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National Finance


THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE

EVIDENCE


OTTAWA, Wednesday, December 4, 2024

The Standing Senate Committee on National Finance met with videoconference this day at 4:21 p.m. [ET] to study Bill C-78, An Act respecting temporary cost of living relief (affordability).

Senator Claude Carignan (Chair) in the chair.

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 audiofeedback incidents. Please keep your earpiece away from all microphones at all times. When you aren’t using your earpiece, place it face down on the sticker on the table. Thank you all for your understanding.

I want to welcome all the senators and the Canadians tuning in on sencanada.ca.

My name is Claude Carignan. I’m a senator from Quebec and the chair of the Standing Senate Committee on National Finance. I would like to ask my colleagues to introduce themselves starting on my left. We have a few more colleagues here this evening.

Senator Forest: Welcome, minister. My name is Éric Forest. I’m a senator from the Gulf division in Quebec.

Senator Gignac: Good evening, minister. Clément Gignac from Quebec.

Senator Dalphond: Good evening, minister. Pierre J. Dalphond, De Lorimier division, Quebec.

Senator Moreau: Good evening, minister. Pierre Moreau, Laurentides division, Quebec.

Senator Miville-Dechêne: Good evening, minister. Julie Miville-Dechêne, Inkerman division, Quebec.

Senator Moncion: Good evening, minister. Lucie Moncion from Ontario.

Senator Loffreda: Welcome. Senator Tony Loffreda, Montreal, Quebec.

Senator Cardozo: Welcome. Andrew Cardozo, Ontario.

Senator Kingston: Joan Kingston, from New Brunswick.

Senator MacAdam: Welcome. Jane MacAdam, Prince Edward Island.

Senator Pate: Kim Pate. I live here on the unceded, unsurrendered and unreturned land of the Algonquin Anishinaabeg.

Senator Ross: Welcome, minister. Krista Ross, from New Brunswick.

Senator C. Deacon: Welcome. Colin Deacon, Nova Scotia.

Senator Downe: Percy Downe, Charlottetown.

[Translation]

Senator Gold: Marc Gold from Quebec.

[English]

Senator Smith: Larry Smith, Quebec.

Senator Woo: Welcome, minster. Yuen Pau Woo, from British Columbia.

[Translation]

The Chair: Today, we’re continuing our study of Bill C-78, An Act respecting temporary cost of living relief (affordability), which was referred to this committee by the Senate on December 3, 2024.

We’re pleased today to hear from the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance. Ms. Freeland, thank you for agreeing to meet with us today.

The minister is joined by officials from Finance Canada. I understand that the minister likely won’t be able to stay for the full two hours. However, she’ll be here for at least an hour. The officials will stay with us to continue answering our questions.

To that end, we’re joined by Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch. Welcome.

Minister, we’ll now hear your opening remarks. We’ll then open the floor to questions.

The Honourable Chrystia Freeland, P.C., M.P., Deputy Prime Minister and Minister of Finance: Thank you.

[English]

Before beginning, I would like to briefly take note that the federal government is following very closely the situation in Vancouver, where a number of people have just been victims of a stabbing. This is a very live situation that law enforcement is responding to. My thoughts — as I’m sure the thoughts of all the senators here — are with the victims and their loved ones.

[Translation]

I would also like to start by wishing our chair a happy birthday. I apologize for arriving empty-handed without a cake. Maybe next time. We’ll do it after December 14.

[English]

I do also want to thank Mio Jovanovic for being here and for the very hard work that he and his team have done on this measure. Canada is very lucky to have extremely hard-working and talented public servants. Thank you very much, Mio.

I’m glad to be here to discuss Bill C-78, the tax break for all Canadians act, which is an important part of our government’s plan to make life more affordable.

[Translation]

I would like to outline why it’s so important that the Senate support this legislation.

Inflation has cooled and interest rates are dropping, but we know that life is still hard for Canadians. That’s why now is the time to give them a bit of help. Our government can’t set prices at the checkout, but we can give Canadians more money in their pocket to help them afford the things they need and save for the things they want.

[English]

Bill C-78 proposes a two-month tax break for all Canadians from December 14, 2024, to February 15, 2025. With a GST/HST exemption across the country, Canadians will be able to buy essentials like groceries, prepared foods, snacks and kids’ clothing, all tax-free. This new tax break will apply to prepared foods, restaurant meals, snacks, children’s clothing, shoes, car seats and diapers, children’s toys, books, newsprint, newspapers and puzzles for all ages, and Christmas trees.

By making essentially all food tax-free, this measure will deliver meaningful savings for Canadians and provide real relief at the cash register. This support is about helping middle-class Canadians with a bit more money in their bank accounts to pay their bills and make necessary purchases. This is not a permanent structural measure.

Inflation has now been within the Bank of Canada’s target range for all of 2024. This has allowed the bank to bring down interest rates, and that is why now is the right time to provide a little bit of relief for hard-working Canadians.

[Translation]

Mr. Chair, I want to encourage all senators to support Bill C-78. That way, we can make essentially all food and many holiday essentials tax-free. We can all support this pragmatic tax relief and make life easier for Canadians and their families during the holiday season, when they tend to face higher than usual costs.

By working together, we can help Canadians start the new year with more money in their pockets.

Thank you. I’m happy to take your questions.

The Chair: We’ll start the question period with Senator Forest.

Senator Forest: Thank you, minister, for joining us this afternoon. In my opinion, Bill C-78 has a highly commendable goal. However, as you know, to achieve our objectives, any strategy must properly identify the category of Canadians targeted by our measures.

First, in terms of your goals, I want to know what income bracket you’re targeting with this bill. What type of Canadians are you focusing on?

Ms. Freeland: Every person who goes to the grocery store, who wants to go to a restaurant for the holidays or who needs to buy something for their children or grandchildren. It’s a measure for all Canadians.

Senator Forest: Food banks are overwhelmed. Clearly, a segment of the population is economically quite fragile. These people won’t be going to restaurants or buying PlayStations. Instead, the middle and upper classes will benefit. Haven’t you looked at specific measures to help economically fragile families facing challenges? Why not remove the tax on heating, for example?

Ms. Freeland: I understand the question. I have a great deal of sympathy regarding your concern for Canada’s most vulnerable people. These measures will help all Canadians, especially the most vulnerable ones. These measures will help every mother in the country who wants to buy mittens for her children this winter, every grandmother who wants to buy a cake or something else at the grocery store for the children this holiday season.

I agree that we also need highly targeted measures to help the most vulnerable people. From the start, our government has made it a priority to create measures targeting the most vulnerable people. We’ve done many things. I can think of the dental care measures, which now give seniors and children the chance to go to the dentist. This measure will change the lives of the most vulnerable people. I can also talk about measures targeting families with children, the people who need them the most. I could list a number of other measures, but I see that you have another question.

Senator Forest: I agree that there have been some extremely useful measures. However, when we look at the list of products, this measure will have a more significant impact on the middle and upper classes — as you said in your remarks — than on the most marginalized and economically fragile families.

Ms. Freeland: My answer is simple. This measure will help the most vulnerable people who need help. You’re right. This measure will also help people in the middle class. That’s also a good thing. Today, all Canadians, including members of the middle class, need some help.

[English]

Senator Smith: Welcome, minister. Last night, Dan Kelly, one of our witnesses, President of the Canadian Federation of Independent Business, told our committee, “. . . every single business . . . will get this wrong . . .” due to the complexity and logistical challenges posed by the policy. Businesses face high compliance costs, tight timelines and confusion over the eligibility criteria for exempt goods. These challenges disproportionately affect small businesses.

Given the widespread logistical and compliance issues raised by small- and medium-sized enterprises, or SMEs, what measures is the government taking to ensure that businesses, particularly small enterprises, receive the support and guidance they need to implement this policy effectively and without undue financial burden? The basic line was: We’ve only got 10 or 12 days to implement it; that’s an unrealistic expectation, despite the good nature of the bill.

Ms. Freeland: Thank you very much for the question, and I have a great deal of respect for Dan Kelly. My office and I work closely with him, and I’ve talked with him about this.

