THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, June 4, 2024
The Standing Senate Committee on National Finance met this day at 2:31 p.m. [ET] to study the subject matter of all of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.
Senator Claude Carignan (Chair) in the chair.
[Translation]
The Chair: Before we begin, I would like to ask all senators and other in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents.
Please take note of the following preventative measures in place to protect the health and safety of all participants, including the interpreters.
If possible, ensure that you are seated in a manner that increases the distance between microphones.
Only use a black approved earpiece. The former grey earpieces must no longer be used.
Keep your earpiece away from all microphones at all times. When you are not using your earpiece, place it face down, on the sticker placed on the table for this purpose. Thank you all for your cooperation.
Welcome to all senators and all Canadians who are watching us on sencanada.ca.
My name is Claude Carignan. I am a senator from Quebec and Chair of the Standing Senate Committee on National Finance. I will now ask my colleagues to introduce themselves, starting on my left.
Senator Forest: Éric Forest from the Gulf division in Quebec.
Senator Gignac: Good evening. Clément Gignac from Quebec.
Senator Loffreda: Good afternoon. Tony Loffreda from Montreal, Quebec. Welcome.
[English]
Senator Kingston: Welcome. Joan Kingston, New Brunswick.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Ross: Krista Ross, New Brunswick.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Smith: Larry Smith, Quebec.
[Translation]
The Chair: Honourable senators, today we will resume our study on the subject matter of all of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024, which was referred to the Standing Committee on National Finance by order of the Senate on May 9, 2024.
We are pleased to welcome this afternoon, David MacDonald, Senior Economist, the Canadian Centre for Policy Alternatives, Angelo Nikolakakis, Partner, EY Law LLP, International Tax Services, Canadian Bar Association, and Mark Weber, Member, National Board of Directors, Public Service Alliance of Canada.
Welcome and thank you for accepting our invitation. We will begin with Mr. MacDonald, followed by Mr. Nikolakakis and then Mr. Weber. You have five to seven minutes for your opening remarks, and then we will move to questions from senators. Thank you.
[English]
David Macdonald, Senior Economist, Canadian Centre for Policy Alternatives: Thank you, Mr. Chair and committee members, for your invitation to speak on Bill C-69. I would like to restrict my opening remarks to four key areas: the capital gains inclusion rate; the Global Minimum Tax, or GMT, the changes to the Employment Insurance system and the National School Food Program.
As a long-time advocate for higher capital gains inclusion rates, I’m pleased to see we’re making progress on this issue. From 1988 through 2000, we had similar or even higher inclusion rates on capital gains. These higher rates did not have the $250,000 exclusion that we’re seeing in this year’s budget. Corporate income tax rates were double what they are today.
Despite concerns that investment would fall due to higher capital gains taxation over this period, investment actually doubled over this period as a proportion of GDP, rising from 2.6% of GDP for machinery and equipment to 4% by the end of the decade, and from 1% of GDP to over 2% for intellectual property. In fact, investment in machinery and equipment in 2000 is higher than it is even today, where it stands at only 3% of GDP.
Companies do not invest to chase low tax rates. They invest because they think they can make money. Corporate investments follow the business cycle. A strong economy leads to strong corporate investment. Companies move to capitalize on growth and let the accountants figure out how to reduce taxes after the fact. A higher inclusion rate equalizes treatments between companies in different sectors. Companies that buy and sell assets do not get a tax preference versus other companies that sell goods and services, although that’s what the different tax treatment for capital gains allows.
In the long run, we should move to full inclusion. As the Carter Commission famously said, a buck is a buck, whether you’re trading stocks or sweeping floors. That full inclusion should be with an inflationary increase to the capital purchase price. Longer-term holdings, such as family cottages or farms, could get a very small inclusion, if any, whereas short-term capital gains from stock trading, for example, would be at full inclusion.
It’s also worth considering how the proceeds from the smaller tax break on capital gains are being used. An important driver of capital gains recently has been real estate investing due to out-of-control housing market prices. Effectively, substantial capital gains for investors are being made at the expense of those seeking housing. The proceeds of a higher inclusion rate are funding the expansion of more affordable housing. Those making the real estate gains are partially paying for important moves to limit the terrible impacts on housing affordability.
I’m encouraged to see the Global Minimum Tax, or GMT, legislation proceeding. It is an important tool to combat profit shifting from Canada to low- or no-tax international jurisdictions. The epidemic of multinationals using various means to avoid their fair share of Canadian corporate income taxes while relying on Canadian infrastructure, workers and the legal system must be addressed. The minimum tax is expected to raise almost $3 billion starting in 2026-27, and it’s crucial to make sure that companies making money here are paying taxes here as well.
The changes to Employment Insurance in this budget are disappointing. Many EI experts were consulted at length over the past year about improvements following the pandemic and our experience with emergency benefits. Unfortunately, little has fundamentally changed, although the budget does continue a limited EI extension for seasonal workers that would have expired in the fall. I encourage members to consider something that we’re working on — a new EI stream called the EI emergency response measures, which the Minister of Employment and Social Development of Canada, ESDC, could trigger for a particular geographic area. This could be triggered in the case of evacuations for wildfires or floods or even broader events like, heaven forbid, another pandemic where workplaces are shut down.
Triggering these measures would produce an immediate relaxation of the EI access rules. It will eliminate the one-week waiting period, reduce the hours needed to access EI benefits and provide a floor on benefits.
We still have no institutional response to ever-growing threats related to climate or health. As shown during the pandemic, cash supports are critical to keep workers and families afloat during emergencies.
Finally, I would like to commend this budget on an important step forward to a National School Food Program. This is something we’ve long advocated for. With Budget 2024, we’re now seeing money flowing to design the basics. Ideally, this program would be universal, where all children receive a healthy and free lunch at school every day, eliminating the stigmatization that such programs can bring when only some students benefit.
As envisioned by Budget 2024, this program is not universal. A universal national school food program would roughly cost likely $2.5 billion a year, although the measures in Budget 2024 only commit roughly $200 million a year; nevertheless, it is an important start to establish the provincial and territorial agreements to implement a broader program.
Thank you very much, and I look forward to your questions.
Angelo Nikolakakis, Partner, EY Law LLP, International Tax Services, Canadian Bar Association: Honourable senators, I’m a lawyer specializing in tax law. I’m a partner at EY Law LLP with over 30 years of experience in the field. I’m a former national chair of the Taxation Section of the Canadian Bar Association and a former co-chair of the Canadian Bar Association and the Chartered Professional Accountants of Canada Joint Committee on Taxation. That’s a consultative body that helps to work with the Department of Finance Canada on refining legislation.
Over the years, I’ve been involved in numerous consultations and other initiatives to reform and construct, refine and provide maintenance to other areas of the income tax law. Today, I come before you to address only two aspects of Bill C-69, in particular the Alternative Minimum Tax regime that is being modified by this bill and the Global Minimum Tax Act, or GMTA, which would be introduced into Canada law under this bill.
Starting with the Alternative Minimum Tax, just to say a few words, essentially this is a tax regime which is intended to moderate the speed at which an individual can benefit from certain tax preferences. It’s not intended to deny tax preferences. It’s only a speed limit. It’s intended to slow down the rate at which taxpayers are able to take deductions so that they don’t wipe out all their taxable income in a particular year. That’s a very important principle. It’s also not intended to tax income that doesn’t exist. It’s not intended to tax phantom income. That’s an important concept.
It’s intended to tax real income, which is sheltered by certain preferences, at too fast a rate. It’s not intended to create income out of thin air.
But there’s a problem with one of the provisions in particular that is included in Bill C-69, which is that it creates and taxes phantom income. The provision in question — I’ll give you the number — is 127.52(1)(j). It has a number of different elements and in particular, subparagraph (ii) is a provision that denies interest expenses associated with earning investment income, or I should say half of them, 50% of them, in a way that results in the creation of false, fictitious, phantom — whatever you want to call it — income that doesn’t exist from an economic perspective. I’ll give you an example.
You borrow at 8%. You lend the money at 8%. You have real economic expenses of 8% a year. You have real revenues of 8% a year. You have no real income because your expenses, real expenses, are equal to your real revenues. This rule would deny half of those expenses, notwithstanding that they’re real expenses, and create fictitious income of 4%. How is the taxpayer supposed to pay the tax? This is not some sort of situation where the taxpayer has interest expense that exceeds their revenues as some sort of planning to shelter other income. This is just a pure tax on phantom income. And I think it’s a defect. I don’t think that’s intentional, and it certainly is inconsistent with the principles of the Alternative Minimum Tax.
What we have done to be transparent with you is communicated those concerns to the Department of Finance Canada, and we will be having discussions and they’re considering it. Moreover, we have shared with them a proposed revision of the rule in question, which would not only deal with this problem of phantom income, but also fix a different problem in that rule, which renders it ineffective from the Crown’s perspective.
In other words, the rule both misses the target it’s aiming at, and overshoots at the same time. I’ve shared a draft with the Department of Finance and I’ve brought copies of that, which I would be happy to have you consider, as a fix for both of the problems that I see in that rule, both the phantom income problem and the problem of the target being missed by the rule itself.
Just as a final note on the Alternative Minimum Tax Act, the provision in question, 127.52(1)(j), it’s also problematic in certain other respects. It denies 50% of the deductions for a whole list of items which you might look at and say, these are not boutique tax credits. You scratch your head and say, why are we targeting these particular measures? I can give you some examples.
The modest deduction for apprentice mechanic expenses for tools. Expenses for tools are not a legitimate deduction for a mechanic? How do you become a mechanic without tools? Childcare expenses, affecting, essentially, mainly women who are trying to participate in the national workforce, which I don’t need to tell you affects the national finances.
