THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, November 22, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 3:02 p.m. [ET] for the consideration of the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: I wish to welcome all the honourable senators, as well as all the viewers across the country who are watching us on sencanada.ca.
[English]
My name is Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance. At this stage, I would like to do a round table and ask my colleagues to introduce themselves.
[Translation]
Senator Gignac: Clément Gignac from Quebec.
Senator Galvez: Rosa Galvez, independent senator from Quebec.
Senator Loffreda: Good afternoon, everyone. Senator Tony Loffreda from Quebec.
[English]
Senator Bovey: Patricia Bovey from Manitoba.
Senator Duncan: Pat Duncan from the Yukon.
Senator Pate: Kim Pate from here, the unceded, unsurrendered territory of the Algonquin Anishinaabeg.
[Translation]
Senator Moncion: Senator Moncion from Ontario.
[English]
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Smith: Larry Smith, Quebec.
The Chair: Honourable senators, this afternoon we continue our study on the subject matter of Bill C-32, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022, and certain provisions of the budget tabled in Parliament on April 7, 2022, referred to us, the Standing Senate Committee on National Finance, on November 17, 2022, by the Senate of Canada.
Honourable senators, we are pleased to have with us again today senior officials from the Department of Finance Canada — this time to discuss Parts 2, 3 and 4 of Bill C-32.
[Translation]
Senior officials from the Department of Finance are accompanied by representatives of the Canadian Space Agency and Employment and Social Development Canada.
[English]
Welcome to all of you, and thank you for accepting our invitation to appear before the Standing Senate Committee on National Finance. I have been informed that Jack Glick, Senior Advisor, Sales Tax Division, will talk to us about Part 2. Robert Ives, Senior Advisor, Sales Tax Division, will discuss Part 3. Anne David, Director, Asset Management, Crown Investment and Asset Management, will speak on Part 4, Division 1. Gina Clark, Director, International Finance Section, will talk about Part 4, Division 2.
Before we begin, honourable senators and witnesses, I would like to ask all the other witnesses that I did not name to please introduce yourselves should you be asked to answer a question. Thank you in advance.
Before giving the floor to Mr. Glick, I would like to inform the senators that opening remarks will be longer than usual — roughly 15 minutes — because, as mentioned, they will include remarks and comments on Parts 2, 3 and 4 of Bill C-32.
I will recognize Mr. Jack Glick, Senior Advisor, Sales Tax Division, who will be speaking to Part 2. Mr. Glick, the floor is yours, please.
Jack Glick, Senior Advisor, Sales Tax Division, Department of Finance Canada: Thank you very much, Mr. Chair, and good afternoon. My name is Jack Glick. I’m a senior policy advisor in the excise policy section of the Department of Finance Canada. Part 2 of Bill C-32 implements measures announced in Budget 2022 regarding the taxation of cannabis products. In particular, amendments in the bill permit certain smaller licensees to remit excise duties on a quarterly rather than monthly basis, while other amendments are of a more technical nature. They include permitting the transfer of packaged but unstamped products between cannabis licensees. The quarterly remittances mentioned above have been administered by the Canada Revenue Agency, or CRA, since April 1 of this year, while the remaining amendments would come into force upon Royal Assent.
Part 2 also brings forward amendments to the framework for the taxation of vaping products, which was introduced in Budget 2022 and implemented via the Budget Implementation Act No. 1. These vaping-related measures provide for more clarity on markings and customs storage rules, and on excise duty liabilities for these goods. The modifications proposed are largely technical in nature to allow the Canada Revenue Agency and the Canada Border Services Agency to ensure proper administration of the vaping product taxation regime. The proposed amendments in these respects would be retroactive to October 1, 2022, which was the coming-into-force date of the overall taxation framework for vaping products.
We have previously consulted the public on both the cannabis and vaping-related frameworks and on the specific measures previously noted. I look forward to any questions you might have, and I would turn it over to my colleague for Part 3.
The Chair: For Part 3, I recognize Mr. Robert Ives. The floor is yours.
Robert Ives, Senior Advisor, Sales Tax Division, Department of Finance Canada: Thank you, Mr. Chair. My name is Robert Ives, I’m a senior advisor in the Sales Tax Division at the Department of Finance Canada. I am here today on Part 3 of the bill.
Part 3 of the bill is relatively short and does two things. First, it implements amendments to the Underused Housing Tax Act, which received Royal Assent on June 9 as part of Bill C-8. These amendments address technical issues — minor drafting errors that only became apparent following the tabling of Bill C-8 last December.
Second, Part 3 makes the Underused Housing Tax Regulations. These regulations would implement an exemption from the underused housing tax for vacation properties, which was announced in the Economic and Fiscal Update 2021 last December. The regulations also give the Minister of National Revenue the authority to require that any individuals eligible for a social insurance number provide that number in any return that’s required to be filed under the underused housing tax, which is consistent with requirements under other Canadian tax statutes.
That concludes my overview of Part 3.
The Chair: Thank you, Mr. Ives.
[Translation]
Anne David, Director, Asset Management, Crown Investment and Asset Management, Department of Finance Canada, will speak on Part 4, Division 1.
[English]
Ms. David, the floor is yours please.
Anne David, Director, Asset Management, Crown Investment and Asset Management, Department of Finance Canada: Thank you, Mr. Chair. Good afternoon, my name is Anne David and I’m a director in the Crown Investment and Asset Management Branch at the Department of Finance Canada. I’ll be briefing you on Part 4, Division 1 with respect to the Canada Growth Fund.
Budget 2022 announced the government’s intention to create the Canada Growth Fund, or CGF, as a new arm’s-length, government-owned investment fund that will help attract private capital to invest in sectors of national, economic and environmental importance. The government introduced legislation through Bill C-32 to authorize the Minister of Finance to provide initial capital to the organization responsible for administering the CGF. This measure authorizes the Minister of Finance to acquire non-voting shares in a new Crown corporation to administer the CGF. The organization will be a new Crown corporation that will be incorporated as a wholly owned subsidiary of the Canada Development Investment Corporation, or CDEV.
This measure authorizes the Minister of Finance to requisition up to $2 billion from the Consolidated Revenue Fund to acquire those shares. This amount will provide an initial capitalization for CGF to make initial investments as well as funding for start-up costs. Standing up CGF now through this measure will ensure that it can start making the vital investments to meet Canada’s climate and economic goals. Thank you.
Gina Clark, Director, International Finance Section, Department of Finance Canada: Thank you, Mr. Chair. I’m speaking to you about Part 4, Division 2, which seeks to amend section 8.3 of the Bretton Woods and Related Agreements Act, which gives the government the authority to provide financial assistance to foreign states. The act sets the limits on the amount that can be provided to a single foreign state and to all foreign states combined. In 1998, these limits were set at US$2.5 billion for one foreign state and US$5 billion for all states combined. The proposed amendment would change the currency of the limit from U.S. dollars to Canadian dollars, and would increase the limits to C$7 billion for any one foreign state and $14 billion for all foreign states combined. Thank you.
The Chair: Thank you for your comments.
Now we will proceed to questions. I would like to inform honourable senators that you will have a maximum of five minutes each for the first round. If time permits, there will be a second round of three minutes each.
Senator Marshall: My question is for Ms. David on the Canada Growth Fund. I will start off by saying that when I looked at the actual legislation, I was surprised. Actually, I was kind of astounded because it references $2 billion, but I had expected to see more information on the Canada Growth Fund. I was thinking that there would be something there on the organization of the fund, how the money will be used and what the governance structure would be — a board of directors and things of that nature. Why is there nothing in this bill on the governance structure of the Canada Growth Fund? We’re talking about $2 billion initially.
