Proceedings of the Standing Senate Committee on
National Finance
Issue No. 82 - Evidence - November 28, 2018 (evening meeting)
OTTAWA, Wednesday, November 28, 2018
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the subject matter of all of Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures (topic: Part 1(j), Climate Action Incentive and Part 1(m), Non partisan activities of charities).
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: My name is Senator Percy Mockler, senator from New Brunswick and chair of the committee.
[Translation]
I wish to welcome all those who are with us in the room and viewers across the country who may be watching on television or online.
[English]
As a reminder to those watching, the committee hearings are open to the public and also available online at sencanada.ca.
Now I would like to ask the senators to introduce themselves.
[Translation]
Senator Forest: Senator Éric Forest from the Gulf region of Quebec.
Senator Pratte: Senator André Pratte from Quebec.
Senator Forest-Niesing: Senator Josée Forest-Niesing from northern Ontario.
[English]
Senator M. Deacon: Marty Deacon, Ontario.
Senator Klyne: Martin Klyne, Saskatchewan.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Eaton: Nicole Eaton, Toronto, Ontario.
Senator Boehm: Peter Boehm, Ontario.
Senator Neufeld: Richard Neufeld, British Columbia.
[Translation]
The Chair: I would now like to introduce the clerk of the committee, Gaëtane Lemay, and our two analysts, Alex Smith and Shaowei Pu, who team up to support the work of the Standing Senate Committee on National Finance.
[English]
Honourable senators 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. Today we continue our consideration of the subject matter of Bill C-86 which was referred to us by the Senate of Canada on November 7, 2018.
Honourable senators, Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures, is what we call a budget implementation bill. This type of legislation is squarely in line with the National Finance Committee’s mandate from the Senate of Canada.
Honourable senators, this evening we want to focus on two measures introduced in Bill C-86.
For the first part of the meeting, we will discuss a measure regarding the climate action incentive introduced in Part 1 of Bill C-86. From Canada’s Ecofiscal Commission, we welcome Mr. Dale Beugin; and also Mr. Nicholas Rivers, Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa.
To the witnesses, thank you for accepting our invitation and for being here this evening. I have been informed that Mr. Beugin is the first speaker, to be followed by Professor Nicholas Rivers and then questions from the senators.
Mr. Beugin, the floor is yours.
Dale Beugin, Executive Director, Canada’s Ecofiscal Commission: Thank you very much for the opportunity to speak to you today.
I represent Canada’s Ecofiscal Commission, a group of high profile independent economists from across the country. The ecofiscal commissioners are supported by a cross-partisan advisory board with representatives from across the political spectrum. Through multiple reports, Ecofiscal has strongly recommended carbon pricing as the most cost-effective approach to reducing GHG emissions.
Carbon pricing also generates revenue, though that isn’t the objective of the policy. Nevertheless, how money that is generated is recycled back to the economy has important implications. As we noted, the federal backstop proposes the climate action incentive payment which uses revenue to provide a tax credit to all Canadians —
The Chair: May I ask you to slow down a bit for the interpreters and the reporters?
Mr. Beugin: Yes, absolutely. I will try to keep it slow. I guess I just got excited about this.
We sometimes refer to this kind of revenue recycling as a carbon dividend. It’s essentially a cheque. There isn’t a single best way to recycle carbon pricing revenue. Instead, there are trade-offs across a bunch of different dimensions. Let me summarize four of those dimensions for you this evening with respect to a carbon dividend.
First, simplicity. Recycling revenue through dividends is the simplest and most transparent approach to recycling. That’s particularly useful in the context of federalism and in the pan-Canadian framework. It allows a clear demonstration, in this case, that 90 per cent of the revenues being generated through this carbon tax are not being used to fund federal spending but instead being returned to households directly. It also clearly demonstrates that the revenues are returned to the provinces in which they were generated and not redistributed between provinces.
The second criterion is effectiveness, the extent to which GHG emissions reductions are achieved. Very importantly, providing households with these dividends does not undermine the incentive that carbon price creates and therefore doesn’t undermine the efficacy of the carbon pricing policy in reducing GHG emissions. It’s the carbon price itself, not the revenue generated, that is the key driver of emissions reductions. Individuals and businesses have incentive from that carbon price to find ways to avoid paying the carbon price, and they have flexibility to do whatever makes most sense based on their own context and their own preferences.
All households in provinces and territories facing the backstop will receive this dividend independent of how much carbon tax they pay. The two parts of this policy, the price and the revenue recycling, are entirely separate and entirely independent.
To work that through as an example, households can choose not to take action to avoid paying that carbon price — because they don’t have options, because their options are more expensive — and they can choose to simply pay the carbon price instead. If they do so, on average, they will not be worse off because they will also be receiving revenue in the form of this carbon dividend. If they do change their behaviour or adopt low-carbon technologies, they can save even more money by avoiding paying that carbon price.
A third dimension is competitiveness. If carbon revenue goes to households, what about businesses? Will this choice adversely affect the competitiveness of industry? I have heard this issue raised many times in talking about this policy. In this case, the answer is likely not very much.
To be clear, these concerns of leakage and competitiveness, of a shift of investment or production away from Canada toward jurisdictions of weaker policy, is a legitimate concern. However, it’s a concern that matters most for emissions-intensive and trade-exposed sectors and industry, which is approximately 5 per cent of the Canadian economy as a whole, the larger in Alberta and Saskatchewan, and mostly large emitters.
Most importantly, these large emissions-intensive, trade-exposed firms are covered not by the pricing policy here but by a separate parallel pricing policy, the so-called output-based pricing system that is explicitly designed to address those competitiveness concerns and create incentives for reducing emissions by improving performance, not by reducing emissions by shifting production and investment to other jurisdictions.
Small businesses will be paying the full carbon price under this system, but in most cases those small businesses are not emissions-intensive and trade-exposed and will therefore be able to pass on their cost to households. As a result, it makes sense that the revenue generated is being targeted toward those households that are ultimately paying both direct costs from their own emissions as well as indirect costs being passed on to them by their firms.
An analysis from the Government of Canada shows that including both these direct and indirect costs, even accounting for both, the size of the credit, of the rebate they will receive, on average, will exceed the cost they receive from both those direct and indirect costs.
There is an outstanding question about the small number of small- and medium-sized enterprises that are emissions-intensive and trade-exposed, and that is worthwhile to consider as an opportunity for the remaining 10 per cent of the revenue being generated, and it would be sensible to consider those small- and medium-sized enterprises in recycling that last 10 per cent.
The fourth dimension of trade-offs I want to talk about is costs and economic impacts, especially overall. Overall, the macroeconomic impacts from carbon pricing, even with these dividends, will be very small. Ecofiscal Commission economic modelling from about a year and a half ago, showed that even under a national carbon price rise to $100 per tonne by 2030, so much higher than the current trajectory of prices, and with all of the revenue used to fund these rebates to households, even under that strong, aggressive, growing carbon price, economic growth would remain very strong and very positive across Canada, only very slightly lower than it would otherwise have been.
This makes sense. After all, it is the flexibility and the market-based nature of the carbon pricing policy that means it is the lowest-cost way to reduce GHG emissions. Other policies, like regulations and subsidies, can achieve the same outcomes but at much higher costs.
Nevertheless, I will note that it is possible to even further reduce the cost of carbon pricing policy by using revenue to reduce other tax rates, to reduce income taxes, either personal or corporate income taxes. That would have made the cost of carbon pricing even smaller than they will be under this approach. That being said, there are other complications with such an approach. Most notably, it would be hard to guarantee revenue generated in one province would not be recycled in another.
Let me sum up. On balance, the approach taken in the backstop is a good choice. It avoids generating revenue in one province and recycling it in another. It is simple and transparent. It will lead to a progressive and fair policy, as I think my colleague Professor Rivers will get into.
There are other options. Economists might prefer using revenues to cut other taxes. Environmentalists might prefer using revenue to invest in clean technology and additional emissions reductions. Nevertheless, provinces can still find their own balance. Some have already adopted their own carbon pricing systems under the pan-Canadian framework, making their own revenue recycling choices. Moving forward, others could choose to publicly accept the federal backstop and maintain control of these revenues themselves and different choices in how these revenues are used.
Thank you very much. I look forward to your questions.
The Chair: Thank you.
Professor Rivers, please.
Nicholas Rivers, Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa, as an individual: Thank you for inviting me to speak about the refundable climate action tax credit.
I am an environmental economist who studies the design of climate change policies. My research has touched on the cost-effectiveness of alternative policies, the impacts of climate policies on the distribution of household income, and the impacts of climate policies on greenhouse gas emissions. My comments today are based on that body of research.
I want to make four points today about the design of the climate policy in question. There’s going to be some overlap with the points that Mr. Beugin has already made.
My first point is that providing a refundable tax credit to households doesn’t undermine incentives for households to reduce greenhouse gas emissions. Since the federal government announced its plan to rebate carbon pricing revenues back to households about a month ago, you may have heard claims that this rebating of revenues to households will counteract the carbon price, such that households will not reduce greenhouse gas emissions. After all, if government collects a carbon levy from one pocket and then provides a tax credit back into the other pocket, so the logic goes, why should households reduce greenhouse gas emissions?
I want to point out, just like Dale did that these claims reflect a misunderstanding of how the policy will work and that providing carbon tax rebates does not undermine incentives for households to reduce emissions.
To understand why, it is key to understand that a household has some control over how much they pay in a carbon levy but has no control over how much they receive in the form of a climate action tax credit. As a result, the carbon price creates incentives for households to try to avoid that carbon price, to try to reduce their emissions, but the climate action tax credit does not provide any offsetting incentive to increase emissions. Empirical evidence on how consumers respond to changes in energy prices and how they respond to changes in incomes help to back up that claim.
While this point is taught to all microeconomics students, it is also a point for which I think we all have an intuitive understanding. For example, the fact that discounts offered by retailers during last week’s Black Friday events attract among the most shoppers of any day of the year tells us that consumers respond to changes in prices, such as due to the carbon tax. The fact that people of all incomes participate in these events tells us that changes in incomes, such as due to the climate action tax credit, don’t eliminate the incentives generated by changes in prices.
My second point is that the refundable tax credit ensures that the federal carbon pricing policy will have a progressive impact on the distribution of income in provinces in which it is imposed.
More precisely, the design of the refundable tax credit will mean that most poor and middle-income households in Canada will end up with more money in their pockets after the imposition of the carbon pricing policy than before.
