THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
OTTAWA, Thursday, December 7, 2017
The Standing Senate Committee on National Finance, to which was referred Bill C-63, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, met this day at 10:15 a.m. to give consideration to the bill.
Senator Percy Mockler (Chair) in the chair.
The Chair: Honourable senators, my name is Percy Mockler, a senator from New Brunswick and chair of the committee. I welcome you to this meeting of the Standing Senate Committee on National Finance. I also wish to welcome those present.
I would like to ask the senators to introduce themselves.
Senator Maltais: Senator Maltais from Quebec.
Senator Eaton: Senator Eaton from Toronto.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Marwah: Sarabjit Marwah, Ontario.
Senator Pratte: André Pratte from Quebec.
The Chair: Thank you very much, senators. We are in consideration of Bill C-63. We have officials from the Department of Finance joining us, Mr. Pierre Mercille and Mr. Gervais Coulombe.
Thank you very much for accepting our invitation so that you can bring additional information for Bill C-63 and also clarity to going forward as we will complete and table a report next week.
I’ve been informed that the last two items for Bill C-63 are Part 3, Excise Act; and Part 4, the Federal-Provincial Fiscal Arrangements Act.
I would ask the officials to introduce themselves individually. The clerk informs me that Mr. Coulombe will make his remarks, which will be followed by questions from the senators.
Gervais Coulombe, Director, Sales Tax Division, Tax Policy Branch, Department of Finance Canada: My name is Gervais Coulombe. I am the director of excise policy at the Department of Finance.
Pierre Mercille, Director General (Legislation), Sales Tax Division, Tax Policy Branch, Department of Finance Canada: I am Pierre Mercille. I am the director general responsible for legislation in the Sales Tax Division at the Department of Finance.
The Chair: Thank you very much. Mr. Coulombe, please proceed.
Mr. Coulombe: Thank you, Mr. Chair. Let’s start with beer taxation. This measure, the only one found in Part 3 of the bill, under clauses 165 to 168, amends the Excise Act to ensure that beer made from concentrate on the premises where it is consumed is taxed in a manner that is consistent with other beer products.
The Government of Canada generally applies an excise tax duty on alcohol products such as beer, spirits and wine that enter into the Canadian duty-paid market. The regular excise rate on beer is equivalent to $2.61 per 24 bottles of beer.
It has been brought to the attention of the government that the existing excise rules have the result that new ways to sell draft beer may be taxed twice, first as spirits, given their high alcohol content during the manufacturing process; and, second, as beer once transformed in a form ready for consumption at the point of sale.
The present measures amend the Excise Act to ensure that beer concentrate is appropriately taxed according to the maximum quantity of beer that can be transformed at the point of sale in a manner approved by the Minister of National Revenue from that concentrate. Beer concentrate will not be taxed as spirits during the manufacturing process.
I want to say that this measure has been the subject of public consultation in recent months. It was included in the press release issued by the Department of Finance on September 8, 2017.
I can give you a secondary explanation of exactly what these beer concentrates are. We need to update the excise tax system from time to time to take into account new products that are developed in the marketplace. It has been brought to our attention that some beer products found in bars might use a concentrate that has had the water removed. The process causes some of the water to be removed at the brewery. The resulting beer concentrate is lighter and easier to transport and store than traditional barrels. They can be transported to the points of consumption where a machine rehydrates the concentrate when a pint of beer is drawn.
The current tax laws meant that this beer from concentrate would have been hit twice with excise duties, first as a spirit, then as beer, which did not correspond to the tax policy. The proposed amendment allows this type of product to be distributed in Canada without double taxation.
That completes my presentation for part 3.
Senator Marshall: You indicated that it was brought to the attention of the government. Who brought it to the attention of the government?
Mr. Coulombe: A stakeholder from the brewing industry.
Senator Marshall: This is something where we usually we see tax increases. For what appears to be a tax decrease, could you tell me what the impact will be on government revenues?
Mr. Coulombe: The impact is estimated to be nil because we are not aware that the very products that are targeted by the measure are currently present on the market. This is a pre-emptive amendment that would allow these types of products to be distributed and consumed in Canada.
Senator Maltais: Microbreweries are becoming more and more popular in Canada. What is your excise tax based on for microbreweries? Is it a counter at the pump? How do you work?
