THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, March 20, 2024
The Standing Senate Committee on National Finance met with videoconference this day at 6:47 p.m. [ET] to continue its study of the subject matter of Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and 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 senators as well as the viewers across the country who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler. I’m a senator from New Brunswick and the Chair of the Standing Senate Committee on National Finance. I would now like to ask my colleagues to introduce themselves, starting from my left.
Senator Forest: Éric Forest from the Gulf region of Quebec.
Senator Galvez: I should add that you’re all basketball or hockey players too. Senator Galvez from Quebec.
Senator Gignac: Clément Gignac from Quebec.
[English]
Senator Pate: Kim Pate. I live here in the unceded, unsurrendered territory of the Algonquin Anishinaabeg.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Loffreda: Senator Tony Loffreda, Montreal, Quebec. Welcome.
[Translation]
Senator Carignan: Claude Carignan from Quebec.
[English]
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Ross: Krista Ross, New Brunswick.
Senator Smith: Larry Smith, Montreal, Quebec.
The Chair: Thank you, honourable senators.
Honourable senators, we continue our study on the subject matter of Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023.
[Translation]
We’re joined today by a large panel of outstanding witnesses.
[English]
We want to take the time to welcome all the witnesses and thank them for accepting our invitation to appear in front of the Senate’s National Finance Committee.
Since there are many of you, I would ask you to introduce yourselves. We will commence with Mr. Bester. Ater Mr. Bester makes his comments, in order to maximize our time so we can question you longer, each and every one of you will introduce yourselves and then move on to your comments.
Keldon Bester, Executive Director, Canadian Anti-Monopoly Project: Thank you to the committee for inviting me to speak today on this important topic.
I’m the Executive Director of CAMP, a think tank dedicated to addressing the harms caused by monopoly and building a more democratic economy. Echoing my message to this same committee last year, this is an exciting time for competition policy in Canada.
There are several elements of Bill C-59 that I believe will improve competition in the Canadian economy, but I will focus today on the changes to the Competition Act included and elaborated on in our written brief submitted to the committee.
One of the most important changes to the Competition Act in Bill C-59 is the opening up of private access to the Competition Act. In contrast to the United States, where individual companies can bring cases against corporations harming competition, in Canada nearly all competition law cases originate from the Competition Bureau. Despite its best efforts, the Competition Bureau has finite resources and cannot have eyes on every corner of Canada’s $2 trillion economy. A robust private access framework is an important complement to the expert work of the Competition Bureau. Bill C-59 creates the foundation for that framework by expanding the conduct available under private access and by allowing companies to seek damages for the harm caused by that conduct.
Another area of Bill C-59 I would like to highlight is the important changes to the Competition Act’s treatment of mergers. Today the Competition Act downplays the role that market structure — that is, the number and relative size of players in a market — plays in competition. One way it does so is by rejecting market structure as an indicator of potential harm to competition. By removing language that rejects market structure and introducing increases in concentration in a market as a potential indicator of competitive harm, Bill C-59 gives our competition law additional tools to defend against mergers in markets where Canadians already face limited choices.
Bill C-59 also addresses a gap in Canada’s merger law that has excluded an important part of our economy from analysis. Though we often view competition through the lens of consumers, Canadians benefit from a more competitive economy not just as consumers but as entrepreneurs and workers as well. While competition law has long considered the cost of consolidation on consumers and businesses, it has been largely silent on the potential effects on workers. Thankfully, this is changing. It is changing at home, with the introduction of wage fixing and no-poach provisions under Canada’s competition law; and it is changing abroad, with the U.S. Federal Trade Commission’s inclusion of impacts on workers and its complaints against the Kroger-Albertsons grocery merger. By including effects on workers as a factor for review, Bill C-59 is a step toward a more complete view of the costs of consolidation.
The amendments proposed in Bill C-59 serve to catch Canada’s competition law up to our international peers. In the spirit of learning from those peers, this committee should consider the potential for Bill C-59 to go further in protecting Canadians against mergers in already concentrated markets. When a market is highly concentrated, further consolidation is more likely to harm Canadians and the competition that they depend upon. Recognizing this, a bias against mergers in already concentrated markets, often referred to as a structural presumption, should be incorporated into Canada’s competition law. Under such a presumption, merging parties will have to work harder to show that a merger will benefit Canadians and that mergers in sectors exhibiting high levels of concentration should be banned outright. As others have pointed out, Canada’s current competition law has repeatedly allowed mergers to literal monopoly, killing competition and choice for Canadians. This is a consequence of a competition law that does not take market structure seriously. Bill C-59 provides an opportunity to break with that trend.
Bill C-59 is an important component of comprehensive reform of Canada’s competition law. I believe that this committee has an opportunity to strengthen that reform and make it even more comprehensive.
Thank you for your time. I look forward to your questions.
The Chair: Thank you, Mr. Bester.
W. Scott Thurlow, Senior Advisor, Dow Canada: Good evening, Mr. Chair. I would like to extend my warm regards to the committee members.
I am proud to speak to the committee today about Dow Canada. Dow operates two manufacturing sites, in Fort Saskatchewan and Lacombe County, Alberta. The Alberta sites convert natural gas feedstock into ethane, ethylene and finally polyethylene. Our main product in Alberta, polyethylene, is sold to customers across Canada and around the world to make durable goods as well as packaging and some consumer products. We also supply industry in the region with other petrochemical derivatives. In Ontario, we have two manufacturing sites: one in West Hill, Scarborough, and one near Sarnia. These facilities produce emulsions and specialty plastic resins respectively.
On November 29, Dow’s Board of Directors approved a final investment decision for the world’s first net-zero Scope 1 and Scope 2 emissions ethylene and derivatives complex in Fort Saskatchewan, Alberta. Economically speaking, this brownfield investment enables Dow to deliver 2 million metric tonnes per annum of growth, effectively tripling our production. At its peak, we expect approximately 7,000 construction jobs will be created at this site. Environmentally speaking, this investment will eliminate 1 million tonnes of CO2 even with this added growth. We will do this by converting hydrogen from cracker off-gas as a clean fuel while capturing and storing the remaining CO2. This investment paves the way for Dow’s entire packaging and specialty plastics portfolio. This first mover advantage gives us the ability to lead in capturing the growing demand for low carbon solutions. It puts Dow out front in delivering the first world-scale, fully integrated site with zero Scope 1 and Scope 2 emissions.
Fort Saskatchewan is a strategic and advantaged location because we have access to low-cost ethane; there is existing rail and export infrastructure that will be expanded to support our global sales; importantly, we have government support, including subsidies that are offsetting a portion of our cost of the investment, and it is also one of the few places in the world where existing infrastructure for carbon transportation and storage exists. This is a key reason why we have a first-mover advantage in low-carbon solutions.
Certainty in the investment environment we are operating in is also a key advantage. As such, I am here today to offer Dow Canada’s support for Bill C-59 and, in particular, support for the proposed Carbon Capture, Utilization and Storage Tax Credits, or CCUS. These were first announced in Budget 2021. It is high time that we have them adopted. Similar measures were introduced, debated, adopted, implemented and deployed under the United States Inflation Reduction Act in less than two months.
I would also give our hearty support for the creation of a similar tax credit for the deployment of hydrogen technology. Similar to the CCUS tax credit, this was first mentioned in a previous budget. NRCan released a thoughtful study on the potential of this sector in 2020. We are anxiously waiting to see it in legislation.
We urge Parliament to pass this bill expeditiously so that the certainty required to rely on these investment tax credits can be built directly into our investment models. These tax credits help support the decarbonization of our operations in Fort Saskatchewan and our return to operation by 2030.
I want to repeat a key point: These credits will lead to absolute emission reductions. In order for Canada to meet emission reduction targets, we need to see transformative investments like the ones being made by Dow. It is through advents in the chemistry sector that these deep emissions reductions will occur.
I welcome any questions that the committee may have.
The Chair: Thank you, sir.
[Translation]
Francis Bradley, President and CEO, Electricity Canada: My name is Francis Bradley. I’m the president and chief executive officer of Electricity Canada. Electricity Canada is the national voice for electricity in the country. Our members generate, transmit and distribute electricity in every province and territory.
[English]
Joining me today is Paul Cheliak.
Paul Cheliak, Vice President, Strategy and Delivery, Canadian Gas Association: Good evening. The members of the Canadian Gas Association operate the natural gas infrastructure system that delivers 40% of the energy consumed in Canada.
Mr. Bradley: Together, Electricity Canada and CGA members deliver 55% of the energy consumed in Canada.
[Translation]
Today, our comments will focus on the excessive interest and financing expenses limitation rules and how they affect energy affordability for Canadians.
[English]
Before we proceed, we want to acknowledge the efforts of Finance Canada in drafting the EIFEL rules. The intent of the rules, to align Canada with the OECD’s BEPS project, is a positive step toward, fostering a fair global tax framework. We wholeheartedly agree with the need for an equitable global tax system. While we commend these efforts, we must draw your attention to how this legislation will inadvertently impact energy affordability for Canadians in various parts of the country and make building projects for a net-zero economy that much harder.
As some regulated utilities across Canada are federally taxable and have some assets outside of Canada, they will be subject to the EIFEL rules while others will not, for example, those that are provincial Crowns. Due to their regulatory structure and the way rates are set, utilities have an obligation to pass tax costs on to customers. Therefore, the utilities impacted by EIFEL will see significant increased costs going to customers from interest on all existing and new debt. These costs are in addition to the already increasing rates needed to support our country’s push to net zero and to maintain reliability in the face of increasing extreme weather events due to climate change.
Mr. Cheliak: We understand that a broad sectoral exemption does run counter at times to the spirit of the legislation, so what we brought forward is a proposed target public-interest exemption for regulated utilities and their holding companies. This approach is consistent with other nations, including the United States, Ireland and the United Kingdom. Such an exemption is appropriate for our industry, as rate-regulated utilities are unique in several respects.
First, it is highly regulated, capital-intensive and must maintain high levels of debt to ensure that the costs of our projects are spread over their long life. Note that utility debt levels are prescribed, not chosen. They are prescribed by a provincial regulator. Approximately 50 to 60% of the capital structure of a utility is debt.
Second, utilities are subject to significant oversight by provincial regulators. Every dollar a regulated utility spends or charges to a customer must go through a transparent and accountable process.
