THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, December 7, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 6:46 p.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 of the senators, as well as the viewers across the country, Canadians who are watching us on SenVu.
[Translation]
My name is Percy Mockler, senator from New Brunswick, and I am Chair of the Senate Committee of National Finance. Now, I would like to do a round table and ask my colleagues to introduce themselves.
Senator Gignac: Clément Gignac, senator from Quebec.
[English]
Senator Duncan: Pat Duncan, senator for the Yukon.
Senator Loffreda: Senator Tony Loffreda from Quebec, and I’m the sponsor of the bill.
Senator Bovey: Patricia Bovey from Manitoba.
Senator Boehm: Peter Boehm, Ontario.
[Translation]
Senator Moncion: Lucie Moncion from Ontario.
[English]
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador, critic of the bill.
The Chair: This evening 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.
We have the honour and pleasure of welcoming the Honourable Chrystia Freeland, Deputy Prime Minister of Canada and Minister of Finance.
[Translation]
Thank you very much, minister, for accepting our invitation once again to appear before our committee today. Every time we have invited you, you have accepted.
[English]
She is joined by Miodrag Jovanovic, who is the Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada. Thank you to Mr. Jovanovic for accompanying the minister and for your presence here this evening.
We will now hear comments, honourable senators, from the minister.
Hon. Chrystia Freeland, P.C., M.P., Deputy Prime Minister and Minister of Finance: Thank you very much, Mr. Chair, and let me quickly also thank Mr. Jovanovic for appearing with me. I think all public servants work really hard, but I do not think there are any in Ottawa who work as hard as the people in Finance Canada who work on tax. It is fiendishly complicated. It is important to get it exactly right, and Mio and his team do a really good job.
Thank you very much, Mio.
It is my pleasure to appear before all of you to discuss Bill C-32.
[Translation]
I would like to briefly describe some of the key measures in Bill C-32, which I hope honourable senators will support.
First, we are permanently eliminating interest on Canada student loans and apprenticeship loans, which will save young people an average of $410 per year.
Furthermore, we have allocated the necessary funds to ensure that students from Quebec, Nunavut and Northwest Territories will also benefit from this measure. We are cutting taxes for Canada’s growing small businesses from 15% to 9%. This is the delivery of a key commitment we made in the spring.
We are permanently increasing the income tax rate on major banks and life insurance companies by 1.5%, as well as implementing the Canada Recovery Dividend, a one-time 15% tax.
[English]
Bill C-32 also delivers on our plan to make housing more affordable. We are creating a new tax-free first home savings account, which will help Canadians make a down payment faster by allowing first-time home buyers to save up to $40,000 toward their first home. We are delivering a multi-generational home renovation tax credit of up to $7,500 so that families across Canada can afford to have a grandparent or a family member with a disability move in if they want to.
By ensuring that profits from flipping properties held for less than 12 months are fully taxed, we will help to make sure that homes are for Canadians to live in, not a frequently flipped investment asset. We’re also helping Canadians save on closing costs by doubling the First-Time Home Buyers’ Tax Credit to provide up to $1,500 to offset closing costs.
[Translation]
One of the pillars of the Fall Economic Statement was about growing our economy and creating sustainable jobs. This legislation will help us deliver on that commitment. We are creating a new 30% critical mineral exploration tax credit that will help make Canada a global leader in this essential industry.
We are also launching the Canada Growth Fund, which will help attract the billions of dollars in new private investment required to reduce our emissions and create good jobs.
[English]
Mr. Chair and senators of the committee, Canada has the lowest deficit and the lowest debt-to-GDP ratio in the G7. A few hours after I tabled the Fall Economic Statement, Moody’s reaffirmed our AAA credit rating with a stable outlook.
Our economy is now 103% the size it was before the pandemic, and so far this year, our economic growth has been the strongest in the G7. In October alone, employment in Canada rose by 108,000 jobs. We have recovered 117% of jobs lost to COVID compared to just 105% in the United States. As the Financial Post noted this week, more working Canadians are women than ever before; 82% of women in their prime working years had jobs in November. That is the highest number on record. This is our national early learning and child care system at work. I think it is only going to get better as the fees continue to fall.
I know this is a challenging time for a lot of people, but I also know that Canadians are tough, and the Canadian economy is resilient.
[Translation]
That’s why we can all be confident that we’ll get through this, just as we have gotten through these past two and a half years.
Thank you very much. I’m happy to take your questions.
The Chair: Thank you, minister.
[English]
Honourable senators, as a reminder, you will have a maximum of five minutes each for only one round of questions. Therefore, please ask your questions directly. Madam Minister, please respond concisely. The clerk will inform me when the time is over.