Another example, which I was astonished to see is a deduction for disabled individuals, which is being restricted by this rule. I’ll read it to you. You’ll be shocked:
Where the taxpayer is blind, the cost of a device or equipment, including synthetic speech systems, Braille printers, and large-print on-screen devices, designed to be used by blind individuals in the operation of a computer, is an eligible expense provided that the device or equipment is prescribed by a medical practitioner.
Why are we targeting that? Why is that not a legitimate expense? That’s not some sort of extravagant tax preference or something like that. It’s a proper measurement of the income of a blind individual and designed to recognize the special needs of this type of disability, among many other disabilities that are being targeted by the same rule. I would have thought you wouldn’t like that, Mr. Macdonald.
But anyway, I think maybe the best approach is to pull that particular provision for now until some of these policy considerations can be properly considered by parliamentarians and other stakeholders, or at least restrict it to the item that I addressed earlier dealing with investment income, but revised in a way, as I’ve shared with you, that cures the problem of phantom income, but also from the Crown’s perspective, solves a problem, which is a gap in the rule or a hole in the rule.
Moving on to the Global Minimum Tax very quickly —
[Translation]
The Chair: Can you please wrap up?
Mr. Nikolakakis: Very quickly, Mr. Chair.
[English]
The GMT is the product of an international initiative led by the OECD and the broader group of countries known as the Inclusive Framework. Very good. It’s intended to require large multinational enterprises to pay a minimum tax of 15% on their financial accounting income which aligns better with their true economic income.
The Chair: Mr. Weber.
Mark Weber, Member, National Board of Directors, Public Service Alliance of Canada: Thank you Mr. Chair and members of the committee. Thank you for the opportunity to address the Senate Finance Committee today. My name is Mark Weber and I am a member of the National Board of Directors of the Public Service Alliance of Canada, or PSAC, representing 245,000 members. Most PSAC members work for the federal government, but many work for post-secondary institutions, territorial governments, non-profits, Indigenous organizations and some private employers as well.
I’m also the National President of the Customs and Immigration Union, a component of the PSAC, representing over 12,000 employees of the Canada Border Services Agency, or CBSA, which includes 9,000 members of the Border Services Group who have been without a contract for the past two years.
A positive change worth highlighting in Bill C-69 is proposed language that clarifies in the Canada Labour Code that employers are responsible for properly identifying employees as such instead of skirting responsibilities by claiming that they are contractors. This is a step in the right direction for all Canadian workers.
Unfortunately, this section makes some of the same mistakes that the Ontario government made in their changes to the Ontario Employment Standards Act and should include minimum standards that apply to all workers and employers along with meaningful penalties for breaches of these standards. We are concerned, however, that the budget and the bill leave out the government’s own employees in many ways.
There’s no money for Phoenix damages or increased funding to hire and retain more staff to deal with the nearly half million Phoenix cases that are still in the backlog. There’s also no money to increase capacity to pay equity commission, which is sorely behind and surely won’t make the looming September deadline to have pay equity plans in place for all federally regulated workplaces. These omissions speak to a critical lack of respect for public sector workers. Some other provisions are also a bit of a head-scratcher, such as the government’s move to sell off its buildings as part of its affordable housing strategy. While affordable housing is certainly positive, it’s hard for us to reconcile the decision to sell government buildings with the arbitrary directive ordering workers who have been efficiently working remotely for several years to suddenly increase their time in offices that are often about to be sold. Public sector workers have been disrespected by omission once again.
There are also two issues included in Bill C-69 that we also need to address. First, we have questions about the provisions that will make changes to the Corrections Act in order to house immigration detainees in federal correctional facilities.
As bargaining agent for the CBSA, Correctional Service Canada and immigration workers, PSAC must be consulted on any changes to job classifications, locations of work and responsibilities. Who will provide what services to detainees under this new framework, how will jobs interact, how will jobs overlap, and will the government confirm the service will not be contracted out? Public safety duty should never be offloaded to the lowest bidder, and private security companies have no role to play in these or any public institutions if we wish to ensure the integrity of sensitive, public safety processes.
Finally, the bill proposes changes to the Public Service Pension Investment Board Act, and we understand from different sources that these are housekeeping changes made so that the Treasury Board can move money to and from members’ plans in the case of a non-permitted surplus, or possibly as well in the case of increased draws on plans or reduced revenues.
The federal government would do well to remember that any surplus that may be realized, has been built on employee contributions. Before any move is made to use that surplus for government spending, it’s essential that members be consulted and inequities be rectified.
One such inequity is the differential treatment for public safety occupations. The PSAC has long called on the federal government to provide border officers and defence firefighters with pension provisions equivalent to their peers and public safety divisions of other departments and governments.
Right now, CBSA officers, defence, firefighters and park firefighters must work at least five years longer than their peers, leaving them at increased risk for occupational diseases and injuries and making recruitment and retention increasingly difficult. The fact that the federal government continues to refuse to implement simple legislative changes that would correct this inequity is deeply insulting to our members, especially in the context of a looming strike at the CBSA. Budget 2024 is a chance for the government to change this.
We know that the president of the Treasury Board has been provided with our recommendations on how to proceed with these promised changes. I thank the committee and look forward to your questions.
[Translation]
The Chair: I would like to thank our witnesses.
We will now proceed to questions. Each senator will have five minutes, including questions and answers.
[English]
Senator Marshall: I wanted to know if the fact that Canada is going to implement the Global Minimum Tax Act, do you want to think that’s going to have an impact on Canadian businesses? Will it encourage them either to move to the U.S.? Will it make a difference with regard to investment in Canada? Nobody has answered that question for us.
Mr. Nikolakakis: Of course it will have an impact. So the question is, what is the impact?
Senator Marshall: Yes.
Mr. Nikolakakis: Will they move to the U.S.? The U.S. has to some extent a comparable regime and was to some extent the inventor of this type of regime. They have a rule called the GILTI regime, or global intangible low-taxed income. But it’s very different in many ways and more favourable in many ways. I’ll give you an example because they have a couple of regimes. It’s more favourable because it looks at the effective tax rate on a more global basis versus the GMTA, which goes country by country.
If you’re paying 10% in country A, and you’re paying 20% in country B, and the average of the two is 15%, that’s not good enough. You end up paying more than 15%, because you pay 20% in country B and you have to be topped up to 15% in country A. That’s not the way the American system works. It’s blended all together, which is more favourable, so I certainly think that businesses comparing the two regimes would often prefer the American regime in that respect.
Senator Marshall: Okay.
Mr. Nikolakakis: Another aspect of their system is called Foreign-Derived Intangible Income, or FDII. Under that aspect of their system, instead of moving operations abroad, an American business can earn foreign intangible based income — sales income which has an intangible component in it and various other types of high value-added income — directly in the U.S., and pay basically half the rate. Pay this low rate of 13% or 14%, around there, directly.
In other words, Canadian multinationals have to jump through hoops, do backflips to get to the internationally competitive rate. American multinationals can do so from home. And that has an impact not only on the location of business operations and parent companies, but it also has an impact on national finances, because somebody said, “We’re going to raise $3 billion from this statute,” I doubt that because companies will arrange their affairs to pay the foreign 15% instead of the 26 or 27% they would otherwise pay in Canada. If they were American, 15 here, 15 there, doesn’t matter. As a result of that, you’ll have a hemorrhaging of some of the revenues paid out to foreign countries instead of that money coming home to Canada to be reinvested, distributed as dividends and paid indirectly in Canadian taxes and in the Canadian economy.
How is it going to affect investment in Canada? To some extent, because again, it’s intended to do so, it’s intended to limit tax competition. To the extent that the Canadian government would want to offer certain types of incentives to attract investment, this puts limits on that.
Now, of course, tax people are clever. They find ways around that. I don’t mean practitioners, I mean governments. When you see governments giving subsidies instead of certain tax credits, that’s designed to get around these restrictions. Maybe it doesn’t really affect, it’s just that you have to do it in a different way. That’s why we’ve seen the subsidy arrangements that have been announced and refundable credits.
Senator Marshall: Put me on second round. I have a general question.
[Translation]
Senator Forest: I’d like to thank our witnesses for being with us. My first question is for Mr. MacDonald. Division 23 of Part 4 seeks to maintain the five additional weeks of employment insurance for workers in seasonal industries, which is an important reality in many parts of Canada.
The government has wrestled with this problematic situation for years through annual extensions of temporary measures. It’s as if our employment insurance system was unable to adapt to this reality of seasonal workers. Have you thought about this issue, in particular to avoid saddling our seasonal workers with the infamous black hole, the period in which there is no insurance or other measure?
[English]
Mr. Macdonald: There are plenty of changes that have been discussed over the past year as part of the EI consultation that could have improved Employment Insurance given the lessons we learned from the pandemic and the importance of cash benefits, helping workers during a pandemic, substantial reductions in the working hours required to gain benefits. Higher benefit levels made a big difference during the pandemic. None of those have survived to help us in other areas like climate disasters where we’re seeing floods, fires and entire communities being evacuated. No changes to EI can be put immediately in place in those circumstances.
In other areas where you have more temporary or seasonal work, where EI could be of great help, those institutional changes haven’t been made. This budget makes very limited extensions of existing programs, and as you state quite rightly, have been extended year after year. It’s unfortunate we didn’t see a more fulsome change to the Employment Insurance system in this budget. Certainly, there was plenty of consultation to make those changes, even though there weren’t any substantive changes in this particular budget.
[Translation]
Senator Forest: At present, the whole regime is under review; it’s been under review for several months, if not years. Can you explain why we haven’t managed to adopt a more permanent approach for these workers?
[English]
Mr. Macdonald: It is unfortunate that we haven’t learned from the pandemic and made changes to the Employment Insurance system to make it more supportive of workers; more accessible to workers; to make sure that workers who are insecurely or seasonally employed have access to a better system; and to make sure it is ready to go in the next emergency so that when workers need it and can’t work — because they’re being evacuated, or there are work stoppages, or forced by the government to stop — they are immediately supported through a system that is meant to insure them against unemployment.
