THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, May 25, 2021
The Standing Senate Committee on National Finance met by videoconference this day at 9:30 a.m. [ET] to study the subject matter of all of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, before we begin, I would like to remind senators and witnesses to please keep your microphones muted at all times unless recognized by name by the chair.
[Translation]
Should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk, and we will work to resolve the issue. If you experience other technical challenges, please contact the ISD service desk with the technical assistance number provided.
[English]
Honourable senators, the use of online platforms does not guarantee speech privacy or that eavesdropping will not happen. As such, while conducting committee meetings, all participants should be aware of such limitations and restrict the possible disclosure of sensitive, private and privileged Senate information. Participants should know to do so in a private area and to be mindful of their surroundings.
Honourable senators, we will now begin with the official portion of our meeting as per our order of reference received by the Senate of Canada. My name is Percy Mockler, senator from New Brunswick and chair of the Standing Senate Committee on National Finance. Now, I would like to introduce the members of the National Finance Committee who are participating in this meeting: Senator Boehm, Senator Dagenais, Senator M. Deacon, Senator Duncan, Senator Forest, Senator Pate, Senator Klyne, Senator Loffreda, Senator Marshall, Senator Richards and Senator Smith.
I would also like to welcome Senator Moncion, the sponsor of Bill C-30 that accompanies us today.
I also wish to welcome all viewers across the country who may be watching on sencanada.ca.
[Translation]
This morning, we continue our study of the subject matter of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures, which was referred to this committee on May 4, 2021, by the Senate of Canada.
[English]
For our first panel this morning, honourable senators, we welcome from C.D. Howe Institute the Director of Research, Alexandre Laurin.
Welcome, Mr. Laurin. Thank you for accepting our invitation for appearing today in front of the National Finance Committee regarding Bill C-30. We will listen to your opening remarks, and then we will proceed to questions from the senators.
Alexandre Laurin, Director, Research, C.D. Howe Institute: Thank you, Mr. Chair and honourable senators, for inviting me today.
[Translation]
I note the presence of several French-speaking senators. I prepared my notes in English, unfortunately, so I will continue in English. However, you can ask your questions in French.
[English]
I want to start by stating the obvious. Bill C-30 is an enormous piece of omnibus legislation containing more than 360 pages of technical details. As a simple policy analyst, I could not possibly prepare for a formal presentation in its entirety. So I will devote most of my five minutes to prepared remarks on the C.D. Howe Institute’s analysis of the budget — and by extension Bill C-30 — long-term financial plan and its mark on Canada’s fiscal sustainability.
I will also highlight three permanent big-ticket spending measures included in this bill and two tax measures that I think may leave a mark among a myriad of temporary or otherwise smaller budget measures.
Let me turn to sustainable risks to the long-term fiscal outlook as a result of this budget. The budget did offer a fiscal anchor, which is good news, and this fiscal anchor is to reduce the federal debt as a share of the economy over the medium term. The budget also offers, on page 55, two long-term projection scenarios revealing an expectation of gradual progress toward reducing the debt burden. In a favourable budget scenario, debt is reduced from this year’s peak of 51% of GDP to 30% by 2055. So returning to the pre-crisis debt level, pretty much.
In an unfavourable budget scenario, debt is reduced to 40% of GDP by 2055. These two rather optimistic budget scenarios rely on assumptions of strong economic growth and permanently low interest rates on the federal debt. For example, on average over the next 35 years, the budget’s favourable scenario would maintain an interest rate on the debt of about one percentage point below economic growth. This is a crucial assumption for a long-term scenario as it would enable the government to reduce the debt burden with very little effort. The government could maintain annual program spending exceeding revenues by as much as 0.5% of GDP. That is more than a $12 billion primary deficit per year. At the same time, the government could roll over the interest costs, year over year. This could still result in reducing debt burden as a share of GDP. With these favourable assumptions, not much effort is needed.
However, our own preliminary modelling at the C.D. Howe Institute shows that slight changes in economic growth and interest rate assumptions can dramatically change the course of the debt burden to the worst scenario. Under credible assumptions for potential economic growth and assuming quite reasonably that the interest rate on the debt will eventually catch up to economic growth over time, the debt burden can easily be shown to rise over time instead of decreasing, thus violating the budget’s own fiscal anchor. All of these scenarios assume unchanged spending policies over the years, which is obviously highly unlikely given provincial demands for higher federal health transfers.
In a nutshell, our internal modelling shows that the federal debt burden could very well return to the peak of the mid-1990 fiscal crisis under alternative — but perhaps more reasonable — assumptions about the future path of growth and interest rates. The combined federal-provincial debt ratio may cross 100% of GDP before 2040, on its way toward 150% by 2055. This would be new territory for Canada, and I would argue a risky plan for Canada’s fiscal stability.
I would be happy to expand on these alternative projection scenarios in the question period. If I still have some time left, I would like to highlight several ongoing big-ticket measures in Bill C-30 that I think are noteworthy.
