THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, December 6, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 8:33 a.m. [ET] to study 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.
[English]
The Chair: I wish to welcome all honourable senators as well as the viewers across the country who are watching us on sencanada.ca. In particular, I would like to recognize the presence of Senator Cardozo, who is joining us this morning. Senator Cardozo, we welcome you to the Standing Senate Committee on National Finance.
My name is Percy Mockler, senator from New Brunswick.
[Translation]
I am the Chair of the Standing Senate Committee on National Finance. Now we’ll go around the table so my fellow senators can introduce themselves.
[English]
Senator Galvez: Rosa Galvez from Quebec.
Senator Pate: Kim Pate from here, the unceded, unsurrendered territory of the Algonquin Anishinaabeg.
[Translation]
Senator Moncion: Lucie Moncion from Ontario.
Senator Gignac: Clément Gignac, a senator from Quebec.
Senator Loffreda: Tony Loffreda, a senator from Quebec.
[English]
Senator Bovey: Patricia Bovey, senator from Manitoba.
Senator Duncan: Pat Duncan, Yukon.
Senator Cardozo: Senator Cardozo from Ontario.
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
The Chair: 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 this committee on November 17, 2022, by the Senate of Canada.
[Translation]
We have a number of organizations with us this morning to help us wrap up our study of Bill C-32. From Imagine Canada, we have Bruce MacDonald, President and Chief Executive Officer.
[English]
From the C.D. Howe Institute, Mr. Benjamin Dachis, Associate Vice President, Public Affairs, also by video conference; and from the Alberta Federation of Labour, Gil McGowan, President.
[Translation]
From the Canadian Alliance of Student Associations, we have Christian Fotang, Chair, and Mackenzy Metcalfe, Executive Director.
[English]
Also, from the Canadian Bankers Association, we have Mr. Darren Hannah, Vice President, Personal and Commercial Banking, by video conference; and, as an individual, Lance Lochner, Economist, University of Western Ontario.
Welcome to all of you and thank you for accepting our invitation to appear before the Standing Senate Committee on National Finance. We will now hear opening remarks with a time frame of five minutes each. First, we will hear from Mr. MacDonald, Imagine Canada; to be followed by Benjamin Dachis, C.D. Howe Institute; Gil McGowan, Alberta Federation of Labour; Christian Fotang, Canadian Alliance of Student Associations; Darren Hannah, Canadian Bankers Association; and to be completed by Mr. Lance Lochner.
Mr. MacDonald, the floor is yours.
Bruce MacDonald, President and Chief Executive Officer, Imagine Canada: Thank you, Mr. Chair and committee members, for the opportunity to speak to Bill C-32.
I am here today as it pertains to the changes made to the disbursement quota and its effects on the charitable sector. Overall, Imagine Canada supports the spirit of the 2022 Fall Economic Statement.
Imagine Canada is a voice for the charitable and non-profit sector, and you may remember that I presented to this committee in June regarding the first Budget Implementation Act.
Imagine Canada has worked with partners and stakeholders to assess the proposed legislation, from the technical aspects of Bill C-32 to the possible impacts on our members and other organizations in the sector.
Several key considerations have been brought forward and addressed in this legislation, and some nuances remain to be explained. It is our hope that the Canada Revenue Agency will continue to define and explain additional components of the legislation and how they will be interpreted at the administrative level.
For Imagine Canada, it remains imperative that the intended purpose of these legislative changes — namely, ensuring greater investment in charities and non-profit organizations — remains the same as sector organizations continue to innovate to meet rising demand for services.
First, I am here to reinforce the purpose of the bill at a high level and why these changes are important, as well as to propose one change in terms of a firm, legislated commitment to review this quota at regular intervals.
Second, I will speak to why the timing of this legislation is crucially important but must also allow for “growing pains” and the further development of common definitions as we transition to this new threshold.
In Canada, registered charities are required to spend a certain percentage of their assets on charitable programs or on grants to other charities annually. This quota mainly impacts foundations, but it also affects the recipients of grants, the recipients of gifts and, now, following changes to direction and control rules, the recipients of “qualifying disbursements.”
These changes affect a massive asset pool, with total foundation assets having tripled from 2008 to 2019, going from $39.5 billion to $116 billion.
Even the most conservative estimates show that approximately $200 million of new spending will be released when the disbursement quota is raised to 5%, when compared to the total amount of funding invested under the current 3.5% threshold.
Raising the disbursement quota, or DQ, may allow for more funds to flow to underserved and underfinanced communities that have historically received far less funding from foundations. The potential for organizations serving under-represented communities won’t be attained by an increase to the DQ by itself but will rely on the combination of this change with the corresponding changes to the rules on charitable partnerships and “direction and control.”
Our colleagues at Philanthropic Foundations Canada, or PFC, agree with the purpose of the increased DQ as a positive move that will strengthen the sector. Imagine Canada often partners with PFC when charitable foundations are implicated in regulations and legislation.
In reference to the disbursement quota, PFC has emphasized that regular reviews of the disbursement quota regime must be undertaken according to a data-driven formula that takes into account shifting market conditions such as inflation. Regular five-year reviews are essential to understanding the impact of this change for both recipient organizations and granting foundations.
Imagine Canada and PFC together request that the Standing Committee of National Finance add in a regular review of the disbursement quota regime into this legislation.
Finally, I’d like to address a few contextual reasons for why the timing of this legislation is important.
There are two key factors that underline the importance of quickly enacting this legislation. As the charitable sector moves into its busiest season of the year, we are hearing concerning forecasts for donations to sector organizations that rely on these contributions to do their important work. Combined with rising inflation and worries about a potential recession, organizations are struggling to meet the continued rise in demand for services in their communities. The infusion of new investments that would be created by a change to the disbursement quota would be welcomed by leaders in communities across the country who are belt-tightening or, in the worst cases, simply closing. This would be positive news for 2023.
Just last week, the guidelines for qualifying disbursements were released for consultation by the CRA and could allow for new partnerships between charities and non-qualifying donees to exist in early 2023.
The coming together of those two important changes — a higher DQ and better rules related to charitable partnerships — will set the stage for a transformational change in how grassroots organizations, particularly serving under-represented communities, are funded.
For those two reasons, Imagine Canada urges this committee to move swiftly so that the impact of Bill C-32 can be seen within the charitable sector as soon as possible.
To conclude, Imagine Canada was pleased to see the disbursement quota included in the legislation, and we would recommend that the Standing Committee on National Finance include provisions for a regular five-year review of the quota.
Thank you.
The Chair: Thank you, Mr. MacDonald.
Now, I will recognize Mr. Benjamin Dachis from the C.D. Howe Institute, to be followed by Mr. McGowan.
Benjamin Dachis, Associate Vice President, Public Affairs, C.D. Howe Institute: Thank you very much, honourable senators and Mr. Chair, for the invitation to speak to you this morning. I have so much regard for the work of this committee.
The C.D. Howe Institute is Canada’s leading economic policy not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies.
I will start today with the personal income tax credits that we are seeing in the bill that will have unintended consequences, and then we will get into some of the harmful changes on the business tax side.
First, on the bill provisions concerning a tax-free first home savings account and a First-Time Home Buyers’ Tax Credit, both will encourage demand and, without increases in supply, will simply result in higher home prices as an unintended consequence. These kinds of policies largely only end up benefiting people like me and other existing homeowners, not the intended beneficiaries, who are first-time buyers.
The tax-free first home savings account is the only tax shelter that would entirely and forever exempt income from taxation. We have to keep that in mind. Individuals will be able to earn up to $40,000 entirely tax-free. For someone with a marginal tax rate of 40%, which is not unusual for families, this is the equivalent of a government subsidy of $16,000 on a purchase of a first home. That is $32,000 for a couple.
The only other tax provision that my colleagues and I know of that completely excludes income from taxation is strike pay.
Now, I will talk about harmful taxes on businesses. First, on provisions introducing the Canada recovery dividend, my colleagues Bill Robson and Jeremy Kronick have much to say on the potential damage of this tax that I will summarize here. The sight of some businesses prospering during the pandemic made many people angry, but anger rarely inspires wise actions. These targeted taxes will do a lot of damage.
Governments can make corporations pay taxes, but the taxes they pay come from people: the owners, employees and customers of the business. How much each pays depends on how readily each can change what they own, where they work or what they buy. Capital flows freely enough among sectors and across borders that owners will likely take the smallest hit. Employees change jobs less readily but, especially in a tight labour market, they are also relatively well protected from a tax hike. That leaves the customers, for whom switching among financial institutions or buying something else entirely is much harder. That is the group the higher tax will likely hit hardest.
Some harmful activities might warrant special taxes or tax rates to discourage them or help pay for the harm. That is why we tax smoking, alcohol and pollution. But where is the harm from chequing accounts, GICs and life insurance?
COVID-19 is increasing demand for health and disability insurance. Higher taxes will make those services less available in Canada, with investors and entrepreneurs looking for activities and jurisdictions where taxes are lower.
The narrow targeting of these taxes creates uncertainty not just for the owners, employees and customers of the banks and insurers but also for other businesses that worry that they might be the next target. This targeted tax is a dangerous precedent.
The least damaging way to fund government services is through taxes that are neutral, levied on broad bases at low rates. As my colleagues Jeremy Kronick and Alex Laurin at the C.D. Howe Institute have argued, when we think of optimal taxes in terms of fairness, minimizing distortions and bringing the government the tax revenue we expect, we typically think in terms of broad-based value-added taxes, such as the GST. In questions, perhaps the role of the GST is something we can get into further.
Finally, the bill has a provision modifying the computation of income as a result of the adoption of a new international accounting standard for insurance contracts. I can get into this in more detail during questions; I know I’m short on time. Budget 2022 estimated that this measure is going to increase federal government revenue by $2.3 billion over the next five years. This is really a hidden tax increased on insurers and consumers of long-term insurance contracts.
There are other provisions in the bill, such as the disbursement quota, to which Mr. MacDonald spoke so eloquently, and changes to small business taxation, which I can get into during questions.
Let me close with a simple thought. We all think that the tax system is overly complex and we all want it simplified. Yet, Bill C-32, like all of its predecessors from all parties in recent years, is just further complicating the tax system.
Thank you very much. I look forward to your questions.
The Chair: Thank you. Mr. McGowan, the floor is yours, please.
