THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, May 17, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 6:46 p.m. [ET] to examine the subject matter of all of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I wish to welcome all of the senators as well as the viewers across Canada who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler. I am a senator from New Brunswick and the Chair of the Standing Senate Committee on National Finance. Now I’m going to have my fellow senators introduce themselves, starting with the senator to my left.
Senator Forest: I am Éric Forest from the Gulf region, in Quebec.
Senator Gignac: I am Clément Gignac from Quebec.
Senator Loffreda: I am Tony Loffreda from Quebec.
[English]
Senator Duncan: Welcome. My name is Pat Duncan. I’m a senator from the Yukon.
Senator Boehm: Peter Boehm, Ontario.
Senator Pate: Welcome, Kim Pate. I live here in the unceded, unsurrendered territory of the Algonquin Anishinaabeg.
Senator Smith: Larry Smith, Montreal.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
Senator Dagenais: I am Jean-Guy Dagenais from Quebec.
[English]
The Chair: Today, we continue our study on the subject matter of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament of Canada on March 28, 2023.
[Translation]
Joining us by video conference, from Canada’s Building Trades Unions, are Rita Rahmati, Government Relations Specialist, and Kate Walsh, Director of Communications.
[English]
From Beer Canada, we welcome CJ Hélie, President.
[Translation]
From the Canadian Bankers Association, we have Darren Hannah, Vice-President, Personal and Commercial Banking, and Angelina Mason, General Counsel and Vice-President, Legal and Risk.
[English]
Finally, from Spirits Canada, we have Jan Westcott, President and Chief Executive Officer. Welcome to all of you and thank you for accepting our invitation to appear in front of the Standing Senate Committee on National Finance on Bill C-47.
I understand that each association will make a five-minute statement before we proceed to questions from the senators. We’ll start in the order that I introduced you. Rita Rahmati and Kate Walsh from Canada’s Building Trades Unions, the floor is yours.
Kate Walsh, Director of Communications, Canada’s Building Trades Unions: Good evening. Thank you for the opportunity to address this committee on the recent federal budget and Bill C-47.
My name is Kate Walsh. I’m the Director of Communications with Canada’s Buildings Trades Unions and I’m joined by my colleague here, Rita Rahmati, Government Relations Manager.
Canada’s Building Trades Unions represent 14 international construction unions with over 600,000 skilled trades workers from coast to coast.
Budget 2023 provided some significant support for middle-class workers, and I appreciate the opportunity to highlight some of these policies today.
Last year’s budget included the Labour Mobility Deduction for Tradespeople, which helped tradespeople this past tax season, allowing them to travel to where the work is and deduct those related travel expenses from their income, a policy welcomed by the construction industry and something that makes a meaningful difference to Canada’s skilled tradespeople.
Included in this year’s budget and the subsequent implementation act is the doubling of the deduction for tradespeople’s tools from $500 to $1,000, putting money directly back in the pockets of the skilled tradespeople that build our country. We support this measure and hope that all parties will vote in favour of this component of the budget.
Rita Rahmati, Government Relations Manager, Canada’s Building Trades Unions: Also committed to in Budget 2023 are five investment tax credits to support the economy’s transition to net zero, which are linked to one of the strongest definitions of prevailing wage in Canadian history. In order to receive the highest level of investment tax credits, employers will need to provide good labour conditions for workers, which includes paying the prevailing wage and meeting apprenticeship requirements.
The definition of prevailing wage will be based upon union compensation including benefits and pension contributions from the most recent widely applicable multi-employer collective bargaining agreement or corresponding project labour agreement, or PLA, in the relevant jurisdiction. Additionally, 10% of the tradesperson hours worked must be performed by registered apprentices in Red Seal trades in order to receive the maximum credits.
Tying these incentives to prevailing wage that includes union compensation will raise the standard of living for all workers, maximize benefits for the entire economy and create a legacy of good-paying middle-class jobs throughout this transition.
When the United States passed the Inflation Reduction Act, which includes over $300 billion in clean tech energy tax incentives for energy infrastructure projects and increased tax credits of up to five times more when certain labour conditions are met, we knew Canada needed to respond with strong investments of our own. With commitments first announced in the Fall Economic Statement and expanded on in Budget 2023, Canada is now on a similar path.
The building trades look forward to working with the federal government to operationalize the prevailing wage and apprenticeship requirements tied to these monumental credits. We will also continue to advocate for these credits to further incentivize good jobs through increasing the benefits when good‑job requirements are met and decreasing them when workforce requirements are not met so that public dollars spent on these credits go back into good jobs and support working families.
As Canada transitions to a net-zero economy, we will move away from our reliance on fossil fuels. Canada’s energy demands could double by 2050. We need to build a clean energy infrastructure in Canada that grows our manufacturing base, creates opportunities to grow our middle class, all while meeting our net-zero goals.
Many of the commitments in Budget 2023 help us do this, but there is more to be done. We need just transition legislation tabled and the launch of the sustainable jobs secretariat to map out our energy needs and needs of our workforce so that no worker is left behind. We need to ensure that we have appropriate labour market information data to plan the transition. We also need to continue to address labour availability through investments in programs like the Union Training and Innovation Program and programs to recruit and retrain under-represented groups. And we need to make changes to our immigration system to bring in more skilled trades workers.
Budget 2023 includes significant policies that support our economic transition and building trades workers across Canada. On behalf of our 14 affiliated international unions, thank you for the opportunity to present. We look forward to answering any questions that you may have.
The Chair: Thank you. From Beer Canada, Mr. Hélie, the floor is yours.
CJ Hélie, President, Beer Canada: Thank you. Good afternoon. My name is CJ Hélie and I’m the President of Beer Canada. I really appreciate the opportunity to share our perspective on Bill C-47, specifically as it relates to the Excise Act amendments.
Beer Canada’s background is the sole national inclusive trade association representing Canadian brewers of all sizes and regions. Our member brewing companies account for over 90% of all beer produced in Canada. Nearly uniquely amongst Canada’s agri-food processing sector, over 88% of the beer consumed by Canadians is brewed here by over 20,000 Canadians employed directly by Canada’s brewers, many of whom are represented by the Canadian Union of Brewery and General Workers, the Service Employees International Union, the Teamsters or Unifor. There are good-paying jobs, well-paid jobs, lots of benefits, good support for families.
[Translation]
Beer is part of our country’s history and culture, and remains vitally important to communities, large and small, from coast to coast. Not only does brewing beer from locally grown grains create jobs and wealth, but beer is also integral to the social well‑being of many. We are a local industry to the very core.
[English]
Across Canada, the production, distribution and sale of beer supports nearly 150,000 jobs, contributes $14 billion to GDP and $5.7 billion in federal, provincial and municipal taxes, with nearly 50% of the typical retail price of beer being federal and provincial taxes or markups.
[Translation]
The last few years have been extremely challenging for Canada’s brewers, large and small. Beer is, above all, a social beverage best shared with families, friends or neighbours, including at the local pub, BBQ, festival, sporting event or concert.
Largely due to COVID-related closure and capacity restrictions imposed on the hospitality and tourism sector, beer sales volumes have decreased by 6% since 2019. Out-of-home beer sales for the 12 months ending March 31, 2023 remain 15% below pre-pandemic levels.
[English]
At the same time, brewers continue to face incredible cost pressures across their entire supply chain from the doubling of freight costs to a 60% increase in barley and a 40% increase in packaging costs. Many brewers and our hospitality sector partners took on significant debt to simply keep their doors open through the worst of the pandemic, hoping for a quick return to normal. We are still a very long way from returning to a healthy domestic beer and hospitality market.
In fact, the latest available data from Canadian Industry Statistics indicate the majority of SME brewers — those are brewers selling less than $5 million a year — are not profitable, and the business environment has actually continued to deteriorate since then.
We are seeing increased activity in terms of brewers for sale, new joint ventures or new distribution agreements — anything brewers can do to find a way to cut costs and find innovative new efficiencies.
It was this perfect storm that I just described and a depressed out-of-home beer sales market still struggling to survive and these skyrocketing input costs that necessitated a change in course in federal beer tax policy.
Members of this committee may be aware — and, Senator Marshall, you would be particularly aware — that despite the concerns expressed by this committee at the time and supported by the Senate in its entirety, an automatic annual inflation-based increase to federal beer excise duties was implemented pursuant to Budget 2017 to come into effect on April 1, 2018.
This legislated annual inflation indexation resulted in a cumulative increase in federal beer excise duties of 11.5% over the six-year period, with an average annual increase of nearly 2%. These annual federal beer tax increases proceeded each and every year, even as the sector was facing unprecedented COVID‑related restrictions that severely restricted access for brewers to the hospitality trade, including sporting venues, festivals and out-of-home social gatherings.
Moreover, as we all are very acutely aware, CPI inflation then skyrocketed in 2022 to a point where the inflexible application of this legislative formula would have resulted in a 6.3% increase in federal beer excise duties on April 1, 2023. That would have been the largest increase on Canadian beer consumers in 40 years. Luckily, local MPs of all parties, when talking to their local brewers and corner-pub and beer-loving constituents, were reminded of the negative impact such an outsized beer tax increase would have on their local communities. This message was brought back to Ottawa, and the minister included in this year’s budget a temporary fix to the immediate problem.