Ms. David: Thank you, senator, for your question. The budget introduced the government’s intention to stand up the Canada Growth Fund, and it mentioned that the Fall Economic Statement would provide further details on the Canada Growth Fund. The Fall Economic Statement that the government released on November 4 provided details on the operations and the investments of the growth fund. On that day, the government also released a technical backgrounder that provided further details on the operations, the governance and the investments of the Canada Growth Fund.
Senator Marshall: I would have expected to see some of those requirements in the legislation. We’re talking about a wholly owned subsidiary of a Crown corporation, and what it talks about is giving the minister $2 billion and there are no parameters put around the $2 billion. It says it’s starting out with $2 billion, and then it could be increased by just providing money or looking for additional money in the appropriation act.
You’ve got all this money that’s going to the Canada Growth Fund and there’s nothing in the bill itself that outlines how the money is going to be spent or accessed. There is nothing there on reporting, so it sounds like we’ll approve the $2 billion, and then we’ll approve some more in supplementary estimates. There is nothing there for reporting. It’s there that the government wants the private sector to invest in this Canada Growth Fund. But when you look at the fund, all you have are two little paragraphs that really don’t tell you anything about the fund.
I have a couple of other questions. The $2 billion is statutory, isn’t it? Once we pass this bill, doesn’t the $2 billion get paid out and rolled into this fund? Is it non-budgetary? Is it statutory, non-budgetary initially?
Ms. David: Thank you for your question, senator. In respect to the details and the amount of details in this piece of legislation, part of the announcement through the Fall Economic Statement as well as the technical backgrounder released on November 4 was the government’s intention to come back to Parliament in 2023 with a full, permanent structure. Meanwhile, there is significant urgency in setting up the fund immediately so we can start making the critical investments.
Senator Marshall: But there’s no parameters around it. I mean, it’s $2 billion. I’m just going to leave it there. If the government really wanted to get this Canada Growth Fund up and running — they mention it in the budget, it’s in the fall fiscal update and now they’re promising something else in 2023. Whatever they’re going to deliver in 2023, if they’re going to put in a governance structure, that should be in place before the $2 billion goes out to the minister to spend on whatever. I’ll just leave it there.
I have a question for Mr. Ives about the Underused Housing Tax Act. I remember when it was passed. Are there regulations already? It also makes regulations under the act. Are those regulations already in place?
Mr. Ives: No, the regulations aren’t in place. The regulations are included in this bill, but there were no regulations made prior to these regulations.
Senator Marshall: So the regulations aren’t in place. This is just a reference to the regulations that are going to be made in the future.
Mr. Ives: No, the regulations would be made under the act. Rather than being made through the regulatory process through Treasury Board, the regulations are actually included in the bill.
Senator Marshall: Could you give me a copy of the regulations? Are they in this bill?
Mr. Ives: They are, in Part 3.
Senator Marshall: They’re in Part 3. Okay. I shall look at that.
Mr. Ives: It’s very short. It is about a page.
Senator Marshall: Okay. I’m going to have another disappointment, am I? Thank you.
[Translation]
Senator Moncion: My question is about Division 2, the Bretton Woods agreements. How did the government determine the proposed increase to the limit on the amount of financial aid that can be provided to foreign states?
[English]
Ms. Clark: Senator, thank you for your question. The limits were last established — or first established — in 1998, and they haven’t been updated for about 25 years. The increase roughly translates to an increase in inflation over that time frame. As well, you’ll note there is the change from U.S. dollars to Canadian dollars. The original $2.5 billion U.S. was about $3.5 billion Canadian, so it’s also a rough doubling of the amount.
Senator Moncion: What kind of guarantees is the government going to have that the financial aid that they provide to foreign states are not, let’s say, unintentionally acquired by foreign staff who are corrupt?
Ms. Clark: As it relates to the provision of financing to another country, a bilateral loan agreement would be entered into with that country. In respect of the most recent loans provided to Ukraine, one was done through the International Monetary Fund, or IMF, administered account, which would have sanctioned requirements against providing funding to sanctioned entities. Similarly, a bilateral loan was entered into where Canada would be seeking to ensure that those parameters are protected as part of a loan agreement with a country.
Senator Moncion: Are the loan agreements already in existence, or are they created depending on the country they are dealing with?
Ms. Clark: The loan agreements would be created at the time of the disbursement of funds to the foreign state.
Senator Moncion: Okay, thank you.
[Translation]
My other question has to do with the Underused Housing Tax Regulations put forward in Bill C-32, which would implement an exemption from the Underused Housing Tax for vacation and recreational properties, specifically a condition of use as a residence or lodging by the owner or the owner’s spouse or common-law partner for at least 28 days during the calendar year. On what basis did the government propose this 28-day threshold?
[English]
Mr. Ives: Thank you for the question. The 28-day period was meant to be a reasonable period of use for a foreign family that uses a Canadian property as a vacation property. That was the reason 28 days was chosen.
Senator Moncion: What happens if the property is on Airbnb for the rest of the year?
Mr. Ives: That could happen. The exemption only applies to properties located outside the more densely populated areas of Canada. Regarding the areas of the country that have the most significant housing affordability issues, such as the major urban centres, the exemption is not available for properties located in those regions. It’s limited to smaller centres.
Senator Moncion: Okay, thank you.
Senator Gignac: This topic was raised by my colleague Senator Moncion regarding this exemption: Will the government publish a list or otherwise make available to taxpayers information on which areas those are? For example, will the Mont-Tremblant and Whistler areas be exempted? Could you provide more details regarding that?
Mr. Ives: Thank you for the question. I can’t provide a specific list at this appearance, but I can say the Canada Revenue Agency — which is responsible for administering the underused housing tax — plans to release a tool that will allow property owners to put in a postal code that will give an indication as to whether their property is located in an area that’s eligible for the exemption.
Senator Gignac: I am trying to understand. The purpose of government is to — because it was a very hot real estate market until interest rates started to be increased by the Bank of Canada. The purpose, at that time, was to reduce speculation and so on.
At this stage, you’re not able to disclose, so what would be the parameters the minister would use that X area will be exempt or Y area would not be exempt? What are the criteria? Would that be released at some point? Could you help a little bit more?
Mr. Ives: The criteria are part of the regulations. You might call it rough justice, but this is a large country with many different housing markets. As far as the vacation property exemption goes, the government has decided that the parameters would contain both a geographic location test as well as a use test. Beyond that, I can’t really offer anything.
Senator Gignac: When will this list be available? Will it be in the coming weeks or months?
Mr. Ives: Are you referring to the CRA tool that I described earlier?
Senator Gignac: Yes.
Mr. Ives: The latest information I have from the Canada Revenue Agency is that the tool is going to be released imminently. They’re undertaking testing of the tool. Further details about that tool would be better addressed to officials at the Canada Revenue Agency given their role in the tax.
Senator Gignac: Thank you.
My next question will be to Ms. David, but it will be in French because I will refer to the French version of the document I have with me regarding the Canada Growth Fund.
[Translation]
My question picks up on what my colleague Senator Marshall said. On page 34, Chapter 2, it says, and I quote:
In order to maximize the Growth Fund’s effectiveness, it will be operated independently from government by a team of professional investors reporting to an expert board of directors.
A little further on, it says the fund will be launched at the end of 2022, but that the government will make the independent permanent structure public later on, within six months.
Does that mean that the fund will be able to start investing when the team of professionals — the governance — don’t even have it set up yet? I’m trying to understand the urgency of the government wanting authorization to invest very quickly, but without the whole structure being in place. Can you explain the process?