This result emerges because all households of the same size will receive the same refundable tax credit. In contrast, the exposure of households to the carbon levy increases with increasing income. Bigger households with higher income tends to have bigger houses and more transportation demands.
On balance, this means that households with the lowest incomes will experience a substantial net benefit from the carbon pricing policy. This helps to ensure the carbon pricing policy will help to reduce existing inequalities in society at the same time as it tackles carbon pollution. In addition, since all households will receive the tax credit, most households across the income spectrum will be at least as well off after the carbon pricing policy as before.
My third point is that by rebating carbon pricing revenues back to households in the province in which they originate, the climate action tax credit ensures that no carbon revenues are transferred between one province and another.
There are a number of ways that government could choose spend or rebate carbon pricing revenues back to households. For example, the federal government could have used carbon pricing revenues to lower the federal corporate or personal income tax rate, or it could have chosen to spend carbon pricing revenues on clean energy research or deployment of clean energy infrastructure like public transit.
While each of these approaches has merit and has proponents, none of these other approaches cleanly ensure that all carbon pricing revenues raised in a province are returned to the province in which they were raised.
Given the sensitivity over interprovincial fiscal transfers, as well as the large disparities in greenhouse gas emissions between the provinces, it is vital to ensure that carbon pricing revenues are returned to the province in which they originate. The refundable climate action tax credit ensures this happens.
Finally, the refundable climate action tax credit is a transparent way to demonstrate the carbon pricing policy achieves revenue neutrality. The federal government plans to report each year on the revenue raised by the carbon levy, as well as the revenue returned to households, through the refundable tax credit. This makes it straightforward to verify the government is not using the carbon levy as a way to raise revenues and is instead imposing the carbon price as a way to reduce greenhouse gas emissions.
Overall, I believe the proposed approach to returning carbon pricing revenues to households using a refundable tax credit is a smart policy approach. The federal carbon pricing policy generates clear incentive to reduce greenhouse gas emissions. It ensures that no province has to bear unfair burden of reducing emissions. It will provide a financial benefit for the poorest households in Canada, and thereby help to reduce income and equality, and it is a transparent way to reduce carbon emissions and disburse the associated revenue.
I think this is among the most cost-effective and fair way to tackle greenhouse gas emissions available to the federal government.
The Chair: Thank you.
Senator Eaton: Thank you very much. I would say that I, like a lot of Canadians, don’t have time to sit down and debate public policy and will simply up to the gas station and see what the new cost of gas is and be livid; because they either live in a rural area where they have long commutes to work or they have to take their children to work or to school. I think there is going to be a lot of anger. It’s very hard to explain.
We’ve seen the auditor general twice, two years in a row now, come in with very damning reports on the CRA and their capabilities, which does not shine a great light on Canadian public service.
With these added complications, I’m wondering how well it will go through. My question is: To what extent would climate action incentive payments, such as the carbon tax, affect Canada’s ability to reach its greenhouse gas emission reduction targets? Surely, going into the carbon tax and coming up with this plan, they must have numbers in mind of how this will bring our carbon footprint down as a country. Do you have any idea?
Mr. Rivers: You asked a few questions that are good.
I think the main question is: Is this policy going to help us reach our greenhouse gas emissions targets? I would separate it into two questions.
There are two parts to this policy. First, there’s the part about putting a carbon price or carbon levy on which increases the price of gasoline and other fossil fuels like you mentioned. Then there’s a second part, which is taking the revenues from that new levy and rebating them back to households.
The point that both Dale and I are making, and I think it’s well supported by the available evidence, is that rebating doesn’t undermine the incentives to cut emissions. Getting a $500 or $300 back in your pocket at the end of the year isn’t going to undermine the incentive to reduce emissions.
Senator Eaton: It’s at the end of the year.
Mr. Rivers: It’s actually the beginning of the year.
Senator Eaton: It’s yearly.
Mr. Rivers: Right. So the evidence we have suggests that is not enough. That is not going to offset any incentive that the carbon price generates.
The main part of your question is: Is the carbon price itself going to get us to our targets? The government has published estimates of what the carbon price alone will do and they estimate that it will cut emissions by about 50 to 60 million tonnes per year. This is about 8 to 10 per cent of our emissions and not enough to hit our targets. In other words, it’s a step in the right direction but it is not going to get us the whole way there on its own. Government has other policies as well, but the pricing policy on its own isn’t enough to cut emissions consistent with our targets.
The other point I want to make is that these rebates back to households, which is the policy we’re talking about today, are explicitly designed to address the problem that you described right at the beginning, which is that people are going to see a higher price of gas at the gasoline stations. This rebate is designed to say well, I know that makes your cost of living more expensive, so we’re going to give you back $500 at the beginning of the year.
Senator Eaton: A year later.
Mr. Rivers: It’s a year ahead of time. You get the rebate before the policy goes into place. The rebates are going to come out in April 2019, the same day the policy begins. The rebates come first.
Mr. Beugin: One thing on top of Nick’s point — additional policy is required to achieve our targets. This isn’t going to get us all the way there. We’re going to require either higher carbon prices or other policies. Those other policies might be regulatory policies, for example, but they too will have costs and households will end up paying more in a less direct way. They may not see those costs at the pump in a direct way. They will nevertheless pay the costs as regulations. As a result, it’s better to try to minimize those costs as best as possible. Therefore, better to use carbon pricing than regulations.
Senator Pratte: I want to go back to the point that you both made, that even though there is a rebate or dividend, that does not affect the effectiveness of the carbon levy.
Intuitively, most people would arrive to another conclusion. If you compare 2018 to what the situation will be in 2019, as a consumer, even if I don’t change anything, in the car I drive or whatever, I will end up with probably $100 more than the year before.
So where is the incentive? You’re counting on the fact that consumers will see the price of gas going up a little bit and then change their behaviour? Is that it?
Mr. Beugin: You give me the chance to try out an analogy. We’ll see if it works.
Imagine you were shopping at the grocery store and this is the situation. You prefer to buy Cheerios. That’s your favourite cereal. However, two things are happening. Number one, the grocery store is making all Cheerios $5 more today only. At the same time, they’re also giving you $5 in cash. If you still prefer to buy Cheerios, you can use the $5 to buy the Cheerios, pay more, get your Cheerios, and you are as well off as if the store had never made that choice.
If, however, you are willing to substitute and to change to Corn Flakes this week, you can take the $5 home as well as the Corn Flakes. The incentive to switch exists irrespective of whether the $5 bonus is there, but it does offset the cost you pay.
Senator Pratte: Is there any demonstrated evidence that a carbon rebate is more efficient than simply reducing income tax rates, for instance? The rebate will reduce income tax for individuals. Why are rebates preferable? Or are they?
Mr. Rivers: Both of us have said there are trade-offs in this policy design and both of those mechanisms — reducing income taxes and giving rebates to households — are ways to disburse the revenue. They will both give the money back to households.
I think they present different costs and benefits. I would say that most of the economic literature would suggest that giving the money back through the tax system would help grow the economy, because you would have lower overall taxes. That would be a plus on the side of cutting taxes.
A cost on the side of cutting taxes would be that it would be very difficult for the government to ensure that revenues went back to the province in which they were raised. Let me give you an example: Alberta and Saskatchewan have the most greenhouse gas emissions per capita in the country, so the revenue will come from those provinces. What the government has tried to do is return all of those revenues from Alberta and Saskatchewan back to Alberta and Saskatchewan. But what if, instead, it cut the federal personal income tax rate? Most of the revenue would go back to Ontario, because it’s the biggest province, income-wise. There would be a transfer of revenue from Saskatchewan and Alberta to Ontario. That may not be a problem economically, but it’s probably a problem politically.
I think that’s the trade-off they’re navigating.
Senator Pratte: The problem is the government committed to returning the money to the specific provinces.
Mr. Rivers: That’s one of the ways. There are other issues, as well. You could think about the progressivity. People who earn no income are not going to get any rebate from an income tax rebate, although they’ll pay costs when they consume gasoline. That would be a regressive way to return the income, whereas by returning it to all households equally, it ends up being a more progressive policy. There are trade-offs to navigate. There is no one system better than the others in all dimensions.
Senator Pratte: It is counterintuitive that you would send the same rebate to every household and yet it’s progressive.
Mr. Rivers: All the households are getting the same rebate. You’re right about that. But they don’t all pay the same levy because people who are at the very top end of income distribution seem to consume more of everything by the nature of being high-income, but they consume more carbon-containing goods and so they end up paying more levy. It’s an assumption that if you look at the spending data —
Senator Moncion: Big house, one person.
Mr. Rivers: — it is reflected there.
Senator Marshall: When you were making your presentations, you were referring to economic models and literature. So it sounds like this is all theoretical. Is there any jurisdiction that has implemented something similar to what the government is proposing in the budget?
Mr. Beugin: Not exactly the same, but there are similarities and we have similarities here in Canada. The Alberta carbon pricing system, put in place in 2017, did send rebates to households, but not to all households. They sent it to the bottom 60 per cent by income. They were trying to address that fairness issue that Nicholas alluded to. They were trying to make sure that the pricing policy wasn’t regressive and they aimed the cheques at those who needed it the most.
Senator Marshall: How successful was that option? This was one option that the government is pursuing. There are other options. How successful was that option?
Mr. Beugin: It depends on how you define successful.
Senator Marshall: I’m beginning to think it wasn’t, with that response.
Mr. Beugin: In terms of addressing fairness concerns, there has been quite a lot of analysis suggesting the policy wasn’t regressive, partly as a result of those cheques. It’s the same in B.C. It did a similar thing.
Senator Marshall: Did it reduce emissions significantly? Did it meet whatever targets were established?
Mr. Rivers: Again, this policy is not going to meet our federal target.
Senator Marshall: I know that. I have another question on that.
Mr. Rivers: The case that’s been studied the most is British Columbia, which has had a greenhouse gas tax for 10 years. Alberta has only had one for about two years and the economic data lags by about two years, so we really don’t have any data with which to evaluate what has happened in Alberta.
In the electricity sector it looks like there’s been a switch from coal to gas as a result of the Alberta policy, but that’s all we can say. The electricity statistics are a lot more frequent than the other economic data.
In B.C., my analysis and that of others has suggested that the B.C. carbon tax has reduced emissions by between 5 and 15 per cent. That’s not commensurate with the B.C. goal.
Senator Marshall: That wasn’t their objective, was it? Their objective was more ambitious than that?
