on the implementation of regimes, as they do now, and officials will continue to work in the domain of financial sector policy to where both provincial and federal regimes intersect. That is the spirit of cooperative federalism, and that only gives resolve to increase those efforts going forward, senator.
Senator Mitchell: I want to pursue this a little bit further. To this point, we're sort of talking in general terms, but you're going to be implementing this regulation by regulation. It's difficult for me to believe, and perhaps you can confirm one way or another, that given a regulation on better or worse disclosure, for example, because it's one of the features of your effort to enhance protection, you would actually diminish a disclosure regulation that is already in place by a province. Is that right? You're not going to go out and say, "This is too high. We're going to lower it.''
On a case-by-case basis, wouldn't you be taking the best possible disclosure or protection initiative and ensuring that that is not diluted?
Mr. Campbell: For example, with regard to disclosure, under the federal regime, the use of information boxes and how information is displayed has been very popular and widely endorsed by consumers, and that is now being applied across the whole range of banking products and services. Canadians clearly wanted that. It was a strength of the federal regime, and it was well regarded. In that sense, this is what is being followed.
The difficulty with adherence to multiple regimes means documentation to the consumer gets longer, more legal language, more complicated and harder for consumers to understand, whereas the approach is to make it simpler and clearer what their rights and obligations are.
That's certainly the trend going forward. The federal enhancements here take something positive. We have it across the whole suite of banking products and services.
Senator Neufeld: Thank you, minister, for being here. You talked in your speech about benefits to low-income people and what they're going to receive in tax cuts, but when I look at what happened, the tax rate of 15 per cent did not change at all, the lowest tax rate. If you're talking about people in poverty, that's who you're talking about. The only thing it raised was the threshold to $45,000 from $40,000.
When you justify why you changed the tax rate for what you call the middle class, which is above that, you say they're going to get a Child Tax Benefit. What happens to those people who don't have children? What other thing is there for those people who are from zero to $45,000 that will bring them out of poverty?
It's not a child tax credit for everyone across the country, because they don't all have children. I know that from where I come from.
Second, the Child Tax Benefit is not indexed until 2020. Why is that? Have you thought maybe you've given too much to that middle class, and you're going to hold the indexing back until 2020? What is the magic about 2020?
Those are my two questions. sir.
Mr. Morneau: We clearly put in place a number of measures that are intended to help Canadians who are finding themselves in challenging situations. We targeted subsets of Canadians that we thought were those who are particularly challenged. So, in increasing the Canada Child Benefit, as you said, we made a very significant difference for Canadians, low-income Canadians and middle-income Canadians, at the time when they're raising children. We know that that has had a big impact.
We also targeted students, so we made significant changes in student grants for low-income and middle-income students. Bigger for low income, a 50 per cent increase, from $1,200 to $1,800 per year for low income. We also, for lowest-income seniors, made a significant increase, a 10 per cent increase, almost $1,000 a year, for the lowest-income single seniors.
So we had a number of measures helping out those Canadians who are in the most challenging situations. The idea behind lowering the tax rate, the $45,000 to $90,000, was a recognition that the increase in our economic outcome over the last couple of decades had not advantaged that group of Canadians as much as it has advanced the situation of those in the top 1 per cent. That was why we decided to increase the top 1 per cent and lower the group between $45,000 to $90,000.
Finally, with respect to the Canada Child Benefit, the second part of your question, we decided that we would make a significant increase in the Canada Child Benefit now, one that's going to have a very big impact in terms of the number of children raised out of poverty. We recognize that over time yes, it needs to be indexed, and we chose, based on the fiscal track that we have, to begin that indexation in 2020, recognizing that we are currently in a low-inflation environment and seeing that that would actually help people over time.
The Chair: Mr. Minister, one last question, if you would permit Senator Ringuette to ask you a quick question with a very short preamble.
Senator Ringuette: I guess we have to start from the start. Your officials say that they've been consulting. Is it the Department of Finance that consulted or the Financial Consumer Agency, which is 90 per cent financed by the bankers, or is it the ombudsman situation that is 100 per cent financed by the banking association? Or is it the bankers who were consulting and reporting so that this is what we see in this bill with regard to consumer protection?
Mr. Morneau: You're asking —
Senator Ringuette: Who has been supplying you with the information? The department is saying they've been consulting widely for many years to bring about these consumer protection changes.
Mr. Morneau: For the specific approach, I'll let Glenn answer that.
Mr. Campbell: As the Director of Financial Institutions, I am responsible for the consultations that were undertaken to provide advice to the government. This was done by the department. We engaged directly with Canadians, with stakeholders from coast to coast, in person, online, through letters. We also took submissions from the regulatory agencies, the ombudspersons and the affected banks. It was widespread, and it was all managed by the Department of Finance.
Senator Ringuette: Okay. Then there would be no problem in tabling these documents with the clerk of this committee?
Mr. Campbell: We have many consultation documents from the past few years and would be happy to disclose the principles of what we've heard.
The Chair: Thank you, sir. Mr. Minister, you've given us an extra 10 minutes of your time. We appreciate it.
Mr. Morneau: If I in some way stumble today in Question Period because I haven't prepared with my team, it is going to be entirely as a result of answering more questions on Bill C-29. Thank you very much. It's a pleasure to be here, as always.
The Chair: We have before us two officials from the Department of Finance to look at Parts 2 and 3 of the bill: Gervais Coulombe, Acting Chief, Sales Tax Division, Tax Policy Branch; and Pierre Mercille, Senior Legislative Chief, Sales Tax Division, Tax Policy Branch.
Gentlemen, please go ahead and review for us Parts 2 and 3 that we did not have time to cover last Friday, if that's okay.
