THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, June 8, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 12:01 p.m. [ET] to study the subject matter of all of Bill C-19, An Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022 and other measures.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, before we begin, I would like to remind senators and witnesses to please keep their microphones muted at all times unless recognized by name by the chair.
[Translation]
Honourable senators, witnesses, should any technical challenges arise, particularly in relation to interpretation, please advise the chair or the clerk and we will try to resolve them. If you experience other technical challenges, please contact the ISD Service Desk with the technical assistance number provided.
[English]
The use of online platforms does not guarantee speech privacy or that eavesdropping won’t be conducted. As such, while conducting committee meetings, all participants should be aware of such limitations and restrict the possible disclosure of sensitive, private and privileged Senate information. Participants should know to do so in a private area and to be mindful of their surroundings.
We will now begin with the official portion of our meeting. I wish to welcome all of the senators and the viewers across Canada who are watching us on sencanada.ca.
My name is Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance. Now, I would like to introduce the members of the National Finance Committee who are participating in this meeting: Senator Boehm, Senator Dagenais, Senator Duncan, Senator Forest, Senator Galvez, Senator Gerba, Senator Gignac, Senator Loffreda, Senator Marshall, Senator Moncion, Senator Pate and Senator Richards.
Today, we will continue our study on the subject matter of Bill C-19, An Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022 and other measures, which was referred to this committee on May 4, 2022, by the Senate of Canada.
[Translation]
Today we have the pleasure of welcoming, virtually, representatives from four different organizations.
[English]
They are the Aerospace Industries Association of Canada, the National Marine Manufacturers Association, the Canadian Chamber of Commerce and Canada’s Building Trades Unions.
Welcome to all of you and for accepting our invitation to appear in front of the Standing Senate Committee on National Finance. I understand that the following individuals will be making short opening remarks on behalf of their organizations in the following order: Mike Mueller, President and CEO, Aerospace Industries Association of Canada; Sara Anghel, President, National Marine Manufacturers Association; and Mark Agnew, Senior Vice-President, Policy and Government Relations, Canadian Chamber of Commerce. We also have Rita Rahmati, Government Relations Specialist, and Stuart Barnable, Director of Operations from Canada’s Building Trades Unions, who I understand will be splitting their opening remarks between the two of them.
Again, thank you for accepting our invitation. We will start with Mr. Mueller.
Mike Mueller, President and CEO, Aerospace Industries Association of Canada:
Good afternoon, everyone. Thank you for the invitation to be here today to represent the views of the aerospace industry on the important issue of the select luxury items tax act contained in the budget implementation act.
Our members represent over 95% of aerospace activity in Canada, covering the civil, defence and space sectors. Despite, perhaps, being well-intentioned, the tax as currently drafted will penalize manufacturers and Canadian workers. To be clear, this a tax on manufacturing. This new tax will render Canadian manufacturers less competitive, directly translating into lost business and even more lost jobs.
It’s not just our industry that is raising these alarm bells. We’ve been working with unions that also share these significant concerns. Estimates are projecting losses of over 1,000 Canadian jobs and, potentially, $1 billion in lost revenue to companies across the country. These are substantial losses, and they are in addition to the 30,000 jobs lost during the pandemic in this industry. The Parliamentary Budget Officer has confirmed that this tax will create job losses and impact revenue.
This won’t just affect large companies. This new tax will have an impact on companies of all sizes, in all regions throughout the Canadian supply chain. We are told that some manufacturers are already experiencing order cancellations. This will put industry at a significant disadvantage compared to our international competitors. Lessons can be learned from other countries that introduced such a tax only to ultimately repeal it. This was seen in the U.S. in the early 1990s where a similar tax was introduced only to be repealed two years later.
As I said to the House of Commons Standing Committee on Finance, while the marketing of a luxury tax is appealing from a political perspective, the reality for those of us in the industry is the complete opposite. The devil is in the details, and the fact of the matter is that this targets manufacturers and workers. I would encourage members of this committee to focus on economics and how we can protect and grow the jobs here in Canada to support an industry trying to recover and contribute to economic recovery. This tax does the opposite. It is our understanding that no economic impact study was undertaken by the government prior to the introduction of this bill.
We have asked the government to conduct a thorough economic analysis to ensure the full impact of this legislation is understood before moving ahead. As such, we are asking that aircraft be removed from the scope of the legislation. If the government remains determined to press ahead despite the negative impacts we know are there, it should, at the very least, be open to amendments to soften the impact on the industry.
We understand that a delay in the implementation date will be included at third reading in the House of Commons. That’s encouraging, but that alone is not enough. Further amendments are still needed. Let’s not crush domestic demand in the manufacturing and final assembly of business aircraft, helicopters, turboprops and jets, not to mention the associated supply chains for parts, systems and services, as well as for maintenance, repair and operations. Why put this at risk?
It’s a frustration of our members that this was first introduced in Budget 2021, the same budget where the government recognized the industry was hard hit by the pandemic and provided funding to help it recover. Supporting the industry and then punishing the industry in the same budget simply doesn’t make any sense. No other jurisdiction is doing this.
Our loss will be a gain to competitor nations who want what we have. All policy levers should be pulled in the same direction to support the recovery of this strategic sector. That’s also why our industry has been calling for a national aerospace strategy. Having a coordinated plan for this industry would avoid this kind of situation. We need to leverage our strengths, not penalize them. There is an opportunity for us to get this right. Industry is looking for your support.
Thank you for your time and your interest in this important file. I look forward to your questions.
The Chair: Thank you, Mr. Mueller.
I will now recognize Ms. Sara Anghel, President of the National Marine Manufacturers Association, followed by Mark Agnew.
Ms. Anghel, please make your presentation.
Sara Anghel, President, National Marine Manufacturers Association: Good afternoon, Mr. Chair, members of the committee and ladies and gentlemen. I am appearing today to speak against the proposed luxury tax on boats included in Bill C-19.
Our industry has faced many headwinds since the start of the pandemic. Supply chain disruptions, production delays and inflation have affected our members. Tourism and recreational businesses were closed for months due to pandemic restrictions and border closures. On top of that, we are now facing an impending luxury tax on boats.
Our industry understands the government’s need to raise revenue in the wake of the pandemic. The luxury tax is not the way to achieve this.
The history of luxury taxes shows that consumers will simply choose to take their discretionary spending elsewhere. That is what dealers and manufacturers are hearing from customers. The results will inevitably be a dip in revenue and hundreds or even thousands of job losses across the country.
According to an economic impact study by economist Dr. Jack Mintz, the proposed tax would result in a minimum $90 million decrease in revenues for boat dealers and potential job losses of at least 900 full-time equivalent employees. In short, the tax will hurt the very middle-class families that the government is trying to help.
The problem with this kind of tax is that it can be easily avoided by consumers, either by buying other goods or by purchasing and keeping their boats abroad, for example in Florida or in Seattle. The expected drop in sales will significantly impact the bottom line of manufacturers and dealers who will then be forced to scale back their operations and staffing levels.
While we saw a boom in boat sales during the pandemic, the supply chain disruption has been very difficult for our industry and, in fact, dealers are expecting a significant drop in sales due to material shortages. An Ontario dealer, Crate’s Lake Country Boats in Orillia, expects a drop of 70% in sales by the end of 2022 and that doesn’t account for what will happen once the luxury tax is in place.
The tax also threatens the survival of Canada’s domestic boat manufacturing base, which has already been hollowed out by years of competition with low-cost jurisdictions and offshoring. For some yacht builders such as Neptunus Yachts International Inc. in St. Catharines, Canadian sales have been the foundation of their business for 30 years. Neptunus Yachts expects to see their Canadian sales drop to virtually zero.
We can also expect a ripple effect of job losses at marinas and service shops: fewer new boats sold means less work for the marine service industry, much of which is concentrated in rural and coastal communities.