I also have a great deal of sympathy, as I think we all should, for the challenges of running a small business. The government is available to provide guidance and support.

I’m grateful to the Senate for acting with alacrity on this measure, and I hope it will give businesses certainty.

I do want to say that we have been hearing publicly from many businesses that are delighted by the measure, and I’ll quote Kelly Higginson, who is the president and CEO of Restaurants Canada. She said:

This is a big win for the restaurant industry and comes after months of relentless advocacy . . . .

. . . We also appreciate that the relief will be extended over January, which is typically the lowest time of the year for our industry, and right through to Valentine’s Day.

The Retail Council of Canada, or RCC, was similarly totally enthusiastic. I will quote them again:

RCC has held multiple discussions with the federal Department of Finance on GST-HST holiday measures —

— Mio and I can confirm that is the case —

— with successful advocacy on several specific points . . . and more generally, persuading Finance and the Canada Revenue Agency to take a flexible, commonsense approach to putting the policy into practice.

So I have a lot of sympathy for the challenges of small businesses every single day, including with this measure, but I also want to assure senators that we have worked closely with business representatives in putting this together. We have heard, and there is in the public domain, a lot of very positive feedback.

Senator Smith: How does the government plan to address the disproportionate impact of compliance costs? That was the big critique that we received last night from the various witnesses who gave us percentages of 60%, 70%, 80%, questioning not necessarily the thought behind the program but the execution by the government.

What can you tell us about what the government will plan or how they will address the disproportionate impact of compliance costs and administration burdens on smaller businesses compared to larger corporations so that there’s fair treatment for everyone? So when someone goes, “Oops, we made a mistake,” the Canadian Revenue Agency will not jump on it and penalize people, because there is a time issue here that has to be respected.

Ms. Freeland: It’s a very good question, and I think it’s very important for all of us to be sensitive to the real challenges of running a small business. Our government certainly is. We see small businesses as the heart of our communities and the heart of our economy. Officials have definitely been working with small business on these measures. We will continue to do that. Your advice, senator, that a very positive, sympathetic attitude be taken at all stages of this is advice that I strongly agree with.

[Translation]

Senator Dalphond: Minister, I felt rather skeptical when you announced these measures. Since then, I’ve studied the matter and heard from the witnesses who spoke yesterday. I noted that the Retail Council of Canada and Restaurants Canada supported these measures.

[English]

I noted that the Canadian Federation of Independent Business was supportive. I noted that the Canadian Chamber of Commerce was supportive and that, as a matter of fact, they proposed those measures in December 2020. That was welcomed by the then-leader of the Conservative Party.

So far so good; I think I’ve changed my mind on it when I heard of that and I read that, but I must say that although I agree with the Chamber of Commerce, I would like to mention what they said. They said this relief on everyday purchases is an important first step, but what is still missing is “. . . a clear plan to revive our economy for all Canadians . . . .”

[Translation]

Minister, to reassure the Canadian Chamber of Commerce and people like me who felt skeptical at first, but who see a benefit in the proposed measure, could you tell us what comes next? Is this an isolated step? Is it part of a broader strategy?

Ms. Freeland: First, thank you for your hard work. You listed all the people whom I wanted to bring up.

Senator Dalphond: I hope that other people will be just as supportive.

Ms. Freeland: You listed the main representatives of small and medium-sized businesses that we consulted. I appreciate your work and the work of the Senate.

Your question is excellent. This good measure will particularly help Canadians with affordability and the cost of living. I agree that it isn’t the only thing that we must do. I also agree that our main job and primary focus must be economic growth.

COVID happened, followed by the associated recession. Then came high inflation. Given this global high inflation, we all understood that our main goal had to remain helping the Bank of Canada fight inflation. Inflation has been tough on Canadians. High interest rates have also been an issue. For me, that was the main goal.

On a positive note, the Governor of the Bank of Canada now says that we’re in for a soft landing. Inflation has been within the Bank of Canada’s target range for 10 months and interest rates have fallen four times. This means that we can talk about economic growth. We have strong and fundamental components in the Canadian economy. I’m thinking of our work on clean energy, which seeks to boost investment in clean energy generation. However, I agree that work remains to be done, and we’ll do it.

Senator Dalphond: Thank you.

The Chair: Thank you, minister.

[English]

Senator Kingston: Thank you, minister, for being here. I’m from New Brunswick, one of those provinces where the provincial portion of the HST is actually the larger portion. There have been all kinds of reports in the media, but I guess this wasn’t planned for at a provincial level, so I’m just wondering what you’re thinking of in terms of being able to ensure that the province does not lose the amount, whether it’s $63 million or what the amount is, of revenue that they weren’t anticipating being without. Can you comment on what types of things you and the provinces are doing?

Ms. Freeland: Yes. Thank you for the question. I have had a number of conversations with Premier Holt, the newly elected Premier of New Brunswick. Congratulations to her. If I may say, it’s great to see a woman premier.

The conversations we have had with New Brunswick, like the conversations we’ve had with provinces like Ontario, Newfoundland and Labrador and P.E.I., have been to say this is a really positive measure for all Canadians, and it’s a positive measure for the people in your province. We have been encouraging provinces to recognize that now is the right time across the country — with inflation in the Bank of Canada’s target range for 10 months, with interest rates coming down — for all of us to proactively take that step and to say, “Yes, let’s do this, and let’s help the people of our province.” We have had very positive conversations with a number of provinces, including New Brunswick.

Senator Kingston: Are there ways to equalize, I guess, how the provinces are treated? Not everybody has the provincial and federal portions connected. I’m looking at sort of the equity issue for New Brunswick. Can you comment on that? There are other provinces that wouldn’t need to worry about the provincial portion in terms of remission and so on.

Ms. Freeland: I would hope that all provinces across the country will recognize that this is a good thing for the people in their province and will join the federal government in taking this step.

You heard the Premier of Newfoundland and Labrador saying proactively that he believes this is the right thing to do, and he is joining the federal government in offering his share of the relief. We have heard the same thing from Ontario and from P.E.I. We have had very good conversations with New Brunswick. It is, I really think, the right thing to do and to offer to all Canadians.

Senator Kingston: Thank you. This is a comment from another one of the people who have commented on this, and it is regarding what might happen to any cuts in the basis points for our interest rates at the Bank of Canada. Somebody from the Desjardins Group, Royce Mendes, said that this might affect what he calls a jumbo 50-basis-point rate cut in December.

Can you talk to me about why he would say such a thing? Why would this make such a difference?

Ms. Freeland: I respect, actually, Mr. Mendes very much — he’s a great economist — but I can’t speak for his thinking. I’m going be a little bit careful about getting into the Bank of Canada’s lane.

However, we have been thoughtful, as I was saying in response to the senator’s question a moment ago. Really, while inflation was elevated, we recognized that supporting the Bank of Canada in working to get rates down needed to be our priority.

I would point out to senators that this is a big accomplishment for Canada that for 10 months in a row, inflation has been in the Bank of Canada’s target range, and we have seen the bank cut four times in a row. Canada has led the G7 in interest rate cuts, and I think that is a path that we all support.

Senator Kingston: Thank you.

Senator Ross: Thank you for being here with us today, minister. I would like to follow up on Senator Kingston’s question.

Have there been any preliminary calculations prior to the tabling of the bill of what the actual cost will be to New Brunswick? If there weren’t any calculations done in advance, have there been since? Could we get that data?

Ms. Freeland: Of course, we have been thoughtful about that. I really do want to emphasize that I have personally had a number — I won’t give you the exact number — of conversations directly with Premier Holt. We also recognize they are a new government, and, again, congratulations to her. We are working closely with them, as we have been with Newfoundland and Labrador, Ontario and P.E.I.

The point that we have been making is that this is a really positive measure for Canadians from coast to coast to coast. It is good for people in Ontario, in Newfoundland and Labrador and in New Brunswick.