Mr. Rivers: B.C. had a lot of policies in place to try to meet their target, so this is the effect of the carbon price, not the effect of those policies altogether. On its own, it wouldn’t have met the target, that’s right.
Senator Marshall: This won’t meet our target. How close will it be, or how far?
Mr. Rivers: I don’t think it’s right to evaluate whether this policy alone will hit our target, because the government has brought in a suite of policies to try to hit the target. But if you want to think about how close, the most recent estimates for the carbon pricing policy suggests that it will reduce emissions by 50 to 60 million tonnes. Our gap of how much we have to cut emissions to meet our Paris target by 2030 is about 230 million tonnes, so this will get us about a quarter of the way there on its own.
Again, government has a lot of policies designed to shore it up, but the analysis to date suggest that all those policies together are not sufficient to hit our target.
Mr. Beugin: Those outcomes also make no assumptions about how technology will change over time in response to that carbon price. One of the things carbon pricing does is to create an incentive for the innovation and development of new and innovative technologies and processes that reduce more emissions at a lower cost. It’s quite possible that the smaller carbon price may drive more emissions reductions than those models expect them to.
Senator Marshall: When we had our witnesses here yesterday, they made it sound like it’s a nice, neat package. Everyone will pay more in taxes, the government will take off a bit for administration purposes and then they will distribute the rest of it to taxpayers. But things never evolve as you think they will. It sounds like such a nice, neat package. I’m thinking it’s not going to be that simple. You’ve had experience in this regard. What could go wrong with that formula?
Mr. Rivers: I would say the two experiences we have in Canada are Alberta and British Columbia, and I think they’ve gone as planned, at least on the delivery of the program.
In implementing these taxes and levies, we have a tax infrastructure that collects fuel taxes already so this will be a change in the rates for those taxes.
In terms of rebating the revenue back to households, I don’t know a lot about how the CRA works or what fumbles they’ve had in the past, but they could give household rebates back to households on a regular basis.
Senator Marshall: I wasn’t so concerned about the money going out and the Canada Revenue Agency. That is an issue, but I was thinking that the government is assuming they’re going to collect a certain amount of money, and is it really going to materialize?
When they put in the 33 per cent income tax rate on the high-income earners, they initially didn’t collect the money that they thought they had. I’m thinking to myself that maybe they won’t collect the money that they think. They made a commitment to spend it, but maybe it will be a drain on the public purse. Is that a possibility?
Mr. Rivers: Any time government raises a tax, it has to make a forecast for what the revenue raising is going to be. Tax avoidance, in this case, is desirable. We want people to cut their emissions to avoid paying the tax. That’s the whole purpose of this tax, not like the income tax, where we’re trying to get people to get offshore accountants and things like that.
Senator Marshall: I appreciate what you’re saying.
Mr. Rivers: There is uncertainty with respect to how much revenue will be raised. I would guess it’s not that significant. We have a pretty good handle on how consumers respond to changes in energy prices, because people have been studying that for 40 years.
Senator Marshall: But these are all estimates —
Mr. Rivers: But they’re estimates, absolutely. Like any tax, they’re estimates.
Mr. Beugin: To be clear, though, the revenues are not fixed ahead of time. The size of those rebates will be determined by how much revenue is generated, so they will adjust the size of those tax credits.
Senator Marshall: Over time.
Mr. Beugin: Based on how much revenue is generated from the tax.
Senator Marshall: Over time.
[Translation]
Senator Forest: I’m concerned about one thing. I’ve asked the people from the department about the very relevant issue of relief. There are relief measures, including for sectors such as agriculture, but there are no relief measures for the municipalities. I want to know your opinion on the matter.
The vast majority of municipal revenues come from property taxes. Households must contribute from their net income. Municipalities are major GHG emitters, given the very nature of their responsibilities, such as street cleaning, garbage collection, and so on. As a result, the municipal expense allowances will increase significantly. To absorb these cost increases, the municipalities will have no choice but to raise property taxes. The households will pay even more. Has this situation been taken into account in the calculation?
I think that municipalities should be exempt because they don’t have the option of choosing to take public transportation to clean the streets. The work must be done with a specialized vehicle. They don’t have much choice as municipal managers.
[English]
Mr. Beugin: One of the principles of cost-effective carbon pricing is broad coverage. The more you can apply the same price to as many emissions as possible, the more you will minimize the cost of achieving any level of emissions reductions. The idea there is to make sure that all emitters, wherever they are, have incentive to reduce GHG emissions — that you do not leave any potential low-cost opportunities to reduce emissions unrealized.
That’s the theoretical reason why you’d go after broad coverage, including municipalities, universities, schools and hospitals — the so-called “mush sector.”
That being said, your point is not incorrect, either. There are some special circumstances for the emitters in that mush sector. It’s better to address their concerns through revenue than by exempting them. Again, you can take exactly the same approach we’re taking with households. Use revenue to offset their costs while maintaining their incentive to reduce greenhouse gas emissions. That’s one of the reasons why 90 per cent of the revenue generated from levy are being returned to households, while 10 per cent is dedicated toward addressing concerns from other vulnerable groups, including the mush sector.
I think that’s a reasonable way to tackle that problem.
Mr. Rivers: In other words, this has been something the federal government has foreseen, and they have reserved a portion of the revenue from the carbon levy to try to offset the cost increases for municipalities.
[Translation]
Senator Forest: You said that 10 per cent will be allocated to compensate for the cost increases. I thought that this percentage was allocated to the administration of the program.
[English]
Mr. Beugin: The details aren’t clear yet; they have not articulated the nature of how that 10 per cent will be used, but the idea is not to just cover administrative costs but to fund support for the mush sector and for small- and medium-sized businesses.
[Translation]
Senator Forest: Thank you.
[English]
Senator Neufeld: Thank you, gentlemen, for being here. There are two types of carbon tax being proposed. Ontario had one — cap and trade. What is your estimation on whether cap and trade is a better way to go rather than a carbon tax, which the government has decided to do?
Mr. Beugin: I think they’re more similar than different at the end of the day. Both put a price on carbon, and both allow flexibility to reduce emissions in whatever way makes sense. Both can generate revenue. Both can work, and have worked.
There are still some trade-offs on the second order. Cap-and-trade systems can be more complicated to administer and operate, with some additional complications. The former Ontario system and the current Quebec system did have an advantage in that they were linked to markets in California. That broader market for trading can further lower costs and drive lower emissions reductions, and so it offers an advantage of sorts.
Mr. Rivers: I would echo the comments. The difference is primarily semantics; it’s what you label it. The two systems can be designed to be virtually identical, and they could be designed to be different. It depends on the details, not whether you call it a cap-and-trade system or a carbon tax.
Senator Neufeld: I think you both spoke about carbon leakage. I understood you to say that it’s not really a big deal; we shouldn’t worry about it.
We all breathe the same atmosphere. I want to use Ontario as an example. Southern Ontario has the largest petrochemical industry in Canada. Their natural gas — to provide the fuel for that — comes from the United States. Alberta, which is the second-largest producer of those kinds of things, they drill for the gas right in Alberta, so they get a double whammy.
Do you still believe there isn’t going to be some carbon leakage? Is that not carbon leakage? That doesn’t help us at all. The U.S. doesn’t have anything in place. They’re just going to let it go. So we penalize people on this side of the border, they pollute on that side of the border and we say, “We’re good. We’re the best.” Tell me what you think.
Mr. Rivers: That’s major concern, just like you suggest.
It’s not quite the policy we’re talking about tonight. As Dale mentioned, there are two policies. One is this policy that affects households and small businesses. That’s what I think we’re talking about tonight. The other is a policy designed to affect large industrial emitters like the refineries you’re talking about in southern Ontario.
That is a completely separate policy. The policy is called the output-based pricing system. Basically it imposes the same kind of carbon levy, and all of the revenue from that carbon levy is given back to the large industries. How do they do that? They give it back basically as a subsidy to output.
So although my natural gas prices are higher, my output is also subsidized, so I can now compete on an international market, because my output price is lower due to me getting a subsidy, effectively.
The whole design of this output-based pricing system, which is targeted at just the kind of sensitive firms you’re talking about — the big emitters that are traded across international borders — that system is designed to try to offset competitive and leakage concerns.
Mr. Beugin: I’ll echo Nick. I didn’t mean to suggest it was a small issue or one we should be ignoring. Absolutely not. It matters from an environmental perspective in terms of undermining the efficacy of our emissions here, if they are offset elsewhere, and it matters for the competitiveness of our firms.
The point I was making is that policy design has addressed that problem head on. It has tried as best it can to anticipate precisely that problem and create a system that provides an incentive for emissions reductions that are achieved by improvements in performance, not by reducing output and shifting it somewhere else.
Senator Neufeld: You talked about a dividend cheque as though there’s going to be a cheque in the mail. Actually, that’s not the way I understand it. It’s going to be a tax deduction, which is wholly different than a dividend cheque given out in the mail to someone. Do you agree with me?
Mr. Beugin: Yes, I agree with you.
Senator Neufeld: Thank you very much for that. It’s always about the words, isn’t it?
What price do you think our carbon tax has to be in order to meet our target, even for the Paris agreement? We know we’re way behind. The government admits that; in fact, their documents show it. What kind of a carbon price — and I’ve had a carbon price given to me before by your organization, Mr. Beugin, but what kind of a carbon price today do you think we need to actually meet that target?
Mr. Beugin: I’ve seen a range of estimates. Those estimates often don’t account for how technology, so they probably overestimate the number.
Senator Neufeld: I know about technology.
Mr. Beugin: I’ve seen good analysis that suggests a carbon price at around $150 per tonne by 2030 would be the right order of magnitude.
As I said earlier, any other policy approach would have implicit prices at least that high to achieve the same outcome. Using some other policy tool doesn’t dodge that problem, it just hides it.
Senator Neufeld: There has been a lot of talk about gasing up at the gas pump. About 50 per cent of the households in Canada, including small businesses, use natural gas to heat with. It’s not just about going to the pumps to fill up your car and spending another $10 or $20, it’s also about heating your homes. It’s not a simple thing to change that process.
People have been told for decades about how clean natural gas is — and it is. Now we’re going to have a carbon price that will make it difficult for some people to pay, even though there’s not a cheque in the mail but a deduction on your tax form.