Ms. David: Thank you very much for the question, senator. You also mentioned the urgency of doing this. As you know, several countries, especially our neighbour to the south, the United States, have taken several measures recently that would reduce the competitiveness of the Canadian industry, especially in the area of clean technologies and so on.
This justifies the urgency of establishing the growth fund. It will be set up this year in 2022 with an interim structure. The structure will be established as a subsidiary of an existing Crown corporation that reports to the Department of Finance. It will be established much like several other Crown corporations and several other subsidiaries are. Royalties will be paid to the Department of Finance and to Canadians through the Canada Development Investment Corporation, which will be the parent company of the growth fund within this interim structure.
That said, the governance structure will be established under an existing parent company. Over the next six months, the government will take steps to establish a permanent structure to supersede this interim structure.
Senator Gignac: That’s reassuring, because young corporations that already have a team of expert professionals will be able to make the right investment decisions. After that, there would be an independent corporation with its own structure, if I understand what you just said. Is that correct?
Ms. David: You said it better than I did. That’s exactly right. We’re aiming for an existing corporation where professional investors will come make these initial investments. In the meantime, we will establish the permanent, independent structure, which will manage the growth fund over the long term.
Senator Gignac: Thank you.
[English]
Senator Smith: My question is for Mr. Glick.
The government’s goal in legalizing the sale and consumption of cannabis was to squeeze out illicit and illegal actors, and also to ensure high levels of consumer safety in the product that is consumed.
Since coming into force, is there data to suggest that illicit and illegal players have been squeezed out of the industry or is there still a sizable illicit market?
Mr. Glick: Thank you for the question. It’s a great one. There has actually been significant progress made with regard to squeezing out the illicit market, as you put it. Obviously going from a minimal amount of medical-use cannabis at the start of legalization in 2018, we have reached levels of 69% of market share as measured by household final consumption expenditures by Statistics Canada. That is actually quite comparable — in a favourable way — to Washington State and Colorado. We’ve done quite well to squeeze that out.
We also have indications that some of those volumes of cannabis being produced by the illicit market are actually being exported now because there is just no more market in Canada for those illicit products.
Senator Smith: There have been reports that excise duties owed to the federal government have reached almost $100 million this year, signalling that the industry is facing financial challenges. Allowing licensees to remit excise duties quarterly rather than monthly have been welcomed. The industry has asked, however, that the government reconsider the excise tax framework on cannabis, arguing that it’s too high.
What evidence is there to suggest that extending the remittance period from monthly to quarterly will ensure that licensees meet their tax obligations? Is there not a risk that extensions would only add to the already massive excise tax burden?
Mr. Glick: Another great question. Thank you for that. We are aware of the excise duty arrears and tax arrears with the CRA that some licensees are experiencing right now.
When we extended the quarterly duty remittances, the coverage was going to be at least half of the licensees that do remit excise duties. Right now, that would probably be around 130 or 140 out of 250 entities that would be remitting. In terms of broad-based relief for the industry, we believe that we’ve accomplished that.
In terms of whether or not it should free up their cash flow to remit excise duties, that is the intention. We implemented the quarterly excise duty remittances to more closely match up with the payment terms that many licensees face when selling products to provincially and territorially authorized retailers and distributors. The hope is that the measure covers a broad enough base to allow those folks to have enough cash flow to pay their excise duties.
I wouldn’t be able to say how long some of those arrears have been in place, but ever since the measure had been implemented in April, we look forward to seeing its effectiveness with regard to cash flow and excise duty arrears.
Senator Smith: The fact that the government is trying to review the excise tax framework on cannabis products? Is that what you’re saying?
Mr. Glick: Sorry, I missed the first part there. The video froze.
Senator Smith: I was just asking, at the end of the day, do you think the government will review the excise tax framework on cannabis products?
Mr. Glick: I wouldn’t be able to speculate on whether the government would re-examine the framework, but I can assure you that we are meeting on a consistent basis with industry stakeholders. Innovation, Science and Economic Development Canada has also set up a cannabis sector table to hear views from the industry about how to compete in the domestic market.
Senator Smith: Thank you, sir.
Senator Bovey: I’d like to carry on with the questions that my honourable colleague Senator Smith had.
As I understand it, Bill C-32 would enable cannabis licensees to transfer packaged cannabis products among themselves, and to market products stamped by another licensee. Budget 2022 stated that the current restrictions are “. . . intended to ensure the security and integrity of the supply chain . . . .”
What measures does the government plan to take to continue ensuring the security and integrity of the supply chain?
Mr. Glick: Thank you for the questions. In terms of the security and integrity of the supply chain, the measures that were proposed in terms of taxation and allowing those activities by licensed producers were more so to streamline the framework and actually to bring it into alignment with what Health Canada regulations already allowed. In those terms, it’s more so the effectiveness and efficiency of the supply chain.
To strengthen it, I think that Health Canada colleagues would be better placed to answer that, but my understanding is that there are already very low, if any, amounts of diversion from the legal supply chain. What this does is it removes the need for some cannabis licensees to have to engage in, essentially, accounting transactions to make sure that one party can package a product and another party can stamp it — it’s for interfirm pricing, for example. This would simply allow them to transfer the product, have all that work done and then the only actual sale that would be dutiable and recorded would be the one to the provincial or territorial board that would retail or distribute the product.
Senator Bovey: What monitoring measurements are being planned to implement and assess the impact of the proposed change? What indicators does the government plan to use?
Mr. Glick: Thank you for the question. My apologies, but the start of some of the questions is cut off because of the room audio, but my understanding is you’re asking about indicators that measure success?
Senator Bovey: Yes, and what monitoring measures are being put in place to assess the impact of these proposed changes?
Mr. Glick: Sure. Thank you. In this case, we work very closely — I would say on a daily basis — with colleagues at the CRA who are intimately familiar with the operations of the industry, as well as the external stakeholders in industry that I mentioned before. Basically, it’s just qualitative feedback and stakeholder engagement that helps us determine whether the changes that have been made are effective at meeting the goals as stated in Budget 2022.
We do have reporting that licensees are required to do through what’s called a B300 form to the CRA. Inasmuch as those forms reflect transfers of stamps and products made between licensees, as well as the service agreements that they have to file with the CRA, that would at least let us know about uptake. Then we would just hear from the industry as well as the CRA about whether the proposed measures are addressing the industry’s concerns with respect to the movement of products, their packaging and their stamping.
Senator Bovey: In terms of the changes with vaping products, the excise duty liabilities that you said CRA was going to monitor, did those changes come as a result of the consultations that were undertaken?
Mr. Glick: In this case, the vaping taxation framework is completely novel. With cannabis, we’ve had it around for about four years. With vaping, we brought in the framework in October, and a lot of the legislation was on a compressed timeline. Since then, we have found some oversights in the legislation. For example, the duty liabilities. We noted that if products before October 1 had been lost, couldn’t be accounted for or, for example, were taken for use in research purposes, if that was the case, we wanted to absolve any liability for them. There was no framework in place before October, so we wanted to make sure that no excise duties were owed for those products.
It’s a bit separate from the cannabis, but yes, the custom storage in terms of having it in 14 days in an office and then just making sure they’re properly labelled and marked are relatively minor technical changes to ensure that nobody is liable for any more excise duty than they should be.
Senator Bovey: Thank you.
Senator Pate: Thank you to the witnesses. My question is for Employment and Social Development Canada.
In your departmental plan of 2022-23, you emphasized how the economic impacts of the pandemic have been unevenly distributed and highlight young people as one of the groups most disproportionately negatively impacted. There has been much talk about the importance of eliminating the interest, although there’s recognition that it will be disproportionately impacted by some.
I’m curious whether your projections in terms of the estimates include a regional breakdown, as well as a demographic breakdown in terms of, in particular, income brackets across the country. Who will be most positively impacted by these measures?