Mr. Coulombe: This question is slightly outside the proposed amendments. In general, there are reduced excise rates that may apply for microbreweries. For the first 2,000 hectolitres of beer produced by a Canadian brewer, the rate is reduced by 90 per cent. Then, there is a scale that means that the next 3,000 hectolitres are taxed at a reduced rate of 80 per cent. The next 10,000 hectolitres are at a reduced rate of 60 per cent. The next 35,000 hectolitres have a reduced rate of 30 per cent. Finally, the next 25,000 hectolitres have a rate of 15 per cent. This measure allows very small microbreweries to benefit as much as possible from the reduced rates on beer.
Senator Maltais: The measure you are implementing is not to tax beer twice.
Is this beer powder popular?
Mr. Coulombe: As we understand it, this product is not yet being distributed in Canada. Since legislative changes are now being proposed, the industry and the market will be able to market it in the near future.
Senator Maltais: Have you tasted this beer? What does it taste like?
Mr. Coulombe: We did not have the opportunity to taste any samples as part of the policy development process.
Senator Maltais: There are a lot of small wine producers in Ontario, Quebec, New Brunswick, British Columbia and Nova Scotia. How do you calculate the excise tax on these products? Is it based on an official declaration from the producer or do you have another method?
Mr. Coulombe: Spirits producers, in general, are registered with the Revenue Agency and must remit excise duties on a monthly basis.
As for wine produced in Canada from 100 per cent Canadian agricultural products, the excise tax is completely exempt. There is no excise duty on wine that is made in Canada from agricultural products like grapes that are 100 per cent Canadian. We are talking about small producers, for example, as you just mentioned, who use grapes from their region to make their wine. I want to make it clear that these are exclusively grapes from Canada, and they would not be subject to an excise duty. However, they will still have to declare their production to the Revenue Agency.
Senator Maltais: Is the same true for producers who make cider from Canadian apples?
Mr. Coulombe: We can get back to you on this technical question. From memory, cider is subject to the same excise duties as wine, but I would prefer to send you this information in writing, if I may.
Senator Maltais: Certainly.
The Chair: I have a few questions about part 4.
How would the federal government, Mr. Mercille, safeguard any personal information collected and shared through the administration and enforcement of cannabis taxation? I know there’s a process. What would this information be used for in the context of regions of Canada?
Mr. Mercille: We just jumped to Part 4. I’m not sure if the committee wants to have the presentation from Mr. Coulombe first, because we’re talking about cannabis here. I can answer the question after, but I’m not sure if you first want the presentation about the measure.
The Chair: We can move on to the fourth point right away.
Then we will consider going to Part 4.
Mr. Coulombe: The measure in part 4 covers clauses 169 to 171 and amends the Federal-Provincial Fiscal Arrangements Act to provide the Minister of Finance with the ability to enter into, on behalf of the Government of Canada and with the approval of the Governor-in-Council, coordinated cannabis taxation agreements with the provinces and territories. Such agreements currently exist, for example, for the harmonized sales tax.
Among other things, these agreements would allow for the application of cannabis product taxes under a single act of Parliament that would be collected, administered and enforced by Canada and that would have rates that may be set on a province-by-province basis. The agreements would also permit the Government of Canada to make payments to the government of a province in respect of the revenues from cannabis taxation.
Accordingly, that approach would help to reduce the availability of contraband cannabis in the marketplace and to support other key objectives, such as keeping cannabis out of the hands of youth and reduced compliance costs for businesses.
The power to enforce the federal rate of the cannabis tax itself, as well as the additional rate for provinces and territories that join such a coordinated approach, will follow the usual regulatory process in due course. To that end, the government launched consultations on November 10 on a proposal on the excise tax framework for cannabis products. Canadians can submit comments on the proposal until midnight tonight, British Columbia time. The consultation document that has been made public contains legislative proposals and explanatory notes to these legislative proposals, as well as a background document.
Then the government will have to table the proposed system in Parliament for approval. So the amendments we are proposing, which are in Bill C-63 today, are for the sole purpose of enabling agreements between the federal government and the provinces. Legislative structures and amendments to allow the taxation of cannabis itself will follow in a future bill that will be prepared by the Department of Finance.
That concludes our presentation. We are ready to answer your questions.