Gil McGowan, President, Alberta Federation of Labour: Thank you, Mr. Chair and members of the committee, and good morning.
The Alberta Federation of Labour, or AFL, is the largest worker advocacy group in Alberta, representing more than 170,000 working Albertans from 28 public- and private-sector unions.
When it comes to managing the unfolding energy transition, our members have made themselves very clear: They don’t want handouts or welfare; they want jobs. They don’t want rhetoric; they want a plan. That’s why our federation recently collaborated with other major industrial and construction unions to develop an ambitious industrial blueprint for economic transformation and job creation which we call Skate to Where the Puck is Going.
That report is built around the wisdom of two Alberta icons, the first being Wayne Gretzky, who famously said that you win by skating to where the puck is going and not where it has been, and second, the former Alberta premier Peter Lougheed, who unapologetically used government-led industrial policy to create both the Alberta oil sands industry and our petrochemical industry.
Anyone who knows anything about Alberta knows that those two industries have been the main drivers of our prosperity for the last 40 years, but what most people don’t know is that neither of these industries would exist, at least not in their current form, were it not for government-led industrial policy that included not only tax incentives but also regulations in the public interest and outright public ownership.
We at the Alberta Federation of Labour and our labour movement in Alberta are saying that as we face the unfolding global energy transition, we need Lougheed-style industrial policy updated for the 21st century.
With all of that in mind, we’re quite pleased with what we see in the Fall Economic Statement. We like the investment tax credits for clean tech and hydrogen. We like the idea of the Canada growth fund. We like the sustainable jobs training centre and the sustainable jobs secretariat and we like the new sustainable jobs stream for the Union Training and Innovation Program. We like all of these things, but we have a few observations, concerns, questions and suggestions.
Our first observation is that all of this is moving in the right direction, but it still doesn’t add up to an industrial policy. When C.D. Howe set out after World War II to turn Canada into an industrial powerhouse, he didn’t just sprinkle tax incentives and hope for the best. He set a vision and used public money and Crown corporations to reach it.
The same was true with Peter Lougheed with the oil sands and petrochemicals in Alberta. He set a vision of industrial transformation and pursued it, and tax incentives were not his primary tool. Instead, he made it happen through a mix of public investments in innovation, regulation in the public interest, the creation of Crown corporations to support his vision and equity partnerships with the private sector.
That leads to our questions: Why is the vision of industrial policy outlined in this legislation so narrow? Why is it focused primarily on tax measures and loan guarantees? Why are we not looking at Lougheed-style and C.D. Howe-style public ownership and equity options? When it comes to the growth fund, why are we outsourcing all the decision making to a bunch of industry investment types? At the very least, why are we not considering a bicameral governance structure for the growth fund that would have a stakeholder board to set the vision and direction in the public interest and a separate expert board to focus on implementation?
We have other questions and concerns about the Fall Economic Statement, but I’ll just mention two. We’re very pleased to see that labour conditions are being attached to the clean-tech investment tax credit, but why is there no commitment to attach similar conditions to the hydrogen tax credit and other tax credits? We’re also concerned about the explicit commitment to micro-credentialing and the sustainable jobs training centre. From our perspective, it sounds like pork for private colleges and it’s not in the interests of workers and the economy.
Overall, the Fall Economic Statement is a very good start, but it suffers somewhat from a lack of imagination and ambition. Instead of simply warming over neo-liberalism, we need to rediscover muscular activist industrial policy, and the best way to do that is to channel our inner Peter Lougheed and C.D. Howe. Thank you very much.
The Chair: Thank you. I will recognize Christian Fotang, to be followed by Darren Hannah. Mr. Fotang, you have the floor.
Christian Fotang, Chair, Canadian Alliance of Student Associations: Thank you, Mr. Chair. Good morning, honourable senators, and thank you for having me today. My name is Christian Fotang and I am representing the Canadian Alliance of Student Associations, commonly known as CASA. I am also the Vice President External Affairs at the University of Alberta Students’ Union.
Joining me today is Mackenzy Metcalfe, CASA’s Executive Director, who will assist me during the question portion of today’s meeting.
I am honoured to be here to speak to the importance and impact that Bill C-32 has for all students, past, present and future. At CASA, we represent 275,000 students and, with our partners at the Quebec Student Union, today we are speaking on behalf of over 365,000 students from across Canada.
We listen closely to what students are saying across the country and advocate for what they want. They, overwhelmingly, are telling us that they are in support of Bill C-32’s proposed removal of interest on Canada Student Loans.
The elimination of federal interest on student loans has been a long-time ask of students, beginning as far back as 2016. We were delighted to see the temporary waiver come into place during the early days of the pandemic, on March 30, 2020, but many students were worried that it would be just that — temporary.
So when the Fall Economic Statement was presented this November, students were excited about the permanent removal of federal interest, and they had good reason to be. Why? Because before Bill C-32, interest would be building up on their loans, and while students navigated the often tumultuous process of entering the job market, newly graduated students struggled to pay their rent and tackle their student loans, all while they entered the workforce for the first time.
Students often need a bit of time to get established in their careers before they earn enough income to really start paying back their loans. Programs like the Repayment Assistance Plan exist to help students repay their loans, but the removal of interest for all federal borrowers is an important step toward equitable repayment for all students.
There are also several items in the Fall Economic Statement not included in Bill C-32, such as funding through the Canada Summer Jobs program and funding through the Youth Employment and Skills Strategy. CASA wishes to note that these investments are also welcomed by students.
In closing, though this investment will help many former students now, the impact this policy will have on current and future students cannot be overstated, as every current Canada Student Loan borrower will eventually have to pay back their loans, and each of these students will benefit from an interest-free loan. Myself and Mackenzy welcome your questions, senators. Thank you.
The Chair: I will now recognize Mr. Darren Hannah, to be followed by Mr. Lochner. Mr. Hannah, the floor is yours, please.
Darren Hannah, Vice President, Personal and Commercial Banking, Canadian Bankers Association: Good morning. My name is Darren Hannah and I’m the Vice President of Personal and Commercial Banking with the Canadian Bankers Association, or CBA. The Canadian Bankers Association is the voice of more than 60 domestic and foreign banks operating in Canada and their nearly 300,000 employees across the country.
The CBA advocates for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals and strengthen their financial well-being. Our domestic and foreign bank members play a central role in Canada’s economy. The banking sector accounts for almost 4% of Canadian GDP, contributed over $13.5 billion in taxes to all levels of government in 2021, provided $1.5 trillion in credit to Canadian businesses and played a critical role in helping people and businesses weather the storm of the pandemic. Banks have a deep history in helping to achieve Canada’s national priorities and are positive forces for a strong, inclusive and sustainable economy.
I’ve been invited here today to provide views on Bill C-32. While the bill has a large number of provisions, I will concentrate my remarks on Part 1, which amends the Income Tax Act to implement the financial institutions tax and Canada recovery dividend and which creates the first home savings account.
Let me speak on the financial institutions tax and the Canada recovery dividend. An efficient tax system is one that is neutral.
The basic concept is simple: generally the tax system should strive to be neutral so that decisions are made on their economic merits and not for tax reasons.
A neutral tax system incorporates relatively low and relatively flat rates with a broad base and with equal and proportionate application. These conditions let markets work most efficiently to direct investment to its best use. A neutral tax system also encourages growth and innovation by letting investors, savers and employees make choices driven by where they can get the best return for their capital, labour or knowledge rather than by tax considerations.
A non-neutral tax system creates unnecessary distortions, sends the wrong message about investing in Canada and drives up the cost of capital for all businesses.
The financial institutions tax and the Canada recovery dividend are inconsistent with the principle of tax neutrality. Internationally, the imposition of the financial institutions tax and the Canada recovery dividend is being noticed by investors and is causing them to question Canada’s commitment to building an economic environment that promotes investment.
Domestically, the financial institutions tax and the Canada recovery dividend will have an impact on the millions of Canadian retail investors who hold bank shares and the close to 300,000 Canadians working in the banking sector.
Canada needs sustainable, non-inflationary growth as it continues to navigate the post-pandemic recovery, and banks are fundamental to that equation. Forcing banks to pay billions of dollars in taxes causes them to reduce their lending capacity by multiples more. A strong economic recovery needs banks to continue to supply credit to businesses, thereby driving productivity growth, creating jobs for hard-working Canadians and keeping the economy humming. The federal government needs to understand the widespread knock-on effects of singling out the banking sector for special taxation.
The government needs to reconsider the financial institutions tax and the Canada recovery dividend and recommit to the principle of tax neutrality. At a minimum, the government needs to commit to a firm sunset date for the financial institutions tax to give investors and those working in the banking sector confidence that Canada is committed to attracting investment to keep our banking system strong and to facilitate sustainable economic growth.
Now let me turn to the first home savings account.
The CBA supports the proposal to create the tax-free first home savings account. Saving for a home is a foundational part of the personal financial planning for millions of Canadians. Expanding the financial tool kit for Canadians to achieve this goal is a positive step.
We are concerned, however, that the implementation timelines embedded in the legislation are exceptionally aggressive and may unnecessarily complicate the rollout of the account for the millions of Canadians looking to access it.
I have personal experience on this issue, having worked on the development of the Tax-Free Savings Account more than a decade ago. It, too, was developed to roll out in a very tight timeline, without building in a sufficient lead time for taxpayer education about the features and rules surrounding the project and with insufficient time between the date that specifications were locked down and the date at which the product was rolled out to ensure seamless data flow between financial institutions and the Canada Revenue Agency. The unfortunate result was that 70,000 Canadians received notices from the Canada Revenue Agency of over-contributions or registration refusals due to inconsistent or missing information, creating unnecessary anxiety for thousands of Canadians.
While we’re all aiming to avoid a repeat of that scenario, the April 1, 2023, coming-into-force date for these provisions feels exceptionally aggressive given the complexity and newness of the product. We, therefore, request that the April 1, 2023, deadline be pushed back to late 2023 to allow industry and the Canada Revenue Agency adequate time to ensure a smoother implementation process.
I would like to thank the committee for considering these recommendations and would welcome any questions that you have.
The Chair: Thank you. In order to complete comments, I will now recognize Mr. Lance Lochner, Economist from the University of Western Ontario.