Erin Hetherington, Director of Policy, Canada Student Financial Assistance Program, Employment and Social Development Canada: My name is Erin Hetherington. I am the Director of Program Policy here at the Department of Employment and Social Development Canada.
You’re talking basically about who the primary beneficiaries of the permanent elimination of interest will be. We’re estimating that it will positively impact 1.2 million borrowers each year.
As far as the breakdown of that, we know the profile of grant-alone recipients for the program is about 61% women, 6% are Indigenous students and 8% are students with permanent disabilities. We also know that the measures will result in savings of about $410 a year per borrower.
Therefore, we’re anticipating that the primary beneficiaries will be those in the lower income brackets for the program. Given that is the profile of our grant loan recipients, we anticipate that those populations will particularly benefit.
Senator Pate: Have you looked at the particular impacts on Quebec, Northwest Territories and Nunavut since they don’t have the same access to the Canada Student Financial Assistance Program?
Ms. Hetherington: As you note, those three jurisdictions do not participate in our program. However, they do receive alternative payments from the federal government each year. The process for determining alternative payments is set out in law — it’s in our legislation — and it’s about demonstrating that their program measures have substantially the same effect as Canada Student Financial Assistance Program members.
As I mentioned, this is a process that is carried out annually to demonstrate that there are similarities in the program, and all the changes to the Canada Student Financial Assistance Program have, in the past, been taken into consideration when this calculation has been done.
Senator Pate: Thank you.
[Translation]
Senator Galvez: I have two questions about the Canada Growth Fund.
[English]
The first one is to Ms. David concerning the strategic objective. We know that we will start with $2 billion which will evolve into $15 billion that will be managed by an existing Crown corporation, as you mentioned to my colleague here.
If we want to be efficient and avoid greenwashing, this Crown corporation should have climate expertise, particular fiduciary duties, align with climate commitments, follow green taxonomy, the board should be out of conflict of interest and the targets and goals should be based on science — and, of course, reporting, as my colleague Senator Marshall has said.
Can you assure us that this Crown corporation will have all of those qualities or criteria?
Ms. David: Thank you for your question, senator.
In terms of a response about what the Canada Growth Fund is supposed to do, how it will do it and how it will report to Canadians that it is doing it, as highlighted in the technical backgrounder, in the interim stage, the Canada Growth Fund will be set up under the Canada Development Investment Corporation. CDEV will look to hire particular expertise, whether they be investment professionals as well as professionals that have experience in the clean tech space, in order to provide that expertise needed to make those initial investments of the fund. That will be done in phase 1.
In phase 2, when the government takes steps to establish the long-term, permanent structure of the CGF, it will also leverage existing resources and seek out expertise in those domains — again, in the investment space as well as the clean tech space — in order to ensure it is properly staffed with those experts to allow them to make both smart investment decisions and also decisions that match its strategic objectives.
Senator Galvez: I have another question for Ms. Clark. As you know, we have all the technology we need to completely decarbonize our economy. Can you speak to the proportionality between the Canada Growth Fund, which is largely to develop and refine new technologies, and the funds allocated to implementing existing technologies in order to decarbonize now?
Ms. Clark: Thank you for your question. I’m not sure if Ms. David would be better placed to respond to this one. Sorry, Ms. David.
Ms. David: Thank you, Ms. Clark, and thank you, senator. I’m happy to take on that question.
In terms of the growth fund and which technologies it finances, it will be financing technologies aimed at the scale-up stage. These are technologies that are new in the sense that they’re not yet developed at scale; they’re not mature. It’s not like solar power or wind power yet, where those are already mature. These are newer technologies. They are things like hydrogen or carbon capture and storage, things that need concessional financing in order to scale them up so they can be deployed at a commercial stage so we can use them in everyday use. They can then be used by more companies and in more projects across Canada in order to decarbonize existing industries and future industries in order to lead Canada to achieve our net-zero objectives.
Senator Galvez: I want to make a comment that carbon capture and storage have been in development for the last 30 years. It’s not a new technology, so I’m surprised to see it there as a new technology. I’m sure you can look into what Norway and Iceland have done in order to prioritize and be more efficient with the money of Canadian taxpayers. Thank you.
Senator Duncan: Thank you to the panel who have appeared before us today.
I’d like to follow up on the Underused Housing Tax Act and the making of related regulations. These are quick questions, and I hope the answers will be fairly short.
The annual 1% tax is on the value of non-resident, non-Canadian-owned residential real estate. I do have the act and the briefing note. I don’t see anywhere where the value is defined. What constitutes the value? Is it the property taxes assessed by the province or territory? How is the value determined?
Mr. Ives: Under the Underused Housing Tax Act, the 1% applies to the greater of the most recent sales price of the property and the assessed value for municipal taxation purposes.
Senator Duncan: Time saved. Thank you.
My next question is about non-resident, non-Canadian. How does the regulation intend to deal with those who may be non-resident but hold dual citizenship?
Mr. Ives: Again, it’s in the Underused Housing Tax Act, which was already passed. If someone is a Canadian citizen and holds citizenship with another country — a dual citizen — they’re not subject to the Underused Housing Tax Act.
Senator Duncan: Thank you.
In the regulations that are before us, prescribed areas are defined, and it says “. . . not within a population centre.” As I’m sure you’re well aware, Canada’s wilderness is much valued by those from out of the country as it is by those living in the country. In essence, while a person might own a residential vacation property in a wilderness area — in the Yukon, Northwest Territories, Nunavut, northern Newfoundland or northern B.C. — they would be exempt because that vacation property is not within a population area. Is my understanding correct?
Mr. Ives: Yes. If we’re talking about wilderness areas, it’s unlikely those areas would comprise a population centre.
A “population centre” is defined as a Statistics Canada concept as generally being an area of population density exceeding 400 residents per square kilometre.
Senator Duncan: That would apply to a good portion of Canada, then, in the wilderness area.
In preparing the information, has there been an estimate of what the foregone revenue is of properties that are not going to be subject to this tax?
Mr. Ives: I have those figures here. These figures were released as part of Economic and Fiscal Update 2021. On the cost of this, I think it’s important to give, first, the underused housing tax revenue projection. The five-year revenue projection for the underused housing tax, beginning in 2022-23, was originally $865 million over five years. The estimated cost of the vacation exemption was $130 million over that same five-year period. That results in net revenues from the tax over five years of $735 million.
Senator Duncan: Just to follow-up, is that based on 2021 prices — these estimated values — or is it based on more recent values?
Mr. Ives: The projections were based on Canada’s residential housing stock at a point in time. The numbers, though, were grossed up to reflect the passage of time and various other projections. I’m not the quantitative expert, but I do know that the numbers are adjusted to reflect expectations of housing prices.
Senator Duncan: But you also used the word “residential,” and we were talking about vacation properties?
Mr. Ives: Yes. The tax applies to residential property under the Underused Housing Tax Act, and it is defined quite broadly. It would encompass things like cottages and things like that.
Senator Duncan: Right. What I hear you saying then is that the estimated revenue from this underused property tax is $865 million. The exemption for the value of the underused property foregone revenue is estimated to be $130 million.
Mr. Ives: That is for the vacation property exemption.
Senator Duncan: Thank you.
Senator Loffreda: Thank you to our witnesses for being here once again.
As sponsor of this bill, I want to alleviate some concerns raised by the senators in what I’ve heard. I would go back, have some reassurance around the Canada Growth Fund and confirm this is legislation to enact a permanent structure to appropriate funds that would give them a running start from previous learnings from government-owned investment funds. No investments would be allowed before the permanent structure is in place, obviously. A CEO and a board will be named. Maybe you can elaborate on some of the projects or programs that necessitate the creation of this fund.