Mr. Mercille: In respect of the sharing of information, essentially what the amendments detail is the kind of provision that can be included in the agreement that the Government of Canada may sign with the government of a province for the coordination. There’s a clause — the legislation is on page 233. It’s 8.8(1).b that talks about provision of information.
This is standard when there’s an agreement of that nature, and the precedent I’m going to rely on is the HST agreement, where there are similar provisions for the sharing of information. A very simple one is that if a province entered into an agreement with the federal government, the revenue from the taxes imposed under the federal legislation will be given to the province. The province would like to know how much revenue has been collected to see, when they receive revenue, if it’s actually in accordance with what was collected. This is the type of information that can be shared.
Those agreements have not been drafted yet. This is just a point to allow the minister to be in a position to enter into an agreement if there’s an agreement with the province. To give the example of the HST — because I think the question was going more on the personal information aspect of the system. The proposed amendments that have just been released for consultation, as my colleague just explained, are amendments under the Excise Act, 2001. The Excise Act, 2001, like the GST and income tax legislation, have provisions for the protection of confidential information or taxpayer information. Usually the Minister of National Revenue is not allowed to share information unless the legislation specifically provides so. There’s a list of situations. One that is important for the province is that the Minister of National Revenue is allowed to share with the province information for the purposes of fiscal policy development.
Why we’re talking about these is basically to say that if the legislation for the taxation of cannabis is passed by Parliament, it will be in the Excise Act, 2001. That includes provision for the protection of confidential information.
Going back to the question about the agreement, those agreements with the province usually say that the federal government may share information with the province, and the province may share information with the federal government, but it’s always subject to applicable laws. In this case, for the federal government, if the CRA collects information, they will not be allowed to share it under an agreement if they’re not allowed to share the information under the Excise Act, 2001.
The Chair: Thank you very much, Mr. Mercille.
Senator Eaton: We just heard downstairs from an association of francophone municipalities. They haven’t even begun to be ready yet. We know the regulations for the legalization of marijuana have not been pre-published. They will not be published until sometime in July, after Royal Assent.
We know the federal government has floated out that they’re willing to give the provinces 50 per cent. Some provinces have come back and said no, it’s going to be mostly us who will pick up the tab. Municipalities feel that they will pick up an even greater amount of the tab.
What do you think will happen, gentlemen? Because we have a deadline. The government has given us a deadline to pass. We legalize marijuana, we look after the driving offences, but the provinces stick their feet in and say, “We have to negotiate this. We’re not accepting 50 per cent.” The regulations haven’t been organized.
What do you think will happen on July 1 if you don’t have the division of taxes in place? I agree you want the legislation to give the minister — but surely they can sit down off the record and come to some agreement before July 1 so that when this is passed today, there’s something in place. But it looks to me like it hasn’t even begun, so on July 1 you won’t have an agreement. He will have the right, but you won’t have an agreement as to the sharing of the taxes. Is this all being done backwards?
Mr. Coulombe: I can tell you that the Government of Canada is currently working with partners and is consulting Canadians, including municipalities, on the excise tax framework.
Senator Eaton: I know. That’s a lovely line, and I don’t mean to be rude. We’ve had these talking points. We know they have not pre-published the regulations. We know they floated out to the provinces. They have not sat around a big table with the provinces and worked it out. So thank you, but I don’t want your talking points. If you don’t have another answer but that, thank you.
Can you tell me what you expect the government to collect in taxes from this? You must have some idea, when everything goes into force, and say you get the 50 per cent — or it doesn’t matter because you’re going to collect all the money and then distribute it back to the provinces, right? And it will be up to the provinces to give it to the municipalities?
Mr. Coulombe: The details in terms of how much revenues will be collected will depend upon the final legislation that is being proposed in Parliament on the taxation side. As I mentioned earlier in my presentation, there are some policy decisions and consultations that are going on as we speak, so it’s only when the government will present to Parliament the final legislative framework on the taxation side that would —
Senator Eaton: Could you back up?
I do not understand. So this means that it has not been decided —
— whether, for a package of marijuana cigarettes, say, or however it will be sold, whether there will be a 10 per cent tax or 20 per cent tax? Is that what you’re negotiating or thinking about right now?
Mr. Coulombe: The government is currently discussing these parameters with its counterparts in the provinces and territories. In the legislative proposals that were made public for consultation, there was this reference to a federal rate of $0.50 per gram of flowering material in a product, or 5 per cent.
