Proceedings of the Standing Senate Committee on
National Finance

Issue No. 97 - Evidence - June 4, 2019 (morning meeting)

OTTAWA, Tuesday, June 4, 2019

The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study the subject matter of all of Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures.

Senator Percy Mockler (Chair) in the chair.

The Chair: Welcome to this meeting of the Standing Senate Committee on National Finance. My name is Percy Mockler, senator from New Brunswick, chair of this committee. 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. Also, as a reminder to those watching, the committee hearings are open to the public and available online at


I would now ask the senators to introduce themselves.


Senator Klyne: Marty Klyne, Saskatchewan.


Senator Forest: Éric Forest from Quebec.

Senator Pratte: André Pratte from Quebec.


Senator Campbell: Larry Campbell, British Columbia.


Senator Forest-Niesing: Josée Forest-Niesing from Ontario.


Senator Duncan: Pat Duncan, Yukon.

Senator Eaton: Nicky Eaton, Ontario.

Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.

The Chair: Thank you, senators.

Today we continue our consideration of the subject matter of Bill C-97, which was referred to this committee by the Senate of Canada on May 2, 2019. Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures, is what we call a budget implementation act. This type of legislation is squarely in line with the National Finance Committee’s mandate received by the Senate of Canada.

Last week, we had five meetings, and we studied various elements of the bill with 21 witnesses. This morning, honourable senators, we will consider Part 1 (c) and (e), as listed in the summary of Bill C-97. Those are provisions aiming at encouraging business investments in Canada.

To discuss the matter, we welcome representatives of two national organizations. Witnesses, thank you very much for accepting our invitation. We will hear your comments, to be followed by questions from the senators. From the Canadian Chamber of Commerce, we have Mr. Trevin Stratton, Chief Economist. From the CPA Canada, the Chartered Professional Accountants of Canada, we have before us, Mr. Bruce Ball, Vice President, Taxation.

I have been informed by the clerk that Mr. Stratton will commence with his comments, to be followed by Mr. Ball and questions from senators.

Mr. Stratton, you have the floor.

Trevin S. Stratton, Chief Economist, The Canadian Chamber of Commerce: Thank you, Mr. Chair and members of the committee. It is a pleasure to be here today.

For billions of people throughout the world, Canada stands as a symbol of hope and opportunity. However, we cannot afford to take our prosperity for granted. Every day, the businesses that drive our economy are making hard decisions about how to preserve jobs or create new ones, whether to invest here or abroad, and how to respond to competition that grows more intense by the day. The decisions they make determine the future of our communities and our country.

Canadian businesses are making these decisions in an economy that recently hit a soft patch. While job growth has been strong, we can do better. The Canadian economy has been at a standstill since October 2018, with almost no growth over this period. Business investment fell 2.9 per cent in the last quarter of 2018. In the first quarter of this year, Canada recorded its largest quarterly trade deficit in almost three years. Recently, the Bank of Canada marked down its growth forecast for 2019 to 1.2 per cent real GDP, a far cry from the 3 per cent growth we saw only two years ago.

While some of the causes of this anemic growth are out of the government’s control, we do control tax policy, and Canadian businesses are pleased to see the implementation of targeted accelerated capital-cost-allowance measures in this budget bill. These measures will help promote Canadian business investment, particularly in a manufacturing sector that was recently grappling with the impact of the illegal and illegitimate tariffs imposed by the U.S. on Canadian steel and aluminum. In fact, we may already be seeing the positive impact of these accelerated capital-cost-allowance measures, as machinery and equipment investment is up 8.7 per cent in the first quarter of 2019.

Canadian businesses also welcome the elimination of the income threshold to access the enhanced 35-per-cent refundable Scientific Research and Experimental Development Tax Credit. According to the World Economic Forum, Canada ranks 23rd in the world when it comes to the R&D expenditures. The SR&ED measures announced in this budget bill should help accelerate small- and medium-sized business innovation and allow these companies to scale up at a faster pace.

While these measures are helpful in the short term, the Canadian business community does not think they go far enough to resolve our competitiveness issues. These tax write-offs can be more broad-based to provide targeted support to other sectors of our economy, such as our struggling natural resource industries.

These measures do not address the need for a comprehensive review of our cumbersome and uncompetitive tax system. Last fall, our 450 local chambers of commerce overwhelmingly supported a policy resolution asking for a tax review. In October, the Standing Senate Committee on Banking, Trade and Commerce recommended that Canada should reassess its tax system through a royal commission.

Canadian businesses speak with one voice on this issue and are still waiting for government action.

Compounding the challenges created by our tax system are the federal debt and deficit. This budget implementation bill does not include a federal plan to put an end to Ottawa’s deficit. Canadian businesses are calling on the government to present concrete plans with firm deadlines for returning the federal books to balance. It is simply irresponsible for our generation to continue to spend and send the bill to our kids.

While the Canadian chamber welcomed the announcements to improve our regulatory system in the Fall Economic Update, and this year’s federal budget, we are concerned about the slow movement and progress in setting up these instruments. Unfortunately our system is broken. It is complex, unclear and unpredictable. The overlap of regulations across different levels of government is stifling investment and preventing us from getting our natural resources to global markets.

This is not just a sectoral or regional issue. Every Canadian has a stake in making sure that we don’t continue to be a nation of builders that can’t get anything built.

The tax measures that address competitiveness in this bill are a positive first step, but they fall short of what is needed. Without a thriving business sector, Canada’s economic growth suffers, our prosperity declines, and our governments lack the resources to build our roads, hospitals, schools and to provide social services.

In short, for Canada to succeed, our businesses must also be successful. There is a lot more work to be done.

Thank you for the opportunity to meet with you this morning, and I look forward to our discussion.

Bruce Ball, Vice President, Taxation, Chartered Professional Accountants of Canada: Good morning. My name is Bruce Ball, Vice President of Taxation at CPA Canada.

CPA Canada is one of the largest national accounting organizations in the world, representing more than 217,000 members. CPA Canada advocates in the public interest, serves the profession and contributes to Canada’s economic and social development through thought leadership and research.

I am pleased to speak to the specific tax changes in Bill C-97, as requested. I will then address some of the broader issues that concern us in terms of the tax system and point to the need for a tax system review.

Before I begin, I wanted to note we have provided each of the committee members with an information package that contains CPA Canada’s three recent research studies and background material. Our research identifies what is currently wrong with the Canadian tax system and why it matters. We also propose the best path forward to design a tax review to promote sustainable growth and prosperity.