We will go to questions now.
Senator Marshall: Thank you, minister, for being here.
I want to talk about Part 4, Division 1, on the Canada growth fund. I have some concerns about that part of the bill. It is going to provide $2 billion to you as minister to buy shares in a corporation that does not exist. There is no legislation that tells us anything about this yet-to-be-created corporation. We do not know anything about the composition of the board or even whether there will be a board. There is nothing to tell us about the financial controls that will be exercised over the $2 billion, and there is nothing to indicate what the governance structure is going to be.
Equally concerning, there is a section there in that part of the bill that says that the $2 billion is not the most that is going to be paid out. It leaves it quite open that there could be future monies coming out of the Consolidated Revenue Fund, and there is no limit on it.
If you are going to establish a fund with money of that magnitude, why isn’t there a separate bill that would outline the specifics of the company and what the company is going to do, what the mandate is, what the objectives are and what the board composition is going to be?
It is really concerning to see $2 billion going out with an explanation of, I think, there were 17 lines there. It leaves it quite open that additional monies can be paid out of the Consolidated Revenue Fund.
Why is there not a separate piece of legislation?
Ms. Freeland: Thank you for the question and thank you for focusing on what I actually believe is one of the most important elements. This was introduced in the budget and elaborated upon in the Fall Economic Statement. It is something I see as one of the most important elements of our green transition.
The Canada growth fund will actually be capitalized at $15 billion. The objective is for that government money to pull in private capital at a ratio of at least 3 to 1. It will be managed by professionals; we understand that we need to have actual investment professionals do this work.
It is going to perform some very sophisticated jobs in the green transition, including contracts for difference, which we are hearing from investors inside and outside Canada is a really important element to ensure that people have the confidence in our carbon pricing system to invest in it.
I will just add one more thing. I do want to hear your next question, senator.
Senator Marshall: Yes, I have something to clarify.
Ms. Freeland: To the question of why we are doing it now, I would say to you two things: One, with the green transition, we have to act quickly, and second, from my perspective, the Biden administration’s Inflation Reduction Act added to the urgency with which Canada needs to act. They are deploying hundreds of billions of dollars to invest in the green transition. We need to move really fast.
Getting this fund in place quickly is more important than ever.
Senator Marshall: But, minister, you can’t put the fund in place. You are saying, “Give me the $2 billion. I will buy some shares,” but the company does not even exist. The company does not exist, and you are giving us all of this information verbally. If that is the mandate of this corporation you are talking about, why isn’t it in the legislation?
We are looking at this. There are 17 lines there to justify spending at least $2 billion, and then it leaves it wide open for there to be additional appropriations coming out of the Consolidated Revenue Fund.
I am just very surprised to see $2 billion with no explanation within the bill over how the $2 billion is going to be controlled. The company is not even created. What are you going to buy shares in? There is no company yet.
Ms. Freeland: Senator, you are one of the most precise questioners I face and you have a very strong financial background. I appreciate that. That scrutiny is important.
In terms of the Canada growth fund, what I hear from Canadians and from Canadian businesses, especially in the wake of the Inflation Reduction Act, is that Canada has to move faster than we have moved hitherto.
So we are moving quickly to structure the Canada growth fund. We are going to be fully transparent in how we stand it up, and details will be forthcoming in the coming weeks and months. I believe that, given the hundreds of billions of dollars that the U.S. is deploying, we cannot allow the U.S. to suck all of that investment south of the border.
Senator Marshall: Part 4 of Division 1 should be more properly developed, and the corporation should be created. You are saying to pay you the $2 billion. What are you going to do with it? The company is not even created. We don’t know anything about the company. I am very disappointed in the bill. Yes.
The Chair: There was not a question at the end, just a comment.
Senator Marshall: Do I have time for another question?
The Chair: No, that will come later.
Senator Marshall: Okay, I have a question on another topic.
[Translation]
Senator Moncion: Welcome, minister.
I have two questions for you. The first has to do with the Bretton Woods Agreements.
How did the government determine the amount by which to increase the maximum financial assistance that can be provided to foreign states, and how will you track the amounts that are provided to foreign states?
Ms. Freeland: Thank you for the question.
As you’re well aware, as a result of Russia’s illegal invasion of Ukraine, Canada has been using this mechanism to assist Ukraine with Canadian bonds.
When we were drafting the Fall Economic Statement, we saw that the entire situation was a tragedy and that the war continues. We firmly believe that it is prudent to increase Canada’s capacity to help Ukraine.
