Proceedings of the Standing Senate Committee on
National Finance
Issue No. 11 - Evidence - June 8, 2016 (Afternoon Meeting)
OTTAWA, Wednesday, June 8, 2016
The Standing Senate Committee on National Finance met this day at 2:10 p.m. to examine the subject matter of all of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016, and other measures.
Senator Larry W. Smith (Chair) in the chair.
[English]
The Chair: Welcome to the Standing Senate Committee on National Finance. Colleagues and members of the viewing public, the mandate of this committee is to examine matters relating to federal estimates generally as well as government finance.
I am Larry Smith, senator from Quebec, and I chair the committee.
Let me introduce the other members of the panel: Senator Dan Lang from Yukon; Senator Nicole Eaton from Toronto; and Senator Beth Marshall from Newfoundland.
[Translation]
This afternoon, we are continuing our study of the subject matter of Bill C-15, the Budget Implementation Act, 2016, No. 1.
[English]
During the first part of our meeting, we will discuss different issues stemming from Bill C-15, and we welcome, from Canadians for Tax Fairness, Dennis Howlett, Executive Director; from Imagine Canada, Bruce MacDonald, President and CEO; and from Sport Matters Group, Bob Elliott, Senior Leader.
Welcome all. We thank you for being here. Each organization will have five minutes to make an opening statement, which will be followed by questions from senators. Mr. Howlett, the floor is yours.
Dennis Howlett, Executive Director, Canadians for Tax Fairness: Thank you very much for this opportunity to provide input to your consideration of the budget implementation bill, Bill C-15.
Canadians for Tax Fairness has been campaigning for tax fairness since its inception in 2011. Specifically, we have called for tackling tax havens, closing unfair and ineffective tax loopholes and for corporations to pay their fair share. We are pleased that the federal Budget 2016 has taken some positive steps in these areas.
First I'd like to talk about closing unfair and ineffective tax loopholes. Bill C-15 includes measures to eliminate the education tax credit, the textbook tax credit, the children's arts tax credit, the family tax credit and the child fitness tax credit.
While the stated objectives of some of these so-called boutique tax credits sound noble enough, they have been found to not be very effective in achieving their goals. Because they were structured as non-refundable tax credits rather than refundable tax credits, they were unfair to those with little or no taxable income. It would be fairer and more effective if these types of programs were delivered as refundable tax credits or as direct funding for recreation, arts or other programs.
Data in the PBO study published in 2014, of the $30 billion in tax cuts — it's actually $43 billion if you include corporate tax cuts — since 2005, showed that in absolute dollar terms, the richest got the most benefit. The top 20 per cent of income earners got $10 billion or 36 per cent of the total, while the bottom 20 per cent got $1.9 billion or only 6 per cent. On a pocketbook level, the lowest 20 per cent of income earners gained only $500 in tax reductions, while the top 20 per cent got over $2,000 a year.
While the government has closed some tax loopholes, there are many more, in our opinion, that are unfair and ineffective and should also be closed. We were particularly disappointed that the government did not carry through on their election promise to close the stock option deduction. But the federal budget did promise a full review of all tax expenditures prior to the next federal budget. We think there is an additional $10 billion that could be saved by ending unfair and ineffective tax expenditures, or loopholes, as we like to call them.
Second, the child benefit: Bill C-15 would replace the Canada child tax benefit and the universal child tax care benefit with the new Canada child benefit. This is a welcome improvement to what was in place before. It will go a long way toward ending child poverty. Child poverty still plagues nearly one in five children overall and over 50 per cent of indigenous children and 60 per cent of children living on reserves. This budget measure is expected to lift 300,000 Canadian children out of poverty. This still leaves 1 million children living in poverty, though it will help reduce how far below the poverty line many of these children fall. The government should plan for long-term increases in the CCCB to raise it to a level that it reduces child poverty by 50 per cent in five years, as part of a strong Canadian poverty reduction strategy.
A corporate tax: The budget implementation bill maintains a small business tax rate at 10.5 per cent for the 2016 and subsequent taxation years. The small business tax credit was 11 per cent last year. The previous government had planned to reduce it in .5 per cent steps each year till it reached 9 per cent in 2019. Keeping it at the 10.5 per cent is a smart move for several reasons.
One, while there is some justification for a slight difference between the general and small business rate because larger businesses have more access to things like tax havens to reduce their actual taxes paid as compared with small business, too big a gap actually acts as a disincentive for small businesses to grow.
Second, offering a lower rate for small business is costly in terms of revenue lost. It's estimated that when the rate was 11 per cent, there was a $3 billion a year loss, and had it been lowered to 9 per cent, it would have cost another $5 billion.
Government revenue is not a loss to the economy if it is spent wisely. In fact, if the government had more revenue, it could spend it on investments in social and physical infrastructure, and that would create far more jobs and have a stronger economic stimulative effect than tax cuts. The Finance Department and studies by Joseph Stiglitz have both found that every dollar in government spending on physical or social infrastructure had a $1.50 stimulative effect, while every dollar in tax cuts had only a 50 cent stimulative effect.
There is also a myth that small businesses create jobs. It's true they're the largest employer, but they destroy as many jobs as they create because many businesses go bankrupt; so in terms of job growth, medium and larger companies actually have a better track record.
Finally, if the gap between the top marginal income tax rate and the small business tax rate becomes too great, this creates a strong incentive for professionals to set up their practices as a small business. This is becoming a bigger problem as a result of the introduction of the new top income tax rate of 33 per cent on income over $200,000. The Liberals promised to fix this, but it would appear that this budget implementation bill does not fix this problem.
One more item I'd like comment on is the mineral exploration tax credit. This bill proposes that it be extended for one more year. This is a bad idea, in my view. It seems every government has been extending it for a short period year after year without really making a final decision. Eighty per cent of the beneficiaries of this tax credit are in the top tax bracket, according to Finance Canada. It costs between $40 and $150 million a year, depending on the year, but it only raises about 10 per cent of mining companies' exploration capital.
University of Victoria economist Lindsay Tedds concludes there is no evidence that the mining exploration tax credit increases exploration activity and, on the investor side, it subsidizes high-risk investments and appears to be predominantly used for tax planning purposes by high-income taxpayers rather than for calculated investment purposes.
The Chair: Do you have a final comment? We'd like to have lots of time to discuss these points, because we have many questions to ask.
Mr. Howlett: I'm also prepared to answer questions about the sharing of taxpayer information within the Canada Revenue Agency, but I will deal with that later if you like.
The Chair: I didn't mean to cut you off, but you're so passionate that I know that you could have kept going.
Bruce MacDonald, President and CEO, Imagine Canada: Thank you, Mr. Chair and thank you to the committee for inviting Imagine Canada to appear here today.
[Translation]
For those of you who are unfamiliar with our organization, Imagine Canada is a national umbrella organization for all Canada's charitable and non-profit public benefit organizations.
[English]
Charities and non-profits make vital social, but just as importantly, economic contributions to Canada. The most recent data indicates that some 2 million Canadians work in the sector, and these are jobs in every community across the country. Thirteen million Canadians volunteer for their favourite causes every year, and our sector accounts for more than 8 per cent of Canada's GDP.
Despite this, charities and non-profits tend to be an afterthought when public policy decisions are made. While the Canada Revenue Agency regulates the activities of registered charities in order to enforce the Income Tax Act, no government department is charged with thinking about enabling policies for our sector.
Indeed, very little attention is paid to even understanding our sector. The figures I cited above are the most recent. That being said, it has been more than a decade since the federal government collected comprehensive information about this sector. Can senators imagine making decisions about any other economic sector based on such out-of-date information?
The bill you are studying today, the federal budget and other recent initiatives provide some hope for positive change.
This bill, alongside Bill C-2, makes changes to the income tax regime, establishing a new upper bracket of 33 per cent. We were encouraged when, at the time this was announced, changes to the charitable tax credit were also announced so that taxpayers subject to the 33 per cent rate did not lose an incentive to donate. We expected that, as is so often the case, we would have to seek an after-the-fact solution to bring the tax credit into balance. The fact that we did not have to is very encouraging.