Dealing with the specific measures in Bill C-97, I’m going to address the capital cost allowance change first. This is the temporary capital cost allowance rate of 100 per cent for machinery and equipment used in the manufacturing and processing of goods and specified clean energy equipment. We believe this is a step in the right direction. Our comments are the same on the changes to the accelerated capital cost allowance deductions more generally. They may help Canada’s competitiveness gap with other countries, particularly the U.S. However, they are temporary measures.

We believe they fall short of what is urgently required, and that’s a more comprehensive approach to competitiveness based on a full tax review that benefits all Canadians.

The second proposal was to eliminate the $500,000 income threshold for accessing the Scientific Research and Experimental Development, or the SR&ED, credit. We think this is a welcome support for small- and medium-sized, innovative businesses. This measure will simplify tax planning and improve cash flow for these companies.

However, the measure ignores the larger problems inherent in this SR&ED tax incentive program. In consultations with our members and other stakeholders, CPA Canada has been told that, in many cases, it no longer makes economic sense for some companies to apply for the SR&ED credit. There are several reasons for this: The overly complicated application process, the uncertainty over benefit entitlements, the high cost of preparing the claim and the possibility of audits from the CRA and difficulties that might be encountered there.

In the 2017 federal budget, the federal government committed to reviewing the SR&ED tax incentive program to ensure its continued effectiveness and efficiency. To our knowledge, this review hasn’t taken place. CPA Canada believes that a SR&ED review is needed and should be conducted as part of a more comprehensive review of the tax system.

Temporary measures and partial fixes aren’t the remedy for Canada’s the ailing tax system. Our tax system is plagued by a number of fundamental problems that can only be properly addressed through a full review. Here’s what we know: Many other countries are undertaking tax reviews and reforms, which means Canada lags behind international trends. Canada’s tax system is unnecessarily complicated and outdated. Lower income and vulnerable Canadians are missing out on much-needed income supports and benefits.

Canada’s corporate tax advantage has been eliminated, especially compared with the U.S. Canada’s personal income tax rates and thresholds are uncompetitive.

Tax compliance has become very challenging for the average Canadian taxpayer as well as business. Innovation and investment are not being effectively encouraged, and, finally, Canadians are losing trust more generally in the tax system.

Simply put, Canada’s tax system is not delivering for Canadians.

About 81 per cent of Canadians see a comprehensive tax review as a priority for the federal government, according to a recent Nanos research poll. Of those, 35 per cent say it should be a high priority.

There is also widespread support for a tax review from major national organizations, think tanks, academics, economists, international bodies and parliamentary committees, including this committee, as you recommended in your report in December 2017.

In conclusion, CPA Canada supports the specific budget measures dealing with the capital cost allowance rates and the enhancement to the SR&ED credit. At the same time, we know that neither measure reduces the need for a full review of the tax system. A sound tax system is essential to a competitive economy and a fair society.

Recognizing that this committee has been supportive of a comprehensive tax review, we would appreciate it if the committee would consider endorsing this observation when it tables its report on Bill C-97.

Thank you very much for the opportunity to appear today. I’m happy to take questions.

The Chair: Thank you, Mr. Ball.

Senator Marshall: When I look at the proposed changes in the tax bill, I think the government is doing a bit more tinkering with the tax rules. The increased taxation on the CCPCs a couple of years ago, is this a walk back, or are they trying to negate some of the impact of the changes from two years ago?

Mr. Ball: I don’t believe these are directly related to that. They deal with two specific issues. The capital cost allowance changes were mainly a reaction or response to the changes the U.S. made. They have allowed a fuller deduction in the U.S. It’s broader in terms of being able to deduct everything upfront.

I would give them credit for the SR&ED change. This has been a problem with the SR&ED credit for a long time. We’re happy they have addressed it. Since this isn’t related to simplifying things for private companies, we’re still looking for a tax review.

Mr. Stratton: When it comes to the accelerated capital cost allowance, I agree with Bruce that it’s partially in response to what the U.S. did when it came to tax reform. It’s also partially in response to there being very low levels of business investment during the second half of 2018 and trying to enhance that.

Senator Marshall: Trying to stimulate it.

Mr. Stratton: Exactly.

Senator Marshall: Both of you mentioned this comprehensive tax review. I know a lot of leading organizations and think tanks are advocating for this. Could you delve into that and tell us what’s happening in some of the other countries with regard to a couple of areas — corporate taxes, the taxes on high-income earners, and also the shift toward consumption tax rather than personal income and business taxes?

Could you give us a flavour of what’s happening in other countries so we can anticipate the shift when we see comprehensive tax reform?

Mr. Stratton: Absolutely. This is a trend we’re seeing globally. Apart from what the U.S. did when it came to tax reform, we have seen comprehensive tax reviews in the United Kingdom, Australia and New Zealand over the past 10 years. You are right. Part of that has to do with looking at the tax mix and adjusting it to make economies more competitive. In some ways, that involves lowering rates when it comes to corporate and personal income taxes and looking at other sources of tax review to be able to make that up.

Canada tends to derive a lot more federal revenue from personal income taxes, in particular, but also corporate income taxes than a lot of other G7 countries. If we’re able to shift that tax balance to other areas of taxation, whether excise taxes, consumption taxes, property taxes or anything like that, then it has the possibility to make our economy more competitive.

Mr. Ball: I agree with everything said.

The other thing I would add is that even in countries like the U.S. where they didn’t do a review of their system per se, they introduced changes, a lot of which are designed to make American companies more competitive and have an advantage tax-wise over other countries. The capital deduction was one of them. They also changed their international rules.

That’s a concern. Also, if countries aren’t doing a review, they’re still making significant changes where we haven’t.

The other issue is complexity. That has come up, as well. In Canada, there were two main events: the private company changes, plus the changes in the U.S. Those seem to be what gathered momentum to make us think that we need to do something.

On tax rates, we were among the lowest in terms of the industrialized countries, and we’re drifting backward. We took a significant hit in terms of our advantage with the U.S. It’s basically on par now. We’ve been drifting toward the back of the pack, generally.

Senator Pratte: I’d like to quote from the Fall Economic Statement where measures concerning expensing were announced. The government defended the idea of making these temporary changes rather than lowering the tax rate. Their argument, to quote from the Fall Economic Statement:

By their nature, these measures will influence new investment decisions, instead of providing tax relief based on past investment decisions as would occur with a reduction in the general corporate income tax rate.

Do you agree with that reasoning?

