THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Thursday, December 5, 2024
The Standing Senate Committee on National Finance met with videoconference this day at 11:02 a.m. [ET] to study Bill C-78, An Act respecting temporary cost of living relief (affordability), and to proceed to clause-by-clause consideration.
Senator Claude Carignan (Chair) in the chair.
The Chair: Honourable senators, before we get started, I would ask all senators and other in-person participants to consult the cards on the table for guidelines to prevent audio feedback incidents. Please make sure to keep your earpiece away from all microphones at all times. When you are not using your earpiece, place it face down, on the sticker on the table for this purpose. Thank you all for your cooperation.
My name is Claude Carignan, and I am the chair of the Standing Senate Committee on National Finance and a senator from Quebec. I will now ask my fellow senators to introduce themselves, starting with the senator to my left.
Senator Forest: I am Éric Forest, and I represent the Gulf senatorial division, in Quebec.
Senator Gignac: I am Clément Gignac, and I represent the senatorial division of Kennebec, in Quebec.
Senator Dalphond: I am Pierre Dalphond and I represent the senatorial division of De Lorimier, in Quebec.
Senator Moreau: I am Pierre Moreau, and I represent the senatorial division of The Laurentides, in Quebec.
Senator Gold: I am Marc Gold, and I represent the senatorial division of Stadacona, in Quebec.
Senator Miville-Dechêne: I am Julie Miville-Dechêne, and I represent the senatorial division of Inkerman, in Quebec.
Senator MacAdam: Good morning. Jane MacAdam, Prince Edward Island.
Senator McBean: Good morning. Marnie McBean, senator from Ontario.
Senator Ross: Good morning. Krista Ross from New Brunswick.
Senator Smith: Larry Smith from Quebec.
[Translation]
The Chair: Thank you, senators. Today, we are continuing our study of Bill C-78, An Act respecting temporary cost of living relief (affordability), which was referred to the committee on December 3, 2024 by the Senate of Canada.
For our first panel, we are pleased to welcome, by video conference, Luc Godbout, Full Professor, Chair of Taxation and Public Finance, University of Sherbrooke. Good morning, Mr. Godbout. Also joining us is David Dodge, Senior Advisor, Bennett Jones LLP. Welcome, Mr. Dodge. Lastly, joining us by video conference from Germany is Sylvain Charlebois, Professor and Director, Agri-Food Analytics Laboratory, Dalhousie University. Thank you very much for making time to meet with us while you’re out of the country.
Welcome and thank you for accepting the committee’s invitation to be here today. We will start with Mr. Godbout’s opening remarks, followed by Mr. Dodge’s and, then, Mr. Charlesbois’s. After that, the senators will have questions, I’m sure. Mr. Godbout, you may go ahead with your opening remarks.
Luc Godbout, Full Professor, Chair of Taxation and Public Finance, University of Sherbrooke, as an individual: Good morning, honourable senators. I urge you to take a closer look at the bill.
The way the federal government has chosen to adjust the application of the GST/HST is very surprising, indeed. It is clear that political motivations prevailed over economic sense. If my students had proposed a bill like this to me as part of a class project, it would have drawn quite a bit of criticism. Is it necessary? Is it the right approach to achieve the objective? Is the administrative burden on businesses too much? What about the interprovincial problems the bill creates? In my view, this is a poorly targeted measure.
If the government’s main objective is to address the rising cost of living, this tax holiday is not tailored to the right people. Another approach would have made more sense, not changing the list of items subject to the GST.
In the world of taxation, there’s a saying: an old tax is a good tax. That means you don’t mess with it. The subliminal message is you leave it alone. With the proposed changes to the list of taxable products comes a very real risk: other organizations could demand their own zero rating for products or activities.
Most perplexing, without a doubt, are the items the government chose to qualify for the tax break. When a number of jurisdictions around the world are introducing a sugary drink tax, through this bill, the government has chosen to apply a GST/HST break to soft drinks and even chips. The list of exempted items includes Christmas and similar decorative trees. How is a business owner supposed to determine what constitutes a similar decorative tree? The list includes audio recordings, as long as the recording is a spoken reading of a printed book. How is a business owner supposed to show that a printed book exists before applying a zero-rating to the recording? The list of products includes board games if they are intended for children under 14 years old. What is a business owner supposed to do if the game is intended for people between the ages of 7 and 77? That shows you how ambiguous the list is.
If the purpose is to help taxpayers, the GST/HST break on certain items will save high-income households a lot more in absolute dollars. Let’s look at household spending by income quintile using Statistics Canada data. For clothing for children under 14 years old, the lost revenue from the expenditures of the wealthiest households will be 7.5 times higher. As compared with the spending of their low-income counterparts, the spending of the wealthiest households is 3.3 times higher for alcoholic beverages purchased in a store, and 3.1 times higher for restaurant meals.
Over the years, provinces agreed to repeal their sales tax legislation in order to comply in good faith with the HST. Those provinces are now facing a revenue shortfall. In the context of federal fiscalism, the right approach would have been to consult the provinces before developing such a tax relief measure. It’s hard to see how the federal government could unilaterally decide to change the rules of the game without compensating the provinces.
Now, let’s look at whether the measure is being evenly applied. Thus far, whenever the federal government has introduced an ad hoc measure to help Canadian taxpayers, the measure applied evenly right across the country. In the case of the temporary GST/HST break, however, taxpayers are treated differently depending on the province they live in. That is hard to justify. The tax break corresponds to 5 GST points in the five provinces where it applies, but varies between 13 and 15 points in provinces with HST.
Furthermore, the costs of administering the changes are significant for many business owners. Since the tax relief is temporary, just two months, they will have tomake changes to their computer systems twice within a short period of time. The risk of programming errors is significant and mustn’t be underestimated. Given how close together the transactions are, these errors will put business owners at greater risk of being taxed again by tax authorities for administering and collecting the GST/HST improperly.
In closing, I leave you with this: the federal government still hasn’t delivered its economic update. It may be acceptable for a tax policy to drive up the deficit in certain situations, such as to address climate change in the name of intergenerational equity. However, that clearly is not the case when a tax break is applied to soft drinks and chips.
These arguments should be reason enough not to move forward with this measure. Simply put, the GST/HST holiday is bad tax policy. Thank you.
[English]
The Chair: Mr. Dodge, please go ahead with your presentation.
David Dodge, Senior Advisor, Bennett Jones LLP, as an individual: Thank you very much, Mr. Chair.
Like Professor Godbout, in my view, the temporary reduction of the GST on a range of items is poor economic policy in both the short and long run. In the short run, it entails very real adaptation costs, as Mr. Godbout just said, for both the government and businesses, which means the fiscal cost is likely to exceed the actual benefits to consumers. Also, as this fiscal cost is likely to be financed by increased borrowing, the benefit for consumers today simply will result in a reduction in benefits in future years as the government reduces services or increases taxes to manage the increased federal debt service charges.
In short, senators, it is candy today in exchange for future pain.
But the long-run implications are even worse.
First, the premise of the GST is to have a broad base with as low a rate as possible. Chipping away at that base, even on a temporary basis, makes the tax a much less effective way to raise revenues that are needed for government programs. The results are that either all taxes increase or programs that support ordinary citizens have to be reduced.
Second, and perhaps even more important, our collective need today is to raise investment, not consumption. Without increased investment to give workers the tools they need to raise productivity and, hence, raise the incomes that they are capable of earning, we are condemning ourselves to stagnation or even a decline in our standard of living. By opting for a tax measure that increases consumption, the government has foregone the opportunity to increase investments by an equal amount.
Thank you. Senators, I look forward to your questions.
The Chair: Thank you, Mr. Dodge.
[Translation]
Sylvain Charlebois, Professor and Director, Agri-Food Analytics Laboratory, Dalhousie University, as an individual: Thank you for inviting me. I have been to the Senate a number of times throughout my career, and I’ve always enjoyed it.
Unfortunately, I didn’t have time to prepare a brief for my presentation today. I did, however, submit the annual food price report to the clerk. The report came out today, so it is available to consult. It deals with an issue I’m concerned about, food affordability.
The three witnesses you invited today all think the same way. All three of us are worried about the current situation. The way in which retail sales taxes is being exploited is worrisome, especially in the food sector. My remarks will focus on that.
The temporary nature of the tax break is very problematic. Mr. Godbout brought up an important point. Independent business owners will have to work 100 to 200 extra hours each to administer the measure. They will have to do that twice, now and in February 2025. Some 4,600 products in a grocery store are taxed. That’s a lot of items and product categories, entailing a huge amount of effort and meticulous work.
There is something senators need to know: every year, more and more products are taxed because of shrinkflation. In accordance with Canada Revenue Agency rules, a product’s size is often reduced so much that it becomes a taxable snack item. It’s believed that the number of products goes up by 25 to 100 units every year, so the workload goes up as well.
At the Agri-Food Analytics Laboratory, we estimated that the average consumer will save $4.51 over two months on retail purchases. That is the average amount per Canadian, if we go by grocers’ sales volumes and the taxes they collect. I repeat, $4.51. That isn’t a lot.
There’s something I’d like to draw your attention to — Mr. Dodge mentioned it — the possibility of opportunistic pricing. We saw that in 2006 and 2008, when Mr. Harper’s government cut the GST. If you take a detailed look at the general inflation figures, you’ll see that, in the first few months after the 1% GST reduction in 2006 and the 1% reduction in 2008, inflation went up. That isn’t surprising given that, in the food industry, players tend to go after pricing room left vacant by a tax. Since the tax relief is temporary, there is a concern that it could result in extra inflation. When the GST returns in February, we could see a surtax on prices.
In food service, it’s a different story. Since everything is taxed in the same way, it is less work for food service operators. The savings could range between 20% and 30% per person over the two-month period. The average Canadian spends $186 per month eating out, so the savings are quite significant. However, there is a provincial disparity, between Quebec and Ontario, for example. In Gatineau, the QST will apply, but across the river, in Ontario, there won’t be any tax. As a result, we could see an influx of consumers going to Ontario just to avoid the tax. That is worrisome, particularly during the holiday season. That’s all I have to say for now, but I would be happy to answer your questions.
The Chair: Thank you very much. We will now start the question and answer portion.
Senator Forest: Thank you for your insightful remarks. My first question is for Mr. Godbout. I’m concerned about one aspect. If the goal of a GST break is to ensure that Canadians have more money in their bank accounts after the holidays, why push them to spend in order to benefit from government assistance? Doesn’t this run counter to the goal? Why would the government choose a tax break over another tool? Can you explain the logic?
Mr. Godbout: It’s likely for the sake of visibility. The government wanted to find a new way to help Canadians. A simple increase in the GST credit would have added just as much money to the pockets of households. However, the focus could have been narrowed down to low-income households. People would have been free to choose whether to make more purchases.
As the three witnesses pointed out, playing around with the taxable items in the GST isn’t good for either the short or long term. Things should have been done differently. The government did this in 2022 and 2023. It increased the GST credit on a one-time basis. That would have been the right thing to do. It would have been a much better targeted measure for the same cost in terms of tax revenue.
Senator Forest: You said that these measures aren’t geared towards the right people. You made this statement after analyzing the products affected by the measure. So the focus is more on the upper middle class than on economically fragile people?