What do you say to those people that heat with natural gas? Maybe you fellows heat with electricity, I don’t know, but millions of Canadians heat their homes with natural gas. To change to electricity would be the most inefficient thing you can imagine. You’d use about four times the gigajoules in electricity to heat the same house as you would with natural gas.
Mr. Rivers: I think that analysis is not quite right. Electricity is usually a more efficient end use because there’s no losses. There’s no exhaust pipe, or pipe outside your house with electricity as there is with natural gas.
Senator Neufeld: I’m familiar with those numbers, similar to what you’re familiar with your numbers.
Mr. Rivers: Again, the point of these refundable tax credits is to try to offset the cost impact of these price changes. The idea is the price of natural gas will go up to reflect its carbon emissions content and households will get a rebate back on their taxes to try to offset it, to make the cost of living affordable. The idea is not to penalize people. It’s to change relative prices to give people an incentive to conserve carbon emissions.
I think you’re bang on with your idea that gasoline isn’t dominant. There are other sources of energy and greenhouse gas emissions other than gasoline. Gasoline represents about 7 per cent of our greenhouse gas emissions. It’s high in our minds because we see it all the time, but thinking about gasoline as an analogy for all of our decisions around greenhouse gas emissions won’t get you very far in developing intuition around what’s going on here. There are many sources of emissions other than gasoline.
Senator Boehm: Thank you for spending your evening with us.
I’m essentially following up on a point that Senator Marshall made in terms of comparing jurisdictions and if you have data. I’d like to go further. Are you looking at any international data, including in some national jurisdictions? I’m thinking about California, for example, but even the U.S. or Australia, two countries that have turned a bit. They have a bit of a virage in their policies on climate change. Nonetheless, they also have the urban/rural challenges that we have in our country.
Recognizing that it’s too early to measure data from Alberta — and you have a 5 to 15 per cent rate that you concluded out of B.C. — are you looking at any of the modelling that has occurred in other countries? You can even think about the Europeans in that context. Are there any behavioural incentives that perhaps the government here has not thought of that other countries or governments may have?
Mr. Beugin: I think there’s lots of evidence of the success of carbon pricing both in reducing GHG emissions and in not tanking economies while doing so. Sweden is one example from Europe. The U.K. is an interesting example. They’ve recently increased the price of carbon through a tax in addition to the cap and trade system in the EU emissions trading system. Partly as a result of that change, we’ve seen a substitution away from coal toward other approaches, generally electricity.
With California, there’s lots of good evidence that shows emissions reductions are happening. They are achieving their cap. There are also lots of policies at work there. It’s not only the cap and trade system but also a range of regulations that are driving those emissions reductions in tandem.
I don’t have numbers at hand, although there are some on various reports at ecofiscal.ca on exactly those questions. The bottom line is, yes, carbon pricing reduces greenhouse gas emissions and no, it hasn’t seemed to undermine economic growth in a serious way.
Mr. Rivers: I’ll chime in with some studies that come out of the European Union, Emission Trading System. There’s a series of studies that examine the cap and trade system in Europe. I bring this up because they provide a compelling way to see what this cap and trade system does.
They provide a compelling way because there’s this threshold for firm participation in the EU, ETS, the cap and trade system. If you’re above a certain size, if you process more than a certain amount of, say, steel a year as a steel factory, you’re covered by the cap and trade system. If you’re a bit below that threshold size, you’re not covered; you’re not part of the cap and trade system.
It’s a silly design feature for the policy, but from a research perspective it’s great because now we’ve got this ability to compare a plant that’s too small to be included in the cap and trade system with one that’s barely big enough. Yet, they’re almost identical plants.
We can do that across tens of thousands of installations across the EU and get a really good sense of what’s happened. What’s happened, from four or five of these studies that are all nicely done, is that carbon emissions have fallen by between 10 and 20 per cent. It’s uniform in these studies as a result of changes in emissions intensity, not changes in plant output. In other words, the plants are not reducing their production of steel, they’re reducing how much fuel they burn to produce the steel.
There seems to be a strong impact on emissions and no impact on economic output, which is what you’d expect from the design of this policy if it’s done well.
Senator Klyne: Thank you, gentlemen, for engaging with us this evening.
The rebates under the climate action incentive payment are opt in, meaning Canadians will have to opt in to filling out their tax forms.
Regarding proposing an opt-in approach, were there any lessons learned from previous attempts of this? I’m speaking about the public transit tax credit retired in Budget 2017. If it didn’t work then, why is it going to work now?
Mr. Rivers: I actually don’t know a lot about opt-in. The difference in these two tax credits is that the public transit tax credit was a non-refundable tax credit whereas this is a refundable tax credit.
Even if I have no income owing, if I opt into the tax system — and I’m not sure how that works — I’ll still be eligible to receive this tax credit like a GST credit. In the case of the public transit tax credit, however, if I didn’t have any income tax owing, not enough income, I would have no benefit from that policy. That was a completely different set-up. Low income households didn’t benefit at all from the public transit tax credit whereas that’s not the case in this system.
I’m unsure of what the numbers are in terms of how many people don’t sign in to the tax system or how big of an issue that is.
Mr. Beugin: I don’t know how to answer that question either. However, I think it’s an interesting question. There’s probably a number of low-income Canadians that are not filing taxes. That would, in theory, be exactly the kind of constituents that you would want to most ensure receive this tax credit.
I think there’s an interesting and an important question to ask there. Although, like Nick, I don’t have the numbers as to how big that group is.
Senator Klyne: There’s the low income but also those that really don’t care to engage with it.
I want to speak specifically to First Nations communities and the Indigenous communities out there, but generally more to the rural, remote carbon emitters and to talk about the family vehicle, a pickup, whether it’s northern Saskatchewan or the territories — you can choose. I want to get at that 10 per cent modifier and the calculation. Is that enough when you start thinking about the remote rural areas, which have limited public transportation options and limited approaches to reducing their emissions? The idea of charging plants or charging stations throughout some of these rural, remote communities is far down the road and probably not in the next decade for many of them.
Can you provide any research that has shown, with something like this opt in — some people probably will not want to engage with CRA — if this is going to work, what the difference is, and is there enough incentive for the rural, remote households with the 10 per cent modification to balance out?
Mr. Rivers: This 10 per cent modification you’re referring to is the —
Senator Klyne: Outside the CMA. The further out you go, the further you have to drive to get to an urban centre.
Mr. Rivers: Of course. I agree. This is the modifier that increases the rebate, refundable tax credit back to households in rural areas. It’s designed to get at the issue you’re talking about. I don’t have an answer on the magnitudes in this case. I have looked at the B.C. case, which also provides an additional rebate to rural and northern homeowners to deal with the issue you addressed. It’s a larger rebate to those groups. The calculations I did a few years ago found that the rebate that they provided, which was $200 additional to a northern and rural household, was much more than sufficient to cover the average, additional costs.
Senator Klyne: The incentive was there. As a percentage, do you know what that is?
Mr. Rivers: I don’t.
Mr. Beugin: I’ll briefly add something to that. We’ve run Statistics Canada’s SPSD/M model, which is a model looking at the impacts for micro-households. It can differentiate rural versus urban. We found that the costs from a carbon price aren’t hugely different, rural versus urban. Yes, they may be driving further, but they may also be stuck in much less traffic and spend less time in their cars, for example. So there are some offsetting things.
Your point about rural households having fewer alternatives I think is fair.
The Chair: Thank you. As we close, Senator Andreychuk had a supplementary question.
Senator Andreychuk: I have a clarification. Reading the newspapers and listening to ministers, there is certainly in the public out west that it will be a cheque in the mail. You’re saying that they’re going to get a tax credit at the start, but you’re going to have to file an income tax form. We receive statistics on a lot of people who don’t file. We just heard this afternoon, and I think yesterday — my days are getting blurred here — that some people who could get other credits weren’t getting them. So the government is building it in. They’re going to actually do it for them.
Is there any thought about that here? Because you are giving me a tax credit, and the people who need it most are the ones that probably don’t file, can’t go to a tax consultant to pay the fees, and they’re going to miss out on this.
The Chair: Any comments on that?
Senator Andreychuk: And your Cheerios thing: I don’t think I’m going to change to Corn Flakes. Sorry, I just had to throw that in.
Mr. Beugin: It is a legitimate question about the administrative implementation of this revenue recycling choice. Frankly, I would have preferred to see it done through other means, more like a cheque in the mail, more like the GST/HST rebate cheques. As far as I understand, there were constraints from the CRA as to implementing those alternatives, but I think there are very fair questions to ask along those lines.
Senator Neufeld: Just one quick question. I live in B.C. I was part of the government that put in the carbon tax and the emission reductions that we did. The carbon tax is the same where I live in northern B.C. as it is in Vancouver. There is no greater deduction for a person who lives in the North or in rural B.C. as compared to one who lives in the city. It’s the same across the board.
Mr. Rivers: You’re right about that. There was, in contrast, a Northern and Rural Home Owner Benefit program, which was designed to offset concerns from northern and rural residents. So it’s not changing the tax rate; it’s changing the rebates that are received by northern and rural homeowners.
Senator Neufeld: That was put in when Frank Overley was in government under Mulroney. And that goes across the country. You get a reduction in your taxes.
Mr. Rivers: Right. This is a separate credit that was brought in B.C. in 2011.
Senator Neufeld: There is nothing from the province that does that; I’m sorry, nothing.
The Chair: To the witnesses, thank you very much for sharing your opinion and your comments.
For the second part of our meeting this evening we have witnesses before us who have been invited to comment on the measure regarding the non-partisan activities of charities, which is introduced in Part 1 of Bill C-86.
From Imagine Canada, we have Mr. Bruce MacDonald, President and Chief Executive Officer.
[Translation]
We’re also joined by two lawyers who are involved in the issue. They are Susan Manwaring, Partner and Leader, Social Impact Group, Miller Thomson LLP, and Mark Blumberg, Partner, Blumberg Segal LLP.
[English]
That said, I have been informed that we will have comments from the three witnesses. We will commence with Mr. MacDonald to be followed by Susan and Mark.
Mr. MacDonald, the floor is yours.
Bruce MacDonald, President and Chief Executive Officer, Imagine Canada: Thank you for the opportunity to be here. We are delighted this important bill is before you and we hope that tonight a fulsome exploration of the topic will take place.
My comments will be limited to the sections of the bill clarifying the rules for public policy engagement by registered charities.