Third, due to the regulatory structure, utilities must pass certain costs to customers directly, including taxes paid, such as those under the proposed EIFEL rules.
Importantly, EIFEL would create a patchwork that will affect Canadians’ energy bills differently across the country based on the taxable status and ownership of their local utility. In some provinces, customers will pay EIFEL-related costs; in others, they will not, or they will pay EIFEL costs on their gas bill but not on their electric bill and vice versa. In the absence of an exemption, EIFEL will create a patchwork of energy affordability winners and losers.
We encourage you to consult our submitted materials for further details on why regulated utilities are unique and merit a targeted exemption from EIFEL. We emphasize that this will ensure fairness and avoid increasing energy bills to Canadians at a time when the cost of living is a major concern. Such an exemption would also be consistent, again, with the OECD countries, the United States, Ireland and the United Kingdom.
Mr. Bradley: Thank you for your time and attention. We’re at your disposal for questions. Also joining us virtually is Derek Smith, who is Vice President of Corporate Tax at Emera Inc., who may be better suited to answer some of your more technical questions. Emera is an Electricity Canada member utility whose customers in Nova Scotia would be negatively impacted by the EIFEL rules if no exemption is permitted.
[Translation]
Thank you, Mr. Chair.
The Chair: Thank you, Mr. Bradley.
[English]
Matthew Holmes, Senior Vice President, Policy and Government Relations, Canadian Chamber of Commerce: It is a pleasure to appear before you again on behalf of 400 chambers of commerce and boards of trade from across the country and more than 200,000 businesses of all sizes from all sectors.
The Canadian Chamber of Commerce’s primary concern this evening is that Canada’s economic competitiveness is slipping, while our productivity has declined in 11 of the 12 last quarters. This means Canadians are poorer overall, have fewer opportunities to pursue their personal goals and have to spend more just to keep up with everyday life. Businesses of all sizes should be viewed by government as critical partners in our collective success which can drive investment and growth and help turn the tide on our productivity challenges.
The committee has already received our formal submission and proposed amendments on Bill C-59. Tonight we will focus our comments on competition policy, investment tax credits and the Digital Services Tax, or DST.
As we raised during your study of Bill C-56, we remain concerned by the ad hoc approach to changes to the Competition Act and would encourage the government to continue to consult with the business community on changes to the act.
In particular, Bill C-59 could overwhelm the Competition Tribunal and businesses with frivolous claims through new private rights of action. The Canadian Chamber’s submission recommends specific safeguards consistent with Canadian class action statutes to ensure claims are evaluated on a consistent basis and the funds are properly distributed to the consumers affected by the conduct rather than to their lawyers.
Recently there has been a lot of talk about structural presumptions in merger reviews. We saw the Competition Bureau file a brief with this committee advocating for its inclusion in Bill C-59 and pointing to the U.S. merger guidelines as inspiration. We are aware of the U.S. Chamber of Commerce’s letter to this committee on the matter and would encourage you to review it carefully, as structural presumptions are not codified in U.S. law and there is no serious legislative attempt in the U.S. Congress to make structural presumptions the law. Competition agencies should continue to comprehensively examine a merger’s likely effects on competition and consumers, including arguments that the merger would benefit consumers.
Moving to input tax credits, or ITCs, overall, the Canadian Chamber applauds new investment tax credits like the CCUS ITC as tools to unlock private sector investment in a low‑carbon economy. In order to maximize the impact of the Clean Technology Manufacturing tax credit and investment tax credit, we recommend that they be refined to include intangible property and mine development investments. Further, we believe the clean technology ITC should be expanded to include life insurers, similar to the Fall Economic Statement inclusion of real estate investment trusts. Life insurers often manage assets on behalf of pension plans; however, because pension plans are non-taxable entities, long-term investors cannot utilize the clean technology ITC, which will hamper long-term investment in the decarbonization of Canada’s economy.
Given the current uncertainty around the permitting environment in Canada, we also recommend extending the timeline for phasing out the Clean Technology Manufacturing TC and clean electricity ITC in order to secure large investments within the Canadian mining, manufacturing and electricity sectors.
Finally, it is imperative that all of the new ITCs are implemented as soon as possible, with clarity on procedure and eligibility, so that the private sector can fuel the next wave of long-term investment in our economy. We need to move faster on these, as other witnesses have testified.
The irony is that just as we’re contemplating ITCs to spur private sector investment, innovation and growth, a range of new business taxes threatens to repel investment, create uncertainty and discourage new players from entering the Canadian marketplace. Specifically, we call on the government to avoid imposing a Digital Services Tax. DST is particularly concerning as it includes a retroactive tax to 2022 on online services Canadians have come to rely on, even though over 120 countries, including the U.S., have agreed to delay imposing such taxes. We strongly object to the concept of tax retroactivity, which robs businesses of the certainty they need to make productive investments in innovation and growth. Secondly, we oppose any measure which will increase the cost for business and Canadians when both are facing challenging economic headwinds. This new tax will affect far more than just large multinational corporations; it will ripple across the Canadian economy. Finally, we must sound the alarm that successive administrations in Washington have signalled that enacting a DST could provoke damaging trade retaliation. We are hearing directly from businesses in many sectors beyond the digital services space that are concerned their products may be impacted by retaliatory trade.
Thank you.
The Chair: Thank you.
Alexander Vronces, Executive Director, Fintechs Canada: Fintechs Canada is an industry association of the most innovative financial technology companies in Canada. Though most Canadians are unfamiliar with the word “fintech,” we shouldn’t mistake the unfamiliarity with a lack of adoption. Collectively, our membership serves millions of Canadians on a daily basis.
Thank you for having us appear to discuss Bill C-59. There’s a part of this bill that’s very important to us, which is why it’s a privilege to be able to share with you our perspective today. We want to see Bill C-59 move forward, because it will broaden access to the Canadian payments system.
Payments Canada is a little-known organization that was created by the federal government in the 1980s. They own and operate the payments system. Every time you swipe a debit card, pay a bill, deposit a cheque or receive your salary, you’re using the Canadian payments system. Last year, the Payments Canada system cleared and settled $112 trillion.
Payments Canada powers the Canadian economy, but it also powers the financial sector. Most fintechs can’t operate in the financial sector if they can’t access the payments system. You need the payments system to disburse a loan, to process a payment or transfer funds between the accounts for your customers.
However, access to the payments system is legally restricted so that only Canada’s biggest banks can access it. Everyone else accesses the payments system through them. This leaves the competition in an untenable position. They have to do business with their competitors in order to compete with them. As a government task force convened to study the payments system wrote a decade ago, the Canadian payments system is controlled by Canada’s major banks, and their interests are best served by keeping at bay new entrants to the system, the very entrants who would bring the innovations that Canadians need.
Bill C-59 is only one part of the solution. When passed, it will let new entrants regulated by the Bank of Canada directly access the payments system without needing to go through their competitors, but for Canadians to benefit, we also need a payments system for them to access.
Since 2016, Payments Canada has been trying to modernize the Canadian payments system to move money faster and catch up with the rest of the world. This would also be the system that the new entrants are able to access. According to the World Bank, Canada is one of the few countries in the world that does not have a fast and modern payments system. Canadians are still waiting.
We need to move forward with Bill C-59, but we also need to modernize the payments system. The other countries that have done this are enjoying benefits that we aren’t — lower fees for consumers and businesses sending money within borders and across them, better management of financial risks that could materialize and destabilize the banking system, a reduction in NSF fees, growth in GDP by more quickly getting money into the hands of businesses that invest it and grow the economy, and real-time access to earned wages, reducing reliance on predatory loans.
Our financial sector infrastructure, the laws and the actual technology we use to move money, was developed before the Internet came of age. As one of our members once said, it’s like we’re stuck on dial-up in a broadband world. We’re glad to see the change starting to happen, but we must finish the job. That means implementing what’s in Bill C-59 and modernizing the payments system that powers the Canadian economy.
Thank you again for having us here today.
The Chair: Thank you.
[Translation]
Eric Gagnon, Vice President of Corporate and Regulatory Affairs, Imperial Tobacco Canada Ltd: Good evening. My name is Eric Gagnon. I’m the vice president of Corporate and Regulatory Affairs at Imperial Tobacco Canada. I’ll be speaking in English, but I’ll gladly answer your questions in French, of course.
[English]
I’m pleased to address Bill C-59 and the proposed cost recovery fee for tobacco and vaping control measures. However, I cannot do that before highlighting that Canada is one of the most regulated markets in the world when it comes to tobacco products. Yet, despite being at an all-time low, smoking rates in Canada are not lower than countries like the United States, where tobacco measures are much less stringent.
This brings into question the effectiveness of Canada’s tobacco control strategy, which is driven by anti-tobacco health groups. While these groups travel the world patting themselves on the back and pointing to Canada as a leader in tobacco control, they always forget to mention that one third of the Canadian tobacco market does not respect any of the current regulations, such as health warnings, taxes or proof of age. One would think that cheap, illegal and unregulated cigarettes available to children would be a top concern of these health groups, but instead, we’re here talking about a new fee for the legal tobacco industry.
It is important to remind you that the federal government is already collecting more than $3 billion annually in tobacco taxes, which is more than enough to pay for the $66 million currently spent on tobacco control. Addressing illicit tobacco could generate enough revenue to fund Canada’s tobacco strategy an additional 40 times over.
Governments across Canada continue to impose additional measures on the legal tobacco industry, and now the same is happening with vaping products. While we support measures to address youth vaping, similar problems are emerging. Often, these new regulations look good on paper but do very little to keep products out of the hands of youth. In fact, they do the opposite, and the latest example is Quebec, where a recent flavour ban on vaping products has seen 50% of the market become illegal overnight.
The federal government cannot seriously request additional money from the legal industry before addressing the illegal tobacco and vaping problem. Legal companies are already paying a high price for the government’s lack of enforcement of the current regulations, and it is unacceptable to request a blank cheque without a commitment that these issues will be addressed.
Before any cost recovery fee can be imposed on the legal industry, Imperial Tobacco Canada proposes the following:
First, the national rate for illegal tobacco is at 32%, and that has to be accounted for if the cost recovery fee is imposed. The legal industry must not be forced to cover all the costs when one third of the market is illegal. Any surtax on the industry must take this situation into consideration, otherwise the design and administration of the recovery fee raises fundamental equality concerns.