Mr. Godbout: The more you spend, the more you benefit from the break. Granted, we heard that restaurants will be zero-rated. A $5 meal at Tim Hortons doesn’t have the same value as a $300 meal at a high-end restaurant. Clearly, when it comes to household spending, the richest 20% of households will spend 3.1 times more on restaurants than the poorest 20%. The same applies to a number of products. Children’s clothing is another good example. The richest spend much more in volume than the poorest, so the richest will benefit more from the break.
Senator Forest: Mr. Charlebois, in your opening remarks, you spoke about the threat that retailers could fill the space freed up by the tax. This could lead to a negative impact. I imagine that, if retailers fill the space, they won’t free it up again at the end of the tax break and people will be taxed. This measure could have an inflationary impact.
Mr. Charlebois: That’s right. We almost wrote a few comments about this topic in our 2025 annual report. We’re concerned that it could have an inflationary impact.
The food industry’s margins are so thin that people will look for just about any opportunity or excuse to raise prices. As Mr. Godbout said, taxes always leave a legacy behind. If the tax disappears temporarily, it’s like the tide. It leaves a line on the docks. People will conveniently try to fill that space.
[English]
Senator Smith: I have a question for you, Mr. Dodge. Thank you very much for your contribution: a little candy today for a lot more pain tomorrow.
Where do you believe this funding would be better directed to address the underlying issues of low productivity and stagnant incomes? How could a more strategic investment in areas like workforce development, innovation or infrastructure create a stronger foundation for Canada’s economic future and also improve living standards for Canadians in the long run?
Mr. Dodge: Senator, as we at Bennett Jones have argued now for a number of years, our main problem in the country is that we have low productivity; hence, the real income that we as Canadians can earn, in fact, has really stagnated since the great financial crisis in 2010.
Our collective problem is to find a way to raise the investment to improve the productivity of workers and, hence, to improve their incomes and their ability to buy products. To do that, we need to make investments from the government’s side — and that’s investment in the capital services that the government provides, such as transportation, justice and everything — to complement private investment, which will provide workers with the additional tools they need in order to raise their productivity and, hence, raise their incomes.
That is the fundamental problem that we face. As we look at the world today and as we’ve looked at it since the great financial crisis, what we are doing is saying the problem somehow is rising prices. Somehow these rising prices come ex cathedra out of the blue, not because what has happened is that our productivity and our ability to pay workers real wages to compensate for the price increases is lower. The objective that the government should have to try to deal with what is perceived as the rising cost of living is actually the falling ability to produce and, hence, raise incomes.
My view is that this measure, along with some other measures that have been proposed to increase consumption — such as a cash grant, as Ontario has proposed or as the minister has talked about federally — is not the issue that’s going to enable us as Canadians to have a rising standard of living. That investment needs to take place through the following: human capital, raising the skills of our workers; physical capital, giving them the tools that they have to work with; and government capital, which makes the private investment more productive.
[Translation]
Senator Dalphond: I want to thank our witnesses. This has been quite informative. My first question is for Mr. Godbout and Mr. Charlebois.
You spoke about the challenges for operators, small retailers and so on. You conducted laboratory experiments at Dalhousie. I don’t know whether you tuned in to our proceedings yesterday and the day before. We heard from Restaurants Canada, the Retail Council of Canada and the Canadian Federation of Independent Grocers. They all support this tax reduction. They’re all ready to play the game. They talked about the potential difficulties involved.
Yesterday, the Canada Revenue Agency told us that it will provide information and that it will apply the policy fairly leniently given that the policy is temporary.
Doesn’t this address some of your concerns? These people are on the ground. Did you take the situation into account when conducting your rather theoretical assessments?
Mr. Godbout: I’ll start and then let Mr. Charlebois finish.
You’re right. However, the zero rating is easy to implement for restaurants. For a grocery store, or an independent convenience store next to a gas station run by a single person, managing the list of zero-rated products is much more challenging. It must be done twice, on December 14 and February 15. This comes at a cost.
The Canada Revenue Agency may well say that it will apply the measure with an open mind. You know that, if you make a mistake with a single product and you sell the product 200 times a day, when Revenue Canada arrives three years later to tell you that you made a mistake 200 times a day for 365 days over a three-year period, the small error of mischarging the GST can add up to hundreds of thousands of dollars.
If the Canada Revenue Agency agrees that a coding error won’t be taxed again, that’s fine. Otherwise, the burden falls on the retailer and not on the agency in this situation. That’s my point.
Mr. Charlebois: I would just add that the groups that you referred to — Restaurants Canada, the Canadian Federation of Independent Grocers and the Retail Council of Canada — represent all types of businesses. That’s one thing. Basically, I see a transfer of business from retail to restaurants.
For two months, the Canadian government is essentially saying, “Go to a restaurant. You’ll save more money during and after the holiday season.”
Restaurants Canada won’t object to this, and understandably so. However, retail is being subject to some discrimination in order to help the restaurant industry. That’s more or less the current situation. In terms of taxes and the harmonized tax in certain provinces, this certainly throws things out of whack in some cases.
My biggest concern is the temporary market imbalance created. If the measure had been permanent, I don’t think that I would have the same concerns.
Senator Dalphond: My next question is more for Mr. Dodge, the former governor of the bank.
Restaurant owners are talking about $1.5 billion in additional sales. Presumably, some employees will work slightly more hours than they would have before. These employees will receive more tips than they would have otherwise. Businesses will buy products to sell in this $1.5 billion amount. They will buy the products from a manufacturer that will deliver the products.
Won’t this have an impact? There isn’t just the tax cost. There will also be a tax recovery through all the taxable transactions that will bring in money.
[English]
Mr. Dodge: That is absolutely true in the short run. Unless we have somehow magically generated more production in the country, then over a period of time, what we have done is shift consumption into this short period of time and out of the future period. That shifting is not helpful. It doesn’t raise Canadians’ real income over time. It undoubtedly changes the timing at which some activity occurs.
[Translation]
Senator Loffreda: Thank you to our witnesses for being with us today.
[English]
Thank you, Mr. Dodge. It is always a treat. I agree that in Canada, we have two issues: productivity and competition. With this measure and this policy — the tax savings — many Canadians need a break. The most important question is: Why? You will see where I am going with that. Is it not easier to give Canadians a temporary break in such a way rather than — and it is temporary; I stress the word “temporary” — investments which are usually on a permanent basis? This is a temporary break.
Are we out of ideas to create investments that are permanent that will increase productivity, or is it the fiscal capacity not to do so?
Mr. Dodge: It is both.
Those investments have to be created by the private sector, by and large. Creating the environment for the private sector to make those investments is not easy. That goes to a range of issues, including tax policy, government spending on complementary investments, government programs that support workers to improve their skills and so on.
It is not easy, senator. We have been struggling with it, as you said, for a number of years.
That does not mean that we ought to transfer money that we are not producing in the country to individuals to improve their situation. The only way that we improve our situation is by improving what we produce. In a sense, as a country, in the medium term, we cannot consume what we do not actually produce. Our problem in the country is actually production.
Those of you on this committee and the Minister of Finance have been trying to deal with this problem — not just in this government, but in previous governments as well. Just because it is difficult, it doesn’t mean we give up. To the extent that each time we run into a problem, we try to compensate by increasing consumption rather than increasing investment, we simply postpone the day on which we can reasonably hope for a permanent rising standard of living.
Senator Loffreda: Thank you.
I may ask other panellists to answer my second question, but, Mr. Dodge, given that you are on a good trend here, BMO Economics predicts that the GDP will increase from 1.7% to 2.5% in the first quarter. That is a positive for Canada and Canadians. Do you feel that it is also temporary and we’ll feel it in the second quarter, with a possible reduction in GDP? We asked Minister Freeland yesterday. This is temporary; there is no wiggle room, she told me.
Mr. Dodge: The world is a difficult world for us as Canadians now. We face a totally different situation south of the border, which will make predicting what is going to happen in 2025 an extraordinarily difficult thing to do. I do not think we can rely on the fact that, as of last October, we thought we might know where we were going. Today, the world is more uncertain. That is all the more reason not to spend money today on increasing consumption that we may really need in the coming year to deal with the very real problems being created for us beyond our borders.
Senator MacAdam: Thank you to all of the witnesses for being here. I would like to hear from each witness on a few questions I have.
All of you have mentioned many problems with this GST holiday. I would like for you to indicate what you feel is the biggest problem with this GST holiday. If you have one recommendation to the government to address the affordability crisis, what would that be? I would like to hear from each of you.
[Translation]
Mr. Godbout: One of the biggest issues is that the tax break is not the same from province to province. It’s hard to imagine. If someone had asked me this question a month ago, I would have said that it doesn’t make sense and that it can’t be proposed this way. A 5-point GST break in five provinces and between 13 and 15 points of HST in five other provinces, already, for Canadians, it should be nonsense; the loss of revenue it generates for the provinces should be nonsensical, and they weren’t consulted.
If there had been a way of doing things differently, it would have been less glorious from the point of view of the announcement, but temporarily enhancing the GST credit would have made it possible to better target who we wanted to offer help to. Assistance could then have decreased as household incomes increased, and this would not have had the perverse effects that experts seem to describe with relative unanimity.
[English]
Mr. Charlebois: Thank you for the question.
Our lab had the pleasure of working with Minister Champagne last year on the food inflation situation. The one recommendation I gave him was to get rid of the GST forever. Taxing food, in my opinion, is immoral. Taxing food is a regressive method that mostly penalizes the poor in the food sector particularly. One example is Newfoundland. They decided to tax soda two years ago to discourage people from drinking soda. This year, sales have actually gone up, not down; people are drinking more soda, despite the tax. So they are collecting $12 million in revenues and still dealing with a public health issue.
Taxing food is a bad idea. My recommendation would be to get rid of the GST forever.
Mr. Dodge: I totally disagree with the last speaker. Taxing food is perfectly reasonable, and taxing a very broad base is perfectly reasonable. People with different spending capacities will spend different amounts on different things.
If, indeed, we want to deal with the issue and give consumers “a break” — while remembering that my argument would be that it is not the appropriate economic policy at the moment — then the way to do it is to increase the GST credit. That solves all of the income distribution issues that the professors have raised, and it solves the administrative issue. It solves the interprovincial issue.
If, indeed, you really wanted to give that break, then issue a cheque as an increase in the GST rebate in January, or whenever the next quarterly cheque is. Increase it.
If the objective is to increase consumption and people’s ability to consume, then that is the tool that should have been used, not this very difficult management tool — a tool that is very difficult to manage, both for the Canada Revenue Agency, or CRA, and for the taxpayer.
Senator Kingston: My question is for Mr. Dodge, Mr. Godbout and possibly Mr. Charlebois. I know for sure that Mr. Dodge will have something to say.
I am looking at some of the things that were talked about at the time this announcement was first made. One of them was a statement by Royce Mendes from the Desjardins Group. He spoke about the effect that this might have on any possible moves by the Bank of Canada. He said he thinks that cuts and rebates could affect how fast and how far interest rates come down, and he believes that this move closes the books on the possibility of a jumbo 50-basis-point rate cut in December.
I would like you to comment on that.
Mr. Dodge: I think his comment is a perfectly reasonable one. To the extent we increase consumption and demand for this period of time, it makes life a little more difficult for the Bank of Canada to continue reducing interest rates.
On the reduction of interest rates over time from the bank, the precise meeting-by-meeting reduction doesn’t matter nearly as much as where we are headed toward the end of 2025.