It is important we have clarity on this. Charities being involved in public policy work is not a new phenomenon. There are numerous examples of things we take for granted today which had their genesis in research, policy work and advocacy by charities. To name just a few, the acid rain treaty with the U.S. which has helped to clean our lakes, smoke-free work places in public spaces, public awareness and stronger laws around impaired driving, even removing toxins from baby bottles and, more recently, Registered Disability Savings Plans.
I think most of us would agree that our communities and our country are better off because registered charities have played an important role in bringing their expertise into the realm of the development of good public policy.
Charities are in a unique position, bringing together people of varied backgrounds and experiences as volunteers and board members and often seeing the impact of government policies, or lack thereof, before they hit the public consciousness. Because charities are, by law, required to act in the public good and be truthful in their communications, the solutions they identify are based on the best possible information and research. We may not always get it right, but there are no ulterior motives at play.
The Chair: Mr. MacDonald, can I interrupt please? Would you please just slow down a bit for the interpreters?
Mr. MacDonald: Can I have five minutes and 20 seconds? Yes, sure.
The proposals in Bill C-86 are consistent with recommendations which have been made by the sector for many years, and by the consultation panel which reported to the Minister of National Revenue last year. They are also consistent with commitments made by the federal government during the 2015 election and the Prime Minister’s mandate letters to the Ministers of National Revenue, Finance and Justice.
These measures would also reduce inconsistencies between the Income Tax Act and the common law which governs charities, and between the Income Tax Act and the Charter as per Justice Morgan’s ruling in the Canada Without Poverty case.
In essence, Bill C-86 would remove the artificial distinction between so-called political activity and other public policy work done by charities, as well as removing the arbitrary annual limit on how much of this work charities can do.
Bill C-86 also retains the strict prohibition on charities engaging in partisan activity, that is, supporting or opposing a political party or candidate for office. Charities themselves have been clear that the public trust we enjoy is, in part, thanks to our non-partisan stance on issues.
We believe the conversation tonight should be on the merit of charitable organizations participating in the public policy process for the betterment of Canadian communities. That is what Bill C-86 seeks to accomplish.
That being said, there have been some concerns expressed about possible outcomes of Bill C-86. We’d like to be clear on a few things it does not do.
It does not allow single-issue pressure groups to achieve registered charity status, nor does it allow existing charities to morph into such groups. This is a critical point. The proposed legislation speaks to the kinds of things charities do, not who gets to be a charity. The definition of charity does not change and organizations set up for such purely political purposes have never qualified and will not qualify in the future.
For years, the CRA has done an effective job of ensuring such organizations do not receive registered charity status and we are confident in their ability to continue to do so.
It will not allow wealthy individuals to indirectly influence election campaigns by funding charities. First off, charities are subject to the same third party rules which apply to other organizations and are strictly enforced by Elections Canada. Second, charities are governed by volunteers drawn from the community, severely restricting the ability of any individual donor or group of donors from influencing how the charity goes about its work. Third, the restriction on partisan activity would make this an extremely ineffective way to influence an election if you can’t endorse a candidate, party or even a position.
It does not privilege charities with publicly supported speech any more than any other types of organization. Private sector entities receive tax benefits when they write off advocacy and lobbying expenses, and we’re all familiar with the generous tax credits on donations to political parties.
Charities will still be more heavily regulated than either of those in terms of the activities they carry out and how they do so.
The proposed changes will not distract charities from carrying out the work they do in communities. In Australia and New Zealand, two countries with histories and regulatory regimes similar to us, removing the limits on policy work has actually been accompanied by a decline in the number of organizations reporting such work and the resources allocated to it.
The issue before you tonight relates to the kind of work charities do, not who gets to be charity, ensuring the volunteers and staff of organizations in every community in this country have the opportunity to exercise their voice in a more open way and contribute to the development of good public policy in this country.
We urge senators to support the Income Tax Act changes proposed in Bill C-86 so charities can have clarity about their role in public policy and get on with carrying out their missions in the way they, and their staff and board of directors, deem most effective.
Thank you.
Susan Manwaring, Partner and Leader, Social Impact Group, Miller Thomson LLP: Honourable senators, good evening and thank you for inviting me here. I was introduced earlier. I work full-time in the area of charities and not-for-profit, although you might find it amusing that I used to be a corporate tax lawyer. Feel like I saw the light and went into this area.
I’m also one of the five individuals appointed by the Minister of National Revenue to be on the consultation panel for political activities in September 2016.
I am here before you tonight as an individual, not in any official capacity or as a formal representative of the panel. Given the topic is the amendments contained in Bill C-86, this work in the report will inform my comments.
The panel was made up of senior sector individuals. Kevin McCort from the Vancouver Foundation, Marlene Deboisbriand, the chair of the panel, from Boys and Girls Clubs of Canada, Peter Robinson is the former CEO of the David Suzuki Foundation and Shari Austin formerly with the RBC Foundation. We all brought a different perspective to the review and recommendations, and we were all in agreement with the report which was delivered to the minister in March 2017.
As a background and reminder, the report came out of a cross-country consultation, in person and online, and then subsequently we worked with input, with the Department of Finance and CRA, to put the report together over a four-month period. The report summarized in the four recommendations which we made to the minister.
Bill C-86, I’m pleased to say, implements the panel’s recommendation 3.
Enshrined in the recommendations made are the following key principles:
Charities make a significant and positive contribution to public policy development in the country and charities should continue to be able to do so.
The term political activities had to go. It was widely misunderstood and, I submit, led to great confusion both within the regulator and within the sector. I think what one person views as political, another may view as simple discourse, and another may feel that if it says political, it has to be partisan. There was no one common understanding.
The third concept which was enshrined and was clear from all the consultations was that partisan politics must always remain prohibited. Nobody asked for that to change. The charities, the individuals who presented, that was a consistent message.
The fourth principle was that the quantitative limit should go. The fact that CRA could never provide to charities any kind of proper guidance or definition of how they should figure out whether they were below 10 per cent or above 10 per cent was evidence of the failure of the way the legislation was working. It was intended to be a safe harbour, but it really turned into a prohibition on the charities. It really never worked.
Finally, the common law of charities already has tools to protect against any concerns which could be raised. That, together with the fact that you can’t have a political purpose, that a charity must always have a public benefit, meant the regulator could continue to protect the integrity of the sector without the limits or without the term “political activities.”
The panel in its recommendations made administrative changes and legislative recommendations for legislative change, and were invited by the Minister of National Revenue to do so, even though it’s the Minister of Finance who had to make the changes.
Fast forward to today. There was a lot of discussion over the past 18 months about these rules. The government was committed, as Mr. MacDonald said, to helping in this area and they made a commitment to make sure charities knew they could participate in the public policy sector. Legislative changes were committed to in August, and then a draft proposal was put out in September.
That draft proposal didn’t go to recommendation 3 of the panel’s report. It still stuck back a little bit of the quantitative calculation. It used some language that was ambiguous and uncertain, and there was feedback given to the government about that, about the concern that this would not achieve the objective they have committed to or the panel’s report. In fact, CRA came out with the guidance that demonstrated that it was actually going to interpret those subtle changes a little bit more conservatively than we would have expected.
Thankfully, after representations were made, the Department of Finance came out in Bill C-86 and said, “Okay, we’re going to introduce the legislation as you see it,” which was in effect introducing the legislative changes, much of which is in recommendation 3 of the report.
Obviously I was pleased as a panel member to see that, but I do think that those changes can be supported. The panel spent a lot of time thinking carefully about this. We looked at risks. We looked at benefits. We felt that the tools that the regulator has, we have confidence in CRA, would allow these changes to be made and give charities the certainty they need. It also gives the country the protection it needs from organizations that may be partisan, or have some kind of single-issue concerns, that could end up outside of the ambit.
I know that change is always difficult, that some people get nervous about change; that doesn’t mean we shouldn’t go ahead and do it. The system we had was not, in the view of the panel, adequate. Bill C-86 embeds the prohibition on partisan, so I think that’s incredibly important.
I’ve listened to comments made by some about concerns about an American-style system coming here. We don’t have a tax system that is the same as the Americans. There has been reference to a case in the United States called Citizens United that was an electoral law case, not a charity case, that dealt with a non-profit organization that wasn’t a 501(c)(3), which is akin to a Canadian-registered charity. It was actually a non-profit organization. I am a Canadian through and through. I don’t want us to have that system, but I am also very confident that our system does not allow us to open up to that.
I see my time is coming to the end. I do want to highlight that the election laws and the courts together with the regulator in Canada are sufficient to ensure that we will be able to allow charities to continue to participate in public policy dialogue, to move forward and contribute in the ways that all our charities like Mothers Against Drunk Driving and others have done to date and ensure that we have great communities in the future. Thank you. I look forward to answering your questions.
Mark Blumberg, Partner, Blumberg Segal LLP, as an individual: I guess I really hope these guys are right, but I am one of those people who are very nervous at this point. Thank you for the invitation to speak today, and I have been asked to focus on the non-partisan political activity issue and this new concept of public policy dialogue and development activities, which I will refer to as PPADA because it is a very long acronym.
Essentially the change will allow Canadian registered charities to do unlimited non-partisan political activities as long as they’re related to the objects of the charity.
If you have been paying attention over the past two months to developments relating to charities and political activities, you might have whiplash, because for 30 years we had rules that essentially allowed charities to spend up to 10 per cent of their resources. Actually 20 per cent for small charities and you can average over three years, so it was even a higher number but we call it the 10 per cent rule. So we had that for 30 years.
On September 14, Finance announced a return to the common law, allowing charities to do ancillary and incidental political activities. This probably would have narrowed the scope of political activities from the previous 10 per cent allowance to maybe 1 per cent.
Then on October 25, 2018, Finance brought the proposed legislation that you’re looking at that would allow Canadian charities to conduct unlimited non-partisan political activities connected with their objects.
So essentially the finance minister has gone from 10 per cent to, say, 1 per cent to 100 per cent all in the space of two months. These sorts of head-spinning changes are disconcerting.
The debate about charities and political activities has consumed a lot of space since 2011, when Stephen Harper initiated in 2012 the audits. The Liberal government has put forward legislation that I think is quite dangerous, basically because it’s going to allow Canadian charities to conduct unlimited political activities as long as they’re non-partisan and connected to the objects of the charity.
Now, unlike donations to candidates which are capped at very low amounts of money, there is no cap. There are Canadians who are donating hundreds of millions and billions of dollars to charity and there is no cap.