Lance Lochner, Economist, University of Western Ontario, as an individual: Thank you, chairman and senators, for inviting me here today. As a lifelong academic working on issues related to financing higher education, I will broadly sketch what I think are the key issues involved in any policy aimed at modifying the terms of student loans and, in particular, the focus on eliminating interest payments on those loans.
It is useful to keep in mind that the primary purpose of government student loans is to provide resources to help students finance efficient educational investments. Student loans are an excellent policy instrument for improving economic efficiency and promoting economic growth. Yet they are not well suited for addressing inequality, although they could help provide a form of insurance against labour market risk through well-designed repayment assistance programs.
What role do interest charges on student loans play? First and foremost, they provide financial returns to the government to cover the opportunity cost of funds. After all, loans are not a grant or a subsidy.
Second, along with tuition fees, interest rates send a signal to student borrowers as to the costs of their educational investments. Programs or institutions that do not provide an expected return that covers these costs may not be worthwhile investments. Of course, students are always free to pursue whatever interest they like out of love or passion but at their own expense, I would argue.
Focusing on future students, what are the consequences of eliminating interest payments going forward? Well, this most obviously implies a subsidy to student borrowers, with those who borrow the most receiving the greatest subsidy. It is not at all clear to me why one would want to single out such borrowers or such individuals in particular for additional subsidies.
At the same time, eliminating interest payments would not provide any additional resources to students while they are in school — the primary purpose of student loans. In terms of funding, eliminating interest payments would surely compete with aid provided during enrolment periods. If one is interested in subsidizing higher education, it seems more direct and efficient to simply subsidize it through grants, scholarships or basic government funding of colleges and universities.
Finally, eliminating interest payments on student loans will surely encourage additional borrowing and the delay of any repayments. Indeed, such a policy is likely to encourage students with absolutely no need for funds during school to borrow anyway or to delay any payments made. After all, they can simply make money by borrowing and reinvesting that money in the bank, either through risky or riskless assets. By encouraging borrowing, the policy may even lead to greater debt problems down the road.
Finally, due to increased incentives to borrow, it will almost surely cost the government more than the current estimate suggests; I suspect quite a bit more.
Let me thank you for this opportunity, and I’m happy to answer questions as we go forward.
The Chair: Thank you to all of the witnesses for your comments and statements.
Senators, kindly note that Mr. Bruce MacDonald, from Imagine Canada, must leave at 10 a.m., so from now until 10 a.m., please address questions for Mr. MacDonald directly to him.
Honourable senators, we will now move on to questions. You have a maximum of five minutes each for the first round of questions and a maximum of three minutes each for the second round.
Senator Marshall: My first question is for Mr. Hannah from the bank. You mentioned in your opening remarks about the additional taxes that are being imposed on the banks. When we look at corporate taxes, they are going to increase from $50 billion in 2019-20 to $91 billion estimated to be collected for this year. That’s about an 82% increase, and I expect the additional taxes that will be imposed on the banks will contribute to that.
In your opening remarks, Mr. Hannah, I think you were looking for clarity on the taxes, but when I read the Fall Economic Statement 2022, in my opinion, the additional 1.5% tax on the banks, that’s imposed forever. I don’t think there’s an end date to that. And the Canada recovery dividend, or CRD, that is a one-time 15% spread over five years, but there’s a possibility that it could be extended. I would be interested in hearing your views with regard to the long-term impact if these taxes are continued on into the future.
I would also like you to address this issue: There’s an impression out there — I don’t know whether it’s a misconception — that the shares of the banks are held by wealthy people. I don’t think that’s right. Maybe you can clarify that. I understood that a lot of the pension funds which are holding pensions for middle-class Canadians are investing in the banks. A lot of people with tax-free savings accounts are also holding bank shares. I would appreciate your comments on that.
The other misconception is that it appears to the government there is an endless pot of money in large corporations that they can access through taxation. Can you respond to all of that? If you have time, perhaps you can give us any comments you would have on stock buybacks because I would also be interested in that. Thank you.
Mr. Hannah: There’s a lot in there. Let me try to take those in sequence.
With respect to the structure of the tax, you are correct. The way that the tax is proposed, the CRD is a one-time tax paid out over five years. The FI tax, or financial institutions tax, continues on indefinitely. We don’t really like either one. We think both should be reconsidered, but, as I said in my opening remarks, at a minimum, the FI tax should be sunsetted after five years to provide investors and employees with some certainty that the government is recommitted to a growth strategy and to improving productivity. That’s the first point.
The second point is about the impact. Yes, our members have definitely heard from investors that they are noticing and that it does raise questions about Canada’s commitment to a strong and growth-oriented tax system.
With respect to who holds bank shares, you are absolutely right. Millions of Canadians, either directly or indirectly, hold bank shares. They hold them through their pension funds. They hold them through virtually any blue-chip mutual fund they might own, any index-driven ETF, or exchange-traded fund, on a Canadian index. Ownership is widespread. It touches virtually any Canadian who has any investment of any type.
Senator Marshall: Do you have any comments on the stock buybacks? I’ve been reading up on that, so I’d be interested in your views on that.
Mr. Hannah: At the end of the day, from our perspective, decisions about issues like that are best left to management and investors. That’s where the decisions should be kept. That’s where they can make the best decision about how to deploy their capital, how to deal with retained earnings. We don’t think having tax measures imposed on that is a very good idea.
Senator Marshall: Mr. Dachis, from the C.D. Howe Institute, do you have any comments on the Canada growth fund, the $15‑billion fund the government is in the process of setting up?
Mr. Dachis: Not specifically, only in general. We have to be careful about the degree to which the government or political actors are picking specific winners.
It’s okay to set up an overall fund when there is a broad set of priorities, but the governance of this should have clear rules in place in which there is an independent set of decisions of who exactly is getting funding, because when governments are making explicit decisions about who is getting what, lobbying and other concerns about that process of the final decision worry me.
Senator Marshall: We’ll have to wait and see. Thank you.
[Translation]
Senator Moncion: My question is for Mr. Dachis.
[English]
You mentioned IFRS 17 and that it would bring $2.3 billion in hidden taxes on insurers. Could you explain, please?
Mr. Dachis: The new rules do not fully conform to the new international accounting standard, introducing the exception where future unearned profits in insurance contracts relating to services still to be provided — this is a new reserve under the international accounting standard, known as the contractual service margin — will need to be included in taxable income. So a margin for profits that may never materialize in the future will now be taxed despite the purpose of the new accounting standard.
Senator Moncion: Thank you. Where is the money going to be coming from? We know that any company that has shares really enjoys keeping the dividends to the levels they are, so where is the money going to be coming from?
Mr. Dachis: It’s the same principle as what we talked about with the taxes on financial institutions. Corporations are really just money-shifting devices, when you really think about them, they take money from customers to owners to employees. So at the end of the day, the people who end up paying the tax, any tax — it doesn’t matter if we’re talking about the recovery dividend or this new taxation rule and accounting standards — it fundamentally rests on one question, which is what an economist would call “elasticity.” How flexible are people to move from one service to another? Can investors in these insurance companies move their money from a less taxed insurance product in Canada to something else around the world? That happens quickly when companies face higher taxes.
The question in the insurance sector in Canada will be, “Do we have a lot of competition?” If there is not a ton of competition in the insurance sector, at least on the customer side, customers are just going to end up paying the tax.
Senator Moncion: My next question is for Mr. Hannah. Is the same principle that Mr. Dachis just mentioned the same for banks?
Mr. Hannah: I’m sorry, which principle are you referring to?
Senator Moncion: The last one, where the costs are returned to the customers.
Mr. Hannah: I think what Mr. Dachis said is largely correct, which is that any corporation, whether it’s a bank, a manufacturer or anything else, is an arrangement. It’s effectively a legal arrangement that describes the relationship between customers, investors, employees and suppliers. So anything that increases a cost or changes a cost gets impacted on all of those stakeholders.
Senator Moncion: Is it an original way of taxing customers but using banks and insurance companies, if I understand correctly?
Mr. Hannah: Was that a question?
Senator Moncion: Yes. Is it an original way or creative way?
Mr. Hannah: If what you’re asking is, “Will the bank tax indirectly affect customers?,” of course. It will affect all those parties. It will affect customers, investors and employees.
Senator Moncion: Thank you.
[Translation]
Senator Gignac: My question is for the Canadian Bankers Association representative, Darren Hannah.
I worked in the financial institution sector for many years, so I have some understanding about how things work and what impact increasing the tax burden can have.
Here’s my question. Did the actions of the federal government during the pandemic help the banking sector save millions of dollars? I’m talking about the fact that Canada didn’t go into a deep recession thanks to the intervention of the Bank of Canada and its quantitative easing program. Did the banking sector benefit from the federal government’s actions?
[English]
Mr. Hannah: The intervention of the government helped the economy. What they did was they made sure we still had liquidity in the marketplace and that financial markets worked properly. They also helped individual Canadians and individual businesses deal with this sudden disruption caused by the shutdown related to the COVID pandemic.
I will also say, with a fair bit of pride, that the banking industry itself helped to contribute to Canadians’ overcoming that challenge. Banks provided more than 800,000 mortgage deferrals, deferred nearly 1.3 million credit card payments, personal lines, personal loans, auto loans, waived $117 million in fees and extended an additional $49 billion in credit of their own to business customers. I’m rightly proud of all of that.
Senator Gignac: Correct me if I’m wrong, but I think OSFI, the Office of the Superintendent of Financial Institutions, changed the rules again that allowed the banks to be more flexible in order to have new —
Mr. Hannah: I believe you mentioned OSFI. I think what you’re referring to is that they temporarily reduced some of the capital requirements in order to free up room for additional lending, which is true. That’s a good thing. But the institutions are still ultimately the ones providing the credit and the ones providing the lending. In that sense, the regulator did what they were supposed to do, but so did the institutions.
Senator Gignac: To conclude, before going to Mr. Dachis, I am trying to understand. Your proposal will be to not proceed with this tax on the banking sector, but what would be the alternative? To increase the GST? Could you give me a clear indication?
Mr. Hannah: That conversation you would have to have with the Department of Finance. But the basic concept is that you have to start from the objective of having a tax system that is both low and neutral, with a broad base. So ultimately, from our perspective, singling out individual sectors for taxation is not constructive. You need to tax, if you will, on a broader base and at a lower level.