Whether the bank moves by 50 basis points next week or by 25 basis points or takes a pass, it really does not matter very much in the end. What matters is getting down to 3% or 3.25%, or something like that, as we come toward the end of 2025 — not the particular path that the bank takes.
Senator Kingston: That one particular thing may not make a difference overall in where the direction goes?
Mr. Dodge: Very much at the margin. But as we move forward, government policies — remember we have another addition to consumption coming in Ontario, with the $200 handout from the Ontario government — and all those things that are increasing consumption pressures will increase the risk that further reductions in interest rates will lead to higher rates of inflation.
Directionally, Royce Mendes had it exactly right. Whether the pattern is exactly as he talked about is a different story.
Senator Kingston: Thank you. I don’t know, Mr. Godbout, if you have something to add.
[Translation]
The Chair: Mr. Godbout, do you have anything to add?
Mr. Godbout: I have no added value to offer after Mr. Dodge’s remarks, so I’ll limit myself to this.
[English]
Senator Ross: I am not certain which of you may want to answer this, but my colleague Senator Dalphond mentioned the organizations that were in favour of Bill C-78 and the tax holiday. I would like to note that these same organizations mentioned the administrative burden that small businesses will have to carry.
Even if sales may be stimulated, do you think the potential extra sales would outweigh the cost of the administration of this bill?
Mr. Dodge: There is clearly dead-weight loss here in administrative costs, both from the CRA side and from the retailers’ side. That is absolutely true.
Certainly in the case of restaurants, I would have thought that there are undoubtedly going to be extra sales because of this, or restaurants are going to take a bigger share of the food budget — let me put it that way — because of this. I would have thought for the restaurateurs, yes, there is a dead-weight loss of costs there, but the aggregate sales volume for them will go up.
It is not surprising to me that the restaurateurs would have been supportive of this. They are supportive of anything that will increase the share of the consumer dollar that the restaurants can get.
Senator Ross: Are there any other comments? If not, I have another question.
[Translation]
Mr. Godbout: To add to what Mr. Dodge said, obviously, restaurants are going to be for it. We’re lowering the cost of going out to eat, so they’ll obviously be in favour. But the objective of the measure is not to help the restaurant industry, it’s to fight the rising cost of living. We won’t achieve our goal if we do it by removing the tax for restaurant meals.
[English]
Mr. Charlebois: I have nothing else to add. Thank you.
Senator Ross: The HST agreement between the federal government and the Province of New Brunswick says that if revenue loss is more than 1%, the federal government is required to compensate them. New Brunswick is projecting a tax loss in the amount of around $62 million. Do you think that is enough to trigger legislated compensation?
Mr. Dodge: I will let the others answer that. I don’t know.
[Translation]
Mr. Godbout: Without being an expert on the agreements that were signed when the HST was introduced, it should nevertheless be pointed out that there was an agreement on the fact that changes had to be presented to the provinces before being made and that written authorization from the province was required to reduce the amount of taxable goods. I understand that during the COVID period, we were able to zero-rate a good without asking the provinces, because there was an emergency, but in this case, there isn’t one. We should have come to an agreement with the provinces beforehand.
Failing prior agreement with the provinces, the agreements stipulate that the federal government should compensate them if the base of non-taxable products is changed by more than 1%. On the face of it, the change in the tax base appears to be more than 1%, because when we look at the federal side, the shortfall compared with expected revenues is around 3%. For the provinces, the change in taxation should be around 3%. They should be compensated by the federal government.
[English]
The Chair: We have a very good panel, so we have a lot of questions.
[Translation]
Senator Moreau: If we had more time, I would ask Mr. Godbout if the tree behind him, to his left, meets the definition of a Christmas tree-like tree.
The Chair: You just stole my question.
Senator Moreau: I won’t ask him. My first question is specifically for you, Mr. Godbout.
You said that the measure that would have been fairer and probably achieved the same objective would have been to increase the GST credit. I’m not very familiar with the GST credit mechanism. I think cheques are issued periodically throughout the year. The government’s objective was to have an immediate effect, hence the idea of eliminating the GST for part of the year, i.e., between December 14 and February 15. Do you think that increasing the GST credit would have had as immediate an effect as the proposed measure, regardless of its merits? I understand that you have a problem with the merits of the measure, but would we have had the same immediate effect?
Mr. Godbout: Right now, hundreds of thousands of merchants are being asked to change their computer systems. If we had told a single organization, the CRA, to immediately send all GST credit recipients — there are 11 million households — $200 per individual or $500 per couple right away, it would have been easier to do. People would have received $200, $500, or the GST amount. We could have chosen any amount we wanted. We could have said that anyone who received an amount last September is eligible to receive X amount by mail, to be distributed immediately by the CRA. By mail... You understand that it could be bank transfers. It doesn’t have to be a cheque.
Senator Moreau: Yes, especially since mail doesn’t flow well these days. Essentially, what you’re saying is that we would have taken the same capital or tax measure suggested by the government, that we should have reduced it for those who currently benefit from a GST credit, and that we should have imposed the obligation to make the transfer on the agency.
Mr. Godbout: It would have been much simpler and more efficient to do it this way. We would have avoided the biases that have been raised, such as the fact that a restaurant in Gatineau will have a 5% tax break, while a restaurant in Ottawa will have a 13% break. We would have avoided a lot of things. It would have been much simpler to manage. There would have been no costs for merchants and no risk of errors in changing their computer systems. We could have targeted our efforts much more effectively. The wealthiest households would have received nothing, but are they really the ones we want to help with this tax break?
Senator Moreau: Mr. Charlebois, I quite agree with you that restaurants have suffered the perfect storm: labour shortages, mandatory closures due to COVID, and rising product costs. There will be a natural attempt to reclaim the space freed up by the tax by raising prices. It will probably be the same in grocery stores. To your knowledge, is there any measure or tool that would enable us to assess whether this space is indeed being recovered by raising prices?
Mr. Charlebois: Thank you for the question. That’s what we do at the laboratory. We check prices on a very regular basis. In February, we’re going to find out whether there’s been any opportunism on the market, whether in retail or food service. In food service, discounts are likely to be substantial in some provinces. You can do all sorts of things with a menu. It’s easy to play with prices without people noticing, ultimately, but we can somewhat calculate the impact of this measure.
Senator Moreau: But is there a way to measure, whether it’s restaurant owners or other merchants affected by the reduction measures, whether this space is occupied? Is there a tool that allows us to see this? To conclude my question, shouldn’t there be a mechanism in the law in case this recovery is discovered, like an amendment to the law?
Mr. Charlebois: These are the laws of the market. Restaurateurs will benefit from a windfall, because there will be a windfall. There will be a transfer between retail and service. Currently, Canadians spend 36% of their food budget in restaurants. That’s likely to rise for a couple of months, I imagine. Statistics Canada can tell us, by the way, senator. Each month, with the CPI, we could see if there was an increase in restaurant prices during December, January and February.
The Chair: Thank you very much.
[English]
Senator McBean: Dr. Charlebois, in connection with the issues of food insecurity, you stated that it is high time to evaluate the possibility of a guaranteed minimum income for greater financial equity for all. We know that the Bill C-78 temporary measures combined with the one-time $250 cheque would have a price tag of over $6 billion, and the Parliamentary Budget Officer, or PBO, puts the annual net cost of guaranteed livable income at $3 billion. The question is this: What concrete downstream benefits and savings in terms of health, social, economic and other outcomes can we anticipate for Canadians most in need as a result of Bill C-78 versus a measure like guaranteed livable income?
Mr. Charlebois: Thank you, senator, for the question. I am supportive of guaranteed minimum income, personally. It would be important for Canada to explore that option, instead of just sending out cheques and submitting to the economy an influx of temporary capital. It is more important to stabilize the economy with a constant, predictable flow of revenues for households that need it. I would certainly prefer to look into a guaranteed minimum income.
Senator McBean: Thank you.
[Translation]
The Chair: I too have a question. I put it to the minister yesterday. Mr. Charlebois, you touched on the subject: who chose these products? Personally, I’m more in favour of a healthy mind in a healthy body. Here, I’m thinking it’s just the opposite, or almost: we’re talking about candy, drinks, sodas and alcohol. When you look at the toys, you have the copy of the musical instrument, but not the musical instrument. We have the shoe, but not the dancing shoe. We have a garment, but not the tutu. We don’t have ice skates. I find it peculiar that we chose a Nintendo game for a child rather than a colouring book; the latter is specifically excluded.
I’d like to hear from you on these choices. Yesterday, while pushing with the public servants, we came to understand that the government had decided and the public servants weren’t sure what criteria the government had used. I’d like to hear what you have to say about that.
Mr. Charlebois: Yes, certainly. We understand that this is a political measure. It’s not a well-thought-out tax measure. I agree with Professor Godbout. I just stick to food with my work.
When it comes to food, a lot of people in the industry are certainly scratching their heads. Basically, people are encouraged to eat chips, chocolate and things like that. Ready-to-eat, on the other hand, is different. A Caesar salad for four that’s taxed...certainly there are products...
Let me come back to shrinkflation. I think it’s a problem of retail taxation. It’s hard to follow, of course, and it’s temporary. By the way, it’s happening during the dark period of food distribution. From November to February, there’s normally a price freeze up the chain, but with the work we’re imposing on grocers, we’re adding an incredible burden. We’re talking about twice in two months during the busiest time of the year, since 40% of banner profits are made between November and December. The timing isn’t very good, let’s say.
The Chair: Thank you.
Mr. Godbout: As far as the list is concerned, you understand that if we didn’t choose to zero-rate healthy products, it’s because they were already zero-rated. We were faced with a problem: “Ah! but it’s already not taxable, so what do we do?” We had to add products such as ready-to-eat foods — which may be more acceptable — but we also added things like soft drinks and potato chips. It’s unimaginable that this was zero-rated. The same goes for beer: there are specific taxes on beer, so why zero-rate it? That’s why we say that political jousting has prevailed over economic decisions in such a context.
The Chair: As opposed to sports, cultural or artistic equipment?
Mr. Godbout: That’s right. These are choices. If you tell me that yesterday, the minister had trouble defending them, I’ll have more trouble explaining them than she had defending them. These choices were obviously political.
[English]
The Chair: Mr. Dodge, do you have anything to add to that, or is it okay?
Mr. Dodge: No. What I said was that I think it is a very bad idea to chip away at the base of the GST, which is the fundamental way that the government has to continue to raise revenues in the future to pay for its programs.
[Translation]
Senator Gignac: Thank you to our expert witnesses for being here and shedding light on these matters.
What disturbs me a little is what you pointed out, Mr. Charlebois and Mr. Godbout, in terms of the inequity of this unilateral federal decision that benefits Canadians differently depending on which province they live in, when five of them followed it automatically without even being given permission.
My question is for Mr. Godbout. I’d like to understand the short-term or long-term implications for Revenu Quebec. We know that Revenu Quebec collects and administers the GST in Quebec.
So, in the short term, will there be additional costs? What’s the point of Revenu Quebec investigating whether or not people have properly coded for the loss of income to the federal government, given that it doesn’t affect them?
In the long run, I’d like to understand. This is a 2012 agreement that was put in place. If it’s understood that Quebec is not a branch of Ottawa, if the federal government is having all kinds of fun changing the tax base, could Quebec decide to terminate this agreement, especially if they’re not compensated?