I’m sure that you have been looking at the political situation in the U.S., and probably some of you have concerns about it. I’m afraid that allowing charities to spend 100 per cent of their resources on political activities is not really going to empower the average Canadian charity to be more involved with political activities because we have seen for 30 years that they had allowance of 10 per cent, and less than 1 per cent used any of the allowance; and of those, very few use more than 1 per cent. I think Rutner used to encourage people to spend your 10 per cent. So basically my concern I guess is that for about 50, 100 maybe 200 charities, it was a problem. A very small number of charities, but not the average charity.
My concern is this change is going to help a very few wealthy individuals, with some very peculiar views in some cases, to dominate the political discourse in our country, as has happened in the United States.
We know that Canadian charities on the T3010 have said they spend $25 million per year on political activities. The sector is about $250 billion, so under the old ruse, the 10 per cent rules, charities could spend a thousand times more than they did, a thousand times more than they actually said that they were spending.
It’s not very likely, but the point I’m making is for 99 per cent of charities, in fact, probably more like 99.9 per cent of charities, they were not getting anywhere close to the 10 per cent rule.
Some people talk in terms of freedom of expression for charities, but this is not really about that. I think it’s more about money than it is about freedom of speech. People who work or volunteer with charities are free to express their personal views on their own time and they can also be involved in partisan activities, and I’m sure many people have volunteers working on campaigns and things like that.
However, some people want more than the 10 per cent rule. They want the ability to be paid using charity resources, which are subsidized by taxpayers to express their political views, and to not have to do any charitable activities. That’s what this is about. When we say 100 per cent of your resources can be spent on political activities, that means zero per cent of your resources can be spent on charitable activities, and that wouldn’t be what most people think of as a charity.
So there is a difference between free speech and heavily subsidized speech. There is nothing free about this speech. The tax incentives are huge and will disproportionately benefit a very small number of people. As well as the costs in terms of public confidence in the sector, if it plays out in some of the same ways as has happened in the U.S., is not going to be free in terms of the reputation of the sector.
Finance has estimated the cost of this little change is $90 million in full-gone revenue. What that really means is they’re saying they’re estimating that there is going to be an additional $300 million spent on political activities. This figure doesn’t include the hit to provincial governments. This is purely federal money we’re talking about. By my quick calculation, that means they’re estimating there is going to be a 12-fold increase in the amount of spending by charities on political activities than what is currently spent, which is about $25 million a year.
I’m not sure how Finance is going to measure this because this is no longer political activities. These are now considered charitable activities. When people donate $100 million to some group to do this type of work, it’s not considered political, it’s considered to be charitable. How are they going to calculate it, I don’t know. But most importantly I think the figures are very conservative.
If you look at the U.S. experience, and Susan had mentioned the Citizens United case which dealt with electoral law, but the big problem in the U.S. wasn’t just that. That was how they created some of the problems in the U.S., but it was large amounts of money from very wealthy families going to charities and being used for political purposes — not partisan political purposes — but many controversial political purposes, and you have some people with some very strong agendas.
I think it is going to, in the end, create a big mess, but not because it’s going to actually affect many charities. How many hospitals are going to spend 100 per cent of their money on political activities? It’s not very likely.
What it’s going to do is cause a lot of damage to the sector. Also, I don’t think it’s going to end the debate, which has, unfortunately, been going on since 2011 about the role of charities and political activities, because 55 words have been added to the Income Tax Act. Another political party can come in and make changes if they wish to. It’s not necessarily going to be good in that way.
I think it’s important for Canadian charities to be involved in political activities. I don’t think it is a good idea to have them spend all of their resources on political activities.
Senator Marshall: We had witnesses yesterday that indicated the Canada Revenue Agency will now have to author guidelines. When you look at the legislation itself, the wording is fairly general, and I would have thought that the legislation should have been more prescriptive. Now we’re going to rely on the Canada Revenue Agency to develop guidelines that I would like to see be clear and prescriptive. But we’ve seen two audit reports from the Auditor General within the last few years, and they haven’t been really complimentary. They’re indicating that the Canada Revenue Agency, even when it developed its own rules, doesn’t apply it consistently.
I would be interested in hearing from each of the witnesses any views they have on the role of the Canada Revenue Agency and how they’re going to carry out this task that it’s going to be assigned to them, recognizing that not all of you support the legislation, but the legislation most likely will go through.
If it does go through, what are your concerns about the Canada Revenue Agency?
Ms. Manwaring: I’ll go first on this one. In the charities space, it’s a little unusual because we rely on the common law in addition to the Income Tax Act to regulate what is going on it. In fact, you don’t get to be a charity because you have charitable activities. It has to be your purpose. The charitable purposes are not in the Income Tax Act.
It’s not unusual for the Charities Directorate to issue guidance to help charities understand how they have to comply with the rules, and I think how this has been implemented is an extension of the norm in the charities space as to how the rules have applied.
There is the code kind of perspective where you’re very prescriptive, which says something is in or out, which, from a legal point of view, can work, but it also means that you always have to be anticipating what is going to happen in the future, and you can’t always do that. However, if you put a rule in place that is supported by either an interpretation bulletin or guidance by the Charities Directorate to explain what the expectations are and what the rules are, which is what happens for charities in all the areas. There is extensive guidance on how they have to carry out their operations in furtherance of their purpose.
This isn’t about political activities on their own. In fact, the wording “political activities” is gone. It’s “furthering the purposes.” I have confidence in the Charities Directorate. They do it for foreign work overseas. They do it in the area of related business or some kind of revenue-generating activities, and they have done it successfully. I have confidence that they will give guidance on what is public policy dialogue and development, how it has to work to further the charitable purpose to be in and what is partisan. I feel that the sector will be able to work with that because that’s the norm for what they’re doing.
Senator Marshall: Could I ask something here before we get the other witnesses to comment? I would expect that the Canada Revenue Agency will now develop guidelines and that they will be doing some audit work with regard to charities. The Auditor General found that they weren’t consistent as they went from individual to individual or from organization to organization, so that somebody may benefit from an audit and someone may not.
Ms. Manwaring: I think that’s the difficulty of human nature and the size of the country, but it is something that every regulator needs to work against.
Mr. MacDonald: I’m not a lawyer, so I spent most of my career operating charities. I think it’s important that the sector work with CRA on the development of the guidance. When we really think of it, the end users of this product are volunteer boards of directors in communities like Antigonish, Kamloops and North Bay who do this on their side time and staff whose job is to actually serve the clients that come to their organizations. They’re not charity lawyers. So we need guidance with clarity.
This provides an opportunity for greater clarity.
The second point I would make is to illustrate why we need this. Imagine Canada went out in 2016 and asked charities about the whole political activity realm because we knew it was murky and unclear. It was interesting. We had over 2,000 respondents to a survey. These are charity leaders. When we asked them if they did political activities, only 3 per cent said they did. But then we asked a series of questions that in aggregate added up to what political activities were, but because no one really understood the term, they didn’t answer.
Thirty-two per cent of organizations in this country were actually participating in public policy dialogue through this, but because it was so murky they didn’t understand it, and it was a barrier for boards of directors to say: We’ll do this because we don’t quite understand.
This is an opportunity for greater clarity.
Mr. Blumberg: I guess I would say I have confidence also in the CRA in terms of this issue. I feel very sorry for them because in a way you’re going to have, for example, a group that wants to focus on abortion issues, a religious group, who will spend 100 per cent of their money on anti-abortion activities or pro-choice, whatever. CRA can’t do anything about it, and that’s going to be a challenge.
But I think the guidance is going to come from CRA after this is passed, unfortunately, if it is passed, so you won’t know what the guidance is. It would be nice if Finance decided in September, not October 25, what it wanted to do and hadn’t completely reversed its decision.
The problem is that there will be very little in the guidance. It will say very little because, basically, Finance has said charities can do 100 per cent non-political partisan activities, and there will be some things that CRA will have to deal with, for example, if it’s against public policy or some other issues, but those are more complicated than what is political activities. I feel sorry for that.
I will say one thing: We have little transparency about anything that happens with respect to non-profits but also charities. For example, 52 charities were audited under the political activities program. Except for a few that have self-identified, we have no clue and you have no clue. No one is allowed to have a clue as to what happened. Maybe my confidence is misplaced because maybe they were all left-wing groups being audited, but we don’t know. In fact, I have no indication that there is anything untoward, and they probably audited people across the whole spectrum. About the only groups that have come forward are progressive groups to talk about how they have been audited.
I do worry that we have tight secrecy rules in the Income Tax Act applying to charities. For example, let’s say CRA did a problem with a charity that was doing highly inappropriate stuff. It’s not allowed to tell anyone about until after revocation, which sometimes can be 10 or 15 years after the problem is there.
That’s my concern. Right now, the charity sector has 77 per cent support among the public. Public confidence is very high with charities. But if you have, for example, a charity that is there to educate about economic policy, spending 100 per cent of its time and energy saying we need to have a flat tax of 5 per cent, and they may be spending hundreds of millions of dollars on that, I’m just not sure that the public, after about 10 years of that will have the same confidence in the sector as it has at the moment.
Senator Marshall: That’s interesting. Thank you.
The Chair: Please be succinct in our questions and answers so we can accommodate all the senators.
Senator Omidvar: Thank you for accommodating me in your committee.
It is most interesting to get a diversity of opinion on this important public policy discussion. It also makes our job a little harder, I think, when you have such diversity of opinion.
I’m going to ask Mr. Blumberg first, and then the others, to weigh in on this observation. Mr. Blumberg, you have warned us and raised some alarm bells here and in the Charitable Sector Committee that we could become a U.S.-style system with a very few wealthy individuals having an inordinate influence on public policy dialogue.
However, I think we are more like the U.K., New Zealand and Australia. When they changed their laws to open it up, as we have now — we’re always four, five or 10 years behind other jurisdictions, and maybe that is good, because we are risk-averse — the sky did not fall in. Or did it? That’s my question. What can we learn from jurisdictions that are comparable to us and our common law system?
Mr. Blumberg: Senator Omidvar, that’s a good question. The first thing is that they’re completely different tax systems. For example, in the U.K., gift aid — not a deduction when you just make a donation to charity. I’m happy if we want to take any of those systems as complete systems; I have no problem with that. But in Australia, all churches basically do not get to issue receipts. Churches, synagogues and mosques don’t issue receipts, so they have half as many of what they call deductibility gift recipients and what we call registered charities.
Again, if we want to follow their example, we can take one piece of it or the whole thing. But we have to remember that they are not as comparable in some cases.