To add to Senator Galvez’s question, why was the Canada Growth Fund necessary? Is there anything you can add to alleviate some of the concerns around the Canada Growth Fund, as raised by Senator Marshall, Senator Gignac and others?
Ms. David: Thank you, senator. In terms of the type of projects or investments that necessitate the Canada Growth Fund, that fund is set to meet certain objectives. Those are to reduce emissions and achieve Canada’s climate targets, and, in particular, to accelerate the deployment of technologies such as low-carbon hydrogen, carbon capture utilization and storage and other such technologies that have not reached the scale yet where they’re ready to be commercialized. It’s also meant to scale up companies that will create good jobs, and drive productivity and clean growth in Canada towards a net-zero economy. Finally, it’s meant to capitalize on Canada’s abundant natural resources and strengthen our place in critical supply chains to secure our economic well-being.
Looking at why the growth fund is needed, it’s needed to meet these strategic investments. In particular, it’s needed to invest where the private sector is not yet willing to invest on its own because there’s too much risk from the project, be it from demand, policy, regulatory risk or execution risk. These are the types of risks that the growth fund is meant to mitigate in order to make those investments more attractive to the private sector because, frankly, the government can’t invest in this space on its own. It needs to attract billions of dollars every year in order to scale up these technologies to get Canada to a net-zero economy.
Senator Loffreda: And $2 billion is a significant amount, it is from the Consolidated Revenue Fund and it is to acquire the non-voting shares, right? That has to be clear. At this point, it’s for structure only, right? Maybe you could confirm that.
Ms. David: Absolutely. Thank you, senator, for asking that question. The $2 billion is start-up capital for the growth fund so the fund can have the money it needs to cover its start-up costs and also to make any initial investments in the first half of 2023 while the permanent structure is being set up.
To be clear, these investments would be done while the growth fund is under its interim structure under the Canada Development Investment Corporation. The reason the government is taking these steps right now for the fund to be able to invest imminently is due to the urgency, which is created by the market demand for this investment and also the huge competitive pressures we’re facing with the U.S. implementation of the Inflation Reduction Act and the pressures that places on Canada.
Senator Loffreda: The other concern was on the cannabis taxation, and this is just to confirm that these are strictly technical measures. The legalized market share of 70% won’t be affected. It does mirror other states, like Washington and Colorado. Maybe you could confirm that. There has been no significant increase in youth usage because there was some discussion of that in the past in our Finance Committee as to the effect on our youth.
Just to confirm that these are strictly technical measures, and maybe you could elaborate on any other issues that are relevant.
Mr. Glick: Yes, that’s right. Thank you, senator. These are technical measures that the industry has been asking for and that we’ve put into the legislation. In that respect, we do hope they have a knock-on effect of helping support legalization as well as to stamp out the illicit market, and, of course, in terms of not increasing youth usage or to take cannabis out of the hands of youth. On that point, even as the general rate of consumption among the population has increased somewhat since legalization in 2018, there’s been no significant increase in youth usage over time. That is encouraging in that sense.
Furthermore, in terms of legal market share, yes, even in Washington and Colorado where they’ve had cannabis around for a longer time, we have been comparing favourably to the legal market capture rates. With Canada being a closed market with hard borders with the U.S., we should hopefully see legal market capture exceed those in U.S. jurisdictions that have legalized. It should be a promising path after legalization.
Senator Loffreda: Thank you.
Senator Gignac: I want to go back to the discussion of my colleague Senator Loffreda and Ms. David. I understand that the Canada Growth Fund is to, in fact, explore the deployment of technology, decarbonize the economy, react to what’s going on the U.S. side and remain competitive.
In your technical backgrounder that you released on November 4, and which I have read, you point out that this growth fund will invest in a manner that accepts some portion of this risk to bridge the private market funding gap.
In plain English, there are some areas that the private sector will never invest in because it’s too risky — they have too many policy risks, regulatory risk or others. Could you provide some examples? In Quebec, they have Investment Quebec and, for example, they have some first-loss positions. When we invest — because it is not always a success — you could have a bad investment. Therefore, the government takes the first portion as a hit rather than the private sector. Is it a thing? Could you give a precise example? Is it the first time the federal government will have this kind of structure or do they have another Crown corporation that exists that I’m not aware of?
Ms. David: Thank you for your question, senator. Maybe I’ll address your second question first. The growth fund is meant to be complementary and fit within the suite of existing programming offered by the Government of Canada, be that the Strategic Innovation Fund or existing Crown corporations like Export Development Canada and Business Development Bank of Canada.
What sets the growth fund apart from those programs is its particular focus on the scale-up stage of investment and how it will be delivered using investment professionals as well as clean tech and climate professionals.
In terms of mitigating the risk, I wouldn’t say it is places where the private sector does not want to invest at all or wouldn’t touch those investments. I think what you said is correct. It’s more like what Quebec is doing in certain areas where the growth fund can come and absorb or accept the risk in the first instance. For example, with financial instruments where it takes the first loss, provides a lower-cost loan or invests equity where others are not able or willing to invest equity, but it really does invest in a way that makes it more acceptable for those other investors to come and invest.
Senator Gignac: Is it a tool to convince our Canadian pension fund to join a little bit more? I realize a lot of Canadian pension funds are reluctant to invest more in the decarbonization of the oil and gas sector, for example. They prefer to invest abroad for different reasons because the expected return, perhaps, is much higher. Is it a way that we will see partnership incentives to convince our Canadian pension fund — with $3 trillion in assets under management, which is 160% of GDP — to be more active or will they not be useful at all for them as a partnership?
Ms. David: Absolutely. Thank you very much for your question, senator. In terms of how the fund will invest, it will invest along with other large investors in Canada. Those could be either private sector funds or pension funds as well as, for example, project proponents like large oil and gas companies that want to make a business case for some of their planned projects that need someone to help them out with that — to make those investments bankable and investable by the private sector.
For example, there could be a company that’s seeking to attract investment from the growth fund, and the growth fund could convene with other private sector investments, whether they’re pension funds or other institutional investors like banks, in order to finance that project.
Senator Gignac: Thank you for that.
Senator Smith: I would like to circle back around the foreign state’s financial support and ask a couple of questions. Is that Ms. Clark I’m speaking with?
Ms. Clark: That’s correct. Thank you.
Senator Smith: Okay, thank you. You talked about increasing the fund amounts. Was that originally in U.S. dollars? And if it was in U.S. dollars, why was it converted to Canadian dollars? Could you help me on that one?
Ms. Clark: Certainly. The main reason we switched was for accounting purposes. The most recent loans we’ve been providing have been in Canadian dollars. It’s easier to track and ensure there is no foreign exchange risk in the provision of those loans for tracking and monitoring purposes.
Senator Smith: Was there special criteria for countries to apply for this? Could you give me an idea of some of the top two or three criteria?
Ms. Clark: Absolutely. Countries don’t come to the government to apply for it. The process for seeking support under this is the Governor-in-Council can authorize the Minister of Finance to provide financial assistance to a foreign state if the Governor-in-Council is of the opinion that it is in the national interest to do so.
In addition, the Minister of Finance must be satisfied that the foreign state has an arrangement with the International Monetary Fund and that other countries are also participating with Canada in the provision of financial assistance to the country.
Senator Smith: Make an application to Canada funds?
Ms. Clark: I suppose a country could reach out to a minister to seek funding, but it’s not a standardized process.
Senator Smith: This can’t happen just for fun. There has to be some reason for Canada to support a foreign state. How does that evolve until you get to the point where you’re going to fund the foreign state?