Bill C-30 contains several measures that are substantial and may leave a permanent impact on Canada’s fiscal finances. A new federal-provincial cost-share program for early learning and childcare that could cost up to $8 billion per year in five years from now. Also, this is a program comprising strong economic dividends which would help to cover a portion of its fiscal costs. It is unlikely that it would pay for itself.
Raising the OAS pension payable to individuals age 75 and over by 10%. This would cost over $3 billion per year in 2025 with no real impact on Canada’s productive capacity and future growth. And a third measure, expanding access to the Canada workers benefit. This is a sizeable expansion that would nearly double its phase-out threshold. It would cost about $1.7 billion per year. It will provide greater incentive to work for low-income workers, but it will also raise the disincentive to work for low-income families with children who already face high fiscal benefit clawbacks.
Two noteworthy income tax measures, since I see I still have some time, requiring foreign providers of digital goods and services to Canadians to collect and remit the GST and HST and limiting the benefit of the employee stock option deduction for employees of large companies. Both of these targeted measures are long overdue. Although they don’t raise nearly enough revenues to make a sizeable difference, they are tax measures that are largely economically efficient. This concludes my five minutes. I would be happy to answer any questions. Thank you very much.
The Chair: Thank you very much, Mr. Laurin.
Honourable senators, for this meeting we will have a maximum of four minutes each per senator.
Senator Marshall: Thank you, Mr. Laurin, for coming here today. Most of your comments were focused on the government’s fiscal framework. I would expect at the institute there would have been some analysis done about the expenditures and revenues, but I notice looking at the budget book that the government is expecting its expenditures to drop after this year. It goes from $475 billion down to $403 billion. I would like your comments as to whether you think this is practical.
I’m from Newfoundland and Labrador, so I worked with the provincial government and have been through many periods of fiscal restraint where we had to downsize. To go from $475 billion to $403 billion looks to be a bit of a challenge. Could I have your comments on that?
Mr. Laurin: Yes, I think it is practical because we are coming off a very exceptional year. Expenditures are coming down. The high cost of income support is, basically, for lockdowns and these lockdowns will, presumably, not go forward indefinitely. I’m hoping that they will stop this year. If they do, this cost of supporting the economy and supporting households for these lockdowns will stop. Because these costs will stop, then that would precipitate a large drop in expenditures next year.
I think it’s fairly realistic to expect that. This cushioning of the lockdown measures is meant to be temporary. I think we are all expecting that these cushioning measures will, actually, be temporary. They are not going to be extended.
Senator Marshall: Thank you. Do you have any views on what is happening at the Bank of Canada? They have been buying up a significant portion of the federal government debt and some of the provincial bonds also. Recently, they announced that they were going to decrease the amount that they were going to be purchasing weekly. I think they said it’s going to be reduced to $3 billion. Nonetheless, the balance sheet has shown a big expansion over the past year. Does the institute have any comments on that?
Mr. Laurin: This is normal that the bank would gradually stop its quantitative easing — purchasing government bonds. With inflation expectation going up big time and especially in the U.S. yields on debt picking up on these inflation expectations. It’s time for the bank to slowly and gradually stop quantitative easing purchases.
Eventually, the bank will probably have to divest itself from these government bonds on the secondary market. Some bonds will expire by themselves, but others will probably need to be divested on the secondary market. That’s in the future. In the meantime, yes, I think it’s quite normal given expectations that the bank will ease its quantitative easing.
Senator Marshall: Thank you. I don’t know if you have looked at the revenue projections over the next five fiscal years, but expenses are increasing and are projected to increase significantly. But revenues at a slower pace, so that the revenues aren’t keeping up with the increase in expenses. Has the institute looked at that?
Mr. Laurin: Yes, the budget is geared to a five-year horizon. It’s hard to count because there are so many measures in the budget. But I would propose that about half of the new measures in this budget are temporary, meaning that they are measures that are over a number of years only and set to expire. Usually the budget would say over the next four or five years. There are a lot of these measures. You would expect these kinds of stimulus measures — even though they are not all stimulus — to increase expenditures more than revenues, but they are temporary in nature.
Senator Marshall: Thank you.
[Translation]
Senator Forest: Thank you, Mr. Laurin, for being with us today. To get the ball rolling, I would like to hear your views on your revenue proposals.
A pre-budget report co-authored by Don Drummond of the C.D. Howe Institute proposes raising the GST to 7% in 2023. I agree that raising taxes has fewer adverse effects than raising the tax rate. That said, why introduce such a draconian and comprehensive measure compared to the government’s more targeted approach of imposing a tax on luxury goods, including cars, boats, tobacco and the web giants?
Mr. Laurin: The targeted measures you mentioned are not measures that generate enough revenue to have a substantial impact. They are minor measures in terms of revenue generation. As you said, we proposed at the institute a two-point increase in the GST in the budget. I’m sure you’re already aware that the budget benefited from a significant increase in GDP expectations.