I will point this out, because it’s very important. In both the U.K. and Australia right now, there are huge governmental concerns with the charities. They are doing all sorts of things to try and restrict what charities can do. For example, in the U.K., it’s gag orders. Basically, you’re getting money from government agencies, and they forbid you from using any of that money — and by the way, this happened in Ontario. The Wynne government forbade hospitals from spending money that came from government to lobby governments. It’s a gag order. That’s not a nice way to call it, but that’s what they’re doing: They’re gagging them. That’s what happened in Canada.
Senator Omidvar: That’s not charitable money.
Mr. Blumberg: It’s government money to a registered charity — an important hospital, for example, or some sort of institution.
Senator Omidvar: It’s not charitable money. We’re talking about charitable donations here.
Mr. Blumberg: Right. Charitable donations make up 5 per cent of the sector, and the other 95 per cent is coming from other sources, which are also not irrelevant.
For example, if the Saudi government gives $100 million to, say, some charities in Canada — you’re not counting that as charitable money, I guess. That’s government money, right? I don’t make that distinction, in a way, because the money comes, it gets pooled and this is money or resources that a charity can use.
I’m saying there are many ways to crack down on the charities if a government wanted to. In the U.K. and Australia, both right-wing governments, they’re cracking down on charities.
Ms. Manwaring: Senators, I think the observation that has been made, and as driven by the evidence in these countries, is that the common law in these countries allows even, in New Zealand, political purposes. They’re not even using it in the way that we do, which is that we don’t allow political purposes. We’re not proposing to. We’re saying that if you do public policy advocacy and dialogue in a non-partisan way, you can do it in furtherance of your purposes.
The experience from those countries is very important. They are all common law-based. They’re very similar to our system. That is not the same.
The notion that a government may say to an entity that it funds that they want to put conditions on that money as to what they can say about the government is a complete red herring to the issue we’re talking about today. Whether it’s right or wrong, that’s not something that’s about the rules we’re talking about implementing.
But those countries are true evidence of where we’ll go. Also, we have often followed the pattern those countries have.
Mr. MacDonald: Just two quick data points to illustrate or answer the question. Australia changed its legislation in 2013 to have unlimited public policy advocacy for registered charities. They then saw slight decline in the number of law, policy and advocacy charities, going from 533 to 523. New Zealand’s rules were changed by a supreme court case in 2014. In the four years before the decision, on average, 19.6 per cent of newly registered charities provided information, advice or advocacy. In the four years after, the average dropped to 18.8 per cent.
The point is that the sky did not fall, and there was not a rush of organizations that had a different type of purpose trying to get in.
Senator Eaton: I’d like to say how sorry I am that Vivian Krause was not asked tonight. She’s probably the foremost expert in Canada on foreign money coming in and supporting charities. I think it’s a shame.
My big worry, Mr. Blumberg, is foreign money, because there doesn’t seem to be any cap on money coming through Tides Canada to charities. It’s anonymous. I guess when you say that rich people will be able to dominate the system, you’re probably thinking of Georges Soros’ organization in the United States or the Koch brothers. We all know, Ms. Manwaring, that you don’t have to have a placard saying “vote Liberal” or “vote Conservative” to support a party; you just have to support. As you call it — public policy dialogue.
You have to support a platform, a law or go against that law, and you’re supporting the party. You can look at most very activist charities, certainly in the environmental sector, and you can tell how they vote.
I think we’re being very naive to think that allowing charities to have open season on so-called political policy dialogue — we’re being very naive and we’re going to get what we deserve: more foreign money coming into Canada to influence our elections.
The Chair: Was there a question in that?
Senator Eaton: No. I think they all want to comment. I can see by their faces.
Mr. MacDonald: There are a few elements here. One is that it does a disservice to the sector to just take one very minute example and use that to try and have a comment about how organizations on the ground, delivering service in our communities, may or may not participate in public policy advocacy, which is incredibly important.
If we look at issues around foreign money, does that mean universities in this country can’t accept donations from alumni who now live overseas? Does that mean my aunt, who lives in Northern Ireland, can’t support me when I go on a bike-a-thon? There are all sorts of nuances in this conversation, and it’s important to look at the broad perspective here.
Senator Eaton: You talk about such lovely examples —
Mr. MacDonald: But that’s the real world of charities.
The Chair: Order. Please, we’ve had the comments. Senator Eaton, please bear with me.
Senator Eaton: I’m sorry, chair. I won’t say another word.
Ms. Manwaring: It actually saddens me to think that, for some reason, a component of our communities that is so vital and so strong could not be seen to be vitally important to the policy dialogue and be seen to be entitled to a level playing field with other non-profits, which are not charities, which have no controls over them, or even more important, corporations that deduct for tax purposes all of the expenses they put toward fighting in their favour for the laws they want.
If we took the position that charities couldn’t advocate, we’d still be smoking, because the tobacco companies would have loved it and they would have put as much money as they possibly could, whether it came from the U.S., the U.K. or anywhere else in the world, to make sure that happened.
So we have to be consistent in how we apply it to charities. The concept of foreign money coming into Canadian charities is tracked by CRA. They know where the money is coming from. If it’s over $10,000, they identify the organizations, they audit the organizations, and they have an ability to prevent it. But it is not the issue that’s before us in Bill C-86. That’s the bottom line.
Mr. Blumberg: I’ll make a couple of comments. One, about $2.6 billion came in last year from foreign sources to Canada. A big example is University of Toronto, $3 billion budget, $400 million comes from foreign sources. It is quite vital the money coming in from foreign sources to Canada and the amount of money designated as political, it’s only about $1 million of that $2.6 billion. So a lot of money coming in.
I don’t want to stifle money coming in to support vital institutions, but to be frank, I don’t want to blame foreigners for our problems here in Canada. They are wealthy Canadians who have problematic issues. You don’t have to look to America for that. When someone decides they want to put a lot of money into an issue such as let’s get rid of the monarchy, lower taxes, should we have gun control or no gun control or should we have a minimum wage, those issues are all non-partisan. They are all issues that a charity can spend a lot of money on basically expressing their views as long as it’s connected with their charitable objects.
If they are a religious charity, for example, when they set up a new charity and call themselves a family values coalition, you get a sense of what it’s going to be.
By the way, Susan mentioned the notion of a level playing field. This is what I’m afraid will ultimately happen. Andrew Coyne wrote an article a few years ago saying he had no problem with the 10 per cent rule, but if it’s really just impossible to do and we have to get rid of it and you can spend 100 per cent, okay, but maybe we get rid of the tax incentive for donations to charities.
I wonder if he’s going to be prescient in the end. If we want a level playing field with non-profits, they get no tax incentive in terms of donations. That’s the reality. These are not non-profits. They are charities, treated specially. They have special rules that apply to them. This notion that they can spend 100 per cent — I do believe charities should be engaged in public policy, they should be at the table, but if you’re spending 100 per cent, you’re not a charity.
The 10 per cent of resources allowed, if you’re $100 million charity, that’s $10 million you can spend on political. That’s a lot of money.
By the way, it’s higher amounts for small charities, 20 per cent was for small charities. The current rules allowed a huge amount of engagement. In fact Bruce was talking about the wonderful things charities have done. I agree, in the public policy space they have done wonderful things, but that was under the old rules. That’s why I like the old rules. They did a lot of good stuff.
[Translation]
Senator Forest: The debate is stirring up passions. Charities are clearly important.
If an issue arises, under the current legislation, the Canada Revenue Agency will look at the situation and determine whether the organization in question has complied with the political activities or has become partisan. The decision will be made by the Canada Revenue Agency, or, ultimately, the minister in charge.
If an activity is judged from a political standpoint, don’t you think that it would be better for the Chief Electoral Officer to make the decision rather than the Canada Revenue Agency, which has financial authority in terms of revenue, taxes and taxation? The Chief Electoral Officer’s role is to ensure that the rules of our democratic system are followed. Whether the limit is 10, 15 or 100 per cent, don’t you think that the Chief Electoral Officer should be given the responsibility to determine whether the charity is following the rules of the democratic system?
[English]
Mr. Blumberg: The problem with saying the Chief Electoral Officer, that’s really relating to elections. We are not talking here about hopefully charities being partisan. Senator Eaton mentioned well, non-partisan you can sort of guess where it’s going. The point is still the role I’m assuming of the Chief Electoral Officer is to basically deal with elections. So no charities should be involved with that at all. So that really should not be an issue.
It does make sense that CRA will police this area, but remember, if they’re doing partisan political activities, that is prohibited. They’re not allowed to do partisan. CRA has for 30 or so years been getting rid of charities if they did that. We’re talking very few charities that do partisan political activities directly. But CRA, it makes sense they would do it. They’re not going to impose fines on them like maybe the Chief Electoral Officer is. They’re taking away their charity status.
I don’t know if I’d want another government agency like Chief Electoral Officer or the ombudsperson just deciding to take away charity status. It’s better to leave it all with CRA. That’s my thought at least.
Ms. Manwaring: The Chief Electoral Officer has the jurisdiction under the Elections Act to do it in the context of that act and there may be some help taken from the guidelines that are issued under the Elections Act about what is partisan, what isn’t, and some of the things that CRA does.
Senator Andreychuk: If I recall my history well enough, charities started out to encourage people to donate for good works in the community. A lot of them were service kinds of things. We didn’t have social service systems, so there was this gap. The debate in the 1970s that I recall was do charities fill the gap the government has left or vice versa?
It was an interesting debate then, and we all came to the conclusion that charities are a valuable asset in the community for what they do for the public good. They really did start out speaking up on public policy as it affected their organization. Then, of course, you get into the public policy development.
If I hear all of you, you’re not disagreeing with charities. I don’t think any of you are. What you’re worried about is someone on the edges, and that’s been the case, and that’s why there was the 10 per cent rule.
So we’ll take it out, but we leave that conundrum with CRA now to define those that are, in my opinion, abusing the system for their own personal beliefs. I would prefer those people to do it in their own capacities as individuals, not through the charity.
We can keep redefining, but we keep throwing the hot potato back to CRA. I don’t know if this is going to help or hinder. I just know the same people are going to have the same problems that they’ve got today. Unless we redefine charities totally and try to develop a more modern system, I think we’re still stuck with the same conundrum.
Mr. Blumberg: It’s an interesting point. Some people at CRA are probably quite happy that you’re taking away their ability to deal with this issue because they really had no interest in dealing with this issue and it caused them a lot of grief.