One of the things that we know that the newly elected Premier of New Brunswick has been focused on, as have all the premiers, is affordability for people in their provinces. This is a measure that gets directly at that. We are certainly encouraging our provincial partners to recognize the value this gives the people in their province and to join us in saying, “You know what? I’m going to join the federal government in offering this cut.” We have seen, for example, Premier Furey in Newfoundland and Labrador proactively doing that. We have seen the same thing in Ontario and in P.E.I. I think it’s the right thing to do for the people of New Brunswick.

Senator Ross: No argument that Premier Holt has certainly been focused on affordability, but what I’m really looking for is that number. She has suggested a $62-million shortfall. Would you agree with that number?

Ms. Freeland: We think the best approach to take — and it is one that we have seen from a number of provinces — is for the province to say, “Is this a good measure for the people in my province? Do I want to join the federal government in offering this to the people of my province?” We have been having those conversations, and I am confident that it’s the right thing for the federal government to be contributing its share, and it’s the right thing for provinces to be contributing their share.

Senator Ross: I did take the opportunity to read the HST agreement between the Government of Canada and the Government of New Brunswick. It says that if the net provincial tax revenues of New Brunswick are reduced by more than 1%, the federal government would compensate for that.

I wonder if you can address that.

Ms. Freeland: Again, my view is that given where the concerns of Canadians on affordability are and given the fact that affordability is a challenge across the country from coast to coast to coast, the way we should be working on this in partnership with provinces is to say, “Let’s step up together for our people.” The federal government has said we’re stepping up, and we’re encouraging the provinces to do the same thing.

You’ve seen a number of provinces publicly come forward and say that’s what they’re going to do. I do want to say I and Minister LeBlanc have been having some very productive, constructive, positive conversations with the Province of New Brunswick, and I’ve been speaking with the premier herself.

[Translation]

Senator Moreau: Restaurant owners told us yesterday that they have been through a perfect storm with mandatory pandemic closures, labour shortages and rising costs. People from the Canadian Federation of Independent Business and the Canadian Federation of Independent Grocers told us that the implementation of the bill would significantly increase their costs.

In your opening remarks, you rightly pointed out that the government can’t set prices at the cash register. How can you guarantee that the savings that you want to pass on to Canadians won’t be offset by increases in the cost of goods in grocery stores, shops or restaurants?

Ms. Freeland: Thank you for the question. We already talked about the hard work of small and medium-sized businesses across Canada. I think that we all appreciate their work. As we said earlier — and I quoted the restaurant owners and grocery store representatives — we had good conversations before tabling the bill and we received positive feedback from the small and medium-sized business sector after tabling the bill.

I know that this bill gives them a great deal of work to do. However, I’m confident that this measure will help Canadians with affordability. By helping Canadians with affordability, I’m confident that this measure will also help our small and medium-sized businesses. I already quoted Kelly Higginson and I’ll do so again in English, because she made these comments in English.

[English]

Today’s announcement . . . means that more Canadians will be able to celebrate with loved ones at a restaurant, have lunch with colleagues or treat themselves to a morning pastry on their way to work. . . .

[Translation]

This means that restaurant owners believe that the measure will bring them more customers. This measure will both help Canadians with affordability and help small and medium-sized business owners.

Senator Moreau: Representatives of the Canadian Federation of Independent Business and the Canadian Federation of Independent Grocers told us that it’s quite complicated to implement these measures and to clearly understand which products are exempt from the GST and which are not. We can take the example of models for children and for adults. They asked us to sound the alarm. Could you ask the Canada Revenue Agency to take a lenient approach with these businesses? They may, in good faith, make mistakes in applying this measure, which requires them to adapt very quickly. To this end, what steps do you plan to take with the Canada Revenue Agency?

Ms. Freeland: Thank you for the question and the comment. I couldn’t agree more. I can assure you that, inside the government, we’ve already had these conversations and we agree with you. I think that you chose the right words when you said that we must take a lenient approach. Ultimately, I think that everyone has the same goal. We want to both help Canadians with affordability and help small and medium-sized businesses by doing this work.

Senator Moreau: Thank you, minister. You must be reassuring them.

[English]

Senator Pate: Thank you very much, minister. At the beginning of your mandate, the government focused a lot on those people who were being left behind. Now the focus seems to be, as my colleagues have pointed out, more on middle-class Canadians. During discussions, there has been a focus on, “Oh, we’ve done breaks for retirees, for disabled people, families with children.” That’s all true, and it’s laudable.

The cost of this measure far exceeds what the projected costs would be of a guaranteed livable income for those who are in deep poverty and most challenged right now, including people with disabilities.

What was the rationale for choosing to focus on the middle class rather than on those who are most in need?

Ms. Freeland: First of all, thank you very much, Senator Pate, for your question. I do want to recognize your lifetime of work supporting the most vulnerable in Canada.

I would point out that our government’s central campaign message in 2015 was that we’re going to deliver for the middle class and those working hard to join it. That is a very good approach, and that approach continues to be at the heart of our government’s work: to support middle-class Canadians and to support everyone who is working hard to join the middle class.

I do think that, of course, there is a need for targeted measures to support the most vulnerable. Those are the people who need the greatest support, and that is why there is such a series of measures we have put in place for them, whether it is dental care, pharmacare, the Canada Workers Benefit, the Canada Child Benefit targeted at families that need it the most. There’s a lot of support there, and it is a good thing that the support is there.

At the same time, there is room — and indeed a need — for measures that cover all Canadians. I’ll give you three examples. This measure is certainly one, supporting everyone who, on the way home from work, wants to pick up a rotisserie chicken, and this measure makes it a little more affordable.

Another example is early learning and child care. It was an intentional choice of our government to begin the work of putting in place a national system of early learning and child care that would be available to everyone, because I really believe that is the way you build a program that will have enduring national support. I would say the same thing about medicare, a universal single-payer health care system that we have in Canada that we’ve invested $200 billion in. That’s not means tested. That’s available for every single Canadian, and that’s a good use of our money.

I think that we need to have measures that support all Canadians and that are there for the middle class, and then we also need measures that are targeted at people who need the most support. I think you need to do both.

Senator Pate: I don’t disagree that you’ve put in place some incredible measures. As you know, many of us have been supportive of those. It’s the issue of talking about those who are working hard to be part of the middle class.

There is abundant evidence now — and I recommend to you Dr. Zhao’s work out of UBC — that demonstrates very clearly that when you are in deep poverty, it actually affects your cognitive capacity to not just work hard but even envision that you can achieve things. It underscores the need to provide those kinds of income-tested — not necessarily moralistic or judgmental — approaches to assisting those in deepest poverty. What analysis of those kinds of measures has been undertaken?

Ms. Freeland: Let me just say that I agree with you that we need to be there to support the most vulnerable. I believe that we need to help all Canadians, and we need to provide special support to the most vulnerable who need support the most.

Senator Woo: Thank you, minister, for being here. How will your family adjust its spending habits to take advantage of the GST holiday over the holidays?

Ms. Freeland: Thank you, senator. I recognize that my family is a very privileged family, as are, I would say, the families of everyone sitting around this table. I’m really grateful to hear the extent to which senators have been directing their questions at concern for the most vulnerable in our country. That’s very encouraging to me, and I think that’s whom we need to be concerned about first and foremost.

Coming out of the COVID recession, which was the deepest recession since the Great Depression, then the global inflation that followed, it was really hard for families across the country. Having high interest rates on top of that was concerning for everyone, concerning for middle-class families doing well but who might be worried about a mortgage renewal.

I think that we have been through an economic time that certainly has put the greatest pressure on the most vulnerable, but it has put pressure on middle-class Canadians as well, and I’m glad that we have a measure in place that can support them.

Senator Woo: To the extent that this is about stimulus, it depends, of course, on those receiving the benefit to spend the money as opposed to saving it. Has the department modelled some degree of consumers not spending but saving the windfall, if I can put it that way, and therefore dampening the stimulus effect?

Ms. Freeland: When it comes to this measure, of course, people will take advantage of the GST holiday to the extent that they are making purchases.

Senator Woo: Additional purchases, of course, right?

Ms. Freeland: Right. People will get the benefit based on the purchases that they’re making.