As Mr. Mueller said, in the early 1990s, the U.S. introduced a similar luxury tax on boats that devastated the industry and was inevitably repealed following the loss of thousands of jobs and a net revenue loss for the government. New Zealand, Italy, Norway, Turkey and Spain have also previously introduced luxury taxes on boats. In each one of these cases, the tax was ultimately repealed due to the net-negative economic effects. There is no reason to think the same will not happen here in Canada.
We are also troubled by the singling out of recreational boats and not other recreational products. Boating is a cherished pastime for millions of middle-class Canadian families. In this unaffordable recreational property market, many families choose to purchase a boat as their cottage.
At a time when the government is trying to attract investment and rebuild our economy, a tax that guts homegrown manufacturing and retail businesses makes no sense. Instead of supporting our industry as a vital part of Canada’s recovery, this tax is picking winners and losers in outdoor recreation.
The luxury tax also has the potential to damage Canada’s trade relations. Concerns have been raised by the boating industry in the United States that this tax directly attacks our Canada-U.S.-Mexico Agreement. Similarly, our trading partnership in the U.K. and the European Union could be hurt by what many may see as an indirect tariff on boats.
In conclusion, I want to draw attention to the latest report released by the Parliamentary Budget Officer stating that there will be a $2.9 billion loss in sales from boats, aircraft and cars. However, $2.1 billion, which is 75% of the loss, is expected to come from boats. This is a complete assault on the boating industry.
I saw that yesterday there was an amendment passed removing the September 1, 2022, implementation date for the aerospace industry. That’s wonderful news. However, if 75% of the loss is expected from the boating industry, it would be only logical to have a similar amendment for boats to save jobs and not decimate the industry in Canada.
Thank you, Mr. Chair.
The Chair: Thank you, Madam.
Now I will recognize Mr. Mark Agnew, Canadian Chamber of Commerce, to be followed by Ms. Rahmati and Mr. Barnable. The floor is yours, Mr. Agnew.
Mark Agnew, Senior Vice-President, Canadian Chamber of Commerce: Chair and honourable members, it is a pleasure to be here today to discuss Bill C-19. I will focus my remarks on both the competition policy aspects of the legislation as well as the luxury goods tax. I will start with competition policy.
Given the evolving nature of the economy, our competition policies need to keep pace. However, getting it right is critical. This means robust consultations with stakeholders, including not only the business community but also representatives from the legal community, civil society and consumers, among others.
The chamber is particularly concerned with three elements and hopes that these will not be part of an omnibus bill but, rather, be part of the fuller review of the Competition Act that has been promised by Innovation, Science and Economic Development Canada, or ISED, for later this year.
First is the abuse of dominance provisions and the codifying of a number of definitions. An overly broad approach to defining what anti-competitive behaviour is particularly problematic because every act of competition may — at least in the eyes of a competitor — “impede” their progress or expansion. Indeed, an act seen to outdo a competitor is at the very heart of healthy and necessary competition in the economy. Clarity is also needed in areas like privacy given we have a separate privacy regulator at the federal level in this country. While some have argued that these proposals could codify existing practice, we should not be haphazard given that legislation cannot be changed on a whim.
Second is the changes to penalties. The proposed changes to administrative monetary penalties represent a significant overcorrection in our view. Such significant penalties of up to 3% of global revenues are problematic when the provisions are being expanded and companies are left without the benefit of jurisprudence to fall back on to understand their implications. The penalties additionally scope-in company activities that are not linked to violations that could potentially be occurring here in Canada.
Third are the no-poach provisions in the legislation. As others have pointed out in separate forums, this poses challenges in the franchise context, where companies have provisions written into contracts, often as a means to ensure that their investments in employee training are not being undermined. There are also interactions with provincial labour laws and how that would interact is not clear at the moment.
I don’t have specific amendments to offer the committee today due to the time that we as a business organization need to consult our members that sit across different sectors.
Despite the assertions made by some that we should make the changes now and figure it out later through administrative guidance or reopening it in the phase two review, I’m not sure this is the right approach that we should take. Ultimately, we don’t know what will happen with the review given that it hasn’t yet begun. While there may be a tendency to view the Competition Act changes in the context of the current inflationary environment, the current drivers of inflation in the economy would not be addressed by what’s included in the Budget Implementation Act.
I want to briefly shift now to the proposed luxury goods tax. Members will be aware from other witnesses that have spoken today about what the luxury goods tax means for the Canadian economy. The industry, especially the aerospace industry, is still in recovery mode from the pandemic. Many concerns that we’ve heard from our members echo what Mr. Mueller has said about the concerns that he’s also heard from his members in the aerospace industry.
There are a number of specific amendments that we’d like to see if the legislation is advanced, including exemptions for exports and liabilities when it comes to usage by the buyer after the sale has occurred.
Again, as other witnesses have also pointed out, it’s useful to know what the impact of such a tax has been in other jurisdictions and how, in particular, the United States experience can be something that we learn lessons from here in Canada.
Thank you for the opportunity to make these comments. I look forward to the questions from senators later.
Stuart Barnable, Director of Operations, Canada’s Building Trades Unions: Thank you to the members of the committee for the invitation to appear today.
I’m joined by my colleague Rita, our government relations specialist. CBT represents 14 international construction unions with a combined membership of over 3 million unionized workers across North America of which 600,000 are in Canada. The men and women of the building trades are employed anywhere from small developments to billion-dollar construction projects through to the operation, renovation, maintenance and the repurposing of plants, factories and facilities. This construction and maintenance sector annually represents approximately 6% of Canada’s GDP.
Today we’re here to talk about how Bill C-19 impacts the building trades. This bill includes some important wins for workers, including something we have long advocated for, a labour mobility tax deduction for tradespeople. This deduction will provide tax recognition of up to $4,000 per year in eligible travel and temporary relocation expenses for tradespeople and apprentices who travel to job sites.
The measure would apply to 2022 and subsequent taxation years. With this deduction, tradespeople will obtain tax fairness compared to other professions that must travel for work from home. They will now be able to deduct those expenses from their income and this will make it easier to get to where the work is and still support their families back home. This policy change will improve workers’ lives and improve labour availability across the country. I will pass it over to Rita who will talk about other aspects of this bill that impact the building trades.
Rita Rahmati, Government Relations Specialist, Canada’s Building Trades Unions: Thank you, Stuart. Beyond the tax deduction, the budget contains other wins for workers, including the doubling of funding for the Union Training and Innovation Program, a program that has allowed our training centres and organizations to expand, innovate and improve training for skilled tradespeople. This includes projects like the Office to Advance Women Apprentices which is focused on offering wraparound support services to increase the recruitment and retention of women in skilled trades. It includes investments in new home builds, funding for research investments into green technologies, like small modular reactors, and an investment tax credit for carbon capture utilization and storage. It includes investment in a new union-led advisory table that will bring together unions and trade associations to advise the government on priority investments to help workers navigate the changing labour market, with a particular focus on skilled, mid-career workers in average sectors and jobs. Finally, it includes investments in health care in a national pharmacare program that will benefit all Canadians.
This budget is good for workers. We appreciate the committee taking time to hold consultations on this important legislation. Our organization, CBTU, urges the Senate to support Bill C-19 to ensure workers can start benefiting soon.
As we look beyond Budget 2022, we urge the government to focus on addressing concerns over labour availability within the construction industry and other industries facing similar concerns. CBTU and our affiliates are leaders in apprenticeship and training to build Canada’s skilled trades workforce, but it takes time to start and train apprentices. The reality of the construction industry is that it is cyclical and seasonal, meaning at times one region of the country may have a number of projects going on that require a large workforce, more than the local labour market can supply.
When we see a boom or increase in the number of major projects or shutdowns happening across the country, it can create a temporary labour shortage.