I want to emphasize that this assistance fund is money that Ukraine ultimately has to pay back to Canada. We just created a new Ukraine Sovereignty Bond worth C$500 million. It is important to note that these bonds were purchased by Canadians. This initiative is very important to me because it is not just a government decision. It is also an opportunity for Canadians to show that they want to help Ukrainians. Canadians always show great interest in Ukraine, and I am very proud of that.
Senator Moncion: Thank you very much for your explanation.
My second question relates to a completely different matter, specifically surrogacy expenses. In the bill summary, with regard to expenses related to a surrogate mother or a donor, it states that the definition will be expanded and that amounts will be reimbursed. As far as donors are concerned, we often think of sperm donors, but I’d like to know whether you’ve thought about women who undergo invasive and costly hormone treatments.
Will the tax credits also be available to women who donate their eggs?
Ms. Freeland: That is a good question and I thank you for raising it.
I want to emphasize that this is not a subsidy, but rather a tax credit. I think the answer is yes. I see that Mr. Jovanovic is confirming that as a yes.
Senator Moncion: Do you plan on reviewing all the programs that exist for surrogacy? There is an enormous amount of work to be done in that regard in fertility clinics. Will the government ever commit to studying foreign adoptions, surrogacy in other countries and so on? I care about this issue. Will your government commit to studying it?
Ms. Freeland: Thank you for the question. I can’t tell you that this has been done, but I do take note of the interest you’ve shown on this issue. As you know, we have taken some first steps with the tax credits in this bill.
Senator Moncion: Thank you very much.
Senator Gignac: Good evening, minister, and thank you for joining us. It’s always a pleasure to see you.
I have three questions for you if I have enough time. That will depend on how long your answers are. I want to come back to the Canada Growth Fund. You said it was an important part of your growth strategy.
In the technical paper we were given, it says that investors are well aware of commercialization opportunities and technology deployment, but they are limited by the risks involved. You indicated that this fund was designed to limit risk by assuming the first loss. Can you clarify why it’s important to have this legislative measure and to create the Canada Growth Fund in order for our energy transition to succeed?
Ms. Freeland: I’m pleased to answer your question.
We started this work in April with the budget. We understood three things. First, the green transition is essential and urgent for Canada. Second, the green transition will be very expensive and we need additional funds. Third, government funding won’t be enough. The government will have to create the conditions to attract private capital. That’s what we understood in the spring, and that’s why we created this fund.
I should tell you that with President Biden’s historic Inflation Reduction Act, which should be called the green transition act, billions of dollars from the U.S. government will be invested to attract private capital. I was very pleased to hear that we have already begun the work to create the Canada Growth Fund. That’s why we decided to move faster with the Fall Economic Statement. As you know, since you had a career in the private sector, Canada is not the only country in the world. Private capital can choose the most attractive conditions. That’s why we decided to move fairly quickly with the creation of the Canada Growth Fund.
Senator Gignac: This tool could be of interest to pension funds in Canada. They could join the Canada Growth Fund, since some of them invest in Canada and abroad. We need pension funds in order for the energy transition to succeed. Do you think pension funds could be eligible?
Ms. Freeland: Absolutely. Department of Finance officials and I have already had many conversations with private investors, including about Canadian pension funds and the fund’s structure.
We realized that if the goal of the fund is to attract private capital, it would be a good idea to have discussions with investors in advance, to understand what they need. We want to deliver on that.
Senator Gignac: I have one last question on a completely different subject. You can complete your answer in writing, if necessary. Yesterday, Scotiabank released a study that said that when you break down inflation, half of it is the result of costs related to the war in Ukraine and 35% is the result of supply chain problems.
However, between 15% and 20% is the result of government spending or initiatives, in other words, government actions, so when you unpack the higher interest rates, some of it is because the government may have gone a little too far. Here’s my question. What is your response to the Scotiabank study that was released?
Ms. Freeland: I read what the bank wrote. I can say that Canada has the lowest deficit in the G7. I agree with anyone who believes in having a responsible fiscal policy. In order to judge whether Canadian policy is fiscally responsible, I think the best way to decide, while remaining prudent, is to compare Canada with the other countries in our group. I have to say that Canada is doing very, very well in this group. As I mentioned earlier, Moody’s reaffirmed our AAA credit rating the same day I tabled the Fall Economic Statement.
[English]
Senator Smith: Thank you for being with us, Madam Minister. I would like to discuss the Canada recovery dividend, which is the government’s way of recovering some of the profits of the financial institutions accumulated over the course of the pandemic.
We heard, quite frankly, from the Canadian Bankers Association that this new tax would increase costs, and these costs would be transferred to the consumers, essentially taxing consumers once again.
I would like your thoughts on the effectiveness of the Canada recovery dividend if it means that banks will simply raise their fees and funnel the cost of this tax rate back down to Canadians.