Last year, in the fourth quarter, the economy did very well. When we prepared our pre-budget recommendations, we were relying on the economic forecasts that had been made in the fall. Basically, the government got lucky. These forecasts are made by private sector economists, so it isn’t the government’s fault. It’s an independent process. The forecasts are better. Five years from now, the GDP will be about $100 billion higher than last fall’s forecasts. A $100-billion GDP is an excellent bonus.
This bonus alone would allow us to avoid raising the GST. However, the budget contains so many spending measures that in order to pay for them, an increase in the GST would still be necessary. If we were to look at this again and make other recommendations, I think we would maintain our recommendation to raise the GST because, as you said, it’s the tax measure that has the fewest adverse effects.
As I said in my speech, we believe that this is very risky at this time. There are several scenarios that could be considered, but those presented by the government seem to us to be much too optimistic. We must take into account the more conservative assumptions, since we are planning for the next 35 years. What we would definitely not like to see — but what we are seeing now with more conservative assumptions and an increase in the debt ratio — is a continuous indefinite increase. That would be bad for Canada, and it would put us in an uncomfortable situation.
So the best thing would be for the federal government, in particular — because the federal government has the GST at its disposal — to raise the GST because it will certainly have to increase taxes if we continue at this rate.
Senator Forest: In fact, the government got lucky and so will all Canadians if $100 billion in GDP growth is achieved.
Some proposals recommended a special tax that would apply to businesses that made extraordinary profits during the pandemic — I’m thinking, for example, of building materials; people weren’t travelling anymore, so they spent money on home improvements and equipment — the purchase of recreational vehicles like motorcycles, snowmobiles, and so on. What do you think of this measure to specifically target those economic sectors that have profited greatly from the pandemic?
The Chair: I’m sorry, Mr. Laurin, but I have to interrupt you. We have gone well over four minutes. Since you’ve heard the question, could you take note of it and come back to us with a written answer by May 31 in both official languages, please?
Mr. Laurin: Sure.
[English]
Senator Klyne: Thank you and welcome to our guest. I have a quick question to follow up on Senator Forest. Would an increase in GST not only raise $10 per 1% increase, but also curb inflation and keep interest rates down? You can include that in your answer with Senator Forest’s question.
An opinion editorial entitled “Budget 2021 rolls all the dice,” published in iPolitics and written by the C.D. Howe Institute, makes the following comment:
“Fiscal stimulus” is generally understood to consist of measures that encourage economic agents, especially households, to spend. The economy doesn’t appear to need that. And in fairness to the government and the budget, that’s not what the $101.4 billion does, for the most part.
The op-ed goes on to outline that one third of Budget 2021 is pandemic-related spending, and the rest is for Canada’s growth capacity, not to increase aggregate demand.
In your view, what policy measures should the government be considering in Budget 2021, GST aside, in order to boost or buoy economic activity and stimulate growth and revenues?
Mr. Laurin: If you’re asking me what the budget should have contained, there are a few measures that we, at the institute, recommended in our pre-budget. We call that the “shadow budget”; it’s our pre-budget submission. We are trying, like everyone else, to come up with measures that are easily implementable — that’s always a challenge — and that can be implemented quickly. One measure we thought of was an investment tax credit offered to every business. The budget does contain a variation of an investment tax credit, but it’s paid only to some small businesses in some sectors. But, yes, we had in our shadow budget a costly investment tax credit that would be favourable for investment.
Another measure that I know is largely unpopular was a small reduction of the corporate income tax rate to favour long-term investment. This is what Canada needs. Canada needs to augment its productive capacity. Our productivity growth has been lagging for the last 20 years on average, and we need to raise that up. The best way to raise that is to increase our capital stock, and the best way to increase our capital stock is to incite businesses to invest. Businesses invest when they see the potential for profits and after-tax profits. That potential increases when taxes are lower on profits.
We do have an integrated tax system, which means that even if corporate profits are taxed at a lower rate, when these profits are distributed to the individuals, who own the companies or the shares, they are taxed in their hand at progressive tax rates. It’s not like what is not taxed at the corporate level escapes taxation unless, obviously, the profits are shifted to another jurisdiction, which is another topic.
Senator Klyne: Thank you.
Senator Richards: Thank you to Mr. Laurin. Your previous statement has answered my question in some respects, but I’m going to ask it again. Where might you see the economic growth in the next 5 to 10 years? If there is limited economic growth, which I think there will be, is the fiscal anchor short-sighted? Will taxes have to be raised to accommodate government spending in the next 5 to 10 years? I’m almost certain they will be, but maybe you could answer that, sir.
Mr. Laurin: This is an excellent question. In our own assumptions for economic growth — what we call the “potential output” — how the economy could potentially grow given current trends — we looked at the trends over the last 20 years and did some extrapolation to see if the trends continue with respect to productivity and hours of work, because that matters with demographic aging and the fact that older people have greater work participation now. So by taking the population, hours of work, and trend productivity, we arrive at 3.5% nominal growth. That is what we would be expecting for the long-term future on average per year, 3.5%. That’s low.