Ms. Clark: Certainly. Again, as identified in the act, the government and the Governor-in-Council in particular must be satisfied that it would be in the national interest to provide financing to a foreign state. The most recent loans or financial assistance that have been provided under this provision has been provided to Ukraine for reasons of national interest, and also, again, because they have an IMF program and there were many other countries who were also supporting Ukraine.
Senator Smith: How does the government ensure that any financial assistance to foreign states does not end up in the wrong hands? Is there a process by which the assistance is audited?
Ms. Clark: The financial assistance is provided directly to the foreign states, so the funding would be provided to the other government.
As noted before, bilateral arrangements or bilateral loan agreements are entered into with the foreign state that would seek to establish parameters for the sovereign lending provided to that country. There would be standard sovereign lending contractual processes around that which would be followed. Please let me know if there is something further.
Senator Smith: You talked about this program going back to the 1990s when it was at one amount and how it evolved to the present amount given out. Is there a track record of success? Is there any measurement that’s used on this other than there being a need addressed by giving money to a foreign state? Is there a success track record or some form of evaluating whether the money was well placed?
Ms. Clark: Since 1998, and prior to 2022, section 8.3 of the Bretton Woods and Related Agreements Act has been used on four separate occasions. In 1998, there was a loan provided to Thailand. In 2000, a loan guarantee was provided to Brazil. In 2014-15, loans were provided to Ukraine. All of these have been repaid. In 2016, a loan guarantee was provided to Iraq. This is still outstanding, but is in good standing. Most recently, there have been the loans provided to Ukraine. Since 1998, I would say the use of this act has been relatively limited.
Senator Galvez: I want to continue on the Canada Growth Fund. I find some incoherence with the funds being used to scale up new technologies and create clean growth in clean jobs. When we talk about carbon capture and storage — I will repeat, the first one was installed in Norway in 1996 and has proven to be energy intensive — the storage post risk, it keeps us locked in fossil fuels when, contrary to that, we could be invested in geothermal.
Canada has access to three oceans and doesn’t have any tidal or wave energy. What about biomass, solid batteries or a combination of these renewable energies, which would be more in line with the objective of this Canada Growth Fund?
Second, can you please assure us that the board of the interim Canada Development Investment Corporation doesn’t presently have any conflict of interest with fossil fuel industries?
Ms. David: Thank you for your questions, senator. In terms of the first one and the technologies the fund could be investing in, those are all very good points. When it is set up, the fund will take the decisions required, and make those decisions in terms of what it invests in and which technologies it chooses based on the demand of the market, the projects that it’s presented with and what it hears in terms of what proponents need and the types of investments that are needed. These decisions will be made by the growth fund, and they’ll be made at arm’s-length from the government by those investment professionals as well as climate professionals.
In terms of your second question, the Canada Development Investment Corporation will set up the subsidiaries board, and it will set up the board with the regular governance and guardrails that a board would have, including things like ethical walls, conflict of interest policies as well as codes of ethics.
Senator Galvez: Thank you.
Senator Duncan: I have one follow-up regarding the Underused Housing Tax Act and the related regulations. The panellists advised that $865 million would be the amount collected. Could we please have a regional breakdown of where that funding might be collected from, if that’s available?
Mr. Ives: Thank you for the question. Unfortunately, there isn’t data available about non-resident ownership of residential real estate in Canada for each province and territory. Certain assumptions needed to be made in order to arrive at the estimate of $865 million in revenue. Unfortunately, the provinces for which the data was available needed to be used in order to make certain assumptions as to the revenue impact for other provinces and territories in Canada. Unfortunately, I don’t have a province and territory breakdown.
Senator Duncan: Perhaps you could provide in writing a more detailed breakdown of how the $865 million was arrived at and the data you used. I’m sure the chair will provide you with the deadline by which we require that response.
Mr. Ives: Thank you.
Senator Gignac: Ms. David, I’m just curious. I have to disclose that I’m not very familiar with the creation of Crown corporations and the procedure. Is it a different law or included in the budget bill? When the federal government created Export Development Canada, Business Development Bank of Canada or other Crown corporations, I don’t know whether it was in the bill or a different bill.
Are we adding that when you create the permanent Canada Growth Fund, it will be a new Crown corporation? If I understand correctly, the details will be included in the next spring budget. But are we adding that this structure will be included in the next spring budget bill? Will it be a separate bill that we will have more time to ask questions about the governance, the details to avoid conflict of interest and the investment strategy? Has the government not taken a decision yet or would it be included in the next budget bill or a separate bill that we would have more time to analyze?
Ms. David: Thank you, senator, for that question. The government has not taken a decision yet on what the form or the format of the bill will be in which the Canada Growth Fund’s permanent structure would be included.
[Translation]
The Chair: I have a question before I turn over the floor to the sponsor of the bill, Senator Loffreda.
I’d like to quote from the summary for Part 1, item (g): “providing additional reporting requirements for trusts.” Can you explain this to the committee, as well as the issues it may cause with respect to attorney-client privilege?
Pierre Mercille, Director General, Sales Tax Legislation, Department of Finance Canada: If your question relates to Part 1 of the bill, Ms. Gwyer and her colleagues testified about that this morning. Unfortunately, no one on this panel can answer your question, because it relates to Part 1.
The Chair: Thank you.
[English]
Senator Loffreda: Thank you once again to our witnesses for being here. The major questions were around the Canada Growth Fund. Once again, if I ask a question there and maybe alleviate some of the concerns with anything you may add with respect to the permanent structure and the timeline. Is there a timeline that has been decided? I understand from what we’ve been told that it’s to give them a running start, and the structure will be put in place. With the interim structure now, investments could be made, but is there a timeline for bringing in the permanent structure? You always want the CEO and the board to be aligned with the fund and its strategy. Can you elaborate on the strategy with respect to whether it is strictly technology that we’re looking at or are there other types of investments with respect to the climate change, environment and this area of concern?
Ms. David: Thank you, senator, for your questions. To answer your first question around the timing, as the Fall Economic Statement indicated, the government intends to take the steps necessary to set up the growth fund in the first half of 2023. As we’ve discussed today, that involves passing legislation to establish the permanent structure. It is our intention to take those steps in the first half of 2023, but obviously the government cannot control when Parliament would adopt and pass such a bill.
That being said, we’re working with urgency and alacrity to get this fund set up as soon as we can. Did you have a follow-up on that one?
Senator Loffreda: I’m looking more at the permanent structure. I understand Parliament has to put a permanent structure on what, at this point in time, we’re looking at. It’s more with respect to executives, the corporate structure and the strategy being built out to clarify the whole picture for us all and the timeline on that if there is any.
Ms. David: Absolutely. On this one I’m going to stress again the urgency involved here. Obviously, there are many steps to go through. The next step would be legislation to establish a permanent structure.
Also, while we’re in this interim phase, work is continuing. We’re continuing to work in order to already take the steps necessary to set up that permanent structure — we’re doing the groundwork and starting to work on recruitment, on how we can leverage the resources in order to have a very good running start at the permanent structure once that legislation is in place.
In terms of your second question, on which technologies or which types of projects would be within the scope of the Canada Growth Fund, again turning to the technical background, there are certain areas that are within the strategic objectives. These both have to do with Canada’s climate goals, but also its economic goals.
It’s not only clean technology companies and projects, but it’s also things like critical minerals that are part of, for example, net-zero value chains to make batteries or things like that, and also certain things like clean fuel such as hydrogen or sustainable aviation fuels.
Senator Loffreda: I have another question. Thank you very much on that.