Second, when it comes to vaping, there are hundreds of companies in Canada, and this needs to be taken into consideration when determining how to proceed with the cost recovery fee.
Third, the thriving black market remains today’s biggest issue when it comes to tobacco and vaping. Any recovery fee needs to take this into consideration and ensure that sufficient funds are directed towards enforcing current regulations.
Finally, launch a committee study to draw attention to what is Canada’s most lucrative organized crime activity. Your committee would be an excellent venue for that.
In conclusion, the government — and public health groups — need to decide if they want a legal, regulated and taxed tobacco industry, or an illegal, unregulated and untaxed free-for-all. In saying that, I must note the contrast with cannabis, where eliminating the illegal market and promoting a legal industry is a government priority — and there is even a minister leading a working group to promote that industry. With tobacco, the goal seems to be to bankrupt the legal industry and turn the market over to organized crime. Someone in the government needs to explain why that is the case, and public health groups need to explain their silence on this issue.
[Translation]
Thank you for listening. I look forward to answering your questions.
[English]
The Chair: Thank you.
Brendan Frank, Director of Policy and Strategy, Clean Prosperity: Good evening, Mr. Chair and senators. I am here to urge the swift passage and implementation of the investment tax credit for carbon capture, utilization and storage, or CCUS, found in Bill C-59.
Clean Prosperity is a national Canadian climate policy organization. We focus on market-based policies to reduce Canada’s greenhouse gas emissions and ensure that Canada seizes an outsized share of a generational opportunity — the low-carbon economy. We are independent, non-partisan and non-profit.
I wish to make two key points this evening. First, the finalization and implementation of the investment tax credit, or ITC, for CCUS, direct air capture and related infrastructure contained in Bill C-59 is an urgent matter. Second, the implementation of this ITC is the start of a long journey towards securing Canadian competitiveness in the fast-emerging low‑carbon economy.
To begin, CCUS is crucial to Canada’s short-term climate targets. It is crucial for seeding industries that we will ultimately need to reach net-zero greenhouse gas emissions by 2050, and it is crucial for ensuring that Canada takes the right near-term steps to seize that outsized share of the low-carbon economy.
Here, I stress that carbon capture is not a single technology. It is a suite of technologies, with applications across heavy industrial sectors ranging from oil and gas production, to electricity, to steel and cement manufacturing, to petrochemicals and fertilizers. Building a robust CCUS sector in Canada will also create positive spillovers for other nascent sectors that Canada will need to ultimately achieve net-zero greenhouse gas emissions, most notably, carbon dioxide removal.
In 2024, heavy industry accounts for over one third of Canada’s emissions. We can’t reach our 2030 targets without heavy industry, and heavy industry cannot do its fair share without CCUS, certainly not in time for 2030. Our analysis shows that this ITC will be a key component of the capital stack for a range of low-carbon projects.
This ITC has also become a bellwether for low-carbon investors. Canada has five major ITCs in various stages of development, and the CCUS ITC was announced first and is furthest along in the implementation process. It has already experienced multiple delays, contributing to an increasingly uncertain investment environment.
This pressure is particularly acute in the wake of the U.S. Inflation Reduction Act, which became law almost 18 months ago. Our analysis has further shown that the CCUS ITC is a crucial component of a competitive response to the U.S. Inflation Reduction Act. Whether it is policy implementation, or actually putting steel and concrete in the ground, Canada is behind and falling further behind.
Delays to the ITCs are already having material, real-world impacts and delaying shovel-ready projects, but the slow implementation of the CCUS ITC and other climate policies have also served as a broader signal, a symbol of Canada’s struggles to execute on its climate policy commitments. Reversing this can start with the implementation of Bill C-59, but it certainly does not end there.
My second point is that CCUS is necessary but insufficient. Canada’s big five ITCs are a sensible response to the Inflation Reduction Act, but they are only part of the response. The CCUS ITC in particular carries significant risk if it is not operationalized in the presence of stringent and robust carbon markets. Modelling we have commissioned with Navius Research shows that the ITCs deliver limited economic and environmental benefits on their own. They must be paired with commitments to greater stringency in industrial carbon markets and a broad-based program of carbon contracts for difference. Without robust carbon markets, the CCUS ITC will not deliver its economic or emission reduction potential.
The worst possible outcome would be to construct these massive infrastructure projects, only for them to sit idle. Weak carbon markets would ensure that perverse outcome. To that end, we reiterate our call for greater stringency across all provincial carbon markets and an expansion of the federal program of carbon contracts for difference. I am happy to expand on this point if you have questions about carbon contracts for difference in particular, but, in short, they can enhance the durability of carbon markets and provide the long-term, structural incentives needed to ensure that the CCUS ITC does not create stranded assets.
I thank you for your time, and I look forward to your questions.
The Chair: Thank you, Mr. Frank.
Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society: We appreciate the opportunity to testify.
In summary, our recommendations are three: To urge senators to support clauses 217 and 218 in the bill with respect to the cost recovery fee; we have a recommended strengthening amendment; and third, to urge senators to support clauses 145 to 167 with respect to vaping tax administration and enforcement provisions.
With respect to the cost recovery fee, it would provide enabling authority for regulations to require tobacco companies and vaping companies to reimburse the federal government for the $66 million annual cost of the federal tobacco control strategy. It shouldn’t be all Canadians who are paying for this strategy to reduce smoking, and now in particular youth vaping. It should be the tobacco industry, with the principle of accountability, the principle of the polluter pays. The tobacco industry has caused the epidemic. They would be responsible for these costs of trying to reduce tobacco use. The vaping industry has benefited significantly financially to high rates of youth vaping, and many of those teenagers are now adults. They may be addicted to nicotine. Even if they want to quit, they may be lifetime customers. It should be noted that the tobacco companies are major players in the tobacco industry and the vaping industry as well.
The cost recovery fee has a long history. In the 2021 federal election, it was in the platforms of the Liberal Party, the Conservative Party and the NDP. It was in the mandate letter of the Minister of Health. In 2021, the House of Commons Standing Committee on Health recommended it. In the United States, it has been in place since 2009, administered by the Food and Drug Administration. They have $712 million a year that they require the tobacco companies to reimburse on the basis of market share, more than $900 million Canadian. If the U.S. can have a cost recovery fee, surely we can have the same thing in Canada for the tobacco industry. Here in Canada we have had a cost recovery fee on the cannabis industry in place since 2018. If we can do it for cannabis companies, we can do it for tobacco and vaping companies.
The tobacco industry, on average over a nine-and-a-half-year period, increased their own prices, not including tax, by $30.40 a carton. They increased their own prices by 180% in a period of time when cumulative inflation was just 28%. As a result, they have incremental revenues of $2 billion a year or more. Can they afford $66 million a year to pay to the federal government? Yes, they can. They often raise contraband as an issue but don’t have credibility with respect to contraband. Imperial Tobacco and two other major companies were convicted of contraband and had to pay fines and civil amounts of $1.7 billion. They themselves have been increasing their prices dramatically.
For the amendment, to help with the application of the cost recovery fee, we urge that it be required that the companies pay upfront, and unless they pay their fee, they can’t sell the product. That’s the way the excise tax works. The government shouldn’t have to be chasing after companies.
With respect to the vaping tax administration enforcement, that’s important to ensure that the vaping product tax works well. We know that youth are responsive to higher prices. We have a tremendous problem with youth vaping. I want to highlight that this is a category of product of disposable e-cigarettes popular with youth and has really taken off in Canada in the last couple years.
There are increasing numbers of puffs for each of these e‑cigarettes. I’m going to show you Imperial Tobacco products. This is 500 puffs introduced in 2022. This is 1,500 puffs, this 5,000 puffs, and now they’ve introduced 8,000 puffs. The thing is that the cost per puff goes down. It was 2.2 cents per puff, and then 1.3 cents per puff, 0.6 cents per puff, and 8000 at 0.37 cents per puff, and finally we have other companies that have 10,000 puffs, 0.3 cents. The cost per week per month goes down. This 10,000-puff product is only 14% of what was just introduced in 2022.
Having an effective tax is important to reduce vaping. We’ve seen Imperial Tobacco actually encourage an increase in the tax rate.
Those are our submissions to the committee. We welcome any questions you may have.
The Chair: Thank you, sir.
Honourable senators, questions will be, first round, five minutes each.
[Translation]
If time permits during the second round, it will be three minutes.
[English]
With the number of witnesses that we have, please identify the witness to whom you wish to address the question.
Senator Marshall: I want to talk about energy affordability. My question is on the Excessive Interest and Financing Expenses Limitation rule. My question is for Mr. Bradley, Mr. Cheliak, and I think there’s a Mr. Smith from Emera.
Can you explain to us how and why customers are going to be impacted by these amendments? There’s a misconception out there that the additional taxes are going to be absorbed by the utilities or absorbed by the shareholders. In one of your opening remarks, you mentioned that the increase in the tax costs has to be transferred to the customer, which is going to make a difference. Customers are individual families, I take it, and companies. Can you clarify that point? And then I have some more questions.
Mr. Bradley: Mr. Chair, I thank the member for a very important question.
This is an affordability question for electricity customers ultimately. The way the regulatory compact works is, in return for the franchise to serve those customers, there are specific classes of costs that are deemed to be recoverable, and that includes these types of costs. This is not a matter of choice that a company would make as to whether or not they include this in their recoverable costs. This is a class of costs that goes into the rate base specifically. As we noted earlier, not only is it an affordability issue as a result of that, it’s also a patchwork. It would apply in some jurisdictions but not in other jurisdictions.
Senator Marshall: So all of the taxes have to be transferred to the customers.
I think everybody serves different customers. Can you give us some indication as to how many customers will face an increased electricity bill, and can you quantify the dollar impact on customers? Can you give us some idea about that?
Mr. Bradley: Certainly. This will apply to customers in specific jurisdictions, and we included in our materials an indication of what that looks like from province to province.
Senator Marshall: Can you give us an example? I mean, are you talking about 50 cents on the average bill or $20 on the average bill?
Mr. Bradley: We have our colleague from Emera in Halifax who can speak specifically to the experience of Nova Scotia.