Senator Eaton: What would it bring to the federal government if it was $0.50?
Mr. Coulombe: These are issues that the government is looking at right now. The revenue estimate is very dependent on how the provinces decide to distribute cannabis products. There are also considerations related to the Department of Health that need to be taken into account, precisely, on how Bill C-45 legalizing marijuana is administered. Income issues as such will be addressed in the near future.
Senator Eaton: Thank you very much.
The Chair: Mr. Coulombe, as chair, I must invite you to share other comments, if you have any, so that we can put them on the record and learn more about these issues.
Mr. Coulombe: We can always do an internal follow-up, but for the moment the difficulty with this file is that the proposed amendments, which are being studied by the committee, are strictly related to the Federal-Provincial Fiscal Arrangements Act, and not the upcoming legislative changes on the taxation of cannabis. It would probably be inappropriate for us to comment on the coming legislative proposals.
The Chair: Thank you, Mr. Coulombe, for the information and the clarifications you have provided.
Senator Pratte: Is this legislative framework for negotiations between the Government of Canada and the provincial governments similar to the one that was put in place, if there was one, when tax-sharing was discussed for gas, for instance, or for the tax on tobacco? Was there a similar framework at that time?
Mr. Mercille: The model that was followed for these amendments is the model that exists for the HST. The amendments were passed several years ago, and the minister now has the right to enter into an agreement with another province that would like to harmonize. The last one to do this is Prince Edward Island. It is under part III.1 of the Federal-Provincial Fiscal Arrangements Act. Here, we are aiming to create a part III.2 that applies to cannabis. If you compare the two parts, you will see that there are a lot of similarities. The HST is a little more complicated because it is a larger base, but the model that served as inspiration is very near to the HST model.
Senator Pratte: Okay.
This morning, we heard from representatives from New Brunswick municipalities, who would like, for example, that part of the proceeds of the excise tax on cannabis be paid directly to them and that there be no condition, on the model of the gas tax. In this legislative framework and in the negotiations between the Government of Canada and the provinces, is this something that would be possible? I notice that, in the text, there is always talk of discussions between the Government of Canada and the provinces; there does not seem to be room for the municipalities, but would it be possible, legally speaking?
Mr. Mercille: I am not very familiar with the legal mechanism for redistributing the gas tax. I think this is a question the minister answered two days ago. These amendments are intended to leave the minister free to negotiate with the provinces. Municipalities are a creature of the provinces, basically. I am sure the provinces have the interest of the municipalities at heart. The current amendments are designed to allow the minister to seek authorization from the Governor-in-Council to enter into an agreement and create obligations and rights for Canada and the provinces under the agreement. As for the issues to be negotiated in the future, it is not up to the officials to decide.
Senator Pratte: Paragraph 8.8(1)(e) refers to payments made by the Government of Canada to the provincial government in respect of the revenues from the system of taxation. I imagine that the same thing is provided under the HST.
Mr. Mercille: Yes.
Senator Pratte: When we talk about the eligibility conditions, what do we have in mind? Are there already things being considered?
Mr. Mercille: This type of measure is provided because the agreements or terms of the agreements have not yet been negotiated. Generally, we give ourselves flexibility in this type of provision, in case there is a condition here or there. It is also about the calendar; for the HST, the agreement specifically indicates when payments are made and how often. These are the kinds of things that are covered here.
I also want to point out that we use the term “including” in English. These are elements that exist, but do not preclude, for example, other possible elements, as you can see in paragraph (h):
(h) other matters that relate to, and that are considered advisable for the purposes of implementing or administering, the system of cannabis taxation contemplated under the agreement.
The basic elements are listed, but the last paragraph gives flexibility should there be something else. We can try to anticipate the future, but no one has a crystal ball, so we are trying to give the minister the possibility of signing agreements that might be beneficial for both parties.
Senator Pratte: Thank you very much.
Senator Marshall: When you look at the proposed legislation, there’s reference there to payment of advances to the provinces, and it also talks about rebates, refunds, et cetera.
What dollar figure are you working with? There must be some estimate of the money that will be raised through the taxation of marijuana. This is a framework, but if you’re talking to the provinces, they have an idea of how much money they’re going to need. So what number are you working with?