On the other hand, some people probably are also worried about what’s going to happen. I love this idea of comparing ourselves to Australia, New Zealand and the U.K. That’s wonderful. The problem is the biggest country right next door to us is the United States. And if we watch what’s happened in that country over just 10 years, it’s been very negative. I really do believe that Canada is a bit different from the U.S., but not that different. We like to think of ourselves as very different, but I’m worried that we’re not.
If you read the Southern Poverty Law Center, an American group that monitors human rights, you look at how groups have infiltrated into the charity system because it’s not a very vigorous system in America like we have here. If you start taking away little parts of the sector, the system, you take away political, you take away foreign activity rules, you take away other rules — and we’ve seen all of all these proposals — this is just the thin edge of the wedge. In my mind, it’s not the last time this is going to be a change to the Income Tax Act relating to charities.
I have a worry that in the end we’re going to have a system that will have many more organizations that are, as you said, on the edge and those organizations can create a lot of problems. You think of the Fraser Institute or the CCPA — one’s left, one’s right, that sort of thing — the amount of negativity, the number of negative comments you read in the papers, et cetera, on them is very high. If we had not just two organizations like that but 200, I worry about the reputation of the sector.
Ms. Manwaring: Somebody asked me recently whether we should we prohibit driving because there are some people who will drive impaired and that’s a danger. So do we prohibit it?
I truly think we have a system where we’ve been able to deal with this with the common law purposes, and it works. CRA has been able to manage it and keep the charities who are charitable in the system and take those out. I don’t think these rules change it. Clearly, the mechanism is still there and those few will still be dealt with by CRA.
Mr. MacDonald: It’s challenging that the fringes are dominating the conversation because that’s not the actual real work of the charitable sector in this country. I invite you as senators to think about your communities and the actual work that’s getting done and the participation of those organizations in this process. That’s what we’re really talking about here.
Is there a chance that someone, in a sense, wants to try and game the system to get in? They can do that now. Bill C-86 doesn’t change that because “charitable purpose” is not changing as part of this. That is the same. I believe the narrative is being moved to a place that is not reflective of our country and the work that organizations are doing in their communities every day.
As we think about this topic, it’s important to think about your communities, the charities that you know that you’re doing the work and on whether this is good for them to advocate on behalf of the people they serve.
Senator Pratte: Thank you for being here tonight.
You alluded to this earlier, but the concern is really with what is called indirect partisan support. The hearings where CRA was trying to explain how they would interpret indirect partisan support indicates that they’re not completely clear yet as to how they will interpret this.
I guess that’s where the concern is that an organization for maybe good reasons, with good intentions would campaign in favour of policy A, that is really closely identified with political party A, and that this would be indirect partisan support, but we’re not sure whether it will be interpreted as such by the CRA.
Mr. MacDonald: I would like to offer the opposite view. It has been our experience that when organizations don’t understand this their inclination is not to participate. Most charities want to be within the rules and they want to understand what those rules are. You will have people gaming the system; in fact, most charities will just sit on the fence and that’s a disservice.
Ms. Manwaring: I think you’re right, you’ve identified an area where CRA is going to have to put some guidance out.
We’ve seen the example where a charity is advocating for a particular issue that’s related to their purpose and a political party picks it up. That piece is out there. So there is some grey. That’s the way the law is. But with CRA guidance — and we’ve worked with it — the indirect is not new. It was in the act before. The new legislation is a huge improvement. That piece is still there but I’m confident we’ll find a way to work our way through the edges because as Bruce said, that’s the edges.
Mr. Blumberg: I think that someone may intuitively think the same way you’re thinking in terms of that because a political party happens to believe something that makes it indirect. However, CRA has never interpreted it that way. We don’t know what the future will bring but as long as you haven’t directly connected either said vote for this party, vote for this candidate, something like that, then I think that’s not really so much the issue.
I go back to Bruce’s point, which I agree with, think of the charities that you really like in your communities. How many of them are spending 100 per cent of their money on political activities? The answer is many of them look at their filings — or talk to them — they’re spending less than 1 per cent on political activities.
I agree with Bruce’s point: Think about the charities in your communities.
Senator Neufeld: I’m one that is pretty happy with the charities we have at home that work where I do. I don’t think anyone at this table thinks any different.
When I hear about organizations like Tides Canada foundation, which has been registered since 1999, Tides Canada Initiatives Society registered since 1990, actually giving out charitable receipts and passing money on to an organization called Leadnow, which directly said we’re going to target 29 ridings and we’re going to actually boot the Conservatives out of government. That’s where I get a little worried. I know those are grey areas. I don’t know how you control them and I’m not sure CRA can do it. And this isn’t just chump change. And it comes from the U.S., a ton of it, for all kinds of reasons, and not just elections. But to actually almost guide our country in how we should be living in Canada. And it actually tees me off a bunch when American money comes in and pays for that kind of stuff.
That’s what worries me. I think that’s what worries a lot of people is the infiltration and the manipulation that goes on with not just a few and it only takes a few. I mentioned three of them that are very political. I’d like to know what you think about that.
Mr. MacDonald: I want to collect my thoughts on that for a second.
Ms. Manwaring: I trust the system to deal with that and I expect it is.
Mr. Blumberg: I’ll go back to the point of $2.6 billion coming in, about $1 million dollars that is clearly demarcated for political. Not anonymous? What is not anonymous?
Senator Eaton: The money coming in they know who the donor is.
Mr. Blumberg: On the issue of transparency, I would say that our system is broken in that way. There isn’t nearly the transparency that needs to be. But if any one foreign person, government, individual or organization gives over $10,000, every charity has to declare it on their T3010. It’s a confidential form, but the point is CRA knows about it. It isn’t really anonymous if it’s a larger amount of money. With groups like Tides, which are American and Canadian charities, it’s very insightful to look at their 990 filings because it gives you a lot of more information than the Canadian government’s information. If you’re interested, you can look there.
Senator M. Deacon: Thank you for being here.
As you are no doubt aware, industry can lobby and spend unlimited resources on campaigns that focus on particular policy that would benefit them. We can walk down the street and see ads pushing and supporting pipelines, for instance. I know they’re not registered charities but they are allowed to lobby and campaign, not for political candidates but for policies. They make profits — often a great amount of money they can funnel toward the cause.
Charities will often stand up for an issue that doesn’t get them a profit. Groups that advocate for poverty alleviation are an obvious example. You don’t make a lot of money doing this work, but people who donate to poverty groups want to make a difference, they want to do good work in the community. They want to see overall policy changes that is will alleviate poverty. The only way to do this is to run public awareness campaigns or lobby policymakers.
Why should we put an arbitrary limit on these groups, such as a 10 per cent limit, but not on others?
Mr. Blumberg: It’s a good question. Right now many of the business types of non-profits would be non-profits and not registered charities. In fact, this change is going to encourage some of those groups to essentially move into the space because now they can get receipts and also do the 100 per cent spending on it.
So when people tell me that charities are all progressive, it shows me they are hanging out with a certain group of charities. Charities are everything. They represent the whole society, progressive and whatever else. There are a lot of different variations in the charity sector.
Quite frankly, I don’t know many companies that spend 100 per cent of their money on political activities. Maybe there are some, but I just don’t know of them.
Mr. MacDonald: I have to tell you, this 100 per cent spent on political activities, no offence, that’s just not cutting it. I don’t know a single board of directors that would say, “We’re going to take service away from our clients and spend it on political activities.”
Should there be an opportunity for organizations to say it would actually be in the best interest of our clients in furtherance of our charitable purpose to maybe dedicate a few more dollars to doing some work that would be public policy advocacy? That’s good news. This is not a real-world scenario, 100 per cent of dollars from donors going to political activities for charities, not in any operating charity that I know of.
Ms. Manwaring: I have one comment to Senator Deacon’s comment, and that is to make the point that when those corporations put all that money into those issues and policy campaigns that support their ability to make profits, they’re taking a tax deduction. They’re actually getting a benefit under our tax system that is very similar to the tax credit that people get when they give to charities. I don’t in any way want anyone to think that the panel, in reaching its recommendations, was thinking about any one particular type of charity. Advocacy should come from all sides of the spectrum in a way that is workable and legitimate in this country.
Senator Klyne: I have one question. I better load this one up. You can unpack it any way you want.
To get to be a registered charity, it’s because of your purpose or your charitable objectives. It’s expected that the ensuing activities save the 10 per cent aligned to the purpose, and the same 10 per cent for non-partisan activities. Otherwise, all those activities are supposed to align with the purpose.
Ms. Manwaring: Even the 10 per cent, yes.
Senator Klyne: Yes, that’s identified. Good point.
I have to wonder a few things, ask a few things. What is the impact on charities of the current limit of devoting 10 per cent of resources to non-partisan political activities? I didn’t know they were suffering from that 10 per cent, so I have to ask why should or should it not be removed. I have to think it’s to give lift to the legitimate charitable organizations and allow them to raise more funds.
I have to also wonder, to what extent will charities be formed or convert to influence political debate and the political process? How should the CRA or the system identify charities that align themselves with issues associated with a specific party’s political platform, but are not associated with that party, from those charities that are deliberately working for partisan purposes? The system will take care of it. I could give you another analogy, but go for it.
Mr. Blumberg: I’ll take a shot at it. The fact is it’s a problem wherein you will have certain groups — by the way, I agree with Bruce’s comment that what I’m talking about is not 86,000 charities. I’m talking about 20, 30, 50 or 100 charities that are potentially going to abuse this. When I say abuse it, they’re not actually abusing it; they’re just doing what you’re allowing them to do.
Senator Klyne: I think we have to get going here. How should the CRA deal with these issues?
Mr. Blumberg: Well, they will put out a policy in late December, maybe December 31 at around 11 o’clock at night, and that will be how they will define what they will do.
The Chair: Thank you. We will conclude with a comment from Ms. Manwaring, please.
Ms. Manwaring: The CRA has a very strong compliance program, and they will be looking at whether or not the organization is pursuing the charitable purpose. It will become clear. It’s obvious, as Bruce says. These organizations don’t hide under a rock. You’ll be able to see what they’re doing. They will go in, they will audit, and they will regulate the way they’ve done with all the other issues that come up with charities to date. It will work.
The Chair: Thank you.
To the witnesses, you can see that you have ignited a lot of interest. Thank you for sharing your opinions and your comments. You were professionals.
(The committee adjourned.)