Mr. Godbout: There are HST agreements with certain provinces, and Quebec has had one since the day after the Meech Lake Accord on GST collection in that province. Under this agreement, Revenu Quebec undertakes to ensure the proper collection and auditing of the law, and to do so in a uniform manner.
So, when they enter businesses, they’ll have to do audits to see if the TVQ and GST are being properly collected. If there are collection errors, they’ll normally have to issue a notice of assessment and then reassess.
Once again, when it comes to cost-sharing details, I’d have to review the agreement itself. It’s more on the taxpayer’s side to ask why the rate is reduced differently from province to province.
When you were talking about the 2012 agreement, I recall that Quebec harmonized the TVQ with the GST. It could have said, “We’re giving up the TVQ, trashing the law and keeping the HST.” In that case, it would have ended up with a shortfall, like Ontario and the Atlantic provinces. But Quebec said it would keep its TVQ and would not be affected.
Senator Gignac: I apologize for interrupting. This is the first time since the 2012 agreement, since Quebec harmonized its tax, that the federal government is going to play around with the tax base without first consulting Quebec, which administers and collects the GST. Am I wrong?
Mr. Godbout: We could look at whether there were changes on both sides at certain times on the zero-rating of certain products. It was quite targeted. I don’t remember what year it was. There was zero-rating of sanitary products, for example.
Each one has its own law, so you can do it from one law to another. Once you decide to standardize, if you say you no longer have a law and you adhere to the federal law — the Atlantic provinces and Ontario gave up their tax autonomy in exchange for harmonization. Quebec has harmonized, it hasn’t given up its fiscal autonomy, but it has a parallel law.
Senator Moncion: My question is about the invisibility of the tax credit you were talking about, for example, on the GST and HST, as well as the invisibility of the measure as it relates to the carbon incentive.
These are measures that are invisible, or more or less, to Canadians, whereas by talking about a GST holiday on certain items, you may be making a splash. I’d like to hear from you on that aspect.
Mr. Godbout: When it comes to fiscal policy-making, we must try to avoid making a splash in favour of sound long-term economic and budgetary decisions.
There’s nothing structuring about this tax holiday. We don’t know who will benefit, or at what level. People are happy to hear that there’s a GST holiday, but they don’t know how much money it will put back in their pockets. I’m not sure Quebeckers are aware that they’ll get less than Ontarians, because the rate of the tax relief is different.
Senator Moncion: In general, we agree that people who know the business well will have more sanity to make these calculations.
Mr. Godbout: Elected officials, those who lead us, should have this desire for the common good, adopt enlightened budget policies and listen to the advice of the tax authorities or the people at the Department of Finance, who must not be too keen on the idea. This is just guesswork, because I haven’t had any discussions with them.
The Chair: Thank you witnesses for your availability despite such short notice. The question remains: is the Christmas tree next to Mr. Godbout taxable or not?
Thank you very much. We’ll suspend for two minutes to make room for the next witnesses. Thank you and enjoy the rest of your trip.
Mr. Charlebois: Thank you. Goodbye.
The Chair: Thank you for taking your seats for the continuation of our work on the study of Bill C-78. For our second panel of witnesses, we have Mr. Yves Giroux, Parliamentary Budget Officer, accompanied by Jason Stanton, Adviser Analyst . Welcome, Mr. Giroux. You have the floor for your opening remarks, and then we’ll open the floor to questions.
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for the invitation to appear before you today.
We are pleased to be here as part of your study of Bill C-78, An Act respecting temporary cost of living relief (affordability).
With me today, I have Jason Stanton, Advisor-Analyst, who has worked and is still working on this.
As you are aware, Bill C-78 introduces amendments to the Excise Tax Act to implement a temporary GST/HST holiday between December 14, 2024, and February 15, 2025.
The proposed list of exempt items includes certain groceries, restaurant meals, drinks, snacks, children’s clothing, and gifts — and particularly close to my heart, chips.
We estimate this measure will reduce federal revenues by $1.5 billion this fiscal year, 2024-25.
[English]
We also examined the potential impact of Bill C-78 on federal compensation to provincial governments that collect the harmonized sales tax, or HST, under their respective comprehensive integrated tax coordination agreements, which includes Ontario, Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick. If these provinces do not waive the compensation required under these agreements, we estimate that the federal cost would increase by an additional $1.3 billion.
Mr. Stanton and I would be pleased to respond to any questions you may have regarding our cost estimate of Bill C-78.
Thank you.
[Translation]
The Chair: Thank you very much, Mr. Giroux.
Senator Forest: Thank you for being here. Do you think that the temporary GST break could have an inflationary effect in the short term?
The analyst we just heard from, Sylvain Charlebois, gave the example of the GST reduction, which went from 7% to 6% in 2006, and then from 6% to 5% in 2008. Paradoxically, consumer prices seem to have risen.
Do you think this measure could have a perverse effect where people would go looking for space and then that space would remain vacant, so we would be paying even more for our products?
Mr. Giroux: We haven’t done any refined econometric analysis on that. However, I can say that this is a temporary exemption on a fairly limited list of products, so, if ever there were an inflationary effect through increased spending and economic activity, it would be temporary by definition anyway, but it would also be offset by the reduction of the GST on these products.
Therefore, it’s not clear to me that this measure has an undeniable inflationary effect.
As for the other aspect of the government’s plan — the $250 cheques — the impact of that is a little easier to determine, at least qualitatively, but in terms of GST relief on certain products, it’s far from clear to me.
Senator Forest: What I find a bit worrisome is that the minister repeated to us yesterday — and I think we have to believe her — that her objective was to leave more money in the pockets of Canadians after the holidays.
What I find ironic is that for people to have more money in their pockets, they need to spend more. It reminds me a bit of the days when municipalities had to take advantage of infrastructure programs, but in order to do so, they had to increase their debt because work had to be done. It seems to me that there’s an inconsistency between the objective of leaving more money and the path to get there.
Mr. Giroux: I understand your point of view, but insofar as we have consumers who, like most of us, will incur certain expenses during the holidays to buy various goods, for example, it will result in savings and leave more money in the pockets of people who had planned to buy alcohol, go to restaurants, and so on, anyway. Yes, it’s going to leave more money in people’s pockets for the spending they had already planned to do. But if someone wanted, for example, to maximize the value of the GST exemption by spending more by saying to themselves, “I’m taking advantage of it, I’m not paying GST,” then obviously that’s counterproductive.
Senator Smith: Good afternoon and welcome, Mr. Giroux.
[English]
In her defence yesterday of Bill C-78, the finance minister responded to criticism that short-term measures like this only exacerbate long-term issues. The minister told our committee that the government has a broad fiscal strategy that prioritizes growth and productivity. She pointed to initiatives like clean energy investments as one example.
Given your role of analyzing government fiscal policies, do you feel the government’s broader fiscal policies are working to increase productivity in the long run? Does Bill C-78 negatively impact that long-term goal?
Mr. Giroux: I don’t see Bill C-78 being an instrument that will increase productivity. It’s quite clearly geared toward consumption, and it is the stated goal to make life more affordable for Canadians in their consumption expenditures. It doesn’t do anything to enhance productivity. It has an estimated cost of $1.5 billion, plus potentially an additional $1.3 billion if provinces do exercise their rights under the tax collection agreements.
It will add pressure on the federal government’s finances to the tune of at least $1.5 billion and potentially $2.8 billion if all provinces see the compensation they are entitled to under the tax collection agreements that are quite clear.
Senator Smith: Given that the public accounts for 2023-24 have not yet been tabled, leaving Parliament without a clear understanding of the current deficit, how do you view the transparency and accountability of approving additional spending measures under Bill C-78? Is this delay a cause for concern when evaluating the government’s fiscal position?
Mr. Giroux: It is, indeed, a cause for concern because when we look back at history — aside from 2020 which was a pandemic year, and aside from election years when elections were in the fall or late in the summer — this is the year, of recent memory at least, where the public accounts are tabled the latest and by a significant margin.
It puts you, as legislators, in the very uncomfortable position of approving spending through the Main Estimates, the supplementary estimates and now specific measures without having an idea of the deficit for the year that ended in March, which was more than eight months ago. And we still collectively don’t know what the deficit was for that year. It is a cause for concern.
[Translation]
Senator Dalphond: Thank you, Mr. Giroux. I understand that you’re still doing some calculations. I’m going to ask you some questions to better understand your figures.
You mentioned a direct cost of $1.5 billion. Does that take into account, for example, any positive spin-offs? For example, the restaurant associations have told us that they estimate, according to their economists, that they would have $1.5 billion more in sales, which will put people to work. People who go to restaurants, like St-Hubert or Pizza Hut, leave tips. If there’s an additional $1.5 billion, there is 10% or $150 million in tips at least, perhaps even $300 million in tips. These tips are taxable.
There are also employees who will work overtime, and they will be taxed on the wages they earn. People who deliver products purchased for sale will be working overtime.
Are we taking into account the benefits of this increase in consumption, which will also generate tax implications?
Mr. Giroux: That’s an interesting question, and it goes back to the question of your colleague Senator Forest.
This possibility was considered. In the United States, there is a practice that I wasn’t aware of, where there are tax holidays for fairly limited periods, such as weekends without state taxes.
The U.S. Federal Reserve has looked at the impact of these holidays. They found that there was no increase in direct consumption, but rather a displacement. There’s not much transfer of new economic activity from one state to another.
Instead, they’ve observed that certain expenditures are delayed a little and provisions are made before the expiry of the measure when it’s known in advance that the measure will come into effect.
You can imagine that people might buy a little more alcohol — or chips, in my case — or delay purchases to take advantage of the tax exemption. There’s not really any new economic activity being generated, at least not in a measurable, meaningful way.
Senator Dalphond: When we talk about moving money for consumption, instead of buying at the grocery store, we go to a restaurant. At the grocery store, you don’t pay a tip, for example. It’s not quite the same as the tax holiday weekend.
Can you give us a table? You talk about $1.3 billion with the five provinces that have an agreement. Can we get a breakdown by province?
Senator Downe spoke yesterday of $14 million for P.E.I., and Senator Ross talked about $63 million for New Brunswick. Are these roughly the same figures you have? Can we get the table? For the other four provinces, there will have to be discussions, but for the five provinces, can we get the details by province if you already have them?
Mr. Giroux: Yes. For the provinces that were mentioned, I believe it’s for Prince Edward Island and New Brunswick, we’re in roughly the same ballpark. As far as Ontario is concerned, obviously, given its size, we are in the neighbourhood of $1 billion. For Nova Scotia, we are around $90 million, and for Newfoundland and Labrador, we are in the $60-million range. I see that my colleague is a bit uncomfortable with me giving these figures, since they’re estimates based on imperfect data. Since zero-rated or exempt goods are very specific, we don’t have the details on that. We have them, for example, surprisingly, for Christmas trees, but not for some other goods. These are estimates. The orders of magnitude are accurate, but precise figures will depend on the imprecision of certain data.
Senator Loffreda: Thank you, Mr. Giroux.
[English]
Thank you, Mr. Stanton, for joining us here. It’s always a treat to have you guys over. We had the treat of having Mr. Dodge with us, and I did ask this question.
Regarding many economists, BMO Economics is forecasting a GDP increase from 1.7% to 2.5%. In Canada, we need productivity. You mentioned it was not new economic activity. I mentioned this question: Why? Why are we not making the long-term investments and instead having a short-term investment, which is temporary?