That’s actually lower than the government expectation in the budget when they do their long-term scenario. The government is counting on this budget to produce large productivity increases. We’re doubtful because we have tried and tried with these types of measures, and it hasn’t worked out very well in the last 20 years. No one knows the future. We don’t know what is going to happen. Something very positive may happen that will incite businesses to invest tons of capital, generate productivity growth and everything will be well. I’m with you. If nothing is done, we are expecting lower long-term, potential upward growth. Lower meaning 3.5% is too low. We need at least 4% if we want to maintain a stable debt-to-GDP ratio. To do so, we need more investments — investments for the long-term, not necessarily very short-term investments. That’s not really investment.
The best way to do that, we think — one way to do it is to lower the tax burden on capital investment to the extent possible, obviously.
Senator Richards: Thank you very much.
Senator Loffreda: Thank you, Mr. Laurin, for being here with us this morning. First of all, thank you for all the briefs and reports you have put together. I find them very insightful, each and every one of them. Keep up the great work.
On your e-brief of May 11, 2021, one of your recommendations was improving small- and medium-sized businesses’ access to affordable capital. There has been a change in the Canada Small Business Financing Act with respect to small business loans — which in my life as a banker were very popular — and the amount has been increased. There are a lot of changes. Not to go through all the changes as I’m sure you’re very well aware of them. Do you feel it’s a step in the right direction? Do you feel small businesses will have more access to capital, at least? What other quick suggestions would you make? Thank you.
Mr. Laurin: Thank you for your question. I know you’re assuming that I know this topic well, but I actually don’t.
The budget does contain these small business loans to be continued. It’s a temporary measure, but as I understand it, they are popular, as you’re saying. They help. They help cushion the impact of the lockdowns. That is the major reason we’re offering these loans. They’re offered to small businesses in order for them to survive the crisis, and yes, of course, we are in favour of these types of measures, especially if they are loans and the loans are repaid. The cost is very low for government. They’re good measures if they’re temporary, and they are.
I think I’ll stop here. I’m not very comfortable on this topic, so I think I will restrict my comments.
Senator Loffreda: Thank you for your comments on that. The small business loans, the amounts have been increased. More businesses will have access to them. They are government guaranteed so it will encourage the banks to lend more. I think it’s a step in the right direction. That’s my opinion; I wanted to have yours. Thank you for that.
Once again, I want to touch on the topic of stress testing, which I have touched on before. I don’t want to be too critical of what I’ve seen in the budget on the stress testing because I’ve looked at previous budgets by previous governments and all the stress testing is pretty much done the same way. It’s not any different in this budget than budgets from the previous governments. But as a banker, the stress testing was so extensive. On the stress testing we have in the budget implementation act we’re looking at a bubble of 100 basis points if the interest rates increase 100 basis points.
Do you feel that’s sufficient or on the document itself? I am sure in the background there is a lot of testing going on and a lot of analysis, but would you like to see it — say in the budget — if the interest rates increase 2%, 3%, or 4%, here is what happens? Here is what it takes for inflation. It will be critical that inflation remains below a certain amount. Are you satisfied with the stress testing you have seen in all budgets with the government, or would you recommend a little more stress testing?
Mr. Laurin: The stress testing that you’re talking about, it’s the sensitivity analysis of the budget?
Senator Loffreda: Yes, that’s right.
Mr. Laurin: This has been a feature of budgets for many years now. I have never criticized it. In normal times I think it does its job very well. Finance Canada officials are amazing —
Senator Loffreda: In normal times, exactly. But at this time, this is why I’m questioning it.
Mr. Laurin: Yes. Now we’re not in normal times, but essentially this analysis is mostly for the short term. That’s the next three, four, or five years at the maximum. Yes.
The Chair: Thank you.
Senator Loffreda: Thank you for the time.
Senator Smith: Welcome, Mr. Laurin. Excess regulations and regulatory burdens hinder foreign direct investments. As you mentioned, we need to increase our capital stock and encourage businesses to invest and therefore increase productivity. Can you explain how Canada’s regulations and regulatory environment is affecting investment, and how do we compare to other countries?
Mr. Laurin: Again, I’m going to stray into a topic that I’m less well versed in, but we all know that regulation, at least excess regulation — what we call a regulatory burden for businesses — is a very perverse cost of doing business, and it’s one cost that can drive investment away very easily. The regulatory burden can add uncertainty, but it also has real costs. We’ve had some red tape reduction measures and recommendations in past shadow budgets of the C.D. Howe Institute, but they were very general in nature, mostly because it’s a very difficult area to stray into. It’s very technical. You need to actually know the regulations if you want to make specific recommendations. My extent of knowledge is more general.