The “fix” is a reduction in the rate increase to be applied in 2023 from the inflation-based rate of 6.3% down to 2%. While, to be honest, the proposal is not what we advocated for as part of a very broad coalition, we believe it is a very reasonable compromise and we are grateful that this critical excise duty relief was included in the budget, particularly in light of all the budgetary pressures on the federal public treasury on the immediate horizon due to a confluence of global factors, global wars, a slowing domestic economy and business and consumer fragility.
Given all of that, we are encouraging this committee to adopt clause 124 of the budget implementation act that will reduce the scheduled increase in federal beer excise duties from 6.3% to 2%, retroactive to April 1, 2023. Thank you, and I’d be happy to answer questions at the end.
The Chair: Now we will recognize Mr. Darren Hannah from the Canadian Bankers Association. Mr. Hannah, the floor is yours, please.
Darren Hannah, Vice President, Personal and Commercial Banking, Canadian Bankers Association: Good evening. Thank you for the invitation to speak at the Senate National Finance Committee on Bill C-47, the budget implementation act. My name is Darren Hannah. I’m the Vice President of Personal and Commercial Banking with the Canadian Bankers Association, or CBA. I’m joined by my colleague Angelina Mason, General Counsel and Vice President, Legal and Risk.
The CBA is the voice of more than 60 domestic and foreign banks that help drive Canada’s economic growth and prosperity. The CBA advocates for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.
While Bill C-47 is extensive, and the committee is studying numerous provisions, our remarks will be focused on Part 2, clauses 114 to 116, which retroactively amend the Excise Tax Act. This is a very small component of the budget implementation act, but it has profound implications for how businesses, entrepreneurs and investors, both domestic and international, view the opportunities and risks of doing business in Canada.
Simply put, the government is attempting to legislatively override a decision by the Federal Court of Appeal to retroactively change the GST treatment of payment-card clearing services literally back to the introduction of the Goods and Services Tax in 1991 by expressly overriding the general legislative limitation provisions under section 298 of the Excise Tax Act. The effect, therefore, is to retroactively tax transactions that happened as long as over 30 years ago. In doing so, the government is ignoring the widely accepted positions among taxpayers and tax professionals, as well as their own published guidelines for appropriate and exceptional use of retroactive legislation. The government’s position is inconsistent with its own treatment of payment-card network services as financial services for the purposes of regulatory oversight by the Financial Consumer Agency of Canada, or FCAC.
Moreover, through this proposed measure, the government is adding to the tax burden at the very time that the government is claiming to lower the cost of card acceptance fees for small businesses. Increasing taxes on card issuers and acquirers will inevitably impact the cost of card acceptance for merchants.
Retroactively taxing past transactions, especially in the face of court rulings to the contrary, erodes investor confidence in Canada, period. This is a concerning signal to investors, entrepreneurs and business owners. Core to the decision-making criteria of where to invest are certainty and predictability, not only in the rule of law and its application but also in the ability to ensure that I, as an investor, can access the legal system to get fair treatment if I feel that the law is being applied incorrectly.
Indeed, this proposed measure fundamentally challenges the traditional understanding of tax law. This approach not only raises serious questions about fairness and legal certainty, but it also potentially inhibits future economic activity. Imposing such a retroactive burden undermines trust in the certainty of the tax system. While it might seem like an easy fix for fiscal shortfalls, it’s important to consider the longer-term implications of such a precedent-setting move.
The retroactive tax measures in Part 2 contradict these principles, and in so doing, undermine investor confidence in Canada at the very time that we need to be attracting new investment both at home and from abroad.
A recent study by RBC indicated that Canada will need an estimated $2 trillion over the next 30 years to finance the transition to a low-carbon economy. These are large, long-term investments that Canada is seeking from investors to pivot our economy to a low-carbon future. An investor will only make that type of commitment if they are certain that the terms, conditions and business environment upon which they made their investment decision are respected, that the government will not suddenly seek to retroactively revisit those conditions and that they have recourse to the legal system should they need it.
That’s why we strongly encourage the Senate to take action to restore investor trust in the Canadian economy and the legal environment by removing the retroactive provisions in Part 2. We understand that amending a budget bill is a serious ask and not one that we make lightly, but it’s also not one without precedent. In fact, this very committee amended Bill C-29, the Budget Implementation Act, 2016, to remove changes to the Bank Act around federal jurisdiction. It is well within your power to make this change, and for the reasons outlined above, we believe it’s prudent and necessary.
I thank the committee for the invitation and look forward to your questions.
The Chair: Thank you, Mr. Hannah. Now we will conclude with Mr. Westcott. The floor is yours.
Jan Westcott, President and Chief Executive Officer, Spirits Canada: Thank you, Mr. Chair. I’m Jan Westcott. I’m the President of Spirits Canada, the national trade association representing manufacturers and marketers of premium-quality distilled spirits across the country. Collectively, our members account for close to 75% of all the spirits sold in Canada.
I want to thank the committee for the opportunity to speak about the 2023 federal budget, in particular, the clause that deals with the reduction in excise duties on spirits from the scheduled 6.3%, as my colleague alluded to, to 2%.
A critical concern for our members has been the impact of federal excise duty on their products and on thousands of ordinary Canadians who enjoy relaxing and socializing with friends and family over a drink. We’re especially also conscious of those operating hospitality and tourism establishments — vital partners, if you will, of our industry. It will not be news to you that this particular group of businesses bore the brunt of the restrictions forced on the country by the pandemic, one that has seen the closure of many of these businesses. I note that just today or yesterday, Restaurants Canada pointed out that in the first two months of 2023 alone, bankruptcies of restaurants have gone up by 116%. The view that we’re out of the pandemic hasn’t really passed in the hospitality industry.
In my own community of Oakville, Ontario, we have seen the loss of many restaurants and bars — local gathering places that in some cases have served me and my neighbours for decades. For those that managed to keep their doors open through COVID, they were badly hobbled, most taking on significant debt, which they are now working hard to repay while also struggling to rebuild their businesses.
On the one hand, we have regular Canadians coping with higher prices in virtually everything they need, and on the other, business partners of ours are trying to salvage their businesses while simultaneously facing those same higher prices, as well as a severe shortage of people needed to open their restaurants. Neither of these would be helped at the scheduled 6.3% excise increase proceeded on April 1.
Since the 2017 budget, the Government of Canada has imposed automatic annual increases on alcohol excise taxes, with yearly changes based on CPI. When the measure was introduced, Canada had, for many years, been experiencing inflation in the range of 1% to 1.5%. In 2022, following the pandemic and rising inflation, CPI had risen to 6.3%, significantly higher than it had been in recent memory.
Spirits Canada, together with the Canadian Chamber of Commerce, Beer Canada, Wine Growers Canada, Restaurants Canada and the Canadian Federation of Agriculture, spoke with many legislators, government officials and the public about the impact a further 6.3% increase would have on their businesses in 2023. Had it been left at the automatically programmed CPI rate on April 1, Canadians would have been paying an additional 18.4% in excise tax than they had been when the measure was introduced in 2017.
Even with the current capped rate of 2%, Canadians are paying some $310 million more for spirits in 2023 than they did in 2017. Think about that: $310 million more. Canadians already pay amongst the highest taxes in the world on beverage alcohol, in particular, on spirits. On average today, 80% of the retail price of a bottle of spirits is tax. This ratio creeps higher every year as excise rates automatically rise.
In some parts of Canada, taxes on spirits account for well over 80%. Because policy-makers did not envision inflation to rise to current levels when they imposed the automatic escalating mechanism, Spirits Canada and others called on decision makers to pause the scheduled increase in 2023 to avoid impacting ordinary Canadians with even higher prices when they chose to socialize with friends and family over a drink.
In recognition of all of the above, the government wisely capped this year’s increase in interest to 2%, the level of inflation that the Bank of Canada is trying to target and is working hard to achieve. This helps not only our industry but also restaurants, bars and other small hospitality and tourism businesses to recover from lost sales during the pandemic.
Many of these small businesses are still struggling to recover, and higher product prices for a cocktail, beer or glass of wine they offer would be a further impediment to their viability. In support of hard-working Canadians, the hospitality and tourism workers and operators as well as our industry, Spirits Canada urges this Senate committee to approve that aspect of the 2023 budget.
We appreciate your time and interest. I will be happy to answer any questions. Thank you.
The Chair: Thank you, Mr. Westcott.
Honourable senators, we will start the first round of questions at five minutes each. The second round will be three minutes each.
Senator Marshall: I have questions for all witnesses, but I’m going to start with the Canadian Bankers Association. A very simple, straightforward question first: What’s the dollar value of that retroactive increase, Mr. Hannah? Is it $300 million? Is that right?