When you can’t go back to work because your community has been shut down, you’re employed seasonally, et cetera, we do need provisions in the EI system to deal with that. Unfortunately, those weren’t included in this budget.
[Translation]
Senator Forest: Mr. Nikolakakis, I’d like to take advantage of your presence to ask you about something that is not necessarily found in Bill C-69, which is the increased inclusion rate for capital gains. On May 1, you submitted a brief on this issue to the government. Essentially, you recommended that taxpayers be granted more time to make a choice regarding the capital gains realization. You say that this flexibility would not reduce expected revenues for the federal government in 2024–2025. Can you explain the logic behind your conclusion?
Mr. Nikolakakis: The conclusion is based on the principle that the government wants to encourage people to realize capital gains this year in order to be able to include that tax revenue for the current period. There’s some controversy around that, but the goal is to stay under the $40 billion mark. That’s the goal. So, time was granted to create an opportunity for people to take advantage of the 50% inclusion rate before it rises to 66%. Normally, rate changes apply immediately, except in exceptional cases. In this case, a window was created. However, if the purpose of this window is to generate capital gains this year, why is the window only one month long, and not for the whole year? Everything will fall within the year if we trigger a gain this year. Giving more time is not a bad idea.
Secondly, if you want people to generate gains, it normally requires operations and transactions. Imagine someone who owns a rental property. Maybe they want to sell it, so it’s worth generating the gain this year. Can they arrange their affairs, hire a notary, lawyers, incorporate companies, deal with the many costs and complexities to create the gain before June 25? It would provide more time to get organized.
However, another point raised in the submission is this: Why do we have to force people who want to generate a gain to perform transactions? Why not give them a tax election, why not allow a deemed disposition of the property and trigger the gain without unnecessary costs associated with transactions that will benefit people like me, who are tax specialists and lawyers? Can they do the job? It’s a lot of work and very little gain whereas many gains could be created and thousands of people will be willing to do it.
The Chair: Thank you, Mr. Nikolakakis.
Senator Gignac: I would like to follow up on the discussion launched by my colleague, even though this measure is not included in Bill C-69. However, you are here with us and you have expertise, and it is a very important measure in Budget 2024. We’re still awaiting the details. June 25 is just around the corner. You described the real estate sector well: It’s not like selling shares on the stock market. Have the inclusion rate and capital gains been changed in the past? I harken back to 1987-88 with Michael Wilson; he gave six months’ notice back then, rather than two months. That was announced in advance.
Mr. Nikolakakis: Yes, but that’s an example and there are others.
Senator Gignac: Indeed, and now things are moving quickly. Also in 1994, Paul Martin eliminated the $100,000 capital gains exemption. It’s as if one disposed of the property and paid taxes on it, without actually selling it. Can you tell us more about that?
Mr. Nikolakakis: Some expenses are useful, others are not.
Senator Gignac: Yes.
Mr. Nikolakakis: Forcing people to hire lawyers, pay professionals and incur unnecessary expenses doesn’t make sense. It’s much more logical. We’re not here to dispute the government’s political decision to increase the rate, which is appropriate, nor to question the creation of a window to give people the opportunity to trigger gains at 50%. Why force them to pay unnecessary costs?
Senator Gignac: All right. If I have enough time, we’ll come back to the subject of the alternative minimum tax. In the 2023 Budget, they did announce changes to the Income Tax Act that would be included in the calculation of the alternative minimum tax, then they launched consultations. Now, when I look at all this, they’re going to deny 50% for a range of tax credits, as you said in your opening remarks. Did they really hold consultations before deciding to do this? The examples you provided are quite striking.
Mr. Nikolakakis: Some improvements were made, but there are still problems like the ones I described. It’s unfair to tax someone on income that they haven’t received.
Senator Gignac: On the other hand, regarding charitable donations, the tax credit will be 80%; it won’t be 50%. We heard from a number of Quebec foundations who were quite concerned that this might have an impact on donations. Some people have substantial means, after all. Do these changes reassure you somewhat, the move to 80% rather than 50%?
Mr. Nikolakakis: I can’t really comment on the technical details of these changes or on that particular aspect. There is no doubt that it’s problematic to penalize people who donate to others, because, ultimately, it will decrease the amount that people want to donate. These are people who donate.
Senator Gignac: Those organizations will come knocking on the government’s door, because they’ll run out of money.
Mr. Nikolakakis: But someone has to feed the hungry.
Senator Gignac: Agreed.
[English]
Senator Smith: Mr. Weber, I have a question for the Public Service Alliance of Canada. The government announced plans in Budget 2024 to reduce the size of the federal public service by 5,000 over the next few years. The Parliamentary Budget Officer raised concerns that Budget 2024 and, subsequently, Bill C-69 includes many new programs that will likely require hiring more public servants. He finds it hard to reconcile these competing objectives.
Do you have any concerns about the lack of a complete human resource plan for the federal public service from the government?
Mr. Weber: There has been no consultation on that. We don’t know where the cuts are coming from. We have employer organizations that are incredibly short-staffed with us. The CBSA is short between 2,000 and 3,000 officers, countrywide. We have ports of entry operating with four people, where a decade ago they were operating with 20. This gives you an idea of how desperate we are for staff. The idea of losing one officer is terrifying. We’re operating on almost unlimited overtime. To give you an idea, we represent 3% of the federal public service, and we make up 20% of the overtime. We are probably the worst example, but there are others who are in a desperate situation as well. The idea of losing any resources is scary.
Senator Smith: Do you have consultants that you hire to try to cover up and fill the gap in terms of work? What is your status on that?
Mr. Weber: The gap is filled with overtime, as I said. It’s all hands on deck. We have ports of entry with signup sheets on which you just write down how many hours you can do. We will keep you for as long as you can stand.
Senator Smith: What are you doing to try to influence the government to adjust itself to help you?
Mr. Weber: We meet with MPs. We try to move the conversation in that direction. I think our members are often our own worst enemies in that respect, and we work those extreme hours and do the jobs of two or three people to keep everything working.
To the public, in general, it’s not always obvious how desperate the situation is, but it is.
Senator Smith: The other thing you mentioned in your comments was that you’re voicing your concerns about the lack of funding in this bill related to clearing up the Phoenix pay backlog, which remains at almost half a million. Cleanup — as you noted — will require additional hires. I’m wondering what sorts of discussions you’re having with the federal government on that particular issue relating to the hiring process to ensure that the departments can effectively carry out programs like — in this case — clearing up the Phoenix pay system backlogs.
Mr. Weber: Yes, the Public Service Alliance of Canada is having those discussions. We’re desperate to obtain more staff to deal with this. There is not a pay period that goes by in which there are not Phoenix issues. It’s hard to imagine that this is still going on, but there are still half a million cases still in the backlog. The mental toll on the membership that has had to go through this — they’ve lost their marriages, families and homes. This has been extreme, beyond looking at it from a simple dollars-and-cents point of view. It has been devastating.
Senator Smith: Wow. That’s probably enough for me to digest in one sitting. Thank you very much, Mr. Weber.
Senator Ross: My question is for Mr. Nikolakakis. I’m interested in hearing a little bit more about the Global Minimum Tax Act, or GMTA. You mentioned the concept of subsidies. Would subsidies generally be considered increases in income or would they be considered decreases in tax? For countries that game the system by doing this, is there any type of backlash? Is anything going to happen?
Mr. Nikolakakis: Both of your questions are excellent. Yes, to the first one. In other words, subsidies are considered additional income and not reduction in taxes. From an economic perspective, it is six of one and a half dozen of the other, but the impact on your tax liability is completely different. Hence, my point about using subsidies and also other items. Refundable tax credits also receive the same treatment as subsidies because they’re refundable; they’re treated as if it’s a handout. Non-refundable credits receive a totally different treatment. They are treated as a reduction of tax. This leaves a bigger impact on your tax liability. So, yes. You’re exactly right. Are you an accountant?
Senator Ross: No.
Mr. Nikolakakis: I’m not either, but we all learn. That is the difference in treatment, and that is the reason why we’re seeing governments around the world orient their systems in that direction versus in other directions.
Is there anything that anyone can do about it? I don’t know. Who is going to do it? First of all, the leading countries are doing this type of work-around. It’s not bad actors out there that are doing that. Canada is doing it. The U.S. has gigantic subsidy regimes, as do European countries. These are the countries who are complaining about low taxes.
I consider it to be a bit of a circle. You want to limit tax competition, on the one hand, but the approach is myopic and doesn’t limit fiscal competition. We talk about tax policy, but we should be talking about fiscal policy, which is tax and spend. Both sides of the coin. We limit tax, but not spend. It comes down to the same thing.
I think it’s well-meaning but ineffective, and there is no real policing mechanism. If you go too far on the design of some of these credits and they start to smell really bad, then the Organisation for Economic Co-operation and Development, or OECD, and the broader group of countries, known as the Inclusive Framework, have to make a comment on it and accept whether your system is respecting the principles. If they say, “No, you’ve gone too far there,” then there could be consequences, but no one is going to send a battleship. That’s not how it works.
Senator Ross: I wonder if there is any fear of countries leaving the program or the system, given that type of scenario. If there is going to be some type of punitive measure or punishment, maybe they would leave the program?
Mr. Nikolakakis: I don’t know. Not all countries have joined it — number one. Will countries that have said they’ll necessarily join or change their mind? That depends on a whole range of factors.
There are many countries for whom it’s not advantageous to do so, so they won’t. Every country is a little bit different, but some big players — in terms of the percentage of the global economy — are not actually in it. The U.S. and China are not there. Take those two. The Europeans are largely there — in theory, at least.