Senator Gignac: I will go now to the C.D. Howe Institute and Mr. Dachis. If I understood correctly, your interpretation is the fact that this kind of bill, Bill C-32, creates a bias, and your proposal will be for a neutral taxation system. That sounds like it’s going more toward a GST increase rather than the measure included in Bill C-32. Is that what you have in mind?
Mr. Dachis: Yes. We can get into more specifics about GST in the financial sector as well. You have to go back to the implementation of GST decades ago when, at the time, trying to apply GST in the financial sector was really difficult. There are some serious implementation hurdles that we can get into. I know I only have one minute. Maybe save that for the second round.
Senator Gignac: Thank you.
Senator Smith: I have a question for Mr. Dachis. By the way, during the break, Mr. Dachis, that was a great picture of you with your little baby. We saw that on our screens here.
You have highlighted the many tax changes which you argue will raise home prices but also hurt businesses. You argue for the broad-base tax policies, which are neutral. Is Canada’s tax system competitive compared to other jurisdictions around the world? What would you recommend the government do to make the tax system simpler?
Mr. Dachis: First, thank you very much for mentioning my daughter. I put that picture up during the peak of the pandemic. I refuse to change that for my Zoom calls. At some point I will have to, though. It’s just so much fun to have her up.
No, the Canadian tax system is not especially competitive. Let’s take a look at a few specific examples and how we measure. The way that economists measure the competitiveness of our tax system is through the marginal effective tax rate. When we think about some of our taxes on businesses, we often think about the corporate income tax. The federal government has made some very good efforts, especially in the 1990s and 2000s to lower that corporate income tax. That was a great start.
Provinces, though, are not helping. Provinces are not helping in a number of regards. First, it’s on their corporate income tax, and second, there is a stealth tax on capital, and that’s provincial property taxes. Provincial property taxes are enormously high on businesses — much higher, sometimes six times higher, for a similarly valued property compared to a residential property in the same town. And those are provincial taxes, let alone municipal property taxes. We have a lot of barriers to competitiveness. That’s on the first question about competitiveness.
The next question is about simplification. The answer is that we don’t have a simple tax system. There is a lot that we can do to improve it, but the very first thing we need to do is stop adding more complicated taxes or more complicated tax credits. Things like the multi-generational tax credit that we see as a home investment tax credit we see in the bill is yet another example of adding one more boutique tax credit that just makes it more and more complicated and more difficult for people to understand what their overall taxes are and moves us further away from the goal that we all want, or that many of us want at least, of being able to have a fairly simple tax return that you can maybe even do automatically. All these things further complicate the tax system to take us further and further away from the overarching goal.
Senator Smith: If you look at the system that you have just discussed, what would your top two issues be? You have mentioned quite a few issues. What are the top two issues that you would change to make it better?
Mr. Dachis: That’s a big question. Can you give me 30 seconds to think about that one? There are a lot of different individual tax breaks.
The first thing I would do is start with a comprehensive public review. Think about process because one person’s opinion shouldn’t dictate where things go. There is going to be a process. Every single one of these tax credits has a set of stakeholders who want to keep it — businesses or individuals who will make it politically difficult to get rid of anything. The first thing I would do is set up a process for getting public feedback about what the government is going to face.
Second, I would do a clear cost-benefit analysis asking what tax credits are really getting at, what we’re trying to achieve here. A lot of these tax credits are probably no longer effectively meeting their goal. There are probably more efficient ways, be it through direct government intervention or stepping out entirely, to achieve the implied or explicit policy goals of some of these tax credits.
Senator Smith: Thank you.
Senator Bovey: I want to thank all our witnesses. The topics you’re covering are huge.
I’d like to ask a question to Mr. MacDonald of Imagine Canada, being one from the not-for-profit world. The $200 million that you project from the increase of the disbursement quota is certainly welcome. Senator Mockler and I hosted an event last week for Food Banks Canada, and I can tell you that the need is certainly rising. The role of recipient organizations in civil society is increasing. I hear what you say about donor capacity right now being in question, given financial projections.
What do you think the impact has been of the periodic matching of endowment funds for individual organizations, such as last Tuesday being GivingTuesday? If you feel that impact has been significant — and while some parts of the charitable sector have received programs of matching endowment funds, others haven’t — should that be equalized?
Mr. MacDonald: When you say “matching,” who is doing the matching?
Senator Bovey: For instance, if people gave to The Winnipeg Foundation — I’m from Manitoba — they had donors who would match that fund. In some cases, the federal government matched, to a certain extent, some of the funds given to performing arts foundations but not to museums. It seems to have been all over the map in the last number of years. Would consistency help?
Mr. MacDonald: I don’t have the data at my fingertips, but there is data indicating that when others view there is either matching or some form of incentive, that stimulates behaviour. We often see it in international humanitarian crises or in disasters here, in Canada, where in many cases the government, whether federal or provincial, may step up to match donations to support that particular crisis. That is a huge motivator for Canadians to give because we’re a pretty generous nation, and having another instrument that incents donations is a good thing.
Senator Bovey: This may be an easy question, but some businesses in the arts have a number of awards for organizations — and this is not a namesake; no relation — for example, the Edmund C. Bovey Award, the Peter Herrndorf Arts Leadership Award, the Arnold Edinborough Award and so on. Do you see an extension of those awards to corporate donors or individual businesspeople giving to the arts in other parts of the charitable sector being another constructive incentive?
Mr. MacDonald: They could be, but they’re really not the priority. If we look at what’s happened since the start of the pandemic — we’ve been measuring this since the beginning of COVID-19 — demand for services from charities and non‑profits has gone straight up. When we thought it might be flattening, inflation has hit. While awards are nice and recognition is good, we need instruments like the disbursement quota that will enable organizations to meet that rising demand.
Senator Bovey: I agree the demand is going up, and the need is great.
I would now like to ask a question about students. I speak as one who has taught at several universities and chaired two university boards of governors across this country in two different provinces. Last week, we heard about the importance of education. One of our witnesses talked about the need for more PhDs. That being the case — and I’m talking to the students and to the Western University professor — the need to help students reach those goals to assist society going forward seems important. I was a little concerned — and I may have sensed this wrongly, so please correct me — about the consequences when some programs may be seen to be more important than other programs. I’m well aware that some programs cost more and may not have as many students as others. We’ve seen some of that low-hanging fruit has been cut from university programs in the last few years, and the Laurentian University situation is one of the most dire situations.
Why do you think forgivable loans would increase borrowing when the students’ costs are going up with rent, food, child care and everything else that goes with it? Do you agree that the playing field in different provinces is quite different? Some provinces give research funds and thereby qualify for matching research funds from the federal government; others don’t.
I would like to dig a bit deeper from the university perspective about the downside of forgiving student loans.
Mr. Lochner: Are you asking me?
Senator Bovey: Yes, I am. I would like the students’ perspective as well, please.
Mr. Lochner: Sure. The fact that the cost of living is going up is one more reason students will be forced to borrow more, regardless of interest rates. The argument on interest rates driving more borrowing involves two things. One is that if you lower the interest rate, you’re going to naturally generate more borrowing. It’s less costly to borrow, so more people are going to do it. What I worry most about is not lowering the interest rate, but lowering it below the return someone might get by putting their money in a bank account. If you lower the interest rate to zero, the optimal thing for anyone to do is to borrow as much as they can, put it in the bank, let it sit there five years and then pay out their loan as they have to. But the government is paying the interest rate all the way along, even if the student or the individual never needed that loan in the first place. I worry a little bit about that. That’s a large transfer of resources with no real gain to anyone that comes out of it.
My reticence to eliminate interest rates isn’t a general concern about providing aid to students. Indeed, I worry that something like this is a distraction and that there are better ways to finance higher education, either through expanding grants to lower-income students or through expanding the repayment assistance program, which helps students who are paying their loans make those payments even when times are tight for them.
The Chair: Thank you, Mr. Lochner.
We would like to hear also from the Canadian Alliance of Student Associations. Any comments, Mr. Fotang?
Mackenzy Metcalfe, Executive Director, Canadian Alliance of Student Associations: Yes, thank you. My name is Mackenzy. I haven’t spoken yet, but I would like to provide our perspective.
We are definitely in favour of the removal of interest on Canada Student Loans. We want to stress here that not every Canadian or every student is actually eligible for this program. It is targeted at low- and middle-income students. Families who make more, on average, than $120,000 a year combined from both their families are not eligible for this program.
We also wanted to note that there has been the removal of interest already in several provinces: Manitoba in 2014; B.C. in 2019; and Newfoundland and Labrador, New Brunswick and Nova Scotia as well. After the removal of interest in those provinces, we didn’t see a substantial increase in the borrowing of students for the provincial programs, which are tied to the federal programs as well.
The Chair: Thank you very much.
Senator Duncan: Thank you to all our witnesses who are here today. I would like to follow up on the discussion from Senator Smith and others about the comprehensive review of the tax system. Mr. Dachis and others have used phrases like “further complicating the tax system.”
While Mr. Dachis has suggested a stakeholder review of the tax credits specifically, as well as things like a cost-benefit analysis, how would a comprehensive review of the tax system benefit the working poor in this country or those who are not of a higher income level?
Mr. Dachis: Is that targeted to me?
Senator Duncan: Yes, it is.
Mr. Dachis: One of the things we’ve seen with Canadian income taxes is that it is often the working poor who face some of the largest effective tax rates. What do I mean by that? We put out a study last week that estimates for a number of Canadians what we call the marginal effective tax rate. That is an estimate of not only how much more taxes you pay as you get a dollar more income from, say, taking on another shift, another job or taking on more hours but also how much of your benefits you lose.
We see that the range of about $40,000 to $50,000 of income is when many Canadians are facing their highest effective tax rate through the withdrawal of, say, the Canada Child Benefit or the Canada workers benefit. So it’s this kind of clawback that really hurts a lot of Canadians in that relatively low level of income. That’s what we should be targeting.
There are a number of policy approaches I can get into in terms of what Quebec has been doing, for example, in terms of what is called a tax shield. There are other approaches such as averaging your taxes due year over year. I’ll stop there for now.
Senator Duncan: My specific question was this: What recommendation would you have for this committee in terms of a comprehensive review of the tax system?
I heard you say “stakeholder review” and “standardized tax credits,” but I’m also hearing you say that we require an overhaul, a complete review of this massive act known as the Income Tax Act.