Mr. Hannah: As for the stated dollar value, I believe, the government estimate is $200 million. That’s the dollar value on the basis of what they think the recoveries are going to be. What the actual dollar value is to Canada is a really interesting question because what it does to investor confidence is significant and how much that then offsets whatever gain you’re going to get in the longer term. It’s an open question.
Senator Marshall: You said you represent 60 banks. Does this retroactive change affect all 60 banks or just certain banks?
Mr. Hannah: It will affect any financial institution, frankly — bank, credit union, otherwise — that is involved in the business of credit cards. It will affect any merchant that requires a payment processor as well that acts to accept payment cards. And, frankly, it will affect any business at some level that accepts payment cards because ultimately the cost will flow down to them.
Senator Marshall: The impression that I have is that you would — I can’t say support — but you wouldn’t have such a big problem if the tax were going forward only, and there were no retroactivity. Is that correct? I can’t say you’d be supportive, but you wouldn’t have such a big problem with it, yes?
Mr. Hannah: Our primary concern and our primary reason for being here is the retroactivity. While we do not think that the policy objective change the government is making is consistent with their broader objective of lowering the cost of card acceptance, our big concern here today is with respect to the retroactive application.
Senator Marshall: My last question is this: When Finance officials testified, they talked about some of the banks or institutions receiving rebates. Effectively, this created a windfall for those institutions — the majority of the $200 million or $300 million or whatever was effectively a windfall for those institutions.
Is that what happened? Do you think that the government took that into consideration in deciding to go with the retroactivity because they saw the institutions received a big windfall in tax rebates?
Mr. Hannah: I’m going to answer that question in two ways. First, bear in mind that, in many cases, what precipitated this was that institutions were paying the tax effectively and then requesting and filing a notice with the Canada Revenue Agency, the CRA, to effectively say the tax has been paid in error and never should have been charged. This process was going on, in many cases, for 20 years, and the CRA was simply ignoring the requests.
Second, once the decision came down, a number of institutions — because the government really said nothing, then financed for the next two and a half years, and the CRA started paying out the claims — started to incorporate that into their pricing models and contracts. Now, all of a sudden, we have retroactive application coming out of nowhere that wasn’t being planned for. Institutions had already started making plans, entering into agreements, changing pricing structures, and now they have to figure out what to do about that.
Senator Marshall: I understand the situation.
For Beer Canada and Spirits Canada, you have the reprieve down to 2%, but it sounds like that’s not really what you’re looking for.
What would you like to see with regard to the increases? Would you prefer that the government come forward each year when they want an increase? What’s your preferred option? What are you looking for? You’re happy with the 2% because it’s not as punitive as the 6.3%, but what would you like to see?
Mr. Hélie: From Beer Canada’s perspective, we certainly have a fundamental difference of opinion with the government and the Department of Finance. They believe taxes should be increased automatically via whatever formula that they envisage, and we believe, fundamentally to the core, that taxes, particularly production and commodity taxes, should be the purview of Parliament. Members and senators should have a vote on tax rates.
Senator Marshall: We did for the amendment that went through back in 2017, but it covered from now until eternity. Are you looking for like an annual approval?
Mr. Hélie: The Minister of Finance should look at the circumstances of the day, decide what their government’s revenue ambitions are, what the circumstances of the business and the consumer are, and then, when she or he believes a change is in order, they should have the wherewithal to go to Parliament and the House and say, “I think it’s a good idea to raise or lower — or not — taxes.” That’s the way Canada has always done it until very recently.
Mr. Westcott: I would concur with my colleague’s point of view. Fundamentally, the role of Parliament is to decide how much taxes are going to be paid by Canadians. They’ve been taken out of that loop and they need to get back in that loop.
Senator Marshall: Thank you.
[Translation]
Senator Forest: Thank you to the witnesses for being here. I want to start by pointing out that, in 2017, there was an outcry against the automatic inflation-based increase to the excise tax proposed in the budget bill. Mr. Hélie, you said that out-of-home beer sales had dropped by 15%. Did home consumption sales decrease as well, or did they increase?
Mr. Hélie: Home sales are now back to pre-pandemic levels. Out-of-home beer sales dropped by 15%, so for both sales categories, the total decrease was 6%.
Senator Forest: Taxes make up 50% of the retail price of beer, about 75% of the price of a bottle of wine and more than 80% in the case of spirits. That’s a very big chunk of the price consumers pay.
I’m from Rimouski. We have a distillery there by the name of Distillerie du St. Laurent. A 700-millilitre bottle of St. Laurent gin starts at $44.75. Sitting next to it on the shelf is a 750‑millilitre bottle of Beefeater gin that costs $26.05.
What’s the reason for that difference? Is the percentage of tax the same? Our distilleries have become a tourism draw. What’s the reason for the significant price difference between a product that’s mass-produced and one that’s produced locally, like the Distillerie St. Laurent’s gin?
[English]
Mr. Westcott: Certainly, each supplier gets to decide what price they’re going to sell the goods at. Many small producers — doesn’t matter whether they’re brewers, vintners or distillers — seek to have a higher price because they believe that imputes more value to the product; it sends a message to the consumer. Add to that the fact that the economy of scale isn’t a factor for them, so their cost of doing business is a bit higher. Those are decisions that individual suppliers make.
If they wanted to sell their products at a lower price, that’s entirely possible, depending on the cost of production. As I said, they don’t always have the scale that larger producers have. Like any business, larger producers have scale that works for them. Those decisions rest with the producer.
I can’t speak for all of the producers. My experience through all of the industries — beer, wine and spirits — has been that smaller producers tend to regard their products as a little more premium. “Hand-crafted” is the word they use frequently. They seek to have a pricing point that reflects that to the consumer.
[Translation]
Senator Forest: That means they have to work with a much smaller volume. Does that account for the price difference given the large share of taxes and production costs?
[English]
Mr. Westcott: That’s correct.
[Translation]
Senator Forest: I have a question for Ms. Walsh or Ms. Rahmati.
Division 35 of Part 4 of Bill C-47 proposes to extend the seasonal claimant pilot project by giving seasonal workers up to five additional weeks of employment insurance, or EI, benefits.
I realize that the Standing Senate Committee on Social Affairs, Science and Technology is currently studying that division, but I’d like to hear your views on the extension of EI benefits.
What is the answer for seasonal workers like those in the construction industry? The industry affects many regions in Canada, including Quebec.
[English]
Ms. Rahmati: Thank you for the question. Construction work is the type of work that our members work themselves out of a job. When one construction project finishes, you go on to the next one. Sometimes there might be a gap between one job to the next one. You might have to relocate or go to another part of the country to be able to work.
Our members oftentimes have to use the Employment Insurance program, or EI, before their next job opportunity. What’s included in the budget is something we support in theory. We think there are many more changes that need to be made to the Employment Insurance system.
We’ve been having discussions for the last two years or so with the government on Employment Insurance reform. We’d like to see a more comprehensive package come forward that includes items like changes to the way separation monies are handled. That was temporarily changed for the better during the pandemic. After the temporary measures were removed, we’re back to where we were before, especially when we’ve had discussions about the rising cost of living, the potential for a recession.
We need to make sure we have a really strong Employment Insurance program to be able to support workers in the construction industry in Quebec and across Canada, so things like separation monies or making sure EI is delivered more quickly than it is. We face a unique issue in our industry, which is we have apprentices who work on job sites. When they have to go to do the in-class portion of their program, the delay in their EI claims might mean that they aren’t able to make their payments, make ends meet, and it might delay them wanting to go back to the classroom to complete their apprenticeship.
[Translation]
Senator Forest: Thank you.
Senator Gignac: Welcome to the witnesses.
My question is for the Canadian Bankers Association representatives. I’d like to follow up on your conversation with Senator Marshall. Obviously, I was quite surprised to see that the government went ahead with this bill 26 months after the court’s decision.
We had an opportunity to question Finance Department officials. The bill’s sponsor, Senator Loffreda, Senator Marshall, I and other senators asked them questions. They told us that it had always been understood by the government and the industry that the definition of “financial service” would exclude payment card clearing services.
Do you agree with that claim? My understanding from the finance officials is that this decision shouldn’t come as a surprise to you.
[English]
Mr. Hannah: The government lost the court case at the Federal Court of Appeal on this very question. That’s the second-highest court in the land. If this issue were clear, they wouldn’t have lost.
Moreover, if they truly believed that what they said was correct, they would have appealed to the Supreme Court, but they chose not to do that. They jumped directly to retroactive legislation.
Angelina Mason, General Counsel and Vice President, Legal and Risk, Canadian Bankers Association: To add to that, those press releases that were referenced were considered by the court and found not to be clear. On that point, we wouldn’t be respecting the decision of the Court of Appeal.
Senator Gignac: Next question: Is it unusual that the government waits 26 months after the loss at the court? Did you have any meetings with the Finance Department, in the meantime, that flagged to you that this is not compatible or is not an aim of their policy? Did you have any signal at that time, or did it take you by surprise?
Mr. Hannah: Senator, my members tell me there was no consultation at all, which is why they were shocked.