The Temporary Foreign Worker Program is part of the short-term solution to address temporary availability but requires some changes. The labour market impact assessment process should be strengthened and consultations with local building trades councils should be required as part of these applications. Local building trades have the best knowledge of labour availability within the respective markets and should be notified of any Temporary Foreign Worker Program applications for construction in order to verify labour availability.
Additionally, given unions’ record as an exemplary employer, the Canadian government can ensure greater compliance with the Temporary Foreign Worker Program, ensure workers’ rights are protected and prioritize the hiring of Canadians first by recognizing unions as employers and enabling unions to bring in temporary foreign workers themselves.
Our second recommendation is to ease cross-border mobility for skilled trades workers between Canada and the U.S. Through our training halls across North America, we know that training qualifications for many of the trades are near identical on both sides of the border; therefore, it just makes sense to allow workers to travel back and forth to address labour shortages, something they can’t currently do easily.
A third recommendation is to establish a construction immigration pilot to bring in skilled trades immigrants. This program could be modelled after the Atlantic Immigration Program which has been successful in bringing in over 10,000 newcomers to Canada. CBTU recommends a pilot project that targets bringing in 10,000 workers specifically to work in the construction industry in a province that has significant labour needs such as Ontario or British Columbia.
As stated earlier, Budget 2022 has many valuable supports for workers. We are eager to continue working with the government to make changes that will support our workforce and the greater economy. Thank you, and we look forward to answering any questions that you may have.
The Chair: Thank you very much for your statements.
We will now proceed to questions. You will have a maximum of six minutes each for the first round and a maximum of three minutes each for the second round. Please ask your questions directly to the witnesses, and witnesses please respond concisely. The clerk will inform me when the time is over by raising her hand.
Senator Marshall: Thank you to all of our witnesses for your statements.
I wanted to focus on a specific area. I did read some of the testimony in the House of Commons Finance Committee. This is very controversial legislation. My experience is that sometimes there is intense opposition to legislation, but once it’s enacted, industries and workers seem to adapt to it — maybe they’re just hobbling along or maybe they really are making do.
One of the issues raised is the possibility of some industries moving south of the border. I would just like your comments as to if that’s a real possibility, not just the businesses but the workers also. We know there is a labour shortage in Canada and these industries require skilled workers. They may see what is happening in the U.S. as being more enticing than what’s happening here in Canada.
I would appreciate your views on the risk of people and businesses moving south of the border or to other countries. We could start with Mr. Mueller. He was the first presenter for statements.
Mr. Mueller: Sure, I would be happy to. Thank you for the question, senator. I think it’s a really good one, especially in the context of aerospace, which is a global industry and globally competitive.
Our real concern is that if this luxury tax is brought in as is, it would be more attractive to not only purchase but also operate these planes out of different jurisdictions, such as the United — [Technical difficulties] — industry that they’ve seen. I’ll try and summarize what I was saying. Briefly, it’s a very important question, senator, for the aerospace industry in particular with respect to it being a global industry — [Technical difficulties] — The real concern —
The Chair: When you’re making your presentation, giving comments, we lose you and then you come back. Maybe to the clerk could we have one of the technicians call Mr. Mueller?
Senator Marshall, do you want to give another question?
Senator Marshall: I would like to hear from all the witnesses. I would like to hear from Ms. Anghel from the National Marine Manufacturers Association and also Mr. Agnew from the Canadian Chamber of Commerce. I would also like to hear from Mr. Barnable or Mr. Rahmati on the possibility of skilled workers moving.
Ms. Anghel: Sure, I would love to. Thank you, senator, for the question. This is a very big issue and you’ve raised a very valid concern. As I mentioned in my testimony, when we look at the manufacturers that are here in Canada, like Neptunus Yachts, KingFisher, Stanley Boats, they will have a difficult time to continue operating in Canada. If Neptunus has to seek all of its customers from the U.S. or other jurisdictions, Europe perhaps, why would it continue to stay in St. Catharines, Ontario? That’s a threat.
We can also look at the situation from a dealership perspective. The situation may not be businesses moving to the U.S. so much but the dealerships just going out of business and there being no jobs here because all the boats are being sold on the U.S. side and staying there. A boat can be sold and kept in the United States. It could, perhaps, travel to Canada, as well, for vacations, but, in fact, if there is all this difficulty and taxation, then they’ll just choose to stay in the U.S. Then, not only have we lost the jobs at the retail level, but we’ve lost the jobs in the tourism sector as well. Thank you.
Senator Marshall: Do I have time for Mr. Agnew to respond?
The Chair: Yes, please, Mr. Agnew, let’s continue for that first question, please.
Mr. Agnew: Thank you, senator, for the question, and, certainly, I wouldn’t ever want you to think that because something happens, and then we sort of soldier on, that we’re happy about things. There are a lot of issues where the Parliament or government may decide not to take our advice, and we may decide to raise the issue, but we may decide to focus our efforts on more pressing priorities. If something happens that we’re not happy with, it doesn’t mean that we are necessarily happy, but I think businesses try to be as adaptable as they can.
What I will say, though, is when certain measures are passed, businesses may decide not to make future investments. Something that we hear from our members time and time again is that they have to compete around their global board table for capital investment, and because a certain decision was made in Canada, they decide to keep their current operation size and may not make further investments into the market.
I think that as Canada is a high-cost jurisdiction compared to other ones, particularly when we are talking about manufacturing, we need to be doing everything we can to be an attractive destination for investment.
Senator Marshall: Thank you. Could I hear from either Mr. Barnable or Ms. Rahmati? I would be interested in hearing what kind of pressure this is going to be putting on skilled workers.
Ms. Rahmati: Thank you for the question, senator.
I don’t think this applies to our membership all that widely, because we primarily represent members who work on construction sites and refurbishments and not in the manufacturing sector.
With that said, we do have concerns over labour availability already, as I mentioned in my remarks, and we, of course, want to have a market in Canada that would support workers staying here in Canada in all sectors and in our sector in particular.
Senator Marshall: Do I have time, Mr. Chair, for another question?
The Chair: Yes, senator.
Mr. Mueller are you connected now? Do you want to answer that question, please?
Mr. Mueller: I think I am, and I apologize for that. I had the Zoom unresponsive, but it was a really great question, and I welcome a quick chance to answer it.
I don’t know exactly where I got cut off, but as I said before, aerospace is, indeed, a global industry, and there is a lot of competition out there. We’re already hearing of planes not going to be purchased because of a tax of this nature being imposed on the industry.
Our fear and our expectation is that those planes will, number one, be purchased elsewhere, and number two, operated elsewhere. Then you have the supply chain, the maintenance and repair, and the overhaul aspects of that, which are quite significant. These are high-value jobs that will be created outside of the country.
As I said in my opening remarks, we’re predicting and seeing the potential of a thousand jobs being lost because of this tax and then close to $1 billion in revenue lost also due to this. That’s not only the sales, but it’s all the ancillary things that come along with that, including the maintenance, the repair and the overhaul. We’re seeing some companies actually making that decision to purchase the plane in Canada, operate in Canada, or purchase it and operate it south of the border, for example.
So it’s a very big concern for us, and it’s part of the reason we see a significant negative impact due to the tax.
Senator Marshall: Yes, I am aware of companies that are pushing towards the United States as opposed to staying in Canada.
I think, Mr. Mueller, you mentioned in your opening remarks about exempting the aerospace industry. Is that really the solution? I would be interested in hearing what Ms. Anghel has to say about that. To exempt one industry from the bill but leave others to cope with the bill, is that the solution?
I pose my question to both Mr. Mueller and Ms. Anghel.
Mr. Mueller: From our perspective, it is the solution to mitigate the negative impacts, again, the thousand jobs we see being lost and the billion dollars in revenue. I don’t think it’s an either-or situation, putting different industries in competition with each other. All I can speak to is the aerospace sector, and we’re starting to see those significant impacts due to the bill.