Mr. Coulombe: The proposed taxation level that has been mentioned in the consultation paper, the level that the government feels is what the market can bear so that we can successfully introduce legal cannabis and remove the illicit market, is $1 per gram of marijuana that is contained in a marijuana product. There are various scenarios that are developed with provinces, with colleagues at Health Canada and so on, based on how that taxation room is being shared.
The proposal from the November 10, 2017 backgrounder mentioned a 50-50 split. There has not been any public announcement yet on the associated revenues that could be associated with these proposed taxation —
Senator Marshall: I thought I had seen somewhere that the member of Parliament Blair, who is overseeing this, that he was looking at a top number of about $1 billion. I know I’ve seen some other estimates. I think the CIBC World Market, I think they estimated that it could be as much as $5 billion.
So what’s the status of the negotiations with the provinces? The time frame now is short, so you must be talking to the provinces. This is a very, very general framework. So what exactly is the status of the negotiations?
Mr. Coulombe: The negotiations are ongoing. For instance, there is a finance ministers meeting that will be held this very Monday in Ottawa. This is really at the political level as we speak.
Senator Marshall: So has there been a framework developed for the agreements?
Mr. Coulombe: These are questions that are probably more to be asked to our political masters, but there are various — I would suspect that there are ongoing discussions and papers that are being discussed based on the announcements that were made in the November 10 technical paper, as well as the amendments that are put in place here.
As Mr. Mercille mentioned, ultimately the goal here is to have those taxation coordination agreements with provinces. This will be text in a very legal format. Usually, if we look at the examples in the past with the Harmonized Sales Tax, there were some higher-level documents that were agreed on at the political level, then I think there was a memorandum of agreement or similar document.
These negotiations are ongoing, so this is difficult for us to report, as public servants, on negotiations that are currently being undertaken by the government.
Senator Marshall: The legislation indicates that these payments to the provinces are going to be statutory.
Mr. Mercille: Yes.
Senator Marshall: And the legislation also provides for advances, so when do you expect the provinces to receive their first payment?
Mr. Mercille: To go back to the question from Senator Pratte, the provision here allowed the Minister of Finance, on behalf of the Government of Canada, to negotiate a calendar of payments. That will be negotiated with the province.
I can give you the calendar for the HST. It’s 48 times a year because the amount is much larger than what will be here.
If the parties agree it’s a monthly payment, it will be monthly payments. It depends what is agreed to.
Senator Marshall: Given the significance of this legislation — and I would expect that the taxation amounts are going to be fairly large — what information is going to Parliament? I thought, Mr. Mercille, that you had indicated there was going to be some restriction on information sharing.
But I was more interested in — these payments are now going to be statutory, so what information will go to Parliament as part of the governance structure or the accountability regime?
Mr. Mercille: I’m not an expert on that, but I believe that the GST revenues are reported in the Public Accounts.
Senator Marshall: And that’s all that’s contemplated at this point in time?
Mr. Mercille: I’m not — you know, I’m a lawyer drafting legislation; I’m not the most familiar with how the revenues and expenses are reported to Parliament.
Senator Marshall: There’s nothing in there on the accountability regime, but if it’s possible, I would appreciate if — probably Mr. Coulombe — you could forward any information that you have with regard to the accountability of this program to members of Parliament. Thank you.
The Chair: To follow up with Senator Marshall, if you could provide that information ASAP so that could also enable us, for clarity, as we will move forward to next week.
Senator Forest: We understand that it is not the officials who define the policies and that they are there to provide clarification on the legislator’s decision.
Yesterday or the day before, the minister was made aware of the importance, throughout the application of the cannabis legalization bill, of taking into account a major player: the municipality. This is what representatives of the Association francophone des municipalités du Nouveau-Brunswick told us this morning.
It is really at this level of governance that the day-to-day management of the impacts of this bill will occur. My colleague Senator Pratte mentioned it before me, quite relevantly.
One of the most structured measures the government has adopted is the return of the excise tax on gasoline to all municipalities, with a view to consolidating infrastructure and using very specific intervention plans. There are two models to suggest to legislators. There is the one that involves coming to an agreement with the provinces, insofar as the minister has said he is ready to increase the return of the tax to the provinces and insofar as the provinces could transfer part of this tax to municipalities. The other model is the excise tax on gasoline. It is a fair, predictable model that allows each level of government, depending on its responsibilities, to have the resources to fully assume its responsibilities.