Mr. Stratton: These have certainly made a difference in accelerating investment since they came into place this year. One question or uncertainty is whether they’re just accelerating investments that would take place in later years to currently be able to write them off right now or whether this will produce long-term investment going forward.

These accelerated capital-cost-allowance measures are very important to stimulate investment in the short term, particularly because investment has been rather soft, particularly late last year, and also in light of the tariffs on steel and aluminum the U.S. had in place. They’re specifically targeted for specific sectors.

If we’re talking about medium- to long-term tax competitiveness, that comprehensive review is going to be very important.

Apart from rates, it’s also about tax simplification, too. I think the administrative burden of our tax system ranks 41st in the world. The average Canadian business takes 131 hours to do their taxes. That’s not great compared to some other countries. This tax system has been in place for over half a century when it was created. Humankind still hadn’t walked on the moon. If we’re talking about a modern innovation and digital economy, we really need to figure out the tax system related to that to be able to spur the investments for that type of economy going forward.

Mr. Ball: I agree.

When I’ve been talking to VPs or directors of tax at larger corporations, especially, but the discussion is happening at smaller ones as well, when it comes to the change of our corporate rate versus the U.S. rate in particular, a lot of companies are revisiting the decisions they’ve made over the years to see if they still make sense. They’re asking: Does it make sense that we do this in Canada, have that in the U.S. or should we change it?

They’re looking at it in two different ways. There are ways to make short-term decisions in terms of things like transfer pricing and longer-term decisions in terms of investment. From what I’m hearing it seems that everyone is looking at things they had just assumed to make sense to be in Canada before.

That concerns me as well. Maybe they’ll still decide that Canada is the place to be, but they are looking at these things.

It’s important that we do look at tax rates as part of a review. That’s a more difficult discussion than trying to match the capital from the U.S. as best we can.

Senator Pratte: One of the government’s arguments for not introducing measures right now that would apply more generally than these measures is that the impact of the tax reform in the U.S. will take a long time to appear on our economy. Therefore, they want to study what’s going on and introduce targeted measures as we go along. Do you agree with that reasoning?

Mr. Stratton: I would say it’s not an either/or. We can have targeted measures in the short term and, at the same time, do a comprehensive review, which might take a couple of years. Hopefully, by the time those targeted measures are wearing off, then we have a revised tax system that would really spur that investment and growth.

Mr. Ball: The other thing I would add is that if we accept the time aspect of it, it cuts both ways, too. If we discover in three or four years there is a large movement down to the U.S., it will take three or four years before anything we do will impact that. That’s a concern as well.

I agree that we need to start looking at that as soon as possible in terms of where we stand on competitiveness before the horse has fled the barn, so to speak.

Senator Eaton: To continue on the accelerated tax investment, what struck me is that it doesn’t go to everybody. As you say, it’s very targeted. For instance, if I had set up a manufacturing plant in 2017, I would expect that my equipment or machinery I had bought to last at least 10 years, so I wouldn’t benefit from this.

I guess that’s my question to you. Mr. Stratton, I think you said — the minister, when he said, “No, I’m not going to do a lower tax to match the U.S.; I’m going to do these very targeted things,” but it doesn’t benefit everybody. Mr. Stratton, you also remarked that the natural resources industry — it’s doing nothing to help them. Would you both care to comment on that?

Mr. Stratton: Yes. These accelerated capital-cost-allowance measures were announced in the Fall Economic Statement in November. To put it in context, this was really when we really bottomed out when it came to business investment. Also, shortly after the steel and aluminum —

Senator Eaton: But that could have been for other reasons.

Mr. Stratton: Absolutely. It’s also in the context of those steel and aluminum tariffs. So they were certainly targeted for certain sectors that were suffering at that time.

Other sectors were suffering at that time, and they continue to suffer — those being our natural resource industries. There are some forms of processing and some write-offs for green equipment that might be able to help these industries, but when it comes to being broad-based, a lot of businesses in those sectors have told us that they felt left out of those write-offs.

Mr. Ball: Yes, I’d agree with that.

I suppose if we were told by the government that they’re getting ready to do a tax review but, in the meantime, here’s a couple of changes on a few particular issues, we’d have an easier time accepting that as opposed to “this is our response in total.”

I agree it isn’t broad-based or deals with competitiveness, generally. In addition to natural resources, I also talked about problems with the Scientific Research and Experimental Development process having issues. I think we need to have a look at that. There are a lot of issues we need to have a look at.

Senator Eaton: Would it have been more efficient just to lower the corporate tax rate? Without doing the big thing and giving this little targeted accelerated write-off costs, would it have been more efficient and competitive to lower the corporate tax rate, period, across the board?

Mr. Stratton: The devil’s in the details. I also worry about our fiscal position if it’s just cutting taxes. That’s why I think a comprehensive review is really the way to go because we can look at it from all angles as to what is a sustainable way financially and fiscally to move forward with tax reform.

Mr. Ball: Yes, I think there are enough issues that we need to look at it as part of a tax review. We haven’t talked about personal income taxes. That’s an issue as well in terms of competitiveness. It is risky, as someone said right at the beginning, to start fiddling with the details, as opposed to getting in there and doing a thorough review of everything.

Senator Klyne: Largely these measures are focusing on influencing fiscal policy really, to influence the short-term to the near- and medium-term of investing in manufacturing, processing and innovation. We have a long way to go to get back to where we were in the status of innovation in this country against the other developed countries.

I want to focus on two things. One is competitiveness. The other is this comprehensive tax review.

In regard to competitiveness, Mr. Stratton, your introductory comments referred to the mobility of capital and being competitive and whether companies are looking to move within Canada or to relocate to other jurisdictions that are more competitive, probably on the tax front. There are other things they need to look at before they make that leap — available labour, affordable real estate, leading-edge information, communications and technology. But certainly a positive tax and regulatory environment comes into the equation before other criteria are looked at.

With a comprehensive tax review — I’m not sure when you called for the appointment of a royal commission but does that fall on deaf ears? Because I do agree that you need to have a positive tax and regulatory environment. Ours is complicated. It could be simplified. It is interesting to hear that people don’t see a challenge to actually applying for innovation tax credits, not to mention the potential for follow-up audits, which nobody wants to go through.

What is the issue with not doing a comprehensive tax review? On the competitiveness side, I have another question for you. I will get two in while I can. Where do you think Canada stacks up in terms of the competitive perspective, on productivity and the cost of doing business, versus other competing countries?