Ms. Freeland: Senator, thank you for the question. The Canada recovery dividend is an important element of the fiscally responsible approach that I was discussing with senators in response to Senator Gignac’s questions a moment ago.
I think that Canada’s AAA credit rating, the lowest deficit in the G7, lowest debt-to-GDP ratio in the G7 do require a strong tax base. We had to spend significantly to support Canadians and Canadian businesses during the COVID recession. That was the right thing to do.
It’s also the case that financial institutions benefited from the floor that all Canadians contributed to with government spending — the floor that we put underneath the COVID recession. I do think it is fair and responsible to ask banks and insurers to make a contribution back to Canadians. That’s what the Canada recovery dividend does.
As to the question of whether those costs will be passed on to consumers, I would say that I believe in the market economy. I believe that competition is how we get a good deal for Canadian consumers. I’m counting on Canadian banks and insurers to compete with each other to offer the best possible deal to Canadians.
Senator Smith: I understand the thought process and I’m not questioning it — other than knowing businesses and having gone through the pandemic, for some of us who downsized and bought smaller houses at the right time but didn’t get them done for another 12 to 18 months because of the lack of availability of wood, steel and all the things required in construction, it seemed that the prices went up all the time with suppliers. As to the banks themselves, as good corporate citizens as they are, do you believe it’s realistic to expect them not to respond by manipulating or managing their bottom line so that they can recover some of this, or will the tax be a temporary tax? How do you see that going?
Ms. Freeland: The COVID recovery dividend is a temporary tax. It is a time-limited tax based purely on the windfall profits that the banking and life insurance sectors earned during the COVID recession.
Senator Smith: Is there a time frame?
Ms. Freeland: Yes, there is a very specific time specified in the legislation. I do want to be clear on that. These are unprecedented, volatile times in the world economy. And actually, I’m looking at Mio now because we have had many conversations about it.
We in the Department of Finance do believe — and I say “we” because I think it’s sort of a corporate view or a team view — that in levying additional taxes, we have to be very careful and thoughtful that there is a clear, rational and fair justification. The COVID recovery dividend is based on what happened in a particular, specific, time-limited period when there was extraordinary and expensive government action and when that did shield and protect a certain sector of the Canadian economy.
Senator Boehm: Welcome, minister. I’m going to continue along the lines that my colleague Lucie Moncion started, and that’s with respect to the Bretton Woods and Related Agreements Act, and particularly the increase.
As a former Deputy Minister of International Development, this made me very happy, but I wanted to drill down a bit and see what it actually means.
We’re looking at a $4.5 billion increase in financial assistance in respect of any particular foreign state and then a $9 billion increase in respect of all foreign states.
How were these amounts reached? Were they reached in G7 consultations and with the IMF and balanced against internal advice that you received? Or is there a more global approach to this that involves others? That’s one. I think I’ll throw them all out here because we might run out of time.
Given the ongoing need to fund Ukraine’s fight against Russia’s aggression, are the increases here to allow Canada to provide even more financial assistance, particularly for reconstruction efforts later on? If so, and if that continues to flow, are there any guardrails or mechanisms that would ensure that the payments under this mechanism are used by the recipients in the manner intended?
My last point on that: You, of course, work directly with the Bretton Woods Institutions, and they have been in various states of reform. Is this a big step forward in terms of the way the IMF will handle crises like this in the future? It’s sort of an institutional question.
Ms. Freeland: There are many questions there. I would have to ask our chair to give us two hours, maybe five hours, if we wanted to talk about the rebuilding of Ukraine, Bretton Woods Institutions, IMF and need for development. By the way, developing countries, especially indebted ones, are facing real challenges right now with interest rates rising. Lots of big questions, but let me try to hit the high notes.
First of all, what we are doing in this legislation is not actually making any specific decisions or allocations. What we are doing is lifting the ceiling on loans that Canada can offer. There are two reasons why that is necessary.
First and foremost, as I was saying in answer to Senator Moncion’s question, the illegal Russian invasion of Ukraine has required — and I think Canadians support this — the Western alliance, very much including Canada, to step up and support Ukraine. What we heard from the Ukrainians is that their ability to exist as a viable country, to pay pensions and to rebuild the power grid, which is being destroyed every day, is as important to the war effort as receiving arms.
In conversations they have had with the G7 and the IMF, Ukraine has estimated that the monthly budget gap they are facing as a result of the war is between $3 billion and $5 billion a month. They have probably brought it down now to about $3 billion a month. That’s a lot.