Derek Smith, Vice President, Corporate Tax, Emera Inc., Electricity Canada member, Electricity Canada: Specifically, if we look to our regulated utility in Nova Scotia — Nova Scotia Power — we’re anticipating an increase in tax expense over the next three years of somewhere around $50 million that will be charged back to customers. That will be spread out through a rate-based group of about 500,000 customers.
Senator Marshall: Can you give us an idea as to what the average increase would be? I’m trying to get a handle on whether we are talking about 50 cents or $20. Can you give us some idea as to the range of the impact?
Mr. Smith: The basic math over three years is about $100 per customer.
Senator Marshall: Over a three-year period?
Mr. Smith: Yes.
Senator Marshall: So that’s an average of $30 per year.
I saw in one of the briefing papers we received that it’s going to impact the maintenance of the electric grid. I didn’t understand that, because if the taxes are going to be charged back to the customers, how is it going to impact the maintenance of the electric grid? Can anybody explain that to me, or did I misunderstand what I read?
Mr. Cheliak: It’s the same principle on the natural gas side. When you go to a regulator to get your rates approved, there is a certain tolerance and threshold, if you will, for how much rates should go up. If you’re taking money that otherwise would be put back into your company to build, maintain and enhance your assets, and instead that money is going to the federal treasury, that takes away from the pool of capital that you have to run your business, whether that’s replacing pipelines or wires, building the next generation emission reduction project or otherwise. It’s a pool of capital that, if it’s going into taxes, it’s not going into the company.
Senator Marshall: So if that’s — is my time up?
The Chair: Yes. You can go to second round. If the question has not been well answered, we can ask them to come back to us in writing.
[Translation]
Senator Forest: I would like to pick up on my colleague Senator Marshall’s question. I gather that the United States, the United Kingdom and Ireland chose to apply this regulated utility exemption to their holding companies. The Canadian government usually copies the tax policies of its principal partners. In your opinion, why didn’t it do so in this case?
[English]
Mr. Bradley: Mr. Chair, that’s an excellent question. I wish I had the answer. I have been asking that question of officials at the Department of Finance.
It seems logical to us that we would follow the lead and treat this in the same manner as our principal trading partners, but we do not in this matter. I cannot answer why. We would much prefer if it were the case that we treated it in the same way as the United States, the United Kingdom and Ireland.
[Translation]
Senator Forest: Does the impact of these changes on the price of energy, estimated at around $100 over three years in Halifax, seem like a logical order of magnitude for both Quebec and British Columbia?
[English]
Mr. Bradley: Once again, this will roll out very differently depending on what jurisdiction you’re in, whether on the electricity side or whether it’s an investment in your own company versus a Crown corporation, depending on whether or not it applies. The example we were given was with respect specifically to electricity in Nova Scotia. It will apply more broadly to the natural gas sector and natural gas in more jurisdictions than it will for electricity.
Paul, maybe you want to comment on what this looks like in the natural gas.
Mr. Cheliak: Thanks, Francis.
On the natural gas side, for all but two of the distribution companies in Canada, this would apply to them. The two it would not are Manitoba Hydro, which is a joint electric and natural gas company, and SaskEnergy, which is a natural gas distribution company in Saskatchewan. Otherwise, each individual utility would be subject to this.
Further to the point, there are large pipelines that deliver energy to the smaller utilities. Those large pipelines are also subject to Excessive Interest and Financing Expenses Limitation, or EIFEL. Their arrangement is such that their interests costs make their way into rates that then make it into ours, and ours get passed on to consumers. There is a cascading effect from the large pipes to the smaller pipes to the end consumer.
[Translation]
Senator Forest: I have a question for Mr. Holmes regarding Bill C-59, which implements the digital products tax. This tax was announced in 2020. The legislation specifies that it will come into effect retroactively as of January 2022. You’re criticizing the retroactive aspect of this tax. Why did the government make this decision if we don’t know when the tax will be implemented?
[English]
Mr. Holmes: Thank you for the question, senator.
We don’t know exactly why the government is choosing to move ahead with this so aggressively at this time. There is a broad, multi-jurisdictional approach to the digital economy and the Digital Services Tax in particular. Close to 130 countries have agreed to pursue this through the Organisation for Economic Co-operation and Development, or OECD, with a Pillar One approach. That is currently under way. We have repeatedly called on the government to participate in that multilateral approach, which they are, and yet they are still moving with a singular piece of legislation. This has been raised by senior officials within the current administration and within other potential future administrations. Our current ambassador to the U.S. has also expressed his concern regarding Canada moving forward with this.
We feel that a digital services tax will affect not only large multinational companies here in the digital economy in Canada but will also hit everyday consumers. We saw this introduced in other countries. It was seen as discriminatory and a trade disruption by the U.S. administration. We also saw the impact directly on consumers, raising the prices of digital services across the board, raising the prices for everything like travel — people who are booking online travel with very low margins.
The other issue about this tax, of course, is that it’s not an income tax or a corporate tax. It’s actually on the sales themselves, and so it is regressive in its nature as well.
[Translation]
Senator Gignac: I want to welcome the witnesses once again. I’ll follow up with Mr. Holmes. I’m concerned about the retroactive aspect. Many Canadians use Booking and Expedia. Could we end up in a situation similar to what happened with another bill, where consequences ensued and people couldn’t get the news on their social media? Could this mean that Expedia and Booking might no longer be available to Canadians if they refuse to pay retroactively? We’re small for these companies. You said that this isn’t in line with the Canada—United States—Mexico Agreement. Could you elaborate on this, please?
[English]
Mr. Holmes: Thank you once again.
I can’t speak to the business decisions that individual member companies may make on this. I know it is highly concerning to multiple companies, particularly the retroactivity of it. We would at a very minimum advise that the retroactive element be cancelled from this all together. We think it’s egregious for the government to go back in time and create a tax that did not exist when that business was conducted and to apply it retroactively. By the time this is put into place, we’re looking at two to three years. Just the administrative burden and compliance burdens alone on companies to go back and evaluate what they owe retroactively to the government is absurd and costly, and it will absolutely chill business investment in this country.
Senator Gignac: [Technical difficulties].
Mr. Holmes: Absolutely.
Senator Gignac: And you propose we amend that retroactive part?
Mr. Holmes: Quite so, as we submitted.
Senator Gignac: I am shifting topics and going to Mr. Frank.
Since you’re here and since this is complicated, I want to understand carbon contracts for difference and the $7 billion and $17 billion managed by the Canada Growth Fund Inc. Could you explain in plain English what it is exactly? What happens if, two or three years from now, we have a game changer in Canada like a new government that scraps the carbon tax? What happens to all the money we have spent on that?
Mr. Frank: Taking those in turn, first, a carbon contract for difference is essentially an agreement between two parties that guarantees the price of carbon at a certain fixed value for a specific period of time. The first deal that the Canada Growth Fund signed with Entropy in December agrees on a strike price of $86.50. That guarantee has enabled the final investment decision for a specific project in Alberta.
We are envisioning a broad program where this type of contract is available off the shelf to any emitter who meets specific up-front criteria. This would systematically enhance the confidence in carbon markets if it is paired with greater stringency in this market. Basically, if the government follows through on its commitments to increase stringency, then the contracts present minimal fiscal risk to the government.
Senator Gignac: The risk shifts from the private sector to the public sector because, basically, the companies see this as a zone of comfort for them to have that. What happens with the uncertainty, I will say, regarding the possibility that the carbon tax will be scrapped? They no longer have a necessity for that? Do you already see some impact right now on the uncertainty regarding a government shift on that? I am curious to understand if we will lose a lot of money on that program if we have any change.
Mr. Frank: If the retail price were to be repealed, there would be no impact on industrial carbon markets. These are provincially run programs. It is important here to distinguish between the retail carbon price and the industrial carbon price. The industrial systems are run by the provinces.
Senator Gignac: But somebody will have a loss, will they not?
Mr. Frank: If the market is increasingly stringent over time, then, no, there is no loss.
Senator Gignac: So the Canada Growth Fund will not lose any money with that?
Mr. Frank: Well, they’re assigning contracts that they —
Senator Gignac: Okay.
Just to finalize quickly, Mr. Thurlow, on your side, is it important to have a carbon tax? Does that not change your investment and your planning? Does it create some uncertainty for your company and your business, or not really?
Mr. Thurlow: When the plan was first announced in 2021, a condition precedent to the economics of the plan was the carbon market on the industrial side. Under the Greenhouse Gas Pollution Pricing Act, provinces, as pointed out by my colleague, run a system which is deemed to be equivalent. In the event that the market changes at some point in the future because of a change that you just discussed, the Alberta TIER system, or Technology Innovation and Emissions Reduction system, which is the one that we are operating on right now, would continue to exist.
Senator Gignac: Thank you.
Senator Smith: Mr. Bester, it appears that you’re in support of the changes to the Competition Act included in this bill. You note in your submission that our competition laws treat the Competition Bureau Canada as a private litigant, meaning that, in some cases, it can be held responsible for portions of defendants’ legal fees. You believe this discourages the bureau from bringing forward cases against potential bad actors. Could you elaborate further, please, on the removal of the cost awards against the bureau and why you believe this will have a positive impact on competition?
Mr. Bester: Thank you for the question.
I need to point out that the Competition Bureau is an organization of the government that works in the public interest, brings cases in the public interest, is still treated as a private litigant and is subject to cost awards. Most recently, in the Rogers-Shaw merger, if I am getting the figures right, the bureau was ordered to pay $13 million or so of Rogers’ legal fees.
Our concern with that approach is that it not only ignores the public interest mandate of the Competition Bureau but effectively it disincentivizes the bureau from taking on more well-resourced opponents who have the ability to spend. If you look at the case of Rogers-Shaw, the parties involved spent above the bureau’s entire annual budget fighting that case. The cost awards function will push the bureau to be more reluctant to take cases against some of the largest corporations and instead be more likely to bring cases against smaller players that do not have the same legal resources.
Senator Smith: Your suggestion would be exactly what to address this particular issue as you see it?
Mr. Bester: Bill C-59 narrows the window for cost awards. We think that window should be closed entirely, recognizing the bureau’s public interest mandate and the fact that the decision to pursue a case is, itself, quite important and one not taken lightly. We believe that is an effective disincentive to so-called frivolous cases without disincentivizing cases against some of the largest corporations in Canada and in the world.