[Translation]
Pierre Mercille, Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance Canada: Hello everyone. Part 2 of the bill implements measures relating to the goods and services tax and the harmonized sales tax. Part 2 begins at clause 89 and ends at clause 99.
[English]
There are only four GST measures in this bill, so I'm going to describe them one after the other. I'm going to pause between each measure in case you have questions.
The first measure provides a GST/HST relief for exported call-centre services. More specifically, the relief will apply to supply of a service of rendering technical or customer support to individuals by means of telecommunications, which can be by telephone, by Internet or by webchat. So this relief will apply if the service is supplied to a person who is a non-resident of Canada, if the person is not a consumer of the service and if the person is not registered for GST/HST purposes.
The amendment will allow the Canadian call centres to compete more effectively in the global market with suppliers that are located outside Canada. That's the first measure.
The Chair: Questions? Anybody? Colleagues? We're clear? Partially clear?
Senator Andreychuk: Is it only call centres? Can you give us another example?
Mr. Mercille: This particular measure is only for call centres.
For example, when you purchase a smartphone from a foreign company, because a smartphone is very complicated there is a 1-800 number that you can call and ask questions, say, if you cannot turn it on, and things like that.
What the amendment does is ensure that the foreign company is a non-resident, is not registered for GST purposes and is not the consumer of the service. The person who is going to consume the technical service is the individual who purchased the phone.
There was a technical issue in the legislation before. If American owners of the phone happened to be in Canada at the time they called the technical line, it would taint the whole provision and supply and everything would become taxable. There was kind of a problem with the legislation, and this amendment is intended to clarify that the intent is an exported service and, generally, exports are not subject to GST/HST.
The next measure is fairly technical. It clarifies the closely related test under the GST/HST legislation. To give you a bit of an explanation, under the GST/HST there are special relieving rules that allow members of a closely related group of corporations or partnerships to neither charge nor collect GST/HST in inter-company supplies.
To qualify for this relief, each member of the group must be considered to be closely related with each other member of the group of corporations or partnerships. The test is that they should have a degree of common ownership of at least 90 per cent. It's a very high threshold of common ownership.
What the amendment clarifies is that in order to meet the closely related test in the future, in addition to the common ownership test of 90 per cent, a corporation or partnership will need to also hold and control 90 per cent of the votes with respect to every corporate matter of a subsidiary corporation.
Essentially, the goal here is that, for example, if you have a holding company that wholly owns the group of corporations, these provisions are intended to provide relief in that group of corporations because they essentially act as one person.
We're making that little clarification here because the evolution of the share capital of companies is much more complex now. It's not like one share, 1 per cent of the corporation and one vote. Sometimes it's multiple votes, sometimes the shareholders can vote on some issues and not others, and this amendment is intended to clarify that we're targeting groups of corporations that essentially act as one person.
Senator Marshall: What you're saying is that the closely related test is changing, right? Is it becoming more restrictive? That's the impression I get from your comments.
Mr. Mercille: Yes, it's getting more restrictive, but if I can put it this way, we have been made aware of situations where people are asking the CRA to interpret situations where there are multiple votes with one share and it would affect that 90 per cent. Even if the ownership itself was 90 per cent, the right to vote was not 100 per cent. There were other little scenarios like that.
We have good reason to believe this could have been a loophole in the future, but it was caught very early because we have not received much reaction to this change.
Senator Marshall: This applies to earlier questions that I've had. For this change, is there an estimate of the extra revenue that is the government will raise as a result of that change? Do you think it's not that pervasive because you haven't received many complaints?
Mr. Mercille: We don't think it's pervasive. We're not even sure it was actually used in practice. We just heard that people were trying.
Senator Marshall: You wanted to tighten up and make sure it was not interpreted too generously.
Mr. Mercille: We did not want this kind of structure to become known and used more in the future.
Senator Marshall: Yes, okay. Thank you.
Mr. Mercille: The next amendment is consequential to the repeal effective January 1, 2017, of the eligible capital property regime under the Income Tax Act and its replacement with a new capital allowance class. This amendment to the Income Tax Act is included in Part 1, and my colleague Mr. McGowan explained it to you last week.
Because some of the provisions of the GST refer to the provisions in the Income Tax Act in Part 1 that are being amended, it is proposed, in this bill, to make amendments to some GST/HST provisions to ensure that the GST/HST treatment in this area is not changed. Essentially, we're making amendments to ensure we maintain the status quo.
The Chair: Any questions?
Let's move on.
Mr. Mercille: The last measure in Part 2 of this bill is an administrative measure. It clarifies that the Canada Revenue Agency and the court may, at any time, increase or adjust an amount included in an assessment that is under objection or appeal, provided that the total amount of the assessment does not increase.
This measure is similar to one that is proposed in Part 1 of this bill. The original issue was in income tax, but it's being implemented at the same time on the GST to ensure greater consistency amongst administrative provisions throughout federal tax statutes.
This particular amendment is the only one that is included in Part 3 of the bill. Part 3 amends the Excise Act, 2001, which deals with the excise duty on tobacco and alcohol. Again, it's being done there for exactly the same reason: to ensure greater consistency in administrative measures across tax statutes.
The Chair: Any Questions? Excellent. Moving on.
Mr. Mercille: That's it for Parts 2 and 3.
The Chair: That means we're done. We lived through such intensity last week. I apologize, gentlemen, for keeping you longer than we should have last week. We didn't realize we were going to go on as long as we did, but we really appreciate the fact that you came back.
[Translation]
Thank you for your presence here. We greatly appreciate the knowledge you have shared with us.
[English]
Thank you very much.
(The committee adjourned.)