It’s our understanding that there was no economic analysis being done with respect to the impacts of this legislation, so it is quite concerning to us, seeing what we’re seeing within the industry.
As I also said in my opening remarks, the industry is just starting to recover. We saw 30,000 jobs being lost in our industry because of the negative downturn due to COVID-19, and then to put this on the industry at this time is very concerning to us.
We would recommend, number one, remove aircraft from the legislation. If that’s not the intention of the government, to take a look at different amendments that would lessen the impact on the industry.
The Chair: Ms. Anghel, please, to complete the answer.
Ms. Anghel: I agree with you, senator; it would be appreciated if all the industries were equally treated, and I understand the sensitivities.
I mentioned in my comments that if 75% of the loss is coming from the boating industry, it makes sense for a kind of step back and a pause on what this luxury tax and legislation in this particular piece will really do to our three industries, and I stand collectively with Mr. Mueller and the auto industry to state there should be a pause for all of our industries, based on the information that has been released about the losses. And again, with the supply chain shortages, this couldn’t come at a worse time. In my discussions with the Minister of Finance’s staff, there is the view that the boating industry did so well during the pandemic. Yes, there was a short time where there were the staycations and people turning to boating, but with supply chain disruption and lack of inventory, that’s not where we are sitting today.
We are decimating the industry in two ways: one that was unintentional, due to COVID, and another that is intentional, with the luxury tax. At least a pause and step back would be one step in the right direction. Thank you.
[Translation]
Senator Forest: I thank the witnesses for being with us. It is clear that this election commitment to impose a tax on luxury goods is part of the platform of the government, which is a minority government. I think that imposing a tax on luxury goods is a good idea. Were you consulted before putting this objective in the federal government’s platform?
[English]
The Chair: Starting with Mr. Mueller, and, as you made your presentation, please answer the question.
Mr. Mueller: Thank you for the question. This has been a long-standing item that has been around in election platforms, and we have been engaging with the government, with political parties, with members of Parliament, with senators on the impact of this and the potential negative impact, and we have been engaging quite a lot across the board. Once we saw the draft legislation, there were comments on the potential of this, and so we have been engaging and raising, quite frankly, the red flag with respect to the negative impacts that such a tax would have on the industry — again, a thousand jobs and a billion dollars in lost revenue — and then the maintenance, the repair, the supply chain pieces that are there. So it’s very concerning, and we have been talking to anyone that will listen to us about the negative impacts, because we’re very concerned about this tax. I think all of the industries are, but especially aerospace, just because of the global nature of the industry and the ability to operate these planes in different areas.
Ms. Anghel: We were not consulted prior to this appearing in the platform of the Liberal Party. We also were not consulted in advance of it appearing in the budget.
As Mr. Mueller has said, we have done our part in reaching out to all parties and members of Parliament. We’ve also been trying to work with finance officials and the minister’s office since the budget was presented to express our concerns, but there was no prior consultation. That’s why we did our own economic analysis through Dr. Jack Mintz, an economist, to look at the job losses and numbers. Thank you.
Mr. Agnew: No, we had not been involved in any special or bespoke consultations for this one.
The Chair: And the Building Trades Union?
Ms. Rahmati: We also were not consulted on this.
[Translation]
Senator Forest: Thank you. Do I have time for further questions, Mr. Chairman?
The Chair: Yes.
Senator Forest: When the government introduces a new tax, the objective must be tax gain. Has a comparative study been done, if you look at the 900 or 1,000 jobs lost — because again, this is lost tax revenue, because people will not be working and will spend and consume less — versus the estimated predictable profits from this new tax?
Have you been told of a financial balance sheet on the revenues of the new luxury goods tax compared to the tax losses, or as new money in the GDP? Have you been made aware of a cost-benefit study on this new tax on luxury goods?
[English]
Mr. Mueller: That’s an excellent question. It was something we were concerned about because we didn’t have any input into that. We understand that no economic impact study was done by the government with respect to this tax, which is concerning. We just saw some of the high-level numbers rolled up in the budget, and quite frankly, it didn’t make a lot of sense to us considering what we’re hearing from industry and the impacts we were seeing already.
Industry is already telling us it is starting to see confirmed orders for these planes not happening anymore. There is a negative impact there. There is a negative impact on workers and on revenue. You’re exactly right; those workers are paying taxes, contributing at the federal, provincial and municipal levels. There will be an impact across the board.
In aerospace in particular, these are good-paying jobs, with approximately 30% higher wages than the average manufacturing job. We’re concerned, and that’s why we have seen unions, including Unifor and the International Association of Machinists and Aerospace Workers, or IAMAW, coming out in opposition to this tax, because of the impact on workers.
Ms. Anghel: I echo Mr. Mueller’s comments. It’s the same for us. There was no information provided beyond us reviewing the Parliamentary Budget Officer’s report initially.
Mr. Agnew: I have nothing further to add on this question, chair.
The Chair: Building trades?
Ms. Rahmati: We do not have much more to add on that. We were consulted on the tax deduction, which we discussed in our remarks and which will benefit our members.
[Translation]
Senator Forest: So, as far as you are concerned, there has been no financial analysis to look at the pros and cons of creating this new tax. You mentioned some countries, such as the United States, Italy, France and Australia, that introduced this type of tax and then withdrew it. To your knowledge, in today’s global market, are there any countries with significant aeronautical or maritime activities where this type of manufacturing tax still exists? Does it exist in countries that are major players, such as Canada, in the aerospace or marine sector?
[English]
Mr. Mueller: Thank you again for that question. Not that I’m aware of.
We have the example of the U.S., where the tax was brought in; then, we saw some significant sales drops, and they repealed it. When I talked to my international counterparts — again, we’re a global industry — and I mentioned this tax to them, they could not believe it, because their countries are doing everything in their power to support the aerospace industry because of the good-paying jobs and the economic benefits it brings.
When I talk to the leaders of some of the other countries’ associations, they shake their heads, because they want what we have here in Canada: those good-paying jobs. They can’t believe that this type of penalization would be put on the industry, especially as we come out of COVID-19. I mentioned the jobs lost through the pandemic. It’s very concerning, and none of our competitive nations are going down this road.
[Translation]
Senator Gignac: My questions are for Mr. Mueller. I am troubled and concerned by what I have heard since the beginning of the session.
When I read the text of the bill, I thought it was a bit complicated. I thought I understood that the export market would not be affected by the sales tax. However, I then understood that sellers would have to pay the tax on luxury goods at the time of sale and that they would reclaim it when the goods were exported. My understanding from your submission is that there could be a delay between the time of sale and the export of the product. Could this create cash flow problems for aerospace companies in Canada?
[English]
Mr. Mueller: Thank you for the question. It’s a good question, and it’s very concerning for us. As I mentioned before, aerospace is, in fact, a global industry. Those rebate provisions in the legislation regarding the tax and exports will have some pretty dramatic impacts on cash flows, as you can imagine, especially with the price of some of these jets.
Think about the implications of paying 20% tax and then, depending on the timing of this, having to go to the government to get that rebate back after the fact. If the sale and the export don’t line up exactly — and there are many instances where they don’t — there will be some pretty dramatic impacts on cash flow specific to that export piece.
There are a lot of other parts of the legislation that also put a lot of red tape on the industry, which is concerning.
[Translation]
Senator Gignac: So, on the same topic, in your opening remarks, you mentioned that you would like the government to back off and exempt the aerospace industry, and you mentioned that you would be open to working together on amendments.
With respect to that particular point, can you elaborate on the amendment that you were proposing, where you seemed to be saying that it would be easier to exempt it completely when we know that the buyer is a foreigner?
Mr. Mueller: Thank you for the question.
[English]
Those are excellent questions. We would like to see aircraft removed from the legislation first and foremost because of the red tape and the onerous reporting mechanisms that are within the bill, which are very detrimental to the aerospace industry. However, it’s not only that. There is the aspect of international reputation with respect to this particular piece. I mentioned talking with some of my international colleagues.