Canada, together, principally with our G7 allies, but I should probably say the EU as well, has been working hard to help Ukraine meet that gap. It has meant that we have extended considerable loans to Ukraine. At this point, the total financial support in the form of loans from Canada to Ukraine is $2.5 billion.
It makes me really sad to say it, but I think the war is continuing, so it seemed prudent to us to give the government the option — and this would be something, obviously, that would need to be transparent — to extend further financial assistance to Ukraine if necessary.
I do want to point out something that I have said already to Senator Moncion because I think this is important. The Ukraine Sovereignty Bond, which we closed last week, was really important for me. It was $500 million. Canada is the first country to have done this. President Zelenskyy has publicly urged other countries to follow our example. It’s a Government of Canada bond, so it is backed by the credit of Canada and Canadians and our AAA rating. But for me, what was important is it allowed regular Canadians and Canadian institutions to participate, so it was an opt-in, and I was really pleased that we sold out the whole $500 million.
I just quickly want to say that I believe the war in Ukraine is important and urgent. I think it’s the most important fight happening in the world today, and it’s important for Canada to be on the right side, as we are.
But I do also really believe that many countries in the Global South are facing real challenges. Those challenges could well become more acute in this time of rising interest rates. I do think it’s important for Canada to be able to be there too.
Senator Duncan: Thank you, minister, for your appearance today and for your time.
Minister Freeland, I would like to discuss the critical mineral exploration tax credit. You are aware that the tax credit is incredibly important to industry, to the country and, of course, it’s especially welcomed throughout the North — the mineral‑rich North, I might add.
My concern, minister, is the doubling of the critical mineral exploration tax credit, and the regular exploration tax credit being half. An unintended consequence of this may be that with the focus on the critical minerals, there may be parts of the country that are less explored and see less activity.
The mandate letters from the Prime Minister encourage a whole-of-government approach. Is there a whole-of-the-country approach applied when you are examining these measures, in particular, a sense of these possible unintended consequences of tax measures such as this?
Ms. Freeland: Thank you for the question. To your high-level point, I do think it’s our job to think about the whole country. Our country is vast and very diverse, and it is important for us to have policies that, insofar as possible, work for our huge country.
When it comes to critical minerals and the exploration tax credit and, if I may say more broadly, the critical minerals and metals strategy, it really is my belief that this is a strategy we can build to support economic activity everywhere in the country, including in the North.
We worked closely on the development of the critical minerals and metals strategy with my colleague Jonathan Wilkinson, the Minister of Natural Resources, and he has been establishing federal-provincial and federal-territorial tables in every province and territory across the country. He is working on that. The job of those tables is for the federal government and territorial or provincial authorities to define together the opportunities in critical minerals and metals and in the green transition, more broadly, in each particular territory and province, and then for us to use that strategy to drive toward those goals in each area.
That is the sort of organizational way in which we are seeking to do exactly what you rightly urge us to do, which is to have an approach that is going to work in each part of the country.
Senator Duncan: One size does not fit all. If I could quickly express my support for the mineral exploration tax credit in both forms, I appreciate it very much. Thank you.
Senator Loffreda: Welcome, minister, and welcome, Mr. Jovanovic, here this evening. My question is on the Canada growth fund, Division 1, Part 4. During our past few meetings, we have had many discussions about the creation of the new Canada growth fund, and, as you have seen, there is a bit of concern among some senators about signing off on initial capitalization of $2 billion for the Canada growth fund to make its first investments and to help with start-up costs, particularly since the government structure and its operations are not yet confirmed.
But my level of comfort increases when I look at the technical background, which was released and sets out the details on its implementation, mandate, financial instruments, investment approaches, performance metrics and transparency and accountability frameworks. All corporations need to start somewhere. They all require purchase of shares, which is a common first step, and start-up costs require capital. My concern is not there.
As we all noted, the Canada growth fund will not be a replacement for government initiatives such as the Net Zero Accelerator or tax policies that incentivize investment.
Can you explain to us why the government opted to create a new fund and not make additional investments in current programs? Why was the Canada growth fund considered the best option at this time, despite the additional costs that creating this new entity might entail? I have read the briefing; every corporation starts somewhere. But why create a new corporation? Could you explain to us the thinking behind that? Why was it necessary?
Ms. Freeland: Yes. I believe and we believed in the spring, when we tabled the budget — but that belief, for me, was sort of turbocharged by the Inflation Reduction Act in the United States — that we need to invest aggressively in the green transition. We thought it in the spring, and I have to say when the Inflation Reduction Act passed, I heard, as I’m sure did senators — certainly business-facing senators will have heard — Canadians involved in the green transition immediately say, “Government of Canada, you have been focused on the green transition; that’s great, but you guys had better be conscious that the United States has all of a sudden really raised its game, and you guys had better be sure that we don’t have investment pulled from Canada to south of the border.” I’m sure you have all heard that. I certainly heard that concern expressed urgently, and I think the people who said that to me were absolutely right. The Inflation Reduction Act is a game changer, and Canada needs to be ambitious and move quickly. We have a lot in place, but we need to do even more.
