Proceedings of the Standing Senate Committee on
Issue 5 - Evidence - October 19, 2011
OTTAWA, Wednesday, October 19, 2011
The Standing Senate Committee on National Finance met this day at 6:45
p.m. to study the potential reasons for price discrepancies in respect of
certain goods between Canada and the United States, given the value of the
Canadian dollar and the effect of cross border shopping on the Canadian
Senator Joseph A. Day (Chair) in the chair.
The Chair: I call this meeting of the Standing Senate Committee on
National Finance to order.
Honourable senators, tonight we will start our special study on the
potential reasons for price discrepancies in respect of certain goods
between Canada and the United States.
This evening we welcome the Honourable James M. Flaherty, P.C., M.P.,
Minister of Finance. The minister wrote to us in September, asking us if we
would consider this important study. We are very pleased to begin that study
Senators will know that before we can begin a special study like this, we
are required to have the approval of the Senate as a whole, and we have had
a motion approved granting us the mandate to study this particular issue.
The mandate reads that the Standing Senate Committee on National Finance be
authorized to examine and report on the potential reasons for price
discrimination and discrepancies in respect of certain goods between Canada
and the United States, given that the value of the Canadian and the U.S.
dollar is near parity; that in conducting such a study, the committee take
particular note of the differences between Canada and the United States in
respect of market size, transportation costs, tariff rates, real estate
costs, labour costs, taxes, regulations, mark-up and any other
considerations we might decide to apply to this subject.
We are beginning our study this evening. Mr. Flaherty is only able to be
with us for approximately 15 minutes. He will have introductory remarks and
then we will proceed with Patrick Halley, Chief, Tariffs and Market Access;
Dean Beyea, Director, International Trade Policy; and Jim Haley, General
Director, Economic and Fiscal Policy Branch, who are here and will carry on
after the minister finds it necessary to leave.
Mr. Minister, you have the floor.
Hon. James M. Flaherty, P.C., M.P., Minister of Finance: Thank
you, Mr. Chair.
Honourable senators, I thank the committee for undertaking this important
study for Canadians. Thank you for allowing me to appear here briefly
tonight as you embark on this study. I will make my comments as brief as
possible to leave more time for questions.
Before I start, let me recognize the committee for its past recent work.
In particular, I want to welcome your study about the costs and benefits
of Canada's one-cent coin to Canadian taxpayers and the overall economy of
Canada. This study was exhaustive, and its findings have fed a lot of debate
on this subject.
As your report recommended a major change to Canada's currency system
with respect to the penny, it is receiving extensive review and we are
striving to get that review established as soon as possible.
Let us turn to the matter under discussion tonight. While the global
economy faces numerous challenges from abroad, which our government has been
working on with our international partners, we always remain focused on the
economic challenges here at home, especially those facing Canadian
Over the past five years, as we all know, the Canadian dollar has
strengthened significantly compared to the U.S. dollar. This has presented
great opportunities and challenges for Canadian entrepreneurs, exporters and
our economy alike. Clearly we all want a stronger dollar to benefit Canadian
consumers as well. Canadians work hard to support themselves and their
families. When they spend their hard-earned money, they deserve to pay a
price that reflects the strength of our dollar.
Canadians are rightly annoyed and perplexed when they see price
discrepancies on the exact same products being sold on different sides of
the border, be it clothing for their children, tools for their work or
vehicles for their day-to- day travels.
In 2007, I openly asked retailers, distributors and wholesalers to deal
with the concerns voiced by Canadians and our government about these price
discrepancies. I pressed them to reduce their prices to better reflect our
stronger dollar at that time. Since then, other adjustments may have been
While we all would like Canadians to shop at and support local
businesses, we live in a market economy and Canadians know the value and
power of shopping around. If we want our consumers to shop here, we need
competitive and clear explanations of the prices Canadians pay.
While it is a positive sign, prices of many consumer goods have fallen in
recent years in response to our stronger dollar and many Canadians still
have concerns with a persisting price gap between some goods in the United
States and Canada. To quote a recent Waterloo Region Record
Canadian consumers have a right to wonder why the prices of many
items are still higher in Canada than south of the border.
The price difference is often considerable. The Bank of Montreal
conducted a survey in April that found that Canadian consumer prices are
about 20 per cent above the prices charged for the same items in the
A difference of that size can't help but produce frustration and
perhaps even cynicism among consumers.
There is no doubt that we have to have a better understanding of the
causes of these persisting price discrepancies. I am convinced Canadians
will welcome this study and its findings, as it will be pre-informative and
will give them potential answers to questions they have been asking for a
Numerous commentators from across Canada have echoed and applauded the
need for such a study. One is to the chief economist, Craig Alexander, who
A Senate investigation is actually a very reasonable request because
Canadians do have questions about why they see a price gap between the
same products selling in Canada and in the United States. It is a very
useful thing to investigate and get some clarity about what is driving
It is my hope this committee will facilitate such an in-depth and
comprehensive discussion in the months ahead, listening to the views of
consumer groups, economists, retail organizations, small businesses,
distributors, importers, retail analysts and, most importantly, Canadians
Understand there has already been considerable interest from numerous
Canadians and organizations appearing on this topic before this committee. I
hope the committee can hear from as many witnesses as possible in the months
ahead. Among the issues the committee can look at include, but are not
limited to, how consumer prices are affected by the size of the Canadian
retail market, transportation and freight costs, tariffs on consumer goods,
real estate costs and more.
I want to thank the committee for agreeing to undertake this study. On
behalf of Canadians, we look forward to your findings. I welcome your
Senator Gerstein: Thank you, Mr. Minister, for appearing before
us. Let me thank you also — I know I speak for a majority of the members of
this committee — for the outstanding leadership you are providing both here
in Canada and on a global basis in these challenging economic times.
Minister, we are getting tremendous feedback, as you have said, to this
study and receiving countless requests from groups who wish to appear as
witnesses. All of this is before we have even had a single meeting on the
In the letter you sent to our chair, Senator Day, and myself as deputy
chair, you said, "Canadians are rightly irritated when they see large price
discrepancies on the exact same products being sold on different sides of
the border." Can you share with us what it is you have been hearing from
these irritated Canadians?
Mr. Flaherty: There are lots of emails and lots of letters, often
with examples. A recent one was an online retailer's U.S. site was selling a
DVD priced at $21, and then the exact same online retailer's Canadian site
was selling the exact same DVD for $29. The question from the Canadian
writing to me was, "Why do I have to pay $8 more or 25 per cent more for
the exact same product?" We get lots of commentary like that from people
from coast to coast in Canada, with price discrepancies often ranging from
20 to 30 per cent. This is the kind of issue I would hope the Senate would
undertake a study of so we could actually get to the facts.
Senator Eggleton: Thank you for being here.
What are the parameters of what the government is willing to do? I do not
expect you to give us a definitive answer on what you are prepared to do
about this because then we would not need this study, would we? Is this
going to be an exercise to say, "Well, that is bad and we are sorry that
Canadians have to pay more here for some products," but what are the
parameters that the government or Parliament can do about this?
Mr. Flaherty: Certainly as Minister of Finance I have
responsibility for tariffs, so to the extent this is a tariff-related issue,
we can deal with that directly.
Senator Eggleton: Even with the United States?
Mr. Flaherty: They are Canadian tariffs, if Canadian tariffs are a
factor. I do not quite frankly know whether they are affecting consumer
prices or not in terms of U.S. dollar and Canadian dollar virtual parity.