Senator Smith: Do you think that opponents of the change would argue that there is a reasonable legitimate circumstance where the bureau can get it wrong but defendants pay the price without any recourse on the commissioner? How would you respond to the concern that it gives the commissioner more power without really any disciplinary repercussions?
Mr. Bester: The thing to keep in mind is that the decision to embark on a case, even without a cost award, is a resource-intensive one and one not taken lightly by the commissioner. The public doesn’t know, for example, how many resources were dedicated to the Rogers-Shaw case, but, again, the concept of a meritless case ignores the reality of the resources and the seriousness of bringing any of these cases at all.
Senator Smith: Thank you, sir.
Senator Loffreda: Thank you all for being here this evening. You’ve got a large and great team.
My question is for Mr. Bester once again. Canada would benefit from increased competition across various industries. We agree on that. We do have productivity challenges. You did share concerns with respect to the Competition Act and the scrutiny of reviewing mergers in already concentrated markets. I have a few questions that maybe you can answer in the first or the second round if we don’t get to it.
I would like you, first and foremost, to elaborate on key elements or changes that you feel are missing to the Competition Act from Bill C-56 and Bill C-59.
I would also like you to elaborate on the relaxed scrutiny in our merger and acquisition evaluations, the result of NAFTA and now CUSMA aiming to foster growth, expansion or consolidation for Canadian businesses to effectively compete with larger U.S. counterparts. Is that one of the main reasons? Is this leniency, if so, still warranted? To what degree does the scarcity of competition in Canada increase or contribute to our productivity challenges? Are mergers the primary factor driving the current lack of competition in Canada? Are there other factors that you feel should be addressed?
Last but not least, what is the extent of concentrated markets in Canada? Maybe you can elaborate and share your thoughts on that and define a concentrated market. Some of the mergers and acquisitions that we’ve seen were having difficulty defining a concentrated market. T
Mr. Bester: Thank you so much for the excellent list of questions. I’ll work my way down.
For the trade agreements piece, the Competition Act in 1986 introduced ideas from the 1960s and 1970s — similar to what you were saying — the idea that if we allowed companies in Canada to merge, that they would then be able to compete globally. We would trade off a lack of competition at home in exchange for these national or international players. This was a big piece of the rationale behind the efficiency defence, which Bill C-56 removed.
What we found in the intervening period is that the firms that made use of that defence, that line of reasoning, were primarily domestic and not participating in international markets. I think what the past 40 years have given us is a lesson on if we sacrifice competition at home, we can’t expect those players to then look elsewhere when they have a fine market where they’re not challenged at home. I think that piece has really been tested, and I think it is — to the second question — a part of the productivity puzzle.
What haven’t we tried? We’ve tried a number of different policy methods over the years, but what we have the opportunity to do now is really focus on competition and see if that’s the missing piece of the puzzle, as countries like Australia in the 1990s did. That’s beyond just straight competition policy, but it is fundamentally about competition.
Mergers and the extent of concentration in Canada and how we measure concentration, that’s a good question. There are a lot of different answers to it. We can use the number of players, the size of players, the presence of profit margins, but market share is a proxy and a useful indicator for that. When we think about the extent of concentration in Canada, this is one where, for years and for decades, we tend to have more concentrated markets in grocery and telecommunications. A number of markets, on average, in Canada are more concentrated than peers’. If that’s the case, whether through mergers or through the natural evolution of markets, we need to take that competition and the power of those companies, I would say, even more seriously, given that high concentration. Again, I’m using a term of art, but the number of players, the diversity of players and the relative size of them, these are all measures of concentration.
Senator Loffreda: But is it the primary factor? Would you say that our mergers and acquisitions and the fact we didn’t show enough rigour on that, is that the primary factor for the lack of competition?
Mr. Bester: It is a factor. Is it the primary factor? It could be the primary factor in certain markets. If we look at something like the grocery market that has received a lot of attention over the past year, in the 1980s, we had eight major players. We’re down to five. There were a number of consolidation steps as part of that process. When we look at markets 10, 20 or 30 years ago that had more players and are now reduced, part of our laxness on mergers has to be a part of that story.
Senator Loffreda: Thank you.
Senator MacAdam: Mr. Cunningham, Bill C-59 aims to amend the Tobacco and Vaping Products Act to, among other things, authorize the making of regulations respecting fees or charges to be paid by tobacco and vaping product manufacturers for the purpose of recovering costs incurred by the government in relation to the carrying out of the act and provide for related administration and enforcement, et cetera. Other than these cost-recovery provisions, are there other changes that the Canadian Cancer Society would have liked to have seen in this bill related to the promotion, cessation and/or the pricing of tobacco and vaping products?
Mr. Cunningham: Thank you for your question, senator. We support a comprehensive tobacco control strategy that includes taxation, legislation and programs.
Yes, maybe it’s not in the Fall Economic Statement, but what could the government do more? There could be a tobacco tax increase. There could be a minimum age of 21 for tobacco and e‑cigarettes, like the United States has done, and like P.E.I. has already done. There could be a ban on all remaining promotion. We don’t see it as much, but there are very considerable expenditures, such as, for example, tobacco companies paying retailers incentives if they sell more product or if they order more product, or discounts for certain stores. These types of incentives shouldn’t be happening. We could invest more with respect to cessation programs. We still do not have a ban on all flavoured tobacco products. We do ban menthol. We ban flavours in cigarettes. Some provinces and territories have banned flavours in all tobacco products. We could do that federally. Those are some examples, among others.
Senator MacAdam: Thank you.
I have a question to Imperial Tobacco Canada Ltd. You mentioned in your introductory comments that you have some measures to control youth vaping. I’m wondering if you could elaborate on what those measures are.
Mr. Gagnon: Of course.
First of all, in the provinces that we sell online, because there are some provinces where we are allowed to do that, we have a triple age verification. When you get on the website, you need to declare you’re an adult. If you order, you need to have another demonstration that you’re an adult by a third-party verification, and at point of sale, there is a verification that you’re an adult.
In our terms and conditions with every retailer, we have training. We make sure that they don’t sell to youth. If one store gets caught selling to youth, we will remove all of our nicotine products. I can tell you that a convenience store that doesn’t sell cigarettes, vaping products or nicotine products will close their doors very quickly. There are a number of things that are being done.
The funny thing here is that we’re fully aligned with a lot of what Mr. Cunningham and his association are saying. The one thing that we don’t agree with is the enforcement part. The Canadian Cancer Society doesn’t want to recognize that when regulation hits, there is a portion of the market that goes illegal. That’s not us. That is not Imperial Tobacco.
We are a tobacco company, and it’s easy to hit on us. Quebec is a perfect example. We’ve been providing the Minister of Health in Quebec the list of all the vape shops that are selling illegal products. We go in the stores. We make the list. We give it to them, and they don’t enforce. Yet the minister goes on Tout le monde en parle and accuses the tobacco companies. At one point, we have to stop blaming us for everything.
There is a lot that we do, and I am more than happy to sit down with Mr. Cunningham and the Canadian Cancer Society, because we don’t want kids to vape and smoke. I can tell you that my job is a little more complicated when kids have access to nicotine products.
Senator MacAdam: Thank you.
Senator Kingston: My questions are for Electricity Canada, so that would be, I guess, Mr. Bradley and Mr. Cheliak.
You talked about Nova Scotia and Emera. New Brunswick also has a public utility. Could you describe the impact to New Brunswick, both on the consumer and, as well, you talked about assets and so on that would be affected because of the capital being chewed into, if I can use those words? Could you just describe what the impact would be on New Brunswick and the public utility there?
Mr. Bradley: Sure. From an electricity perspective, there would not be an impact, because it is a Crown corporation, and so the EIFEL rules would not apply to the principal electricity companies in New Brunswick, neither to NB Power nor to the City of Saint John. With respect to natural gas?
Mr. Cheliak: The gas utility is small in New Brunswick. It’s still an emerging company in that province, but they would be. Liberty, which is owned by Algonquin Power & Utilities Corp., operates assets in the United States and in Canada. It wouldn’t be subject then; it’s a privately held company. I don’t have those numbers. I hazard to use any other jurisdiction as a proxy, but why don’t we put a note to file, and I can follow up with you, senator.
Senator Kingston: Could that be done, Mr. Chair?
My next question is for Mr. Vronces and Mr. Gagnon. In your briefing, you talked about the fact that you feel that vaping products actually decrease the amount of tobacco smoked, and I’d like to know if you have any evidence to back that up. I’m thinking particularly in the case of youth, because my understanding has always been that youth like vaping — they prefer it to smoking — and then there is the flavoured — I see one right in front of me here — berry blend, and there is also bubble gum and all sorts of other things. I’m wondering how you are able to say that vaping is decreasing the actual smoking of tobacco.
Mr. Gagnon: There are a couple of things here.
Vaping is a less harmful alternative to smoking. Public Health England, the equivalent of Health Canada, says that vaping is 95% less harmful than smoking. Health Canada on their website suggests that, if you’re a smoker, you’re better off vaping. The evidence is there. I think even Mr. Cunningham would agree it is a less harmful product than smoking if you’re a smoker.
Today’s smoking incidence in Canada for youth is at an all‑time low. It is almost non-existent. There are no more kids who smoke, which is a good thing. There is a problem with youth vaping. We need to recognize that.
Are there too many flavours on the market? Obviously. We don’t need all these flavours. What Mr. Cunningham forgot to say, though, is that there was a youth vaping crisis in Canada before Imperial Tobacco Canada was in the market. Before May of 2018, 100% of the market was illegal. We are the ones who advocated for the market to be legalized. There were products and vape shops left and right. Kids could buy these products. Nothing was regulated. We advocated for this market to be regulated.
So is it a less harmful product than smoking? Certainly, it is. Mr. Cunningham said I’m not credible. I work for a tobacco company. I can live with that. Don’t believe me. Listen to the data and the science. There are many credible health groups out there who are saying that if you’re a smoker, you’re better off vaping.
But there needs to be better regulation. First of all, there needs to be better enforcement. A lot of these products on the market right now are illegal. They don’t comply with any of the current regulations in terms of flavours, nomenclature, excise, whatever it is. This needs to be addressed. That’s not Imperial Tobacco’s fault.