The federal government does have a framework in place where it evaluates the cost. It’s an evaluation. It’s not perfect, but it does have legislation in place, and it does evaluate the cost of its own regulations. What we’ve recommended is pretty simple like using the same framework, having a more aggressive target in terms of reducing the cost of regulations. Let’s put it that way.
Senator Smith: Several nations around the world, including the U.K. and the United States, are beginning to provide more updated guidance on what their citizens can expect post-pandemic. [Technical difficulty] talks about economies reopening and tourism in these countries coming back online. I just wondered if I could ask you a general question about whether or not the government has a plan for reopening not only the economy but also the country based on what is contained in the budget?
Mr. Laurin: The budget is not a public health document, and I’m glad it is not. I would like to see more financial information in the budget actually and maybe less on general government policy. This question about reopening is more one of general government policy. I’m with you. I would love to see — we would all love to see — a faster reopening. We’re all hoping it’s coming soon. Some countries are ahead of us. It’s pretty obvious when you see some international events these days and people in the crowd. That’s not just in the U.S.
With respect to this bill and the budget, I don’t really know how to answer this question.
Senator Smith: Thank you.
[Translation]
Senator Dagenais: Thank you, Mr. Laurin. If I understand you correctly, the government’s projections should be less optimistic and perhaps more reasonable to avoid unpleasant surprises and possibly higher taxes on Canadians.
Could you tell us what changes could occur in Canada’s cost of debt for each error point in the Minister of Finance’s assumptions and when this could have a significant negative impact on the country’s economic capacity?
Mr. Laurin: Yes. In terms of the country’s economic capacity, keeping the debt ratio at 50% and never paying it off for the next 30 years, for instance, is going to lead to large deficits because the economy grows every year. So if the debt ratio is constant, that means that there will be large deficits every year, which leads to more debt.
There is an economic cost to debt. Recently, we wrote what I think was an excellent publication that talked about this problem, which is scaring off investment in other sectors. In other words, in terms of domestic investment, public debt can scare off private investment because there is less private capital to invest in the economy.
Another negative effect that large amounts of debt can have is the impact on interest rates. The higher the debt, the greater its impact on interest rates. The main thing we want to avoid is a very significant increase in interest rates, which would have very negative consequences for the government, and it would have to raise taxes substantially. Higher taxes have a very negative effect on the economy and on investment, because taxes have a direct effect on the economy. So these are all situations that should be avoided.
You mentioned exact figures. There is a chart on page 55 of the budget that shows long-term scenarios. The assumptions for these scenarios are not disclosed, but they aren’t hidden either. Just send an email to Finance Canada officials to get them; there’s nothing to hide.
Yes, that’s a very optimistic assumption, and the favourable scenario that puts the debt ratio at 30% 35 years from now — which is still a very long time — is economic growth of 4.1% and interest rates averaging about 3.1% over that period.
As I mentioned in my speech, this is very optimistic. What we would prefer is one of the more conservative assumptions for economic growth of 3.5%, and interest rates that quietly catch up with the economic growth rate, and that, within 20 years, would be about 3.7%, slightly above the economic growth rate.
We believe this view is more consistent with economic theory and history. Historically, the effective rate on federal government debt has often been below the rate of economic growth, but sometimes above. The rate varies. Currently, interest rates are well below the rate of economic growth, and it would be normal to expect interest rates on the federal debt to quietly move back to the rate of economic growth.
[English]
Senator Pate: Mr. Laurin, in a recent interview, your colleague Mr. Ed Devlin — as you know, he is also a fellow at the C.D. Howe Institute — said if we don’t start addressing climate change now, it will be too late.
In your opinion, how should we be addressing climate change? I understand there were no measures in your 2021 shadow budget in this regard, and I’m curious as to why.
Mr. Laurin: We had a measure in there. The GST rate on transportation fuel was to gradually increase by 10 percentage points. It does have an impact on climate change because, as you know, transportation is a sector of the economy that is tremendously contributing to greenhouse gas emissions. We thought that with the carbon tax and a large increase in the GST rate, which has the advantage of being a value-added tax, so it doesn’t need any border adjustments in terms of protecting Canada’s competitiveness in the world.
A 10-percentage-point increase in the GST was our recommendation. I know it’s very economic. More can be done, obviously. Climate change is a reality. I recognize that for sure, and it does require civil society to get its act together and to act accordingly.
But you’re right, we don’t have a lot in our shadow budget in that respect, but at least that was one measure, only one, that would have some benefit toward climate change.
Senator Pate: Thank you. Also in your shadow budget, you recommended closing a variety of tax loopholes. I’m curious as to which ones you think should have been included that are not in this federal budget.
Mr. Laurin: Tax loopholes, we call them tax preferences. We had a long-standing one, the labour-sponsored fund tax credit, which we thought did not yield a benefit commensurate to its cost. Another one that we thought could be closed was the First-Time Home Buyer Incentive, not because it’s not nice to receive but because it’s another credit that probably doesn’t help in terms of the housing market being overheated at the moment. We think there are probably other ways to achieve this goal better.