I would like to know your point of view. As a public administrator, do you think these two models deserve your attention and deserve to be recommended to the minister?
Mr. Coulombe: Senator Forest, thank you for your comments, which are very much appreciated. Last Tuesday, Minister Morneau mentioned that he was in ongoing discussions with the mayors of Canada’s major cities and with various municipal associations. These are concerns that the current government takes very seriously.
With respect to the federal excise tax and the redistribution mechanism to the municipalities, I believe from memory that this is a federal program. There is no direct link, legally speaking, between what is collected under the Excise Tax Act and the payments, since payments are legislated under a different program.
These are of course possible avenues. Although there are others that would ensure that the federal government and the provinces agree on an optimal sharing, I can assure you that all avenues are being studied in the negotiations. Of course, they are not currently in the form of legislative amendments, but the government will announce them in due course.
Senator Forest: I understand your very cautious answer, and I respect it, but the fact remains that if — in an honest and respectful way — you are holding consultations from one end of the country to the other, the entire municipal world will clearly and predominantly indicate to you that the excise tax model on gasoline is the most equitable and most relevant to meet this challenge of fully taking on the responsibilities that a municipality must assume on a daily basis.
Mr. Coulombe: Thank you. I would simply like to add that the consultations began on November 10, 2017, and are ending today. We have received several thousand submissions, including, of course, some from the municipal community. Much of our work involves continuing to review all submissions and to ensure the best advice is provided to our policy-makers.
Senator Maltais: I will not come back to the excise tax on gasoline, because we discussed it at length this morning with the Association des municipalités francophones du Nouveau-Brunswick, but there is a little bit of trouble. Municipalities must submit their budget by December 31. They have expenses to include in their budget for the purchase of equipment, but they do not have any revenue, so it will be quite difficult for municipalities to balance their budgets. They know that they will have to pay for certain expenses, but they do not have the revenues associated with them. That is my first point.
My second point is that I am impressed to see how much the federal government and the Minister of Finance do not anticipate the amount of tax they will collect with cannabis. Yet, they are anticipating expenses, not revenues. I am not a chartered accountant like my colleague, but I am able to follow a column of numbers, and when you spend money, you are anticipating income somewhere. In a family budget, there are expenses of such and such amount related to the mortgage, the car, snow removal, the children, food, and an income of this amount. In our case, we have the whole series of expenses, but not the series of incomes. This is a question mark.
My last point is that you said that the excise tax could be $0.50 per gram of marijuana, so there is somebody somewhere who knows how much a gram of marijuana costs. I would like to know who told you, if it is not the local dealer. That person is the only one who knows the price of marijuana right now. Did you talk to them; did you smoke a joint with them? How does it work? How were you able to establish this percentage, not knowing the price?
Mr. Coulombe: Thank you for those questions, Senator Maltais. I can assure you that, just like for the beer concentrates, we did not receive any samples as we were working on the policy proposal.
I would like to start by addressing your second point about the revenue. At the risk of repeating myself, the proposed tax structure and the amendments that were the subject of public consultations first and foremost have as their key objective, as legalization starts, to make the price low enough to make the criminals shut up shop. Of course, we will be paying for some aspects of education and administration as the law is enforced. But the main goal is to keep the price relatively low. The government’s approach to date has been to not see the taxation of cannabis as a way to maximize revenue. The first goal of legalization really is to shut down the illicit market and to make sure that, from now on, Canadians use the distribution systems for obtaining marijuana that the provinces have put in place.
If I may, let me move to the second point about price. We have to remember that, at the moment, some marijuana products are legal in this country. Those are the products that come together under the heading of medical marijuana. Those producers, of course, are constantly working with the Department of Health. In addition, from our colleagues in the Department of Health, we have been able to determine some of the production costs. We also have examples of products that are on the American market, where marijuana is legal in some states. The prices vary.
If you take a look at the latest figures from August 2017, our understanding is that the sale price for marijuana in flower form is about $9.50 per gram. You could have prices in the $7, $8, $9 range. Hence the idea in the proposed legislation that was made public in November to base the price structure on $10. A product sold by a producer at more than $10 would be hit with federal duty of 5 per cent, with 50 cents as a minimum, meaning that there would be no amount lower than 50 cents.