I know you’re not in policy, but to defend the policy, it’s temporary. We’re giving Canadians a much-needed break, because we hear about food banks and homelessness, but investments — and he would like to see long-term investments — are permanent. He did say it’s a bit of both: a lack of creativity and a lack of fiscal capacity. I know you’re the expert on fiscal capacity. Maybe you can mention a few words on that and the increase in GDP. Is it realistic to have those projections, given your statement that no new economic activity is being created? It is being created in the first quarter according to the economists.
Mr. Giroux: It’s quite possible that the Federal Reserve had it wrong when they estimated the potential economic impact of sales tax holidays in certain states, which is a measure that Mr. Stanton brought to my attention. I was not aware that it existed, and certainly not to the extent that it was sufficiently widespread for the Federal Reserve to study it. It’s quite possible that it will create new economic activity. However, in the sector of consumption, some of the goods will be domestically produced. Some are imported. For example, game consoles, like PlayStation and so on, are not domestically produced. Yes —
Senator Loffreda: I might buy a PlayStation myself.
Mr. Giroux: I hope you won’t use it during my testimony in front of the Standing Senate Committee on National Finance.
It’s possible there will be increased economic activity, but we believe it’s possible and likely that it will be a displacement of consumption expenditures. All that to say, the fiscal capacity is an important aspect.
You asked what I think about the fiscal capacity. We released our Fiscal Sustainability Report in the summer that suggests that under current policy, policy settings and demographic assumptions, the fiscal position is sustainable in Canada. And the federal government could spend more or tax less or a combination of both and still remain sustainable over the next 75 years. So is there the fiscal capacity to take on more investments? The answer is “yes.” Is it desirable? I’m not in the business of providing advice. Similarly, I’m not here to comment on the appropriateness of Bill C-78.
Senator Loffreda: Thank you very much. It’s much appreciated.
Senator MacAdam: Most of my questions were asked. I am concerned about the tabling of the public accounts and the impacts on provinces that have the harmonized sales tax, and we did talk about that a bit. I do have one other question I’d like to get your comments on.
Chartered Professional Accountants of Canada, or CPA Canada, recently stated:
The use of tax policy to achieve social objectives is nothing new. . . .
The temporary GST change places a heavy burden on businesses, especially small- and-medium sized ones without addressing the core cost-of-living challenges all Canadians are facing.
We’ve heard this message echoed by some witnesses at committee as well. I’m just wondering if you have any comments on that.
Mr. Giroux: It’s not something we have looked at, but it’s clear with the way that the point-of-sale systems are set up, it will require reorganizing and recoding the point-of-sale systems for thousands of businesses, so there is a cost. I can’t comment on the magnitude of that cost for each business, but, yes, it is an issue. Others like CPA Canada and the Canadian Chamber of Commerce are in a much better position than us to comment on that specific aspect.
Senator MacAdam: Thank you.
Senator Kingston: I wanted to say that storm chips and its concept were born in New Brunswick. If you like chips, storm chips in the winter are great.
My question has to do with the compensation piece. I come from New Brunswick. In New Brunswick, there has already been a measure put in place with the Throne Speech that would provide the equivalent of a rebate on HST for power bills. At the time, since it had been a promise in an election platform, the government stated that they were going to do it another way because of the negotiation that would have to take place with the federal government.
We talk about compensation, and you were talking about apples and oranges possibly. Can you just tell me how these types of compensations have been dealt with in the past?
Mr. Giroux: I’m not aware that there was compensation paid in the past, except for initially joining the HST framework in the provinces. I will say, though, the comprehensive integrated tax coordination agreements, or CITCAs, as we like to call them in public servant parlance, have provisions that allow provinces to deviate from the tax base in order to have a different tax base by up to 5%. There is flexibility to deviate by up to 5%, if my memory serves me well.
In the case of New Brunswick and an exemption of power bills from the HST, I don’t know if that would be below or slightly above the 5% threshold. That’s something that the New Brunswick officials and Finance officials would be in a position to determine.
On the changes that trigger compensation, the moment that the federal government initiates a change that would reduce provincial receipts by 1% or more, they have to provide compensation — the CITCAs are quite clear — unless the province explicitly waives their right to get such compensation. In the case of Bill C-78, according to our calculations, it would be clearly above the 1% threshold in each of the five harmonized provinces.
Senator Kingston: Thank you very much.
Senator Ross: Thank you both for being here today. I want to ask a question about the provincial portion of the enactment of this bill as well.
First of all, could you confirm the number that you have for New Brunswick? I think I was the one who said the number, so what number do you have?
Mr. Giroux: It is in the same ballpark. For New Brunswick, I think it’s $70 million. So $62 million is in the ballpark. And I should say that I was warned by Mr. Stanton not to give a specific number, but given that you asked.
Senator Ross: You talked about the provinces waiving their eligibility. In your opinion, is this something that would make sense for the provinces to do? Why would they do that?
Mr. Giroux: That is a good question. Ontario leaving $1 billion on the table? It is possible. I cannot say why.
Senator Ross: I read the agreement between New Brunswick and the federal government. It is very clear that they either have to be consulted in advance or they are entitled to compensation if it is more than 1%.
Mr. Giroux: Yes.
Senator Ross: I cannot imagine why a government would leave that money.
Mr. Giroux: It could be a part of a discussion between different levels of government. At that point, it is a federal-provincial relations dynamic, and I’m not under that tent. What I can say is the agreements are quite clear.
Senator Ross: Thank you.
Senator McBean: The Parliamentary Budget Officer, or PBO, has costed the annual net cost of guaranteed livable income at about $3 billion. We know that the Bill C-78 temporary measures combined with the one-time $250 cheque would have a price tag of more than $6 billion.
What long-term impact in terms of lifting those most in need out of poverty would you anticipate from the approaches taken in Bill C-78 versus a measure like guaranteed livable income?
Mr. Giroux: Well, I think a guaranteed basic income, or GBI, has a different perspective or objective than the GST/HST break. The GST/HST break is of general application. Generally speaking, the more you consume, the more you benefit from Bill C-78; whereas, with a GBI, it is quite the opposite. The lower-income households benefit more, and those at average or higher incomes don’t benefit from a GBI by its very nature.
These are two very different instruments with different policy objectives, with Bill C-78 being a very general application. If you buy an expensive wine, you potentially benefit much more from a GST break than if you buy a bag of chips, for example.
Senator McBean: Thank you very much.
[Translation]
The Chair: I have a question about the other provinces. Mr. Giroux, you talked about the agreement; it’s going well, it’s planned. However, for Quebec, they are the ones who administer the GST, so there’s a whole change in administration and collection; it generates additional work for public servants. There’s a cost for these people, the province and the businesses that have to administer this tax. Have you calculated the indirect costs — I say indirect, but it’s almost direct — of implementing this policy?
Mr. Giroux: We haven’t estimated the costs to merchants and retailers or the potential additional costs of administering the GST for the Quebec government, which collects it in Quebec on behalf of the federal government. It’s very likely that there will be additional costs, as previous witnesses have mentioned, to conduct audits, for example. There will be a two-month period when certain products will be tax-free for the GST, but not for the QST in Quebec.
As for the other provinces that aren’t harmonized and that have a sales tax, there will be no impact on provincial governments; there will be an impact across the country for merchants, but those costs haven’t been estimated.
The Chair: So you have no idea of the order of magnitude?
Mr. Giroux: No, and we’re not well equipped to get an idea of the costs for merchants, given that these are private-sector costs. So other groups are in a better position to estimate them.
The Chair: As for the Canadian government and the additional costs associated with implementing this measure, we talked about management and call centres. Based on yesterday’s testimony, the CRA is expecting and is already receiving calls, and it seems to be implying that it doesn’t have the resources or budgets to respond to these calls. I don’t know if I’ve fully grasped the scope of the problem. Have you estimated these additional costs of implementing this policy?
Mr. Giroux: No, we don’t have that estimate. In general, we don’t have enough data or experience to estimate administrative costs for temporary changes like these. Of course there will be costs for call centres and certain systems, but the Canada Revenue Agency has some flexibility when it comes to audits. For example, if the audits are more complex, they may do a little less or they may decide to maintain the same level of audit by requesting additional resources. The CRA would be in a better position to answer those questions.
The Chair: Thank you.
Senator Gignac: Welcome, Mr. Giroux; it’s always a pleasure to see you again. You’ve been following public finances for a number of years, if not decades, and you’re an expert in taxation. To your knowledge, is this the first time that the federal government has played around with the tax base and products to such an extent since harmonization with five provinces? The rate is fine, it’s not very complicated; if there’s a rate cut, it only affects the federal government, but if we change the tax base, it affects the provinces that have harmonized, and it affects the federal government.
Aside from the pandemic, is this the first time that we’re going to play with the tax base and introduce the concept of age? This is the first time I’ve seen this. I’m curious to hear your answer on that.
Mr. Giroux: As far as I know — but given my age, my memory may be failing me — and at this significant level that would trigger the 1% threshold, yes, this is the first time since the harmonized sales tax.
Senator Gignac: We understand that the government is well intentioned and wants to help Canadians who have seen their cost of living rise by 23% or 28%, depending on where they live, and this obviously reduces their bill. However, this leads to distortions, and we’ve been talking about this in the Gatineau region for the past two or three days. If the government had decided to reduce the GST by 1% on everything instead of eliminating it on certain things…. If I’m not mistaken, the federal government receives $4.5 billion a month from the GST. If we were to cut it by 1%, it would cost about $1 billion, but this new measure will cost $800 million a month, so we’re not far off the $800 million a month if we cut the GST by 1% for one month for the holidays.
What would have been the advantages and disadvantages of choosing this much simpler approach? It wouldn’t have had any impact on the provinces, whereas right now we’re going to be playing with the tax base and that creates distortions; Canadians are better off depending on their province of residence. If you had been a close adviser to the minister, would you have opted for the 1% cut in the GST or would you have gone with the minister’s choice?
Mr. Giroux: It’s difficult for me to say which one is the most desirable, because it depends on the objective. The example you mentioned, reducing the GST by 1% for two months, is a reduction in the general tax burden, so it doesn’t target specific items. However, if we want to target typical holiday spending, we miss the boat with that, and it gives gifts to the people buying gifts.
In the case of a tax cut for people buying a vehicle, for example, it isn’t related to the holiday season, so the objective isn’t the same. One of the risks with a GST cut, as we’ve seen in the past with permanent changes, is that the provinces use this space and occupy it. When the GST went from 7% to 5%, some provinces took advantage of that to increase their sales tax and claim that tax room. So it’s possible that this could happen.
Senator Gignac: If I understand your reaction correctly, even though we’re all surprised and not always entirely comfortable with this measure because of the distortions it creates, particularly administrative problems and costs for merchants, if we really want to reach lower-income or lowest-income Canadians in a targeted way, this measure is preferable to a 1% cut. That’s my understanding.
Mr. Giroux: That’s not what I said; I’m not trying to make recommendations or say which measure is best. Each measure has its own objectives in the example you mentioned. Each has its own disadvantages and advantages; it depends on the public policy objectives, and I won’t comment on the best or least bad.
Senator Gignac: Thank you for correcting me.