[Translation]
We also welcome the measure in the budget and bill enabling registered charities to enter into limited partnerships. The measure will give charities, in particular foundations, new ways to diversify their investments and generate revenue. Foundations will also be free to invest in companies with the participation or under the supervision of other charities. The freeing up of capital and its potential is essential for encouraging more social finance activities.
[English]
While the budget was silent on another area, we have also seen an encouraging development at Canadian Heritage, which recently announced significant reforms to the administration of grants and contributions. This is a positive step that will benefit charities and non-profits and the government itself. We would like to see such measures established across the federal government.
The elimination of the Children's Fitness Tax Credit and the Children's Arts Tax Credit, as well as the decision not to proceed with proposed incentives for donations of real estate and private company assets, need to be part of a larger discussion about the role of charities and non-profits, the long-term sustainability of the sector and the role that the federal government can and should play. Our chief economist has undertaken a major piece of work on this topic that could be of interest to this committee when published later this year.
The government has committed itself to broad reforms to the legal and regulatory framework for charities and non- profits, and the Commons is currently considering a private member's bill on charitable donations, which we hope will be sent to committee for detailed discussion. It is time that we tackle these issues in a comprehensive way so that we can move forward together with a vision of what we want this sector to be, how we want to work together and how we will unleash the full economic and social potential of charities and non-profits. The piecemeal, afterthought approach taken by governments of all stripes in the past does not serve us well.
The Senate is often a good place to dive into issues and generate ideas. I hope that our being here today is just the beginning of an ongoing dialogue.
Thank you very much.
Bob Elliott, Senior Leader, Sport Matters Group: Thank you, Mr. Chair, and the other members of the committee for the invitation to address you today.
The Sport Matters Group is an Ottawa-based collaborative of some 80 organizations who believe that ethical, accessible and values-based sport, physical activity and recreation are integral to Canadian culture, the development of our people, communities and nation. Since 2000 we have worked to advocate for the benefits of sport, to use an all- inclusive term, to Canadians and to the country as a whole.
Our presence here today is focused on the elimination of the Children's Fitness Tax Credit, or CFTC, by 2017.
While our sector was generally not a big proponent of this tax credit in this first place, we are big proponents of encouraging Canadians, in particular Canadian children, to get active and remain so over a lifetime. Hence, the tax credit was a case of something being better than nothing. Let me explain.
My colleague at the other end of the table was talking about the history of it. When it was first brought in in 2007, the CFTC was aimed at encouraging parents to put their kids in sport and physical activity programs, and by so doing they would gain a non-refundable tax credit for anything spent up to $500. For the highest earners, this meant a credit of approximately $75 on their taxes. In 2014, the Conservative government increased the maximum amount to $1,000 and made the credit refundable, thereby doubling the potential refund to $150 for high-income earners.
For low-income earners at the other end of the spectrum, this initiative was less than enticing. A low-income family would typically have fewer resources with which to be able to register their kids for activities and in some cases didn't have a high enough income level to be able to see any effect on their taxes even if they could get them registered. In many cases, these families aren't as concerned about their kids being in activities as they are about paying their rent, putting clothing on their kids' backs and ensuring they have food in their stomachs.
We support the elimination of the CFTC; however, what is needed is a plan and funding to encourage Canadians of all ages to get and stay active.
Here are some data to punctuate that need: Only 5 per cent of Canadian children and 15 per cent of adults get the recommended amount of physical activity each day. Children aged 3 to 4 years spend 50 per cent of their waking hours being sedentary, while 5 to 11 year olds are sedentary 57 per cent of each day and for 12 to 17 year olds that number is 68 per cent. Adults, generally, are sedentary for over 10 hours each day, and I am sure many of us can relate to that number.
Physical inactivity costs Canadian taxpayers approximately $6.8 billion each year. The 2015 Participaction Report Card on the physical activity level of Canadian kids gave them a grade of — get this — D minus. The 2016 grade will be announced next week, so we will see if there has been an improvement there.
The Canadian Institute of Actuaries estimates that by 2037 health care will take up to close to 69 per cent of government budgets; in 2013 that percentage was 44 per cent.
The Conference Board of Canada has stated that by getting just 10 per cent of Canadian adults more active in 2015, the cost of health care would be reduced by 2.6 billion and we could inject 7.5 billion into the economy by 2040.
It is clear that physical activity is not just about getting people active for the sake of their health, but for the sake of the economy, as well.
As I know you are aware, Mr. Chair, and no doubt others on the committee are, too, sport can offer many benefits to its participants, but one benefit that is not as obvious as some others is how it can be a highly effective tool when used intentionally to create social change. We call it Sport for Development, and a good example is when sport programs are used to help keep kids out of the justice system. These programs and the hundreds of others, like the Montreal Alouettes' Together at School program and the Night Hoops basketball program in inner city Vancouver, help our youth deal with challenges they face on a daily basis and have the added benefit of providing kids with much- needed physical activity. Sport for Development is one of five main pillars of the Canadian Sport Policy; however, it has seen very little emphasis placed on it at the federal level since the policy's approval.
In our submission to the House of Commons standing committee on finance earlier this year, we asked the government to increase its allocation to spending on health promotion and physical activity initiatives from 2 per cent to 3 per cent, representing a $90 million increase based on numbers previously quoted.
In addition to sustained funding to organizations and programs providing physical activity leadership, Canada is in desperate need of a national strategy for physical activity. The genesis for this strategy, which must include persons with disabilities as well, is in place. Developed by the sector over the last four years, it is called Active Canada 20/20. This strategy should be similar in nature and scope to the Canadian Sport Policy previously mentioned. If we were to move forward on this, it would establish goals for the nation, identify actions based on evidence, focus on key priority action, build on current strengths, identify strategies to address gaps and provide focus and opportunity for coordinated action and evaluation. The solution to the challenge of increasing physical activity levels of Canadians is a complex one requiring partnerships and collaboration.
Thank you for, Mr. Chairman, for the opportunity.
The Chair: We will move to senators' questions.
Senator Marshall: My first question is for Mr. Howlett. The budget announced additional funding for the Canada Revenue Agency — quite a significant amount: $444 million over five years. What expectations do you have for the Canada Revenue Agency when they start using that money?
Mr. Howlett: This is a very welcome development. It's something that we have been campaigning for. Just put it in context, the Canada Revenue Agency had more cuts to its budget and its staff than any other government department. It was really seriously understaffed.
This will enable the CRA to hire more auditors and investigators. But I should caution that it's going to take a little time, because it's not easy to find qualified people just off the street. We have been advising the Minister of Revenue that they need to invest in training, because what they really need are those who can take on the more complicated and difficult cases. The training was cut as a result of previous cuts as well. They really need to restore the training capacity and build up their ability to take on the more difficult and complicated cases.
Senator Marshall: I would think there would be some new tax auditors. What area do you think the tax auditors should focus on? When you made your opening remarks, you made reference to several areas. Where do you think they should focus their attention first?
Mr. Howlett: We believe that the more complicated ones as well as the bigger ones that are represented by those who are using tax havens to hide their money are the biggest challenges and where the government should be able to get the most additional revenue.
What happened was that, without the capacity, CRA ended up going after the low-hanging fruit, which meant they were throwing the book at the small-time, ordinary taxpayers who may have just made a mistake on their return, while letting the big tax cheats off the hook, often only going after them in voluntary, out-of-court settlements with no penalties at all. That results in a very unfair tax system.
We have already seen some steps taken in the 2013 budget by the previous Conservative government regarding going after tax havens. It has shown results, so I do expect the government will, within the five-year period, be able to recover way more in additional revenue than what they are investing now in the CRA.
Senator Marshall: I have another question I'd like your comment on, and I would appreciate it if Mr. MacDonald could also comment. They tried to put into the budget some encouragement for those who are in the new high-tax bracket to increase their donations by giving them a little bit extra with regard to the tax credit. The Department of Finance testified before us, and they feel that this amendment in the budget is going to increase donations by those in the upper tax bracket. Mr. Howlett, do you support that that amendment? Do you think that will have the impact that the Finance officials think it will have?