Once again, the rate of tax is relatively low, either 5 per cent or 50 cents. The federal government suggestion is that the provinces look at a similar amount, hence the figures of $1, or 10 per cent, that you may have heard recently. In all cases, the tax rates are relatively low. By way of comparison, the percentage with tobacco is infinitely higher.
Senator Maltais: The analysis in some papers in Quebec says that, sure, it is all fine and dandy, and it will stop marijuana being sold to kids. A lot of people do not grow it, but, with the ability to grow four plants per household, some kids will get the idea of growing their own, if it is worth their while. Tobacco has been taxed to the hilt in all provinces and the federal government has been a huge beneficiary. However, contraband still exists and it is growing. What guarantee do you have that contraband marijuana is going to decrease? It is going to take half of the Mounties in Canada to control it all. It is incredible that you are putting it out there with no means of control.
The worst part of it all is that the burden is going to fall on the municipalities. Last week, I was at the Union des municipalités du Québec. I met with mayors and municipal councillors, not just from Montreal, but also from some sizeable cities like Laval, Quebec, Sherbrooke and Saint-Hyacinthe. These are cities with a major problem, because they have composting programs now. Do you see where I am going? Marijuana waste, the butts, will go into the compost. The compost is used to fertilize the cities’ gardens. Will that have any consequences? Up to now, no one has been able to answer. Will the vegetables grown with the compost contain marijuana? I do not know. I am no expert. Up to now, no one has been able to give me an answer.
Mr. Coulombe: What is the question?
Senator Maltais: Can anyone give me an answer in writing?
The Chair: Mr. Coulombe, could you take that question under advisement?
Mr. Coulombe: A number of Senator Maltais’ concerns are more related to the bill on legalizing marijuana for non-medical use, Bill C-45. I think that the Senate has started a study on that bill. My colleagues from the Department of Public Safety, from Health Canada, and from the Department of Justice are probably in a better position to answer those questions during the Senate’s study on Bill C-45.
Senator Maltais: Thank you very much.
Senator Marshall: I just have to go back to the money. I accept what’s in the legislation with regard to the agreements, because it’s really a very broad framework, but we’re just picking up bits and pieces with regard to the dollar amounts. I’ve heard that the federal government may retain 50 per cent of the tax revenues, and maybe 50 per cent will go to the provinces. Then you have the municipalities, who we heard from this morning, which are the third group down the line. Nobody is talking about any revenues going to them, but they’re the ones bearing all the costs.
I find that for such a big policy change and for this legislation, this is really a big thing. The federal government, with all of its resources in terms of people, money and everything, I just find it’s incomprehensible that somebody hasn’t laid out some sort of plan with dollar amounts in it. We’re reading the newspapers to try to find out information. We look and we see member of Parliament Blair thinks maybe it tops $1 billion. CIBC World Market thinks $5 billion.
I’m puzzled that the framework we see so far is so broad and that there doesn’t seem to be anything of a detailed nature available. That’s not a question. That’s a statement. If the witnesses could respond, that would be great.
The Chair: To the witnesses, do you have any comments on that statement?
Mr. Coulombe: There are many moving parts in this entire legalization project. Provinces and territories also have a key role in determining how products will be distributed and made available for retail in their own jurisdictions. Almost every week we learn about a system chosen by a province or territory for the distribution of these products in their jurisdictions. As a result, on a week-to-week basis, we reassess assumptions to better estimate the size the legal market would take on the legalization date and how this legal market will grow over time in the first years of legalization.
That’s why we keep the approach of proposing rates — or putting out for consultation rates — on cannabis products that are very low — and try to work with our territorial and provincial partners to keep an eye on how the projects evolve over time.
But again, with rates and the final structure of the taxation elements of cannabis products would be submitted to Parliament later, once we have completed those consultations. One would hope that, at that time, we’ll have a better sense of the parameters that would allow us to come back with a number.
Senator Marshall: It’s a good analogy when you say there are a lot of moving parts. When will the parts stop moving so we can know what we’re talking about?
Mr. Mercille: I can answer part of that, not all of it. This is why these amendments are proposed now in advance of the proposed taxation scheme that will likely come in the future. It’s to give the power to the minister so that, if he has an agreement with a province, he or she can legalize the agreement and ensure it’s in place before the date of legalization.
Senator Marshall: But the time frame is getting short.
Mr. Mercille: We all acknowledge that.
Senator Marshall: Thank you.