People have different views on which tax preferences to close and which ones should remain open, and that has always been a problem. That’s a major reason why many governments promised a review of tax preferences, but once a review is under way, it’s very difficult to close them.
Senator M. Deacon: Good morning and thank you to everybody for being here today. I am going to just quickly start, if I could, with our mayors who are present, from Stratford and Cornwall.
The Chair: Excuse me, senator, they will be in the next panel. They are not present in this panel.
Senator M. Deacon: I wasn’t sure because of that early introduction, so thank you. Then I’m going to carry on.
There have been a couple of conversations started this morning, and one of the areas that the C.D. Howe Institute has raised alarm bells over, is what we continue to see. You eloquently talked about the excessive amount of debt we’re taking on, especially in light of our most recent budget. Of course, we’re going to have to be creative and find some new and novel sources of revenue streams to pay down this debt.
Just last week, the United States proposed a minimum global corporate tax of 15%. Just this morning, the Biden administration hinted that this measure has strong back-up with the G7.
I believe in response to Senator Klyne, you said we might need to lower the corporate tax rate to spur growth. However, if this agreement comes to pass, would that change your thinking on this matter? Might it actually give us an opportunity to raise our corporate tax by a few percentage points?
Mr. Laurin: The corporate tax rate in Canada is way over 15%. It’s 15% federally, and there is also the provincial corporate income tax rate. It depends on the provinces, but overall our corporate income tax rate is over 20%. If I’m not mistaken, we always use something around 24% as a guide, or 25%. Anyway, it is higher than 15%, so that would not constrain Canada.
This G20 initiative and OECD initiative of a minimum — it’s called Pillar Two and it’s the minimum corporate tax rate internationally — is meant to counter profit shifting, which is a problem. Multinationals can shift profits from one jurisdiction to another, where it makes more sense for them to lower their overall tax bill. Having this minimum tax rate is something the Trump government introduced. It’s called the GILTI. It’s not exactly that but it resembles it a lot, and this is the way the United States is going.
The United States is not pushing the OECD and G20 countries a lot to go forward with that proposal, which existed before the GILTI in the United States. There are two pillars. Pillar One is about the market base, changing the base internationally on what constitutes profits and where to tax them, and the second proposal was the minimum global corporate income tax rate. They both go together, and Canada is a proponent of both, and most developed economies should be proponents of that. Profit shifting is not an activity that has a lot of economic benefits in itself.
To come back to your question, I don’t think the 15% rate would constrain Canada. That’s always a problem with Canada because the provinces have the same fiscal autonomy as the federal government, contrary to most other countries. The federal government conducts negotiations, but they do have to involve the provinces in some ways.
Senator Boehm: Mr. Laurin, I appreciate you being with us today. I found the shadow federal budget report rather interesting to read, if a bit sobering, and C.D. Howe Institute does provide sober analysis. I find some of the international publications that I read are a little bit more optimistic about us.
If there’s one thing I think Canadians have seen during the past year and a half is government intervention in many aspects of policy, both fiscal and social and where they merge. I think there is an expectation that the government would continue to do that more than perhaps we’ve seen in a long time.
As you look ahead and with your projections on the deficit, it raises the question whether the government is going to move toward higher taxes or cut services that Canadians are now expecting to be there for them.
Having been involved in some of these cutting projects both during the time of Mr. Chrétien in the program review and also with Mr. Harper in the Deficit Reduction Action Plan, I know this is very difficult to do in government, particularly when asked to make choices and choices so as to avoid the inevitable percentage cut all across the board, which doesn’t really solve anything. So those two exercises were difficult from that point of view.
Looking ahead, would you say that there is an inevitability that the government will need to cut on programs or cut on hiring or use other methods to bring down the deficit?
Mr. Laurin: No, there is no inevitability there. There is always the possibility of raising taxes if we do want to still consume the same amount of public goods. As households, we don’t have to consume everything on the private market. Many of the services government renders are things that we could purchase ourselves from private enterprises, but we think it’s better to have them publicly provided and we’re happy that way. It’s always a balance, but if that’s what people want, we can always raise tax.
Our fear, though, is with population aging and the impact that it will have on health care costs provincially. There’s only one taxpayer. Now we know that phrase very well. And since there is only one taxpayer, the rise in health care costs provincially is going to be very difficult for provinces to manage. And it has already started. Provinces are asking the federal government for help.
One way the federal government can help is simply to make sure it actually constrains its footprint, its own expenditures, the best it can to leave room for the provinces to either raise taxes or, if they do have deficits, at least the federal government can have a balanced budget or a little surplus. That way, both can counterbalance and the national debt, provincial and federal, can remain mostly stable.
Before the crisis, that was pretty much what we were expecting. We were expecting the federal government to be in a good position long term. It has a structural surplus. It’s in a good position long term, so even if the debt burden is low federally and keeps coming down a little bit so it’s very low, it’s okay if the provinces increase their debt burden because they both counteract and nationally you see a pretty stable debt-to-GDP ratio and that’s quite all right. But now, with the crisis, we’re facing something different, where it’s hard to see a scenario where the provincial/federal debt will not increase in the future.