Senator Moreau: I’d like to come back to a topic that Senator Ross raised about compensation. You seem to have analyzed in detail the agreements between the federal government and the provinces that chose the harmonized tax. What I’m missing in the calculation of your amount is the trigger. It’s 1%, right? When the trigger is reached, what is the level of compensation? Is it the total or only above 1%?
Mr. Giroux: My understanding is that the compensation is for the total amount. There is no free 1%. When 1% is spent, the loss is compensated.
Senator Moreau: It’s 100% of the loss. Senator Ross seems to be saying that the provinces need to be consulted under the agreements. That’s ambiguous, but the minister said that she had had conversations with everyone. It’s unclear whether the provinces have been consulted. If we assume that they haven’t been consulted or feel that they haven’t been consulted under the agreements, to not be compensated, do they have to actively waive it? Are they entitled to compensation even if they haven’t waived it?
[English]
Jason Stanton, Advisor-Analyst, Office of the Parliamentary Budget Officer: Thank you for the question. Based on our understanding of the tax agreements, if it passes that 1%, they are eligible. It’s only if they decide to waive it that they would not receive it.
Senator Moreau: They would have to waive it not to be compensated?
Mr. Stanton: Yes. Based on our understanding, there would have to be a formal acknowledgement that they are waiving the revenue which they are owed.
[Translation]
Senator Moreau: Is the amount you calculate based on the fact that none of them have waived compensation?
Mr. Giroux: Exactly. If they haven’t explicitly communicated it to us, we’re not aware of it. There have been comments in the media, but no official communications from the provinces to the federal government saying that they waive the compensation they are owed under the tax collection agreements.
Senator Moreau: Could you tell the committee what form their waiver should take under the agreements? Is it a decision or order in council by the provincial cabinet? What form should the waiver take?
Mr. Giroux: I’m not sure about the exact form. I know agreements were made between the federal Minister of Finance and her provincial counterparts at the time. My understanding is that the finance minister of each province needs to write an official letter to the federal government saying they waive the compensation that would otherwise be payable to the province, Ontario, for example, under the agreement due to the change included in Bill C-78.
Senator Moreau: Federal-provincial agreements usually name a minister responsible for each of the provinces. Are you sure that the finance minister of each province is responsible for applying the agreement?
Mr. Giroux: I looked at the Ontario agreement right before the committee meeting, and it’s the Ontario minister of finance in this case.
Senator Moreau: Who represents the province for the purposes of the agreement.
Mr. Giroux: Exactly. Whether the province needs an order in council depends on the governance of each province. For $1 billion, I would expect the premier to give instructions to the minister of finance.
Senator Moreau: If the minister of finance signs the letter, we can assume that they have been instructed.
Mr. Giroux: Otherwise, that might limit a minister’s future career options.
Senator Moreau: Yes. They could be back home eating chips in no time.
The Chair: This series of questions leads me to another one. If the federal government decides to give $1 billion to Ontario to compensate it for the shortfall, that will have other impacts. It comes out of general revenue. Do all Canadians pay for the tax reduction that Ontarians get, not to mention the unintended consequences on Gatineau merchants whose clients flee to Ottawa?
Mr. Giroux: That’s a possibility, but the assumption is that the provinces have not waived their right to compensation. That said, it’s entirely possible that the Minister of Finance or other senior ministers in the government have had discussions with their provincial counterparts and that there is a tacit agreement that will be formalized in the coming weeks for these provinces to waive compensation. I’m not aware of any discussions. I’m talking about what the tax collection agreements provide for in terms of compensation. We feel that the thresholds for triggering the compensation will be reached under Bill C-78.
The Chair: That would have a doubly negative impact on some provinces.
Mr. Giroux: That’s a very real possibility, based on what I understand about the bill.
The Chair: Can you stay with us for another 15 minutes?
Senator Moncion: In the same vein, if we consider the probability that the thresholds will exceed 1% and there is a probability of government compensation, any province that doesn’t get on board with the bill will be very unpopular among the people of that province?
Mr. Giroux: In the harmonized system and according to what the federal government has said, it seems as though the HST will be temporarily eliminated from the list of goods in the five harmonized provinces. The reduction doesn’t just eliminate the GST, but also the HST. It seems impossible that a province wouldn’t get on board.
Senator Moncion: We’re talking about 5% for the provinces that are not harmonized.
Mr. Giroux: For the provinces that don’t already have the harmonized sales tax, which are Quebec, British Columbia, Alberta, which has no sales tax, Manitoba and Saskatchewan, they haven’t indicated whether they will temporarily eliminate their sales tax.
Senator Moncion: For provinces like Ontario, which has a harmonized tax, the amount that would possibly be returned to them would take into account the HST and not just the GST portion.
Mr. Giroux: That is our understanding. Under the bill as written, the GST in the harmonized provinces will not apply to the eligible goods. The reduction won’t be just the federal portion, but the entire HST, which is 13% in Ontario.
Senator Moncion: The 13% in these provinces will bring them over the 1% threshold.
Mr. Giroux: Yes, the revenue generated.
Senator Moncion: That means that the provinces that don’t get on board with the bill could penalize their consumers.
Mr. Giroux: Exactly. Quebec consumers, for example, or ones in Manitoba, on the Ontario border, will get a retail discount of 5%, whereas Ontario consumers will get a 13% discount on the same good.
Senator Moncion: They won’t go over the 1% threshold with the 5%.
Mr. Giroux: There is no threshold, because they aren’t harmonized. Their portion and their revenue will not be affected at all.
Senator Moncion: Thank you.
Senator Dalphond: I’d like to continue on the same tack. Provinces without a harmonized tax would have a political choice to follow suit and provide a provincial sales tax holiday. Provinces with a harmonized tax have no choice but to be harmonized, because it’s automatic under the agreement. The threshold is set at 1%. According to you, if a province suffers a 1.5% revenue loss, it would receive the equivalent of 1.5% and not 0.5%. If they’re going to make the concession, it might as well be more rather than less, since at that point they will be owed compensation.
To follow up on Senator Gignac’s question, Quebec administers the tax in Quebec. Have you looked at the agreement between Quebec and the federal government? The agreement dates way back to 2012. There must be procedures when goods are added and more verifications need to be done. If the list were revised, there would be fewer verifications to do. Could adjustments be made? Does the federal government pay an annual amount to the province?
Mr. Giroux: I haven’t looked at that specific agreement recently. I had to look at it in my previous position, I have to say unfortunately, because it’s fairly complicated. At the time, the conclusion I and my colleagues came to was that Quebec was generously compensated for its work. That observation might startle your colleagues who have worked in the Quebec government. The conclusion we came to is that Quebec was generously compensated for collecting the GST in Quebec. I don’t remember if there were mechanisms for additional compensation to the government of Quebec for temporary, one-off changes like this one. I know that our assessment at the time was that the government of Quebec received compensation that probably went beyond what the federal government would have to pay to administer the GST in the province.
Senator Dalphond: I’m glad to hear that Quebec negotiated well.
Mr. Giroux: Very well.
[English]
Senator Loffreda: Are there any risks you see associated with implementing the temporary tax cuts? You had a report that the tax burden on Canadians by 2035 will increase because of demographics and tax brackets. Is this creating expectations for future tax relief? Do you feel like there are any other risks, or do you feel that it is well done in the sense of helping Canadians with a temporary tax break and then in two months we’re back to normal?
Mr. Giroux: In terms of risks, I do not see a lot of big systemic risks. You mentioned the risk of the pressure to extend. Yes, it is a possibility. Is it a big risk? I do not think so. It is circumscribed and limited to the holiday season and a couple of weeks after the holiday season. So it is limited in time.
The list of products is well known, and they are relatively well identified, I think. There will always be some limited cases, such as is it a children’s toy or an adult toy? We will not get into that here. There are some admin risks and some complexities, but I think the fiscal risks are fairly limited given the list of eligible products is known, the duration is known and it is in legislation. The fiscal risks are fairly well limited, I would say.
Senator Loffreda: Thank you.
Senator MacAdam: I have just one quick question. P.E.I. has the harmonized sales tax. What is the estimate of the reduced tax revenue in P.E.I.?
Mr. Giroux: It is in the range of about $20 million for these two months.
Senator MacAdam: It’s $20 million. Thank you.
Senator Ross: I do not have a question, but I would like to clarify that the tax agreement does not talk about consultation with the province. It talks about prior written agreement from the province. It is very specific that it is not just a conversation; it is written agreement in advance. I do not know how to make that into a question.
[Translation]
The Chair: Do you have any comments, Mr. Giroux?
Mr. Giroux: No.
[English]
The Chair: Thank you, Senator Ross. You raise a very good point.
[Translation]
Senator Gignac: Thank you once again, Mr. Giroux. You mentioned that Quebec was generously compensated for administering the tax. My colleague and I are bound by cabinet secrecy. Therefore, I won’t comment on what you said. That said, I want to make sure that Canadians and Quebecers understand what’s going on.
Quebec collects and administers the GST on behalf of the federal government. However, since Quebec’s sales tax is not harmonized, the sales tax there is not reduced. If the Quebec system had been like the one in Ontario and the other provinces, based on the figures you provided us, it would be owed compensation. We can agree that the GST and the QST would have been reduced. You mentioned 1$ billion for Ontario, and it’s around $600 million or $700 million for Quebec, from what I understand. Therefore, Quebecers are denied the savings. Instead of having the HST framework, Quebec maintained its fiscal autonomy, even though it administers all of it. Isn’t there an element of inequity and unfairness in all that? Ontario publicly waived $1 billion. However, the other provinces didn’t do so. If there is compensation for the provinces that don’t waive it, that would have been nice for Quebec to know when it signed the agreement in 2012. The agreement could perhaps have contained an additional clause.
Mr. Giroux: I understand your question. The provinces whose tax is harmonized with the federal government have no say. The HST is eliminated for them, and the GST is eliminated for provinces with no harmonized tax. Harmonized provinces lose revenue, whereas non-harmonized provinces, such as Quebec and Manitoba, do not. Taxpayers and consumers in these provinces don’t benefit from the lower sales tax.
Senator Gignac: I understand that very well. However, we’re not talking about the rate. The government is messing with the tax base.
Mr. Giroux: Yes.
Senator Gignac: From what you say, the provinces that signed an HST agreement will be able to claim the shortfall.
Mr. Giroux: Exactly. The provinces lost flexibility when they harmonized. That said, if the government makes a unilateral decision, they are compensated, while Quebec, for example—
Senator Gignac: That leads to distortion in the Ottawa area, in Gatineau, for example.
Mr. Giroux: Absolutely.
Senator Gignac: People will be better off shopping for children’s clothes in Ottawa rather than Gatineau if they want to save 13%. I just want to make sure I’ve understood.
Mr. Giroux: Yes.
The Chair: Thank you, Mr. Giroux and Mr. Stanton. Your remarks, as always, are clear and relevant.
That concludes this part of our study. During our work session, we received two messages, one from Saskatchewan and one from Newfoundland. We will read both of them.
We will now proceed to the clause-by-clause consideration of Bill C-78, An Act respecting temporary cost of living relief (affordability). I’d like to welcome officials from Finance Canada and the Canada Revenue Agency, who are with us in the room. They will not testify, but they can assist with any specific questions the committee may have.
Before we begin, I would like to remind senators of a number of points. If at any point a senator is not clear where we are in the process, please ask for clarification.