Senator Pratte: I would like to continue along the same lines. I understand that you are being very careful. However, although I do not want to simplify the problem, it seems to me that it is actually quite simple. We know the size of the current market; we have statistics on the number of Canadians consuming cannabis. Perhaps the data are not perfect, but they are available. We know about the current illegal market for cannabis. We know how many people consume it. We know the average consumption in grams and the price per gram. We are able to estimate how much that represents and, if the tax is X, we can calculate the biggest slice of the pie if the legal market were to attract all those consumers.
Then we can hypothesize: if the legal market is able to attract 50 per cent, 75 per cent or 25 per cent of the illegal market, we get such and such an amount. You surely have done those calculations. You do not want to tell us about them, but you have done them. If the Government of Quebec decides to have 15 stores, it means that they are going to grab a small part of the illegal market. If Ontario decides to have 140, the amount will be different. I am sorry, but you certainly have those figures. I cannot believe that you do not have them. It is not that difficult.
The Chair: That is a very good comment. Can you respond?
Mr. Coulombe: Look, we can put all kinds of hypotheses on paper. But there are still a lot of “what ifs” and we have data coming from our partners like Health Canada, the Department of Public Safety, and the provinces and territories. When we propose the final tax framework and when the government feels that it is in a position to announce the rate and the revenues it will bring in, it will do so.
We are learning about this every day, every week. A lot of calculations can be done but the reality is that they are just estimates. The Parliamentary Budget Officer did a report on the legalization of cannabis a little more than a year ago and it is there for senators to consult. The report laid out a series of estimates on current cannabis consumption in the country and the impact the prices would have, and so forth. These things are in the public domain.
For our part, what we are presenting to you today are the changes that will allow us to continue those negotiations with the provinces. We are not studying the federal tax on cannabis as proposed. The federal rate is not what we are currently studying, hence our reluctance to reply.
The Chair: Thank you very much, Mr. Coulombe. You have not answered the question. Perhaps you would like to take it under advisement and reply in writing, if you have the answer.
Senator Eaton: I’m wondering why you’ve done this backward. Why didn’t you get organized with the provinces, the provinces with the municipalities, figure out how much taxes, figure out the regulations, and then introduce the legislation to legalize marijuana?
As it is, legalization of marijuana is now in the Senate. It could well be passed by March or May, if nobody drags their feet, and there’s so much we don’t know that you’re going to throw at the police forces, at the country, at the municipalities, at the nurse practitioners whom we heard from this morning. It seems like the cart is first, dragging the poor horses without their harnesses behind them. Wouldn’t it have been easier to do all this prep work before, work it out with the provinces and then legalize it? You don’t have to answer if you don’t like my commentary.
The Chair: So that was a comment. We are going to wrap up soon, but, gentlemen, do you wish to share any additional comments with us before we end our meeting?
Mr. Coulombe: I can assure you that we have been working actively with the provinces for almost two years on this project. By “we”, I mean a number of federal government departments.
Mr. Mercille: The only thing that I wanted to add is that we are working on taxation issues here. We are proposing to ministers and to the government ways of taxing existing transactions. In that sense, it is completely new, we are working a little bit backwards, because the market is still not legal. From a taxation perspective, not from Health Canada’s perspective, in terms of cannabis legislation, we are a little ahead, because we have already proposed a framework before the transactions have been established.
Senator Eaton: So you do not have an agreement with the municipalities.
Mr. Mercille: I agree with that, but I want to point out the proposal that has been out, essentially, is a federal taxation regime with an option for a province to join if they wish to do so. So if a province doesn’t wish to join, the federal government has still presented their proposed taxation regime. Because if no province joins, there will still be something proposed at this point for legalization that is proposed for the future.
The Chair: Thank you very much. The last person to speak is Senator Forest. Then we will adjourn the meeting.
Senator Forest: So that means that, next Monday, when the ministers of finance from each of the provinces sit down with Canada’s Minister of Finance to look at the taxation issues, no estimates will be on the table. Their discussion will be a bit like the one we had this morning. It will all be hot air.
The Chair: Okay, that is a comment, not a question. With that, gentlemen, thank you for joining us today. This is a file we will be following. Be assured that, if we need you again, we will invite you back. You can also count on our collaboration, provided we can have some answers.
Senators, the next meeting will be at 2:15 in room 257, East Block.
(The committee adjourned.)