I will quote for you an economist who maybe has testified before this committee, Michael Smart. He was asked that question, and he said:

Cut the GST and the HST just for a short time, tell people there’s a limited-time sale, spend now. That will encourage more spending in the economy. It might get the economy firing on all cylinders again.

I emphasize that I’m quoting Michael Smart. That is his view about the possible impact. Certainly, a minute ago, I quoted Kelly Higginson, the President of Restaurants Canada. Speaking on behalf of restaurants, she is certainly hopeful that this temporary, time-limited holiday will encourage people, as she put it, to treat themselves to a morning pastry on their way to work, which they might not have bought previously. On behalf of restaurants, I think her view was hopeful.

Senator Loffreda: Ms. Freeland, welcome to our Finance Committee.

This is a well-needed break for many Canadians, and we’ve quoted a few economists. I’ve been reading BMO Economics, which advances that the GST/HST rebate will drive additional spending, and they believe that Q1 2025 GDP growth will increase from 1.7% to 2.5%. You didn’t put forward any numbers, but I’m doing so here. Maybe you can elaborate on any additional work the Department of Finance has conducted on the economic impact of this two-month tax break.

If I can take it further, I tend to agree on Q1, but what about Q2? Are you concerned that the Q2 results will be negatively affected? And how will you ever put this tax back? It’s a temporary relief, but won’t putting it back be viewed as a political negative?

Ms. Freeland: Let me just start by saying that I’m grateful to have senators concerned about the political fortunes of mere MPs who have to face the electorate. I’m glad to hear the concern.

Senator Loffreda: I’m curious.

Ms. Freeland: I also saw that BMO analysis. I have it right in front of me that BMO is boosting Q1 GDP from 1.7% to 2.5%. I will point out, as we heard from Restaurants Canada, that, typically, January is a slow month, so there is some anticipation that with this measure in place, it will help retailers, especially restaurants, through the January doldrums.

In terms of the time-limited nature of this measure, I do want to be very clear that this is a time-limited measure. It is for two months. It is from December 14 to February 15. It is designed to provide a little bit of extra support over the holidays after a really difficult time, but we are very clear about the temporary nature of this measure, and we have been clear in our conversations across the country.

Senator Loffreda: So there is no wiggle room that this could eventually be permanent?

Ms. Freeland: There is no wiggle room.

Senator Loffreda: Are you concerned about the fiscal capacity to afford this measure? You know my fiscal concerns all the time. It is costing $1.6 billion.

Ms. Freeland: I welcome your fiscal concern, senator. Really, the fact that today Canada has the lowest deficit and the lowest debt-to-GDP ratio in the G7 is a positive advantage for our country.

When you look around the G7, we see countries facing real challenges because they are not on a fiscally sustainable path. I share the concern you’ve just voiced and have voiced in previous meetings about the fact that being in a fiscally sustainable position is a source of economic strength. I would even say it is a source of national security for our country, so it is important. That is why I was glad to have you ask for a confirmation that the measure is time-limited. It is. That is a very important feature. It is very important that this is a temporary, one-off measure rather than a structural measure, and I’m glad to have the opportunity to underscore that.

Senator MacAdam: Welcome, minister. Coming from P.E.I., I want to continue to talk about the impact on provinces with the harmonized sales tax. I’m wondering, will the federal government compensate Prince Edward Island and the other provinces that have harmonized sales tax? I know you talked about having conversations with the premiers, and all the premiers are interested in assisting and dealing with affordability issues. The question really is this: Is the federal government going to compensate the provinces?

Ms. Freeland: In the case of P.E.I., I was not the one who spoke directly with the premier, although I did speak with my colleague the finance minister. She and I had a very good conversation. The premier and the Prime Minister spoke about this publicly last Friday. I’m sure you saw their remarks. The premier was very clear that P.E.I. recognizes the value of this measure and that P.E.I. will be joining the federal government in doing its share to provide this relief to Islanders.

I want to say to Premier King and to Jill, the finance minister, thank you very much. I think it’s the right thing to do. This is going to provide real support to Islanders, and we are glad to be doing our share. We’re glad that the province is stepping up as well, and I think you’re going to see a really positive impact on the lives of Islanders.

Senator MacAdam: I’m going to continue with Senator Loffreda’s line of questioning. Right now, we are borrowing to finance deficits, and with this new measure, the federal portion estimated to cost $1.6 billion, we can expect increased borrowing. The accumulated deficit as of March 31, 2023, was $1,173 billion, and these are the latest audited figures we have. We don’t have the audited financial statements for the year ended March 31, 2024. I know you said the public accounts will be published by the end of the year, but I would like to know when the public accounts will be tabled in the House of Commons.

Ms. Freeland: Thank you very much, senator. Let me be clear; the public accounts will be published this year. I want to pause for a minute to talk about Canada’s fiscal position. I want to say also to Senator Loffreda that I’m glad that senators are focused on this. You should be. We all should be. And I certainly am.

I believe it is a real strength of Canada that we are in a fiscally sustainable position, and that is not true of many of our G7 peers and is a real problem for them.

I want to give you a sense of the benefit of Canada’s fiscal position as judged by the markets yesterday. Yesterday, the rate on the Canadian 10-year bond was 3.14%. The rate on the British 10-year gilt was 4.25%. That is an advantage to Canada of more than 100 basis points. That is money in the pockets of Canadians every single day. If Canada had Britain’s cost of debt, on average, every single year, we would be paying $9.5 billion more in debt-service charges.

I do want to assure senators that Canada’s fiscal position is something I know you watch closely. It is something I watch closely as well.

[Translation]

The Chair: It’s now my turn to ask a question.

We’re trying to understand the logic behind the choice of products on the tax-exempt list. We have the Christmas tree, but not the baubles or decorations to adorn it. Nothing is sadder than a tree without decorations. We’re looking for the philosophy behind all this. Pierre de Coubertin would say: “A healthy mind in a healthy body.”

The list of exemptions includes junk food and excludes all sports equipment and anything related to art, singing and music. We can have an imitation guitar, but not a guitar. An imitation guitar toy will be tax exempt. However, if I want to give my child a real guitar, it won’t be tax exempt. I can have shoes for running, but not for dancing. All cultural or sports products are excluded. Notebooks and pencil crayons are excluded. Who made this list? What’s the logic behind not promoting cultural or sports activities and healthy food for children? Why this choice of priorities? We get the impression that the government favours junk food and video games over sports and culture.

Ms. Freeland: Thank you for your question. I’ll refer to the questions asked by the other senators regarding small and medium-sized businesses and the implementation of these measures. You’re right. It took quite a bit of work to decide what to include on this list. We needed to identify the products already set out in the tax code to make it easier for small and medium-sized businesses to implement this idea. We were guided by what we could do. That’s one aspect.

The Chair: Sorry to interrupt you, minister, but applying a code to shoes isn’t more complicated for local merchants than applying one to skates.

Ms. Freeland: May I continue?

The Chair: Of course, go ahead.

Ms. Freeland: We started with groceries, food, what we eat. Since we’re talking about affordability, that’s where we have to start. If we help people buy prepared food at the grocery store, we have to think about coffee shops, bistros and restaurants. You’ve heard testimony from restaurateurs. They need help too.

Clothes, diapers and other things children need are all defined in the tax code. I’m sure we all agree that the most important factor in affordability is helping parents and grandparents buy shoes, clothes, tuques and mittens for children.

The Chair: I understand the “why,” but not the reasoning. In any case, we’re out of time.

Senator Gignac: Thank you, minister, for joining us this evening.

We need to acknowledge that your government has done a lot to help the less fortunate. This measure will give a bit more breathing room to people who have been hit by a 25% increase in the cost of living. Your intentions are good, and we acknowledge that.

However, I am surprised at the precedent set by exempting a variety of products from the tax base without first consulting the provinces, including Quebec. You know that, since 2012, the government of Quebec has collected and administered the GST in Quebec on behalf of the federal government. There was no prior consultation with the government of Quebec. In the Gatineau region, merchants and restaurateurs are very worried. Over the next two months, consumers who cross the Ottawa River to eat and shop in Ottawa will save 13%, since the tax will not apply. No one needs to provide their address at a shop or restaurant to get the discount.