Frankly, I think it’s telling that when asked to produce evidence to explain and verify their claim that this is widely understood, what they produced was an excerpt from a press release in 1991.
Senator, between the time that the court decision came down in January 2021 and this legislation was introduced in March 2023, the Department of Finance released 169 press releases. I know; I counted them. Yet none of them said anything about this. The best they can do is an excerpt from a press release in 1991. Really?
Senator Gignac: I know that you have received the support of the Canadian Bar Association. We asked the Banking Committee or this committee questions about that.
In fact, what is new today, and what you mentioned — and I want you to elaborate more — is that this is a contradiction, the way the payment cards are treated in other legislation. Could you elaborate on that? It seems to be inconsistent. When it’s about regulation, it’s about financial services. But now it’s about income tax. No, it is administrative stuff. Do I understand that correctly? Could you elaborate? In your opening remarks, you referred to that.
Ms. Mason: If you look at it domestically, the payment networks are overseen by the FCAC on the basis that they provide a financial service. From a regulatory standpoint, this is viewed as a financial service. Then to say that the services they provide to the participants in the system is not a financial service is inconsistent.
They’re also inconsistent with how payment card networks are treated internationally. From an international standpoint, they would be considered to be financial services also.
When you look at it in the context of the domestic landscape, plus the lack of certainty that came out of the wording that was put forward in the GST regulations — and that was raised as a concern by participants in the system — there was a complete lack of direction from the government. It took them over 20 years to give it.
Senator Gignac: I’m just an economist. I’m not a fiscal expert. Do you have information about whatever is in Europe or other countries around the globe, something to prove that other jurisdictions treat that, whether it is regulation or income tax, as financial services rather than, using the example of Europe, the Value Added Tax? Could you provide us information regarding that?
Senator Smith: I have a question for the Building Trades Unions people.
We’ve heard a lot of talk about the need to prioritize skills and foreign credential recognition programs for new immigrants to Canada, especially as the government has increased its immigration targets substantially. We continue to hear about almost a million job vacancies across the country, which continue to impact economic activity.
One of your organization’s recommendations in your budget submission was for the government to prioritize more skilled trades workers into Canada to fill the major supply gap, namely through the Express Entry system.
Has the government consulted with your organization in this regard? We’re looking for the word consultation, not just advising. How are the Building Trades Unions advising the government on increasing the number of trades workers through the immigration process?
Ms. Rahmati: Thank you for that question.
We have been in discussions with the government on immigration and the Express Entry program. Actually, the announcement that Minister Fraser made last fall regarding the upping of the immigration numbers to 500,000 was made at one of our training centres in Toronto.
It’s something that we’re continuing to work on. We have been tasked by the government to gather more specific data on where we need workers and in what trades. That’s something we have been working on over the last several months, and we hope to be able to share that with the government soon and to guide them.
We have been pleased to see more expansion of the Express Entry program on eligible occupations, including some of our trades, but we think there is probably room for more trades to be added to that list.
Senator Smith: It’s one thing to streamline applications for skilled trades workers into Canada, but it’s another to ensure they meet the industry standards. Are there adequate resources being provided by the federal government, in conjunction with provincial and territorial governments, on accrediting these skilled workers once they are in Canada?
Ms. Rahmati: That’s another area where we can see some improvement, potentially, as well. We want to ensure that we are targeting and bringing in workers who already meet some skilled trades standards, but if they don’t, we want to offer supports for them to be better qualified to fit into Canada’s system. That includes language. We know there are a lot of countries where folks do have a lot of the skills required, but they might not have the language requirement. So working with new entrants into Canada to ensure that they meet those language requirements is very important for us when it comes to safety on job sites.
Senator Smith: Have you had a chance to talk with other countries in terms of seeing what they do? When I asked you the question, it seemed as if you hesitated a bit, so I wasn’t sure whether you were 100% confident in what you were going to explain to me.
One of the things we found today in some of our questions with different people is this communication as opposed to consultation. Is it consultation, or are you just being told that this is what you do and this is how you do it, but it’s not necessarily consultation? Advising is one thing; consultation is another thing. What are your comments on that?
Ms. Rahmati: We do get consulted by the government. Right now, we have been very focused on the investment tax credits, as we mentioned in our remarks. That’s something we have been heavily consulting with the government on, especially on that definition of prevailing wage. On this file, we haven’t been as heavily consulted on, to use your word, but over the next several months, it’s something we’ll be shifting our attention to and working with the government on. Hopefully, that will be through consultations and not just through advising.
Senator Smith: Do you have any consultations or contacts with offshore organizations or countries that give you different types of feedback that you can add into the portrait here?
Ms. Rahmati: Some of our affiliated unions do, and they work more directly with bringing in workers from other countries into Canada. We represent federal advocacy, so we don’t deal with the actual hiring. Some of our affiliated unions do deal with more contacts like that. I’m happy to share more information on that at a later date.
Senator Smith: What have you seen to date in terms of your success rate with new workers coming into the country and their ability to evolve into the Canadian dream or the Canadian scenario? Is it positive, negative, neutral? Do you have stats on it to justify what you are trying to do to improve the situation?
Ms. Rahmati: I don’t have the stats off the top of my head, but what we do know is that the construction industry is one that has historically been very open to immigrants, especially when you look at, for example, the Italian community in Canada. It has been a great opportunity for immigrants because the language and education requirements aren’t as high as they are for other industries, and they are more transferable than other ones.
We have been working with the government on getting workers who have come out of the system, out-of-status workers, getting them employment. What we have seen is they may not have been eligible in the past given our strict immigration system that recognizes folks with PhDs and university degrees versus those with college credentials, and they fell out of the system, but we’re getting them back in the system because they have been contributing to our economy and making good contributions.
Senator Smith: Thank you.
The Chair: Ms. Rahmati, in the last question posed by Senator Smith, he asked for statistics. Could you provide those statistics in writing to the clerk so that we can have an idea of the flux of people coming in?
Ms. Rahmati: Yes. I will look into it and speak to my colleagues and get you what we can.
The Chair: Thank you.
Senator Boehm: Thank you to our witnesses. As is often the case in this committee, my questions are asked earlier by Senator Marshall, and then I try to recalibrate and come up with something.
My question is for Beer Canada and Spirits Canada. I listened carefully to what you said about the limits placed on parliamentarians to offer oversight and I would tend to agree with this, but you were satisfied with the 2% increase knocked down from 6.3%. I’m just wondering about the financial impact of these increases on the smaller producers.
You mentioned, Mr. Westcott, that the impact of COVID has set everyone back. It seemed to me that before the pandemic hit, there was a rather thriving microbrewery industry across the country and, increasingly, hand-crafted spirits. Would you have any idea of the real impact on these small distilleries, for example, and certainly on breweries and the hospitality industry as a whole, as this factors in? To that, I’m going to throw in the last kicker: If there were no interprovincial trade barriers, and I wouldn’t have to go to Quebec to buy the St. Laurent Gin that my colleague touts, which, of course, is an excellent product, would that have helped in this particular situation or can that help as you project future growth?
Mr. Westcott: Absolutely that would help. To answer your question about small producers — I think Mr. Hélie would confirm this — we were strongly supported by the group of small distillers across the country in our work and getting relief from the automatic excise increases. We were united.
A year ago, prior to the 2022 budget, we actually had a joint campaign with the small distillers to address this. When you are a small producer and you don’t have the volume of sales, you are much more reliant on what you are bringing in, and government takes a huge amount.
The other point that I would make is that we don’t just sell our products in Canada. We sell our products all over the world. It’s not a secret that Canada has much higher tax rates on beverage alcohol than almost anywhere else in the world. When the indexation started in 2017, excise tax on spirits — and I’ll only speak for spirits — in Canada was 68% higher than excise tax on spirits in the United States. Today, it’s over 85% higher. We compete very aggressively with distillers in the United States. The automatic nature of the increase doesn’t take any of that into account. It just ignores all that, just like when we went through the pandemic, and it kept going up and up and up.
I would underline that we need to get back to the way it used to work, where parliamentarians looked at this and said, “Yes, it makes sense” or “No, it doesn’t make sense.” It’s very easy for Finance officials to do this. They really don’t have to do any work. The essence of what I understand Finance to be is they are supposed to be doing analysis, looking at the impacts and understanding it. I’m not sure much of that is happening, because they don’t have to.
Yes, it dramatically impacts smaller producers. We are united in trying to seek solutions to this, and it is having a very significant impact on the overall business.
Mr. Hélie: The threat of a 6.3% increase rallied the whole industry together because it was something that was going to hurt everyone of all sizes, everywhere. Clearly, if you are a larger producer, you have more flexibility in how you might deal with that.
I talked about our broad coalition. When we were going around Parliament Hill earlier this year, union representatives were there because they were starting to see the impact of these annual increases in their wage settlements and at the negotiating table. That was one place where larger producers, unionized producers, were looking to offset the impacts of the escalator.