Mr. Stratton: I appreciate the question. This is something I study in depth quite a bit. There are a lot of competitiveness rankings out of there. A couple of them, out of Switzerland that I would really like to point to, one by World Economic Forum where Canada ranks twelfth in the world; one from IMD, a Swiss business school, one of the best business schools in Europe, where we also rank somewhere around 12 or 13.

In the IMD study, they asked corporate executives around the world, why do you choose the companies where you invest and what do you think about when people ask you why you invest in Canada? The top factors are always talent and education levels; political stability is usually what comes third. The bottom factors are usually the regulatory environment, tax and sometimes research and development as well — or the amount of funding that goes toward research and development.

We certainly have some strengths. They get us to that twelfth spot. We are also a G7 country and it is very important that we not settle for mediocrity and really try to pursue competitiveness, particularly in a global economic environment that’s becoming much more competitive by the day.

You asked the question, senator: Why not a comprehensive review? Some of the arguments against it are that it will take too long; it is too complicated. I would make the important point that this is not the 1960s anymore and this is not necessarily the Carter commission which took a decade. We know a lot more about tax policy now than we did at that time.

This can be done relatively quickly, relatively efficiently, as other countries have shown, too.

Mr. Ball: I would add that, as you said, there are a number of factors to look at. I’m certainly not here to say that the tax issue is the most important one that has to be resolved by any means, but it is an important one. I don’t think it has to be either/or. You look at some of the key things that Mr. Stratton just said. I would expect we are dealing with those, too. We should be dealing with all of them.

In terms of the tax piece, though, especially with the U.S., the one thing that I heard a fair bit was that we had such a great advantage that it tended to overcome some of the disadvantages we had in some of the other areas. That’s another reason why we have to look at everything. We are more or less on par now with the U.S. in terms of rates, so we need to be looking at all the other factors that are important, along with making tax as good as it can be in terms of the tax system.

Senator Klyne: On the comment about it being hard and difficult and complicated, I’ve been hearing this conversation for a decade. It seems to me that we could have planted a tree and it would be quite tall by now, so we should just get on with it. Thanks.

Senator Andreychuk: Thank you. I think we are all on the same wave length here. Just following up, what are the things other than the tax you mentioned to make us competitive, that we should be working on but we aren’t?

Mr. Ball: Sure. Maybe I will just deal more with my end. The regulations were mentioned as well. I will leave the economics to Mr. Stratton. I’ve heard a lot about regulatory issues and how long it takes to get approval to get set up in Canada versus the U.S. The U.S., in some places — it isn’t universal — is more aggressive at attracting business and helping, that kind of thing.

I think we need to be upping our game in all areas. We can get a little complacent because companies were looking at Canada with the tax rate and being great place to live and that sort of thing. We were probably a little bit behind in other areas.

Mr. Stratton: Yeah, regulation is definitely an issue in particular sectors. In transportation, agri-food, we see a lot of issues. In some sectors, there are completely different regulations from one province to another. One of my colleagues, our regulatory lead, likes to use the example of first-aid kits. There are different regulations for first-aid kits for each province in Canada. If you are a first-aid kit manufacturer, you had to create a different kit for each province.

Related to regulations, I would also say interprovincial trade barriers create a big issue when it comes to labour mobility but also when it comes to trade in goods and services. We saw this come to a head last year with TMX, obviously, but also with the Comeau case, the beer case, at the Supreme Court. If we are going to act like a cohesive, efficient, national economy, then that is a huge issue that we need to resolve.

Senator Andreychuk: On the SR&ED tax, you were saying the number of hours it would take to fill out those forms. I’m hearing from small businesses that it is not just the hours required, but those hours are then not spent on trying to build the business. That’s hitting women more than anywhere because they have to choose. They start with a small enterprise. They want to grow a little, but they can’t because they are constantly filling out forms, whether it is for some tax relief or otherwise. It doesn’t seem that has been solved at all.

Mr. Ball: No, that remains an issue with the complexity around it. It is filling out the form, but you also have to make reports. You need back-up records to track hours. You have to have time records where you may not have been keeping them otherwise; that sort of thing. It is complicated.

One of the issues, too, is that the SR&ED system is meant to be a benefit, but it is governed under the Canada Revenue Agency. I don’t say this as a criticism of them but, as a body charged with collecting tax, they have to change their mindset when they are providing incentives to businesses as well. Sometimes that gets lost in terms of all the work that has to be done.

Mr. Stratton: To that I would add that the complexity of our tax system, SR&ED or otherwise, disproportionately harms small businesses. Larger businesses have dedicated tax departments to figure out exactly where they fit in the tax code. As I mentioned, the average business could be taking 131 hours to do their taxes. For a one-person small business, that’s three weeks of productivity. That’s huge.

Senator Andreychuk: I don’t get the resistance to doing a complete tax overhaul. Everyone else seems to be doing it. It has been proven that it doesn’t take that long. Surely the people who are preoccupied, like you are, can give the answers pretty quickly, and the government can choose from some options.

What troubles me is that we keep talking about tax competitiveness with the United States. A lot of businesses have already moved, and these short-term tax breaks are just a question. People are saying, “Okay, I can invest and get my machinery up to date and some scientific things, but it is only a short-term. So where do I get more long-term relief?” They are going to the U.S. or elsewhere. We also have a European problem now. Where do you go there? We should be taking advantage of that, and we’re not.

Nobody talks about the fact that the entire international system is changing. Our competitors are coming from countries with increasingly good products and skills that they didn’t have before. I don’t hear anyone addressing the real competitive challenge in a global sense.

Mr. Stratton: Yes, that’s very true. There are competitors coming from all regions of the world right now.

Trade diversification is an important aspect of enhancing Canada’s competitiveness. As you mentioned, senator, there is the CETA with the European Union, and Canadian companies are not taking as much advantage of it as European companies are. There is CPTPP, as well, which includes some large and fast-growing markets.

Being able to tap into those large, growing economies and supply chains is going to be instrumental for Canada’s competitiveness over the long term.

Mr. Ball: Some international organizations, the Organisation for Economic Co-operation and Development being one — I imagine they are thinking the same things you are in terms of seeing what is going on in other countries. Perhaps not so much in Canada, but they have recommended a tax review as well. Part of that is fuelled by what they are seeing going on in other countries.

Mr. Stratton: If I could add to that, too, it is not just about exports; it is about foreign direct investment into Canada. In 2017, our FDI numbers in flow fell apart; it declined drastically. It was up last year, but in part it grew because the numbers were so low in 2017.