Could you comment on that?

Ms. Freeland: First of all, I greatly appreciate the work we do with the Province of Quebec. I would like to take a moment to thank the Quebec finance minister, Eric Girard, with whom I work closely.

We have had a lot of conversations about that issue. We have also had discussions with the Government of Ontario. It made a decision to join us and support Ontarians by doing so.

I understand that it is up to the Government of Quebec and that it needs to make its own choices.

I would also say that I really respect the fact that every premier across the country understands how important affordability is to Canadians and the middle class. Premiers across Canada have measures in place to help people with affordability. This is the federal government’s measure.

The Chair: I don’t want to interrupt you, but the clock is ticking and we were told you had a limited amount of time.

Ms. Freeland: That’s true.

The Chair: I want the senators to be able to ask questions.

[English]

Senator Downe: Minister, Premier King has indicated the shortfall for Prince Edward Island will be $14 million. If the Government of Canada is not reimbursing Prince Edward Island for that $14 million, the province will have to raise taxes down the road because they don’t have that money set aside. How is that a long-term benefit for Prince Edward Islanders?

Ms. Freeland: Let me say a couple of things. First, in my conversations with the finance minister of Prince Edward Island — and I know that the Prime Minister spoke directly with the premier — I am really confident that this is a measure that is going to be good for Canadians from coast to coast to coast. I am very confident that Islanders will benefit from the federal government and the province working together to offer them the maximum relief in this period. It’s going to be good for the people on the island, for their families and for the businesses that they frequent.

I also want to say that our government is absolutely committed to working in close collaboration with provinces across the country. We do a lot of projects together —

Senator Downe: Thank you, minister. My time is limited. David Dodge has said we’re getting “. . . a little candy today for pain down the road.” P.E.I. will have a $14-million gap in their budget. How will they make up for that if the federal government doesn’t reimburse them? They don’t have a surplus. They will have to raise costs for Islanders down the road to pay for, as David Dodge said, “. . . a little candy today for pain down the road.” Are you going to reimburse the province?

Ms. Freeland: As I said, we saw the Premier of P.E.I., Premier King, together with the Prime Minister talking about this and talking about how we’re doing it in partnership. We’re glad that P.E.I. has seen this will be helpful to Islanders. It will be.

[Translation]

The Chair: I may have misunderstood. Will it be reimbursed or not?

Ms. Freeland: No.

The Chair: It won’t be reimbursed.

Senator Miville-Dechêne: I want to come back to the survey conducted by the Canadian Federation of Independent Business, which clearly showed that the majority of respondents are against the GST holiday precisely because of the administrative burden. It seems to me that your measure creates winners and losers. The survey shows that the average cost for SMEs to update their cash registers was $1,000. These are middle-class people. I assume convenience store owners are part of the middle class. They could recover $100 through sales, but they need to pay $1,000 to adjust their cash registers. Are SMEs the losers in your program?

Ms. Freeland: Senator, with all due respect, I cannot entirely agree with you. We all need to respect the work of SMEs. We need to respect what they do every day. I completely respect them and I know you do too.

I have quoted many representatives from restaurants, SMEs, grocery stores and chambers of commerce, who said that it was a good measure for them and for SMEs across the country.

Senator Miville-Dechêne: It’s a survey.

Ms. Freeland: I know that owners realize that the measure creates work for them, and we all need to respect that. I think we also need to respect and help the people who said the measure will be good for them. I’ve quoted many people among them. We worked with representatives from SMEs, mostly restaurants, grocery stores and chambers of commerce, when drafting the measures. We’ve quoted people who said the measures would help them.

The Chair: Thank you, minister.

[English]

Senator C. Deacon: Thank you for being here, minister. Earlier, you were asked about how the list of items was chosen, and you said a pragmatic approach was taken, but I don’t think we heard any logic underlying that pragmatic approach. We also know the provinces were not consulted in advance, but now you want them to proactively join the federal government.

Yesterday, Senator Ross asked the sponsor in the Senate of Bill C-78 whether any business associations had been consulted in advance of this being launched, and she indicated that none were consulted. Can you help us understand how to square that peg with what you said earlier, which is that you worked closely with businesses?

Ms. Freeland: I think the comments that we’ve heard publicly from business associations really speak for themselves. I’m going to quote Kelly Higginson, the President of Restaurants Canada, who said:

This is a big win for the restaurant industry and comes after months of relentless advocacy from Restaurants Canada for meaningful —

Senator C. Deacon: With respect, minister, we heard you say that earlier, and thank you for providing us with that.

Was there any consultation with any of these partners who are having to join in? They’re being recruited by the federal government to implement this plan. Was there any consultation?

Ms. Freeland: I am sincerely trying to answer the question. My point is — and I think the quote from Ms. Higginson illustrates this — we have been hearing, as I’m sure you have, both from Canadians saying affordability is a challenge and from restaurants, grocery stores and small- and medium-sized businesses that they would like to see the government acting on affordability because that will help their customers. They have come to us with many different suggestions. That’s what I have in mind when I say we have been talking to them, and that’s what you’ve heard directly from them as well.

Senator C. Deacon: Thank you.

Senator Cardozo: Minister, thank you for being here. My question is of a broader nature. I wonder if you could tell us how this measure, this initiative, which costs a fair amount, fits into the larger economic plan of your government and for the country. I’m thinking of the uncertainty that we always seem to have. The new factors that have come into the picture are the new Trump administration and possible tariffs there, as well as increased pressure for defence spending, faster and at a higher level.

Can you tell us how this fits into that larger picture and whether you will be tabling a Fall Economic Statement that will provide us with the whole picture?

Ms. Freeland: I can make this very short and say yes, but let me just elaborate a little bit and say, listening to the questions and the concerns of senators, we’ve had a really good picture of all of the different challenges which we have to meet at the same time.

We have had a lot of concern for the most vulnerable among us. We definitely have to have measures to support the most vulnerable. We’ve had senators talking about the importance of focusing on long-term growth now that we seem to have a soft landing from the COVID recession. I agree with that, and we do have to have measures that pull in, crowd in private capital to drive more growth.

You are absolutely right that we are now seeing some new challenges in the global economy that Canada has to have the ability to respond to, and, of course, we do need to continue to collaborate with provinces and territories, and the federal government needs to always be in a position to do that and needs to be doing that.

Every single issue that senators have raised is something that the government needs to work on, and we need to do all of those things and find a way to do them. I turn now to your colleague sitting beside you, Senator Loffreda. We need to find a way to do all of these things while maintaining Canada’s fiscally sustainable framework.

Senator Cardozo: Thank you.

[Translation]

The Chair: Do you have any time left, minister?

Ms. Freeland: I don’t think so. I got here late.

The Chair: I didn’t see anyone raise their hand to ask you to leave the room, so I thought we might have a bit more time. I can always try on my birthday. I thought we might have an extra 10 minutes.

Thank you very much, minister.

We will continue our study with the officials. We will go directly to the questions, which will be the equivalent of the second round of questions.

I will start with Senator Forest.

Senator Forest: Thank you for being here.

I imagine you have a mandate to advise the minister, who wanted to put more money in the pockets of Canadians. Currently, to have more money, they have to consume to save on the GST. That reminds me of an infrastructure program that municipalities had to go further into debt to benefit from. Now, to get the credit, Canadians need to consume.

Did you consider measures other than the GST holiday in your analyses?

Gervais Coulombe, Acting Director General (Legislation), Sales Tax Division, Tax Policy Branch, Department of Finance Canada: Thank you for the question, senator. It’s always difficult for us as public servants to speculate on the avenues taken by the government. Bill C-78 aims to implement a temporary zero-rating of the GST on a list of specified goods. Are there other possible avenues the government could have chosen? Yes, but this is a matter of public policy, and unfortunately, I cannot comment on that.