We’re there, and that’s fine. Canada believes in the international coordination elements of it, and good for us. That’s a good thing. But I still think we can be smarter about it, and introduce measures which would encourage multinationals to earn some of that income directly in Canada at the agreed rate — 15% — as opposed to penalize them for doing so. Then we would raise revenues.
There are other aspects of this statute that I was going to discuss in my opening comments, which I’ll very briefly mention. There is jail time that is provided for in this statute. Clause 110 of this statute would make it an offence to fail to comply with any provision of the GMTA that’s not otherwise specified as an offence. So, if it is not an offence otherwise, it’s an offence, and you can go to jail for a year.
Senator Marshall asked me before what companies might do. I don’t know. If you start making an offence out of every little mistake that someone makes and exposing directors and officers to the potential for jail, they’re not going to find that very hospitable. It’s unnecessary. Offences that include jail time should be clear, specific and not general. Clause 110 needs to be struck.
Senator Pate: My first question is for Mr. Macdonald. Over 100 food insecurity advocates and experts have expressed their disappointment with the government’s repeated framing of a national school food program as a solution to food insecurity, and they note that while an effectively designed and implemented national school food program would improve student nutrition and educational success, build stronger school communities and even support local economic development in agriculture, addressing food insecurity for children is a symptom of a bigger problem — an inadequate and insecure income that must be addressed through income support measures.
Would you agree with these food security experts that effective income supports such as an increase in the Canada child benefit, or CCB, for those with low incomes are needed alongside the National School Food Program in order to most effectively address food insecurity experienced by children?
Mr. Macdonald: I think that’s well said. You’re absolutely correct. This isn’t a good security program. Real food security is income security so that people have enough money to buy food for their families.
An important way that we can address insecurity, particularly with families with children, is through the Canada child benefit. Its initial introduction led to a measurable decrease in child poverty. We have been working through our alternative federal budget project of creating a top-up to the Canada child benefit program that specifically targets low-income families with children. It has a high claw back rate, but it provides a substantial top-up for those lower-income children to cover the basics like food and rent, which they often can’t do despite the fact that the CCB was better than the programs it replaced.
That’s an important point when we think about food banks and a school food program. These are not long-term food security programs. Adequate income supports, whether through the Canada child benefit, our seniors programs, the Canada Disability Benefit, or other programs for adults without children, are the solution to food security. They aren’t in addition to. These are otherwise stopgap measures.
Senator Pate: Thank you. Mr. Weber, you mentioned that there was no consultation regarding the decision to contract with Correctional Services Canada to house immigration detainees. Have you made any submissions to the CBSA about that decision? Have you also made any submissions regarding the contracting of GuardaWorld?
Mr. Weber: Yes. In the discussions that we have had, the difficulty is that since the provincial governments have chosen to pull out of the program and no longer house those detainees, it has changed constantly. It was described to us by the CBSA as trying to build the plane as we’re flying it. Who does what, who should be doing what, where the detainees are going to go, what level of risk of detainees can we house and what we can’t house has changed weekly. It has been incredibly frustrating on our part to get an understanding or grasp on who does what. In terms of private guards, our stance has always been that there shouldn’t be private guards working in any of these facilities to be clear.
If we go back to one of the first deaths in custody, the Jimenez case, of the recommendations is that private guards not work in these facilities whatsoever. Yet, they’re still there and we’re still unable to obtain any kind of definition as to what they will be doing. Going forward, our immigration holding centres that we have currently are designed specifically to hold low-risk detainees. They’re more open concept living facilities. If the thought is to house medium or higher risk at any of our facilities that we have, that simply won’t work with what we have constructed right now either. It’s a moving target.
Senator Pate: You’ve been in Surrey, Laval and Toronto. There are spaces that could be fortified within those areas and they have a fair bit of security. Having worked in and around prisons for most of my life, I know that they could be fortified quite easily and there are more than 200 free spots.
In addition, the research that we’ve been able to obtain shows that the majority of people are considered high flight risk, not high risk to public safety. Would that change your view of the circumstances?
Mr. Weber: Yes. Again, the risk level changes everything. When you use the number of 200, that’s 200 you could have living in that open concept living area.
As they’re constructed now, if you’re dealing with high risk — and, I know Laval is being fitted for high risk — you’re looking at one detainee per floor because you can’t house high-risk detainees in that environment, those numbers change completely as well.
Senator Galvez: My question is for Mr. Macdonald. Every year, your centre publishes an alternative to the budget. This year, you have your Building Momentum: A budget for now and the future, in which you give your ideas and propositions with respect to the environment and climate change but also a decent work environment for security, which my colleague asked about, and also for agricultural purposes.
With respect to the climate crisis, you say here that Canada should treat climate change as what it is, a red-hot emergency. You go on and say that we should eliminate all federal subsidies and financial support to the fossil fuel industry.
I was listening to the discussion about subsidies and tax breaks I want to give you the opportunity to talk more from your point of view about what happens if we don’t do this? What happens if we don’t treat the climate crisis as a crisis and that is a threat to our finances in Canada and our competitiveness?
Mr. Macdonald: I was reading something this morning that was attempting to put the climate crisis in perspective. Our present plan, which we don’t have the pieces in place to meet — which is net carbon zero in Canada by 2050 — means that the climate change that we’ve already experienced will get worse and worse until 2050, and it will be as bad in 2050 for the indefinite future. So the forest fires and the flooding that we’ve experienced over the past couple of years that have now become normal and common is just going to get worse until 2050, at which point it will stay at that level. That, of course, assumes that other countries are hitting net carbon zero at that point.
This is a terrible crisis that will continue to get worse. We thought last summer was bad in terms of forest fires. We’ll likely remember that as one of the best summers we had 10 or 20 years from now in terms of forest fires and the impact of major heatwaves making parts of the country unliveable for parts of the summer.
That’s why we think it’s an emergency. Just like we are treating housing affordability, for instance, as an emergency — that has gained a lot of attention in the last budget — we believe that the climate emergency deserves the full weight of the federal government in terms of important changes.
The last couple of years prior to this budget, which was very much focused on housing, were focused on climate. We have a climate tax. A big portion of the revenues could likely be better used to make green technology and retrofit technology much cheaper for households so that instead of choosing a gas furnace, you choose a heat pump because it’s cheaper because it’s being massively subsidized.
In terms of the long run, we need to recognize that we have to phase out oil production in Canada. We haven’t seen the same kind of investment in the oil sands recently as we did in the pre-2015 period. That’s positive. We need to state outright that this is something we need to shut down. We need to ensure that the workers in those areas have transitioned to other places of employment. We don’t have to do it tomorrow, but we do need to make a long-term commitment toward that due to the climate crisis.
Senator Galvez: Mr. Nikolakakis, recently I was talking with people within the G7 and the G20, and also in Washington with people from the World Bank. I learned that our pension plans are investing heavily in green energy, green projects and sustainable projects in South America, in India and in China. Why are they not investing here? I would like you to explain it using the reasoning of your tax breaks and your subsidies. That has enlightened me a lot. Thank you.
Mr. Nikolakakis: Their investment policies are complicated and I’m not necessarily the best person to answer that question, but I can offer a couple of comments, one of which is that they do invest here. They don’t just invest abroad. Number one, they do invest here.
Senator Galvez: Do you know the proportion?
Mr. Nikolakakis: I don’t know what the proportions are. That’s why I am not an expert in where pensions funds are investing. However, I know they do invest here. We do work for pension funds, and they do invest here for sure.
Second, their obligation to their pensioners is to maximize the strength and liquidity of their pension funds. They can’t be driven by political considerations. They have to make decisions based on a diversified risk distribution and opportunity distribution. They make decisions on that basis. So they’ll invest all over the place, and they invest for the long term.
Are there emerging opportunities around the world that Canadian pension plans are pursuing? Yes, there are, but also in Canada.
[Translation]
Senator Dalphond: My question is for Mr. Weber. Your union represents workers at the Canada Border Services Agency. Can you briefly describe how an officer decides that a person will be sent to a detention centre?
[English]
Mr. Weber: Thank you. I’ve never worked at an immigration holding centre, myself. I do know the decisions on whether you are put in a centre or given alternatives to detention are regularly reviewed. Most people are not detained; they’re given alternatives to detention. They have monitoring processes and are required to report in and those kinds of things.
In terms of who we are detaining at immigration holding centres, as I mentioned previously, that’s a moving target now that we see there’s a plan to house some people in federal prisons.
Initially, as the provinces started pulling out of this agreement, one by one, we started working on finding ways to house those detainees in our immigration holding centres. Of course, quite often, the detainees coming out of the provincial facilities were high-risk detainees whom we were not set up to house. Now, it looks like many of those will be put into federal facilities, but, again, that’s a moving target.
One of our big concerns — again, mentioned in terms of risk — is that we don’t want the risk to be a moving target. We would never want to see a situation where, one week, there are X spots so this is high-risk but, the week after, there are fewer spots, so we would be releasing that person. Some work needs to be done on exactly who is housed where and, again, who does what. What does Corrections do? What do we do? Are any private security guards involved with that at all?
[Translation]
Senator Dalphond: The next question is for Mr. Nikolakakis.
Am I to understand from your explanation of the imputation of fictitious income that the anti-avoidance rules do not work?
Mr. Nikolakakis: It’s the opposite. We are taxed on fictitious income. These are not fictitious expenses. Yes, in planning, there are people who try to deduct expenses that don’t represent a true economic cost. You could say that those are fictitious expenses. There are situations where this is considered abusive, and it’s dealt with by the general anti-avoidance rule, but there are other situations in which, through incentives, deductions that are higher or faster than the true economic cost are allowed.
For example, when investing in mechanisms to promote improvements in green technologies, deductions are allowed at a very rapid pace. Why is this? It’s not because the asset will depreciate right away, but because the process is accelerated.