My own view is that the right approach is to have a mix of policies. You have actually identified the top three things that we’re doing. One thing that we have is the Strategic Innovation Fund, or SIF, and the Net Zero Accelerator — a classic, standard approach designed for big projects where the government, our very energetic Minister of Industry, works very often with provinces and territories together with the private sector, and says, “We’re going to support you, invest some money in this project provided you bring in more money as well.”
I met today with the CEO of Rio Tinto, and we spoke of the Sorel-Tracy project, which is just one example of that SIF money in action. That works well for really big projects, generally working with big, established companies.
We also need — you saw it both in the budget in the spring and further developed in the Fall Economic Statement — tax credits. We have the hydrogen credit, we have the investment tax credit, ITC, in the Fall Economic Statement, and in the budget we put forward and we are elaborating on carbon capture, utilization and storage, or CCUS. We just heard about the critical minerals exploration credit. Tax credits can offer a more broadly based, less artisanal project-by-project way of creating incentive for the private capital that we need to get involved.
The Canada growth fund is a third and very important and innovative measure that fills the remaining gap. What it is able to do, again on a project-by-project basis, is to de-risk private sector investments in new technologies, in exactly the kind of technologies we’re going to need to build the jobs of the future in Canada and to get the emissions reductions we need.
One example that I started discussing earlier and that I think is important that the Canada growth fund will be involved in is contracts for difference. Something that we have been hearing from CCUS investors and investors in the green transition overall is that our carbon pricing system is important and it provides a good incentive for investors to come in and invest in the green transition in Canada. But investors need certainty that the system is going to remain in place. Contracts for difference are going to allow us to create that certainty and draw in the private capital, but they require really sophisticated investment approaches, and that is why the people who are going to work in the Canada growth fund will provide that among other things.
One final thing on the Canada growth fund is that government is going to retain its share. This is also a way of allowing Canadians to have a piece of the upside of these investments in the new technologies that will be the basis of our prosperity in the future.
The Chair: Thank you, minister.
Senator Bovey: Welcome, minister. It is lovely to see you.
First, I want to say, your initiative regarding student loans has been well received and forward-looking.
Yet, yesterday, we heard from Generation Squeeze regarding what is now known as “intergenerational injustice.” They felt the data underestimates inflation by failing to adequately account for the skyrocketing price of established homes, the amount that first buyers must save for a down payment or the total loan that they must borrow from the bank, which is sending the wrong signal to the Bank of Canada as it manages interest rates and monetary policy. While low interest rates have economic benefits, they contribute to driving up home prices, as the lower cost of borrowing allows people to bid them up. They felt, and we heard, that this systemic problem erodes intergenerational fairness by reducing affordability for younger residents while growing wealth for established, often older homeowners.
My question is this: Are you satisfied with the way that Statistics Canada measures inflation, or will your government’s budget deliberations involve instructing Statistics Canada to revisit opportunities to improve its measurement of inflation in home prices?
Ms. Freeland: Well, I am going to comment at some length on Canada’s younger generation and students and housing costs, but you asked specifically about instructing Statistics Canada. There, I have to say I have a huge amount of respect for Statistics Canada and I am not implying that you feel otherwise. We have some really brilliant statisticians there. Our budget process is regularly informed by both data we get from Statistics Canada and presentations from Anil Arora, the head of Statistics Canada. They do a great job.
Is it always possible to have more data and to do more and do better? Certainly, it is. Let me offer, today, a real vote of confidence in Statistics Canada and thank them for their work, which provides a really important data-based foundation for the budget, for economic decision making across government.
However, you made some really important points specifically about young Canadians. I broadly agree — or I agree, full stop — with the point that younger Canadians do face questions of intergenerational justice. That is actually one of the reasons why, in the Fall Economic Statement, we knew that we had to be fiscally responsible but we wanted to support Canadians. Who did we choose to support? We chose to support young Canadians with the student loans, permanently eliminating federal interest, and low-income workers with the Canada workers benefit. That is because when we looked at who is stressed the most, stressed economically, it was those two groups.