I mentioned the stat earlier that 54% of brewers who are selling less than $5 million a year are not profitable. A 6.3% increase would have thrown a lot of them over the brink — on one side, the larger producers cutting costs, reducing innovation, reducing research and development; on the smaller side, maybe going out of business. They are very different impacts but impacts nevertheless.
Senator Boehm: Thank you.
Senator Pate: Thank you to all the witnesses for appearing.
My question is for the Canadian Bankers Association for either one of you who would like to speak to it.
In a pre-budget submission to the House of Commons Standing Committee on Finance last year, your third recommendation was that the Government of Canada undertake a comprehensive review of Canada’s tax system. A poll conducted by Abacus recently revealed that 62% of Canadians believe the tax system is unfair, 57% of Canadians believe that the pandemic led to a rise in economic inequality, and 89% of Canadians want to see an annual wealth tax of 1% paid by the wealthiest Canadians as part of our pandemic recovery.
Given that the last comprehensive review of our tax system occurred in the 1960s, I think your answer might be that you would support a comprehensive review of the tax system. What kinds of comparisons do you think we should be looking at? We know that there has been some movement in the U.S., but what about in terms of global market and updating tax protocols? Who do you think would be best suited to do such a tax review?
Mr. Hannah: Absolutely, we support a comprehensive tax review. We have called for it. We think it’s past due for exactly the reason you articulated. The last time we did something of this magnitude was, frankly, before the majority of the population was born. We’re at an interesting point in time. We have the economy that’s changing. We have competition. We have to make sure that Canada’s tax system is purpose-built to help the economy grow, help employment and help us meet the challenges of changes in the composition of the economy and, as I mentioned in my opening remarks, the challenges of decarbonization and what we need to do to transition to a low-carbon economy.
These are all the things that we need to think about. And it’s a good time to do it.
Senator Pate: As you know, the finance, insurance and real estate sectors have reported some of the highest profit margins relative to other sectors over the past two decades. They also saw the largest increase to profit margins in 2021, reaching a profit margin of some 22%, as has been reported. Given that higher corporate profit margins not only drive inflation but also contribute to rising inequality and make goods and services less affordable for many people, how do you propose we address the issue of excessive profits within the finance industry?
Mr. Hannah: Profitable banks are a good thing. You want strong, solvent banks that are reliable. Let me also make the point that Canadian banks are among the largest taxpayers in Canada. Banks paid $18 billion in taxes in 2022. Moreover, most of the returns from Canadian banks go back to Canadians. Banks paid out $22 billion in dividends, and the overwhelming majority of that goes to Canadians. Strong banks help make strong Canada. They are also among the largest employers in the country — a quarter of a million people.
Senator Pate: One of the issues that has come up that I have received many calls and emails about from Canadians is that during this time we saw bank charges go up with no appreciable difference in the nature of services provided. Do you have any further comment on that particular issue from the association? I recognize that individual banks may be different, but it seems to have been across the board.
Mr. Hannah: Banking in Canada has been, remains and will be affordable. In many cases, Canadians pay nothing at all for their basic banking services, and, in cases where they do, generally, the charges are minimal. In fact, what you get for that increasingly is real-time access, multi-channel access, transaction security, ability to pay immediately at point of sale, online and the security that comes with having your funds stored in a strong, accessible financial institution and the capacity to get advice to help you manage your financial affairs.
Senator Pate: Thank you.
[Translation]
Senator Dagenais: My first question is for Mr. Westcott.
Mr. Westcott, interprovincial barriers to the distribution of alcohol definitely impede the ability of Canadian producers to grow their domestic market share.
That’s probably why some look to markets outside the country when they can. I visited the Okanagan Valley, in British Columbia, and I learned that wine producers there sell most of their wine to the state of Washington because it’s easier than selling it in Canada. I’d like to hear your thoughts on how the monopolies of the SAQ and the LCBO hinder the ability of small gin or beer makers to grow their markets.
[English]
Mr. Westcott: In every jurisdiction in Canada, we have one customer: It’s the liquor board. Even in Alberta, where they have private retailing, and in many other provinces where private retailing is now a part of the fabric of retailing, we still have one customer. We believe in competition. Monopolies don’t allow competition. Competition improves products, makes service better and creates innovation. You can’t get there with monopolies. I have to be careful because, as I said, all across the country, my members have one customer.
They impair our ability to be more successful. I think Canada has outgrown, to a certain extent, the need for the kind of strict monopolies that we have. We are seeing progress; there is no question. Most of the Western provinces have mixed access now for consumers. Four or five years ago, Ontario started to allow some alcohol to be sold in grocery stores. We’re making progress, we’re on the right path, but it’s a challenge. There is no question. Monopolies do things sometimes that are not necessarily in the best interests of the market. I get that. But it’s certainly a challenge.
In terms of interprovincial barriers, if we could deal with the interprovincial barrier issue, we would see tremendous growth. Everybody in the business community has talked about the opportunity that is in front of Canada if we could deal with interprovincial barriers.
They are perhaps the most pernicious in alcohol, and they are driven by two things. First, provinces and territories want to be assured of their revenue stream, which is perfectly acceptable. Under the Constitution, that’s their lot. Second, they also want to be sure that they can protect their consumers and make sure that the products that are coming into their jurisdictions are safe. There are ways to deal with both of those effectively. We need to move on those. It is a huge opportunity if we could do that.
[Translation]
Senator Dagenais: Mr. Hannah, I have a question. I want to go back to the retroactive tax on credit cards you were talking about before.
Last week, government officials told the committee candidly that the amount of money the measure represents was minimal, even insignificant. How do you respond to that comment, and can you shed light on the amount of money involved?
[English]
Mr. Hannah: We’re talking about what amounts to 5/100 of 1% of federal tax revenues. One of the guidelines that the Department of Finance has for retroactive taxation is that the amounts have to be material. In this case, they are not.
Ms. Mason: The government has the power to create retroactive legislation. But they know that they should use it cautiously because if you use it in places that aren’t appropriate, it undermines the rule of law and the judicial system. Why would you take a case to the Federal Court of Appeal — not only if the government is disappointed with the decision to proactively change the legislation, which they obviously have all the right to do, but then retroactively? It undermines the fact that you have got a judiciary that’s determining what the law is.
Then when we talk about rule of law, it’s as a citizen understanding what the law is and following the law. That’s why we have limitations on how far you can go back if there is a decision that was made that was contrary. This legislation has basically done away with all the statutes of limitations and said we can go as far back as we need to.
[Translation]
Senator Dagenais: I have another question, Mr. Chair.
The Chair: It will have to wait until the next round.
Senator Dagenais: All right, then.
[English]
Senator Shugart: Thank you to our guests. My question is for Ms. Walsh.
You referred in your comments to the sustainable jobs secretariat, and I wondered if you could elaborate a little bit on that. What would be your expectations for what this body should do and what might the government want to avoid? What might we want to keep an eye open for in regard to less-than-productive activity from this secretariat? Could you elaborate on that a little?
Ms. Walsh: I will defer to my colleague, Rita, on the secretariat.
Ms. Rahmati: Thanks, Kate. The secretariat, we’re hoping, will be a body that isn’t just making decisions for labour and workers about what’s going to happen with the transition to net‑zero economy and the government’s action on that front. We’re hoping it’s going to be a body that labour is a leader on, and labour is not just having legislation or changes put in front of them, but really being an integral part of making legislation and decisions on net zero. That includes things like collecting labour market data on where jobs are going to be in the future, having conversations with stakeholders and traditional energy sector and working alongside them, working with the government on where investments should be made on the transition to net zero and really being a partner for the government.
Senator Shugart: It sounds to me, Mr. Chair, like the job of public service as it exists now, advising the government and working with others, consulting and collecting data and doing analysis. As much as our other guests have suggested, the Department of Finance should be doing this with respect to the prevailing economic circumstances dictating the level of taxation.
I’m curious about what particular value added this new entity will bring to the table. You do support it, don’t you?
Ms. Rahmati: We do support it. I think we see that with the transition to net-zero economy, there are a lot of different government departments and ministries that are involved in those decisions right now. There is the Department of Finance and then the Ministry of Finance, Natural Resources, Environment and Climate Change. We think that it’s important to have a body that can bring all of those voices together and make those decisions versus having folks working in silos.
Kate, you might have something to add to that as well.
Ms. Walsh: Yes. I would say one of the reasons that we’re advocating so strongly around this is that as we transition to a low- or no-carbon economy, it’s one of the most transformative periods for our economy. There is a huge number of members whom we represent who work in the traditional oil and gas sector, so they are worried. They are worried that when we talk “net zero,” we mean net-zero jobs and that they are going to lose those jobs that pay high wages, contribute to their pension plans, provide benefits and provide the lifestyle for their families.
There are a lot of transferable skills that our skilled trades workers in the oil gas sector have that can be utilized in the development of new tech, clean tech, like carbon capture and sequestration, hydrogen, LNG projects. In order to ensure that we maximize the skill sets that already exist and identify those gaps as we transition to these new jobs, what additional training do we need? While for sure the public sector and collecting some of that data is important, hearing from training directors who are boots on the ground, from industry experts who know and understand the skill sets that are going to be required during this transition — the sustainable jobs secretariat, there is a huge opportunity there to involve the folks who do this work day to day in the industry and to consult with them in a meaningful way.