If it relates to issues regarding credit cards, we have jurisdiction with
respect to that. We have a code of conduct with respect to the use of credit
cards that we demand adherence to in Canada by issuers. We also have
authority through the Consumer Agency of Canada, which reports to Parliament
through me as Minister of Finance, and we have some informal persuasive
powers and ways of encouraging good behaviour through the tax system.
Senator Marshall: Thank you for being here this evening.
We are just embarking on this study now, and this has been a
long-standing issue. What sorts of studies have been done by the Department
of Finance Canada on this in the past? One area I am particularly interested
in is with regard to loss of revenue to the Government of Canada. Have there
been any studies done on that?
Mr. Flaherty: That is a very good question. I do not know the
answer to it. My officials are here, so I am sure some of them will be able
to fill you in on any work we have done in the past on the subject. I am not
familiar with any specific studies, which is one of the reasons we have
asked this committee to undertake this project.
Senator Marshall: Perhaps I can ask that question of the officials
when they appear.
The Chair: Absolutely. The officials, if they might have heard
that question, can be preparing an answer.
Senator Ringuette: As you know, I am a border senator, living on
the border between New Brunswick and the state of Maine, and I certainly
know of price discrepancies between the two nations.
One of the biggest price discrepancies we have is the price of gasoline
per litre. In Canada, and I am stating this as of this past August, gasoline
was 31 cents per litre more than in U.S. That is 32 per cent more. With
regard to diesel, it was 22 per cent more in Canada.
When I also look at the data indicating the taxes by both governments on
both sides on that gasoline, the difference in tax is 26.5 cents higher in
Canada than in the U.S. That means if you take away the tax factor, there is
only 6 cents difference, and that is with regard to the entire process. One
major issue is the tax factor with respect to gasoline.
There is also the issue about the import costs of crude oil. That cost in
Canada is $118 per barrel, and in the U.S. it is $108 per barrel for the
crude oil that we import.
The other major commodity is vehicles. I looked at the vehicles made in
Canada. I looked at Honda, Chevrolet, Toyota, Dodge and Ford. Surprisingly,
the price of Honda and Toyota, the Civic and the Corolla, which are made in
Canada, is lower in Canada than in the U.S. However, for the original North
American car manufacturers — Chevrolet, which builds the Camaro in Oshawa;
the Dodge Charger being built in Brampton; and the Ford Edge being built in
Oakville — except for the Ford Edge, which was the same price in both
countries, there was almost a $4,000 difference in the price of the
Chevrolet Camaro. Canadians are paying $4,000 more for a Canadian-made car
than are the Americans. With regard to the Dodge Charger, Canadians are
again paying, for a Canadian-made car, $4,600 more than are U.S. citizens.
The Chair: I will have to ask you to ask your question.
Senator Ringuette: In Canada we have natural resources, and we
have excellent products made in Canada. Why are Canadians paying more for
these products than their counterparts in the U.S.? For example, cars, car
parts and gasoline are, on average, 17 per cent of household consumer
purchases. I would like to have an answer to that.
Mr. Flaherty: I look forward to seeing the results of the study.
With respect to gasoline prices, if the committee finds, as a matter of
fact, that our taxes are higher on gasoline, that is a policy decision for
governments to look at because on gas tax, as you know, there is a
provincial portion and a federal portion, and now we have a commitment to
transfer a portion of our portion permanently to the municipalities — 2 per
Senator Ringuette: There is an excise tax and a GST tax.
Mr. Flaherty: Right. I welcome your analysis. I am not saying that
the government does not need to be engaged and be responsible on these
issues. I look forward to having the facts determined by your study.
The Chair: Minister, the time you had allocated has been used up
and a little bit more. We thank you for your patience and understanding.
After we have had a chance to explore a lot of these questions and analyze
the information that we gather from various witnesses — and we will have an
extensive list of witnesses — perhaps we will have an opportunity to talk to
you again about some of those items.
Mr. Flaherty: I would be happy to return at your request.
The Chair: I wish to thank the departmental officials for being
here. You have heard the minister's introductory remarks and the question
and answer session that we had with him. Does any one of you have any
introductory remark you might like to make to tell us how you fit into the
overall scheme of things, knowing what subject we are exploring, before we
go into a question and discussion period?
Patrick Halley, Chief, Tariffs and Market Access, International Trade
Policy Division, International Trade & Finance, Department of Finance
Canada: Thank you. I do not think there is a need for a statement by
officials. The minister's statement speaks for itself. Our time would
probably best be utilized if we answered questions of senators.
Therefore, we will turn it back to you.
The Chair: Mr. Haley is General Director of the Economic and
Fiscal Policy Branch?
Mr. Halley: That is correct, and that branch is responsible for
overall analysis of the economic situation in Canada as well as fiscal
planning and preparation of budgets.
The Chair: Mr. Beyea, can you tell us what area you are involved
Dean Beyea, Director, International Trade Policy, Department of
Finance Canada: I am the Director of the International Trade Policy
Branch at the Department of Finance that looks after, among other things,
the customs tariff.
The Chair: You know all about pricing differentiation?
Mr. Beyea: I certainly know about the tariff rates in Canada and
the U.S., and I will be happy to talk to you about those.
The Chair: Mr. Haley?
Jim Haley, General Director, Economic and Fiscal Policy Branch,
Department of Finance Canada: Mr. Dean Beyea was my predecessor. We
obviously know about tariff issues.
The Chair: Do you work in the same field?
Mr. Haley: Yes.
The Chair: Good.
We had a question from Senator Marshall that the minister was unable to
Senator Marshall, would you like to pose your question?
Senator Marshall: Yes. This issue has been ongoing for decades, so
I would think that the Department of Finance or some other government
departments have done some study or analysis over the past number of years.
We are just starting out on this study. What sorts of research has the
department done? I was especially interested in the cost to the public purse
of cross-border shopping. What sort of analysis have you done?
Mr. Halley: That is a very good question. I would take a stab at
answering it by saying there are two broad approaches to thinking about this
issue. One is a macroeconomic approach; looking at changes with exchange
rates and why those changes would not necessarily be reflected in final
consumer goods. That, in the economics literature, is referred to as
passthrough, why there may be less exchange rate passthrough into consumer
prices than before. I would wager that there are a good number of
macroeconomic studies of that nature, largely done by the Bank of Canada,
which obviously has a critical role and interest in this issue.
The other approach to the question would be microeconomic where you are
looking at direct comparisons of specific goods across the border. Here,
sadly, much less work has been done. I can point the committee to a report
done in 1992 by Ernst & Young. That was, again, a period of fairly intense
interest in this issue, reflecting a large volume of cross-border shopping.
I think the minister said it well when he said we look to the work of
this committee to supplement what is out there in terms of enhancing our
understanding of the issue because, sadly, there is very little on it.
Senator Marshall: I am surprised that there is very little. As an
example, you talked about the Ernst & Young study in 1992. Would that still
be relevant now? That was 20 years ago.
Mr. Halley: That would be an excellent question for the committee
to consider. Clearly, there have been many changes in the Canadian economy
in that period, many reforms, many changes in policies. If we think back to
the early 1990s, that was very early days in a trade liberalization regime.
We have now had 20 years or so of experience with that. A key question
really is to what extent can we look at that study and say that its
conclusions remain relevant. I think that would be quite useful.
Senator Marshall: In the background material we have been provided
so far there is some discussion about the exchange rate, the impact
commodity prices have on it and things like that, but does anyone really
know what the exchange rate will be in the future? It seems like all these
factors are thrown out there, but how accurate are the predictions?