I am glad we moved on student loans. On housing, there are a couple of measures that I spoke about today. The first-time home buyers’ tax-free savings vehicle — this is one of those new, innovative things that Mr. Jovanovic and his team worked very hard to create. That will make a real difference because it is tax‑free in, tax-free out. It will make it easier, not possible for everyone, but easier for young Canadians to save money for their first down payment. Likewise the support with closing costs that I referred to in my opening remarks. Is that enough? No, absolutely not. You referred specifically to housing, which is probably the biggest economic challenge facing young Canadians. We have these measures targeted at helping them.
But I think the single biggest housing issue is supply. In our budget in April, we put forward a number of measures. Housing is challenging. It is big and it is complicated. If anyone says to you here is one, single magic bullet that is going to fix housing, I would not trust that person very much. We have a plan, a comprehensive plan designed to get more houses built in Canada, which I think is the core of the challenge and something we all need to work on.
Senator Pate: Thank you, minister and officials, for being here.
This year we know that after-tax corporate profits hit their highest level in history, equivalent to almost 20% of our GDP and, in addition to it being unclear to me, the Canada recovery dividend — it is unclear who will actually pay for it: shareholders, employees or consumers. There has been the question raised as to how much of that will be apportioned accordingly.
I am also curious what other measures the government plans to ensure that those who are making record-breaking profits, such as banks, insurance companies, monopolistic telecom, oil and gas, grocery and pharmaceutical companies, how we’ll ensure that those corporations pay and contribute more of their fair share to the economy.
Ms. Freeland: Thank you very much for the question. On the specifics of the Canada recovery dividend, that is a corporate tax. It is levied directly on the corporation like any corporate tax. That is who pays it.
In terms of the general issue of tax fairness, our government has done a good job of improving tax fairness in Canada. I’ll go through a few of the key measures. We have already discussed the Canada recovery dividend, at 15%. Senator Smith, with whom we discussed this earlier, thinks it is probably too much. I think that it is fair and appropriate. We also have permanently increased the tax on the largest banks and insurance companies in Canada by 1.5%. That is another one of the measures here.
We have already, as of September, put in place a luxury tax, a 10% tax on luxury private planes, luxury cars and yachts. Then the new measure that we announced in the Fall Economic Statement, the 2% tax on share buybacks, I think, speaks both to your concern about tax fairness in Canada — which I absolutely share — and also to some of the questions we have been discussing about investment.
Why did we choose to go the route of a tax on share buybacks? I would say two reasons: One is that I want to create the greatest possible number of incentives for businesses to invest in Canada, to invest in their workers and to invest in the productivity of their enterprise.
What a tax on share buybacks does is say to corporate decision makers, “Instead of spending your money on a share buyback, which will be taxed, you now have a greater incentive to invest that money in your workers and in the productivity of your company.”
I am the biggest Canada-booster there is and the biggest booster of our economy. Your finance minister should be. But if you asked me what the weak point of the Canadian economy is, I would say it is productivity and business investment. This tax is designed to drive in that direction, even as it also raises revenue.
Senator Pate: If you see, as we have seen with the banks and insurance companies, in particular, that the benefits are going to those who are in charge, and the costs are really being passed on to consumers, how will you adjust in order to ensure that unfairness is not either increased or exacerbated by the measures that you are putting in place? What kind of monitoring functions will you be implementing?
Ms. Freeland: The way that we ensure, in Canada, that consumers get a good deal is by having a well-functioning market economy. That means that we believe that competition is the way that consumers get treated well. It does mean — and you referred to monopolistic sectors of the economy — that competition in the economy is important, that the work of competition authorities is very important, and I work closely with our Minister of Innovation, Science and Industry, François-Philippe Champagne, in that space.
But I do think that we need to believe that the way that consumers are treated well is by different businesses each working hard to attract those consumers by offering the best possible deal.
The Chair: Thank you, minister.
I know in the other house, they tell me that to ask a question you have about one minute and to answer you have about a minute and a half. That said, you promised to give us one hour, minister, and I have to make a decision as chair, so I will ask the critic and the sponsor of the bill to complete the hour by each asking a question and then receiving an answer from the minister.
Senator Marshall: Thank you, minister.
My question is not on something that is in the bill. It is on something that I expected to see in the bill but is not there, and that is additional funding for health care. Our health care system is in a crisis.
I was watching a news story tonight about how some children in British Columbia have died, and we know that people are having a lot of problems accessing health care. There are lineups at clinics. People do not have family doctors. They are waiting for surgeries, and the list goes on and on. There seems to be some sort of jurisdictional dispute between the federal and provincial governments.
I would like to know when the federal government is going to take control. People now believe that health care is their top priority, that it is the top problem in the country, and that the government has lost touch with the common person. They do not understand or realize that we have a crisis in health care.
I would like to know when the government is going to take control of the situation and work toward a solution to this very major problem.