Senator Shugart: Well, I would say as you further interact with the government as it stands up this organization, I would encourage you to reinforce the point about efficiency. All of those questions you raised, of course, are entirely valid questions and need to be addressed. The surest way to break down silos is to make people working in silos work with others directly and not go around them by creating something new. I leave that perspective with you as well. Thank you.
Senator Duncan: Thank you very much to the witnesses.
I have several questions, but I would like to start with banking, Mr. Hannah and Ms. Mason, if I could.
First of all, you distributed to all senators this book Canadian Banking Basics. Thank you for it. It’s an excellent tool. What I do with mine is I give it to Yukon Learn, a literacy organization that serves all Yukoners.
That being said, I would also like to discuss the situation at hand. The point before us is this amendment in the budget implementation act. Just before I go on to that, though, I do also note that 10% of Canadians, I believe, don’t file their income taxes. Perhaps at some point Canadian Banking Basics could be How to File Your Income Taxes, and we could deal with the Income Tax Act.
The situation we have and that we’re talking about tonight addressing this issue is the Department of Finance has been blasted for a very specific issue: retroactivity. That’s the key issue of this amendment. I’m not an economist or a learned banker. I am a former politician and I’m very familiar with knocking on people’s doors. Quite honestly, I don’t know of a Canadian who is going to say that the banks shouldn’t pay the government back $200 million.
So what do we do with this? As a legislator, I don’t know if it’s a legislative drafting error, if somehow it slipped through, if it’s the Department of Finance, if it’s the CRA. Where does the real problem lie? You have offered us a suggestion, an amendment, and possibly we could do an observation. What else is out there? Have you considered an alternative dispute resolution? Is there an opportunity for you to speak with the Minister of Finance and the minister responsible for the CRA? Have you tried those? Are you contemplating that as an option?
Mr. Hannah: Senator, thank you for the question. I will say two things. One, when the legislation first came out, we had a discussion with the Department of Finance. They were not receptive and were quite clear that they were going to proceed with this.
With respect to the CRA, the CRA had already started to abide by the decision. They were starting to issue refunds already. This is why we were shocked when the legislation appeared without any consultation because all signals had been in the opposite direction.
Senator Duncan: We really need the minister responsible for the CRA and the Minister of Finance to talk to one another. If you do end up paying it back, maybe you could produce a booklet on the Income Tax Act as one suggestion of what to do with it.
We’re stuck, then, with your representations, and there is no further contact planned with the Department of Finance, the Minister of Finance or the minister responsible for CRA, is that right?
Mr. Hannah: Senator, we are here before the committee today to seek your help and to provide you with our view and what we believe needs to be done. We think it can be done. We think the amendment is small but significant and important.
Senator Duncan: Thank you.
I would like to address my next question to the construction industry.
First of all, I absolutely support the tool allowance and the increase. I also spoke with the government when I first arrived, and we dealt with the budget implementation act that enacted the Federal Prompt Payment for Construction Work Act. That was in 2019 in Bill C-97. That act has still not been proclaimed.
Is the construction industry continuing its lobbying effort on the federal prompt payment for construction work? If you wish to get back to the committee in writing, I would be most grateful and I’m sure the chair will provide you with a timeline. Thank you.
Ms. Walsh: Thanks for the question. Yes, it is still on our radar to get that passed. It has been an issue in the construction industry, and we never want workers to bear the brunt of that. We can get back to you on that.
Senator Duncan: Thank you.
The Chair: The sponsor of Bill C-47, Senator Loffreda.
Senator Loffreda: Thank you to our panellists for being here late this evening.
I will continue with Mr. Hannah and Ms. Mason. Like I mentioned, I spent many years in the banking industry, so I’m very familiar with the industry — close to four decades. It’s an unfortunate situation we are in at this time. Nobody is going to argue that there should be independence from our judicial system. Retroactive taxes are never acceptable, and a delay of two years is not acceptable.
I challenged Finance officials at our Banking Committee today, and I think my colleagues can vouch to that. As sponsor, I challenged her, anyway. She answered very well. Her answer was adequate — Ms. Riddell. I invite you to refer to that transcript, which will be public, and then maybe respond to us in writing.
I do have some questions. If there had been no delay and the amendment had been legislated right after the court case, and if it were prospectively applied, would you fully endorse it? A “yes” or “no” answer is fine.
Mr. Hannah: Would I — back to what I said earlier —
Senator Loffreda: Would you fully endorse it?
Mr. Hannah: Sorry, repeat the question.
Senator Loffreda: If there were no delay in legislating the court case — CIBC comes out, and there is no delay — the legislation comes in, and tax is applied prospectively, would you fully endorse it?
Mr. Hannah: Without the retroactivity, would I be here? No, I would not be here.
Senator Loffreda: You would fully endorse it, right? The government has the right to tax what they feel —
Mr. Hannah: The government has the right to tax prospectively what they want. We are here due to the retroactivity.
Senator Loffreda: That’s what I wanted to know. Thank you for that.
On the definition of “financial services,” I’m a little confused because Ms. Mason gave one definition, and you gave another. But I’m no longer confused on that. You would fully endorse it going forward. They have a right to say and define “financial services” the way they do — defining it in the Income Tax Act. It is theirs to define. We did discuss that parliamentarians should be responsible instead of — anyway, that’s a discussion for another day.
I would like to hear from you also because it’s important for Canadians and for everybody. When I put Ms. Riddell on the spot today and my colleagues did the same, her answer was a little different from what you’re giving us this evening. I was satisfied with the answer she gave us. We will make an observation. It should be brought forward. I do agree with that.
But she did mention there were huge windfalls for banks if the retroactivity would not be there. At the end of the day, if there is a huge windfall for the banks, Canadian taxpayers have to pay that. She felt — and I was satisfied with her answer — that communication was there all along, that it should have been expected, that it wasn’t a surprise to the banks. She referred to the news releases and regulation. She was well prepared this afternoon. She really was.
I would like to ask a question. You represent 60 banks. You said your members were not aware of it at all, but I am certain that the $195 million is not going to be paid — the bulk of it — by the 60 banks. Were the large banks consulted? Are they aware? Being in the bank industry for close to four decades, I can tell you that sometimes — and I did question her directly; I said, “How could you not communicate with the banks and say this is not allowed; this is not permissible?” We would have those messages coming forward and — My God, when we mentioned regulatory bodies, OSFI — I spent my lifetime in lending — we would tremble. OSFI, the Office of the Superintendent of Financial Institutions, was so important. The regulatory bodies were so important. So I was really surprised why they did not communicate that to the banks. She said they have.
So are you certain — my question to you — that if the bulk of the $195 million is only going to two, three, four or five banks, those five banks were not consulted? Was there no communication with those banks? Was it a total surprise?
Mr. Hannah: Senator, our members tell me that there was no communication, that this is coming as a complete shock and that the CRA had already started to implement.
Frankly, senator, I have been at the CBA for 23 years. I have appeared before parliamentary committees close to 30 times, including this one multiple times, I’m proud to say. I have dealt with GST issues on and off for getting close to 20 years. I have never seen a reaction as strong, as negative and as widespread as the reaction I have seen to this measure.
Senator Loffreda: So the testimony from Ms. Riddell — I invite you to go back to that testimony and maybe see what she mentioned this afternoon. I understand what you’re saying; I fully understand. Thank you for that.
The Chair: A last little question, please, senator.
Senator Loffreda: A last little question, sure.
I can ask you a last little question, but I did say I wanted to ask the Building Trades Unions a quick question, so I will do that.
Ms. Walsh, will the BIA benefits to workers help alleviate the shortages we’re seeing in the construction industry? Any further comments would be helpful, as well as any up-to-date information on this concern, as we see rising costs, inflation and housing affordability being issues. You mentioned that immigration may be a solution. Any other facts, elaboration or comments would be welcomed. Thank you.
Ms. Walsh: Sorry, senator, I didn’t hear the beginning part of your question. Did you say “BIA”?
Senator Loffreda: Yes, the budget implementation act. Are there any additional benefits to workers in the act that would help alleviate the shortages in the construction industry? How will it affect the industry, in other words? Will it help to increase resources, workers and help alleviate shortages we’re seeing across the country?
Ms. Walsh: Thank you for the question.
There is not as much in the budget implementation act versus in the entirety of the budget. Numbers recently came out from BuildForce Canada. We’ve got the lowest unemployment rate recorded since 1976. We’re facing labour availability challenges across the country, and it’s something we absolutely need to address. Rita Rahmati talked a little bit about it earlier with regard to our work around increasing immigration for skilled trades workers, specifically.
We need to do more to support workers — attracting and retaining them within the construction industry — in order to address those labour gaps. We expect that despite our best efforts and the work we do around apprenticeship, training and workforce development, by 2032, we will be short 61,000 workers. There are shortages today that we need to address very quickly. Attracting and retaining workers through the apprenticeship system takes time, and that’s where we’re hoping to get some of those changes around immigration.