We’re doing everything in our power. We have a great department in international trade looking at free-trade agreements and how we can lessen the tariffs on our world-class aeronautical products.
On the other hand, we have another department putting in place a 20% tax on the same product. If the government’s intention is not to take out aircraft from the legislation, then we do have some practical amendments that I believe some of the parties in the House of Commons side put forward. We have major concerns about the tax and exports which we just talked about before. There are thresholds currently in place to determine what is business use. The 90% level is very high. We’re suggesting something a little more practical.
There are burdensome reporting mechanisms with respect to the determination of what is private and what is business-related and a daily analysis on those flights. If the tax is triggered later on, then we have a provision imposing liability on the manufacturer in case of false statements. The manufacturers could be held liable for the use of the aircraft after it has been sold. There are lots of concerns there. The reputational damage this tax is doing to our industry is significant, and the onerous reporting and red tape placed on it needs some work.
As I said before, there is that amendment we’re hoping to see at third reading to delay the implementation in order to work on some of these issues in particular.
[Translation]
Senator Gignac: Can you give us more details on the price threshold? You mentioned, unless I’m mistaken, that a plane costs the same as a yacht. We’re talking about a threshold of $250,000. As far as I know, an airplane costs much more than a yacht. Can you give us an indication of the price threshold that might give the industry some relief?
Mr. Mueller: Thank you for the question.
[English]
One of our recommendations was to raise the threshold for those non-exempt aircraft above $100,000, which is the same level as the luxury car so that doesn’t make a lot of sense. We didn’t put a specific number there because, again, we wanted to see the economic analysis from the government, which wasn’t done. We would look at raising it significantly into the millions of dollars, just considering the price difference with respect to purchasing an automobile versus an aircraft.
Again, it didn’t make a lot of sense to us on that particular piece.
Senator Richards: Thank you very much. My first question is to Ms. Anghel, and it’s about the jobs lost in the boating industry. Are they comparable to the job losses in the aerospace industry? Will they be that devastating?
Ms. Anghel: Yes. Mr. Mueller said about 1,000 in aerospace, and our economic analysis shows a minimum of 900 and it could be up to 3,000.
Senator Richards: Mr. Mueller, of course, we already pay taxes. We pay a lot of taxes. There are taxes already on aircraft and on luxury items like cars and motorcycles. Most New Brunswickers who earn over $120,000 or $130,000 pay about 60% in taxes already.
Can you comment on the taxes already put on the aerospace industry and how prohibitive that already is?
Mr. Mueller: Thanks for the question. There are taxes already. There are tariffs on our exports into certain countries. We work closely with international trade to lower those tariffs with respect to selling our world-class aeronautic products abroad. There’s quite a lot of red tape there.
Tax measures are already in place with respect to the personal use of these aircraft. The real concern I have is that this is a tax on the manufacturers, not on the customers. This is a tax levied against the manufacturers that are producing this product and then directly to the workers that are helping support that product. It is very concerning in that respect. The provision of liability, again on the manufacturers, is very concerning with respect to this.
There are other ways of accomplishing some of the goals that the government may have as opposed to putting a tax on the manufacturers of the product that is for sale.
Senator Richards: For someone who doesn’t know much about planes, are you talking about all kinds of aircraft, from jets to Cessnas, or just jet aircraft?
Mr. Mueller: We’re talking about all different kinds of aircraft. We’re world leaders in the business of jets but also helicopters. We also represent helicopter manufacturers. There will be a significant impact on that, so a whole range of aircraft. Not only will different types of aircraft be affected but also — and this is concerning — the supply chain for those and the folks, the companies and the workers that are maintaining those aircraft and retrofitting those aircraft will be affected. The ripple effect is more than maybe that what you would think of in regard to some of the business jets. A whole host of aircraft are caught up in this.
Senator Richards: Thank you very much to the witnesses.
Senator Pate: Thank you very much, Mr. Chair, and thank you to the witnesses. Welcome, in particular, to Mr. Barnable. Many of us know you from another story of your life.
I’m interested, from the building trade union, do you have data on how many Indigenous peoples, individuals from other racialized groups and people from rural communities you represent? And are there plans to incorporate greater job retention or recruitment from those particular categories? That’s my first question.
Ms. Rahmati: Thank you, senator, for the question. I will be happy to send you more information on specific numbers for those different groups following this session. We are actively working to diversify our industry. Currently, we have a few programs. We have Build Together, a subset that works to diversify the industry. It’s a program that works to support and mentor women in the building trades. We also have Build Together Indigenous Peoples of the Building Trades, which is another chapter that works to diversify the industry and is more active in certain parts of the country.
Through the Union Training and Innovation Program, or UTIP, we have our Office to Advance Women Apprentices, which started in Newfoundland but has now branched into three different provinces because of the funding that we received for it through UTIP. It works to provide mentorship and wraparound support services to get more women into the building trades.
We have a number of programs that are working towards diversifying our workforce.
We have two issues when it comes to diversifying if workforce. The first is recruiting workers; the second is retaining workers in different industries from different backgrounds. When it comes to the retention portion, we have been working on training business managers and leaders across our unions and locals to be better at working with folks from diverse backgrounds. For example, during the pandemic we launched Indigenous Awareness Training — three modules that were done virtually — to talk about the history of Indigenous peoples and about how to provide better spaces and supports for them when they are on job sites so they can feel comfortable and stay and grow in the construction industry and in our local union halls.
Senator Pate: I’m curious as to how you see that the benefits being outlined in these provisions could assist you in terms of increasing hires and how the expense claim for relocation may assist in particular. If that’s unavailable now then if you can provide that with the numbers that you send to us, that will be great.
Ms. Rahmati: Well, I think the relocation support through the mobility tax deduction will help all workers across Canada. For example, if you’re a worker out in the Atlantic, in Newfoundland, it will help you to get over to a job in Alberta and will work to support all workers, not particularly workers of any one background.
With regard to the second part of your question, there are other supports that the government has also launched recently, for example, through the apprenticeship service. It was announced, I think, just prior to the budget that they will provide grants for contractors and unions who hire apprentices. They provide $5,000 per each first-year apprentice but will provide an additional $5,000 if it’s an apprentice from an underrepresented group. There are a few different supports going on from the government in this budget and prior to this budget as well.
Mr. Barnable: There would be a greater impact on those individuals from remote communities, given the fact that this deduction would be able to facilitate, from a financial aspect, their travel to job sites. I would use the example of someone from Newfoundland travelling to Alberta; obviously, there is a financial impact on them travelling there and that would apply to all people from remote communities.
Senator Pate: If you could provide the details in terms of marginalized communities, that would be great.
I was interested in your assertion you would like to see the union be able to utilize the temporary foreign worker provisions to bring in more workers. I’m curious as to how that would align, given the more limited resourcing — wages, in particular — supports and benefits for individuals in those categories, how would that align with your position representing workers? Would you see that as a way to increase the benefits for temporary foreign worker programs writ large, or would you see some particular focus you would take for this particular benefit?
Ms. Rahmati: Our recommendation around letting unions be employers is meant to support workers who are coming here, making sure that their rights are protected and not violated. We know that some employers utilize the program to be able to get workers in for cheaper labour. We would like to see unions who we know are exemplary employers be able to bring in workers themselves. I know we’re concerned with labour availability in our sector and other sectors as well. If workers can come in through a union hall, they could be dispatched on more than one project. If one wraps up after a short period of time, they could be dispatched to another one, whereas in the current system they are brought in by the contractor and can only work on a set project for a set amount of time.
Did that answer your question, senator?
Senator Pate: Sort of. If you have more details around the policies, that would be great. But I’m conscious of our time. Anything you could send in writing would be fantastic.