Mr. Howlett: Even though I have worked for many years in the non-profit and charitable sector, I actually don't support this because I think the charitable tax credits should be fair. It should provide a similar tax benefit, whether you're high or low income. If we provide additional benefits to high-income charitable donors, it skews the kinds of priorities that end up being funded.
If you look at where the charitable dollar goes, very little actually goes to supporting antipoverty and children's programs. The biggest chunks go to religious organizations, most of which do not really provide much in the way of social service. It mainly benefits the members of those different religious sectors. I used to work for a church. I know that most churches don't do much in the community.
The other biggest chunk goes to universities in the health care and research sectors, which, again, in my view, are not the priorities. Even if you look at health funding, it goes to the sexiest body parts rather than where the most challenging diseases and health challenges are. It's not a good way to set priorities for how to fund our social needs.
Senator Marshall: Mr. MacDonald, do you agree with Mr. Howlett?
Mr. MacDonald: I will take a slightly different view on this.
Senator Marshall: I thought you might.
Mr. MacDonald: For us, the recognition that more affluent Canadians may have less money at their disposal as a result of the tax change was a concern. Many Canadians who have means are the donor base that supports organizations across this country, regardless of mission or cost. There is probably a line-up of people who could come and debate the merits of the mission or cause.
We were pleased to see the recognition that donations may be negatively impacted by that increase in the tax rate. That adjustment was made before we had to come and fight for it. We view that as a positive measure.
Senator Marshall: I myself found it would have a negative impact on donations, but Finance officials had a different view and assured us they would be monitoring to see whether it had a positive or negative impact. I'll leave that with you.
Senator Eaton: Just to pick up on something you said to Senator Marshall, you talked about the "sexiest body parts.'' Are you talking about the heart — in heart and stroke research, maybe?
Mr. Howlett: No. Things like breast cancer get a disproportionate —
Senator Eaton: Think of your mother, your daughter.
Mr. Howlett: I know, but if you look at it in a more dispassionate and objective way —
Senator Eaton: Perhaps men have not gotten well-organized enough to deal with the prostate —
Mr. Howlett: Colon cancer and other less kind of — Crohn's disease, other things that aren't as attractive.
Senator Eaton: Get marching. Get marching.
Now I'll ask a serious question. Sorry. We have all been talking about tax loopholes. The argument between lower taxes and stimulus spending goes on and on. Depending on which economic forecast you're talking to and which government you're talking to, it changes. But why not do something radical like a flat tax where it would take you a page to fill out your income tax return and where there would be no tax loopholes? What about something like that? Would you ever advocate something like a flat tax?
Mr. Howlett: The problem is that you if take taxes as a whole, many other taxes like the value-added tax, the HST or property taxes, those are actually quite regressive. So you need progressive income taxes to counterbalance the regressive taxes in the other areas.
Senator Eaton: Wouldn't a flat tax be fairer? Because no matter what your salary is, it's relative. The HST is on purchase power. So if you buy a tiny car for $17,000 or $15,000, you're going to pay X. If I buy a car for $150,000, I'm going to pay that much more. Is that not a fair tax?
Mr. Howlett: No, because the principle is that those who can afford to pay more taxes should pay more taxes.
Senator Eaton: I would be. I would be.
Mr. Howlett: There is much more disposable income available to higher income earners, and they should expect to pay more.
The other role that taxation plays is not just raising revenue, but redistributing income. Our economy now has gotten more and more unequal, to the point where it is actually undermining our economic development.
Ordinary middle- and lower-income people have not seen their incomes rise very much, so they have gone further into debt. They are maxed out. Their capacity to spend and boost the economy is diminished. There are only so many cars and houses that the richest people can buy. A lot of their money goes unspent and actually does not provide any economic stimulus. We need to redistribute wealth in order to restart our economic engines, and the tax policy is one way to do that. I do think we need a progressive income tax, and it needs to be progressive enough to offset the other regressive taxes so that we end up with a more fair tax system.
Senator Eaton: I don't have your financial acumen or sophistication, but I would have thought that helping industry become innovative and creating more jobs and better training would have been more useful than trying to redistribute income.
Mr. Howlett: It's true that in the past a lot of the wealthy invested their money in productive investments. More and more, we're seeing investments going into speculative investments that actually don't create jobs and actually destabilize the economy. Short term trading of stocks and so on can create a lot of profit but actually doesn't help create any jobs.
I don't have any objection to government encouraging investment, but it needs to distinguish between productive investment and speculative investment. It shouldn't do an across-the-board tax cut or other kinds of policies. It is the same thing for small business. Target your cuts to things that are actually going to create jobs and boost the economy.
Senator Eaton: I'll just make this last comment. I have sat on committees with Senator Mockler on agriculture, for instance, where we looked at the whole food processing and pharma coming out of agriculture and the lack of venture capital, entrepreneurship and investment. It's a subject for another day. All venture capitalists should not be shot because they sometimes —
Mr. Howlett: I don't have an objection to supporting venture capital and other productive investments. All I'm saying is government needs to target it more to make sure that any support results in employment and other economic benefit. Current policies are way too broad and general, and they need to be more focused.
Senator Eaton: May I change the subject, or would you like to move on?
The Chair: I would like to hear you change the subject.
Senator Eaton: I would like to tackle charities next. I think you were talking about how to encourage Canadians to give money and to rethink the charities. Should charities be allowed a political voice? I think Canadian charities right now are allowed to put 10 or 20 per cent of monies they bring in or collect towards a political cause, political lobbying or political advocating. Is that not right?
Mr. MacDonald: Yes, it's 10 per cent, substantially all defined as 10 per cent.
Senator Eaton: Yes. How do you feel about that? Is that something that should be changed?
Mr. MacDonald: It's interesting because the mandate letters that have been published, as it relates to a couple of areas around regulatory reform for the sector, one of them addresses the issue of looking at a reform process to talk about political activities in this country.
First of all, I think we want to go on the record as saying Canadian charities must have an unfettered voice in the development of good public policy in this country. If we think about the society that we live in today, many of the issues, whether it's stiffer penalties for drinking and driving, non-smoking, land mine treaties or health, at the heart of those proposals were charities who were subject matter experts.
There is an interesting opportunity before us now to clarify the rules. The language around political activities has got to be perhaps the most counterintuitive that there is right now. I would say that probably not too many charities are anywhere close to the 10 per cent, but I think there is an inhibitor for charities exercising their voice now because they don't understand the rules, and the terminology being used is quite confusing.
Senator Eaton: I'm trying to get at something that has been filtering underground for many years. Money is coming from Tides U.S. into Tides Canada supporting charities, mostly environmental or eco-activist charities, but we have no idea where the money comes from because it's anonymous. So you have, perhaps, American oil companies giving money anonymously to Tides U.S., giving it to Tides Canada, and then they are lobbying against the oil sands or the pipelines.
I don't question charitable organizations' right to have a voice, but I think we should be able to follow the money to know who is supporting that voice. Just like Canadian elections, I can't give money right now to the Democratic or Republican Party, and I don't want money coming in to support the Conservative Party or the Liberal Party or the New Democratic Party here. Why should I want foreign money supporting Canadian charities, if it will not be identified?
Mr. MacDonald: You have taken a specific example on a very large question. I think that the issue before us now is the ability and willingness for Canadian charities at large to exercise their voice in helping to contribute to good public policy. That is but one example that will come up during this discussion.
The broader question that we have to address actually speaks to the heart of the volunteer board members and staff who work in these organizations right across the country and who don't really understand that their opinion counts and matters on a whole variety of issues. That's the question that is before us. I think that's also the opportunity that is before us.
We'll work through some of these other things. To be clear, charities welcome that transparency and accountability. We have an entire standards program now that speaks to that.
Senator Eaton: You can show where your money comes from?
Mr. MacDonald: Pardon me?
Senator Eaton: Do you think that charities should be able to show where their money comes from?
Mr. MacDonald: Charities show where their money come from now.
Senator Eaton: Not if it comes through something like Tides U.S. or Tides Canada.