Senator Kingston: Do I have time for another question?
The Chair: The last question you asked, senator, did you mention it was directed to Mr. Cunningham also?
Senator Kingston: I have a follow-up for Mr. Cunningham.
The Chair: Yes, you have another question.
Senator Kingston: Thank you.
Mr. Cunningham, the harms of vaping, if you will, are emerging in terms of evidence. Could you talk to me a bit about that?
Mr. Cunningham: Clearly, vaping is addictive. There is emerging evidence with respect, in particular, to respiratory and cardiovascular conditions. It is addictive. If you add up vaping and cigarette smoking, the total nicotine use by youth is way up. It’s an entry point for new youth. Are e-cigarettes less harmful? If you completely switch, yes. But there are significant harms. Many people have dual use. Health Canada says it’s not established if you continue to smoke and vape.
The Chair: Mr. Cunningham, if you want to pursue your answer in writing, we would appreciate that through the clerk, please.
Senator Ross: My question is for Mr. Holmes.
When Mr. Greene was here speaking to us from the government, the senior executive adviser of the Tax Policy Branch, I brought your concerns about the retroactivity of the proposed Digital Services Tax to his attention. I’m going to read to you his answer to my question. He said:
It does have retrospective application, but businesses have known what the rules would be, and they’ve known that this would be the result. In that sense, it’s not retroactive. I don’t think anyone can claim that they are surprised.
I’m interested in your comments on that response to raising your concerns with the senior executive adviser of the Tax Policy Branch.
Mr. Holmes: I think, on first principle, it’s not a tax and it doesn’t exist until it’s been promulgated, so the government has provided its intent to introduce a tax that would be retroactive in nature. It’s used that as a method of, I suppose, keeping pressure on other partners around a multilateral table when most other countries are, in good faith, continuing to negotiate at a multilateral level. The intent of that is to have a coherent and consistent approach across the world to deal with this in a reasonable way that creates a level playing field for business to conduct digital business across the world. If we all break rank and do this individually, unilaterally and retroactively, it will create absolute chaos and will introduce tariff structures and retaliatory tariffs across many jurisdictions.
Senator Ross: A quick follow-up: What is your sense as to why they’re considering doing it in this manner?
Mr. Holmes: I can’t speak to that in terms of the intent behind it. What’s clear to us, though, is that it’s raised serious concerns. At a time that the government is signalling that it wishes to embark on a goodwill tour of the United States and ensure our most significant trading partner takes us seriously, at the same time we are waving a bit of a red flag in front of them. It seems counterproductive, to say the least.
Senator Ross: Thanks very much.
Senator Pate: Thank you to all of you for being here.
My question is for Mr. Vronces. In your submission for the 2024 pre-budget consultations, you stated:
Because Canadians don’t have a way to securely and conveniently share their financial information, the federal government should introduce consumer-driven banking legislation in the 2024 budget as it committed to do in the 2023 Fall Economic Statement. The legislative framework should be consistent with the policy statement on consumer-driven banking the government released late last year.
We’ve heard repeatedly at this committee that people in need keep missing out on government resources or on income supports for which they are eligible. Many of those who miss out do not have easy access to things like bank accounts, direct deposit or the ability even to cash a cheque outside of horrific, usurious loans. Do you have any observations you could share about, one, how open banking might assist marginalized people, including people who are impoverished or homeless, who face systemic barriers to accessing conventional banking services; and, also, ways that it might assist governments in ensuring benefits reach marginalized people?
Mr. Vronces: I will take the questions in turn.
I will start by saying that consumer-driven banking is no panacea. It’s not going to deliver financial services to just about everybody.
I should also probably start by saying Canada’s population is relatively banked, but there is a significant underbanked population. There are people who are not getting the services they need or want from their financial institutions. There also are people, as a CBC investigation recently uncovered, being taken advantage of by their primary financial institutions. Open banking would help a bunch of providers help Canadians at the margins.
A few good examples I’d like to provide are Canadians who maybe can’t afford a home. Maybe they are a new Canadian with a thin credit file, and a bank won’t lend them money. Maybe they are a student who is just building their credit history. There are apps out there with which you can share your financial information to, for example, report your rent payments to a credit bureau to help build your credit store. Before a Fintechs member of ours did that, Borrowell, no one in Canada was doing that to help Canadians who are in greater need of assistance.
Another segment of the population that is very badly neglected by Canada’s banks is the small business community. As someone who runs a small business myself, I can attest to that. One of our members has good data on what’s challenging small businesses today, and it’s really a lack of access to their cash and the slow movement of money. It’s forcing them to take out loans and incur debt.
If we were able to modernize our financial sector infrastructure a bit more, there would be a lot of progress on serving some underbanked Canadians. That said, there will probably still be some underbanked Canadians who need help who won’t be helped by initiatives like this.
Senator Pate: Thank you.
This bill also contains provisions related to money laundering which would allow a court to infer the knowledge, belief or recklessness required in relation to the offence of laundering proceeds of crime. Too often it is those most marginalized rather than those profiting most from money laundering at the highest level who end up being held responsible under criminal law. With the continuous development of financial technology, do we have new measures available that can help better focus law enforcement efforts on these big players, not those easiest to catch?
Mr. Vronces: For sure. A lot of financial crime is done through old ways to pay, through cash. Those transactions cannot be traced. As economic behaviour becomes more digital, there are more sophisticated tools we can use to detect financial crime and stop it before it happens.
As an association, we’ve been supporting the government’s effort to modernize our anti-money laundering regime. Unlike a lot of industry associations, we are very pro-regulation because we are an emerging part of the financial sector. We think the best way to generate trust in ourselves from Canadians and everyone else is to have a strongly regulated space where everyone knows that what happens is done with the highest level of integrity and resilience. As economic behaviour becomes more digital, there will definitely be new ways, and we’re happy to support the government in cracking down on financial crime.
Senator Pate: Would you see one of the ways being able to go behind numbered companies, and particularly those who are hiding illicit gains behind complex corporate structures?
Mr. Vronces: Yes, that’s something that happens today. We think there should be more transparency. Like I said, we’ve been working closely with department officials and folks at the more political levels of government to assist them in their crackdown on financial crime.
Senator Pate: Thank you.
Senator Galvez: Several of my questions have been asked already so I’m going to discuss greenwashing. My question is directed to Mr. Bester, Mr. Frank and Mr. Thurlow.
Some of us received a 12-page letter from the Commissioner of Competition saying that he would like to have more power to tackle greenwashing. The issue is the following. He says that the reality is that the significant portion of the greenwashing complaints that the bureau receives do not involve claims about products but rather more general, forward-looking environmental claims about a business or brand as a whole — for example, claiming about being net zero or carbon neutral by 2030.
We all know that we are in this race to net zero, and Mr. Frank is saying he wants the tax cut for carbon capture and storage very fast in spite of the fact that, though this technology has been in development for the last 40 years, it has not been proven. Mr. Thurlow is saying that he claims net zero in Scope 1 and 2, but we don’t know anything about 3 because you probably export your plastics outside.
My question is this: Why don’t we give more power to the commissioner? Is this too little and too late at this time?
Mr. Thurlow: When the chemical industry makes claims, they do so in the Responsible Care framework, and it is independently verified by external, third-party advocates who come in and verify that the emissions reductions and our operations are adhering to the Responsible Care code.
As for whether or not there should be additional powers that are afforded to go after claims, that seems like a question for the Minister of Justice, because it is not incumbent on industry to determine whether or not the claims that they are making can be held to a different standard. We use scientific rigour to support the claims that we are making.
We have a company-wide, global pledge to get to net zero by 2050. Our board of directors has said that that is going to happen. We have an obligation to our shareholders as well as the obligations that we have.
Mr. Frank: The International Energy Agency has stated repeatedly that anywhere between 30 to 40% of the technologies we will need to reach net zero by 2050 are still in prototype or earlier. I would dispute that carbon capture is unproven. Some of the demonstration products we’ve seen have not performed as expected, but we don’t see an obvious alternative. We have modelling that shows Canada will need anywhere from 50 to 100 megatonnes of carbon capture utilization and storage by 2040 and potentially even more by 2050.
Senator Galvez: There is not this need that everybody presents science-based targets and transition plans to accompany these claims? We are all in a race, and the U.S. IRA has been mentioned. To Dow Chemical, is there a transition plan in your process to get to net zero? Have you attained your goals?
Mr. Thurlow: I have great news for you. The very first step is happening in Canada for our company, and we will export that technology to the fleet of operations that we have around the world.
Your question is a fine one, and it’s really up to us to demonstrate confidence in the communities in which we operate. I would agree with my friend Mr. Frank. There has been 50 years of evidence about CCUS effectiveness. There are certainly some technologies that can be improved, but it is accepted around the world that this is one way to deal with the issue. Carbon in, carbon out. It is through that demonstrated efficacy that we will have the social licence to operate around the world in all of these jurisdictions. Let’s be really clear. If we do not meet our targets under CEPA, that’s a criminal law offence, so we will hold ourselves to a very high standard to ensure that we are complying with those laws.
[Translation]
Senator Dalphond: I would like to thank our guests. It’s good to hear from them. My first question is for the Chamber of Commerce. Mr. Holmes, you said that the digital services tax is retroactive. I thought that the government announced in 2021 that, if there were no agreement by the end of 2023 — which was the case — these services would be taxed starting in 2024. You said that some companies were taken by surprise. Does this mean that none of them made provisions for this possibility, even though it was announced?
[English]
Mr. Holmes: Thank you very much for the question, honourable senator.
The concern is that multilaterally and with Canada at the table, there was a decision made to extend the negotiation at the OECD table on this issue. The expectation, as has been done in other jurisdictions, was that that would be deferred. However, the Canadian government proposal is to move forward with a tax and make it retroactive. They’re basically riding two horses here. They’re moving with the multilateral system and are participating in that extension, but, at the same time, they’re unilaterally applying a tax and then making that retroactive.
The administrative burden, the compliance burden retroactively, for companies is considerable. This tax did not exist at the time those revenues were collected. The forensic accounting that will be required to go back and apply that tax and then remit it to government will be considerable, so it seems punitive in nature.