Senator Duncan: Thank you to the witnesses appearing before us this morning.
Throughout this pandemic we have seen businesses, individuals changing ways of work, and we’ve seen that overused word of “pivot” to a new reality, for example, businesses changing the need for office space.
Perhaps, in the interest of time, this could be addressed in writing, or Mr. Laurin could refer me to one of the learned reports. Has there been an examination of how these changing ways of work might affect cost savings in government, such as Senator Boehm just mentioned, as opposed to cutting programs, where cost savings have occurred and can occur in the future?
Like I said, we’ve seen businesses able to do this. Has there been an examination of how government can do the same? I’m not only referring to federal but provincial governments as well: so the cost savings that have occurred during the pandemic and could occur in these new ways of work.
Mr. Laurin: That’s interesting. We haven’t explored that question at the C.D. Howe Institute. Usually technology doesn’t cut cost, it increases cost. However, remote working can have an impact on government expenditures — a positive impact. I would think that some of those are long-term contracts so it’s not going to be immediate, in terms of a reduction in capital expenditures in government.
If people are working remotely, there will be a cost to compensate for home offices and things like that. I can try to see if we did have something on that matter at the institute and come back in writing. Personally, I think it’s an interesting idea to be honest, an interesting idea to explore.
Senator Duncan: We have seen those changes in office space, for example, and how that will change the landscape across the country and in our cities. It is something worth examining. It had a negative impact, but there is a decreased cost to governments for travel by officials, for example. Savings have occurred. I’m sure they have been swallowed up by other expenditures. An examination of the potential for savings in the changing world of work would be very useful. Thank you.
The Chair: Mr. Laurin, that gives you another mandate on this.
[Translation]
Thank you very much for being with us. You have provided a lot of information, and we thank you for it.
[English]
Honourable senators, we will now welcome our next panel. For this panel, under Division 36 of Part 4, we welcome the Mayor of the City of Charlottetown, Mr. Philip Brown, accompanied by Mr. Steve Ogden, Mayor of the Town of Stratford, and also the Mayor of Cornwall, Minerva McCourt.
Honourable senators, I would like to take this opportunity to also welcome Senator Griffin from the province of Prince Edward Island.
Mr. Mayor, you have some comments on Division 36, Part 4 of Bill C-30. I welcome your comments and then we will proceed with questions from the senators. Mayor Brown, the floor is yours.
[Translation]
Philip Brown, Mayor of Charlottetown, City of Charlottetown: Thank you, Mr. Chair. Good morning, everyone. I am very pleased to be with you as a representative of the City of Charlottetown, Prince Edward Island, to present our views on Bill C-30 and economic regions in Canada.
[English]
On behalf of the city council and citizens of Charlottetown and our sister communities in the Capital Region towns of Stratford and Cornwall, represented by their mayors, Steve Ogden and Minerva McCourt, respectively, I would like to thank the committee for the opportunity to discuss the subject matter of Bill C-30 as it relates to the status of economic regions across Canada.
Of the 62 economic regions, there are 4 around the capitals of the territories, including one here in Prince Edward Island. What makes these four economic regions distinct is that they are divided into two zones for the purposes of determining eligibility for Employment Insurance benefits.
The City of Charlottetown and surrounding communities are in one zone and the rest of the province is in another. Because eligibility for Employment Insurance is based on the rate of unemployment in the zone, residents of Charlottetown and surrounding communities receive lower benefits than residents in the rest of the province. This has resulted in serious and unacceptable inequities and adversely affects many hard-working Islanders and their families.
In short, Islanders from different zones who work together will end up with different benefits or might not receive benefits at all. For example, workers in the Charlottetown zone had to work more than 700 hours to be eligible for 36 weeks of benefits, while those living in the rest of the province received benefits for 45 weeks after 525 hours of work.
The irony is that the benefits are based on where you live, not where you work. This situation is not only unfair and inequitable, it also undermines the principles of economic and social justice.
This issue has been raised numerous times since the zones were established seven years ago. The Canada Employment Insurance Commission was critical of what it termed the arbitrary creation of zones. It concluded that the creation of the two zones in Prince Edward Island was wrong and should be reversed. It recommended that the process of review in the zones should be depoliticized. This is a view shared by previous and present city councils, which passed resolutions opposing the 2014 changes. Similar resolutions were passed by the neighbouring communities of Cornwall and Stratford, whose residents are similarly affected.
The Member of Parliament for Charlottetown, Sean Casey, has also publicly committed to return to a single economic zone for the province, a measure his party promised to implement in the 2015 federal election campaign.
The Government of Prince Edward Island has also stated its opposition to the two zones and has asked the Minister of Employment, Workforce Development and Disability Inclusion to amend the EI regulations to return this province back to one zone. A wide number of labour organizations and anti-poverty groups have also called for a return to one zone.