We’re not talking about that. The example I mentioned doesn’t reflect that situation, it’s the other way around. People are taxed on fictitious income they simply don’t have. In my example, you borrow at 8% and earn 8%. That’s all there is to it. That’s it, that’s all. There’s no more to the investment than that. You’re presumed to have income, but you don’t.
What would be consistent with the principle of the minimum tax system would be to disallow borrowing at 8% to make 4%, and using the other 4% to cover other income, but that’s not what we’re talking about. The example is that you actually earn 8% and you actually pay 8%, so you don’t ultimately earn anything.
Senator Dalphond: Was that change previously announced by the department? Were you expecting it, or were you were caught off-guard?
Mr. Nikolakakis: No. To me, this has nothing to do with the purpose of the law. It’s unnecessary. Currently, there are other legislative provisions that prevent people from deducting interest costs on an amount that exceeds the income they earn with the use of the funds. I can understand that; it’s normal. We don’t want investments to become tax shelters, but this rule is completely disconnected from the presence or absence of a tax shelter or economic income, and it imposes a tax. It makes no sense. I think it’s wrong.
As one of my associates told me the other day, there are tax shelter rules in this plan that, in the taxpayers’ view, exist to limit deductions. These are bad rules for people who want to save taxes, but these bad examples are now becoming favourable examples, because you’re treated better if you invest in a tax shelter than if you invest in something that earns actual, real and current income. The world is upside down.
[English]
The good has become bad; the bad has become good. It’s upside down.
[Translation]
That’s why we’re proposing a change that will fix this problem, but will also close a gap in the provision that causes a problem for the Crown.
Senator Dalphond: Thank you very much.
The Chair: I now give the floor to the sponsor of this bill, Senator Loffreda.
[English]
Senator Loffreda: Thank you all for being here. I just wanted to mention, Mr. Macdonald, as you know, the capital gains tax inclusion is not part of this Budget Implementation Act. It’s not. I can dwell for a long time on it because it’s a major concern. I may disagree with some of the comments you made, but maybe we can discuss that further later, after the committee.
With respect to the committee, I’d like to question the Global Minimum Tax Act. This section represents 41% of the entire bill. That’s nearly 300 pages of the 600 and some pages I was mentioning, which I have in my briefcase here.
Mr. Nikolakakis, I’d like you to complete your introductory comments that you weren’t able to complete. I’m sure they’re of relevance and importance. I would like to hear them.
You also mentioned the 110 statutes you were concerned with. I still hear that Canadian multinational enterprises, or MNEs, are transferring out of Canada into the southern United States. Will that improve for Canada? Will we be able to keep some of those corporations in Canada because of this Global Minimum Tax Act? Will Pillar Two shut down the tax havens? Just give us your comments.
We’re taxing up to 15% when MNEs are avoiding Canadian tax at 26%. What are your comments on all of that?
Mr. Nikolakakis: Those are a lot of questions.
Senator Loffreda: Last but not least, before we move on — those are a lot of questions — maybe we can go to round two and keep the questions in mind and get the answers then.
Is it time that we move toward a broader corporate income tax modification and income tax reform in Canada? Should we look at some of those tax issues and avoid some of our MNEs moving down south? I’ve heard of a few doing that and a few wealthy individuals doing that.
Mr. Nikolakakis: Let me try to tackle that all in reverse order. Do we need a broader income tax reform? Yes. You’ll get consensus on all sides of the spectrum on that question.
What we need to change and in what ways, you might not get consensus on those questions. Whether the current system could be improved, you’ll get a lot of consensus on that general question, but it’s difficult.
Will this new regime shut down so-called tax havens? No, because I’d rather pay 15 than 26. It’s simple math. What do you mean? Right? You go to a store. A can of Coke in Store A is 15 cents, and in the other one, it is 26 cents. Which one do you buy?
Senator Loffreda: But there’s a cost of deemed disposition or —
Mr. Nikolakakis: Not for a new business. You have to remember —
Senator Loffreda: Not for a new business. You’re not a new MNE business, either. There are not many new MNEs in business, right?
Mr. Nikolakakis: Yes, there are. Every day, there is a new business. One of the things we need to think about is how new businesses make decisions about where they set up. There are a lot of new businesses. In fact, most of the biggest businesses on earth these days have only been around — or at least have been gigantic for — what? Twenty years?
Senator Loffreda: But they don’t start at billions of dollars of revenue. That’s what I’m trying to say.
Mr. Nikolakakis: No, but they grow.
Senator Loffreda: They grow. We agree on that. You have to attract new business.
Mr. Nikolakakis: Where do they start? Do they start here? Or do they say, “I’d rather go start in the U.S.”? It’s not just because of the corporate tax regime but also the regime applicable to the owners, to the employees, to other people who are involved in the business. It is more favourable there.
Senator Loffreda: When we’re talking about new businesses that will grow into billions of dollars, we agree on that. There are new business every day. But aren’t we one of the most competitive countries when it comes to taxing small or new businesses?)
Mr. Nikolakakis: Not really.
Senator Loffreda: No? I know there are southern states that don’t tax at all, but I’m saying in general.
Mr. Nikolakakis: We’re okay.
Senator Loffreda: Where would you put us?
Mr. Nikolakakis: We have statistics from the OECD we can consult and you’ll get a clear answer depending on what question you ask. If you’re looking at a nominal tax rate, that’s one thing. If you’re looking at an effective tax rate on manufacturing profits, that’s a different item. It depends on the industry sector because there are different programs for different —
Senator Loffreda: Our tax rates are low —
Mr. Nikolakakis: Our tax rates are not particularly low. For very small businesses, yes.
Senator Loffreda: Very small businesses.
Mr. Nikolakakis: Yes, or for highly subsidized businesses, yes, but not in general. I don’t think our tax rates are low in general. It doesn’t take very much for a business to get —
Senator Loffreda: Over $500,000.
Mr. Nikolakakis: Yes. Once you hit that wall, it’s not very favourable. If you compare the rate in the U.S. — and there have been some good comparisons made in the last little while — that a medium-sized business and medium-sized business owner group would be paying versus Canada, it’s a lot higher here.
Senator Loffreda: How would you explain foreign direct investment? We were third in the world, if you take the last quarter.
Mr. Nikolakakis: You have to look at it over time. You can’t just look at the last quarter, and —
Senator Loffreda: Well, it’s still an indication, obviously.
[Translation]
The Chair: You seemed to be referring to literature or studies on taxation comparatives. Is this by country, or does it also include states? In Texas, for example, and elsewhere, it’s a different story. Can you provide them to us?
Mr. Nikolakakis: Yes, they are publicly available as far as data and studies done by the OECD are concerned. I can send the references and a list of some studies to Ms. Aubé, the clerk, if you like.
The Chair: Very well.
Mr. Nikolakakis: She can distribute them to everyone.
The Chair: Thank you.
[English]
Senator MacAdam: My question is for Mr. Weber. I read your recent commentary on the proposed measures in the budget regarding the right to disconnect during non-work hours. Could you first comment on the current situation regarding work-related communication and the importance of disconnecting? Also, do you think this measure goes far enough? And if not, what improvements would you suggest?
Mr. Weber: Yes, it’s not my field of expertise. I can say in general on what I hear from membership, it is something that’s very important. Employers expect more from what seems to be a shrinking base of employees as well, so I think it is important that people do have that opportunity to actually turn off work.
One of the things that goes along with that, obviously, is telework. It’s something we in the union fight very hard to get for our members. I know the Treasury Board recently announced an arbitrary three days a week back working at the workplace, even in cases where it makes little to no sense whatsoever. We believe that people should have the ability to work from home if they’re able to do so and be productive.
One of the few positives that came out of COVID and was advertised by our employer, the CBSA, and other federal employers as well was how productive their employees were working from home and how productivity actually increased in many cases when they worked from home. Now we’re reversing productivity, spending millions of dollars retrofitting buildings, that apparently the plan is to sell to force employees to go back into the workplace, which is a very odd situation.
To get back to your initial question, though, yes, I think it is very important that people be able to disconnect when their hours are actually over, yes.
Senator MacAdam: Just as a follow-up, I believe there are other jurisdictions that have implemented some measures in this regard. I’m wondering if you had any information on how that situation —
Mr. Weber: I don’t. I do believe there has been some research done on that, but we could provide that absolutely, yes.
Senator Kingston: I’m going to ask my question to Mr. Weber as well, and like Senator MacAdam, it won’t be about your particular sector, as many others have asked, but you as a board member.
There was a document recently published, Budget 2024, promising investments in affordability but public service cuts concerning. You talked about measures that would benefit your members and their families, and you talked about young workers in particular, major investments in housing, post-secondary education and a national food plan for students. We do know that it’s not only poor students who benefit from a national food program. So I’d like you to talk about those things, the national food program possibly in particular but also housing for the working class, if you will, and post-secondary education. Which pieces of the budget do you think make these things better for your workers and their families?
Mr. Weber: Specifics on any of those, not my wheelhouse. We can provide you information on it, but I wouldn’t be able to speak to those in any kind of detail really.
Senator Kingston: If you could, just to outline it, rather than as a general comment.
Mr. Weber: I think all those things are important. I wasn’t involved in the studies on any of them. Beyond that, I wouldn’t be able to comment, really.
Senator Kingston: I’ll ask, Mr. Macdonald, if you could comment on the school food program in particular and how it benefits all school children, as opposed to only children who are in a situation of poverty.
Mr. Macdonald: Certainly, if kids go to school without lunches. This is a fact of life in Canada these days when food bank use is going through the roof, despite the fact that unemployment rates are low, you know that this is going to affect kids. It becomes an impediment to them learning in school because they’re hungry. Maybe they didn’t get breakfast. Maybe it’s the only meal they get that day.