How many construction workers do you believe would benefit from this policy and by what amount? Also, how many might be excluded due to the minimum work requirement of 36 hours and the requirement that workers be temporarily lodged 150 kilometres closer to the work location than their ordinary residence?
Ms. Rahmati: We did a survey of our membership in August 2021 through Abacus Data commissioned by Let’s Build Canada. That’s where we found that 75% of respondents — over 1,800 folks — said that they would consider more jobs, which they had not considered previously. There was a high percentage of workers who stated that over the last five years they had had to travel to another province for work. I would be happy to follow up and send you those numbers. We know that our members have been fighting for this for about 20 years, and this is something that they view will help support their labour mobility and entice them to go to different projects across the country.
Mr. Barnable: Just to add, the hours probably wouldn’t be an impediment as this is more of a temporary relocation to work rather than a day commute.
The Chair: Thank you. And if you can also respond in writing to some of the information that was requested through questions by Senator Pate, we would appreciate that. I will give you the deadline for that later.
[Translation]
Senator Moncion: I would like to thank Senator Pate, who asked all my questions about the construction sector. I was very interested in that sector as well, because of the deduction. My other question is about the luxury goods tax and I will ask it in English.
[English]
The government’s luxury tax is based on a campaign promise so it reflects what many Canadians want. There is a growing gap in the distribution of wealth in this country that the government and many governments from around the world are trying to address.
It is also my understanding that the government supported an NDP amendment at the report stage to provide the government with flexibility to set a different coming into force for the aeronautic provisions in the luxury tax. This amendment was unanimously supported by all parties. Could you please comment on that?
Mr. Mueller: Thank you again for the question. There was that NDP amendment to delay the implementation for further consultation with the industry. We were encouraged by that amendment, absolutely. We’re expecting further consultations and, hopefully, further amendments to mitigate some of the negative impacts that we will see coming forward, which are currently within the bill.
There is also an opportunity for the Senate to look at other amendments which is what we’re asking for. We were encouraged by that amendment, absolutely, to give us a little bit more time to continue to have those conversations and to continue to make the point of the significant job losses and revenue decline that we will see if the tax is implemented as is.
Senator Moncion: Thank you. Anyone else?
Ms. Anghel: Thank you, senator. I agree with your comments that it’s a popular view of taxing those who can give back more, but the main point I’ve been trying to make is that people can choose where to spend their discretionary money so this tax can be avoided. So it’s not actually going to tax the rich as they will go to the U.S. to buy their boat or decide to hold off on purchasing a boat. It will hurt the middle-class Canadians who service the boats and sell the boats in rural and coastal communities. That is why I think this is misguided legislation, despite the fact it is intended to tax the rich who can afford to buy yachts.
I’m very happy for Mr. Mueller and the aerospace industry for the amendment, but to my point, 75% of the losses will come from the boating industry. I can’t seem to understand why they continue to have any of us left on the list rather than having more consultation and maybe looking at alternatives. That’s what I’ve said all long to the government: we’re here to assist to find alternative ways of funding, to assist the government, but not to destroy middle-class jobs across this country. Thank you.
Mr. Agnew: I would like to build on some of the comments that Mr. Mueller made around the tax. One of the items that has been talked about, for instance, is the taxation of aircraft doesn’t date it for export. That’s not about taxing wealthy Canadians. These things are being consumed abroad. As much as companies can be an easy target because they’re making these types of planes or boats, there are real Canadians that are having to make these things and businesses will have to make tough decisions and ask: If this tax is going to be impacting our bottom line in this way, how does it impact not only future investments but the viability of the investments we have here?
At the end of the day, businesses can’t operate at a loss. It has to make good business sense and we need to compete against other countries for that business investment here in the economy.
Mr. Barnable: I think that from our perspective, obviously continue consultations and review some of these policies and look at how businesses are impacted. Touching on what Mr. Agnew said, obviously, these are broad-ranging aspects, but as it relates to the building trades individuals, it wouldn’t have a terrible amount of impact on us.
Senator Duncan: Thank you to all the individuals who presented before us today.
I would like to pose my questions to Canada’s Building Trades Unions — Mr. Barnable and Ms. Rahmati. In the title, it’s not clear — “building trades unions.” I was very interested in a recent presentation by the electricity association of Canada. It took a little bit of research on my part to make it clear that utility workers, for example, are included as part of the building trades unions.
I want to make it clear, because utility workers are very, very mobile, as we saw recently in Ottawa with the difficulties with the storm and the power situation. Utility workers from New Brunswick and Quebec were here. It’s my understanding that the tax deduction outlined in Bill C-19 is applicable to individuals like this. Could you state that clearly for the record? I would appreciate it.
Mr. Barnable: It would be in those instances where the employer is not paying for their travel. For example, in the incident that happened here in Ottawa in the last couple of weeks, I would imagine that, in those circumstances, the workers were brought in by an employer. This tax deduction would be more applicable to those individuals travelling from one area to another to go to a job site or — to use the example of going from Newfoundland to Alberta — going to a local union hall and seeking work when there was a call from those areas and travel was not reimbursed by the employer.
Senator Duncan: That’s the key, isn’t it? Was there adequate consultation with employers or adequate understanding that the employers also often pay for this travel? While this deduction is solely applicable to building trades and is aimed at building trades, there are a number of situations where professionals — I’m thinking of nurses — are attracted across the country, but there the employer pays.
Are you aware of any consultation with employers or provincial finance ministers about this particular deduction? My concern is that we don’t want to end up with the CRA auditing a number of people who quite rightly claimed this deduction and employers running into difficulty because they are also paying.
Mr. Barnable: To answer your question, I’m not sure of the amount of consultation. Obviously, our organization had a great deal of conversation about this. This is something we’ve been advocating for quite some time. I’m unaware of the level of consultation they had.
Obviously, this wouldn’t impact employers as it relates to those individuals who claimed the deduction and could be audited by CRA in the future. Obviously, those individuals would have to provide evidence of those trips and keep receipts.
It’s similar to the situation where you would move for work. Actually, I think a lot of language that’s in Bill C-19 is taken from the Income Tax Act as it relates to a move from one province to another for work, where you’re able to claim those deductions.
Senator Duncan: I’m very much supportive of this measure. I do believe that you have long asked for it, and it is a sound measure.
Just one final point. Ms. Rahmati mentioned small modular nuclear reactors in her comments. Would you please provide in writing — I don’t want to take up the committee’s time — your reference to the small modular reactors, or SMRs, and what information you could provide about that?
Thank you to the presenters for your information. Much appreciated.
The Chair: Ms. Rahmati, there is still time on Senator Duncan’s timeline. Would you like to start giving an answer on that particular question, or do you want to send it in writing?
Ms. Rahmati: I’m happy to give some brief remarks here, and I can follow up with some additional details.
My reference in my remarks to small modular reactors was that the budget includes a commitment to do more research into SMRs. The government had put an SMRs pathway report together earlier last year as well.
We’re supportive of the government looking further into SMRs and other new technologies to see where investments can be made to help us clean our energy, have fewer carbon emissions and meet Canada’s net-zero emissions. For us, the focus will always be on having investments in those technologies to be able to create jobs and opportunities for our members as the transition happens.
The Chair: Thank you for that clarity.
Senator Loffreda: I would like to thank all our panellists for their insightful commentary and comments.
We discussed in great detail the negative impact of the luxury tax on your industries. I would be interested in knowing what percentage of total industry sales are for new cars and aircraft over $100,000 and new boats over $250,000. Do we have any numbers on sales that would be affected?
I’ll follow up with another question afterwards. Thank you.
Ms. Anghel: Yes, I can speak to that. Between 15% and 20% of the industry is valued above $250,000. However, when we look at that, the bigger problem is that the value — the revenue — is greater. It’s a smaller segment of the industry, but the price point is higher, which affects the manufacturer and the dealer more significantly because of the cost.