[English]
When more than one amendment is proposed to be moved in a clause, amendments should be proposed in the order of the lines of the clause.
If a senator is opposed to an entire clause, the proper process is not to move a motion to delete the entire clause but to vote against the clause as standing as part of the bill.
[Translation]
Some amendments that are moved may have consequential effect on other parts of the bill. It is therefore useful to this process if a senator moving an amendment identified to the committee other clauses in this bill where this amendment could have an effect.
[English]
If committee members ever have any questions about the process or about the propriety of anything occurring, they can raise a point of order. As chair, I will listen to the argument, decide when there has been sufficient discussion of a matter or order and make a ruling.
The committee is the ultimate master of its business within the bounds established by the Senate, and a ruling can be appealed to the full committee by asking whether the ruling shall be sustained.
[Translation]
If there is ever any uncertainty as to the results of a voice vote or a show of hands, the most effective route is to request a roll call vote. Finally, senators are aware that any tied vote negates the motion in question.
Are there any questions on any of the above? Is everything clear? We’re used to the process, so I think we can now proceed. Is it agreed that the committee proceed to clause-by-clause consideration of Bill C-78, An Act respecting temporary cost of living relief (affordability)?
Hon. Senators: Yea.
The Chair: Thank you. Shall the title stand postponed?
Hon. Senators: Yea.
The Chair: Shall clause 1, which contains the short title, stand postponed?
Hon. Senators: Yea.
The Chair: Shall clause 2 carry?
Hon. Senators: Yea.
The Chair: I’ll take the liberty of adding “on division”, because I oppose the bill. I won’t need to read each clause every time. Shall clause 2 carry?
Hon. Senators: Yea.
Hon. Senators: Nay.
The Chair: Carried on division. Shall clause 3 carry?
Some Hon. Senators: Yea.
Some Hon. Senators: Nay.
The Chair: Carried on division. Shall clause 4 carry?
Some Hon. Senators: Yea.
Some Hon. Senators: Nay.
The Chair: Carried on division. Shall clause 1, which contains the short title, carry?
Some Hon. Senators: Yea.
The Chair: Carried. Shall the title carry?
Some Hon. Senators: Yea.
The Chair: Carried on division. I find that the title doesn’t correspond to the objective. Shall the Bill carry?
Some Hon. Senators: Yea.
Some Hon. Senators: Nay.
The Chair: Carried on division. Does the committee wish to append observations to the report? The clerk has received two proposed observations. The committee may proceed to consider them. Does the committee wish to proceed in camera to discuss the observations?
Some Hon. Senators: Nay.
The Chair: In public? Perfect. I prefer to do it in public, because that way, people can see the reasoning behind them. I don’t think anyone is uncomfortable with that, unless they think it’s preferable. I always prefer to do it in public.
Senator Loffreda: You decide.
The Chair: I’m in your hands. So, shall we do it in public?
Senator Dalphond: The public has a right to know.
The Chair: Perfect, so we’re on the same page. The first observation we received is from Senator Ross. The text has been distributed.
[English]
Can I ask Senator Ross to present her observation?
Senator Ross: I’m happy to read it out if you like.
The Chair: Yes. If you could, read it for the public because we are in public.
Senator Ross: Certainly. My proposed observation is as follows:
Your committee agrees, in principle, with the intended goals of C-78 to “put more money back into the pockets of Canadians” to help them with the cost of living.
The committee feels, however, that this measure is too modest and poorly targeted, and fails to make a real difference for those who really need it. The committee would also like to highlight the testimony given regarding the administrative burden that will largely be shouldered by small businesses, as highlighted by representatives from a variety of business organizations and tax experts. Moreover, no businesses were consulted on the proposed tax changes.
Ultimately, the committee believes that the government should have chosen a more appropriate vehicle than a tax vacation.
I’m happy to make some comments about my observation as well.
The Chair: Please.
Senator Ross: I wish to add this because I think it’s important to recognize that it won’t target those most in need, and those who will largely be responsible for implementing this were not consulted.
There was no study of this bill in the other place. I believe it’s important to have some of the testimony that we heard be added to an observation for Canadians who may not have followed or been able to follow our committee proceedings.
Not only that, but we did hear from our Government Representative in the Senate and the sponsor of the bill about the administrative burden that small- and medium-sized enterprises will face, as well as the lack of consultation.
We heard the following from Senator Gold in response to a question I asked on November 28:
There’s no doubt that administering this will take some time and effort. In some cases, it might entail additional person hours and therefore costs.
We heard from Senator Moncion at second reading on December 3 that “. . . there was no consultation done by the government.”
We also heard this from witness testimony before our committee and, yes, including from those who were supportive of the measure. We heard from the Canadian Chamber of Commerce: “Businesses are forced to scramble to adjust to these changes with less than a month’s notice . . . .”
From the Retail Council of Canada:
There are some challenges, of course, and they shouldn’t be understated, both in the speed and effort required to gear up for these changes . . . .
From the Canadian Federation of Independent Grocers:
Those challenges are disproportionately shouldered, I would suggest, by smaller- and medium-sized businesses than they would be by larger ones.
I think the Canadian Federation of Independent Business, or CFIB, did sum it up most succinctly by saying, “. . . this is going to be an agonizing process . . . .”
I think we need to recognize those who are not benefiting as much as they could and those who will deal with the headaches of administering all of this.
The Chair: Are there other comments?
Senator Loffreda: Is there anybody else who would like to comment? I could lead the way. Thank you.
Thank you for the observation, which was put eloquently. I have a few issues with it.
First, coming from the National Finance Committee, I think it’s not fiscally responsible to mention the fact that this measure is too modest, although there is the capacity. We’ve heard the PBO say that we do have the fiscal capacity.
Our goal is not policy. The government’s goal is policy. Maybe the target here wasn’t those most in need. Maybe the target is middle-class Canadians, and give them a break too. All Canadians deserve a break, not just those in need. We’re all in need. We all hear every day in the chamber about homelessness and food banks.
It’s not up to us to determine the policy with respect to too modest or poorly targeted; that’s up to the government. They’re democratically elected. It’s up to the government to determine where they want to target the benefit. It is temporary.
There is the fact, too, that we also say, “Moreover, no businesses were consulted on the proposed tax changes.” However, yesterday we heard the Minister of Finance eloquently express that she spoke to so many people. It would be unfair to put “no businesses were consulted.”
I’m certain there is some testimony to the fact that some would have liked to be consulted. But were no businesses consulted? I’m questioning that.
There is the “we believe” when it states, “Ultimately, the committee believes that the government should have chosen a more appropriate vehicle than a tax vacation.” I put forward my questions today to Mr. Dodge — it was a treat to have him here — with respect to the fact that we have productivity and competition issues. This is temporary relief, where the fiscal burden is there, but it will be temporary. It will be, hopefully, offset by a GDP increase, hopefully. I say “hopefully” — the ones I did express previously by economists who have put it forward.
To say “put more money back into the pockets of Canadians,” I’ll leave that up to the committee to decide. It’s a consumption break or relief, right? Will it put more money back into the pockets of Canadians?
I want to always be neutral in my comments. Senator Smith is looking at me. He knows that. I like to look at both sides, not just the pro side, but the negative side too. That’s why I don’t feel it’s necessary to have that observation. If we do put it in, I think it has to be softened up based on the witnesses and testimony we’ve heard. That’s my point.
The Chair: Okay. Are there other comments?
[Translation]
Senator Moreau: Personally, I would be comfortable with Senator Ross’s observation if two minor amendments were made to it.
In the first sentence of the second paragraph, I would remove the following words:
[English]
— “is too modest and poorly targeted.” And we can change it to “The committee feels, however, that this measure fails to make a real difference for those who really need it.”
That would be my only change in that paragraph.
And in the end on the last line when we referred to the consultation with businesses, I would say, “Moreover, no businesses were officially consulted on the proposed tax changes.”
Those would be the only changes I would suggest.
Senator MacAdam: I didn’t like the wording “too modest,” and I could live with taking out “poorly targeted” as well. That’s on the first line.
With regard to “a real difference for those who really need it,” I mean, I was thinking, “a real difference for those who are facing affordability issues” because I think this bill is linked to affordability.
The only other thing that I wondered about including in the observations is the whole issue about the federal consultation with the provinces before it was announced because a lot of the witnesses — well, at least one today — said that was the main issue and that was the primary problem with the whole GST holiday. I think that was talked about a lot. I think we should put something in there. I don’t have the wording exactly.
We could say something along the lines of “The committee also heard testimony that this measure will impact provinces differently” and “Provinces were not adequately consulted in advance.”
The Chair: Thank you, Senator MacAdam.
Senator Dalphond: I tend to agree with my colleague here. For part of the observation, I don’t like the last paragraph, but for the first paragraph, I have nothing to say. The second paragraph states, “too modest and poorly targeted,” and I guess it means we are welcoming more tax exemptions and more of these things. I understand the general feeling is we are not so supportive of $250 being given later on or some other measures. People are kind of wondering.
I would agree to say that this measure fails or “may fail” — because we will see — to make a real difference for those facing affordability issues, as Senator MacAdam said.
I think I would change the next sentence to “The committee also heard testimony regarding the administrative burden that will be shouldered by certain small businesses,” because we heard for the restaurants, it’s not going to be a major issue, or maybe it’s a non-issue. It’s not a big issue for the big chains and for the Amazons of this world. But we heard for certain small businesses, it might be one. This is what the evidence has said: It’s not all of them.
And I will add that I like the words “were officially consulted,” because some businesses said they had discussions with the department. The last line is “Ultimately, the committee believes that the government should have chosen a more appropriate vehicle than a tax vacation.” I guess I’m not ready to say that. I would remove that paragraph, which is kind of a policy statement about how we should do the policy. It’s not based on the evidence that we heard, and I also don’t think it’s our role.
I remain more focused on the evidence we heard. Thank you.
Senator Ross: I would be comfortable with some of these changes, certainly the words “who are facing affordability issues.” If we have to remove “too modest” and “poorly targeted” and add in “may fail to,” “certain small businesses” and “officially,” I think those are all things that would be acceptable for me and provide clarity.
For the last line, I guess it’s the committee’s prerogative whether they think that is an appropriate policy statement. I guess that would be —
The Chair: If I could make a — no, I could; I took notes. If I may, I will say it in French, and it will probably be the essence of the discussion.
[Translation]
In French, the first sentence would remain as is.
The first line would read as follows: “Toutefois, le comité estime que cette mesure échoue.” Therefore, we would remove everything from “est” to “elle”. It would read “cette mesure échoue à améliorer la situation de ceux qui en ont vraiment besoin.”
Senator Dalphond: In English, it was “may fail”. In French, it would be —
The Chair: The English uses “may fail”. It’s a bit harder in French.
Senator Dalphond: It’s “ne pourrait peut-être pas” or “ne livrera possiblement pas”.
Senator Moreau: We could say, “risque de ne pas”.
The Chair: Or we could say, “risque de ne pas améliorer la situation de ceux qui en ont vraiment besoin.”
Senator Moreau: Perhaps “qui ont des enjeux d’abordabilité” would be better.
The Chair: So the text would read “risque de ne pas améliorer la situation de ceux qui ont des enjeux d’abordabilité”.
Senator Moreau: That’s it, “qui ont des enjeux d’abordabilité”.