This has certainly helped families who are pressed because of food and housing affordability, but it’s also a benefit to students and parents in general that now don’t have to make school lunches anymore, that we could provide nutritious, filling lunches for all students. It is important that these programs not be stigmatizing, so that it’s only a certain set of kids who get the lunch programs, that then disincentives those kids from being the kid who gets the lunch program. Instead, they just say, oh, I forgot my lunch at home, and they go hungry. The stigmatization is real, particularly for children, and it’s an important thing to consider.
At this point, the school food program as it’s written in this budget isn’t anywhere near large enough, about 10 times too small, it’s about 10% of what you would need to provide universal school food programs across the country. But it’s a good start. It’s certainly something we’ve been advocating for, for some time, and would allow us to create those federal, provincial, territorial agreements to make a larger program possible, which at present it isn’t.
In terms of the housing part of this budget, I think we’re getting at this point to the scale that’s necessary to start to chip away at housing affordability in Canada. There were big increases in the two major funds, the Affordable Housing Fund and the Apartment Construction Loan Program in this budget. Although, it’s worthwhile pointing out that these programs weren’t anywhere near fully subscribed. The biggest fund, the Apartment Construction Loan Program, had about a third of the funds committed, and two thirds weren’t committed. You can increase the cap, but that doesn’t change the fact the money didn’t go out the door yet.
It was a bit disappointing that some of the programs that had very high take-up rates, like the Rapid Housing Initiative, which is meant to house people who are insecurely housed, not so much affordable housing, but supportive housing, this has gone through three rounds so far of program windows that have been immediately, fully oversubscribed every single time. We didn’t see a big increase in that program, that’s unfortunate, because it is so popular. People had proposals that likely would get funded if we just had a higher cap on the program. So it’s unfortunate. For some programs, the sky is the limit, and in other programs like these grant programs, the money immediately goes out the door, there’s so much demand for it, and this is the question about homelessness or people who are on the verge of homelessness and we can’t provide those supports.
It was interesting to see the new Canada Rental Protection Fund. This is a fund where you give non-profit providers the ability to outbid for-profit providers for existing housing stocks. An apartment building comes to the market, now the non-profits have a little extra money to outbid the for-profit, hopefully keeping rents lower. This is a relatively small program at only $1.5 billion. I suspect it will be like the Rapid Housing Initiative, where it’s immediately oversubscribed. It’s a good program. It’s a good initiative to move more housing into the non-profit sector and reduce the increases in rent.
But, as is a bit of a theme with these housing programs, there’s a hard cap. It will be hit almost immediately, which is unfortunate, because it could do a lot of good.
Senator Kingston: I may not have enough time, but if I get to the second round, I would like to talk to you about the undersubscription of those other programs and why that might be.
[Translation]
The Chair: My first question has to do with the tax exemption for international shippers. It’s for Mr. Nikolakakis and Mr. Macdonald.
The committee gets briefing notes with questions and answers. I almost feel sorry for shipowners. It’s as though the government isn’t taxing them because they don’t make any money, and the capital cost is expensive. They aren’t taxed in Singapore and other countries. It’s as though the government is saying that it’s not going to tax the companies in Canada because they aren’t taxed in Texas. I’m having a hard time with that rationale. I’m not convinced. Where do you stand on tax fairness and the idea of exempting Canadian international shipping companies from the minimum tax?
Mr. Nikolakakis: Is the question for Mr. Macdonald or me?
The Chair: It’s for both of you.
[English]
Mr. Macdonald: It’s not something I have studied in great detail.
[Translation]
Mr. Nikolakakis: That’s the current policy. It goes back years and years, not just in Canada, but also in other countries, as you mentioned.
The idea behind the current policy is that shipping costs are borne by all consumers at the end of the day.
Some people think companies pay taxes, but that’s not the case. It’s consumers.
The Chair: That rationale could apply to anyone. You could just as easily say you’re not going to tax Canadian Tire.
Mr. Nikolakakis: I know. I was getting to that. I just laying out the basic idea. What we see in Bill C-69 is not a new policy. It’s an old one. The purpose of the changes relating to the Income Tax Act is to continue the current tax policy, but in a way that’s more coordinated with the global minimum tax act. The measure is meant to achieve coordination, not to change the tax policy.
As far as tax fairness overall is concerned, there’s fairness and there’s also competition. Fairness comes in two forms: apparent fairness and substantive fairness. The Income Tax Act is more than just an instrument of tax policy. It’s also an instrument of industrial policy, a tool that helps to advance other types of social policy.
In terms of how this measure relates to shipping, I think something very important comes into play: the security of critical infrastructure. That wasn’t something people had enough regard for pre-pandemic, but it is extremely important to have our critical infrastructure well in hand.
The Chair: I see.
Mr. Nikolakakis: It’s very important for Canada not only to have jobs tied to the industry, but also to have Canadian control over it.
The Chair: I understand, but I don’t want to take up too much time.
My second question has to do with the minimum tax exemption for individuals. It’s going from $40,000 up to $173,000. The government says it indexed the amount, but according to my math, that would be $98,000. We’re talking about an additional $80,000 that isn’t being taxed at the minimum tax rate of 20%. That’s $16,000. Is that a giveaway for the wealthy?
Mr. Nikolakakis: I didn’t understand the question.
The Chair: The government is raising the minimum tax exemption to $173,000. That’s a pretty significant tax remission or exemption for high wage earners who try to take advantage of those kinds of measures.
Mr. Nikolakakis: When tax policy is developed, politics comes into play.
The Chair: I understand. The ultra-wealthy are being hit with a capital gains tax, in quotation marks, but a good few seem to be slipping through the cracks.
Mr. Nikolakakis: Yes, and, at the same time, a lot of people who aren’t ultra-wealthy will be subject to the measure. That is somewhat the problem. My advice…. You are senators, so you don’t have elections to win. I would say, try, as much as you can, to let good tax policy be your guide.
The Chair: Thank you. We will now begin the second round.
[English]
Senator Marshall: I am going to ask Mr. Weber a question, I think, because you represent a lot of members of the public service. We see a lot of senior officials here at this committee meeting, but you also have a lot of members who aren’t making over $100,000 a year.
Would you have any insight into the impact that the affordability crisis is having on your members who are not at the higher salary levels? Because I would expect some of them would have to visit food banks, and they’re looking for childcare, and now they have to go back to the office three days a week. Can you give us some insight into that, because I know the general public is not sympathetic? Can you give us an overall picture of your membership, if you have any information?
Mr. Weber: Yes, the effect is tremendous for our members who are at the lower end of what we get paid. Yes, some do go to food banks.
I think telework, specifically, as you mentioned, was a great benefit to them. There are great cost savings there. They are no longer travelling to work. They’re not driving. It’s better for the environment, fuel. You’re saving so much by working at home, and those little bits, when you’re earning that little amount of money, makes a huge difference in their lives in terms of work-life balance and being able to have children remain at home. There are massive benefits. Again, we’re going through this exercise of forcing people to come back into the office for no particular reason.
I get the feeling that often the driving motivation for trying to force people to come back into work to work is that, “I can’t work from home, so why should you be able to work from home?” I do hear a lot of that.
My role before doing union work was as a border services officer. I worked at a port of entry, Toronto Lester B. Pearson International Airport. I understand I can never do that work from home. I don’t want travellers coming to my house. I get that, right? Obviously, I can’t do that, but I don’t want to take away something that’s a benefit and that is good for other members who could use it.
Society should take things that are good and nurture them and grow them. This was something that was good and positive. It saved people a lot of money. Productivity went up. I cannot subscribe to that mentality of, “I can’t work from home, so why should you work from home?”
Societally, where would we be if that were the case? “Honey, the people across the street have a wheel. We don’t have a wheel, so you’d better smash the wheel. No one can have it, then.”
We have to take things that are good and grow them. We can’t be reductionist that way, I feel.
Senator Marshall: There’s an announcement that there are 5,000 positions that are going to be cut, and we’re hearing it’s going to be done through attrition. I also worked in the public service in Newfoundland and Labrador, and when there are rumours, or we know there are cuts coming, it permeates the whole system.
Can you just give us some idea as to how that is affecting employees?
Again, I’m not thinking about the deputy or the assistant deputy. I’m thinking about the lower half of the public service.
Mr. Weber: That’s usually where the cuts end up coming, right? Deputies and such, those positions are usually always filled. Upper management ranks are generally never reduced. It’s always the people you are describing who are at the lower end who get affected. Okay, fine. It’s through attrition. People are not going to be laid off. Ultimately, that means fewer people to do work in departments that are already understaffed. That’s the end result of that.
The lack of real consultation or idea of where these cuts are going to be happening, it creates a stressful work environment too. You can be told that no one is going to be laid off and this will be through attrition. Federal public servants work hard to deliver services under difficult circumstances, already understaffed. It has a tremendous effect when you make announcements like that.
[Translation]
The Chair: Thank you.
Senator Forest: My question is for Mr. Weber. Division 22 of Part 4 aims to enact the right to disconnect for employees covered by the Canada Labour Code. Were you consulted on that? Are you satisfied with the measures to implement the right to disconnect?
[English]
Mr. Weber: I would not have knowledge of the consultation. I would assume and believe we did. I was not consulted personally, I believe we were at the PSAC though.
In terms of whether the measure goes far enough, it’s a positive step. There has to be actual enforcement mechanisms to that as well. There has to be consequences and penalties if that is violated. As is, it’s there as something that should not be done; and if it’s done, I guess you tell the person not to do it again, right?
Senator Gignac: My question is for Mr. Weber.
Ten years ago the size of the federal government, which excluded debt services — so program spending — was about 13% of GDP; now it’s 16% of GDP and we are in deficit.