Mr. Halley: I hate to be glib, but there is the old joke about
exchange rate forecasting, that if someone could actually do it they would
be rich and they would not be in academia or working on Bay Street. They
would be independently wealthy.
One quick shot at it is to say that the exchange rate, in a very real
sense, is an asset price, and asset prices reflect information. Changes to
information cause the asset price to move very quickly, and that we have
seen quite clearly over the last four years or so in response to the global
You can say there are big forces in the global economy in terms of the
integration of the emerging market economies, the integration of China. You
can take a long-term view and say that will put upward pressure on commodity
prices as China and India are integrated into the global economy. Higher
commodity prices should raise the currencies of countries with large
endowments of those commodities.
You can take a long-term perspective, and, I think, speak reasonably
coherently and consistently, but, of course, there are many short-term dips
and movements in the dollar between today and some long-term end point.
You can speak in terms of long-term trends, but, at any point in time, as
I say, it is subject to the whims of the market and new information.
The Chair: This is our first meeting on this issue, and we expect
to be going for some time, so if you have any suggestions about where we
might go in terms of our investigation, areas we might look into, by all
means, add those in your response to any of my colleagues.
Senator Nancy Ruth: I wanted to ask you to give me a bit of a
background as to what each of your areas does. I know nothing about this.
Fill me in a picture, and if you have an international framework of how your
department applies to this study, that would be helpful too.
Mr. Halley: As the chair mentioned, I am the general director of
fiscal policy, economic analysis and fiscal policy branch. The branch has
two key responsibilities. The first is analyzing and monitoring developments
in the Canadian economy so that we can attempt to make sensible projections
of where the economy is going. The other key aspect of that branch is on the
fiscal side. We, in effect, are the area in the Department of Finance that
helps coordinate the budget process.
Mr. Beyea: As I said, I am the director of the international trade
policy division. We are responsible for the customs tariff legislation and
the other import policy legislation, so the Special Import Measures Act and
the Canadian International Trade Tribunal Act, which deals with trade
remedies. We also have a role in general trade relations.
Concerning the government, we are active in trade agreements and are
responsible for making recommendations to the minister on the customs tariff
law. Sometimes we make changes for competitiveness reasons as you have seen
in the last two budgets. Also, those laws are a major component of most free
Mr. Haley is the chief responsible for the customs tariff.
The Chair: Mr. Haley, do you have anything to add?
Mr. Haley: Not really. I think it is included. It's pretty simple.
Senator Nancy Ruth: You have obviously thought about what we are
doing on this study, each of you in your own areas. Can you give us your
wandering thoughts on this?
Mr. Halley: Be careful what you ask for; I have been known to go
on at some length.
I should acknowledge that we are joined by colleagues in the back with
expertise on the tax policy side of the Department of Finance as well as the
economic development portfolio. We are well represented here and, as I say,
we are here to answer your questions.
Getting to your question, this is obviously a very important issue. It is
one that is of significant import to Canadians. As the minister has said, we
have seen a rising Canadian dollar, and Canadians are concerned about the
lack of price response. The issue is important because if prices are not
responding to the exchange rate, real incomes of Canadians are not adjusting
as quickly or as significantly as they otherwise would. That is an important
aspect in terms of understanding what the Canadian dollar can buy. If prices
were lower, obviously, the volume of goods and services that Canadians could
afford would increase. It is important in terms of understanding the welfare
I mentioned in response to Senator Marshall's question the exchange rate
pass through question and the microeconomic approach to studying this issue.
I could go on at great length, but I will try to summarize my view of the
issue, and I say it is my view.
This is an incredibly complex issue involving macroeconomic factors and a
host of microeconomic factors as well. I think you could break the issue
down into two parts. The first part is why exchange rate changes, in this
case, an appreciation of the dollar, do not become reflected in the import
prices that Canadians pay. The second element is why changes in the exchange
rate do not become reflected in consumer prices.
With respect to the first question, namely, why exchange rate changes
sometimes do not show up in import prices, there are a number of possible
explanations. One is the argument that as our economy and other advanced
economies have matured and we have become wealthier, we consume more and
more goods that are differentiated as opposed to basic commodities. The
significance of this fact is that with differentiated goods, the
manufacturer of those goods may be able to exercise some degree of market
power in terms of pricing the same good in different markets, in effect,
exercising some degree of price discrimination.
Another factor here might be that exporters into the Canadian market may
have an intentional strategy of pricing not necessarily on the basis of some
competitive norm, but perhaps to try to establish some minimum size of sales
in the economy. In effect, this is referred to in the literature as a
"beachhead effect," that once you have established a beachhead in the
market, you want to keep that market share. You may be reluctant to change
prices in response to what are perceived to be short-term changes in the
The third factor on the broad macroeconomic area would be the basic issue
of volatility of exchange rates. If we have very volatile exchange rate
movements, people may say, "I will not change prices because changing
prices will incur a so-called mark-up cost." There is a physical process of
changing prices and that act has costs. If you think an exchange rate
movement is temporary, you may not change the price.
You may have a break in the relationship between the exchange rate and
import prices for any of those reasons.
The second broad area would be with respect to what I would suggest is
failure of the law of one price. The law of one price, a very basic economic
proposition, is that identical goods should be priced at the same level in
two markets if you have no transport costs, no trade barriers, no
transaction or distribution costs and you have competitive behaviour. The
violation of any one of those assumptions could introduce a wedge between
the two prices. Here again, I think the committee could serve an effective
and useful role in looking at each of those elements in turn and assessing
the extent to which they are relevant today.
Again, I go back to 1992, the last time there was a fairly extensive
study of this nature, the Ernst & Young study, and ask the question how
relevant the conclusions are from 1992 to today. That may be a short way of
giving you my take on this question. It obviously could open up a much
Senator Nancy Ruth: Do either of you want to say anything?
Mr. Beyea: Our perspective is much narrower than Mr. Halley's.
Obviously in this discussion, there has been a lot of talk about tariffs and
the impact they have on retail prices. We have looked at them extensively.
When you are talking about Canada and the U.S., there is free trade. All
the automobiles, as you mentioned earlier, would be tariff free. Therefore,
tariffs would not be an explanation; they would trade freely between Canada
and the U.S. For those particular vehicles, there would be no tariffs.
There is a 6.1 per cent tariff on most vehicles that come from offshore
into Canada. There is a small tariff on automobiles in the U.S., 2.5 per
cent, but a 25 per cent tariff on pickup trucks. Tariffs are complex,
voluminous laws that apply to all goods in a very different manner.
In Canada, the MFN tariff is the base tariff, but we have 19 tariff
treatments in 8,100 classifications of goods. It certainly is an issue that
merits looking at but I think, in general, the tariff rates are quite low in
Canada and the U.S.; 90 per cent of goods enter the country duty free as a
result of either very low tariff rates or zero tariff rates or as the result
of free trade agreements.
In 2010, the figures were $360 billion of $400 billion in total imports
came into the country duty free. They are a factor, but generally they are
low. We have come to that conclusion. Certainly there are examples of
differences in tariff rates in Canada and the U.S., but generally they are
similar and quite low in both countries.
The other important element to add is that tariffs apply on the landed
value price of goods and not on the retail price of goods, which is often
considerably lower. For example, if a good may retail at $50 but the import
price is $10, the tariff applies to the $10 and not the final retail price.
That is something important to look at.