The other thing, and the concern we have with this, is that it adds an inflationary trend to an already inflationary environment, which will be experienced quite directly by both businesses and individuals for online services that they’re quite accustomed to, and in particular, online travel as well. It’s not just big companies that we love to poke at. This will hit mom-and-pop shops. It will hit people who, in an affordability crisis —
Senator Dalphond: I’m sorry to interrupt you, but we have little time. Does the government require you to go back further than 2021, the last three years?
Mr. Holmes: My understanding is that it goes back to 2022.
Senator Dalphond: So it would be two years, 2022 and 2023, and it was made public in 2021. What you’re saying is that nobody thought of having accounting procedures in a way that would make it easier to make the calculation if the tax were to happen?
Mr. Holmes: I can’t speak to individual accounting practices of member companies, but I think that it is a punitive tax that’s retroactive, which seems egregious in its own way. At a personal income tax level, we would all find some umbrage in being told that we suddenly owe taxes retroactively.
Senator Dalphond: The principle of tax law is that when the ways and means motion is filed, the law will be adopted maybe a year later, but it will be applicable at the time of the announcement.
My next question is about the changes to the competition law. In a joint letter to the Minister of Innovation, Science and Industry, you complain about the lack of consultation in connection with these changes. Would you mind commenting on that? Mr. Bester could also answer if there was a lack of consultation. Or maybe some were consulted and some were not? I don’t know. I just want to get some precision.
Mr. Holmes: Thank you.
We were quite pleased with the level of consultation that the government initiated, in particular with the open round table and consultation mechanism and the “what we heard” document that was published, I believe, a day before changes to legislation were introduced. What was not provided was an opportunity — for example, with Bill C-56 — to actually consult on the proposed legislation.
What we’ve seen over the last couple of years in omnibus legislation such as implementation acts for Budget 2022, the Fall Economic Statement that we’re discussing tonight, as well as Bill C-56, are a series of small and big changes introduced in the Competition Act in an incoherent — not necessarily incoherent, but in a way that we do not see the end vision of the government.
This is a process question. We liked the consultation. We appreciated that the government provided a “what we heard” document, but then what we’ve observed is a series of changes being introduced into other pieces of legislation in an ad hoc manner that does not provide us with a blackline version of the bold vision this government has for competition in Canada.
The Chair: You could complete your answer in writing through the clerk, please. Since Senator Dalphond has also mentioned Mr. Bester, perhaps he could also look at that question and please respond in writing through the clerk as well. I’ll give you the time frame later. Thank you.
[Translation]
Senator Carignan: My question is for Fintechs Canada. Fintechs is a broad term. It covers everything from online brokerages to online banking and many different areas. I was wondering the following. Whom do you represent? Who are your main members? You spoke about banks. However, banks are increasingly providing their services online, including brokerages. They’re developing the fintech parts of their subsidiaries. I would like to know whom you represent in particular.
I gather that you held pre-budget consultations. We’ll see whether the minister listened to you when the budget is tabled. What aspect of Bill C-59 affects you in particular?
[English]
Mr. Vronces: You’re right that the word “fintech” is very broad. If you take a textbook economic definition of financial technology, it applies to everything, including the abacus, a calculator or someone using a spreadsheet on Microsoft Excel.
Fintechs Canada represents, more concretely, Canada’s fintech market leaders, the ones you read about in the news, such as Wealthsimple, Borrowell, KOHO and Flinks. We have fintech‑friendly financial institutions, those that like to work with fintechs, such as EQ Bank, ATB, Peoples Group and DC Bank. We have the technology companies that power the credit union space, such as Central 1, Celero and Everlink. We have global fintech companies like Stripe, Block and Wise. We have payment networks like Visa and Interac.
The common thread across this disparate group of companies is that they have all rallied around our mission to bring about a more competitive and innovative financial sector. They all genuinely believe that there are barriers to entry that make it hard for start-ups to succeed here, and the government can safely and responsibly take them down. That’s who we represent.
As to how Bill C-59 specifically affects us, it’s the amendments to the Canadian Payments Act. For the longest time, fintech companies — which will be supervised by the Bank of Canada when performing their retail payment activities — have had to go through banks to access the payments system. That means they’ve had to do business with their competitors in order to compete with them. It has put them in a disadvantaged position and made the playing field in financial services very unlevel.
The amendments to the Canadian Payments Act in Bill C-59 will make these sorts of companies eligible for membership in Payments Canada, which means they will be able to access the national payments system to move money in service of their customers. That’s what we support and what we’d like to see go through in Bill C-59.
The Chair: Senators, we have time for a second round. It will be two minutes only.
[Translation]
If the witnesses can’t respond immediately, they can certainly do so in writing.
[English]
Senator Marshall: My question is for Mr. Bradley or maybe Mr. Smith from Emera, if he’s still here.
Explain the part where you indicated that this additional tax is going to impact the maintenance of the electric grid. We’re moving to more and more electric vehicles, so we need to rely on the grid. How will this impact the electric grid?
Mr. Bradley: I thank the senator for an excellent question.
As Mr. Cheliak noted earlier, regulators will limit the amount of increases that will be permitted. Therefore, it limits the amount of investments that can be made, and some of those dollars need to go to this tax as opposed to other investments. If a regulator is seeking to ensure that rates don’t increase by a set amount, that means there is a finite amount of investments that can be made, and this funnels some of those investments away.
Senator Marshall: It will reduce it.
Mr. Bradley: Yes. As we noted earlier, it also then falls unevenly, depending upon where you are, even within a province. For example, in British Columbia, if you were a customer of the investor-owned company that serves the Kelowna area, it would impact you, but if you were a customer with BC Hydro, it would not.
Senator Marshall: Right, because the Crown corporation utilities aren’t impacted by the tax?
Mr. Bradley: Correct. Absolutely, yes.
Senator Marshall: Thank you.
[Translation]
Senator Forest: Thank you for coming. Mr. Holmes, I was referring to your brief. I want to focus on the rather odd retroactive aspect. We know that the announcement was made in 2020. We’re talking about a retroactive date of 2022. In your brief, you said that, while other digital services taxes have been implemented around the world, none reach as far back retroactively as Canada’s proposal. It seems unusual to go against the grain and tax services that I used, for example, for an application in 2024 or 2025, so two or three years ago. Have you checked the legality of this tax measure?
[English]
Mr. Holmes: That is a complex question on the legality. We see an interest in regulating by press release an intent, but we see the Fall Economic Statement actually putting this down in writing and in 2024 we are considering it here. The fact is that we have an actual piece of legislation being considered by this committee and by the House that would put in place a tax that would apply retroactively. That is a principle that we at the Canadian Chamber of Commerce cannot agree with.
[Translation]
Senator Forest: Thank you.
[English]
Senator Smith: Well, we’re at that time of the questions where it’s time for a group question. We’re going to develop a little teamwork amongst our panel. You might have figured out that I spent a little time with teams.
My question is quite simple and requires either a “yes” or a “no.” Have you been adequately consulted by the government on the changes in Bill C-59 that impact you? While it is either a “yes” or a “no,” if there is a short explanation that you’d like to give — either improvements or you’re totally satisfied — I think it would be helpful to us to have sort of an individual but a group response, short and to the point. I would appreciate that. It’s interesting that we ask you these questions, but we all don’t have the depth of questions in terms of the number of questions we can all ask you. Have you been consulted enough by the government on Bill C-59, yes or no? Give us either a one-liner or a two-liner on pros and cons, if you would. Could you individual gentlemen do that? You’re giving me a long look, Mr. Imperial Tobacco Canada Ltd.
The Chair: You only have 10 seconds.
Mr. Vronces: I can start, Senator Smith. The Finance Department on the vaping stamping regime, yes. On the health care recovery costs, no, they don’t talk to us.
Mr. Bradley: It is an interesting question. Consulted, yes. Did they hear us? Yes. Were they listening as opposed to did they hear us? That’s the question. I think we have a simple ask that may have been heard, but clearly it’s not being followed up.
Mr. Thurlow: Yes. Maybe too much. We need to pass the bill faster.
Mr. Cunningham: Consultation, yes. However, we have an amendment that we believe could strengthen the cost recovery fee.
The Chair: Your question is answered.
Senator Smith: Mr. Holmes hid fairly quickly on that one.
Mr. Holmes: By virtue of being invited here today by the Senate, I will say yes, but this is the first time I’ve been consulted directly on Bill C-59.
Mr. Bester: I would just say yes and point to ISED’s very broad public consult consultation on the competition elements. I want to recognize that they did quite a good job with them.
The Chair: Mr. Frank, do you have an answer?
Mr. Frank: I would say yes. There are design details in the CCUS ITC that could be improved, but we point again to the need for speed.
Senator MacAdam: This is for Mr. Frank. The Fall Economic Statement seeks to introduce a 30% refundable investment tax credit for eligible green technology equipment starting from March 2023, dropping to 15% in 2034 and then phased out by 2035. It applies to solar energy equipment, electrical storage, certain geothermal equipment and small nuclear reactors. While an attractive investment tax credit to incentivize green technology, do you feel it goes far enough given we have a high level of GHG emissions per capita and our overall climate change commitments?
Mr. Frank: Thank you for the question.
Yes, the ITCs are an important component of the policy-based sources of revenue available to these project proponents. For a range of low-carbon projects, we see that the greatest value is carbon credits in these provincial carbon markets. It doesn’t make sense to have one without the other.
Senator Kingston: I have a follow-up from Senator Marshall’s comments to Mr. Bradley and Mr. Cheliak.
I don’t understand quite what was said around Emera and the fact that it would be $100. I believe he suggested that over three years it would be an extra cost to the consumer. That would tell me that the utility has passed the tax on to the consumer. Why are you also saying that, along with that $100, there would be a problem in terms of investments? It seems to be a double sort of whack.
Mr. Bradley: In the particular example that my colleague gave you, the $100 that would go to the taxes would be $100 less that would be available for investments in the system.
Senator Kingston: You’re not passing it on to the consumer directly, then?
Mr. Bradley: It would be going into the rate base. The consumer would pay it, yes.
Senator Kingston: The money would then be used for the investments in infrastructure. That’s my point.
Mr. Cheliak: Maybe I can try one other angle here, senator. It is complicated.