We received the Fraser Institute’s report at National Finance that mentioned:
… higher compensation and an increasing size of the federal public service have not provided better access to government programs and services or translated into tangible economic results for Canadians.
I know that you represent close to 250,000 people who are working hard. I do not doubt that. Thanks to the public service. But what’s wrong? We heard here that we always create new programs, build and build. There are people out there who feel we do not receive enough for the buck, if you like, and not enough services.
Any thoughts you can share from 10,000 feet and try to be non-partisan? Liberal, Conservative, they have some — is it governance? Is it the fact that the Treasury Board does not revise programs and do not ask enough questions and reallocate resources? In one minute or two, please.
Mr. Weber: That’s a big question for a minute or two. I will do my best.
Overall, you’re dealing with a large bureaucracy. Obviously, these are big organizations. I could point to a couple of things.
Contracting out has been a big issue. We saw things happen around Phoenix an, ArriveCAN. In general, we rely on private industry to fix problems in the federal public service when the expertise can be found in house.
I think you have, in many federal employees, bloated managerial ranks. I could speak to mine specifically where you have a small army of managers who roam around, not doing much of anything and officers actually on the line clearing travellers with endless lineups. That has grown and grown over the years.
In terms of how you fix things at the federal public service in terms of delivering services, go to the people who deliver the services; that, uniquely, does not seem to ever happen. The person at the counter who is doing whatever the job it is they do for Canadians is never consulted on how that job could be done best.
You have bureaucrats who come in from other departments, don’t know the job or go to outside agencies to consult and get private industry to try to, again, fix our problems and provide solutions. The solutions are in our membership, or in the people who do the work every day. They could tell you exactly how to deliver the services best, more efficiently and economically. They’re there. They’re simply a resource that is not used.
Senator Gignac: Can the manager, deputy minister and assistant deputy minister, like the private sector, be affected with variable compensation depending on whether the results have been obtained or not? They have something every year. But it’s every two, three years, we have the department results, okay?
Mr. Weber: Okay.
Senator Gignac: Often, we see this department has reached only 30% or 40% of their objective. The objective would be fixed by themselves, by the way.
Mr. Weber: Right.
Senator Gignac: I don’t know. Is it something that we have to innovate and think about the accountability of the deputy minister and assistant deputy minister?
Mr. Weber: Bottom-up feedback is key to that. Again, you go to the people who do the work. They know exactly the services that are being delivered and how best to service them. Get them involved in setting those benchmarks as well.
Providing evaluations on how upper management is performing when you’re talking about those bonuses and such, that specifically does not happen. Now, you have the manager who is determining who gets the bonus, is the one who is setting the benchmark for the bonus.
As you mentioned, it’s a system that can never fix itself, in my opinion.
Senator Smith: Mr. Macdonald, I want to go back and ask you a question.
In April, your organization released a report on the evolution of our tax system. It notes the overall tax system has become less progressive since 2004. You were pleased with the various tax measures included in the bill, like the Global Minimum Tax and the capital gains inclusion rate.
Based on the tax measures you see in the bill, do you feel progress is being made in making the tax system more progressive? That’s going to lead me into the second part of the question.
Mr. Macdonald: Yes. That study was based on personal income taxes. The global minimum tax may have some implications there, but probably won’t.
Certainly, the capital gains for people who have over $250,000 in capital gains, there would be additional taxes paid there. I’m not sure. We haven’t recalculated all those figures, because it includes the entire tax base, from property taxes through GST, PST, consumption taxes and so on.
It would certainly change the picture, to some degree, likely at the top 1%.
Senator Smith: Do you think we need an overhaul of our total tax system to make it simpler? Is that a realistic expectation?
Mr. Macdonald: I’m always nervous about complete changes to the tax system. Certainly, there are plenty of ways you can avoid paying taxes, corporate or personal. There is a variety of legal and quasi-legal ways of paying lower tax than someone who is a salary or wage employee who has no choice whatsoever; their wages are garnished at source, they pay the taxes and there is no real choice there.
The wealthier you become, the more choices you have, the more people you can hire to build complicated structures to avoid taxation.
My concern with wiping the slate clean is that the recreation of a new slate then creates a whole variety of potential new ways that could be used by folks with the means to avoid paying their fair share.
I am more of the opinion we should be changing the tax system as it exists. There are important changes we can make within the existing system.
Prior to this last budget, there was a fair amount of debate about a wealth tax, which I think is a debate that deserves more attention.
That being said, it is a brand new tax, a brand new tax base that, if you’re interested in taxing wealthier people in a better manner, the capital gains inclusion rate is a more expeditious way of doing that given that we understand how the capital gains inclusion rate works; changing one of the variables within it is easier.
I’m always nervous about full-scale wiping the slate clean on taxes. There is plenty that we can do to make a fairer tax system with the tax system we have, with new top brackets, for instance.
Senator Smith: Incremental changes.
The government’s attempting to strengthen anti-money laundering and terrorist financing laws through Division 34 in Part 4 of the bill.
Do you have any thoughts on whether we’re doing enough with respect to mitigating money laundering, tax evasion and avoidance?
Mr. Macdonald: Yes. In terms of the global minimum tax, or tax avoidance in general, the move toward beneficial ownership and the publication of who owns what corporations is an important move along that route.
We have to remember internationally too, often what is happening is it’s not Canada versus the U.S. in terms of tax treatment; it’s Canada versus the Bahamas in terms of tax treatment, where it’s not the tax rates of 27% versus 26%, it is the tax rate is 26% or it’s zero. That’s the reason why we’re trying to get to 15%, which is certainly far lower than the prevailing tax rate nationally in Canada, depending on which province you’re in.
This has been an ongoing issue for multinational corporations as they routinely use these types of tax structures to avoid paying some form of fair share of taxation in Canada. If you’re a company operating in Canada, you just can’t do that. We have a good regime in Canada where you pay half of your corporate income in the province where your payroll resides, and you pay the other half based on where your sales are. So if you have your factory in Quebec and your sales are in Ontario, you can’t just declare your corporate profits in Alberta because the tax rate is lower. You can internationally, though, if you structure it correctly.
The fundamental issue with fairness is that we need to ensure that multinational corporations don’t have a huge leg-up on national companies that do have to operate and pay statutory rates in Canada. International corporations don’t, and we need to make sure that’s a level playing field for our [Technical difficulties]
Senator Smith: Thank you.
Senator Pate: My question is for Mr. Macdonald. We heard today from the Canadian Bar Association and others that the suggestions in terms of the new approach to the — I’m just trying to find the name of it here. My apologies.
Mr. Macdonald: [Technical difficulties]
Senator Pate: Yes, thank you. That the approaches are more in the nature of slowing down payments. Although this morning we heard from the Department of Finance Canada that it’s supposed to operate more as a prepayment initiative. Mr. Macdonald, I’m curious as to how you view this approach in terms of the objective and the potential impact?
Mr. Macdonald: It’s honestly something that I haven’t studied in great detail. Certainly, I know more about the international side.
Senator Pate: Mr. Nikolakakis?
Mr. Nikolakakis: It’s the same. I think whether you call it a prepayment or whether you call it a slowing down of deductions, expenses and incentives it’s kind of the same. Because don’t forget one thing: At the end of the day, it’s not intended to actually increase your tax liability. We have these programs that are incentive programs because we think we want to encourage people to invest in thing X, so you’re going to give them the deduction. Whether you give them half the deduction this year and half the deduction next year, you’re still going to give it to them under that regime. That’s the principle. It’s just that you can’t load up everything this year and pay nothing this year. If you paid nothing this year, well, you would pay more next year, and in that sense, it’s a prepayment to force you to pay some this year that you wouldn’t otherwise have paid and some next year. It’s kind of six of one, half a dozen of the other whether you call it a prepayment or a deceleration.
Senator Pate: Some of the efforts are characterized as attempting to create more tax fairness. What proposals would you purport to create more tax fairness?
Mr. Nikolakakis: Under that statute or under that —
Senator Pate: Just in general.
Mr. Nikolakakis: I don’t want to say something silly like “fairness is in the eye of the beholder,” because that’s too general. I think you really need to think about the whole picture, and you have to think about total contribution that people make to society. Tax is one form of contribution, but there are many other forms of contribution that people make to one’s society. For example, I mentioned before when I was going through the items that are being restricted under the alternative minimum tax, childcare expenses. Well, I don’t know; I think having a child is quite a good contribution. It’s the ultimate contribution. It’s life itself.
So recognizing the costs that are incurred by a parent in that context, you could say it was a tax preference; it’s not fair. Well, it depends how you define fairness. If you define fairness as a function of tailoring your tax law so that it is sophisticated, sensitive and nuanced enough to take into account special needs of different constituencies — whether it’s personal needs or investment considerations — then I think you are achieving fairness. Other people would say a flat rate; everybody pays the same rate. So let’s have a flat rate of tax, everybody pays 30%, full stop; simple. Is that fair?
Senator Galvez: I will give my time to Senator Ross.
Senator Ross: Thank you. My questions, again, are for you, Mr. Nikolakakis. I have three quick ones. How nimble do you think pillar 2 is going to be in the long run to respond to strategies that are implemented by multinationals? Second, in terms of compliance, cost and complexity, if you were scoring this on a scale of 1 to 10 — 1 is it’s cheap and easy to comply and 10 is it’s horribly expensive and difficult — where would you rank it? Third, how many Canadian multinational corporations do we have that are in that billion plus?
Mr. Nikolakakis: There are a lot of misconceptions that these multinationals do just about anything and that’s the source of tax avoidance, tax evasion. I think that’s a jaded perspective. If you look at the Government of Canada’s own and first ever tax gap report, most of the tax evasion is because of underground economy, and underground economy is mostly people working under the table. So these theories and these myths I think are theories and myths. They’re convenient and they set out a certain political narrative, but I don’t think they’re a really good reflection of reality.