The Chair: You mentioned 25 per cent on pickup trucks. Is that
coming into the United States? Did I understand you correctly?
Mr. Beyea: That is right. That is the tariff that applies to
pickup trucks that come from offshore into the United States.
The Chair: But no tariff from U.S. into Canada?
Mr. Beyea: That is right.
The Chair: I thought I understood you correctly.
Senator Peterson: As the minister stated, we are dealing with
irritants here. In a lot of cases, I imagine we are dealing with Canadian
subsidiaries of American parents in this price difference. You go and talk
to them and they have no statistical explanation of why this is; they may
say we are doing it because we can. It is called the marketplace.
What can we do then? It is called almost greed and fear, is it not? The
marketplace is determining what someone can charge — it obviously must be
there because it is happening. What can we do about that?
Mr. Halley: On the case of a U.S. manufacturer with a Canadian
distributer, that can be contrasted with the example of the same U.S.
manufacturer selling directly to retail chains in the United States. If that
manufacturer has a Canadian subsidiary that it sells or transfers the goods
to in Canada and then the Canadian distributor or the Canadian subsidiary
sells them on through the distribution channel, you may be introducing
another level of distribution and hence another level of mark-up.
In terms of what the market will bear, I think that goes back to the
point I was referring to earlier in terms of product differentiation and the
ability of manufacturers to charge different prices in different markets.
That is, at its heart, a very basic issue of the competitiveness of the
system and the ability of these firms to do this price discrimination.
Senator Peterson: I think the challenge would be identifying the
parent and the subsidiary. You have to be able to zero in on that. The other
is you say there can be lots of middlemen involved and we could chase that
around for some time. Anyway, thank you.
Senator Neufeld: I think this will be a relatively interesting
study when we complete it. Are there things any one of you gentlemen would
know where it is self inflicted, where Canada has marketing boards or there
are tariffs? You said very few items have tariffs that come from the U.S. to
Canada. Is it because we do something in Canada with taxes that causes this?
It would be nice to know that before going down to the U.S. and saying,
"hey, guys, you are giving us the short end of the stick here." Maybe some
of that short end of the stick is right here in Canada. I know that is
broad, but can you give me some sense of what you think?
Mr. Halley: I will let Mr. Beyea speak to the issue of tariffs and
I will ask a colleague from the tax side to come.
By self inflicted, I suspect you mean policy induced. I am reluctant to
speak in terms of taxes, but I keep referring back to this earlier study and
taxes were raised as a potential issue then.
When you look at policy over the last several years in Canada, we have
consciously moved to reduce taxes on the corporate side, if you want to
speak in terms of levelling the playing field. Perhaps someone from tax can
come and provide a more detailed answer.
Mr. Beyea, is there anything further on tariffs you would like to add
Senator Neufeld: Just to clarify on taxes, I understand that the
federal government has reduced taxes and so have the provinces. I understand
that is pretty even. What I am saying is do we tax something — maybe I am
using the wrong term — or do we put tariffs on it when it comes into Canada
that actually adds a hidden price that the retailer in Canada trying to sell
it has to include in their price? I do not want to confuse you. I am not
talking about personal or corporate taxes or gas taxes. That is obviously an
easy one to figure out too.
Mr. Halley: I am joined at the table by my colleague Rainer Nowak
from the tax branch.
Rainer Nowak, Senior Chief, Operations, Sales Tax Division, General
Operations and Border Issues, Department of Finance Canada: I will
introduce myself first. I am Senior Chief on the General Operations and
Border Issues in the sales tax division. I look after the GST from a policy
and legislative side. I can speak to sales taxes in general and make a
couple of observations.
First, when we look at all of the price comparisons that have been
published, those prices are always the pre-tax price, so tax should not be a
consideration when comparing the price differentials. As you know, we do
have the GST and the HST, and some provinces have the retail sales tax. The
GST is imposed at the rate of 12 to 15 per cent, and the federal portion is
5 per cent of the GST.
The U.S. does not have a federal sales tax. However, virtually every
state has a retail sales tax; the rates are generally in the range of 4 to 6
per cent. The other thing in the U.S. is there are literally hundreds of
different sales taxes at the municipal and county level that are layered on,
so the rates vary considerably by region. However, again, I go back to the
first point that all of the price comparisons are pre-tax.
On the sales tax side there should not be any sales-type taxes that apply
that would increase the costs to Canadian retailers or manufacturers. The
one exception I would note is our excise tax regime, particularly on
gasoline. I am not speaking to that, but if we are looking at general sales
tax it should not be a consideration.
Senator Neufeld: In relation to marketing boards, they are
self-inflicted in Canada. I come from British Columbia and people in the
Vancouver area are constantly going across the border to buy milk and cheese
and those kinds of things, and a certain amount of groceries that they can
bring back all the time. Would you agree with me that that is
Mr. Beyea: With respect to supply-managed products, which are
covered by the marketing boards — dairy, poultry, eggs and products
containing a majority of them — the over-quota tariffs are high and excluded
from the North American Free Trade Agreement. The tariffs range from 160 per
cent to 300 per cent, and serve as an import pillar for that system.
Senator Neufeld: Those are the things that we need to let
Canadians know. They are some of the costs in some issues.
I should know this, but if an American buys something in Canada and takes
it to the U.S, let us say they are travellers. If you are an American, buy
something in Canada and return to the U.S., are they constrained by how much
they can bring from Canada and the U.S.? I believe it is a maximum of about
$400 or $700 that you can buy in the U.S. as a traveller and bring back into
You told us there were no tariffs on almost everything. Can you tell me
what policy would be to constrain people on what they can bring back? Why do
we even have something there that says when you get to the border you have
to count every penny, change it into Canadian dollars and then write it on a
sheet, sign your life and your kid's life away when I only bought $400
worth? I am sorry, sir, that is all I bought. If there are no tariffs, why
do we do that? Who makes that policy?
Mr. Haley: All the tough questions go to Mr. Beyea.
Mr. Beyea: That is that good question. The travellers' exemptions
are contained in the tariff law. They are accounted for in chapter 90 in the
tariff law. If you are gone more than 24 hours, it is a $50 exemption; $400
after 48 hours; and $750 after a week.
You are right, all goods that originate in North America, outside of the
over-quota amounts of supply managed goods, are duty free. A lot of goods do
not originate in North America. For those goods where tariffs do apply
outside of these limits, if you purchase an amount outside of the limit the
normal tariff would apply.
As well in Canada, and Mr. Nowak can speak to this, there are duty and
tax exemptions. It is not only the tariffs but they are exempted from paying
Senator Neufeld: Yes, I understand that. That is peripheral to the
sales tax; it is different in every province. That is an interesting
comment. We actually are held, I guess, hostage by policy that we cannot
bring back whatever we want from the U.S. when we travel. That is
interesting to me, because I think that is one thing we could change to make
travellers a little happier.
The one thing my staff brought to my attention was that a Sony plasma
television, 32 inches, at Best Buy in their magazine in Canada was priced at
$999.99, and in the U.S. was $499.99. That is $500 difference.
Is that just straight what the senator from Saskatchewan told us, giving
it to us? Would that be Best Buy saying that? Can you explain a bit there? I
understand they need a bit for freight if it comes from the U.S. or
something, but are they hosing us for the other $500? Is that what is
Mr. Haley: I am tempted to say that is a question perhaps you
should ask Best Buy Canada.