Mr. Dachis: There are two very different approaches you could take. One is trying to target a couple of programs you know are problematic. Let’s take one, for example, that’s under way now, which is the SR&ED credit, the Scientific Research and Experimental Development credit. You target one tax and you’re going to get a lot of people coming back and forth on that — whether you’re going to succeed in that because you’re going to target one is one approach.
The other approach is something big where you go after everything.
Senator Duncan: Mr. Dachis, I understood that point, but —
Chair, am I out of time?
The Chair: If you have another question, please ask it.
Senator Duncan: Thank you.
I want Imagine Canada to weigh in on this as well because they recommended that we make a recommendation to CRA to deal with the five-year review of the higher DQ that we recommend in our report — that there be a five-year review. Do you have other recommendations we should be making to the CRA?
Mr. MacDonald: Regarding this particular legislation at this time, no, that is the one we would recommend. There are other areas we are expecting the CRA guidance would clear up, but that would be through the interpretation of the legislation.
Senator Duncan: And do you have a specific recommendation that the interpretation be issued in a timely manner, or is there something else further that the committee should be recommending?
Mr. MacDonald: No, at this point, we would stay with the implementation of the five-year review period.
Senator Duncan: Thank you.
Senator Loffreda: Thank you to all our panellists for being here this morning.
My question is for the Canadian Bankers Association. Will the Canada recovery dividend and the additional tax on banks and life insurance groups have any impact on our banks’ operations or client relations? What are your overall thoughts on the long‑term impacts of this measure on the Canadian banking industry, on its clients and on its global competitiveness?
Mr. Hannah: Let me reiterate the few points that I made before because I think they’re all relevant here.
First off, the impact is felt by shareholders, who are all ordinary Canadians, it is felt by customers, who are all ordinary Canadians, and it is felt by the 300,000-odd employees that pay that tax. All of them are impacted because the tax is impacting the institutions.
Second, it does have an impact on how the international community and the investor community perceives Canada as being a choice for investments. We have already gotten feedback from our members. They hear from investors who are already raising questions about this. It puts up a question in people’s minds about how committed Canada is to being a growth‑oriented, productive, forward-looking economy.
What was the last part of the question again?
Senator Loffreda: It was about the impacts of the tax on clients and global competitiveness.
Mr. Hannah: Absolutely.
Canadian banks work across the globe and in the international marketplace, so when you differentially tax Canadian banks, that impacts their capacity to be able to compete in markets outside of the country as well.
Senator Loffreda: What about global tax rates with our trading partners? I would like you to elaborate about where you feel our tax rate is with respect to Canadian banks in comparison to global industry competitors.
Mr. Hannah: It is unfortunate. For some time, we were quite tax-competitive. That has slipped over time. As a consequence, when you look at where Canada resides in the depth charts, if you will, of corporate taxation, we are not as competitive as we could or should be compared to a lot of other jurisdictions, particularly in continental Europe and Scandinavia, where a number of countries have taken very firm steps to be tax‑competitive.
Senator Loffreda: You mentioned some impressive numbers. You represent 60 banks and 300,000 employees. We all know the Canadian banking industry is very impactful and contributes immensely to Canada’s economy to the tune of 4% of Canadian GDP, $13.5 billion in taxes and $1.5 trillion of credit to Canadian businesses. Those are notes I took during your introductory comments.
Do you feel this tax will impede those numbers from growing in the future?
Mr. Hannah: Yes, it will certainly slow growth. It has to slow growth because you’re taking what would otherwise be capital that can be deployed to help grow the business, foster new innovations and help add new technologies and you’re diverting it back to public revenue.
Bear in mind that banks are heavily investing in the future as technology evolves. They invested over $100 billion in technology over the last decade and they will have to invest even more as we go forward, and that investment ultimately serves Canada and Canadians.
Senator Loffreda: You stressed the fact that there should be a sunset date on this tax.
Mr. Hannah: Correct. Our preference would be to not have a tax at all, but at a minimum, the FI tax needs to be sunsetted to give certainty to investors and employees to help reinforce Canada’s commitment to having a productive, growth-oriented tax system.
Senator Loffreda: If I understand correctly, you’re saying this is an area of concern for the industry.
Mr. Hannah: Absolutely.
Senator Loffreda: Thank you.
My next question is for the C.D. Howe Institute. You mentioned the small-business taxation, which you didn’t have time to elaborate on or get into. Small businesses do benefit from a reduced federal tax rate of 9% on their first $500,000 of taxable income compared to a general federal corporate tax rate of 15%. Budget 2022 proposed to phase out access to the small business deduction more gradually, with access to be fully phased out when the combined taxable capital employed in Canada of the Canadian-controlled private corporation and its associated corporations reaches $50 million rather than $15 million.
This measure in Bill C-32 will cost $660 million to the government and it will affect 8,000 Canadian-controlled private corporations.
You did want to elaborate further on this measure, and your comments are welcome. Do you feel this will help small business in Canada, which employs many Canadians and is very important to our economy?
Mr. Dachis: It will. This is a positive development in the bill and for Canada’s tax system. We’ve seen historically that Canadian small businesses tend to cluster, particularly, at the income threshold at which they go from being subject to lower taxes to higher taxes. A big part of that is tax planning. We want to avoid these kinds of impediments in our tax system. Increasing the threshold at which companies can take advantage of the lower rate will encourage their growth from a lower capital threshold to a higher one.
Again, this raises the question about why we have these differentials at all. If we want to encourage investment, we should be thinking about lower corporate income taxes and, to the extent that we are concerned about a progressive income tax system where the rich are paying more than the people of lower income, guess what? Corporations are vehicles for transferring money. If those corporations are transferring money to higher‑income people through capital gains, through share buybacks, then the personal income tax system is a vehicle in which we should be setting up that taxation.
Senator Loffreda: Thank you very much.
Senator Pate: Thank you to the witnesses. I’m tempted to launch into how poorly our banks are doing, and I have quite a different perspective on that, as do some of my colleagues who are more well-informed than me.
I want to go to Professor Lochner. You started out your comments by talking about student loans not addressing inequality. In a total non sequitur, Scandinavia just came up, and it struck me that I would be very interested in your view, and perhaps that of the Canadian Alliance of Student Associations, on a better approach to addressing the inequality and the lack of access to post-secondary education for those who are least advantaged in this country. How would you improve that? We can start with Professor Lochner and then hear from the students.
If there’s time — I’ll put it out there — Mr. Dachis, you mentioned an automatic tax system. We saw during this pandemic that because of the foresight of a certain individual at the CRA more than a decade ago, an automation had been developed that allowed the rollout of benefits during this pandemic, which otherwise would not have been possible. If there’s time, I would like some elaboration on that, please.
If we could go first to Professor Lochner and then to the student federation, that would be great. Thank you.
Mr. Lochner: Thank you for your question. I don’t mean to say that student loans play no role in addressing inequality; they can play a role and they can be helpful. I don’t think they’re the strongest instrument out there. We know more generally that even subsidies for higher education are not major drivers of equality because most of the people who end up in our universities come from higher-income backgrounds. All you have to do is look to Latin America, where university education is free, and most of the money there is going to kids from the high end of the income distribution.
That’s not to say that loans and subsidies cannot be helpful. In particular, they can be helpful for promoting those who are prepared to attend university when they might not have the resources. I do think they play a critical role.
My concern with eliminating interest on student loans is that it is not a very effective policy to address any of those needs. It will cost money; there is no doubt. If you suddenly remove the interest payments that are part of the revenue side of the equation, you’re going to lose that revenue.
My thinking would be that the revenue is better spent on providing more grants to those students who are most in need, to expanding student loan limits to allow those who still can’t borrow enough to borrow more or to adjusting income-based repayments through the Repayment Assistance Plan and making sure the funding is targeted to those who benefit the most. I really don’t think the doctors and the lawyers and the MBA students are really in need of eliminating their interest payments. There are other students who are in great need of financial assistance. A more targeted approach which recognizes that would be a more effective use of the money.
The Chair: Can we hear from the student alliance, please?
Mr. Fotang: One thing to stress is that elimination of interest is a tool for improving and increasing affordability for a lot of those students, especially, as I mentioned, for recent graduates who need to establish themselves and grow their careers. But we do agree with Mr. Lochner on wanting to improve equity and access through the doubling of the grants. CASA was in Ottawa, on the Hill, a couple of weeks ago, meeting with many of you and with MPs, stressing the need to permanently double the Canada Student Grants, recognizing that it is a means of putting money into the pockets of the students who need it the most. It is an income-based, measured program which is providing help, and those who need it the most have to qualify to get it.
On our campus and, I’m sure, on other campuses across the country, we’re hearing the same story from first-generation students, students from low-income backgrounds: When those grants were doubled, that made the difference for a lot of them to be able to make it through the semester. It was the difference between not having to worry about working more and, instead, focusing on classes without taking on more debt.
We can have both. We recognize that we need to support students who want to go into the real world and who are working to establish themselves, but we can also support students through the doubling of the grant and by making it permanent.
Senator Pate: I asked a question of Mr. Dachis. If he has time to respond, that would be great.
Mr. Dachis: There are two questions in there. First is on automatic tax filing and the pros and cons of that, or the tax system during the pandemic. Which would you like me to get into?
Senator Pate: Talk about automatic tax filing and why you would recommend that we move to that process.
Mr. Dachis: That would be a wonderful thing to have, but the tax system right now is riddled with way too many targeted credits. If we’re trying to implement things like a tuition tax credit — I was asked earlier by Senator Smith which of the tax credits I would like to get rid of first, and that would be up there. Maybe we can get into that conversation later. I’m sure that will get some people going. These various kinds of tax credits will be very difficult to harmonize or integrate into an automated system.
Senator Galvez: My first question is directed to Mr. Hannah from the Canadian Bankers Association, and then I have a small question to Mr. McGowan of the Alberta Federation of Labour.
The Fall Economic Statement is just the continuation of a strengthening signal that we are in an energy transition and we are going toward the low-carbon economy. Items such as phasing out flow-through shares for oil, gas and coal activities; a 30% critical mineral exploration tax credit, extending the capital cost allowance for clean energy — they are all in the Fall Economic Statement 2022. We know that the banks play a critical role in these transitions because they provide not only loans but also investments and financial advice.
We must follow what our allied business partner and neighbour, the U.S., is doing with the Securities and Exchange Commission and the Inflation Reduction Act.