Senator Forest: I’m sorry to put you in an awkward position. A question was asked earlier about a survey conducted by the Canadian Federation of Independent Business. Approximately 4% of their members think that the measure will increase traffic and consumption. If memory serves, 56% of members don’t think that will happen.

What worried me is that they said that 54% of their members who had bought goods were returning them for a refund and then buying them again during the tax holiday. Have you been asked about that?

Mr. Coulombe: The bill clearly contains what we call an eligible period. As the minister said, the period extends from December 14, 2024, to February 15, 2025. Any purchase made during the period and delivered to the consumer, if the consideration for the supply is paid during the period, will be part of the category that can benefit from the tax holiday. Since people could decide to exchange goods and buy something else or return them at any time before the tax holiday period, I think it’s an acceptable practice that will not violate the spirit of the bill.

Senator Forest, I would like to say that the Prime Minister’s announcement occurred on November 21. The House of Commons had a chance to see the bill when it was tabled on November 27. The next day, it was approved and here we are. The holiday starts on December 14. We were looking for a balance between the number of weeks we give small businesses and industry to adjust and the time the measure comes into effect.

There is a horizon of around three weeks since the Prime Minister’s original announcement. A shorter time period to minimize returns would have created other challenges, especially for the small businesses and businesses in general that have to administer the measure.

The Chair: Thank you, Mr. Coulombe. We are limited to four minutes each.

[English]

Senator Smith: This is a question for the Department of Finance. I’m trying to get a rationale for the list of products included in Bill C-78. What was the rationale for determining the specific list of qualifying goods included in Bill C-78, particularly the decision to exempt alcohol, snacks and candy from HST/GST?

The second part of my question is this: Were consultations held with other federal departments, such as Health Canada, to assess potential public health implications of including these items?

Mr. Coulombe: On the list of items that are included in the temporary relief, the Minister of Finance has already addressed that question during her testimony here a few minutes ago. She did mention the fact that some of the items were already described in the legislative framework that supports the GST/HST in Canada.

In respect of food items, including different beverages, there is already an understood list of items that are currently subject to the GST. They are defined under Part III of Schedule VI of the Excise Tax Act, and, basically, in Bill C-78 we have a provision, the new section 11 to the new Part XI under section 2, that kind of makes all those food items and beverages temporarily excluded from the GST/HST for two months.

It’s really because some of those goods were already described and included in the legislation and could easily be administered by the Canada Revenue Agency, or CRA, and by businesses.

Senator Smith: Some of the products were already registered, so they didn’t have to be adjusted; is that what you’re saying?

Mr. Coulombe: Yes. Do you want to add anything?

Dominic DiFruscio, Director, GST/HST General Operations and Border Issues, Sales Tax Division, Department of Finance Canada: Thank you, senator, for the question. As my colleague said, in fact, the way it works, or at least the structure of the GST legislation at present, is there’s a schedule in the act which sets out the goods and services that are already tax-free. And the example that is used is certain basic grocery items.

The way it works is that all food and beverages in Canada are already tax-free, except if there are exclusions set out in the act. It’s a list of items. The way the structure of the legislation that’s before you is drafted, what that does is it carves back into the list of items — basically the exclusions of food items which would not be tax-free but rather would be taxable, it brings those items into a tax-free status. That is one of the mechanisms to bring those items into the scope of the legislation such that they would not be subject to GST/HST.

In addition, there are certain harmonized provinces in Canada that have already provided a point-of-sale rebate in respect of certain items. For example, in Ontario, to use that example, children’s clothing, diapers, car seats, to name a few of these items, those particular items, in fact, are already defined in GST/HST regulations. The way that the bill is drafted is it refers to those existing definitions, and, as a result, that assists, on one hand, vendors in understanding the interpretation of the law, and, on the other hand, the CRA in administering the law based on the existing definitions.

[Translation]

The Chair: If you’ll allow me, I will take over and ask my questions right away, because that’s exactly the case. I get the feeling we’re being fed a lot of nonsense. Sorry, I’m trying to be polite. A musical instrument is already defined in legislation. If the government has decided not to include it, it’s not a classification problem. You were incredibly imaginative in defining a LEGO set. I have trouble believing that the reason the credit does not apply is that there was no classification for a musical instrument.

Mr. DiFruscio: Thank you for the question. Yes, there are several different categories in the scope of the bill. I used the example of food essentials on the one hand, and on the other, goods that are already subject to lower taxes in the HST in some provinces. In the case of toys, it’s true that these are new definitions that have been drafted and included in the bill. In the end, the decision as to what is taxable or not is made by the government. As the minister said, it was up to the government to decide whether a product was taxable or not.

The Chair: The issue of classification wasn’t really the reasoning behind the decision. Some items had already been classified. Otherwise, you were very imaginative when coming up with a classification and creating a definition for a LEGO set.

Mr. DiFruscio: Yes, goods that fall within the scope of the bill are the government’s decision. It’s true that some definitions have already been used, as I said, and that simplifies compliance for merchants that already sell these products. It also makes it easier for the CRA to administer the measures. However, at the end of the day, the government decides whether a product is taxable or not.

The Chair: Thank you.

Senator Dalphond: I would like the CRA to explain to me the monitoring and follow-up that is done with merchants. Yesterday, we heard from two small business federations, SMEs, retailers and grocery stores.

They told us that it’s a bit complicated and they might make mistakes. I imagine your calculations take that into account. The measure will only last two months. Will there be a serious audit afterwards, or will you just say that you trusted everyone and they obeyed the law? Will they have to justify all kinds of things in the following months? For the missing $200 or $1,000, will the measure cost them $10,000 in accounting fees to address your questions?

[English]

Sahil Behal, Director General, GST/HST and Digital Compliance Directorate, Canada Revenue Agency: Thank you for the question. My name is Sahil Behal. I’m the Director General of the GST/HST and Digital Compliance Directorate at the Canada Revenue Agency, so on the compliance side of the house. I’ll respond to the question through you, Mr. Chair, by saying we understand the challenges businesses are facing. We already have an excellent relationship with all stakeholder associations, many of which have been brought up over the past hour and a half.

The measure is still in its early days, and we’re still finalizing our compliance approach, but the CRA will be taking a practical approach to compliance. We will be dedicating our efforts and instances where businesses are woefully and egregiously refusing to comply. Businesses that are making reasonable efforts to comply with the legislation, should it be passed, will not be the focus of our compliance efforts.

[Translation]

Senator Dalphond: Is there a kind of call centre available for small businesses to contact you for information? I understand that it’s not a problem for Amazon because they have a central system. I also understand that some food chains and restaurants have a standardized system with their franchisees. A problem arises for people who have a small grocery store, a little storefront clothing boutique or a shoe store and want to know what will happen if they make a mistake and don’t exempt the right shoes.

[English]

Luisa Rizzo, Director General, GST/HST Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency: Hello. My name is Luisa Rizzo, and I’m the Director General of the GST/HST Rulings Directorate of the Canada Revenue Agency. We do have call lines, our business and individual inquiry lines. There’s a GST/HST rulings technical line. We are also getting questions coming in from retail grocers, the CFIB, to which we have been actively responding. We have information on our website to which we are redirecting individual businesses, and we’re taking intel of the questions that are coming in and hope to provide additional information on the website in order to be able to address the questions.

As you can imagine, it’s impossible to address every single question that is coming in, so we are looking at the questions in terms of which ones we will see the most, but we definitely will take any calls.

[Translation]

Senator Dalphond: Do you have more employees than usual? Things will progress quickly. For the two months that the measure will be in effect, the rules will change, and then they will go back to normal.

[English]

Ms. Rizzo: In terms of employees, we’re working with what we have now. There’s obviously a need for resources as we move forward. We’re in the midst of determining that right now and what requirements are needed.

Senator MacAdam: Thank you. We heard last night that the Retail Council of Canada mentioned at the Finance Committee a few things around compensation. They are wondering about compensation to businesses to deal with all the additional administrative burdens and extra costs that would be incurred, and because this is being done on short notice, I’m wondering if there was any consideration given to compensating businesses.