Senator Neufeld: I want an answer from you. Is there something
that we do that would even start to cause that so they could start saying,
"Well, if you did not have this happening in Canada it would not be that"?
That is the question I am asking. We will ask Best Buy, but I want to know
from you folks, who do the policy and tax branch, if it is something that we
do. If it is not something that we do, when I talk to Best Buy I will be
using your name and telling them that is what we were told.
Mr. Halley: Do not use my name.
I will speak from the tariff perspective. As Mr. Beyea mentioned,
generally the rates are quite low in Canada, and very comparable to those in
the United States. Is that a tariff issue? That would be a question, but I
think on a plasma television, for example, they would likely come from
China. The tariff in Canada would be no more than 5 per cent. Again, it
would be 5 per cent of the import value, not the retail value. The question
then for the company or the retailer would be what the retail price is and
what the import price is. Then you can determine if the tariff has an impact
on the retail price, recognizing that it is probably around 5 per cent.
As Mr. Beyea mentioned, that would be one category among 8,200 tariff
categories, and each category has 18 tariff treatments, so there are many
permutations. In this case that probably will not happen but if, for
example, your television was coming from a less developed country, as part
of our development policy we provide duty free on all products coming from
these underdeveloped countries.
That probably is not the case here, but, for example, in clothing that is
an important factor where about 20 per cent of imports are coming in duty
free, despite the fact the most-favoured-nation tariff would show at 18 per
cent. You then need to look at where the imports are being sourced from.
In this case, with a television, that would be something that you would
be able to look at with respect to the tariff rate. Again, the rates would
be pretty minimal in general.
Mr. Haley: To add one little caveat, we must be careful in terms
of looking at individual goods and making comparisons. The example of the TV
in the United States, another broad issue here is just the state of demand
in the U.S. as opposed to Canada. The United States, as you know, senator,
has been going through some difficult economic times. It may be the case — I
do not know that it is — that retailers in the United States are slashing
prices to move inventory, get it out, because of the difficult financial
situation they are in.
In Canada, fortunately, we have had much stronger employment growth, our
income has continued, our situation is much better, and hence the
macroeconomic situation is better. You have to be careful in terms of making
individual comparisons on this basis.
Senator Neufeld: No, but it gives you kind of an idea.
Mr. Haley: That is a huge gap.
Senator Neufeld: I appreciate what you are saying and I totally
agree with you.
The Chair: I have four senators who have indicated an interest in
participating, so judge yourselves accordingly.
Senator Finley: Mr. Haley started to touch a bit on the question I
was going to ask. When we were first asked to look at this study I read an
article in one of the newspapers which said that someone had flared this up
because of a website, Canadian against American, of an American retailer
called J. Crew. They generally tend to sell shirts and casual clothes and
stuff. I am betting probably almost a buck forty that very little, if any,
of J. Crew's products are made in the U.S. or Canada. They are probably made
in Bangladesh or Morocco or wherever.
I looked at a lot of the other items that people were comparing and
saying were outrageous. For example, Canon cameras, Dell computers and
products such as that, and indeed even the television set that my colleague,
Senator Neufeld, referred to.
Here is the question, I suppose: These products are largely produced
offshore. Very little is actually manufactured in the United States or in
Canada, maybe some circuit boards or whatever. Fundamentally, even the
packaging is done in one country and the printing in another. Is it possible
to have openness? That is, if we took a number of items originating from the
same source, imported into Canada and into the United States, to compare the
tariffs that Canada imposes specifically and given the country of source and
recognizing there may be multiple countries of source in any given product,
can we compare that to the same import duties or tariffs in the United
States? I am sure there must be differences. Do you have any idea, broadly
speaking, what those differences might be?
Mr. Beyea: I think we would be happy to assist you in any way we
could in coming up with any specific tariff request. We obviously looked at
the items that you have looked at.
In general, it is worth speaking for a minute about general tariff rates
in Canada, the U.S. and even other countries. The average tariff into Canada
is 3.9 per cent. On manufactured goods, it is 2.5 per cent. That would
include all non- agriculture goods. On agriculture, it is 10.7 per cent,
which largely affects the higher tariffs. The difference is largely in the
higher tariffs in the supply-managed products. There are not a lot of high
tariffs in agriculture. In the United States, the overall is 3.5 per cent.
On manufactured goods, it is slightly higher, at 3.3 per cent versus 2.5 per
cent in Canada. Agriculture, on average, is lower, at 4.7 per cent. That is
the general scenario. They are generally low. We tend to have higher tariffs
on apparel, footwear, autos. Since there is a lot of trade in autos, the
tariffs are relatively low but they account for a good portion of the
government's tariff revenue. It is a 6.1 per cent tariff in Canada and then
split 2.5 per cent for autos in the U.S. and 25 per cent for the pickup
Senator Finley: If I hear you correctly, you are basically saying
that the J. Crew shirt would probably cost less landed in the United States,
apart, perhaps, from a volume discount or whatever. If it is made in
Bangladesh or Morocco, presumably it costs pretty much the same to hit a
U.S. port of entry as a Canadian port of entry. Is that not right?
Mr. Beyea: Generally, that is true. The MFN tariffs are quite
similar on textiles and apparel. They are about 18 per cent, a little higher
on some products and lower on others. They vary. Generally, that is about
the level in Canada and the U.S. What is important is the distinction that
Mr. Halley made in how we offer tariff treatments to developing countries.
Canada is much more liberal for least developed countries than the U.S. is.
For example, Bangladesh, a least developed country on the UN list of least
developed countries, and some 40 other least developed countries, have duty
free treatment of all goods into Canada. All apparel that comes from
Bangladesh would come into Canada duty free. It would be duty at much higher
rates in the United States. Generally, with respect to the developing
countries or least developed countries, certainly our rates would be lower.
Senator Finley: Really, the items that are causing the furor,
apart from the obvious ones that my Senate friend from New Brunswick has
mentioned, like gasoline — and I am sure she will address that herself — are
really the items that people classically are looking at. The person who goes
down to the outlet mall in Waterloo, New York or wherever they are is not
really getting a deal based on the fact that the tariff rates are higher in
Canada or in the United States. You can almost take tariffs off the table.
Is that what you are saying, or is it not? Is there room or space on
Mr. Beyea: I think maybe Mr. Halley can speak to a sectoral
outline in more detail. Generally, most goods enter Canada duty free. In
2010, 90 per cent entered duty free, and 70 per cent of the tariffs are
free. It is based on international nomenclature, so everyone is in a similar
position. The tariffs are quite low. It is a cost, but it is a low cost when
you hear what Mr. Halley has to say, or a low factor in the final retail
price in most cases.
Mr. Halley: To help understand, Mr. Haley said that we could go on
and on about the specific examples and what you talk about, for example, the
digital cameras and why there is no tariff in Canada but there is in the
United States. A lot of comparisons can be made.
We can give a bit of a sense between Canada and the United States, simple
average tariff by certain sectors. For leather textiles, apparel and foot
wear products, in Canada the average is 4.9 per cent; in the United States,
it is 6.8 per cent. For minerals, metals and products made of those goods,
in Canada, it is 0.8 per cent, and in the United States it is 1.8 per cent.