The overall trend is not nearly as high as it used to be for FDI and flow growth. That’s a big concern, too.

Senator Andreychuk: Eighty per cent of Canadians want tax reform. Who is the government listening to, then, if not the people of Canada?

Mr. Ball: Good question. Between my associates and I, we’ve talked to a lot of people, and we’ve heard a lot of support for doing a tax review, so we’re not sure either, frankly. We are hoping that maybe after the next election, the next government will take it on.

Senator Andreychuk: Thank you.


Senator Forest: I have a more specific question about Bill C-97. In the regions, the universities are truly development partners in research and development for small- and medium-sized enterprises. Will the current wording of the tax credit measure allow a company that works in partnership with a university research centre to benefit from this tax credit for its investments in research and development?


Mr. Ball: The change contemplated really deals with one particular issue. This was part of my opening comments; namely that it doesn’t deal with some of the issues more generally around innovation. But it was a good change from the perspective that smaller businesses won’t be subject to this income limitation anymore. It caused problems in terms of them freeing up capital and them having to pay extra salaries to the owners of the company to try to keep income to the limit.

It really is a beneficial change, but as I said in the opening, I don’t think it deals with all the issues that we need to look at, such as things like that.

Mr. Stratton: I would echo what Mr. Ball mentioned and also add that no matter what business I talk to, and no matter what sector or region of the country — small or large — they talk about the accelerating pace of change in the economy. Things are changing so quickly. What we heard about the SR&ED credit — or getting rid of the income threshold — is that it allows businesses to actually invest at a faster pace than they might have previously as a result of getting rid of that.


Senator Forest: As for the more comprehensive analysis of the tax system, this is still an objective that the finance committee discussed in 2017 and 2018. And we’re still discussing it in 2019. Eighty-three per cent of Canadians are in favour of tax system reform. In my opinion, there is a lot of talk about taxation for businesses, but a tax system must be fair, efficient and competitive, for businesses as much for individuals, because we are in an increasingly global economy where, because of demographic challenges, individuals who support these businesses have greater mobility. They can move from one province to another. The tax challenge is to attract and retain new businesses. The federal government isn’t the only one that can do it, but it also involves the territories, provinces and cities.

In your opinion, how should this tax reform be carried out in our federal system? There are impacts, inputs from the provinces and territories. This is a very complex issue in terms of the principle of subsidiarity. How can we consider this challenge, which is, in my mind, unavoidable?


Mr. Ball: In terms of the scope of the tax review, generally, it needs to be comprehensive. The provinces would have to be involved, because the provincial tax is tied in so much with the federal. A couple of the provinces, at least, have tried to do a review. There is a lot of harmonization. They are kind of stuck in terms of how much they can do provincially, because so much is tied in with the federal system.

It does have to be comprehensive in scope. We’ve talked about a lot of issues. Competitiveness for corporations. We haven’t touched upon the personal as much in terms of competitive rates — the low threshold, where the higher rates start applying, and the trouble that some individuals have had accessing benefits under the tax system.

We do think it should be broad; put everything on the table. We believe it needs to be led by an independent expert panel, as well, appointed by the Minister of Finance. Get a good mix of people from various communities and support from the government as well. It also has to have clear terms of reference, and it should be transparent as well. That’s key. There was an expenditure review a couple of years ago, but we think it should have been a transparent process, so we could hear how some of the tax expenditures are actually doing. We think it should be transparent.

Mr. Stratton: At the Canadian chamber, we’ve been calling for a royal commission on taxation for a few reasons, the main one being that, by having an official royal commission, it certainly speaks to the weight of this challenge we have in Canada. There is also some accountability that goes along with it, too.

It is just a different means to get to the same objective. The entire business community, tax practitioners, the IMF and the OECD have all called for a comprehensive review of the Canadian tax system. In whatever form that takes, it is definitely needed.

To add to Mr. Ball’s comments, I want to speak to personal taxes for a bit as well. I am sure it is no surprise to all senators in this room that the global economy is changing quite a bit right now. That attraction of top talent will be key, particularly for a knowledge economy. If we have our top tax bracket, for instance, starting at $200,000 Canadian while, in the United States, it starts at $450,000 U.S., and you are a software engineer coming out of the University of Waterloo where you can make $150,000 right after graduation, it creates incentives for our top talent to leave and go elsewhere. It creates difficulties in attracting top talent from all over the world. This is an important aspect of doing a review, too.

Senator Duncan: My question follows up on my colleague Senator Forest’s comments. You talked about the natural resource industry. There was an extension of the mineral exploration tax credit in this budget and for flow-through shares. That tax credit has been in place for at least 25 years. My question of the panel at the time was: Why has it not been made permanent up to this point?

Senator Marshall at that time asked the very clear question: Where is the comprehensive review of that tax credit? Which builds into the discussion of a review of our tax system. You talked about a royal commission. I totally agree. We need a comprehensive review of the system. I am concerned about the focus on technology. I know an astronomical percentage of Canadians are E-filing their income tax. I worry about the folks, the vulnerable sector — you mentioned them as well — and the mom-and-pop businesses we have not heard a lot about other than the 130 hours it takes them to do their taxes.

The royal commission and an independent expert panel. How do we ensure that there is an ability to hear from all Canadians? We have an ability to air those problems of the inconsistencies of the application and the “incomprehensiveness” — if that’s an English word, and I’m not sure about the translation — of the tax system. How do we ensure that happens? Do we need to take the politics out of the process of review? If you could just elaborate on the review.

Mr. Stratton: I do think it is important to take the politics out of it and to have the best tax system coming out of whatever process is in place. It is also important to have those different voices at the table. To make sure that you have those different voices as part of an advisory panel or as part of the royal commission is very important. The tax system impacts different people and demographics in different ways.

I will give you an example. This has to do with small business. Recently we had a rural economic development round table with local chambers of commerce and small businesses from rural communities. They made the important point, “Look, we don’t have a reliable broadband where we live. How are we to file our taxes online? And there is no tax accountant in the town where we are living and we have to drive three hours to file our taxes.” Certainly this has a huge impact on the productivity and the efficiency of running their own business.

Mr. Ball: The other thing — and I think this would be true whether it is a royal commission or a panel — I think we’ve both been clear to say that there has to be consultation with stakeholders and affected people. I think that’s key as well.

The personal tax system, as another example, is more complicated. As part of the survey we commissioned, we also asked about that, and 47 per cent of Canadians said it was more complicated over the course of the last 10 years as opposed to it hasn’t changed or less. That is during a period when there has been a lot of increase in terms of people filing electronically with software.