Senator Loffreda: What percentage would be that price point? If we look at the total percentage of the majority of Canadian manufacturers, what percentage of their sales are we talking about? What percentage of the industry and of market share does Canada have of boats over $250,000 or new cars and aircraft over $100,000 being sold?
Can you elaborate — and the other panellists at the same time — just to get a better feel of the impact we’re looking at?
Ms. Anghel: On the manufacturing side, it’s a little more difficult to measure because manufacturing, as I mentioned, is not as significant in Canada as it used to be. I can give this to you in writing when I go back and check some of the figures.
But when I look at the few manufacturers that are left in Canada, for some, it would impact 100% of their business and for others it could be 30% to 50%. When we look at the dealer base, for some dealers, 100% of their sales are valued above $250,000.
Maybe I’ll let Mr. Mueller speak for the aerospace.
Mr. Mueller: Thank you for that and for the question. I think it’s safe to say 100% of airplanes are above the threshold of $100,000. So that’s very significant. If you took a look at the personal use and then the business, it would also be significant for the manufacturers. As with boating, it depends vendor by vendor with respect to the specific impacts that are there. But we are already seeing sales being dropped and lost due to this tax being put in place.
Senator Loffreda: Can we have a comment by the Canadian Chamber of Commerce? Do they have any insight on the question?
Mr. Agnew: On this particular aspect, we don’t have that level of technical detail, so we would defer to the other associations on it.
Senator Loffreda: Thank you.
Remaining on the luxury tax, we discussed reputational damage and the short-term negative impacts on the industry, which are major. To what extent would there be long-term impacts? I guess you have consulted your stakeholders and your members. I understand the impact short term — the initial years when you’re paying the luxury tax — but are there major long-term impacts? Would Canadians get used to paying the luxury tax and just factor it in when purchasing a luxury item? There is some prestige to owning a luxury item and saying that there is a luxury tax. There is prestige to that term. Would the long-term impacts be as great as the short-term impacts? How do you see that affecting your industries?
Mr. Mueller: Thanks for the question. Aerospace, as I mentioned before, is a global industry, and it’s very easy for work packages to go. We always talked about how to build the capacity and the capability of the manufacturing sector in this country. When you put in place a 20% tax, which is a significant tax, on these products, if it’s going to impact workers and revenue, we’re going to see a decline in the capability and capacity of the industry to do this. It is an excellent question.
I ask myself a few questions. Is this tax going to hurt revenue in businesses? The answer quite clearly is yes. Will it hurt workers? Yes. Do workers pay taxes? Yes. Does the government lose tax revenue from those workers? Yes. Will it hurt the supply chain? I think this is a very good question with respect to the long-term implications, and the answer is yes, across the country, across all sizes of companies, if those planes aren’t being operated here, we’re losing that maintenance and repair and overhaul costs.
Reputationally, are any of our competitor nations doing this? The answer is no. It is pretty clear the tax is harmful on business, and it’s harmful to workers both short term and long term. Why propose a punishing tax at this time?
Ms. Anghel: I also feel for the boating industry it will have a long-term effect.
It takes a number of years to deliver a larger yacht to a customer. So the supply chain is disrupted. Boats could be ordered today and will be delivered well into 2023. I think those with the discretionary money to make these purchases will just choose to go to — I see a hand up, so I will conclude: I believe it will have long-term effects as well.
[Translation]
Senator Gerba: Thank you to our witnesses. I understand that your organizations have not been consulted and that there are many negative impacts associated with this bill.
You talked about job losses, which is about 1,000 jobs. From a labour point of view, what are the concrete expected impacts, particularly in the targeted sectors, such as luxury cars, boats and aviation? Is there a specific study that could inform us on the real impact on the workforce if we decide to go ahead with this bill? This first question is for Mr. Mueller.
My second question is about offshoring. You mentioned the impact on our free trade agreements. We touched on the issue of companies relocating to the United States. Do you think that companies will relocate because they will not want to be subject to this tax? Will it have an impact on our trade?
I don’t know who my last question is for; perhaps Mr. Mueller again. According to the Library of Parliament, the luxury tax revenue generated over five years would be $779 million: $572 million for cars, $162 million for boats and $45 million for planes. Perhaps this question is for the Canadian Chamber of Commerce. Are you able to explain the figures that the Library of Parliament has given us? Are you aware of those numbers?
[English]
Mr. Mueller: There are a few questions in there. Maybe I’ll take on the Library of Parliament through the Parliamentary Budget Officer first and then go back through them.
We do have concerns with the Parliamentary Budget Officer’s analysis. They didn’t take into account the reduction in sales of business aircraft. The Parliamentary Budget Officer said it would be negligible. We’re seeing the opposite due to the owners’ measures in the bill. We’re already seeing some of those sales being dropped. Plus, they didn’t take into account the supply chain and the further impacts on the overhaul and maintenance side of things.
I think your second question was on the transfer of jobs and capacity and capability to other countries. We’re seeing a real risk of companies operating those aircraft out of other countries. In fact, we had one small business talking about purchasing an aircraft, running and operating it in British Columbia or operating it in another country where they also had a facility. With the 20% tax, it made more sense, potentially, to run it out of a different company.
If you take that into account, the jobs of maintaining and repairing these aircraft are going to be done in other countries. Any overhaul, any modifications, would be done there also.
When we talk about the jobs, which I think was your first question, and the impact on the workers, it is pretty significant. We’re seeing the impact on the manufacturers, which is huge, which, again, is why we saw and are seeing unions coming out vocally in opposition to this tax. We have the machinists union in opposition to the tax because they know it’s going to impact workers. We’ve seen Unifor write letters and be vocal on the opposition to this tax because it’s going to impact workers.
In the manufacturing, maintenance and repair and overhaul and modification sectors we would see quite a lot of negative impacts. I expect you would see a lot of similar themes from Ms. Anghel and some of the other industries impacted by this tax.
Mr. Agnew: One point I’ll expand on is what Mr. Mueller alluded to around the after-sales servicing piece. I don’t know the exact ratios offhand in the civilian aircraft industry, but if you look at the Department of National Defence as a proxy, in some ways those enduring maintenance and servicing contracts can be more valuable for the company than the initial sale itself because there is work happening year over year. Not having those benefits accrue to the Canadian economy is to our detriment.
These service contracts are high-skilled jobs. You need engineers and technicians. Not having those longer-term benefits is to our detriment.
The Chair: Senators, we will move to the second round.
Senator Marshall: I wanted some clarification on the consultation. Perhaps Mr. Barnable or Ms. Rahmati can confirm that there was consultation on the labour mobility tax deduction. That was my understanding in your testimony.
Ms. Rahmati: Yes, on the tax deduction for labour mobility, there were lots of consultations with us. We met with a number of parliamentarians and a number of senior staffers with the government in the other place, and they were formulating this in platforms and the budget.
Senator Marshall: Mr. Mueller and Ms. Anghel, am I correct in understanding you weren’t consulted on the legislation, that there was no consultation process that you were involved in?
Mr. Mueller: From our perspective, there was no consultation prior to the budget. Since then, there have been consultations, and we’ve been making representations across government, explaining the concerns. Frankly, it has been pretty disappointing that the government is still moving forward with the tax, considering the severe economic impacts that we’re forecasting — again, $1 billion revenue loss, over 1,000 jobs lost — and companies are already starting to see the impacts because of the uncertainty.
Senator Marshall: Ms. Anghel, is that the same for your organization?
Ms. Anghel: Yes. We were not consulted initially, no.
Senator Marshall: I find this strange. I was just looking at the labour mobility deduction in the legislation, and it’s a number of pages. Then I’m looking at the luxury tax act, and it’s 175 pages, and there was no consultation. There was consultation on 10 pages but not on the other 175, so I find that very strange.