Mr. MacDonald: I'm not a specialist in understanding all of the rules and regulations around reporting. We do have annual reporting that we do to the government and we have accounting to our donors. Let's face it: Donors are more knowledgeable and ask more questions today than they ever have, so organizations regularly post information on where their dollars are coming from and are required to have audits. We bring in accounting firms to look at our donors.
Senator Eaton: So you would support knowing where your dollars come from?
Mr. MacDonald: Yes.
Senator Eaton: Thank you.
Senator Mockler: Thank you very much. I had some questions that have already been answered.
To any one of you, in Canada, how do we define the middle class?
Mr. Howlett: That's a very good question and one that got stretched a bit in the middle-class tax cut, in my view. Even though we supported the additional top bracket, the actual tax cut went mostly to the next lower decile of income. What I would call middle class, I would have called the lower-upper class or the upper-middle class, but the majority of middle-income taxpayers actually got little or nothing in terms of the middle-class tax cut, so it was misleading.
It's not a clearly defined term or one where there is general agreement about definitions. Generally, when we do analysis, we talk about deciles or quintiles of population and analyze tax benefit accordingly, without using a term like "middle class,'' which is not very well defined. In our analysis, we generally use quintiles or deciles of the population.
Senator Mockler: Can you explain what you mean? Where I come from, I haven't heard "quintiles.''
Mr. Howlett: The top 20 per cent would be upper class, and the middle 60 per cent would be middle class, and the bottom 20 per cent would be the poor or lower class, generally speaking. By using those more specific categories, you get a more accurate analysis.
Senator Mockler: Do we have a definition of what you call middle class?
Mr. MacDonald: That's way more thorough than I could give you.
Mr. Elliott: I agree.
Senator Mockler: Yesterday, the Minister of Finance was at the committee chaired by our chair. We were asking him to define "middle class.'' Depending on where you live in those five regions of Canada, there is an attempt to say that, if you earn this amount of money going to that amount of money, that's the middle class. Then your diagram that you have just explained, Mr. Howlett, is the one that would give that 20 per cent upper. The 20 per cent lower would be the ones on the lower side of that middle class. But what is the income ladder from bottom to top? How would you define that for the middle class?
Mr. Howlett: That's why I'm saying I think it's difficult to do a precise definition. But I do think that more people think of themselves as middle class than is probably actually the case if you look at income amounts. Many people who are pretty high income would consider themselves middle class and ordinary, and even some of those with fairly low incomes think they are part of the middle class too, so it is, by nature, not a very specific definition.
However, I think it is important to have an objective of trying to have a more equal distribution because when you get very highly polarized and big gap in income, it leads to all kinds of health and social problems. Poverty actually costs the government a lot of money in increased health care costs, for example. Not only does it limit a boost in economic demand and economic growth. So, regardless of how you define middle class, it is important to try to narrow the gap between the richest and the poorest in our society to have a healthy society.
Senator Mockler: Can I have a few more?
The Chair: I'd be honoured to hear you ask more questions.
An Hon. Senator: The chair's sarcasm this afternoon.
The Chair: We have had lots of meetings, folks. Go ahead, please.
Senator Mockler: Have you been consulted on the budget process by the new government?
Mr. Howlett: Yes, we have. We have met with a number of officials and with members of Parliament. So far, I haven't met with the Finance Minister or the Revenue Minister personally, but we have met with a number of officials and we have contributed to the pre-budget consultation process. We have had input.
Even prior to the last election, we met with all of the parties to share our proposals on how to make the tax system fairer. Even with the previous government, they did take up a number of our recommendations, particularly with respect to tax havens. I did actually meet with Mr. Flaherty a number of times as well. So we have had the ear of government, so to speak, and the government has implemented quite a few of the recommendations we have made over the years.
Senator Mockler: You have not met the present minister.
Mr. Howlett: Yes. They have implemented, not only in the federal budget, but, a few weeks later, after the federal budget was introduced, the Revenue Minister actually announced a number of initiatives by the Canada Revenue Agency targeted at tax havens that were many of the things we had recommended. We have had follow up meetings since with Finance Department officials to discuss tax loopholes, for example, beneficial ownership, which is one of the big problems in terms of lack of transparency of who actually owns companies. That allows people to hide their money. Canada actually does not come up to the new international standards. That has been taken up by the Finance Minister, and they are trying to address that issue. On a number of these issues, we have had a very positive response from the new government as well.
Senator Mockler: With your experience, to the three witnesses, what would be your comments if the government, with the provinces and the North, were looking at guaranteed minimum income? Would that be better to distribute the wealth in Canada?
Mr. Howlett: I think that would be. We, in effect, have moved towards that with the child benefit because it provides a guaranteed amount for families with children. It makes a huge difference. It's not quite good enough, as I said, but it goes a long way towards reducing child poverty.
We already have a guaranteed minimum income for seniors. Again, it's not quite enough to eliminate poverty among seniors, but it comes pretty close. So, at both ends, we are moving towards, in effect, a guaranteed annual income.
There are many things that recommend a guaranteed minimum income. The main concern I would have is that the support be set at a level sufficient to ensure a good quality of life and not be the bare minimum. It could replace a lot of other costly social programs, although it shouldn't be seen as mainly a money savings but a way to distribute support at a more effective and more adequate level.
Mr. MacDonald: I'm not sure that, at this point, we would support a basic annual income or guaranteed minimum income without consideration as to what it would do to the social sector in this country. We don't know what the question entails yet.
Let's face it; many charitable organizations deliver services on behalf of government in this country. Does that mean that, under a new system, that wouldn't be the case? I think it's too early to provide you with a thorough answer, but we certainly have lots of questions to ask.
Mr. Elliott: From my perspective, we are such a niche sector in terms of the sport and physical activity and people who are interested in that. We understand what the government has done with the children's fitness tax credit and what they are in the process of doing by taking that away and putting, I'm sure, some or all of that money that was being spent on that tax credit into the Canada Child Benefit. We understand how that is working, so parents now have the opportunity to put their kids in some kind of physical activity using that money. That decision then becomes, "Out of that X amount of dollars I get every month, how much, if any, am I going to put toward putting my child into a physical activity?''
For us, the point really becomes that the government, we believe, needs to set an example, needs to lead by doing, by setting some kind of example that says that fitness, physical activity, is important to Canadians, and it's important to Canada at large as well. As I hope I pointed out in my presentation, there is an economic benefit to it as well.
We hope that they are going to put that example out there, working with provincial and territorial partners, to say health care and sport and other departments can all work together to try to make our kids, to start with, and hopefully adults will take it to heart at some point, more active and more healthy because of that. Hopefully that answers your question.
The Chair: Mr. MacDonald and Mr. Elliott will be with us for another 10 to 15 minutes, and then we will bring in Mr. Ménard to speak with us.
[Translation]
Patricia Kosseim from the Office of the Privacy Commissioner will also speak.
[English]
I have a question for Mr. Elliott because you were getting anxious and I know you wanted to contribute.
In your report, you talked about an allocation of spending on health promotion and physical activities from 2 per cent to 3 per cent, representing a $90 million increase, and then two paragraphs underneath that, you talked about a genesis for your strategy, which must include persons with a disability is in place, developed by the sector over the past four years, called Active Canada 20/20. What is your ask specifically, and give us a little bit on Active Canada 20/20, your strategic plan, in maybe two minutes?
Mr. Elliott: The ask is about the government increasing their investment in active, healthy living initiatives and health promotion type initiatives. As I said in my notes, the current amount being spent is somewhere around $9 billion at a federal level on health expenditures and programs, not counting transfers to provinces and territories. When we analyzed the documentation on where that money is spent — and it's a few years old so it may have changed a little bit, but not by much I don't imagine — our best number is that 2 per cent of that $9 billion is being spent on those types of initiatives, active living and health promotion.
We think it's reasonable to ask, first, in a more philosophical sense, to increase the investment being made in that area for all the reasons that I've mentioned here and many others that I can share with you. Many of you, I'm sure, have heard those. We think that 1 per cent — take it up to 3 per cent — is a reasonable ask. I know $90 million to average Canadians sounds like a lot of money, but we believe in the context of the federal budget to put emphasis on the fact that there is a critical importance to having Canadians be active — particularly Canadian children be active.