I like to use the medical expense credit as a good example. If you know exactly what qualifies, taking some receipts and putting it into a tax return is not difficult, but there are around 40 paragraphs in the Income Tax Act saying what is eligible.

Another interesting thing from our survey was that 60 per cent of respondents said they would prefer to have lower taxes than some of these tax expenditures or tax credits. I think the main reason is that they are not sure that they are qualifying or claiming everything that they are entitled to. I think they would prefer just to see lower rates if it is simpler.

Senator Duncan: I have a follow-up, if I might. Does your recommendation or does your experience tell you that a royal commission or an independent panel should be given a time frame to report?

Mr. Ball: I think it is absolutely necessary. It should be a fairly tight time frame. I’ve heard 18 months to two years as being what might fit well, especially if the next government is a majority, so they can maybe deal with it in the first half. As Trevin said, it doesn’t have to take almost a decade like the Carter commission took.

Other countries are moving fairly quickly as well. Although it wouldn’t be our first choice, another approach would be to set the stage for the review upfront and, if you can’t deal with everything, at least start and get something going rather than just sitting still. Although, like I say, that wouldn’t be our first choice.

Mr. Stratton: We have a two-year maximum timeline in mind as well.

The Chair: Before we go on to second round, Senator Andreychuk has a supplementary question.

Senator Andreychuk: Having seen royal commissions and what they mean to Canada, they were very effective when you have time. When you are studying something very omnibus and something that might be contentious in Canada, they’ve been very good. So we’re talking about urgency here.

In the minds of the commissioners and in the minds of the public, this has to be exhaustive. Therefore, they have to travel everywhere to talk to everyone before they report.

Surely, we need something that’s more urgent. So I would suggest that we rethink using a royal commission. What we want is some sort of commission with a fixed mandate that will work urgently because we don’t have time. Two years may be too long, but five is probably the obvious, if you put it into those traditional structures. So I would hope that some of our creative thinking on the commission would be expressed and then maybe there is an appetite to do it.

The Chair: Thank you for your comment, Senator Andreychuk.

Senator Pratte: Yes. I have one targeted question and another one which is broader.

On accelerated depreciation, the government has targeted the manufacturing sector. Mr. Stratton, your organization suggested there would be help for other sectors also. Considering that a commission or independent panel would take at least two years, are there other measures that you think would be helpful in the short-term for other sectors? The government’s reasoning, I think, for manufacturing is that it is more mobile and they were obviously concerned about the U.S. tax reform. Do you have other measures in mind that could be helpful in the short-term for other sectors, like natural resources, for instance?

Mr. Stratton: The Canadian chamber has come out in favour of carbon pricing in theory. The way it has been applied, with regulations pancaking on top, we think reduces the flexibility that a market mechanism like carbon pricing provides. But something that would help is the revenue that is derived from carbon pricing to go back to businesses to help them to transition to reducing their emissions. That’s something that could be very helpful if we are talking about carbon taxes.

It is important to keep in mind that there are plenty of targeted measures, but this what we’ve been doing for many decades now. There has been a lot of tinkering around the edges and targeting this sector or that sector when it is hurting and when a comprehensive review could make all of our sectors much more competitive. That’s why we think there is so much urgency for it right now.

Mr. Ball: I agree completely. I think part of the problem is that we don’t know which businesses have more need of capital than others. M&Ps — manufacturing and processing — is usually highlighted and it is definitely one that needs capital, but are we leaving other areas where they should have more capital incentives?

I agree that should be part of a review. We’ve been doing a lot of fixes, and I think it is just time to pull the system apart and see what makes sense longer term and spend time on that, rather than the specific things. Our position is we don’t see anything else other than bigger scale issues that need to be part of a review.

Senator Pratte: My other question deals with the need to simplify our tax system, which is something that has been mentioned time and time again in the context of this future review of the income tax system.

I’m a little skeptical, and maybe you can convince me otherwise. For instance, I’ve looked at the tax reform in the U.S., and it was extremely difficult to understand what they were doing exactly. It certainly pointed to a tax system that has become very complex in the U.S., considering that the States are also involved at a very high level.

Is this a myth? We all agree that it should be simplified, if not only for us at a personal level, but is it possible in a complex, modern economy to have a simple tax system?

Mr. Stratton: The short answer, I would say, is yes. We are certainly not saying to copy what the U.S. did. I wouldn’t even necessarily call that a comprehensive review, in some ways, reducing rates, changing some of the brackets and having an accelerated investment incentive.

There are other examples, such as the United States, and I think New Zealand is one of the best examples that can be used. Not only have they done a comprehensive review, but it has been done a number of times at regular intervals so that they also avoid having this problem ever come up again.

There are plenty of examples all around the world of comprehensive reviews that have been done that we can copy.

Senator Pratte: But do these reviews result in a simpler tax system?

Mr. Stratton: Yes, they have resulted in a simpler tax system.

Mr. Ball: There are a couple of things I would mention. The private company changes are a good example in terms of simplification. Ignoring the policy part, CPA Canada made suggestions in terms of how they could have done some of what they wanted to do in a simpler fashion.

The tax on split income, we were pushing the idea of trying to use more of an age limit, thinking that a lot of the income splitting that happens is for children between, say, 18 and 25. So would it make more sense to focus on that with a simpler test?

That points to something else that I would like to see happen as part of the tax review, and that’s the final way to develop legislation in a more consultative approach. In the U.K., they float ideas first before they start drafting legislation, for example.

Could you have a better discussion around the complexity versus the integrity issue? I don’t think we got the balance right. It’s too skewed to the integrity side, to the point it’s very difficult for people to comply with it.

I don’t think simplification is as easy when everyone puts it out there, but can we make it simpler? Absolutely.

Senator Marshall: Would you have any views on the changes that the government is proposing on employee stock options? I don’t know if you’ve looked at that, but I’d be interested in your views on the $200,000 cap.

Also, the government is saying it’s not going to apply to start-ups and rapidly growing Canadian businesses, but the proposed tax change is going to be applied on a go-forward basis, even though they haven’t finalized the policy. Would you have any views on that?

Mr. Ball: I can go first. On the $200,000, not as much. Our understanding is they were trying to make the rules consistent with the U.S., and we haven’t done a deep dive in terms of the $200,000.

Our joint tax committee with the Canadian Bar Association made a submission on the stock options. One thing that was a concern is with the start-ups and mature versus quickly growing companies. We’re very concerned about how this would be defined. On that discussion about tax complexity, how would they deal with something like that when they’re drafting tax rules? Would they be forced to track valuations of companies? How would you track how quickly they’re growing or if they’re mature? We did raise that as a concern.