Mr. Coulombe: Bill C-78 does not contain any specific provision to compensate for these costs. There is an expectation that some of these businesses may see an increase in their sales, in particular during the relief period. I’m thinking here about the restaurant industry, in particular, in those days after Christmas and the New Year when typically business is down.

GST/HST in Canada is collected and remitted to the CRA by businesses without any official compensating cost. This is understood as being part of the cost of doing business in Canada.

Senator MacAdam: We also heard at committee last night — I can’t remember from which witness — a concern that suppliers, distributors, wholesalers weren’t aware of the impact of this bill on their businesses. I’m just wondering about communication with all affected businesses. Do you have any response to that?

Ms. Rizzo: Again, as I mentioned, we are putting the information on our website. There will be social media, as well, trying to target businesses, suppliers and wholesalers to come to our website for information. Through the large organizations, we’re hoping that information will go down as well. We will respond to questions that we have, and we’re working as best as we can and in a timely fashion to be able to get that information out as fast as we can.

Senator MacAdam: Thank you.

Senator Kingston: I think my question is for Ms. Rizzo. I’m wondering about and am concerned about two things. One is that not all provinces will be affected equally because some have the harmonized sales tax, and some don’t. Again, with compensation, there seems to be a threshold that if the threshold is over 1% of the total HST revenues, according to the agreement, there is some mechanism to look at compensation for lost revenue.

I would like you to comment on those two things to see what’s happening within the provinces that are most affected in terms of looking at compensation.

Ms. Rizzo: Thank you for your question. However, I’ll have to defer that to my colleagues at the Department of Finance.

Mr. Coulombe: That specific question was asked to the Minister of Finance during her testimony. I think she made it clear that there were many discussions going on at the political level with different provincial governments and that some provincial governments had already agreed with and specifically and publicly mentioned their support of the GST holiday on selected items. It would be unusual and awkward for officials to step in.

Again, if you look at the content of Bill C-78, it does not contain any clauses, provisions pertaining to those matters. I would prefer to refrain from further elaborating on the question.

Senator Kingston: If I could just say that the reason I’m asking is because there appears to be some thresholds in place that would have been used in the past, probably compensation mechanisms that have also been used in the past.

So I respect that you don’t want to comment further, but the reason for my question is that there were things in place before this happened that speak to some of that.

Senator Ross: Just to follow up on Senator Kingston’s question, were there any calculations done prior to the announcement or the tabling of this bill or since that would give us a number as to what the provinces might anticipate losing?

Mr. Coulombe: The sole number that has been put in the public domain was included in the backgrounder published on the Finance Canada website on November 21, 2024, and it was in relation to the GST savings that Canadians would have. This is the figure of the $1.6 billion.

Senator Ross: This is referring to the cost for the provinces, such as New Brunswick, which has estimated the cost to be $62 million. Is that accurate based on your calculations?

Mr. Coulombe: As far as I’m aware, there have not been any public communications from the federal government in respect of the number you’re referring to. I apologize; I’m not in a position to further comment on that aspect.

Senator Ross: Thank you.

[Translation]

Senator Moreau: My question is for Ms. Rizzo. I was a little surprised by the answer you gave to Senator Dalphond.

The measure will be implemented in 10 days, and you indicated that you don’t have the necessary resources.

Can you put a number on the lack of resources needed to reply to merchants who ask you about how to apply the provisions in the act?

[English]

Ms. Rizzo: Thank you for the question. Right now, we are redirecting resources to align to what is immediately needed. That’s where our resources are going. There is no doubt that from compliance and administrative perspectives, there are other aspects of the costs that we are still trying to figure out and move forward on in terms of what it would entail.

Those discussions are ongoing right now in terms of where we’re going, so I do not have any information on that. Again, we’re working with current resources and redirecting those resources we have to provide that front-line information. Of course, there are other aspects to this administration and, as I mentioned, we’re still trying to figure out what the actual costs would be to the agency.

[Translation]

Senator Moreau: When do you think you will have the necessary resources? Aside from the fact that you are unable to put a number on the lack of resources, when do you think you will be able to get these resources?

[English]

Ms. Rizzo: As you can appreciate, we’re in a period of fiscal constraint as well, so we’re working as best as possible to get the resources that we need and any funding related to that to move forward this initiative. I can’t speak any further to that or when we’ll have an answer. Again, our primary focus once this was announced was making sure that we can provide that guidance to individuals and businesses so they understand what is required or coming on December 14.

[Translation]

Senator Moreau: The Department of Finance is not supervised by the CRA.

It wanted to reassure merchants about the accommodating approach, so to speak, that it will take with people who make mistakes.

They say that nothing is certain except death and taxes. What does accommodation look like in practice for the CRA? How will you address people who make mistakes in good faith when applying an act that will be in effect in 10 days but has not yet been adopted?

[English]

Mr. Behal: Thank you for the question. As I mentioned earlier, we have excellent relationships with many of these stakeholder associations. These conversations are ongoing daily.

In addition to the information we’ve put out on our website, we’ve used social media channels. We are leveraging these existing relationships to both receive incoming questions, such as conversations we’re having with the CFIB and many of the stakeholder associations you’ve mentioned, and have targeted communications as well.

Like I mentioned, the measure is still in relatively early days. Conversations that have happened at this committee today have given us valuable insight in terms of what kind of questions we can expect to hear from the business community and consumers and what we’re already hearing, and we are responding to those regularly. That communication is really a multi-faceted approach that has been ongoing for some time now and will continue.

[Translation]

Senator Moreau: Are you able to commit to taking an accommodating approach with them for mistakes made in good faith?

[English]

Mr. Behal: Part of our conversations has been in terms of what our compliance approach looks like. We are hearing from businesses about some of the challenges. Many of those that have been raised at committee yesterday have been brought up by senators in today’s meeting.

What we have been telling the business community and in response to the questions we’ve been getting is that we are taking a practical approach to compliance. In terms of the intent of our compliance actions, it’s not to penalize those individuals who are willingly trying to comply. The focus is really on those individuals who are knowingly doing something egregious — they’re egregiously refusing to comply. That’s where our efforts are dedicated. That has been part of our communication as these questions are coming in, and it will be enhanced in the time to follow as our compliance approach is further clarified.

Senator Pate: I’m tempted to pursue that a bit because ignorance of the law is often not a justifiable excuse.

I actually want to ask more about the fact that the minister talked about the consultation process and the lobbying that predated this legislation. I’ve been trying to find and can’t find anything on your websites or in the backgrounder to the bill. Who were the bodies that lobbied for this provision? What were the countervailing lobbies that were looked at but rejected?

To pick up on a question from one of my colleagues, what were the discussions between departments in terms of competing priorities for these resources? I’m looking at all of you because I don’t know whom to direct the question at, but I presume perhaps it’s you, Mr. Coulombe.

Mr. Coulombe: I will start. In terms of the consultations referred to by the minister prior to the announcement, my understanding is that she was referring to conversations happening at the political level. Of course, the Department of Finance, colleagues at the Canada Revenue Agency and at the Canada Border Services Agency, or CBSA, we have had our internal informal working group to make sure that we will be ready to implement the measures as per the government’s wishes come December 14 —

Senator Pate: Pardon me, and I’m very sorry to interrupt you — I don’t mean to be rude — but she used quotes from a couple of folks who said they had lobbied for this. I’m interested in those folks as well. Which groups were given priority and why? Why were other issues not looked at?

Mr. Coulombe: These are policy questions and issues. We are not in a position to speculate on whatever could have happened.

Senator Pate: I’m not asking for any secrets.

Mr. Coulombe: I am not personally aware of that. We know that for years there has been some lobbying happening in terms of permanently removing certain items. Some of these items may be found in Bill C-78, but as it relates to the particular GST holiday measure, I’m not in a position to elaborate on discussions that may have happened.

Senator Pate: Is anyone else? No? Okay. Thank you.