That D minus I mentioned in terms of the physical activity report card that ParticipACTION put out last year — does anyone think that's adequate? I hope not.
The Chair: Where would that money be funnelled to? How do you get that money into the hands of people, organizations or groups that will actually help get young people involved?
Mr. Elliott: I think the mechanisms are there with organizations like the Public Health Agency of Canada, Sport Canada, the Department of Health, potentially the Justice Department and the Immigration Department, for example, to use sport to help integrate new Canadians into Canadian culture and to help keep kids out of the justice system. In the First Nations communities, sport can be used to try to deal with some issues and challenges those communities are facing on a daily basis. Then you have organizations like ParticipACTION, which is a pretty well-known organization that is extremely well placed to funnel or channel that money through to those organizations that can help do those things.
The Chair: The only concern I would have as a citizen would be, when I hear you talk about departments and agencies, I get concerned that money funneled into agencies and departments is basically creating government bureaucracies and jobs as opposed to getting it directly to young people.
There was a tax credit for fitness. There were comments that it wasn't necessarily the best way, but what is the best way of getting money into the hands of parents and/or groups that will really get kids involved?
I'm not big on creating more government jobs. I'm big on ParticipACTION. That's a brand that existed, went out of business for a period of time and was recreated. I was lucky enough to have been on the board for five or six years when I was chair of the Canada Games Council. It's a great organization. But if we have a flagship organization, it has to be properly funded to make an impression.
The next step would seem to be how to get the money into the hands of parents, and then the third thing is how to get corporations like Canadian Tire, with their program that they've been involved and tied into the COC, which we learned that on the board of the COC years ago, as a major contributor. How do we get corporations to make major contributions to sport so you would have your ParticipACTION and your tax issue or credit or whatever type of vehicle you would use, and then you would have your corporations who would be incentivized to give money and sponsorship to sport for young people. Maybe you can tie those three elements into your plan if you haven't already. I get nervous when I hear talk about putting money into Health Canada and these other departments and the money never gets to the people.
Mr. Elliott: Perhaps I was tempering my remarks a bit from an accountability standpoint in terms of money going through agencies that Canadians in general would hopefully see as being accountable. Having said that, I totally agree with you; I would much rather see that money go directly to the organizations on the ground doing the work, if you can call it that.
ParticipACTION may be a little bit higher above the ground than other groups, like KidSport and Canadian Tire Jumpstart, who do fantastic work. All of those organizations put money into the pockets, if you will, not to spend it themselves but with the ability to take part in sports, to have the registration fees paid and to have their equipment purchased for them. Those are the kinds of organizations that can really use that money to help keep kids being active and increase the number of kids being active.
The Chair: Mr. MacDonald, from your perspective, with involvement in the charities, could we not try to set up from government policy through charities that we could use charities getting involved in more sport activities? I'm not sure what type of activity you have now with sport. We have this problem with obesity, which we know, and it's tied not only to being obese and not fit but also tied to dropouts in school. We have a major problem in Quebec. I know the problem exists in our Aboriginal community, where we have a 57 per cent completion rate, whether it's 18 or 20 year olds because they changed the parameter through the provinces, whether you're 18 or 20, but usually kids graduate high school at 17 or 18. Would you see charitable organizations playing a role in helping in this area?
Mr. MacDonald: Absolutely. There is a wonderful alignment of interests here. When Bob talks about Sport for Development and the idea of using the vehicle or medium of sport and physical activity to address societal issues, it is a wonderful alignment of interests. Whether it's physical health or mental health or other societal issues — I'll broaden a little bit — but whether it's sport or art or other mediums, this is where the charitable sector in and, in this case, a slice of that sector in terms of sport, can actually engage to do a lot of social good.
One of the things we need to think about — and this is at the root of this conversation — is around the preventive nature. If we're able to influence the behaviour of both parents and young people today in a positive and perhaps less costly way, we will not pay for it in the health care system down the road because we're setting good habits now.
Whether it's classic organizations that have done a lot of charitable work but actually working together with other sub-sectors to create wraparound services that look at the whole individual, it's a great opportunity for the sector.
The Chair: Mr. Howlett, being the tax fairness expert, now that we've talked to these two gentlemen about what they can do, how would you set it up from an actual tax incentive, based on your experience with the successes and failures of the past?
Mr. Howlett: I think government does provide some important support to a number of charitable sectors. Health and sport is one. My background has been in international development.
One of the ways that government can deliver support more efficiently is through multi-year, longer term funding commitments. That would still require annual reports, accountability and all that, but it would reduce the burden both on the non-profit sector in terms of the application process and on government processing it all. I think there is a way to do that and maintain the accountability and make sure that the money is well spent.
I just attended a consultation last week with the new Minister of International Development, and I was encouraged that that seems to be the direction they're prepared to go in considering a multi-year, more block-type funding support for development agencies that are doing a good job rather than short-term, project-by-project, very labour and bureaucratic processes that have become the norm in recent past.
The Chair: We have five more minutes before the next witnesses.
Senator Marshall: I did work in the Department of Health in Newfoundland and Labrador about 13 years ago, and obesity and people's health was an issue even back then. We looked at it from the perspective of the related health issues and the cost to the health care system. If you look at people's inactivity and associate it with the significant increase in diabetes, especially in young people, then they have to have dialysis and the cost to the health care system. Who do you think should take the lead role in trying to come up with some broad plan that encompasses everything? Do you see it as government or the private sector? What are your views on that?
Mr. Elliott: This brings us back to Senator Smith's second question about Active Canada 20/20.
This was a sector-led initiative. One of the meetings was held in St. John, New Brunswick, about three years ago to try to put meat on the bone of that particular idea. It was led by the sector. ParticipACTION happened to be the group that put together a coordinating group of people from across the country from not-for-profits, from charities, from provincial-territorial governments and the federal government. There were over 100 people involved.
It lost steam over the time period after that, for a number of reasons, but has now been picked up again by the federal-provincial-territorial ministers responsible for sport and physical activity at the Canada Games. In fact, in Prince George, the February before this past February, they said they would like to see some more work done on that and see it taken to the next level.
Obviously, we said we want to continue to be part of it and it is necessary. If you're going to do this, don't do it in a haphazard fashion. Have a plan and a strategy in place developed by the sector working with government, working with the private sector if you need to do that as well, and put it in place so that it makes sense for a long period of time.
I made mention of the Canadian Sport Policy. It was developed in the years leading up to 2012, but it's a 10-year policy, 2012-22, approved by the federal-provincial-territorial ministers responsible for sport. Implementation of that is ongoing, and it's being implemented at levels that make sense to the constituency involved. If the province says, "This part works for us, but this doesn't,'' we're going to go off in that direction and do this stuff.
This is the same for a national physical activity strategy. If you can put that in place and find common ground, you have a good formula to accomplish some of the goals.
Senator Marshall: In Newfoundland, when this issue arose with regard to the obesity rate and inactivity, most people were looking to government, and I took the position that government is a partner in all this but government can't solve the problem. You have to have the schools, the parents and the sports organizations. You need all the players to be there at the table participating.
Mr. Elliott: Schools are a huge part of it, as you suggest. We do most of our work at the federal level. When you talk about schools and school systems, obviously it's a provincial matter.
Senator Smith referred to Canadian Tire and some of the work they've done with schools. They had a program called Active After School over the last few years, and Senator Mockler might be aware of it. They went to New Brunswick and said, "Would you make quality daily physical activity education mandatory in your system?'' The only province in this country that has that, from K to 12, is Manitoba. One province mandates it.
Senator Marshall: It's costing the public purse quite a large amount of money. In my own province, Tim Hortons is a big supporter of sports for children, especially soccer. I think that really is going to have to involve a lot of players, and the problem is costing the public purse a lot of money.
Senator Mockler: I'm coming back to the redistribution of wealth, and I do not want to use the formula of Robin Hood. You mentioned that taxes are an instrument we can use to distribute wealth in Canada and in Northern Canada.
[Translation]
Can you tell us whether other instruments can be used to distribute wealth throughout the country?