It’s a payroll benefit as well. You have to make sure there’s clarity in terms of whether a stock option qualifies or not.

What we suggested was the government takes its time and think about all these things and use the approach I just mentioned; have a discussion with stakeholders early on to figure out how to make sure this doesn’t get out of hand from a tax complexity point of view.

Mr. Stratton: We also had the same concern about how this is going to be defined, because in the budget document, there wasn’t a lot of details on how they’re going to define what a mature company is and what a start-up is.

Obviously, when it comes to start-ups, there are a lot of stock options that are involved in compensation, but there are plenty of mature companies and larger companies that use this as incentives for their workers, to attract and retain labour. So it’s important, depending on how it’s defined that we not lose that ability.

Senator Marshall: They use the term “rapidly growing.” Thank you.


Senator Forest: Mr. Ball, during your intervention, you indicated that the temporary 100 per cent deduction measure is good, but that it doesn’t go far enough. Do you think that if we had gone full-term, that is, far enough, as you say, what changes should we have made?


Mr. Ball: I don’t want to keep sounding like I’m going back to the same thing, but I really have to go back and do the tax review more generally to figure out which possible alternatives make more sense than others because we have such a limited amount of budgetary money that we can devote to competitiveness and that sort of thing.

When I said we need to go further, I was really thinking about the tax review part of it. I understand why the government wanted to respond to the U.S. changes. I think they actually did come up with a compromise that makes sense, because among all the other things they’re doing in the U.S., they’re running large deficits as well, so it makes it difficult to keep up with that.

Rather than taking a look at individual things, it is important to do a review because we have to make sure we are taking care of the fiscal situation as we do all this. I think a review is the best way to look at all the other possible alternatives.


Senator Forest: My next question is for both of you. The tax system is made up of revenue from the government or governments. Some expenditure analyses have been done at the federal level. However, since the tax system began, responsibilities have changed significantly. For example, with respect to the environment, there are emerging issues that have significant financial impacts on the provinces and territories, as well as on municipalities. Doesn’t that simplify the challenge?

The federal government often collects tax-related revenue and then redistributes this revenue by providing conditional subsidies to the provinces and territories to meet their new responsibilities as a result of new legislation.

As part of this reflection, should we not analyze how we assume responsibility for the major issues of the 21st century, which are very different from those we experienced at the end of the Second World War, when we consolidated a tax system? Should we go that far? Ideally, this should be the case, but it makes the process much more complex. What is your point of view on this?


Mr. Stratton: When it comes to doing a comprehensive review, these are certainly issues that are mentioned, particularly when it comes to the other side of the ledger being spending. Something that I particularly worry about is not only our fiscal position as it is in time, but also our ability to engage in counter-cyclical spending if there is a downturn going forward as well. It’s very important that we think about our spending, too, apart from revenues.

I would caution to keep the scope of a comprehensive review of the tax system narrow. The tax system itself is very large. If there is a need for other types of reviews, whether it’s of spending or of transfers to provinces, then that could potentially be part of a different review, or maybe it wouldn’t even have to be a comprehensive review in itself. I think trying to figure out a revised tax code should be a review in and of itself.

Mr. Ball: I’d agree with that. When I appeared before another committee, a question was put to me: How do you justify that tax change when expenditures are needed in a different area? So I would agree completely to separate the discussion.

My viewpoint has always been try to make the tax system work as well as it can within its mandate in terms of what it’s for and then in other areas of the government make decisions on incentives and things beyond the tax system.

In terms of the provinces, the one thing I’d say is our federal/provincial set-up, especially compared with the U.S, is a strength if we could leverage more off of it. If we could do more harmonization with the provinces, for example, in terms of different taxes. That is a huge advantage versus the U.S. where you’re looking at filing state or federal or local returns with different rules. I think there is an opportunity for us if we can do more harmonization between all the taxes we have.

Senator Klyne: I want to come back to the comprehensive review, but before I do just to comment on the personal side of the taxes. With regard to the brain drain, there are four reasons why people likely leave for other jurisdictions. One would be an advancement opportunity. The second would be higher earning potential. Third one would be to escape a less-than-attractive tax environment. And the fourth one would be weather. I don’t think it’s the government’s purview to get into the weather side of things, but they can certainly get their hands on the pulleys and levers around the taxation side. Also there are a great number of voters out there they should want to appeal to. That would be my argument for drawing on the personal side.

Looking through the lens of supporting a comprehensive tax review, I think largely what I hear too often is that we’re getting caught up in the “how” and we should probably get caught up more in the “why” because there are a lot of smart people who will figure out the hows.

In terms of “why” — getting some incentive going to get the decision makers to the table to get on with the comprehensive tax review — we can talk about all the good things that would come of a tax review. But in my experience I’ve found that pain is the biggest motivator. We should talk about what will happen if we don’t do a comprehensive tax review. What are the costs of not doing this, the brain drain, the loss of productivity and filing taxes. That’s a simple one. The loss of business investment going to other jurisdictions but also that loss of talent to other jurisdictions.

I’m guessing that you have a comprehensive view as to what happens if we don’t do this. You can look through the rear-view mirror about what’s already happening, but also you can project over the next five, 10 years.

Mr. Ball, I assume if I were to sift and synthesize this, I could probably find the answers. If you have that and could pass that back to the clerk of the committee, those are the things we can glom onto in terms about why and what happens if we don’t do this and try to inspire some leverage here to get them to the table.

Mr. Ball: There’s not a lot I can say as an answer in terms of that just off the top of my head. It’s something we will take a look at. We’ve been working with Mr. Stratton’s group and other business groups. I think that is something we can look at in terms of trying to bring out more of that evidence of what might happen.

Unfortunately, one of the issues is there are so many different things that can impact what happens. It’s hard to separate the impact of this versus something else at the same time, but I take the point that it makes sense. I’d agree with you. Most of the discussions where I’ve been there in terms of the negativity, it does seem to revolve around the “how” part. I don’t hear a whole lot of arguments on the “why” part. Maybe we have to make such a convincing case on the “why” that the “how” doesn’t matter anymore because we have to do it.

Mr. Stratton: Absolutely. I’m an economist and so I’ve done economic impact assessments before. You’re right; they’re not an exact science, but there is a very good study by PWC on the economic impact of Canadian tax competitiveness that I would be happy to share with the clerks.