Forestry and paper products are 1 per cent in Canada; 1.2 per cent in the
United States. Machinery and equipment, including all the electrical
equipment, vacuum cleaners, toasters, et cetera, are 0.8 per cent in Canada
and 1.5 per cent in the United States. Chemicals, plastics, rubber and
products made of those goods are actually identical at 2.3 per cent in both
Canada and the United States. For vehicles and aircraft and other
transportation equipment, the average in Canada is a little higher, 6.7 per
cent versus 1.9 per cent in the U.S., but that is largely driven by the fact
that we have a 25 per cent tariff on the ships. That kind of drives the
average up. Finally we have a miscellaneous manufactured goods category,
which includes all kinds of things, pencils, brooms, and whatnot, 4 per cent
in Canada; 3.3 per cent in the United States. They are very similar.
I would add that it is important also to look at some of the other
import-related issues that are close to the tariff. For example, the United
States does something we do not do. They have a user fee, which they call a
merchandise processing fee. It is not applicable to Canadian goods being
shipped to the United States under NAFTA, but for all other products
entering the United States, there is a user fee to pay for the services of
the custom service. It is .21 per cent, and there is a minimum of $25 and a
maximum of $450. Every time a good enters into the United States, there is
this added cost that is not reflected in here in those averages. These other
user fees that we do not have here but they have in the United States may
also complicate further the comparison of import prices.
Senator Finley: I am surprised. As I looked at these things, I
thought it has to be something, because it is so significant in some cases.
There has to be something. I would appreciate it if that summary you just
gave us was available to the committee.
Mr. Halley: I believe we can provide that tomorrow.
The Chair: That would be fine. Provide it to the clerk, and she
will ensure it gets around to all members of the committee. We are trying to
decide here the best way to analyze this situation. Do we go product by
product or sector by sector, or do we follow three or four different subject
matters? We would appreciate any information that you can give us. We will
then have to sit down and determine which way to go from there. Any
suggestions you might have would certainly be appreciated.
Senator Ringuette: I would like to refocus on the information that
I believe I would want with regard to this study and, hopefully, all the
members of this committee would want it, too.
About 90 per cent of all the products imported into Canada are tariff
free. My research tells me that the 10 per cent that have a tariff generate
$4.8 billion a year in revenue. Am I correct?
Mr. Halley: I believe these are numbers that we can also provide
the committee tomorrow.
If you look at the customs duties, revenues and forecasted revenues that
were published in the June 6 budget, for 2010- 11 it is $3.6 billion out of
government budgetary revenues of $235.6 billion. It is 1.5 per cent of total
government budgetary revenues.
Mr. Beyea: But the forecast does go to 4.8 in 2015-16.
Senator Ringuette: That is right. Not all of that 10 per cent of
products that are imported in Canada are destined for the retail market.
What would be the percentage that would be destined for the retail market?
For that 10 per cent of products that we import on which you charge a
tariff, how many of them are destined to the retail market? Our mandate is
to look at the retail price. Out of that 10 per cent, what is destined to
the retail market?
Mr. Beyea: That is a good question and very difficult to answer.
What we can work with is international tariff nomenclature which classifies
goods. It does not classify it necessarily between inputs and consumer goods
or goods that are going to the retail market or not. For example, a vacuum
cleaner can go to the service industry; it can go to retail. A vacuum
cleaner is a vacuum cleaner and we cannot determine —
Senator Ringuette: As someone who uses a vacuum cleaner, I
certainly know the difference between what is an industrial vacuum cleaner
and a residential vacuum cleaner. Your data should be indicating that, too.
The Chair: That special cyclone type?
Senator Ringuette: I remember two years ago when you reduced
tariffs in a budget bill. You had all kinds of examples with regard to those
tariffs for items that were for manufacturing purposes, and so forth. My
God, with all the data and the hundreds of people that you have in your
departments, you should have all of those details. If you say you do not, I
will be very disappointed.
Mr. Beyea: I do not want to disappoint you.
It is important to note that we are limited by the nomenclature. We are
limited by the way goods are described internationally and in Canada. I do
not know offhand whether there is a differentiation between vacuum cleaners
for industrial use or for household use within the tariff. Across the board,
if you look at the 8,200 tariff classifications, it is difficult to make
that determination in a general basis. We can come to the conclusion that
most clothing is for consumer goods or destined for retail, but it would not
be completely accurate. We can make these types of generalizations but we
certainly do have, line by line, tariff line by tariff line, detailed import
information. We know the tariff treatment that applies and we know how much
duty is collected on a line-by-line basis. That, we certainly have.
Senator Ringuette: For the sake of accuracy again, tariffs are on
a percentage base of the price identified as it enters Canada. Therefore, if
the basic price is increased because your tariff is on a percentage base,
for example, if there is a 5 per increase on a cotton children's pyjama and
your import rate is 18 per cent, then the cost for the retailer is 5 per
cent times 18 per cent, okay? That tariff, being based on the percentage, is
certainly an issue that I think should be part of our review.
Going back, now, to the issues of cars made in Canada and sold in Canada
at a higher price than in the U.S., why is that the case for Chevrolet and
Dodge but not the case for Honda and Toyota for Canadian-made cars?
Mr. Beyea: On the tariff side, I do not have an answer for you
because they would be duty free going both ways. If they originate in North
America and are produced in North America, there are no tariffs. That would
not be the answer.
Senator Ringuette: With regard to cars made in Canada and sold in
Canada, tariffs are not an issue. For $4,000, then, what is at issue here?
The Chair: He has told us that he could not tell us, but is there
someone else that can; anyone else? It is not tariff. That excludes two of
Senator Ringuette: Do you have a process of elimination?
The Chair: How about the taxman?
Mr. Haley: Mr. Nowak on the tax side?
Mr. Nowak: On the tax side, similarly it should not be a factor.
Senator Ringuette: No. So what is?
Mr. Haley: I would go back and say to begin with that I do not
know the answer, senator. Frankly, I think that is a very good question and
I would encourage the committee to ask that, too.
Senator Ringuette: Can you entertain to look that up and provide
any kind of information to this committee?
Mr. Haley: I can entertain a possibility and it goes back to the
issue of product differentiation that I spoke about earlier. In a world
where you have products, models and brands that have certain characteristics
that people want and different segments of the population want and may be
willing to pay a different price for, then there is an opportunity for the
manufacturer to price those differentiated products differently.
Senator Ringuette: With regard to the item in your analysis that
you mentioned, you think that there would be a differential between the
Canadian who wants to buy that particular product and the American.
Mr. Haley: As I said, I do not know the answer. I am offering a
Senator Ringuette: It is certainly a major issue from my
Another major issue is — and I come back again to this — the cost of
transportation. If you look at the cost of transportation, at automobiles
made in Canada, and at the operation of that automobile, namely fuel, you
see that there are 32 per cent higher costs in Canada to operate that same
vehicle than in the U.S. That is just basic. Add to that factor the scarce
density of the Canadian population on the geography of Canada. You can add
quite a multiplication factor with regard to transportation costs just on
that. The population of the U.S. is 10 times our population. There is volume
This example I found precious, and I have to share it with you. I looked
up a Canadian-made product, a Canadian forestry-made product, a gazebo. That
gazebo was selling at Home Depot in Canada for $3,379. This is not the Tony
Clement gazebo; we are talking about a different product. This is a Home
Depot wooden gazebo sold in Canada for $3,379. In the U.S., that gazebo was
selling at $400 less. For a product made in Canada, it is being sold in
Canada for $400 more than in the U.S. by the same retail chain. With this
wooden product deal, we are paying an additional tariff to have a supposedly
level playing field with regard to wooden products with pricing between
Canada and the U.S. That is a retail issue.