Can you please explain what the Canadian Bankers Association is doing about double materiality? What are you doing to reduce the transition risk? Also, what are you doing to prevent greenwashing in the banking sector? Thank you.
Mr. Hannah: Look, on a number of those measures, I can get back to you in written form. They weren’t really part of what I came here to talk about today, but I think you do touch on one very important point that I would like to re-emphasize, and that is the challenge we have going forward.
There was an RBC report that came out recently that said we will need something in the order of $2 trillion to be able to transition effectively. From our point of view, that requires a lot of investment. Investment is a big deal, but to make that investment, from a financial institution point of view, we think it is very important that the government have a growth-oriented strategy, have an economy that tracks investment. That’s part of the reason we’re so concerned about the taxation measures that are put in here. We think that actually discourages the very kind of investment that we need to be able to move us and manage that transition and help that migration.
Senator Galvez: You said that you cannot complete the answer because you were not prepared to answer these questions. Could you please send, in written form, to the clerk the rest of your answer?
Mr. Hannah: Yes. We will follow up.
Senator Galvez: Thank you so much. Mr. McGowan, I liked very much what you said about the just transition, what you’re expecting.
In Alberta, it’s great what they are doing with the renewable energy boom. There are new projects generating $3.75 billion for wind and solar and creating 4,500 new clean jobs. That’s fantastic. At the same time, we have the oil companies’ massive profits of $174 billion in just 2021.
You are saying that we need an industrial policy modernization. Maybe you could tell us how much the oil and gas sector is recycling in the just transition, in the workers’ training and if this is enough. Thank you.
Mr. McGowan: Thank you for the question. One of the reasons that I was excited about participating in this hearing was because industrial policy aimed at pivoting the Canadian economy toward a greener future was a centrepiece of the speech that was delivered by the minister, and it’s also a centrepiece of the document and legislation that you’re discussing today.
Your question specifically was whether from my perspective, as a representative of Alberta workers, the oil and gas industry is doing its part. The short answer is no, not yet. That’s one of the reasons that we, as an organization representing workers in Alberta, are calling for a robust, government-led industrial policy, because our experience is that we can’t leave it to the market. We can’t leave it to the industry. Their interests in this case are not fully aligned with the interests of the public.
I want to qualify that by acknowledging that the oil and gas industry, especially the oil sands industry, has been the biggest driver of economic activity and job creation in our province for the better part of the last 20 years, but these big profits that they are enjoying right now are not going back into the economy. The price of oil is very high. There are five big oil sands companies responsible for about 85% of our production. They are all recording record profits. Most of that is actually going back to pay down debt and going back to shareholders in the form of stock buybacks and dividends, about 75% of it. Most of those investors are not even in Alberta.
Even though profits are very high, that’s not translating into another jobs boom right now. That’s what we’re worried about. We think that the big oil companies in our province have made it very clear that they see the writing on the wall, so they are focusing on maximizing profits as opposed to reinvestment. Left to their own devices, it’s clear that they are not leading the way in the green transition. That’s where we think the government needs to step in.
As I said in my opening remarks, we need to embrace the lessons of Lougheed. The reason we framed it that way is because in the 1970s, when Peter Lougheed was premier, we were at a crossroads too. We were running out of conventional oil and gas. He asked the question, “What is next for our economy?” His answer was oil sands and petrochemicals, but the oil industry at the time was not moving in that direction. They were not inclined to move in that direction; they were complacent.
That’s where we are right now. That’s why we think we need to have a robust industrial policy modelled on what Mr. Lougheed did back in the 1970s, updated for the 21st century, that pivots us to new opportunities.
I mentioned this big industrial blueprint on which we collaborated with our industrial unions. I am making it available to the clerk so that you can take a look at it. It’s a 90‑page document that identifies seven different pathways where we think there are huge opportunities in Alberta for investment and job creation.
In order to make the change, the scale of the change that has to happen, as Minister Freeland said in her speech, we’re talking about an Industrial Revolution kind of change on a much shorter time scale. We just can’t wait for the market to decide.
The Chair: Thank you, Mr. McGowan.
Senator Cardozo: Thank you to our panellists. We were commenting during our short break that, together, you form a fascinating panel of a variety of interests we have to deal with in this bill.
My question is for Mr. Dachis and to some extent it builds on Mr. McGowan’s comments. It’s about the Canada growth fund.
A conundrum that faces government quite often is, on the one hand, people say the government should not pick winners and losers. On the other hand, people say, “Don’t spread money all around, be strategic,” which seems to be that you have to pick winners.
What are your thoughts and your advice to government about how to be strategic with something like the Canada growth fund? Keep in mind the issue that Mr. McGowan raised in terms of an industrial policy.
Mr. Dachis: First of all, it is totally understood that you will set up priority areas, but the priority areas should be pretty broad. For example, the government has a clear priority. We as a society have a clear priority of a clean energy transition. I don’t think there will be many people objecting to that.
If we are going to set aside investment funds for that, what we should be doing is setting it in that broad priority area and then leaving, as much as possible, the execution of that to an independent set of appointees who will be able to execute against clear high-level priority KPIs, such as whether they are getting the best bang for their buck over the long term, the most reductions for the lowest costs.
Within that high-level KPI, let that agency or board or endowment fund — however you set it up so it’s separated from the day-to-day government decisions — look for, find and then fund against the lowest-cost highest-performing technologies, rather than it being up to the government to decide, “Hmm, there is too much of that have investment being done in Alberta. We need a little bit in Manitoba,” or, “We need a little bit in B.C.” That’s when politics starts getting involved and starts to make bad decisions.
Senator Cardozo: Thank you. I would like to get Mr. Hannah’s thoughts on that, about how the Canada growth fund should target itself.
Mr. Hannah: Part of what you are trying to do, I think, is harness private sector expertise in this area to help channel investment to the areas of highest use. That’s where you can start to look at things like matching funds and other triggers that will give some signal to where the marketplace seems to think the best use is and where we think the most opportunity and growth is.
That helps address the issue you were concerned about, senator, about government having to pick winners. Then you’re actually getting signals from the economy writ large and the private sector about where the best use is.
Senator Cardozo: Mr. MacDonald, can you give us your thoughts about the state of the sector in terms of the donations over the last three years with COVID, and what you anticipate over the next year or two with the increased rate of inflation?
I think he has left, has he?
The Chair: Mr. MacDonald has, yes.
Senator Cardozo: Then I have one more question for the Canadian Alliance of Student Associations. Could you tell us about the program that is being put in place in terms of interest‑free loans? How does it play for incoming students or students thinking about going to university or college? Does it make a difference for lower- and middle-income students; does it make a significant difference in their thinking about whether to pursue post-secondary education?
Ms. Metcalfe: We were very intentional in our language in saying that this investment is welcomed by past, present and future students as well. Even though the interest is being removed on student loans, it definitely helps people who are currently in repayment. It also means that everyone who is borrowing loans right now or who will borrow loans through the Canada Student Financial Assistance Program will also have the benefit of not having interest on those loans.
The Chair: Thank you.
I have a question. I will start with the Canadian Alliance of Student Associations. Can you give us an idea of what would be the cost now for completing a bachelor degree, a master’s degree or a PhD, and you have to rely on loans and student grants?
Ms. Metcalfe: The average undergraduate student graduates with $28,000 in debt, and the average college student graduates with around $15,000 in debt. The same is true for graduate students, so there is an additional $28,000 on average in debt. Around 80% of all student loans are provided through the Canada Student Financial Assistance Program.
The Chair: Being the son of a single mother and having been born on welfare, I benefited from student loans under equal opportunity in those days when it started in the 1970s, both as loans and grants. When I look at what I had to pay back, which was approximately $15,000 at the cost of the dollar in the early 1970s. I graduated with a bachelor’s degree and also an MBA. I then look at the cost of today’s dollar, it would be approximately $100,000 to complete my MBA.
All of that said, my question goes to Mr. Lochner. With your professionalism and the hindsight you have given us, my question would be this: What should the government do first to help students pursuing post-secondary education? Can you be more specific to help the students coming from families who are the most vulnerable?
Mr. Lochner: Sure. First, Canada does a very good job of this compared to many other countries — compared to the United States, et cetera. If you look, for example, at 10 post-secondary attendance rates, if you condition on, say, student achievement levels in adolescence, and you see that those differences in post‑secondary attendance rates are actually quite small when you look across different income brackets. That is something you wouldn’t see if you looked at the United States, for example.
I think that’s proof that the financial aid offered to students and the fairly low tuition levels in Canada — we complain they are high, but they are low relative to the cost of providing education — tuition at the $6,000- or $7,000-a-year range.
So I think the government does a fairly good job at providing the resources up front for students through loans and grants to help finance an education. I’m sure there is some slippage, and we can always improve on that.
The bigger area now that people are facing in Canada is how we recover the funds when students graduate, or fail to graduate, and enter the labour market. How do we recover some of the funds we lend out without breaking the backs of those students who are struggling in the labour market?
I don’t think reducing interest rates is the right answer to that question. It would help with that, but there are other ways to do that through things like repayment assistance, where you reduce payment requirements for those with low income or who are struggling and you collect your payments from those who are doing just fine in the labour market.
Failing to recover the funds means that there is less money to dole out to students who need the money, either up front for school or after school if they need a break on their payments.
That’s my general position.
The Chair: The Canadian Alliance of Student Associations — any comments?
Ms. Metcalfe: I would like to add that we definitely agree that there are multiple instruments and ways that students can and should be supported through the government and through the Canada Student Financial Assistance Program. We are very excited to see the recent investments in the repayment assistance program in terms of the increase in the amount a student would have to make before they go into repayment as well as grants to students. Those are both really good options.
We are also strongly in favour of the removal of interest on Canada’s student loans. It’s important to know that students will be forced to repay those loans because students can still go into default if they don’t make payments.
The Chair: Thank you.
Honourable senators, we will move to the second round.
Senator Marshall: I have some follow-up questions for the Alberta Federation of Labour. Some of them are as follow-ups to Senator Galvez’s questions.
First, can you give us an idea — I know your website says that you’re like a conglomerate; you represent a number of unions and associations — how many workers fall under your umbrella? What percentage of the workforce would that be in Alberta?
Mr. McGowan: We’re the largest umbrella organization for unions in the province of Alberta. We have 28 unions that, in turn, represent around 175,000 workers in both the public and private sectors. As a percentage of the labour force, our labour force is 2.5 million people. You do the math.