Multinationals have obligations to their shareholders and to their employees, and they will try to minimize costs. Tax is a cost. Quite frankly, I’ve spent a career avoiding foreign taxes and not Canadian taxes in the work that I’ve done.
Why I said that you have to look at the whole picture in my earlier answer is because what does that do? You want to pay foreign taxes? Oh, great idea. That’s less money that comes home to Canada, that goes ultimately to Canadian pension funds, that goes ultimately to Canadian pensioners or gets reinvested and creates other positive outcomes in Canada.
So do I think multinationals will stop behaving that way? No. They will continue to try to maximize their after-tax returns, and I think it’s perfectly normal and acceptable and should be encouraged that they do so.
Now it becomes a question of how other countries will continue to compete with Canada? I think it’s hard to predict how the whole thing will work. And that was your second question: Will it sort of start to unravel? I think, again, you’re already seeing countries — and these are not companies. These are countries, including Canada, trying to work around it through subsidy programs.
Senator Ross: So on a scale of 1 to 10?
Mr. Nikolakakis: Complexity?
Senator Ross: And cost.
Mr. Nikolakakis: Twenty. Unlike anything you’ve ever seen before. Another misconception is large companies have unlimited resources and they can bear any cost. I think that’s, again, a misconception because it’s not a matter of cost. It’s a matter of having people to be able to do the work. I work a lot with multinationals, and I know that all of them are understaffed. You’re not the only one, Mr. Weber.
The people are struggling to keep up with the workload. A lot of it requires significant investments in IT, for which the budgets aren’t there. The same problem. I know. It’s not a private sector-public sector thing. And to impose this degree of inordinate compliance burden for a lot of multinationals who are already paying 15%, it becomes for them just an additional cost. And for the country, again, people think, oh, it’s not the country bearing the cost. Well, I’m sorry, if Canadian multinationals are bearing the cost, then it’s Canadians who are bearing the costs indirectly. We’re throwing money out of the window and not raising revenues because some of them are already paying 15% or will continue to pay 15% abroad.
Senator Loffreda: This is an interesting discussion on the global minimum tax. I agree that it is very complicated. It is over 300 pages.
You question the forecast revenues that this will produce and generate. Based on historical data, we have over 220 Canadian multinationals that meet the revenue threshold for the Greater Toronto Area, or GTA, in 2019, and more than 2,400 non-Canadian multinationals with operations in Canada also met the threshold in 2019.
I believe this puts a floor on the race to the bottom in the corporate tax competition between countries. It’s unfortunate that the pillar 2 agreements don’t provide flexibility to countries to implement a higher minimum tax rate because, as you said, the choice between 15% and 26% —
Mr. Nikolakakis: It does. Yes.
Senator Loffreda: It does. The notes I have say that it doesn’t allow —
Mr. Nikolakakis: It does.
Senator Loffreda: It does. Okay. Therefore, why are we going with 15% and not 26% when they’re avoiding 26%?
The question is: Should we participate or be like the U.S.? The U.S. Congress has not yet passed the pillar 2. Will it work if the U.S. does not participate?
The other thing is this that a number of jurisdictions have historically low or no corporate tax rates and are taking steps to introduce corporate taxes. It is a step in the right direction, I believe. We forget that in order to avoid tax in Canada, there is a cost to deemed dispositions and to moving outside of Canada. Yes, new businesses start every day, but new businesses do not start with a billion dollars of revenues. But if you are going to move operations outside of Canada, there is a cost. There are deemed dispositions. There’s a capital gains cost.
Mr. Nikolakakis: Not always. One has to be clear in one’s examples. It’s important to understand the differences between the examples. There are new businesses — that’s one thing — and there are also business acquisitions. A lot of multinationals do multi-billion-dollar acquisitions.
I work on those transactions. You will have a Canadian multinational who wants a buy a foreign entity and it costs $10 billion. There is no disposition going on to the Canadian multinational in that context, so the question is, how do you structure it? You’re going to try to structure that in a way that gives you the best tax result in every country. You would be irrational to not do so. Why would you do that? You’d be negligent if you didn’t do it that way.
Senator Loffreda: I understand.
Mr. Nikolakakis: Is it a step in the right direction? I don’t know, is it? In the sense that we’re now pretending as a group of countries — the OECD plus the broader inclusive framework — to be holding hands and saying we’re going to coordinate our tax policy to have a minimum. It’s not a maximum number. That’s why I said you can go higher than 15%. But is that really what’s happening? I don’t know that is really what’s happening.
It’s a step in the right direction from a certain perspective at the apparent level. Is it a step in the right direction in a substantive sense, and does it compromise the ability of countries, including Canada, to use tax policy as a tool to attract investment or to invest in social infrastructure or other types of infrastructure that we might want to subsidize? No, because you can subsidize directly as opposed to using tax credits. It’s a charade in that sense. Why are we giving $40 billion to subsidize three battery plants? I’m not saying whether that’s a good or bad idea. What I’m telling you is that it has an entirely different behaviour if you do it that way than if you just did a regular tax rate reduction, to your point earlier, Senator Ross.
The Chair: Thank you, Mr. Nikolakakis.
Senator Kingston: I’d like to back to Mr. Macdonald and ask the question that I asked before. Why aren’t those caps being met on those other programs, other than the very deep, affordability-type of housing initiatives?
Mr. Macdonald: Part of the reason is the Rapid Housing Initiative, for instance, is entirely grants and contributions. It’s just money out the door. It’s accounted for differently in the federal budget as dollar-for-dollar transfers, in contrast to the much bigger programs which are largely loan programs. From the federal government’s perspective, they’re not costless, but their cost is dramatically lower or it’s some differential on the interest rate plus a loan loss provision of some description. You can say it’s a $55 billion program, but it won’t show up as $55 billion in the budget. It will show up as $500 million or $1 billion, or something like that.
To the broader point, one of the things we hear over and over again from people working in the house sector is that the Canada Mortgage and Housing Corporation, or CMHC, are incredibly slow in approving new applications whether it be for loans or for grants. Those loans and grant programs are terribly restrictive in terms of how they can be used and incredibly complicated. If you’re interested in buying a building or building a new building as a non-profit provider, you’re often bridging federal, provincial and sometimes municipal loans with a loan from a bank in order to put the project together. There are whole conferences where people swap stories about how this program wasn’t meant to go with this program, but if you fill this form out, you can make it go with that program, and if you talk to this person, you can make it happen. This is not expedited use of federal and provincial funds to solve a critical crisis.
One of the problems with the loan programs is that the bank knows that big housing providers have equity in 20, 30 or 50 other buildings in the city. They will loan you millions of dollars tomorrow, and you can go to some sort of purchase of a building and spend that million dollars to buy a building. If you were to get that through CMHC, it would be nine months before you got that loan application approved, and over that period, the building would have been bought and sold several times over. If there’s anything that we have heard in terms of the housing side, it is that CMHC is far too slow and it’s not fast enough to be up to the task to properly deal with the housing crisis to max these caps out.
The other thing that’s worth pointing out is that you do, potentially, want to be changing these programs to make them easier to access until you’re hitting the caps. The wage subsidy program that he occurred in the middle of the pandemic, as it was initially proposed, businesses hated it. They didn’t want to use it, it was too complicated for them, but it became simpler and simpler until it was incredibly easy to access and everybody and their brother, every big and small corporation was accessing this program. The same thing should be happening with these housing programs. It is not, and the speed at which it goes out the door is far too slow.
Senator Marshall: My question is for Mr. Nikolakakis. Do you have any parting comments on tax policy and where we are? You’ve been in the business for a long time. Over the last 20 years, do you think most of the loopholes are being plugged now, are things are more or less complex, or is everybody paying their fair share now compared to 20 years ago? Where are we at? Because from the perspective of all the meetings we have on tax policy, it seems to be becoming more complex. What is your assessment of it?
Mr. Nikolakakis: I’ll say two things. It is getting much more complex, for sure, both in terms of the rules and in terms of administrative requirements, filing, report and all those kinds of things. It’s also getting a little bit toxic, which is why I mentioned that rule in section 110. You can’t be putting people into jail or threatening them with jail just because they made a mistake. This is not culpable conduct, they made a mistake, as opposed to intentional fraud. There are rules for fraud. You go to jail. It’s already there, so why do we need this one? It’s intimidation in a sense, and I don’t like that. Complexity and increased and unrealistic administrative burden is a real problem, and it’s increasing.
On the other hand, I have always thought that Canada has a very sophisticated tax policy department. The Department of Finance Canada’s tax policy and tax legislation departments know what they’re doing. They’re really quite good. When they have the time to think things through — which lately has not been the case because 10 different new things are being pushed at them at the same time — they usually do a great job. They work very hard, and their job is a very difficult one. I’m not trying to curry favour. I’ve worked with that department for literally 30 years on various occasions.
When talking about loopholes and closing them and international and domestic tax reform, Canada has been a real leader. We’ve had rules against using offshore companies since the 1970s. The U.S. introduced them in the 1960s.
Senator Marshall: Do you think the enforcement of the Canada Revenue Agency is as good as it should be? Just “yes” or “no” would be okay because the chair is looking at me.
Mr. Nikolakakis: I think things can always be improved, but you have to be smart about it.
Senator Marshall: Thank you.
[Translation]
The Chair: That concludes our meetings for today. Thank you. I want to remind the witnesses to get back to the committee with any information they promised by June 11. That’s a bit less time than usual, since we will be adjourning for the summer soon.
Before everyone leaves, I want to remind senators that our next meeting is tomorrow, June 5, at 2:30 p.m. We will be continuing our study on the subject matter of Bill C-69.
Before we adjourn, I’d like to thank not only the witnesses, but also all of our support staff, the interpreters, the pages and everyone else. Our sincere thanks.
(The committee adjourned.)