I can go on. We can look at the price of alcohol as well. Basically,
retailers in Canada are also paying $5 billion — I am not talking about the
almost $5 billion in tariffs that we have identified. Retailers in Canada
are paying $5 billion in excessive credit card fees, and those credit card
fees, if a company wants to see a minimum margin of profit, must be included
in the basic price. Those excessive credit card fees also include 3 per cent
that Visa and MasterCard is charging retailers to collect government GST.
The Chair: This committee is just dealing with goods, but you may
be able to tie in services if it pushes the cost of goods up.
Senator Ringuette: All those fees are in there.
Senator Runciman: I have a few brief questions in an area you are
The tariff issue, one that you raised that you have heard no consumer
complaints about but intrigued me, is the 25 per cent on ships. Is that to
protect the shipbuilding industry in Canada? Is that the goal behind that?
Mr. Haley: It is a long-standing tariff. I should add that on
October 1 of last year, Mr. Flaherty announced a new duty remission
framework for certain types of vessels; therefore, the 25 per cent is not
Senator Runciman: I was trying to get my head around the intent
here. With textiles and footwear, I think you said 18 per cent. I am curious
about these numbers and what the intent is. Are you attempting to protect an
industry to some degree? I do not know what kind of a textile or footwear
industry we have in Canada. It would be pretty modest, to say the least. How
do you arrive at those figures? Are they reviewed annually? Why would they
continue when they are not having any real beneficial effect and if in fact
the industry does not exist any longer? What about televisions? Is there a
tariff on televisions coming?
Mr. Beyea: There is a small tariff on televisions. I think it is 5
Senator Runciman: However, there are no producers in Canada, that
I am aware of. I am just trying to get my head around the principle of
tariffs, what they are intended to do other than generate revenue and how
you arrive at the appropriate level.
Mr. Beyea: Tariffs broadly serve three purposes, one that you
touched in that they are a tax and a source of government revenue. They have
been since the time of Confederation, when they were the primary source of
government revenue. They also exist to protect import-sensitive domestic
industries, so the example of ships is a good one.
More recently, they have become negotiating leverage in free trade
agreements, where you give tariff reductions in exchange for tariff
reductions in other countries so we can trade freely between two or more
countries. For example, Mr. Halley is involved in the free trade
negotiations with Europe that are ongoing, and the tariffs remain a large
portion and significant element in that negotiation.
Senator Runciman: It is a negotiating tool in many respects. I
live on the border, and I know we talked about groceries and the fact about
marketing boards, but you did mention tariffs on some food products. Is that
a comparable rationale? I am talking about vegetables, for example, those
kinds of foodstuffs that come into the country. I know a lot of people are
going across the border to buy alcohol and groceries, primarily those kinds
of things, on a fairly regular basis.
Mr. Beyea: Again, generally the tariffs are low. The
supply-managed products are a bit of an anomaly. We also have over-quota
tariffs on some beef and grain products. Generally, these all come duty-free
from the United States, and that is the main source of all of these. Even
though tariffs exist on the books, which are relatively high for these
goods, there is no impediment to trade in that area.
On horticultural products, there are some seasonal tariffs that apply on
some products but, again, most of the trade on these goods are with the
United States and Mexico, and the seasonal tariffs are quite short. They
reflect the growing season here and then most horticultural goods, as would
be in the winter, come from South America and they would enter duty free.
Senator Runciman: One of the other things I have heard over the
years is with respect to books and magazines, those sorts of things. Is the
treatment different on either side of the border in terms of how they are
taxed or whatever the approach may be?
Mr. Beyea: With respect to tariffs, there are no tariffs on books
or magazines. I think the minister gave an example of a DVD. Same thing;
tariffs do not exist in Canada or the U.S. for those items.
Senator Runciman: There is no governmental impact in terms of the
pricing of magazines or books?
Mr. Beyea: Not from a tariff perspective. I am not aware of
anything else, but at least not from a tariff perspective.
Senator Runciman: No tax implications?
Mr. Nowak: On tax, the GST generally applies to books and
magazines, but it applies equally to domestically sourced magazines or
imported books and magazines.
Senator Runciman: I guess the prices shown on a book, for example,
is before tax and the difference is significant between the two countries.
Senator Dickson: I have two questions, one to follow up on one of
the items Senator Ringuette brought to your attention, which is about
gasoline. Those states that are adjacent to Canada, for example Washington
State, a lot of people from Canada go down there to buy their gas and
likewise from New Brunswick over to Maine. I would like if you would prepare
a one-page or two-page document to show us the differential in taxes in
terms of the same volume of gas between Canada and the U.S. People are
concerned about gasoline. It is something that does not come from
Bangladesh; it comes from either our country or, generally speaking, is
refined in the United States. I would appreciate very much if you could.
The Chair: Do we have an undertaking on that?
Mr. Halley: I think we could certainly provide that.
Senator Dickson: Second, to follow up on something the chair
brought up as to any other information, especially on a macro basis that you
can supply, it leads me to the question about the commitment of the ministry
to our study. What resources, if any, should we have from your department at
the call of the chair and the deputy chair, or what do we have and what
should we have?
Many of the major retailers in Canada, the big box stores, are not
Canadian by any stretch of the imagination. You have the Targets, the
Wal-Marts and the Costcos, whatever. You are probably the wrong gentleman to
address the question to, but from a corporate structure, without divulging
information that we should not have — I cannot imagine what that could be;
we should have at all — how would these companies be set up? They are set up
to minimize, between international treaties, the tax impact in so far as the
Canadian government is concerned. I would like you to put us in the right
direction as to how we dig down and get a sense as to how corporate taxes
compare between the United States and Canada on these big box retailers.
Last but not least, in the car industry, as you are very much aware, the
Government of Canada helped out the major car manufacturers in North America
with the exception of Ford. Do we still have the shares? Did we sell the
shares back? Did GM buy the shares? What happened to the shares held by the
Canadian government? I am looking at some tools. If we sit down with General
Motors and they give us something we have to chase, we can say that we still
have a few shares here; we may just end up coming to one of your meetings if
there are no conditions on these shares. Do we still have the stock? Where
does the stock stand?
The Chair: There were a good number of questions there. Do you
care to give undertakings on those or answer some of them now?
Mr. Halley: On the tax side, I will defer to colleagues from the
tax department. I suspect we can be of some assistance. I do not see that as
a major problem. I am reluctant to discuss what the department can do in
terms of providing research support to the committee without consulting the
minister and the deputy minister. I do not think I would be employed in the
department too long if I made commitments of that nature.
Clearly, the requests you are making are reasonable and sensible. On the
tax side, I will defer to Geoff.
The Chair: Please identify yourself and your position.
Geoff Trueman, Director, Business Income Tax Division, Department of
Finance Canada: My name is Geoff Truman. I am from the Tax Policy
Branch. I am the Director of the Business Income Tax Division. I can start
by addressing your questions on the corporate income tax side.
Certainly given the actions that have been taken in Canada over recent
years, we are in a strong competitive position vis-à-vis the U.S. both with
respect to our corporate income tax rates and our marginal effective tax
rates on investment. Canada, as of January 2012, will have a federal tax
rate of 15 per cent and provincial rates that are converging around the 10
per cent mark. The U.S., on the other hand, will be up around 39 per cent.
We have a statutory corporate income tax rate advantage in the range of 13
per cent vis-à-vis the United States.
Another tool economists like to look at is the marginal effective tax
rate, or the METR. We publish the G7 representation quite often in our
budget in some of the economic updates. Again, Canada leads the G7 with the
lowest METR and has a significant advantage vis-à-vis the United States.