[English]
Mr. Howlett: The budget implementation bill you are considering has one of the most important distributive measures in recent government history in Canada, and that is the child benefit. It's using the tax system to provide a benefit to families. It provides more to those most in need, but it still is a universal program, so everyone gets something, although upper income people get less because they don't need it as much.
This helps to ensure more children are lifted out of poverty, and it is a very good program. Even though it costs a lot, it will actually save the government a lot of money in the long run. If you experience child poverty, that's more of an indicator that you're going to get heart disease, cancer and diabetes than if you smoke or not. It's huge. It has implications for whether children reach their full potential or not, and that has an economic impact. So it's really important to support something like the child benefit, which really has an important redistributive effect.
Senator Mockler: Governments, not just this government but governments in the past too, have had challenges with First Nation communities. How would you address that, and what recommendations would you make to the committee that we can recommend to the government?
Mr. Howlett: I mentioned that the child poverty rate on reserve is 60 per cent. Many reserves don't even have proper drinking water. This is an embarrassment. Canada is a wealthy country. I've done a lot of work in developing countries, and I have worked on reserves in northern Ontario, for example, and the conditions are the same. It's a Third World country in many reserves. There is no justification for that. We have the wealth. We have the capacity to address those problems.
With the Truth and Reconciliation Committee recommendations, we have a really good set of recommendations, a path forward, if you like, and I'm really encouraged that the new government seems to be taking that seriously.
My one concern is it is going to cost money and it can't be addressed just by running a deficit. It's okay to have a small deficit for one or two years, but long term, the government will need to find more revenue if it's going to have the money necessary to address the Aboriginal poverty challenge, and something that wasn't in this budget was any money for health care. The government is going to have to negotiate a new health care accord with the provinces, and it will be hard to do that unless they have more money on offer. Even if they want to specify certain areas that it should be spent, they must have more money on the table to reach a successful conclusion. They do need to look at how to raise additional revenue. They can't keep going further into deficit. That's why it's important to look at tax loopholes, because we think there is at least $10 billion that could be put to better use addressing Aboriginal poverty or improving our health care.
The Chair: We will continue that discussion because Mr. Howlett will stay with us for our next panel. We thank Mr. MacDonald and Mr. Elliott.
For the second part of our meeting today, we are particularly interested in proposed changes to legislation that are meant to allow the sharing of information amongst CRA officials dealing with tax collection and non-tax debts.
In addition to Mr. Howlett from Canadians for Tax Fairness, as part of our second panel —
[Translation]
— we have Jean-Claude Ménard, Chief Actuary. Thank you for being here, Mr. Ménard. We also have, from the Office of the Privacy Commissioner, Patricia Kosseim, Senior General Counsel and Director General, Legal Services, Policy and Research Branch; and Miguel Bernal-Castillero, Strategic and Research Policy Analyst.
[English]
I gather that each organization has a short opening statement.
[Translation]
Jean-Claude Ménard, Chief Actuary, Office of the Chief Actuary: Good afternoon, Mr. Chairperson and honourable members of the committee. Thank you for the opportunity to appear before you today.
The Office of the Chief Actuary, or OCA, is an independent unit within the Office of the Superintendent of Financial Institutions, or OSFI, that provides a range of actuarial valuation and advisory services to the Government of Canada. While I report to the Superintendent of Financial Institutions, I am solely responsible for the content and actuarial opinions reflected in the reports prepared by my office. The OCA plays an important role in helping decision makers, parliamentarians and the public understand some of the risks associated with the public pension arrangements by providing checks and balances on the future costs of the different pension plans under its responsibilities.
As part of its mandate, the OCA conducts statutory actuarial valuations of the Canada Pension Plan, CPP, Old Age Security, OAS, program, federal public sector employee pension and insurance plans, and the Canada Student Loans Program, CSLP.
Since 2012, the OCA has also been responsible for preparing the statutory actuarial report on the Employment Insurance premium rate. The purpose of these actuarial valuations is to determine the financial status of the plans and to assist the stakeholders in making informed decisions regarding the financing of these programs.
[English]
In addition to its statutory responsibilities, the Office of the Chief Actuary also provides sound actuarial advice and estimates to various clients, including federal, provincial and territorial ministers of finance for the Canada Pension Plan, and Employment and Social Development Canada for the Canada Pension Plan and Old Age Security. Such estimates include those on considered design changes to the Canada Pension Plan, Old Age Security and other programs.
The OCA is also asked to prepare analysis of interactions between the Canada Pension Plan and Old Age Security, as well as with other components of the Canadian retirement income system. The rapidly changing Canadian pension landscape has resulted in an increase in the number and complexity of evaluation requests received by the Office of the Chief Actuary with respect to these two programs.
Relevant, complete, reliable data are a cornerstone of good actuarial work. It is thus of the utmost importance for the OCA to have access to the micro-data necessary to develop reliable short- and long-term assumptions in order to project the financial status of the Canada Pension Plan, the Old Age Security and other programs falling under the OCA's statutory responsibilities, as well as to assess the impacts of design changes on these programs.
The Office of the Chief Actuary is fully cognizant of the sensitivity of the information prepared and provided by the Canada Revenue Agency, as well as other data providers. Along with the OSFI wide policies on information security, the OCA has its own procedures such as, for instance and importantly, access to files containing micro-data is restricted. The Office of the Chief Actuary follows a principal of minimum data collection by collecting only — and I stress the word only — the information that is necessary to perform its work.
Finally, even in the case where the OCA is allowed by law to receive individual information, the OCA policy is never to ask for any personal information such as social insurance number, name or address.
Let me conclude by reiterating that the availability of the proper data, including, most importantly, micro-data, is essential for the office to be able to fulfill its statutory obligations, provide high-quality services to our clients and ensure that the actuarial reports produced by the office are of the highest professional quality.
Thank you very much for the opportunity to appear before this committee. I will be pleased to answer any questions you might have.
[Translation]
Patricia Kosseim, Senior General Counsel and Director General, Legal Services, Policy and Research Branch, Office of the Privacy Commissioner: Thank you for inviting the Office of the Privacy Commissioner of Canada to present its views on the possible privacy implication of clause 47, Bill C-15. The commissioner regrets that he was unable to appear before you today. I am pleased to be here on behalf of the commissioner, along with my colleague Miguel Bernal-Castillero, Strategic Policy and Research Analyst.
I want to use my time today to summarize the written submission we have already made on the legislative amendments in question.
Subclause 47(1) seeks to amend provisions in the Income Tax Act to permit the disclosure of "taxpayer information'' amongst Canada Revenue Agency, CRA, officials for the collection of non-tax debts under certain federal and provincial government programs. We understand that streamlining the individuals' interactions with CRA should better serve Canadians' interests.
To the extent that the information shared is limited to that which is necessary to fulfill the stated purpose — that is, the agency's collection of amounts owing — and provided the use given to the information is consistent with that purpose, the proposed changes would be consistent with the Privacy Act.
That said, as with any proposed information sharing in the public sector, we expect the CRA will comply with Treasury Board Secretariat privacy policies and guidance. In this regard, I can report our office has recently received a privacy impact assessment from the CRA with respect to its new data process, integration and analysis systems in order to optimize strategies for tax and non-tax debt collection. That privacy impact assessment is currently under review.
[English]
As for subclause 47(2), it proposes to amend the Income Tax Act to allow taxpayer information to be shared with the Chief Actuary of Canada to enable him to conduct actuarial reviews of specified pension plans. We note that this change, as drafted, is meant to facilitate the work of the Chief Actuary and the fulfillment of his legislative duties.
We are, however, concerned that the subclause, as worded, could allow for the sharing of taxpayers' personal information in identifiable form, even where an anonymized information would suffice. It would be preferable to explicitly clarify that the taxpayer information that can be shared with the Chief Actuary is limited to only what is necessary to conduct specified actuarial reviews. It is our understanding, as confirmed today, that the Chief Actuary's review does not need information about identifiable individuals.