Rita, I don’t know if there’s anything you want to add to that.
Ms. Rahmati: I would also say in past budgets, so in 2022, there was the Apprenticeship Service program and the doubling of the Union Training and Innovation Program, UTIP. Those are the types of supports that we very much appreciated, and we hope to see more of those in the coming years. As for this budget implementation act, there is more to be done.
Senator Loffreda: Thank you.
Senator Marshall: This question is for the Building Trades Unions. Last year, the labour mobility benefit was passed and it was tax-deductible. I’m just curious whether you have any information as to how extensively that deduction was used and also what the experience has been with regard to the Canada Revenue Agency. They’ve been known to pick the low-hanging fruit and chase individual taxpayers as opposed to wealthy taxpayers and large corporations. If you have any information on that, I’d be very much interested. Then if I have time, I have a second question.
Ms. Rahmati: Thanks for that question. With tax season having wrapped up, we’re proud to say that this was the first time our members were able to benefit from that deduction. We ran an extensive campaign to make sure that our members were aware of that new benefit and that they understood the requirements and the eligibility because it is very specific, and we wanted to make sure anyone using it wasn’t using it when they were not permitted to do so.
I don’t have specific stats on what percentage of our membership used it or how much they benefited, but I think that is something our organization would like to look into further to see if that’s the type of support we need to continue to have. If we collect that information, we will be sure to share it with you.
Senator Marshall: Thank you. This is a follow-up to Senator Shugart’s question. In all of these programs that the government is putting in place — they are providing tax credits, they’re going to make sure the prevailing wages are paid and that benefits are being received. I know you were talking about the establishment of a secretariat. My colleague mentioned that it sounded like maybe it was something for the public service.
Regardless of how it’s done, have you given any thought to how it would be policed and monitored? It sounds like something that’s going to be fairly complex. Have you given any thought as to how you’re going to monitor that or, really, police it?
Ms. Rahmati: Just to clarify, that was a question for us as well? Yes. Okay, perfect.
Yes, absolutely. That’s going to be a core component of this prevailing wage. Actually, I have a meeting tomorrow with the Department of Finance on the precise point of how this database will be set up to define the prevailing wage and how it will operate in different jurisdictions. It is going to be a bit complex. What I’ve heard so far is that the government is going to be doing more consultations this summer on those components. That’s partially why those elements of the budget weren’t included in the budget implementation act — there may be legislation coming this fall.
You’re absolutely right, that’s going to be an important component of getting this done right. We hope to be partners and part of that conversation to provide whatever support we can to make sure that goes through properly.
Senator Marshall: It hasn’t been fully developed yet?
Ms. Rahmati: That’s correct.
[Translation]
Senator Forest: Mr. Hannah, I want to make sure that I understood your opening statement correctly. You would like the committee to recommend in its report that the retroactivity provisions be removed from Bill C-47. That would deprive the government of hundreds of millions of dollars. We don’t know exactly how much. If the government were to offer to settle the retroactivity issue for $300 million, would your association be fine with that?
[English]
Mr. Hannah: Sorry, I don’t quite understand the question.
[Translation]
Senator Forest: You’re asking us to recommend removing the retroactivity provisions from the bill. If the government offered to settle the matter with a lump sum of $300 million, would your association be fine with that?
[English]
Mr. Hannah: What I would say, senator, is our principal concern for being here today is with respect to retroactive taxation. Do we like the idea of paying additional taxes after the $6 billion or so from the Canada Recovery Dividend plus the Financial Institutions Tax? No. But we’re here today because of the issues associated with retroactivity.
[Translation]
Senator Forest: I see. Thank you.
[English]
Senator Gignac: Thank you. Continuing with Mr. Hannah, as my colleague and sponsor of the bill mentioned, retroactivity is a concern for the committee. At the same time, it’s a budget implementation act, so it’s not easy for us.
I know you have received the support of the Canadian Bar Association. Correct me if I’m wrong, but the Desjardins Group and other non-bank financial institutions would be impacted as well by this measure. Do you know their position? Have you tested the waters with them to find out if they have the same position as you regarding this? It would be useful for the committee to know if non-bank financial institutions in Canada, particularly Desjardins Group, which could probably impact around 20 million people because it is the biggest financial institution in Quebec, have any feedback. I don’t think we have received anything on our side.
Mr. Hannah: I have not spoken specifically to Desjardins. I would certainly invite you to have them come to discuss this. I would be very surprised if their views were terribly different.
I will tell you we have had direct conversation with a number of merchant inquirers, who are not members of the association but actually came to us directly to talk to us about this. They are concerned because it impacts them, because it applies retroactively and because it affects their businesses directly. The implications of this go well beyond simply banks; it impacts anyone involved in either the issuance of credit cards or the acceptance of cards.
Senator Smith: I would like to ask another question to the Building Trades Unions folks.
Your organization is also advocating for the support of energy workers — you mentioned that earlier — who are impacted by the transition to the green economy. The government has announced billions of dollars in tax credits for clean technology development, critical mineral exploration, as well as extending the reduced tax rates to zero-emission technology incomes.
In your view, is the federal government doing enough to support energy workers as it ramps up transition efforts away from carbon-intensive industries? Where is that transition at? Is it at the extreme beginning or partly on its way? If you could give us some background, that would be helpful.
Ms. Rahmati: Thanks for the question. It’s something that we’re really preoccupied with right now. We actually just had our conference last week where we brought Building Trades members from across the country together. The major focus of the conference was this transition to net-zero economy.
I would say that we’ve started. As we said in our remarks, we’re now on the path, but there is still a lot of work that needs to be done. We still haven’t seen any just-transition legislation. We’re told that it will be tabled either this spring or in the fall. We’re looking forward to seeing that and what’s included in it that will support members.
We also think there are other mechanisms that can be used that already exist, for example, using the Employment Insurance program, potentially, to support Building Trades members and traditional energy sector workers as they need to get retrained or relocate for work. That’s why we think something like the Labour Mobility Deduction that went through last year could be helpful, but there may be a need for additional mobility supports.
We also need more labour market impact data to understand where workers are currently in the energy sector, what our energy needs will be in the future, what skills workers will need to be able to do that and where they may need to be relocated.
So we are on the path, but it’s going to be a long path. We need to look at it from both a short-term and a long-term perspective. We need to work closely with government and industry on this together — so organizations like the Pathways Alliance — and bring all those folks together at one table.
Senator Smith: At this particular juncture, is it too early? Is there a form of insecurity among members of the workforce as all these notices, programs and different elements come out on the table?
Ms. Rahmati: Yes, absolutely. There is some concern from our membership. Our members want to make sure that they’re able to put food on the table and that they don’t have any pay cuts because of the transition. They’ve worked hard. They’ve paid their dues. They’ve done their apprenticeships and have been working in the sectors for many years and developed their lifestyles and homes based on certain salaries and being in certain regions. So there is a lot of concern among our membership. We surveyed them last year through Abacus Data and we did find that many of them are concerned with the transition. I think Kate has something to add to that as well.
Ms. Walsh: Yes, I wanted to point out — and it’s something we can share with the committee as well — Canada’s Building Trades Unions is part of North America’s Building Trades Unions, and our U.S. counterparts recently did a study comparing jobs in renewables to traditional oil and gas sector jobs. The one pay scales in those industries were not the same, which is why we’re so supportive of this definition of prevailing wage being based on union compensation so that as we invest in new tech, the wage compensation for those jobs is comparable to what our folks are making in the oil and gas sector right now. We’d be happy to share that study with you.
I would say there is trepidation with regard to whether these jobs are apples to apples in terms of the total compensation package and the skill sets that exist and that are required. Will the number of jobs be available? Will the duration of those jobs — for instance, if you look at a lot of the major oil sands projects up in Fort McMurray, Alberta, every year they have shutdowns and turnarounds which employ hundreds to thousands of folks. People can rely on those jobs.
Whereas if you look at something like the building of a solar field, it only requires a limited number of trades for a short duration; then that solar field is set up. There is worry about what those jobs will look like, how long they’ll last, what they’ll pay and the opportunities that exist there.
I’d also say on this front, in terms of attracting people to the industry, people don’t always look to, especially young people — there has been so much talk of net zero and moving to a green economy, and people don’t always look to the skilled trades as that new green job, which is so far from reality. We’ve got exciting projects, including Building It Green, which is —
Senator Smith: Excuse me, the chair is giving me the signal, Ms. Walsh. If you can send us something in writing that you suggested earlier to the clerk, that would be fantastic.
Ms. Walsh: For sure.
Senator Smith: Thank you very much.
Senator Pate: This question is for Beer Canada and Spirits Canada. As you know, in January of this year, there were new health guidelines brought out about drinking and what’s recommended, what’s not — this notion that no amount of alcohol is safe to consume.
I’m curious as to what measures your organizations are taking around those health guidelines, whether you’re looking at warnings. I know that one of our colleagues has a private bill to encourage warnings on bottles. Are there any other issues that you think we should be aware of as you and your members are dealing with this?