Senator Loffreda: Thank you for being here this evening. I have a few questions, one for the Canada Revenue Agency, for Mr. Behal and Ms. Rizzo. We have heard from stakeholders that it is complicated, in a sense. For example, manufacturers weren’t aware that they were exempt. Mr. Behal, you’re a digital genius, I hear. Have we not reached out to these manufacturers? We know who they are. Have we not reached out and told them, “Here is the exemption you do have”? Why do we still hear that so close to the measures being put in place?

Ms. Rizzo, given that it’s very complicated — we heard our chair explain how complicated it is, and I was aware it is complicated, and it’s complicated for the small- and medium-sized enterprises — what are we doing to ensure they will get it right? And if they don’t get it right, how much leeway will they have? I know with Canada Revenue Agency, when they hit, they hit hard. How much leeway will small businesses have? There is concern.

Ms. Rizzo: Again, in terms of the information and trying to explain it, on our website, we use plain language to make sure they understand the information, and it is based on the provisions of the legislation. With respect to the compliance portion, I will refer back to my colleague Sahil Behal on that piece.

In the terms of the stakeholders, we do have a stakeholder desk that we communicate with. We will be having an upcoming meeting with stakeholders, again, through the CFIB, retailers’ associations, restaurateurs, et cetera.

In terms of the manufacturers, they have not been coming to us other than hearing it from your folks. On that piece, we can look into what we can or cannot provide or share with them as well. That’s something we can take back to see what we can do in that area.

Senator Loffreda: Sahil? I’ve been waiting all night to hear from you.

Mr. Behal: I’ll try to respond the best I can. As I mentioned earlier, the focus of our efforts is individuals. We’re dedicating our efforts to GST registrants who are wilfully not complying. In terms of when the non-compliance intent isn’t there, that’s not where we’re focusing our efforts on.

With respect to the question, if I understood it correctly, on how we can support businesses in terms of updating their point-of-sale systems, we have excellent relationships not just with the stakeholders associations but with many large businesses. We do understand the needs and capacity of large businesses. We recognize the needs of small and medium businesses compare to large businesses are different. That is why our communication efforts are targeted. So in terms of how we would approach large businesses versus medium or small businesses, the type of information they need, the channels we use — this really is quite multi-faceted. Those conversations are going on as questions are coming in. We welcome these questions. Some of them are questions we may not have thought of before.

What I can do is assure the senators that these conversations are regularly happening and we’re doing the best we can to respond. We are not in a position to update their point-of-sale systems for them, but with respect to guidance they need and questions that they have, we’re just making sure that information is being made available in a timely manner.

Senator Downe: The history of the Canada Revenue Agency dealing with business and the Canadian public is not reassuring, and I’m being as diplomatically positive as I can be with those comments. Senator Dalphond mentioned, “Wouldn’t it be helpful to have a call centre?” At one point the CRA claimed that 90% of their calls were successfully completed when you called the call centre. The Auditor General did an analysis of that and found that the CRA achieved this success rate by blocking 28.9 million of the 53 million calls received, and they excluded those blocked calls from their calculation. When blocked calls and other factors were considered, the agency’s overall success rate was 36%.

We then had the problem with the Disability Tax Credit where, historically, 80% of applications for the benefits by Canadians with diabetes were approved. However, a few years ago, it was revealed that people who had been previously approved were being rejected. The revenue agency’s position was, “No changes have been made to the eligibility criteria.” However, documents obtained by Diabetes Canada showed a CRA email that they were modifying the variables for life-sustaining therapy with a new variable. In effect, diabetics who previously qualified for the Disability Tax Credit were disallowed. When confronted with this new evidence, the CRA backed down.

Given what is said and what happens, are we not on the verge of another donnybrook here when in two years this committee will be hearing why businesses were punished for trying to implement, as Senator Loffreda said, on very short notice? Is that not going to happen again? I have pages of similar examples here of what the CRA said and what they actually did.

How can we reassure businesses and Canadians we’re not going to have a repeat of what the CRA said in their misleading statements in the past?

Mr. Behal: Thank you for the question. Unfortunately, I’m not the subject matter expert for those departments. I was asked to appear on Bill C-78 specifically. What I can say is part of our public guidance is this is early days in terms of the measure. We’re still developing our compliance approach. But as I’ve stated earlier, the intent and where compliance efforts will be dedicated are where there’s wilful non-compliance.

[Translation]

The Chair: Ms. Rizzo, you seemed to know all about call centres, so could you answer the question?

[English]

Ms. Rizzo: Again, I was here to answer the questions related to Bill C-78 and its interpretation. This is also not my area of expertise. We have a smaller GST technical call centre. The information is not related to my area of expertise.

Senator Downe: Is anyone responsible for the culture at the CRA who could change the misleading statements that they told Canadians to match the reality? Can we have somebody like that appear before the committee on this topic and on this bill so we don’t have repeats?

[Translation]

The Chair: The Parliamentary Budget Officer will be here tomorrow, so we might hear a different story.

Senator Gignac: My first questions are for the Canada Revenue Agency. Please give me brief answers.

In Quebec, Revenu Québec administers and collects the tax. Will Revenu Québec be compensated for the additional costs generated by this federal decision?

Ms. Rizzo: Thank you for the question. This question is for our colleagues at the Department of Finance.

Mr. Coulombe: Thank you for the question. According to my understanding of the agreement between the federal and provincial governments for the administration of the GST in Quebec, the compensation formula for Revenu Québec is based on the administrative costs of the Canada Revenue Agency.

Senator Gignac: So the answer is yes?

Mr. Coulombe: In theory, there should be an adjustment in the future, since the measure requires additional resources for the Canada Revenue Agency.

Senator Gignac: My second question is also for you. How does Quebec benefit from conducting investigations and imposing penalties if, in any case, this won’t affect the Quebec government’s revenue? They’ll be conducting the investigations to see whether the tax has been properly administered. If the tax hasn’t been properly administered, Quebec’s revenue won’t be affected anyway, because it’s federal revenue. Why should Quebec conduct this investigation? Who will conduct this investigation? Revenu Québec or the Canada Revenue Agency?

Mr. Coulombe: This is more of a question for my colleagues at the Canada Revenue Agency. Both parties to the agreement have a joint interest in administering the portion with the other part of the government.

Senator Gignac: All in good faith?

Mr. Coulombe: All in good faith.

Senator Gignac: Thank you. I have one last quick question. Can you confirm that the federal government doesn’t need to consult the provinces that have come on board, such as Ontario and the Atlantic provinces, when this type of unilateral decision is made? The federal government doesn’t need the agreement of the Atlantic provinces and Ontario. It’s a decision on the selection. There’s some confusion. The minister seems to be saying that the provinces made the decision. However, the federal government basically doesn’t need the authorization of Ontario and the Atlantic provinces to decide to exempt products. Is that right?

Mr. Coulombe: Your question has a number of components. The GST and HST are enacted under federal legislation. In short, the Parliament of Canada, of which you are a member, ultimately decides on the tax rate base.

Senator Gignac: Thank you for all your work.

[English]

Senator C. Deacon: Mr. Behal, you are responsible for implementing this technically on behalf of the CRA, as I understand your area of the department. Is that correct?

Mr. Behal: That would be my colleague. I’m on the compliance side.

Senator C. Deacon: When did you start to prepare for the implementation of this announcement on Thursday, November 21? Was it before November 21 or was it after?

Ms. Rizzo: We started to prepare as soon as our colleagues in Finance let us know that this could be something that is coming.

Senator C. Deacon: When was that?

Ms. Rizzo: It was a few weeks before the announcement.

Senator C. Deacon: So you did have some knowledge in advance.

Ms. Rizzo: We did not have knowledge of the legislation per se. We had knowledge that this could be coming but not knowledge of the actual specific provisions so that we could prepare technical guidance out there at that point.

Senator C. Deacon: Did you have some influence over how it was designed then?

Ms. Rizzo: No.

[Translation]

The Chair: Thank you. This concludes today’s meeting. We’ll be meeting again tomorrow, December 5, at 11 a.m., in room W120. I want to thank everyone—the witnesses, the support teams, the clerk and the analysts—for pulling all this together on such short notice. It’s impressive.

(The committee adjourned.)

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