A number of independent or third party publications have looked at the
best countries to do business in and they have looked at a range of factors.
Forbes magazine, I think it was last week, came out with a ranking of
countries globally. Canada was rated as the number one country in which to
do business. KPMG, the Kellogg Peat Marwick Group, puts out a report that
they call Competitiveness Alternatives. They look at a range of tax factors
around the globe. In North America they compare state, provincial, local and
federal taxation and, again, Canada comes out with a significant advantage
vis-à-vis the United States.
It is difficult to look at the corporate income tax system and find any
reason that would cause the kind of price discrepancies that we have been
Mr. Halley: On the final question with respect to cars and the
government ownership or participation under the economic action plan, I
would ask my colleague Elisha Ram to respond to that.
Elisha Ram, Director, Microeconomic Policy Analysis, Department of
Finance Canada: My name is Elisha Ram. I am Director of Microeconomic
Policy Analysis at the Department of Finance.
With respect to automobiles, the senator is correct in that the
government did provide financial support to two auto manufacturers: Chrysler
and General Motors. With respect to Chrysler, the government received in
conjunction with the Province of Ontario, which also participated in
financial support, approximately 2 per cent of the membership interest in
Chrysler. The government no longer owns those membership interests; they
were sold this past summer to Fiat as part of its move to increase its
participation in the ownership of Chrysler.
For General Motors, the government, again in conjunction with Ontario,
received about 11 per cent of the shares in General Motors. Through the
initial public offering last fall, the government sold approximately 10 per
cent of its shares, which leaves us with about 9 per cent currently.
Senator Dickson: Thank you.
The Chair: Anything further? We have another lady who has just
Lucia Di Primio, Chief, Excise Policy, Sales Tax Division, Department
of Finance Canada: I will speak to the question regarding federal excise
taxes on fuel. My name is Lucia Di Primio. I am the Chief of Excise Policy
in the Tax Policy Branch.
From a federal excise perspective, the taxes on fuel in Canada are in
keeping with the United States. The federal excise tax applies on gasoline
at the rate of 10 cents and at the rate of 4 cents on diesel. Prior to
coming here this evening we looked at the federal excise rates in the United
States and they are in keeping. On gasoline, it is 5 cents and on diesel it
is higher than us at 6 cents. State taxes, however, also apply on fuels in
the United States, as do provincial fuel taxes in Canada and, generally,
provincial taxes are higher than their state counterparts.
Senator Finley: Are we still going to get what Senator Dickson
asked for? You specifically asked for a report on the contiguous states.
Senator Dickson: Yes, the contiguous states to Canada. Can you do
Ms. Di Primio: We can provide information with respect to all the
provinces and we could undertake to provide with respect to the States. I
have some information now. For the border states, yes, we can do that.
The Chair: Senator Ringuette, did you have something you wanted to
follow up on as well?
Senator Ringuette: Yes. With regard to the price difference for
crude oil, in the second quarter of 2011 crude oil import prices in the U.S.
were $108.96 per barrel and in Canada were $118.12. It is almost $10 more
for a barrel of oil in Canada.
What are the tariffs or the excise tax in Canada with regard to that
import cost and in the U.S.?
Ms. Di Primio: There is no federal excise tax on crude oil. The
federal excise tax applies on gasoline, diesel and jet fuel.
Senator Ringuette: Do you have a tariff?
The Chair: There is no excise tax, let us start with that. Are
there any other taxes on crude oil?
Mr. Beyea: There is no tariff on imports of oil into Canada. I
think there is a small half-a-cent-a-barrel tariff on imports into the
United States, but I can verify that.
Senator Ringuette: We have $10 a barrel price difference just as a
The Chair: Could that be because we contract for a smaller volume?
Does it go to something like that? We will have to look into all of those
things during this study, but you are unaware of anything that might impact
on this, is that correct?
Mr. Halley: As my colleagues have said, we are not aware of any
existing policy that might affect that. It may be transportation costs and
where it is landing in terms of refineries.
The Chair: There are a lot of variables here. It will be an
interesting octopus to wrestle with in trying to come up with some
recommendations. We will call on you from time to time, and if there are any
suggestions you can make to help us, that would certainly be appreciated, as
Senator Dickson has mentioned.
Mr. Halley: Thank you. As I am sure the minister would say, we
will be at your disposal, subject to all of the other demands on the
Department of Finance.
The Chair: Thank you to each of you and those of you who had to
vacate to make room for others. This meeting is now suspended. We have a
small amount of committee business to do once our guests have gone.
Colleagues, you should have in front of you an application for budget
authorization. This committee is asking for a budget to at least start this
study leading up to the end of this fiscal year. If it turns out that we can
put more time into this and find that we have more money, we can apply, if
this committee agrees, for more funds, but funds will be pretty tight.
We were aware of that when we prepared this, but you can see we just
planned for one visit away from Ottawa. The pages are not numbered but it is
the next to the last page. You can see the cost, which is for the entire
number of senators plus two staff. If certain senators are unable to attend
to that particular border crossing, we will save some funds there.
In addition to that, item 1 is the communications consultant to help us
with any communications issues we may have. Senator Ringuette, do you have a
question? We are being broadcast.
Senator Ringuette: Regarding the fees for the communications
consultant, why would we need one?
The Chair: To help us prepare a report and draw all of this
Senator Ringuette: I thought those are the Library of Parliament
The Chair: They do research for us. This is to prepare a document
for public consumption of the results of our work.
Senator Ringuette: I thought it was the Library of Parliament that
usually completes our reports.
The Chair: They help us with that.
Senator Ringuette: What is different with this report in
comparison to all the other reports we used to do?
The Chair: This is not an uncommon item in many budgets when you
do a special study because the Library of Parliament is not geared toward
special studies; they are geared toward our normal business activity, which
is machinery of government and government legislation, and helping to
prepare those reports.
It is a matter of $15,000 if we decide that we would like to take
advantage of that. The process for this is that this committee submits this
to Internal Economy and then they have a subcommittee that looks at all the
budgets of all committees. They will look at that item — item 1, the
professional communications consultant — of all the committees and determine
whether that is reasonable or not.
In the past, we have had a dedicated communications person from the
communications secretariat within the Senate, but that is no longer the
case; they do not have enough people to help us out in that regard. You
would have met some of the communications people in previous years.
Are there any other questions?
Senator Marshall: What are we going to do in Toronto, Niagara
Falls and Buffalo? What is the itinerary?
The Chair: First, we wanted to see if we could have permission to
go there to talk to some of the local businesses and the people who are
working on the border about how many people are coming and going, to get a
bit of a flavour for what is happening.
Senator Runciman: It is the busiest passenger-car crossing in
Canada by far, and we are only doing one.
Senator Marshall: That is good.
The Chair: The total budget you will see on the second page is
$34,704, subject to review by Internal Economy. This is sort of our opening
round on this. Are there any other questions?
The $34,704 is the trip and then the professional consulting services are
$15,000, so the total is $49,704.
Could I have a motion to accept this?
Senator Marshall: So moved.
Senator Neufeld: So moved.
The Chair: We do not need a second on committee. All those in
Hon. Senators: Agreed.
The Chair: Contrary minded? Carried.
I will submit this to Internal Economy and they will consider this budget
from us, in conjunction with all the other budgets, to determine whether the
umbrella budget has enough to cover this. If not, we will be reduced by that
Is there anything further? There being nothing further, I call this
meeting to a conclusion.