I had a question on the Bretton Woods and Related Agreements Act. We had some discussion around the table and some concern from the senators. It does specify the maximum financial assistance in respect of any particular foreign state under paragraph 8.3(5)(a) is to be changed to $7 billion Canadian. The maximum financial assistance in respect of all foreign states under paragraph 8.3(5)(b) is to be changed to $14 billion Canadian.
Given the geopolitical situation, is there any data, analysis or projections you can share that were made to arrive at these amounts? We do know, since 2022, Canada has provided $2 billion to Ukraine in financial assistance. Any other relevant information you can add to reassure us that these amounts have been determined with some projections, forecasts and analysis, and why they are what they are?
Ms. Clark: Thank you, senator.
As previously noted, the increase really has to do with bringing us back in line with the inflationary growth, since the limits were first introduced in 1998. We have not updated the limits since that time.
Bringing it forward, we looked at the recent assistance that has been provided, as you highlighted, senator. We assessed that it was likely time to update these limits. Again, this is aligned with inflation and roughly a doubling of assistance.
I should further note that the increase doesn’t immediately confer a benefit for any one individual country. There is a process by which this financial assistance would be provided to a country. There is no direct or immediate fiscal impact.
Senator Loffreda: So it is strictly inflation driven and not with respect to future needs. It’s not that the future needs have been looked at or projected, and saying here is what we need and here is what we want you to legislate? It’s strictly on inflation and, as you said, it hasn’t been increased for 25 years?
Ms. Clark: Correct, senator.
Senator Loffreda: Thank you.
Senator Marshall: Thank you. I have a point of clarification.
The last briefing we had was on Division 2 of Part 4. Are we going to be briefed on Division 3, 4 and 5 of Part 4?
For example, we haven’t had anybody explain to us about the framework agreement on First Nations land management.
Are we finished with Part 4? Are we going to get additional briefings or did I miss something?
Senator Moncion: On the agenda, we were supposed to see all five.
Senator Marshall: Yes, but nobody’s mentioned it.
Senator Moncion: But Social Affairs was there, and there is another one.
Senator Marshall: I had questions about Canada’s student loans.
Senator Moncion: Same here.
Senator Marshall: But nobody briefed us on it.
Senator Moncion: These are two parts that we haven’t seen. The officials are there.
The Chair: To the officials, we have other questions on other parts. Can you answer those questions, if we bring that to your attention? Or you can ask someone from the department to answer the questions in writing.
Ms. Hetherington: I am here from the Department of Employment and Social Development Canada program policy for the Canada Student Financial Assistance Program, so for Division 5 of Part 4 in the amendments to the Canada Student Loans Act, the Canada Student Financial Assistance Act and the Apprentice Loans Act.
Senator Marshall: The issue for me is I realized one of my colleagues — maybe it was Senator Pate, I can’t remember — did ask a question on the Canada Student Loans Act.
The format of the meeting is that the official from the department would give us a brief overview and then that would precipitate questions.
I did have questions on Canada student loans, but more important was Division 3 of Part 4, Division 4 of Part 4 and Division 5 of Part 4.
The framework agreement on First Nations land management, nobody’s briefed us on that. I had some questions. I read the legislation. I just don’t understand it. I thought there was going to be somebody here to brief us on that. I thought there would be somebody to brief us on Canada student loans. It seems like the last briefing was Ms. Clark on Division 2 of Part 4, and then we didn’t get briefed on the rest of it.
I can ask my question on Canada student loans because it’s fairly straightforward. But the First Nations land management act, the framework, I have no idea what that’s about at all.
The Canada Student Loans Act, I am wondering why is this split over five years? Why isn’t that interest written off next year in 2023-24? Why is this spread over five years?
The Chair: Senator Marshall, this is Part 5?
We’ve had some presentations.
Senator Marshall: She didn’t present.
Ms. Hetherington: I wonder if you would like me to respond to the question about why it’s not entirely written off, so why are we spreading the cost out over five years?
Senator Marshall: Why is that spread out over five years, yes.
Ms. Hetherington: Basically, it’s spread out because it’s the annual cost to the government of removing the interest based on a calculation of what the loans would have accrued in interest over the next few years. It is a reflection of the cost that the federal government will not be receiving from permanently waiving interest.
Senator Marshall: Is that cost going to be recognized into eternity or is it going to be just for those five years?
Ms. Hetherington: We do have an ongoing cost which is here. Right now, the investment is $2.7 billion over five years. Then there is an ongoing cost of $556.3 million per year ongoing.
The Chair: Senator Marshall and Senator Moncion, if you want to ask questions of the officials that did make representation here, we know that the Standing Senate Committee on Indigenous Peoples will report back on December 5 before National Finance Committee consideration.
That said, the officials that we have here have the responsibility to answer our questions. If they cannot answer a question, the National Finance Committee will ask them to direct it to the proper officials so that we can have it in writing.
On this, Senator Marshall, do you have any other questions?
Senator Marshall: No. I’ll do some research, and I will bring my questions to someone when they appear.
[Translation]
Senator Moncion: I have a logistical question. According to the agenda we received, we were to address Part 2 of the bill at today’s meeting.
The Chair: We are looking at Parts 2, 3 and 4.
Senator Moncion: Yes, Parts 2, 3 and 4; Part 4 is split up into five divisions and the third one has been referred to APPA.
The Chair: That’s right.
Senator Moncion: We were briefed on Parts 1 and 2 and subsections A and B in Division 3 of Part 4. However, we have not been briefed on Divisions 4 and 5. The briefing on Division 4 deals with the Government Employees Compensation Act and Division 5 is about student loans. Those are the two briefings we have not had. I believe the representatives are here to talk about those two divisions. We had no further questions on the portions we saw, but with respect to the representatives we haven’t heard from yet, if they are here, we’d like to hear from them and then be able to ask them questions. I believe they are present.
The Chair: You’re absolutely right.
Senator Moncion: Can we hear from those two individuals so they can do their briefing?
The Chair: Ms. David, we haven’t been briefed on Divisions 4 and 5. Could someone around you answer these questions on the briefing at this time? We were not briefed.
Ms. David: Thank you for your question. With respect to Divisions 4 and 5, those are handled by some of my colleagues; I am dealing with Division 1.
The Chair: Who around you can answer questions about Divisions 4 and 5? Can anyone answer those questions? Ms. David, I’m listening.
Ms. David: Thank you, senator. I don’t know who is responsible for Divisions 4 and 5. Is one of my colleagues online right now responsible for those divisions?
The Chair: I see that you have staff attending via video conference to answer any questions. As Senator Moncion has pointed out, we were not briefed on Divisions 4 and 5. Can someone answer these questions via video conference at this time?
[English]
Jason Wood, Executive Director, Space Exploration and Space Industry Policy, Canadian Space Agency: Mr. Chair, if I may. I am Jason Wood, Executive Director of Space Exploration Policy, Canadian Space Agency. I am in a position to speak to Division 4 of Part 4 of Bill C-32.
Ms. Hetherington: I’m Erin Hetherington, Director of Program Policy. I believe you’ve seen me a couple of times already.
I’m in a position to speak to Division 5 of Part 4, which is concerning permanent elimination of interest on Canada student loans.
Senator Moncion: Could they provide their briefing?
The Chair: If you could you provide the briefing first, then questions will come.
Mr. Wood: Mr. Chair, to clarify, would you like a presentation on Division 4 of Part 4, or Division 5 of Part 4?
The Chair: Both. This is what we’re waiting for, and then you’ll receive questions.
Mr. Wood: Thank you. I’ll begin with Division 4 of Part 4.
As I mentioned, I am Jason Wood, Executive Director of Space Exploration Policy at the Canadian Space Agency. I am also joined by colleagues from the Labour Program at Employment and Social Development Canada.