Senator Marshall: Okay. That’s helpful. Thank you.
You covered a lot of ground in your opening remarks, but there is an area that isn’t in the bill — it is in the fiscal update — and that’s the changes to the policy that covers the Canada workers benefit. If you’re familiar with it, do you have any comments on it?
Mr. McGowan: Yes. My understanding of what is being proposed is that the Canada workers benefit, which was already introduced during the pandemic, will be not only maintained but paid automatically on a quarterly basis, I think.
Senator Marshall: Yes, in the subsequent year. Even if the individual’s not entitled to it, they get almost like a gift of an extra year.
Mr. McGowan: Right.
We’re very supportive of the Canada workers benefit and the changes that are being proposed because we recognize that it is that group of lower-paid workers who are struggling most in the current high-inflation, high cost-of-living environment.
Thankfully, the majority of our members are unionized so they benefit from collectively bargained agreements, and most of them earn enough so they wouldn’t be eligible for that benefit. However, we do have a few unions that represent people working in lower-paid sectors, especially in retail and in hospitality. For example, we have unions that represent people working in grocery stores and in warehouses. Sadly, we also have a lot of people working in long-term care who get paid very little. Those workers would be eligible for the benefit. It makes a huge difference in terms of their ability to pay the bills. That’s especially true with inflation running as high as it is.
We’re very supportive of the benefit and making it easier for people to access it more quickly. It’s a small amount for a lot of people who make a lot more, but for people on that threshold, it’s the difference between putting food on the table and paying the rent. It’s something that we really applaud.
Senator Marshall: Do you think it will resolve in inequities in the system whereby someone who is entitled to it one year then goes into a higher salary bracket the next year, the same as a colleague, but then the colleague is not entitled to the benefit? The employee will be entitled to it for an extra year, even though, technically, now, under the current policy, they are not entitled to it. Some concern has been raised as to whether this introduces inequity into the system.
Mr. McGowan: There is no doubt that whenever you have income-tested benefits and programs, there are problems with the threshold, right? If there are people who earn a bit more, they lose the benefit. That has implications not only for individuals but also for workplaces, as you suggest. However, the solution is not getting rid of the benefit, because so many people rely on it.
The Chair: Thank you.
Senator Marshall: Am I out of time?
The Chair: Yes, senator.
Senator Moncion: My question is for Mr. Dachis. You said the tax-free savings account on property acquisition would create an increase in cost of housing. Could you explain?
Mr. Dachis: Sure. It’s relatively simple. Let’s assume that the issue is supply, which is lack of buildings. That’s where economists really are now, which is that the lack of new housing construction is fundamentally driving our lack of ability to house people. If there are only 10 homes for a group of 11 people looking to buy, and we give all 11 of these people more income, a grant, they are all going to be competing for those homes so that one of them is not going to be able to get. So they will all outbid each other, and the price of that home will be based on that higher price based on how much more money they all have. If we’re not increasing supply, these kinds of grant programs won’t really fundamentally solve the problem.
Senator Moncion: You don’t see the incentive for people who cannot acquire property right now to put money aside for the acquisition of a property? Right now, the supply of homes is not necessarily a problem, because you see so many houses that are available. It was a problem during the pandemic, but it’s not now. I see this as more of an incentive toward putting money aside instead of raising house prices. I would like to hear from you on this.
Mr. Dachis: I disagree with that on the premise that there is enough supply. There is not, especially in Ontario. In Ontario, we have not been building nearly enough housing to house the substantial increase in population that we’re expecting here. This has been a long-standing problem for a decade plus. We have enormous amounts of immigration, which is great and a wonderful thing to improve the vibrancy of Canadian society, but we’re not building enough housing to put them in a proper home.
When we have that lack of construction, these kinds of programs do not address the core problem and end up increasing the buying power of people. That buying power just gets reflected — again, this goes back to the elasticity that I mentioned on banking. It’s the fundamental question in all that context. How that all works out doesn’t depend on who actually pays it or benefits from it or gets the cheque initially. It all ends up being paid for by people who have the fewest options elsewhere.
The Chair: Thank you.
Senator Gignac: Going back to my previous discussion with Mr. Hannah from the Canadians Bankers Association, I tried to reconcile what you mentioned with the market facts. Ms. Freeland released a budget on April 7 and announced this surprising one-time 15% tax on banks. Interestingly enough and surprisingly enough, the day after, most of the banking stocks and even the insurance stock prices increased.
If this 15% one-time tax with an expected revenue of $2 billion is so catastrophic for the Canadian pension funds and investors, can you explain why the market did not react in the same way that you mentioned? It seems that investors don’t care about that tax, since the stock price is going up.
Mr. Hannah: Let me answer that in two ways. First, while the announcement was done at that time, as a practical matter, the tax itself still needs to go through a process. The legislation needs to be developed. We need to have discussions like this, and the legislation needs to be assessed or revised as is being done now. If you’re an investor, you’re going to wait to see the end result so that you have accurate information to make your decision.
Second, for a lot of investors, especially if they are international investors, it doesn’t always resonate initially. They are not necessarily following Canadian news on a day-to-day basis. It takes a while for that to sift through and to be digested and assessed and for them to then act accordingly. You might not get the same kind of immediate response that you’re talking about.
Third, other factors weigh into all of this. This is an important factor in investment decisions, but it’s not the only one. All of these play a role. I understand your point, but I don’t think that’s truly a proof point about how investors view this.
Senator Gignac: I was working 35 years in that industry, managing money and following public finance. You told us that this time, contrary to the past, the market took much more time to react to these taxes. The people working on Wall Street and Bay Street, for example lawyers, work overnight. Investors know quickly about changes and integrate additions quickly. But this time they took more time. Perhaps the market assumed that there would be an amendment on the bill, but I’m surprised that this time the market seems to have reacted differently than in the past. It looks like a non-event if you check the reaction.
Maybe you can send your answer in writing regarding the impact. From an investor’s point of view, it seems that it is not so much of a catastrophe. When you check the performance of many banks year to date, the Royal Bank of Canada has declined only 2.4% year to date, BMO 6.5% year to date, TD less than 10%. A lot of banking stocks have declined less than the market year to date. I am just trying to reconcile that.
Again, since time is limited, maybe you can send written comments if you want to add to that answer. Thank you.
Mr. Hannah: Senator, it’s not a catastrophe; it’s a signal.
The Chair: Mr. Hannah, can you answer it in one minute?
Mr. Hannah: Yes. As I said, senator, it’s a signal to investors, to savers and to Canadians who work at institutions. The fact that the FI tax is not sunsetted is equally a signal. Our view is that you need to be able to send strong signals to the marketplace that Canada is interested in a productive, growth-oriented tax system. This is not it.
Senator Smith: I have a question for Mr. Dachis at the C.D. Howe Institute, a follow-up on Senator Moncion’s question. You argued that instead of focusing on the demand side of the housing equation, the government should focus more on supply in order to stabilize house prices. In what areas can the federal government assist in increasing the supply of housing because I don’t think the government is in the business of building homes?
Mr. Dachis: Correct, and that’s a very important point. Even the best-intentioned federal policies, when it comes to trying to increase supply — and I support this; that it would be focusing on the supply rather than the demand side is the right way to go — the federal government’s involvement is always tricky. The federal government has to work through the provinces, and that will be a grant program. Any kind of grant or transfer program between two levels of government automatically becomes political. When the government is trying to attach dollars on one thing, the other government is on the other side trying to negotiate the cash for something else. When the federal government is trying to get money out the door to increase supply, it gets complicated the moment that they announce these sorts of programs. My advice to the federal government is to get out of the way. Use your bully pulpit to encourage provinces and municipalities — which are the creatures of the provinces — to increase housing supply.
Senator Smith: To the Canadian Alliance of Student Associations, maybe you could help me out with this one. Obviously, the government has to do more for students, but you noted that fees are disproportionately higher for graduate students with less access to financial assistance as compared to undergraduate students. Question: Is there data being collected on the number of students in Canada facing financial difficulties? Is there data to suggest that higher education costs are discouraging Canadian youth from attaining higher education?
Ms. Metcalfe: If you’re looking for specific numbers, I can definitely provide that to you and the committee afterward, but I can speak first specifically to some of the struggles that graduate students are facing. Right now, graduate students are not eligible for grants under the Canada Student Financial Assistance Program. This is something that CASA asked for at our Hill week last month. We’ve been hearing it from our graduate students as well. Right now, Canada is twenty-eighth in OECD graduate attainment levels. We are seeing a lot of loss in terms of talent for Canada’s top researchers. They want to study and innovate in Canada, but there just aren’t fellowships and funding to allow them to do that, and they’re going internationally, where they can conduct their research with more money and supports.
Sorry, can you remind me what the second part of your question was? It was a really long one.
Senator Smith: I just wondered if there are any numbers in terms of qualifying people who are trying to attain higher education or post-secondary degrees at the higher end. Do you have statistics on that?
Ms. Metcalfe: Yes. Last year, over 500,000 students accessed the Canada Student Loans Program and borrowed from the Canadian government. We can provide you with more numbers afterward in a follow-up, if that’s okay.
Senator Smith: If you could provide numbers of first-degree students versus people going on to MBAs or PhDs, et cetera, it would be helpful to see those numbers.
Senator Loffreda: My question is for the C.D. Howe Institute, and maybe Mr. Lochner can also provide his comments. There are two types of inflation, in my opinion. There’s inflation for the poor, and there’s inflation for the rich. There are different views on the impact of Bill C-32 on inflation. We’ve heard different views this morning. The support in Bill C-32 is mainly targeted to those who need it most.
The C.D. Howe Institute did mention the First-Time Home Buyers’ Tax Credit and the tax-free first home savings account, but with increasing interest rates, housing prices are dropping in Canada. Can you share your thoughts on these issues?
Mr. Dachis: Sure. When you see housing prices drop, that is partly a reflection of the very low interest rates we had during the pandemic and before that as well. It is important to look at debt-service ratios, not necessarily the purchase price. The question becomes how much debt people can take on and pay for on an ongoing basis. For the last couple of years, it didn’t actually change that much. Prices went up a ton, and the biggest effect of that increase in prices was the ability for people to put together a down payment.