The Chair: It would continue as follows: “Le comité souhaite également souligner le témoignage concernant le fardeau administratif qui reposera en grande partie sur certaines petites entreprises . . .”
I would not talk about small businesses because this will also have an impact on large businesses. I would use “certaines entreprises”, “certain businesses”, instead. If you’ll allow me, Senator Gold, I’ll just finish and we’ll work on the fine-tuning, if you like. Therefore, “. . . qui reposera en grande partie sur certaines entreprises, comme l’ont mentionné les représentants d’un éventail d’associations, d’entreprises et de fiscalistes.”
[English]
Senator Dalphond: I think we leave it in English also because it’s certain enterprises. That is the message.
[Translation]
The Chair: I will continue: “En outre, aucune entreprise n’a été officiellement consultée à propos des changements fiscaux.”
Therefore, that would be the proposal as amended.
Senator Gold: Because of the questions to Senator Ross. I also heard, I don’t know from whom, but someone said that instead of “underlining the testimony” or “souligné le témoignage”, we should say that we heard the testimony to that effect. I don’t know if —
[English]
Senator Dalphond: Also “heard” in English?
[Translation]
The Chair: In French, it would be “le comité souhaite” rather than “souligner le témoignage”, “le comité souhaite attirer l’attention sur le témoignage”.
Senator Dalphond: Or rather “a entendu les témoignages”.
The Chair: I would say “a entendu le témoignage”.
Senator Dalphond: Perhaps we should say “des témoignages”? We heard more than one, I believe.
The Chair: Therefore, “a entendu les témoignages concernant le fardeau administratif”.
[English]
Senator McBean: “Highlight” tries to raise the attention. We heard a lot of things.
The Chair: I know. I tried to write it in French first. I will read it at the end and make sure we have the proper words in English and in French.
Senator Ross: I agree the word “highlight” means something different than “heard.” We’ll leave “highlight” is what I’m hearing?
Senator Dalphond: “Heard” is what we did, but to “highlight” is our opinion.
Senator Ross: Can we say we would like to highlight what we heard?
Senator Dalphond: I would prefer to say, “I summarized what I heard.”
The Chair: Senator Ross, if we put an observation, we highlight.
Senator Ross: The observation is highlighting it already?
The Chair: Yes, that’s my feeling.
Senator Ross: Could I make one other comment? When you mentioned “certain small businesses” and you changed it to “certain businesses” or “certain enterprises,” I think it makes more sense to say either “small businesses” or use the common term “SMEs,” which is small- and medium-sized enterprises, because that’s really the focus: SMEs.
Senator Gold: That was the focus, really.
[Translation]
Senator Moreau: “Abordabilité” is not a word in French; I would say there are issues with the cost of living.
The Chair: It’s the title of the bill in French, so I’m uncomfortable —
Let’s get back to it, because it’s 1:30 p.m. We will say:
Toutefois, le comité estime que cette mesure risque de ne pas améliorer la situation de ceux qui ont des enjeux d’abordabilité. Le comité a entendu les témoignages concernant le fardeau administratif qui reposera en grande partie sur certaines petites et moyennes entreprises, comme l’ont mentionné les représentants d’un éventail d’association, d’entreprises et de fiscalistes. En outre, aucune entreprise n’a été officiellement consultée à propos des changements fiscaux proposés.
Do we have a consensus?
Senator Dalphond: If we say “reposera sur certaines petites et moyennes entreprises” we are not including “en grande partie”, “largely”.
[English]
We highlight that for small- and medium-sized enterprises, it is an issue, but what about for Amazon?
[Translation]
The Chair: Therefore, “qui reposera en grande partie sur certaines petites et moyennes entreprises”.
Senator Dalphond: You said “en grande partie”.
The Chair: Yes, it will be “largely” shouldered by certain SMEs.
[English]
Senator Dalphond: It will be shouldered by all enterprises.
The Chair: No, not necessarily all small- and medium-sized enterprises will be affected. My brother’s enterprise is not in this domain. He is not touched by that.
[Translation]
So it won’t necessarily affect all businesses.
Senator Moreau: We can’t say, “en grande partie sur les petites et moyennes”. It’s just “reposera sur certaines petites et moyennes entreprises”. It’s “en grande partie” that —
Senator Dalphond: It’s the burden.
The Chair: The “en grande partie” applies to the burden.
Senator Forest: What we heard is that the burden is greater for small and medium-sized businesses. The burden will be greater for small and medium-sized businesses.
The Chair: I think we have a consensus.
[English]
I think we have a consensus. That is clear? Perfect.
[Translation]
It will be in English and in French. We have another observation. We need to speed things up a little, because we are already a little over time. We have another proposal from Senator Pate.
[English]
Senator Ross: Senator MacAdam mentioned about the provincial impact as well.
The Chair: I received one officially in the proper way.
Senator Ross: We will do this, do that and then the individual one?
The Chair: Yes.
Senator Ross: Thank you. Sorry.
The Chair: No problem. Senator McBean, could you present your observation?
[Translation]
Senator Moncion: Before we move on, Senator MacAdam would like her comment to be added to the current proposal rather than making a new proposal.
The Chair: I thought it was a completely separate sentence on the provinces.
[English]
You want to have it in this proposition or an additional one?
Senator MacAdam: No, just adding a sentence to Senator Ross’s observation.
The Chair: We could do it now.
[Translation]
We would add “le comité déplore que les provinces n’aient pas été consultées”?
Senator Forest: If we say there were no formal consultations, then we could add —
The Chair: We could put it in a sentence following the last one or in a separate paragraph. We would say “le comité déplore que l’ensemble des provinces” at least, because some provinces were perhaps consulted but not adequately consulted.
Senator Dalphond: We need to say “il semble” because maybe some provinces were consulted.
The Chair: No, everyone told us that they were not consulted.
Senator Dalphond: We didn’t hear from a representative of one province.
The Chair: No, even the minister said so. None of the provinces were consulted. So maybe one or two were consulted with a call the day before, but —
Senator Dalphond: That may be it, and my neighbour’s suggestion is good.
The Chair: What would it be?
Senator Dalphond: “En outre, aucune entreprise ou province n’aurait été officiellement consultée”.
The Chair: “En outre, aucune entreprise ou province n’aurait été officiellement consultée”. We can put it there.
Senator Moreau: I would suggest that we put “les provinces” before “les entreprises”.
The Chair: “En outre, aucune province ou entreprise n’aurait été officiellement consultée”.
Senator Loffreda: Are we sure that no businesses were consulted, and how is it going to read in English?
The Chair: We’re leaving that open. How would it read in English?
[English]
However, no provinces or businesses —
Senator MacAdam: Businesses and provinces were not officially consulted.
The Chair: I agree with you. Keep it simple.
Senator MacAdam: It’s less of a risk in case there is one person out there who can produce a document.
The Chair: Will you repeat that, Senator MacAdam, for the clerk?
Senator MacAdam: Just take out the word “no” and say “Businesses and provinces were not adequately consulted” or “were not officially consulted.”
Senator Moreau: I think it is safer to use “officially.”
The Chair: “Officially” is safer.
Senator MacAdam: So businesses and provinces were not officially consulted. It gives us wiggle room in case there was —
The Chair: Okay, perfect.
Senator Dalphond: I think Senator Moreau wanted to have “provinces” first and “businesses” after.
The Chair: Yes, that is okay. We can play with that at the end. That is a clerical thing.
Senator McBean, could you present your observation, please?
Senator McBean: Yes. Thank you. Senator Pate, who, as you know, is a permanent member of this committee, submitted the observation:
The committee brings to the attention of the government witness testimony emphasizing that Bill C-78 will not adequately meet the needs of Canadians struggling to afford necessities including food and shelter, and advocating income support measures such as guaranteed livable basic income in order to more effectively address the human, social and financial costs of poverty and economic insecurity.
In support of that, she added that this observation aims to focus on Canadians who are below the poverty line and most in need.
Witnesses emphasized that although Bill C-78 is concerned about affordability and access to food and other essentials, the legislation does not ensure specific focus on the needs of Canadians most at risk of hunger and homelessness, and even today, we heard that repeatedly.
Witness testimony identified income supports for those below the poverty line, including guaranteed livable income measures, as a policy measure that needs to be pursued to ensure that government investments geared at outcomes such as preventing food bank use are effective and don’t leave behind those most in need.
She cited an example where the Deputy Prime Minister and Minister of Finance defended the bill’s broad focus but acknowledged that the bill is not tailored to those most in need, and those most in need do often require additional supports.
Senator Dalphond: I agree with the spirit of it, and I am in agreement with it up to the third line. After that, if it becomes a report advocating for guaranteed livable basic income, we haven’t concluded that issue. It is still pending at this committee, so I think it is premature to take a stance.
My suggestion is to say, “to afford necessities, including food and shelter, and advocating for improvement to existing measures, such as the GST tax credit,” which apparently was described as a more targeted and more efficient way to help those who are in need. That is my suggestion. I am open to —
[Translation]
The Chair: Or we can stop at “abri” and “shelter”.
[English]
Senator Dalphond: We could stop there too.
The Chair: We heard a few of Mr. Dodge’s examples that this is not where he wants to focus.
Senator Loffreda: It is narrow, this policy. I fully understand that she is an advocate for it, and we admire her for it, and it is another opportunity to put it on the record, but we also have to have the credibility of what we heard and what the bill intends to do. The bill intends to do what we heard, right?
We could stop it there. I would agree with that.
Senator Moreau: We only had one witness who said that. It was Mr. Macdonald. Because in French, it is obvious that —
[Translation]
We would say, “Le comité porte à l’attention du gouvernement le témoignage au comité soulignant que . . .”
The Chair: Only rarely would we refer to a single piece of testimony unless it was a really strong piece.
Senator Moreau: I don’t know what’s normally done, but I get the impression that we’re generalizing a little.
The Chair: There’s something else, Senator Moreau. There’s Bill S-233: Senator Pate introduced it and our committee is still considering it. We’ve started to look into the question of a guaranteed basic income. So, along the lines of what Senator Dalphond said, his point is that we’re anticipating the results of our work by including that conclusion, when we haven’t yet finished considering Bill S-233.
Senator Dalphond: Only one witness said that.
The Chair: I know.
Senator Dalphond: It doesn’t merit being mentioned like that.
[English]
Senator McBean: We want to stick to the first part, right? So take the policy out and then conclude at “including food and shelter.”
The Chair: I think we could have a consensus on that.
[Translation]
Senator Forest: The governor said it clearly, but I asked nearly all the witnesses, and many witnesses said that the measures and products chosen rather favoured the upper middle class, so I’m very comfortable saying that’s what we heard and not providing specifics on a witness.
[English]
The Chair: So we have a consensus? Great.
[Translation]
Therefore, we’ve finished the observations. Are members in agreement with the observations?
Some Hon. Senators: Yea.
The Chair: Is it agreed that the Subcommittee on Agenda and Procedure be empowered to approve the final version of the observations being appended to the report, in both official languages, taking into consideration today’s discussion and with any necessary editorial, grammatical or translation changes as required?
Some Hon. Senators: Yea.
The Chair: Is it agreed that I report this Bill with observations to the Senate, in both official languages, as of this evening?
Some Hon. Senators: Yea.
The Chair: I’d like to thank the entire support team, the interpreters, the clerk and the analysts for organizing this meeting on such short notice; it’s really impressive, thank you very much.
(The committee adjourned.)