I would also mention that talent is very important and a huge resource particularly in the direction the economy is going. If there wasn’t so much political uncertainty in the United States, I think we would see a lot more of a brain drain than we are now. Particularly with H-1B visas and the issues they’re seeing down south, we’ve been able to attract some talent particularly in the tech sector. If that political uncertainty in the United States goes away, we should certainly be worried about losing talent.

The Chair: I have a question for the witnesses and I’ll ask you to elaborate, maybe more clarity on it. Minister Dominic LeBlanc has a mandate from the Government of Canada. I’ll read part of the mandate. Here I’m talking about barriers to provincial trade:

Collaborate with provinces and territories to eliminate barriers to trade between each other and work toward a stronger, more integrated Canadian economy. This work should be undertaken with the full exercising of federal jurisdiction as outlined by section 91(2) of the Constitution Act 1867 and the Supreme Court decisions on the regulation of trade and commerce.

That’s a subject matter that we will have witnesses coming forward in the next few weeks. When you talk about federal, provincial and territorial meetings, we have to respect provincial responsibilities and jurisdictions. So on that, what would you recommend to this committee in order to look at the biggest trade barriers? What do you and your members see as the biggest barriers to interprovincial trade in Canada?

Mr. Stratton: Sectorally, I think some great ones have been identified in the budget document: agriculture and agri-food, transportation, health and bioscience. Those are very important sectors to look at. We welcome the announcement of regulatory road maps though we wish they were happening a bit more quickly considering the urgency of this issue.

In terms of one that might not be mentioned, I think in financial services there is a huge opportunity for national harmonization of regulations, obviously cooperatives, insurance companies, banks are regulated in different ways. Particularly with a burgeoning fintech industry there is a big opportunity perhaps for a regulatory sandbox to be able to test out new financial technologies and work together with regulators, to perhaps even test out regtech too.

When it comes to interprovincial trade, it is a difficult issue because in some ways it is a constitutional issue, but mutual recognition tends to be a solution. A lot of businesses are looking for federal leadership to create that conversation for mutual recognition between provinces.

Mr. Ball: I don’t have anything to add to that, although we can certainly go back and talk especially to our chief economist to get his views and see what we can provide as well. I’m not equipped to address that today.

The Chair: Thank you. To the witnesses, you’ve mentioned you would provide information. Would you do so, please. Mr. Ball, if you could go back to your chief economist to identify for the committee what he would recommend, what you would recommend, that would certainly be greatly appreciated.

Senator Pratte: Mr. Stratton, you’ve mentioned that your organization is worried about Canada’s fiscal position. The government’s response to this is always to point to the debt-to-GDP ratio and saying that it’s going down, that it’s going to continue to go down even with the yearly deficits. In the budget they say a declining federal debt-to-GDP ratio will help to further reduce Canada’s debt-to-GDP ratio, which is already the lowest among G7 countries.

So considering this, why are you concerned by Canada’s fiscal position, which is — I’m playing devil’s advocate here — one of the best in the developed world?

Mr. Stratton: This is a great question. I would answer that in two ways. First, one of the concerns of the business community is that there’s no detailed plan to get the books back to balance. So if there were a plan — we’re not saying it needs to happen next year, but we want to know what the plan is to eventually do it, because we can’t continue running deficits, gathering debt and paying interest on it. That’s not necessarily fiscally sustainable.

Second, if we look at debt-to-GDP ratios instead of just debt or deficit itself, there is a numerator and denominator there. If both of those are going in the wrong direction, then our position can deteriorate very quickly.

Mr. Ball: Mr. Stratton is more qualified than I am on this, but I worry about running big deficits when things are going well, relatively. I’m not talking about right now, but in the course of the last few years, we’ve had a good economy. There will be a downturn. What will happen if you’re running a large deficit going into it? I’m not sure, at least from a federal perspective — I don’t think we’ve had issues around running into a major downturn with a deficit before we even get into it. I would worry about that part, too. As issues come up, will we have the resources to deal with them?

Senator Pratte: The government’s point of view is that, considering our very low debt level — not the number but the debt-to-GDP ratio — we have the space such that, even if there is a recession, there is space enough for the government to increase its investments.

Mr. Stratton: I would mention that if there is a downturn, that will certainly impact the ability to get government revenues, because our economy isn’t growing as quickly. That will certainly have an impact on the deficit and debt as well.

Senator Marshall: I just want to continue on that train of thought. We’re running a deficit now. Things are good, but there are some issues out there. For example, the dispute right now between China and the U.S. Housing, there’s some vulnerability there. Tariffs. The government is continuing to run deficits. The debt now, I think, is around $700 billion for central government. If you take into consideration the Crown corporations — a lot of debt is parked out there — over $300 billion is parked out with the Crown corporations. That’s well over a trillion dollars now. The debt charges are heading toward $30 billion a year. There is a possibility that interest rates may go up, although I think the Bank of Canada is between a rock and a hard place.

Can you just talk a little bit about what could come as a shock to the economy? Then we might regret having those deficits.

Mr. Stratton: When it comes to interest rates, I would agree. I’m not sure they will rise if before the end of the year, but perhaps early next year, it’s certainly a possibility.

When it comes to downside risk globally, absolutely, the China-U.S. trade tension is certainly one of them. I believe Goldman yesterday just increased the probability of increased automobile tariffs globally, and that would have a huge impact on the Canadian economy. There is also the possibility of the U.S. implementing a 10 per cent tariff on those extra $300 billion of imports from China to the United States, which would pose a huge downside risk.

Domestically within Canada, I worry about our household debt levels. If interest rates do go up, if the cost of living goes up or if wages aren’t rising, then that can pose a huge issue. Obviously, a lot of assets that households have are in their homes, as well, which is certainly concerning.

Apart from that, some of the things we’ve mentioned before when it comes to the overall rising cost of doing business such as taxes, regulation and interprovincial trade, which we don’t necessarily do as efficiently as some more unified economies.

Senator Marshall: Mr. Ball, do you have anything to add?

Mr. Ball: Not too much. The only thing that strikes me is that with all of those risk factors, having some leeway in the budget in terms of being balanced now when things are going relatively well would be good. I think it’s hard to predict the outcomes from all these risks.

Senator Marshall: Thank you.

The Chair: To the witnesses, first, thank you very much for sharing your thoughts. You have been very informative, and you have brought clarity.

Honourable senators, we will be back in this same room at 1:30 this afternoon. You can leave your belongings here if you wish.

(The committee adjourned.)