Utilities work the opposite way of most companies. We set out how much money we need to do what we need to do first, and then we develop our rates. In that initial assessment, if it’s $1,000 to do what we need to do and $100 of that is taxes, then we have $900 left to do what we need to do. If this comes in and that goes to $150, that is $50 less to do what we need to do to run our business. The initial pie you get approved to use doesn’t grow, so it takes from that.
Senator Kingston: Except you charge the customer $100 over the next three years.
Mr. Cheliak: Right, but that’s money you can’t charge the customer for capital investments in your system.
Senator Ross: My question is for Mr. Vronces. You talked about the need for modernization of the Canadian payments system and that we’re one of the few countries that haven’t modernized our system. That would have an impact especially on some of the smaller firms but on all the firms that use it as well as the clients. Can you talk briefly about the potential cybersecurity impact of not modernizing the system? What could the impact be in that regard?
Mr. Vronces: It could be huge. Before, let’s say, 2021, before the government passed the Retail Payment Activities Act, which is part of this broader thing called payments modernization in the industry, according to the Bank of Canada, thousands of payments were completely unregulated. We’re going from a largely unregulated market to one that is regulated. Firms will have to identify all of their operational risks to their customer funds, their cybersecurity risks. They will have to demonstrate to the bank that they’re managing it to the bank’s liking. It’s definitely going to make us more robust in that sense.
As far as the systems themselves are concerned, it can be a little crass depending on who you talk to. Some industry insiders joke that our current retail payment systems are like glorified calculators and spreadsheets. There is not much there. This modernization will bring it into the 2000s, make it a lot more data-rich, secure, robust and ultimately efficient for all its users.
Senator Ross: Thank you.
Senator Pate: These questions are for Mr. Bester. Bill C-59 includes amendments to the Competition Act that encourage private parties to bring forward claims to challenge anti‑competitive behaviour. American experiences highlight that private antitrust litigation can entail substantial financial outlays. In your view, are the measures opening competition laws to private claims sufficient to avoid this litigation being dominated by the largest corporations that are most capable of affording the costs of litigation, particularly if they are being challenged by smaller or less-established businesses; and are there new potential remedies available for people, particularly those without legal and financial resources, who believe they are being affected at an individual level by anti-competitive behaviour, for example, as a result of price gouging?
Mr. Bester: You pointed out a very important point, which is the imbalance of legal resources, and I think that is, going back to the opening statement, why private access can be a complement to the Competition Bureau and its resources and its expertise. This won’t get rid of that imbalance, but it will give another lever for companies who find themselves on what I refer to as the wrong end of a monopoly to potentially reset that balance. We’ve opened our private access laws slightly, and we have already seen it used to get quicker access to generic drugs and biosimilars to create competitive alternatives. While this won’t erase that imbalance in legal resources — that will remain — I believe it will give smaller companies — these are still quite established and large firms themselves — another lever against anti-competitive conduct.
Senator Pate: Thank you.
Senator Galvez: I will continue with Mr. Bester, following the same subject as my colleague Senator Pate.
This bill is based on the idea that structural presumptions will make merger litigation more efficient and save resources by shifting the onus onto the merging parties. I wonder if there is any evidence of this based on what is happening in the U.S. experience. Also, how will merging parties discharge their burden of proof when they do not have powers to compel information from third parties such as competitors, customers or suppliers?
Mr. Bester: To clarify, structural presumptions are not currently in Bill C-59. We advocate for their inclusion, and one of the reasons you cite is exactly one of those: more expedient and efficient exercise of the competition law.
The issue of access to information for private parties will still exist today. Parties will not have the same power as the Competition Bureau recently received for Bill C-56, as an example. What those parties will have to rely on is their on‑the‑ground experience and interactions with those that they claim are engaging in anti-competitive conduct. For future consideration is those information-gathering powers for our private-access framework.
Senator Galvez: Thank you.
[Translation]
Senator Dalphond: I’ll keep things simple.
[English]
I am going to ask Mr. Bester to answer the question I put before, so maybe it will save him having to write a letter.
Mr. Bester: No, I think the — to go back to the consultation point —
Senator Dalphond: And the lack of vision.
Mr. Bester: I would argue that there is a vision behind — I don’t want to put words in the officials’ mouths. What we have is a general strengthening of Canada’s competition law, and we see that in abuse of dominance, mergers and deceptive marketing with the greenwashing discussion. When I think of the vision of Bill C-56 and Bill C-59, including the amendments in 2022, it’s a general strengthening in recognition of issues that have been discussed not just in the past year or two years, but for decades in some cases. I think specifically of the efficiencies defence.
Again, I commend the folks at Innovation, Science and Economic Development Canada for their public consultation and as well then-Senator Wetston and his less formal consultation, again, very important. Just to say that this is a layered conversation that has been growing for a number of years.
Senator Loffreda: My question is for the Canadian Chamber of Commerce. I will continue on the Digital Services Tax. I want you to continue elaborating on what, in your view, will be the effect of this tax on the Canadian market and on Canadians. You had started to tell us the effect. How will it influence aspects such as availability or costs or products and services provided by the businesses subject to the tax? Given that the tax applies equally to Canadian foreign businesses, do you still feel that it is a discriminatory tax?
Mr. Holmes: Thank you, senator, for the question.
The implication and the effect of this tax will be felt immediately by consumers. It will be inflationary in nature. What we saw when France introduced a similar tax was that those price increases were passed on to consumers directly by the online service providers that were required to pay that tax to government. We will see this affect, as I was beginning to say, individuals who, in an affordability crisis, are forming their own start-up companies, many of them using digital platforms with which to sell goods and services. That will apply to them.
We’ll see it affect as well, quite likely, Canadian travel points, and what Canadians truly love is their affinity programs and their bonus points that they get through various financial providers and service providers. This tax could actually also affect the value of those products and services that they acquire through those.
We will see it have quite a broad application from large services, streaming services that you might watch your Canadian content and your foreign content on, all the way down to individual businesses, and we’ve heard particular concern from the online travel sector as well.
The Chair: Thank you.
[Translation]
Senator Carignan: My question is also for the Chamber of Commerce officials. I’m looking at the legislation and trying to figure out to whom it will apply. I haven’t seen the threshold. I’m worried about the media. The daily newspaper La Presse, for example, falls under the definition, since its advertising is digital. The 3% must be billed unless the threshold is so high that it eludes them. They must also pay it again, since they receive invoices from Google, which promotes their content. They must pay for placement.
It seems that our media could be hit hard by this digital products tax. Are you also seeing this, or am I off the mark?
Mr. Holmes: Thank you, senator.
[English]
I can follow up in writing, perhaps, on the particular application that this would have for media companies, but my understanding is that it will be a fairly pervasive tax that will apply across the digital economy and particularly through larger platforms. You’ve named a couple of them who do have significant advertising interests, and that will apply there.
The other question that I bring to this is, what signal do we want to send? We talk a good game about our multilateral commitments and our commitment to trade law, and yet we also seem to be acting unilaterally and in direct opposition of our largest trading partner who has expressed, quite clearly, their concern with this behaviour.
The Chair: You can follow up in writing.
As chair, I would endeavour to ask a question. I know that I’m going into uncharted waters a bit. The question will be directed to Fintechs Canada and also to the Canadian Chamber of Commerce.
The government recently introduced the Digital Charter Implementation Act, AI, which aims to create a national legislative framework on privacy and artificial intelligence. There is no doubt all the witnesses are following that. In the Fall Economic Statement, the federal government committed to introduce consumer-driven banking legislation in the upcoming 2024 budget. How does AI, artificial intelligence, impact the sector or sectors that you represent? Should AI be addressed in the upcoming open banking legislation? Fintechs Canada, the floor is yours.
Mr. Vronces: As a whole, we support Bill C-27, in large part because of the clause in there that puts Canadians in control of their data. It allows them to instruct organizations to share their data with other organizations of their choosing. The association doesn’t have a view on the AI part of that bill, but AI is being deployed in many sectors. We’ve largely been supportive of the government’s attempt to regulate data sharing in the financial sector and how that data is used. I don’t think in principle we would oppose such a discussion with the government, but the devil would obviously be in the details.
Mr. Holmes: Bill C-27 has two major components. One is the CPPA, Consumer Privacy Protection Act, on the privacy component, which we absolutely require. We need it for our financial institutions to move forward quickly. The other AIDA piece, Artificial Intelligence Data Protection Act, the AI elements, is proposing an act which does not yet have regulations. For obvious reasons, the business community is a little bit concerned about not knowing how they’re going to be regulated. The AI impact will be broad. It will affect absolutely every sector of our economy, and it’s important that we view it as an opportunity and, in particular, that we look at the skills and talents needed so our small businesses across the country can compete and be part of this. Leadership from the government is needed to help those sectors particularly.
The Chair: There is a great report, and I’ve been part of recent diplomatic visit to Europe with the Speaker of the Senate. I want to share with you that one country is looking dramatically and consciously at AI. I want to share with you that you should probably look at the report tabled by the Government of Ireland on the impacts. I’m bringing this to your attention. That’s public knowledge that I’m sharing.
Mr. Holmes: I would welcome that. I had the great privilege last week of being in Verona for the G7 Ministerial Meeting. I had the opportunity to address the ministers from the G7 on the topic of AI. Our main request is that we ensure there is interoperability across the jurisdictions so we can have a consistent approach to guidelines, ethical and regulatory, so we can have businesses that can compete and participate in this broad and important emerging economy.
The Chair: The title of the Irish report is The Joint Committee on Enterprise, Trade and Employment Report an Artificial Intelligence in the Workplace, October 2023.
To the witnesses, on behalf of the committee and senators, this is a much bigger panel than we are used to, but you were all very informative and insightful, and you all respected the tight time frame given by the clerk. That is very much appreciated.
Witnesses, we have a due date. You have until the end of the day on Thursday, April 4, 2024, to send your written answers through the clerk.
Thank you to our clerk and the people working for the committee for your outstanding work on behalf of the Finance Committee, enabling senators to work with the witnesses and also with the order of reference given by the Senate of Canada to this Finance Committee.
Senator Smith: Is this the happy trails notice? We should thank our leader for a great job done over time. Thank you.
Hon. Senators: Hear, hear!
The Chair: It’s teamwork, and I’m just following what you’re doing. Thank you.
(The committee adjourned.)