Over time, because those people faced lower interest rates, their actual debt, as a mix of interest and principal that they had to pay back, didn’t really change that much. We’re going to start seeing a major shift on that as the higher prices that people paid start to be reflected in higher monthly mortgage payments. They paid that very high upfront cost, but now their mortgages are resetting at higher rates. We will start to see some pretty serious affordability issues. Where things really hit hard is on people’s monthly mortgage payments. That’s what we should be really concerned about going forward.
Senator Loffreda: Mr. Lochner, do you want to add to that?
Mr. Lochner: This is a bit outside of my area of expertise, but as an economist I have a general understanding of these issues. It is true that with five-year mortgage terms in Canada, every year about 20% of mortgage holders have to refinance. With interest rates at a high level, that will surely have a major impact on the price of housing and the availability of affordable housing, much more so than, say, a country like the U.S., where only about 1 mortgage holder in 30 is refinancing their loan every year due to longer mortgage terms.
Regarding the impact of inflation on lower- versus higher-income individuals, we’ve seen a lot of increase in prices of food and fuel. These things hit the lower end of the income distribution harder than the higher end. The housing market is one that kind of hits broadly and it hurts everyone. I don’t have much else to say beyond that.
Senator Loffreda: Thank you.
Senator Bovey: Again, I thank you all. Dr. Lochner, I have a question for you. I agree with you that there are a variety of ways in which students can be supported. In our discussion, the idea of research grants has come up. That is a very important way for professors to be able to hire students and get them involved in their work and their future passions.
I’m also aware, as you are, that the federal government has research grants that go directly to universities. They have some that require provinces to have matching programs for them as well. I’m aware, as a former board chair of the University of Manitoba, for instance, that Manitoba didn’t qualify for some of the federal research grants, because there wasn’t that kind of grant available in the province.
What would your recommendation be? I would be really interested in your advice as to how the federal government can rebalance it so all provinces have equal access to all research funds, not just some.
Mr. Lochner: Well, you’re asking me to step outside my area of expertise here —
Senator Bovey: I think it’s in your expertise.
Mr. Lochner: I like to keep out of administration policies as much as possible so I don’t end up becoming an administrator myself.
In my view, research grants should be broad-based through things like SSHRC, NSERC, et cetera, and I don’t see a strong argument for linking that aid to whatever provinces decide to do. I think the aid should be given out based on merit and the quality of the research idea and, potentially, the value to students at the institutions from that funding.
I think in order to remain competitive on an international scale, Canada has to probably add more to its research funding or to its base funding for universities. That would be my opinion. Right now, we’re going to see our earnings cut 5% in real dollars over this next year alone because budgets are so tight in Ontario. That’s distinct from the research funding, but these two go hand in hand.
Senator Bovey: I was looking at this from the perspective of the students as well as the long-term benefit of the work for Canada itself.
Senator Pate: It’s tempting to follow up on that, as you so aptly put it, Mr. Chair, the number of us around this table — there are a few of us who but for student loans and those supports wouldn’t have had a post-secondary education.
But I’m going to go back to Mr. Dachis. Earlier this year, the CRA observed that “. . . some taxpayers repeatedly engage in abusive tax planning,” and that:
. . . the CRA is of the view that the current formulation of the GAAR does not provide a sufficient deterrent to abusive tax planning.
I’m curious what measures you think need to be added to strengthen the general anti-avoidance rule, or GAAR, and what other measures overall should be added to better realistically audit, detect and reassess abusive tax-planning arrangements.
Mr. Dachis: Good question. I don’t have that at hand, but I can send some of the work the C.D. Howe Institute has done on this topic in writing after.
Senator Pate: That would be great. Thank you very much.
Senator Galvez: I would like to continue my conversation with Mr. McGowan.
As I mentioned, in Alberta there is an ongoing boom in renewable energy and the creation of 4,500 clean jobs, which makes the rest of the provinces very jealous about how Alberta is doing this. You are talking about the need to modernize the industrial policy, but I would like to ask you about your opinion on the question of just transition. How do you define it and what will you want to see in a potential strategy of just transition, because the government has announced this? Maybe we still have the time to influence. What are the principles and what are the strategies, the measures that you would like to see in a just transition policy?
Mr. McGowan: Thank you very much for the question. It’s something that we in Alberta have been thinking about for a long time because we’ve seen this transition coming for more than a decade, and it’s not even academic for us. We actually had a phase-out of coal-fired power, which resulted in the loss of about 3,000 of our members’ jobs. Collectively, we actually negotiated what I think remains the only sector-wide just transition agreement for any group of workers. That included things like pension bridging, income top-up for Employment Insurance, relocation allowances — all funded out of a just transition fund which the previous provincial government created after negotiating with us.
So there is a blueprint. But having that experience, as I said in my opening remarks, it’s great to have labour market adjustment policies to help workers should they lose their jobs, but really what our members in coal told us, and what our members in oil and gas are telling us as well, is that they don’t want labour market adjustment policies. Those are necessary but not sufficient. What they really want is a job.
For us, just transition, which, frankly, is a term we’re trying to get away from because it understandably scares off a lot of workers and shuts them down to having conversations, because they want a job. They don’t want to transition. For us, just transition has to be more than just labour market adjustment policies. It has to be economic transformation that will lead to economic activity, investment and job creation. That is our first caveat about just transition.
Related to that, if we’re going to have economic transformation, we need industrial policy driven toward job creation, and that implies active government investment. It means putting significant amounts of money on the table. As we say in our blueprint, which I will share with the clerk of the committee, that’s why we think we need Lougheed-style industrial policy that doesn’t shy away from things like public sector investment and even equity participation and the creation of Crown corporations. So for us, the best just transition is industrial policy leading to job creation.
One more thing I’ll say is that workers need to be at the table. There is no just transition without a worker voice, because that’s what we’re talking about. We’re talking about a transition from the current labour market to a new one, and workers have to be at the table to talk about that.
The final thing I’ll say is that there’s a political dimension to this discussion, which needs to be acknowledged. Whenever you’re talking about a transition, especially one as large and rapid as the one that we have to contemplate, it happens in a political environment. The policies that we implement have to be supported by the public. If they’re not, we don’t make any progress. That sort of emphasizes for us why we need to bring workers along. If they’re scared, anxious, if they become resistant, if they don’t see any hope in the transition, they will resist it, and all the fancy talk about the emission reductions and transition and green jobs, it won’t happen, because the public authorities and governments will lose political licence.
That’s why we really need a plan, we need investment, we need job creation, or else we’ll lose this opportunity to make the transition. Change makes our members — and any worker, frankly — anxious, but what makes us even more anxious is not having a plan for the change.
The Chair: Thank you.
Mr. McGowan: I hope that helps.
Senator Cardozo: I have two brief questions. One is to the Canadian Alliance of Student Associations. When we talk about post-secondary education, we tend to focus more on university education. I wonder if you have any sense of the need for interest-free loans among college students versus university students. Do you know if there is more of a need for college students, or do you have comparative figures?
Ms. Metcalfe: I can talk a little bit about the difference in loans that these students have when they finish university. As I mentioned before, on average, a student with a bachelor’s degree has around $28,000 in loans, but a college student graduates with about $15,000 in loans, and that is because of a bunch of different reasons. College programs are usually a little bit shorter, and university bachelor’s four-year degrees are obviously a little bit longer. This program is definitely needed. We have a shortage of students and people in the skilled trades right now, and this is something that students need to be a part of.
Obviously, we need more students to be able to fill the positions needed for that transition to a green economy and to meet a lot of the objectives in building homes and other projects and programs that the government is looking at. We have heard from the college students whom we represent that this is something that they are also in favour of.
The one thing I didn’t get a chance to mention yet is that although we’re really in favour of the removal of interest on Canada student loans, it is important that the provinces that don’t participate in this program, namely Quebec, receive transfer funds so they are able to increase student financial assistance for their students in the province as well.
Senator Cardozo: Thank you.
Mr. McGowan, just a short question on industrial policy and the Canada growth fund.
Could you briefly give us your thoughts on which specific sectors in Alberta would benefit the most? You talked about building the green economy in the province. Do you have a sense of which specific green economy subsectors or sectors would benefit most from the Canada growth fund and that you think the government should focus on?
Mr. McGowan: Yes, I would refer you to our report Skate to Where the Puck is Going. We address that question and identify what we describe as seven missions, which are essentially the pathways we think provide the most opportunity. We agree with the business community on a lot of them. Hydrogen is one, building out our electric grid basically to triple the size is another. That would be a huge infrastructure project that would help industry and the economy and also create all sorts of jobs for working Albertans.
One of the pathways we identify which I think is particularly unique to Alberta is our suggestion that we pivot the oil sands economy from a focus on producing feedstock for fuels to producing feedstock for material manufacturing. We have very large amounts of bitumen in the oil sands. It is actually more valuable if we use it to create materials like carbon fibre. We have the technologies, but there’s not a significant industry. So that’s an opportunity.
I’ve shared the report with the clerk, so I would encourage you to take a look at the seven pathways we identified. The one thing about the growth fund that I want to emphasize, and I mentioned it in passing in my opening remarks, has to do with governance. We’re suggesting that instead of simply creating an arm’s-length organization that is run by investment managers we have a bicameral structure where we have a stakeholder board on the top that will help provide direction and then an operational board that would handle investments.
We actually have a bicameral structure like that for our big pension plans in Alberta. I acted as the chair of what we call the sponsor board to set general policy, and then we had an operations board. That kind of bicameral structure might help provide the public purpose that’s consistent with the kind of industrial policy we’re talking about, while at the same time bringing the expertise from the investment community.
The Chair: To the witnesses, thank you for your participation; it was very informative and insightful. Your testimony will certainly help Canadians and help us in the Finance Committee to look at our four main principles that we all share: transparency, accountability, reliability and predictability.
Before adjourning this meeting, honourable senators, I would like to remind the witnesses to please submit written responses through the clerk by the end of the day on Friday, December 9, 2022. The deadline is very short, as we approach the end of our study. Do we agree on that, witnesses? Thank you.
I would also like to inform you, honourable senators, that our next meeting will be this afternoon from 3 p.m. to 5 p.m. to continue our study on Bill C-32, same room. Before closing the meeting, I would like to 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 all for your hard work, which contributes enormously to the success of our work as senators.
Having said that, I now declare the meeting adjourned.
(The committee adjourned.)