In their appearance before you three weeks ago, Department of Finance officials indicated that the information intended to be shared under this provision would be masked in order to protect the privacy of taxpayers. Ideally this intention to mask or otherwise de-identify information should be made explicit in the bill. At a minimum, however, the privacy principle of exchanging only information that is necessary for the stated purpose, in this case, actuarial review, be incorporated in a formal information sharing agreement between the departments disclosing the information and the Chief Actuary of Canada as the recipient of this information. Such an agreement should include privacy protection measures, limiting collection and use, securing information, establishing retention times and providing for effective destruction of the information no longer needed.
At present, we understand that it is the intention to have such an agreement in place with these built-in protections. If and when such an agreement is reached, then our privacy concerns about the bill would indeed be mitigated.
I thank you for this opportunity to appear. My colleague and I would be pleased to answer any questions you may have. Thank you.
The Chair: Thank you very much. We'll go right to Senator Marshall.
Senator Marshall: Thank you very much, Mr. Chair. I have questions both for the Chief Actuary and also for the privacy commission officials. I'm going to start with the actuary, because I think my questions will flow to our next witness.
The data that we're talking about in Bill C-15, is that data that you haven't received in the past?
Mr. Ménard: Yes, indeed.
Senator Marshall: It's new data, is it?
Mr. Ménard: We received such data from 2001 until 2009, and over the past three years, some lawyers from Canada Revenue Agency, Department of Finance and ESDC, or Employment Social Development Canada, have expressed concerns about whether the law gives proper authority to OCA to receive that information. We went through discussions to see if there was a non-legislative solution to that issue, and we concluded that a legislative change would be required.
My understanding is we will still have a letter of agreement with the CRA to make sure that we only have the information we need and that we could prove we need that information to do that particular part of our work and nothing more.
Senator Marshall: So the term being used to describe the data that you're receiving from Canada Revenue Agency is "masked.'' Is there no identifying information passed over at all, or is it passed over to you and you can't see it? I'm trying to get to the concept of the term "masked.''
Mr. Ménard: The term "masked'' is a synonym of "encrypted.'' It is a mathematical algorithm that transforms the SIN, but this information is the key identifier to make sure that, when we look at the OAS data base, for example, we can see the information provided by CRA and the OAS master benefit file to make sure we do the proper evaluation for the actuarial report.
Senator Marshall: So for the information that you have under your umbrella, do you have experts coming in to review the security? Are there risks associated with that information being released and identifying information being determined?
Mr. Ménard: The first line of defence is to make sure that we don't have personal information at any case. That's the first security. After that, people only have access to the files they need to do their work. OSFI overall has a very strong, robust system to protect the information.
Senator Marshall: Okay. Do you use Shared Services Canada?
Mr. Ménard: No.
Senator Marshall: So this is totally under your control?
Mr. Ménard: Yes.
Senator Marshall: Have you ever had security reviews conducted with regard to the information that you're maintaining within your office?
Mr. Ménard: We have an internal audit on information privacy management. In that case, we identify situations where we still have databases, mainly related to public service employees. We have some names or even the files from Veteran's Affairs, and we took actions to ask the data provider to remove the name of these people because we don't need the names of people to do our work.
There is still one file with the names of people. It's the file on the Senate. It's an old system. It's for your own pension plan. What we have decided to do in that case is to receive the file, remove the name, replace it by a number and then to secure this on a network so no one would have access to the names.
Senator Marshall: Okay. So at some point in time, you will dispose of some data. You won't just keep accumulating and accumulating data after so many years. How do you dispose of it?
Mr. Ménard: The cycle of actuarial reports is every three years. Every three years, we will replace and destroy the previous file. However, there is one important point. We have to validate the database we receive. It might take a year between when we receive the new file and destroying the other file because occasionally in the past we have received the wrong files. The fact that it was good two or three years ago doesn't meant that it is still good today, so we need to do the proper validation. Once we are satisfied that the database we receive is fair, reliable and accurate, then we destroy the previous files. But we have a retention policy of all documents in OCA of 12 years.
Senator Marshall: How do you dispose of the files? How is it done? Who oversees it to make sure it's actually destroyed rather than someone having access to it?
Mr. Ménard: Someone from IT will come. Indeed, that's one of the purposes of the internal audit that was done recently, just to make sure that we disposed of these files properly.
Senator Marshall: That's been subject to audit?
Mr. Ménard: Yes.
Senator Marshall: We have had other witnesses testifying with regard to student loans. I know that you do actuarial reviews on that. What percentage of student loans are collected? Do you know that?
Mr. Ménard: We have about half a million students who benefit from the student loan, and in the most recent year we have issued $2.7 billion of new loans. Overall, the total direct loans are approximately $17 billion as of July 1, 2015. It is projected to reach about $31 billion in 25 years. There is also a limit in the act, and the limit right now is at $24 billion, but the direct loan portfolio is $17 billion.
Senator Marshall: Would you know what percentage of the money is repaid by students? I have asked other witnesses what percentage of student loans are collected. The last percentage I was given was about 90 per cent. Does that sound about right to you? Would you have a more accurate figure?
Mr. Ménard: It sounds right to me, but I would have to double check in the actuarial report, the last one tabled before parliament.
Senator Marshall: Thank you. Mr. Chair, do I have time now to go on to the privacy commissioners?
The Chair: That would be outstanding. As a former Auditor General, it seems to be right in your bailiwick.
Senator Marshall: I'll keep going. Perfect. Thank you.
When new legislation is being proposed, does the Privacy Commissioner's Office review all legislation? Is it standard process to review all legislation to see if there are privacy concerns?
Ms. Kosseim: Yes, in fact we do review bills that are tabled. We do an assessment, and people like Miguel and our group in policy and parliamentary affairs review proposed federal bills to assess the potential privacy impacts. We will focus in more specifically on those bills where we do see potential implications, and we will address those concerns.
Senator Marshall: Would the issue that we identified with regard to clause 47 have been picked up by your office when you did the review of the Budget Implementation Act?
Ms. Kosseim: We would have reviewed the bill, like other bills, and done a risk assessment regarding the privacy implications. Any concerns would be reviewed both internally and with the commissioner. A determination would then be made whether or not we would make a submission to Parliament, for instance.
Senator Marshall: So looking at the Canada Revenue Agency, or any agency or government department, do you do systematic reviews? Canada Revenue Agency has a lot of confidential information on millions of people. Do you do regular reviews as to how they are controlling the data? Not just retaining it, but also with regard to who has access to it and how they dispose of it? Could you give us some information on that?
Ms. Kosseim: We would, in various ways. For instance, in 2013, we conducted an in-depth audit of CRA and their information management practices. We published that audit report in 2013 as part of our annual report to Parliament. We did a follow up in 2016 of our recommendations and progress made in respect of implementation of those recommendations, which I understand we will be reporting on again in our annual report in the fall. So that's the audit group.
We also will receive complaints from individuals about CRA, and so we will investigate individual complaints. We have the occasion in those instances to examine practices that are the subject of concern to the individual complainants.
CRA and other departments will receive privacy impact assessments. For instance, when departments undertake new programs or amend existing programs or new initiatives, they will assess whether or not a privacy impact assessment is required under the Treasury Board policy, and where they do conduct one, they will send a copy of that PIA to our office. They are encouraged, in fact very strongly, to send us a copy of that PIA before implementation of the program or the new initiative so that we have a chance to review the PIA. Where the risks warrant it, we will issue our comments and feedback on the PIA back to the department.
Senator Marshall: So what would be your involvement in the disposal of information that CRA has? The information will not be accumulated into eternity. At some point in time, some of the older information is going to be disposed of. Would you have any role in that?
Ms. Kosseim: We would have looked at the disposal and destruction practices as part of our 2013 audit. Miguel, can you confirm that? If that was the subject of a recommendation, we would have followed up on that in our 2016 review. I'm just verifying if destruction was one of the specific elements we examined and made recommendations on.
In passing, just for your information, we also play an advisory role more generally for government departments and agencies. In the last couple of years, we issued guidance on the proper destruction and disposal of personal information that is no longer needed. That disposal guidance is up on our website in both official languages. It's adapted for both private sector organizations, which we also regulate under our private sector law, and public sector organizations, and it has very practical steps and methods for effectively destroying information.