Ms. Freeland: Thank you for the question.
I very much agree that as a country we need to do better on health care and that a lot of Canadians — whether it is children and parents of children or our seniors — are facing real challenges when it comes to getting the care they need and deserve.
I have to say there isn’t a jurisdictional dispute on health care. Health care is very clearly the jurisdiction of the provinces and territories. If I were to say to a premier or a provincial minister anything different from that, I would hear otherwise very quickly.
The federal government absolutely recognizes that we have a role to play in supporting provinces and territories in delivering health care, in funding the health care system, in providing data across the country and in coming in during emergencies, as we did with vaccines. My colleague Jean-Yves Duclos is working very hard with his provincial and territorial counterparts, and we committed in the campaign to provide additional health care funding. We will do that.
But I also believe, Senator Marshall, that it is not only a question of funding. It is, first and foremost for Canadians, a question of getting better health care outcomes and results. Canada actually spends at the high end of the Organisation for Economic Co-operation and Development, or OECD, as you know.
Senator Marshall: Yes.
Ms. Freeland: But our results are not consistent with that spending level.
What we believe is that as part of that conversation with the provinces and territories, we need to find ways to commit to Canadians that we’re going to deliver better results. I agree with you that there is a challenge. I am confident that we are going to find ways to address that challenge, because you are quite right: Canadians are insisting that we do that.
Senator Marshall: Yes, but the system is continuing to deteriorate, and to what point does it have to deteriorate to? How low of a point does it get to before the government does something? It is not going to get better; it is going to get worse, and unless something is done soon, we are going to see a very rapid and very significant further deterioration in the health care system.
Ms. Freeland: As I said, we are working hard with the provinces and territories. We committed in the campaign to provide additional support, and we will provide additional support. We also believe that part of our duty there is to ensure that Canadians get better results, and I think we can do that.
The Chair: Thank you.
Senator Loffreda to complete and conclude this session.
Senator Loffreda: Privileged to do so.
Minister Freeland, I have two final questions, with the permission of the chair. One is on the First Nation Land Management Act, Part 4, Division 3. And my last question would be, if time permits, on the solicitor-client privilege, measure (g), Part 1, which are two important elements we have been looking at.
Manitoba Keewatinowi Okimakanak, MKO, sent a few members and me a written brief in English only on December 5, 2022. It is very recent. The clerk informs me that the letter is being translated. Once it is available in both languages, the document will be shared with members of the Standing Senate Committee on National Finance. It will then become official evidence and be part of this committee’s public records and be published on our web page.
My question relates to this brief. The Standing Senate Committee on Indigenous Peoples was mandated to review Division 3 of Part 4 of Bill C-32. As such, it is new to our committee, and we are not entirely familiar with this section of the bill. I would welcome further comment on what this division seeks to achieve. Also, I understand MKO made a submission to our Indigenous Peoples Committee, voicing some concerns with this section of the bill and calling for consequential amendments to the Royal Canadian Mounted Police Act and the Director of Public Prosecutions Act.
I would appreciate your comments and opinion on these claims and concerns.
Ms. Freeland: That is a very broad set of issues that you have raised. It is beyond the few minutes that Senator Mockler is going to give us for me to address all of them. Let me just say: duly noted.
I am confident that reconciliation and a nation-to-nation relationship with Indigenous people in Canada really are one of the most important issues for our government. That sort of permeates the work across all departments. It is an issue we take seriously. The comments that you make are duly noted by me and by Mr. Jovanovic.
Senator Loffreda: You know what the solicitor-client privilege, measure (g), Part 1, is all about. We have discussed it on a number of occasions here with numerous witnesses. Can you assure our committee that the new reporting requirement is constitutional? Can you walk us through why the government is confident that it has struck the right balance with the blanket exclusion in the proposed section 150, and no amendments are needed to address the concerns raised by the Canadian Bar Association and the Federation of Law Societies?
Ms. Freeland: We have 30 seconds, so let me just say that I am very confident. Mio was nodding his head emphatically. We have gone over this in a lot of detail. We have consulted. We have taken on board some of the concerns raised. We think that we have struck the right balance. We are confident that there is no requirement to disclose solicitor-client privileged information under this measure.
I also wish to say that, from my perspective, doing a much better job than Canada has done hitherto to on beneficial ownership is really important. That is an important part of tax fairness. It is an important part of Canada coming up to the standard of our international peers. I am a big champion of the work that we are doing on beneficial ownership. Yes, I am very confident that the right balance has been struck here.
Senator Loffreda: Thank you.
The Chair: Thank you, Senator Loffreda. Thank you, minister, for being available to answer questions here tonight.
(The committee adjourned.)