I do want to say — I don’t think it has been said yet around the table — that the ability to pivot and, in particular, some of the things that were done to try to assist in everything from creating hand sanitizer and all the rest during the pandemic were indicative of the responsiveness of the community to health concerns. I’m very interested in what your respective bodies are both doing.
Mr. Hélie: At the risk of correcting you, senator, the Canadian Centre on Substance Use and Addiction, or CCSA, provided a report to the government, and the Ministry of Mental Health and Addictions is considering the report. These are not new guidelines yet. Our recommendation to the minister and the government is that the critical independent technical peer review hasn’t happened yet to that work. That would be sort of the next step in terms of the report.
Brewers, a lot of our members have voluntarily introduced graphic labels on many of our packaging, particularly dealing with drinking and driving and not drinking while pregnant. We are looking at other measures, everything from perhaps further adjustments to the excise duty rates for alcohol and beers under 4% alcohol to promote lower-alcohol choices. Maybe a national minimum alcohol price might be something that the government might want to look at.
There are lots of different initiatives that we are working on with Mental Health and Addictions both federally and provincially to reduce alcohol-related harms. We could have a whole session on that topic, if you’d like. I’d love to come back and talk about that.
Senator Pate: Right. Thank you for that correction. It was the substance use folks who came out with that.
Mr. Westcott: We just had a meeting with the offices of both the Minister of Mental Health and Addictions and the Minister of Health and specifically talked about things that we would like to see to be able to communicate better and provide information to our consumers. There are some impediments to that, and some of them lie within the government itself. There is some confusion within some of the agencies as to what a standard drink is. Frankly, I think both ministers’ offices were surprised that there were different definitions. One that has been adopted by one of the agencies is actually twice what a standard drink is.
We’re talking to them actively. We have good ideas about how to improve communications and get information that people are looking for, but there are some things that have to get fixed as we go along that track.
As I said, some of them we’re discovering ourselves. I think both ministries were surprised when we brought the one forward last week. There is a commitment to try and work through those things and overcome them so that we can improve communications, and we’re optimistic that we’ll get there.
Senator Duncan: I’m going to ask these two questions and put them on the record, and if the witnesses could respond in writing, that’s probably the best option.
Mr. Westcott and Mr. Hélie, you have both indicated a certain amount of the alcohol purchased is tax. Mr. Westcott, I think you said 80%. I think we have to also include the amount of the provincial-territorial tax when we’re stating those figures in public because it varies across the country. Quite honestly, as once upon a time I was a finance minister, that revenue is very important. Could we include that in the data you share with the committee?
Mr. Westcott: I’d just make one comment. The way it breaks down for spirits — I’ll let Mr. Hélie comment on beer — about 60% of the price goes to provincial governments, who operate liquor boards and fund the liquor boards through that; about 20% goes to the federal government through excise and GST; and 20% goes to the spirits industry. I’m happy to provide detailed breakdowns. It varies by province. Some provinces’ markups are significantly higher than other provinces’.
Senator Duncan: Some provinces and territories have significant surpluses.
And just one other comment in writing for the Building Trades Unions. We’ve seen in previous budgets and in provincial-territorial budgets significant investment in apprenticeship programs, particularly apprenticeship and training programs geared for women and women in trades organizations.
When you provide us with information regarding the labour outlook, could you also provide us with information as to the numbers of women who have become involved in the trades throughout the country so that we can assess whether or not these programs have been successful and where we might be making recommendations to the government? And could you also include Indigenous individuals if they so identify? If you could provide that information in writing, it would be very helpful. Thank you.
[Translation]
Senator Dagenais: Mr. Hélie, you talked about how beer sales dropped because of pandemic restrictions. If I heard correctly, sales in restaurants, bars and such decreased by 15%.
The information I have tends to be specific to Quebec. I’m not sure whether the situation is the same all over Canada, but I’d like to talk about beer production and distribution post‑pandemic. In Quebec, for at least a year, some establishments haven’t been able to rely on their product orders being delivered regularly. In some cases, brewers can’t even deliver a minimum order on a weekly basis, even when it’s not what was ordered. If breweries don’t have beer, they obviously can’t sell it. Have brewers reduced their production, inventory or the number of delivery people they have to better cope with the aftermath of the pandemic? If so, what’s the solution?
Mr. Hélie: Thank you for your question. The situation in Quebec was unique because a major plant was shut down for weeks. It was the result of actions by certain employees. That’s the source of the problem you’re describing.
Senator Dagenais: Was it the unions’ fault?
Mr. Hélie: No, no, not at all.
Senator Dagenais: I see. Thank you.
[English]
Senator Loffreda: Thank you once again for being here. My question is for Mr. Hannah and Ms. Mason to answer. I said previously that Ms. Riddell answered my question when I asked about no communications with the banks, and if the delay is an issue, why wasn’t there any communication in the meantime? Just to put it on the record for your sake and not to have you refer to it, I’ll take a few minutes to go through it and give insight to my colleagues who weren’t at our Banking Committee today either.
When I asked Ms. Riddell, “Why don’t you communicate with our banks?,” she said, “We actually do have regular communications.” She went on to say:
Often, it’s with the Canadian Bankers Association rather than individual banks, but we have regular ongoing communications with them.
We also have regular ongoing communications with the Tax Executives Institute and other professional tax organizations. At every opportunity, when this topic came up — and it did, because every time there is a court decision proceeding through, they always ask for our views — we always made it clear that this court decision was inconsistent with our policy position.
The problem with being an official is that unless you have a decision from the Minister of Finance, you can’t commit the department to anything, so you have to walk this fine line between saying, “This is not our policy position,” which any tax professional who has been in business for any length of time will understand to mean that we’re briefing for a retroactive amendment. So we sent those signals at every opportunity we had when we were speaking to tax professionals and the Canadian Bankers Association.
But that’s as far as we can go as officials.
And then, if I can continue for a minute, as this is important — I just want to clarify and put it on the record for the sake of everybody, Mr. Chair. Thank you for the time.
When I asked a different question, she went on to say:
They were aware it might be a possibility, but more than that, it is to prevent windfall gains. When this court decision came out, it had retroactive effect itself. Had we not gone retroactively, there would have been a long period of four or five years where tax wouldn’t apply to that service and people who had paid tax on that service in the past based on contracts negotiated understanding that tax would apply to those services and would be able to get their tax back.
Then she gives an example, but at the end she says:
We understand it’s not perfect, but on balance, the windfall gains that could have gone to the larger banks far outweighs the two-year period of GST that suppliers are going to have to maybe make up. I’m sorry, I don’t think that was very clear.
She had a lengthy testimony today at our Banking Committee. As I said, this is why I wanted to make it clear, put it on the record, and we always like to be factual and precise, and this is what it is. If you would like the add to that, feel welcome.
The Chair: Mr. Hannah, do you have any comments on the comments that you have just heard?
Mr. Hannah: Yes. Senator, the department had two and a half years to say something — anything — 169 news releases and nothing. When asked to point to where they communicated, they go back to an excerpt from a news release in 1991. Senator, I was an undergraduate in 1991. I have not been an undergraduate for a very long time.
Moreover, to describe it in the way it was just described, the inference is that one should reasonably assume that this is what the department will do because this is what they always do. Wait a minute. Then you are telling me it’s routine. Something cannot be exceptional and routine at the same time. If it’s exceptional, you should not expect it, and, moreover, unless it is communicated that you are going to do it, you shouldn’t believe it’s going to happen, especially when the CRA has already started to abide by it. If it’s routine, then you are violating the existing principles that you have to say this should only be done on an exceptional basis. It cannot be exceptional and routine at the same time.
Ms. Mason: Her comments do not hold together. The comments do not align with the facts that have been presented to you by us, by the Canadian Bar Association and by the conduct that took place. You had merchant acquirers who received these refunds and passed them on to their customers. If this signal was so clear that there is no way that you are going to be able to keep these refunds, there is no way they would have passed them on. Why would you take money out of your pocket if you knew you had to give it back and pass it on to your customers? This approach that we were all supposed to be expecting this is just simply not supported by the facts.
Senator Loffreda: Thank you.
The Chair: Thank you, senators. I have been very lenient as chair this evening because of the witnesses. To the witnesses, I want to say, on behalf of the committee, thank you very much for being here. You have been, without a doubt, very informative, very enlightening, very illuminating.
[Translation]
You raised a lot of issues, and it was quite insightful.
[English]
That’s why we have accepted that you were the witnesses this evening, and the committee says thank you. We have a common denominator going back, and I know, Mr. Hannah, you have been here before. We have a common denominator: It’s about transparency, accountability, reliability and predictability if we want to better grow our economy.
That said, to the witnesses, before we do adjourn, please submit your written responses to the clerk by the end of Wednesday, May 31, 2023. Do we have an agreement on that? Thank you.
Honourable senators, our next meeting will be Tuesday, May 30, at 9 a.m. to continue our study on the subject matter of Bill C-47. To all of you, thank you and good evening.
(The committee adjourned.)