The other question I have, I know you already mentioned, or there was some discussion of the thresholds of the $250,000 and the $100,000, but nobody mentioned the percentages, the 10% or the 20%. I was surprised it was so high and that the thresholds were so low. Were there any concerns, or did you not look at the issue of the percentages? Was it just the thresholds that you were concerned about?
Ms. Anghel: I think for us it was a combination. Initially, we did come to the government to say that a $100,000 boat was quite a small boat, that many middle-class Canadians — so we do appreciate the threshold raising to $250,000. But there was no discussion or thought that there could be flexibility on the 20% and 10%.
Senator Marshall: One last question. I just wanted to know, both from Mr. Mueller and Ms. Anghel, given that the legislation is 175 pages long, and sometimes there are some interesting little tidbits in there that might have been missed, have you thoroughly reviewed the entire 175 pages? You have a good handle, do you, on the legislation?
Ms. Anghel: We did meet with finance officials, just to clarify. We were not consulted about the policy. When the draft legislation did come out, we did have an opportunity to provide comments, but in the sense that there didn’t seem to be any flexibility on the tax being removed.
We have since then met with finance officials to review certain clauses that we did have concerns over.
Mr. Mueller: I want to echo that also, just so that it is clear. There were consultations on draft proposals, but there were none on the overarching policy in the platform or the budget, and we made the same concerns there. It’s the amount; it’s the threshold; it’s the overall legislation that is quite damaging to our industry.
Again, we’re pretty disappointed that the government, despite these representations we’ve all made, is still moving forward with the tax, because of the pretty severe negative impacts that are there.
Senator Marshall: Did the draft legislation change as a result of your discussions with finance officials?
Mr. Mueller: I would say not significantly, from our perspective, no. Again, this goes back to the point that we have been making with respect to the lack of an economic impact assessment from the government, which is also pretty concerning.
[Translation]
Senator Forest: This is a question that might be a suggestion. Would it be possible for you, since you have done some economic analysis, to focus primarily on the question of the amounts that will potentially be collected through this new luxury tax, on the one hand, and on the other hand, the lost tax revenue or taxes that will not be collected because people will have lost their jobs and some of their purchasing power?
If you lose your job, you consume much less. Without being miraculous, these are industries that have interesting properties. Some of them sell luxury products that are often bought by foreigners. This is new money entering the Canadian economy. Given the reduction in the timing of orders and purchases, there would be a significant loss of new money that would potentially be injected into the Canadian economy. Would your organizations be able to present these numbers, which go beyond the political benefit of taxing the wealthiest in a fiscal and accounting sense, and indicate that we would be taking a significant loss?
[English]
Mr. Agnew: Sorry. It was cutting in and out. Could the senator please repeat the last part of his question there?
[Translation]
Senator Forest: In terms of economics, would it be possible to demonstrate what would be gained by implementing this tax and what would be lost due to job losses? Indeed, if people lose their jobs, they no longer pay taxes, they spend less and they lose their purchasing power, so they consume less. One of the things that strikes me as important is that these are industries whose clients are often outside Canada. So it’s new money, which comes from other countries, that is injected into the Canadian economy.
If we reduce the number of sales, we end up reducing the injection of new capital into our own economy. Would it be possible to do an economic analysis based on these three factors that would show what we lose, beyond the political benefit of taxing the richest? In my view, there is a clear imbalance in tax revenue.
[English]
Mr. Agnew: Thank you for repeating the question. Yes, I think you can model the impact of the luxury goods tax, and you can look at a whole host of variables. We worked with various organizations in the past to look at these questions about jobs impact and revenue impact on companies. Because we do have an existing industry here, making these products today, absolutely, there can be a reasonable attempt to make a good quantification of the negative impacts of the tax.
[Translation]
Senator Forest: You could even use the figures published by the Library of Parliament.
[English]
The Chair: Mr. Agnew, can you come back to us with a written response, please?
Mr. Agnew: Yes.
The Chair: In respect to the question asked by Senator Forest.
Senator Gignac: My question will be to Mr. Mueller.
In your opening remarks, I think you referred to the fact that companies could challenge this luxury tax regarding the Canada-United States-Mexico Agreement.
Previously, my colleague Senator Gerba asked you the question, but I’m not sure that you really answered that. Could you elaborate on that, on which aspect could this luxury tax be contested with our international trade agreement? I do not understand exactly.
Mr. Mueller: Thank you for the question. I was talking more about the reputational damage that will be put in place with respect to this tax than, perhaps, challenges underneath certain free trade agreements that are out there. I think we’d have to do some pretty concise analysis to take a look at that in particular.
Again, it’s very concerning to me if we have an international trade department going out and negotiating free trade agreements, trying to promote our world-class expertise in aircraft and looking to reduce tariffs with respect to those aircraft to sell them overseas — again, 80% of what we produce here in the country is exported, so it is a fairly large market for aircraft — and then on the same hand we have a government department putting in place a 20% tax on the domestic consumption of such a highly sought-after and technologically advanced piece of machinery like an aircraft. It’s very concerning from that perspective.
Senator Gignac: Until yesterday, before the amendment was accepted, this tax was to apply to any contract signed after January 1, 2022. This is what I understood.
Now, the government has accepted the postponement of the application for your sector. However, at the end of the day, are you satisfied with that? Or is it creating uncertainty and could it still affect your sector as long as we don’t know the rules of the game?
Mr. Mueller: As senators well know, businesses thrive on consistency and predictability. We’re encouraged by the amendment but not satisfied. We will need to have some pretty frank consultations, and we will have to see further amendments in order to mitigate the serious negative impacts of the tax.
There is still some uncertainty there. As I said before, we’re seeing companies lose some sales because of it. I am looking forward to the discussions with the government on that to mitigate the seriously negative impacts of the bill as it is currently drafted.
Senator Loffreda: My question is for the Canadian Chamber of Commerce. We talked substantially about the luxury tax. Given the fact that you are here, I’m interested in knowing your perspective on other matters with the budget bill.
Are your members satisfied with the other elements in the budget bill, for example, the changes being proposed in Bill C-19 to the Competition Act? I am thinking, for instance, of the wage fixing and the no-poach agreements in Division 15 of Part 5 of the bill. Is this something the chamber has called for?
To what extent have your members been consulted for the budget bill? We discussed consultation with respect to the luxury tax in detail, but are there any other elements being disputed in the budget bill?
I know the government is making efforts to improve links to the business community which, according to many, was much needed. Do you see improvements? Are we getting there?
Mr. Agnew: Thank you, senator, for the question. The direct answer would be that no, we’re not happy with certain changes that are in the budget with relation to the Competition Act. The three that we have concerns about are the changes to the abuse of dominance provisions, the penalties and the no-poach provisions.
Similar to some of the conversations earlier today about luxury goods, we were not consulted on those specific changes in the budget. We saw the budget document in April that alluded to the fact that these changes would be coming, but we saw the legislation at the same time everyone else did. These are complex legal matters and that is why we urged that these three measures be taken out for further consultation and be put into what the government has already committed to doing with a broader review of the Competition Act.
Senator Loffreda: Do I have time for another question?
The Chair: I will need to say thank you now, Senator Loffreda, because we must go back to the Senate chamber and those who are on Zoom will have to reconnect virtually.
Thank you to the witnesses. The objectives of our Finance Committee have always been transparency, accountability, predictability and reliability. Canadians deserve to have all those facts. You have been very informative witnesses. Therefore, I will say thank you on behalf of the committee.
Regarding the written answers that we have agreed upon, we have a deadline and I want to bring that to your attention. The deadline is the end of day on Monday, June 13. However, if you feel that you can provide it earlier, please do so. It will be considered as part of our report.
I would like to inform the honourable senators that our next meeting will be on Tuesday, June 14, at our normal time of 9:30 a.m. ET. More information will be provided by our clerk.
(The committee adjourned.)