Senator Marshall: There was a media report a little while ago about the Canada Revenue Agency accumulating a lot of paper files, as I understood it. That doesn't ring a bell with you, does it? As you were speaking, I was wondering what kind of security there was.
Ms. Kosseim: Not specifically.
Senator Marshall: Shared Services has a big role in government. Do you do any work with regard to Shared Services Canada? They would have access to a lot of data, including personal data. What would be your role there?
Ms. Kosseim: That's a very good question and a very timely one that I think we will be discussing in our annual report to Parliament in the fall. In the context of recent complaints or reviews or audits that we would have done more recently, we are now seeing departments that are using the services of Shared Services Canada for their information technology systems, and we're now seeing in practice the kinds of issues that give rise to attributing responsibility, accountability, who takes care of what, making sure nothing falls between the cracks and who is accountable. Those are some of the issues we are now assessing as Shared Services Canada more and more provides these services, and we will be addressing those in our annual report.
The Chair: You had noted, Mr. Howlett, in point 5 of your presentation the sharing of taxpayer information within the Canada Revenue Agency. You wanted to give us an opinion or some feedback about that. Maybe you could do that after I ask Mr. Ménard.
Mr. Ménard, the type of information that you request directly from CRA, what are you looking for when you go to CRA? Is it case specific, or is it a theme or an element of a study that you're looking at where you get information in regard to public service pensions or whatever areas you are focussed on at that particular time?
What was the impact for your office of not receiving information or data since the 2009-10 period? You mentioned something changed at that particular time.
Mr. Ménard: First, it was more difficult for us to work properly since 2009. We were able to come to an agreement with CRA, but with a lot of restrictions that didn't help us to do the work as efficiently as we would like.
The information we need is mainly for the Old Age Security. To project the Old Age Security, the basic pension, it's quite easy. The law is telling us to project the benefits for the next 30 years, and we need the population of seniors.
But when it comes to the Guaranteed Income Supplement, although we have a robust process for the next five years to calculate the cost of the Guaranteed Income Supplement, it's another difficulty when you look 20, 25 and 30 years later, because you need to assess the retirement income or the income of seniors. That's why the CRA database is so useful to us because we ask about the income and various incomes of seniors, including the Tax-Free Savings Accounts, which has a potential impact on the Guaranteed Income Supplement.
By the way, when we receive the income, we don't receive the precise income; we receive an income rounded to $100. We will continue to receive rounded figures to reduce to a minimum the risk of potentially identifying a person.
The Chair: Thank you. Mr. Howlett, do you want to give us some feedback on point 5 in your document? You said you wanted to delve into taxpayer information. If you have anything that the privacy people could address, it may be helpful to have some exchange.
Mr. Howlett: I would support the proposed provisions. I defer to some of the expertise of the other panelists here. I would note that it's important that we do what is necessary to make the work of the CRA more efficient and effective. They are strapped for capacity to be able to do their job, and my understanding is that this would facilitate their being able to do it in a more efficient manner.
I do believe that Canada has a robust privacy regime in place, much better than many countries. I'm assured that because it's being kept within the CRA — or even in the case where Mr. Ménard would be entrusted with some information — the necessary steps are being taken to protect the privacy of information.
Just to put this in some perspective, in the Scandinavian countries, they actually post everybody's income tax return on their website. The government offers to do everybody's income tax return for them. That doesn't seem to create a problem there, partly because they have a more egalitarian society and also because the citizens believe they get a lot of value for their money even though they are paying more taxes, generally speaking, than Canadians are.
Sometimes I think we as Canadians probably get a little more hung up about privacy than people in other countries. That being said, I do think we have to judge the danger of not having information being kept private. In my view, tax information may not be as critical as the information handled by CSIS, for example.
I would certainly support that in these cases sufficient care is being taken to protect it and that only the necessary data is being shared, and it would actually result in better service and better government services for our money in the end. I think it's a worthwhile step to be taking.
The Chair: Thank you.
Senator Marshall: I realize that the Chief Actuary requires certain information to do his job. I know that we need that information in order to make policy decisions. But right now in Canada, privacy is a big issue. We have a Privacy Commissioner. I don't have a problem with the data being provided, but I do want to say that privacy of individuals is paramount, and security over information is also very important. I just wanted to impress upon you that issue.
Mr. Ménard: I fully agree with your statement.
The Chair: Any final comments from our three panelists? Ms. Kosseim, you looked like you wanted to stay something after the other two speakers.
Ms. Kosseim: No, I just wanted to answer the honourable member's question about the recommendation specifically to the CRA we made following our 2013 audit. I had occasion just to double check, and none of the recommendations we made specifically deal with disposal or destruction, but they're embedded in our broader recommendations around appropriate safeguards, privacy protective mechanisms, controlled privacy impact assessments and the need for threat risk assessments. It's embedded as one of the important principles that we recommended CRA incorporate into their systems.
The Chair: Is that process of privacy impact assessment, which is currently under review, completed? In your presentation you said:
. . . as with any proposed information sharing in the public sector, we expect the CRA will comply with Treasury Board Secretariat privacy policies and guidelines.
In this regard, I can you report our Office has recently received a Privacy Impact Assessment from the CRA with respect to its new data process, integration and analysis systems in order to optimize their strategies for tax and non-tax . . . .
Where are you with that and when will it be completed?
Ms. Kosseim: We received it just last month, as a matter of fact, so we are currently reviewing it. I imagine that it will take its normal course and that we'll be in a position to provide comments back to the department to provide useful input on what areas could be strengthened.
The PIA in question is not squarely on clause 47. It is more generally with respect to modernizing their information technology and business intelligence systems in order to break down the silos between different areas of the agency and to focus their energy and attention on areas of highest risk. This will help them to put in place the business and technology systems necessary to get better at what they do, essentially.
The Chair: Is the relationship ongoing between you, Mr. Ménard, and the privacy group, Ms. Kosseim? Is it something you're dealing with together on a regular basis? Give us a sense of what type of relationship exists.
Ms. Kosseim: We haven't had many dealings, and maybe that's a good thing, with Mr. Ménard. We have not had the occasion, and thank goodness we haven't had any complaints. That's a good sign.
On the other hand, we do understand that you intend to look at this information-sharing agreement, contemplating the need for a PIA. Certainly, we remain available and very interested in helping you through that process and providing what input we can to that mechanism.
Mr. Ménard: We've received individual information de-identified since 2001, so for the past 15 years. So far, we haven't had, and I touch wood, any security breaches. We welcome any working relationship with the Privacy Commissioner because, as I said to Senator Marshall, the privacy of information is extremely important.
The Chair: As the last question for both of you, what's the biggest challenge in your jobs?
Ms. Kosseim: Keeping up with technology and with the great innovations and technological advances that make all our lives socially and economically better but that do raise privacy implications. We try to keep up in a way that we can hope to protect privacy without causing roadblocks to innovation and a better social and economic welfare. That's the challenge. We walk that fine balance as best we can every day.
Mr. Ménard: Well, I'm a strong believer in social justice. In my work, I am looking at ways to reduce the poverty rate in all parts of the Canadian population. One success story in Canada is that we have one of the lowest rates of seniors in poverty in the world. If you live alone as opposed to living as part of a couple, the poverty rate is higher. I like what Mr. Howlett said earlier about the Child Tax Benefit. We need to go further in reducing poverty, in particular for Aboriginals.
Canada is among the top five countries with the lowest mortality rates in the world and the highest life expectancy, but for people living in the North, their life expectancy is about 10 years lower than the rest of the population. It's not a big group and it doesn't impact the overall numbers, but it's a bit disturbing. Life expectancy for me is a good indicator of the economic progress of any country in the world; and we still have an issue with the people living in the Northern part of the country.
The Chair: Mr. Howlett, do you have something to say before you go?
Mr. Howlett: A challenge in my view is how to help the government see the best ways to make the tax system fairer and to raise the necessary revenue to do more to address the many challenges we face, and to use the tax system to make our society more equal.
The Chair: I thank you, panel, and wish you the best.
The meeting is adjourned.
(The committee adjourned.)