In 2020, Canada signed a treaty with the United States to enable Canada’s participation in the Lunar Gateway, which is a small space station that will orbit the moon. Canada’s contribution to this partnership includes Canadarm3, a cutting-edge, smart robotic system which will contribute an estimated $71 million annually to Canada’s GDP, and create and maintain 630 high-quality jobs for Canadians over a 12-year period.
Implementing legislation is required for Canada to fulfill its legal obligations under the treaty. The majority of the required legislation was enacted through Budget Implementation Act, 2022, No. 1, under Division 18 of Part 5.
There’s one item that remains to be implemented, which is Division 4 of Part 4 of this bill, which amends the Government Employees Compensation Act to implement the cross-waiver of liability contained within the treaty.
Thank you, Mr. Chair.
Ms. Hetherington: Again, I’m Erin Hetherington, from Employment and Social Development Canada. I’m here to talk to you about Division 5 of Part 4, which is to amend the Canada Student Loans Act, the Canada Student Financial Assistance Act and the Apprentice Loans Act to permanently eliminate the accrual of interest on Canada student loans and Canada apprentice loans starting April 1, 2023.
The purpose behind this measure is to provide relief to borrowers who are experiencing long-term affordability pressures and to help recent post-secondary education graduates better manage their student and apprentice loan repayments. This initiative is to build on the two-year interest waiver that was implemented prior to this and that is set to expire on March 31, 2023.
Thank you.
Senator Marshall: I only have one question now. Mr. Wood, is there any funding requirement for that part of the bill? Is there a cost associated with that?
Mr. Wood: No. All of the funding for Canada’s contribution to the Lunar Gateway has been previously provided. This is simply legislation to enable us to meet our requirements under the treaty.
Senator Marshall: To provide the authority.
Mr. Wood: Correct.
Senator Marshall: Thank you.
[Translation]
Senator Moncion: In this legislation, you talk about dependents in the event of a civil liability action against other partners under the Civil Lunar Gateway Agreement. Can you explain which employees will be affected by this change and the scope of this amendment, and the financial impact this will have on the government?
[English]
Mr. Wood: Thank you for the question. I’ll provide a brief response. My colleagues from the Labour Program may also want to add to my response.
To be clear, this proposed legislation doesn’t change the rights of individuals. It really underscores that the Government of Canada will not seek to make claims against another government with respect to any issues of liability related to participation in the Lunar Gateway. Any rights that government employees have under this act will not be altered. It actually changes the ability of the government to seek compensation from a foreign government in relation to the Lunar Gateway.
In terms of potential financial impacts on the government, I can say that there is no precedent for this having to be implemented. You will note, in the current legislation, there is a provision in relation to the International Space Station. We are taking an identical approach to the Lunar Gateway, but this provision has never had to be applied in relation to the International Space Station. I don’t have any precedent to speak of.
Senator Moncion: It just means that if anything happens to any Canadians working on the space station, they will be covered by Canadian government. There’s no liability for Canada towards other countries and vice versa?
Mr. Wood: Yes, in simple terms — and, again, my labour colleagues may want to elaborate — Canadians will have the opportunity to seek compensation from a foreign state directly, or they can seek compensation under this act from the Government of Canada. Normally, the government would then be able to seek compensation from that foreign state, but this legislation is saying that, in that case, Canada won’t seek compensation.
Senator Moncion: Thank you.
Senator Loffreda: I have another question. Thank you. Division 4 has been well covered with the questions by Senator Moncion and Senator Marshall, but why was it required at this point in time? What went into getting this legislation approved at this point in time? The necessity for it?
Mr. Wood: Well, really, all of the elements with respect to negotiating our contribution to the Lunar Gateway have been completed. Again, in terms of the $71 million per year in GDP contribution and the 630 jobs, all of that is ready to go. But we have these legal obligations under the treaty, so in order to fulfill those obligations, we need to bring this legislation into place. This is the last piece of the puzzle, if you will, in order for us to affirm our participation and continue in our collaboration with the United States.
Senator Loffreda: It’s the concluding feature required at this point in time to conclude the agreement?
Mr. Wood: It is.
Senator Loffreda: Thank you.
The Chair: I have a question to ask as chair, with the indulgence of all senators. I’m somewhat sensitive to it, being the son of a single mother, born on welfare, I know how important student loans are. My question is to the officials. Canada student loans are not available to students in Quebec, the Northwest Territories and Nunavut.
If Division 5 of Part 4 of Bill C-32 were to become law, would the Government of Canada take any actions aimed at securing similar support for borrowers in these jurisdictions?
Ms. Hetherington: Thank you for the question. You’re correct. The three jurisdictions that do not participate in our program are the Northwest Territories, Nunavut and Quebec. We do, however, have alternative payments set out in our legislation that provide alternate payments in these jurisdictions in place of the program. That process is determined every year for the year that has passed. What is required there is a demonstration on behalf of the jurisdictions that their measures have substantially the same effect as measures in the Canada Student Financial Assistance Program. There are a formula and a process for that. The program has undergone quite a few changes in the past year. All the new measures have been considered in the past when looking at alternate payment calculations. As long as the procedure is followed and all the information is given, I am sure that all factors will be considered when determining that formula. It is a legal process with a legal formula, and it’s determined by the Minister of Employment and Social Development Canada on a yearly basis.
The Chair: To the officials of the Department of Finance, thank you very much for answering our questions. Your comments and answers will enable our National Finance Committee to again reference our four principles or common denominators — it’s about transparency, accountability, reliability and predictability.
Before adjourning the meeting, honourable senators, the sponsor of this bill, Senator Loffreda, has another question, and we will conclude with that.
Senator Loffreda: I have a final question with respect to student loans. Thank you for giving us the briefing on Division 4 and Division 5. We’ve covered everything we had to cover today.
On Division 5, with respect to the bill that would eliminate the interest accruing on the student and apprentice loans as of April 1, 2023, with the lenders’ lost interest — that’s important to note, the income covered by the federal government — what stakeholders have been consulted on that? Would it affect future student loans? Are banks and lenders totally comfortable with that process? Do you have any data or analysis with respect to that measure, which obviously is welcome? We have to help our students, but we don’t want to affect the future loans being made to those same students. We want our stakeholders to be totally satisfied. Would you have any data, analysis or any relevant information on that?
Ms. Hetherington: Absolutely. The loans that are issued through the program are direct loans. As far as lenders go, there are some remaining loans with the banks, but they have not been part of the program for quite some time. As far as stakeholders, we have been able to receive some feedback from them. We do have a consultative body of our participating jurisdictions, as well as non-participating jurisdictions who are observers in that body. The reception to the change has so far been positive. In fact, we’re actually aligning with six of the participating provinces which already do not charge interest on the provincial portion of the loans. That would be British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island.
I also know that many of our student stakeholders have expressed support for this measure. We’ve received that feedback both through our stakeholder advisory group as well as feedback from stakeholder groups following the announcement in the Fall Economic Statement that this was going forward.
Senator Loffreda: Thank you.
[Translation]
The Chair: Before adjourning the meeting, I’d like to remind witnesses to kindly submit their responses in writing to the clerk before end of day on Tuesday, November 29, 2022.
[English]
I would also inform honourable senators that our next meeting will be held tomorrow, Wednesday, November 23, at 6:45 to continue our study on the subject matter of Bill C-32.
Before adjourning the meeting, again, on behalf of the senators of the National Finance Committee, I thank the entire support team of this committee, those in the forefront of the room, as well as those behind the scenes who are not visible. Thank you for your work which contributes enormously to our work as senators for Canadians.
On this, honourable senators, I now declare the meeting adjourned.
(The committee adjourned.)