The two-zone policy fails to reflect the fact that Prince Edward Island is a small province with a high level of seasonal unemployment. The two-zone policy is having a detrimental financial impact on workers and their families, along with greater stress and mental health impacts. All workers must be treated fairly and equitably.
Because of the impacts of COVID-19, Prince Edward Island is now considered as one zone until later this year. I am asking that this one zone be made permanent. Members of the standing committee, Prince Edward Island is one island, one province, and should be one zone.
[Translation]
Thank you again for this opportunity to share our views on Bill C-30.
[English]
Thank you for the opportunity to make this presentation to you today.
The Chair: Thank you for your statement, Mayor Brown. It was very informative.
Honourable senators, we will have a maximum of four minutes each for the first round.
Senator Marshall: Thank you, Mayor Brown, for being here.
I’m hoping the chair will allow me some latitude. I realize the mayor is here on a specific section of the budget implementation act, and I see Senator Griffin is here. I was interested in hearing how COVID has impacted the municipalities, specifically their revenues and also their operational. Is that a question I could ask, Mr. Chair, or did you want to put me at the end of the panel?
The Chair: Absolutely. Thank you, Senator Marshall.
Senator Marshall: Thank you very much.
We haven’t heard much about the municipality’s experience over the past year during the pandemic. There are additional funds provided in the budget, the Gas Tax Fund that has now been renamed, and extra funding is going to be provided. I am very interested in hearing what has been the experience of your municipality over the past year?
Mr. Brown: Senator, thank you for your question. It has been a very challenging time in Prince Edward Island — no different than Newfoundland and the other Atlantic provinces. As you know, tourism and hospitality, which are already predominantly seasonal industries, have been gutted due to COVID-19. If you look at the employees in that sector of the economy, a lot of them are women. Our population of women are adversely affected by COVID-19.
Now, our cases are down. We have come through a very rocky period of this COVID-19, and I give many thanks to our Chief Public Health Officer, Dr. Heather Morrison and her team.
In terms of work, I can tell you the downtown of Charlottetown is no different than the downtown Halifax, Moncton, Fredericton and St. John’s where not a lot of activity is taking place in the tourism sector, that is in your restaurants, cafes, hotels, motels and retail. Again, a lot of these positions are occupied by women. They are being forced to go on Employment Insurance.
Thanks to the federal government and the CERB program and other programs implemented and put into force over this past year. But those programs, like all programs, will come to an end. Our fear is that if the two zones as embedded in Bill C-30 — I think any change to it down the road will be very difficult because this pandemic is definitely going to be with us for some time.
Senator Marshall: Have the tax revenues and infrastructure projects in your municipality been impacted by COVID?
Mr. Brown: Senator, if you look at municipalities, 85% to 90% of our tax revenue is from property taxes. The Province of Prince Edward Island collects our taxes. They guarantee payment to the city for those taxes collected or if not collected. However, in areas like parking, whether it’s on the street or its parking in our parkades, it has been adversely affected because the economic activity in the downtown or in Charlottetown has been dramatically affected by COVID-19 and its impact on the tourism sector.
Senator Marshall: What about your infrastructure projects? Here in Newfoundland roadwork is going on, still. Is that reduced?
Mr. Brown: This year we’re taking the view that we may have to spend more money than we did in past years on infrastructure projects. This is one way for a municipality to assist with economic activity in our community, by providing jobs and having money flow through the economy. Again, we don’t have the fiscal firepower that the provinces and the federal government have, but where we can add any kind of economic impact, I think is through capital infrastructure programs.
Senator Marshall: Thank you.
[Translation]
Senator Forest: I am very sensitive to your comments, because I was mayor of Rimouski for many years. Right now, there is an issue of inequity. People work in your area but live elsewhere. So they deprive you of property tax revenue. There are two levels of support: people who live in Charlottetown do not have the same benefits as people who work in Charlottetown but live elsewhere; other municipalities benefit from residential property taxes.
However, when we look at infrastructure investments, it’s clear that in order to be able to take advantage of government programs, you are accelerating your investments, which increases the level of debt. This is an important issue for all municipalities in Canada, in Charlottetown and in Quebec.
The government is proposing a two-year study to reform EI. In my opinion, there are all kinds of studies, so why take two years? Do you think this delay is excessive and are you suggesting that while this study is taking place, the government maintain the interim measures currently in place in the context of the pandemic?
Mr. Brown: Thank you for the question, senator. You know that Prince Edward Island is a very small province; it’s the smallest in Canada. Don’t forget that the population is only 150,000. It’s not like the population of Quebec or Ontario.
For the people of Prince Edward Island, it’s difficult to understand why there are two regions in the province. There are neighbours who live on the same road, with region 1— the richer region — on one side, and region 2 — the poorer — on the other.
For me, it’s not hard to understand. We need to put all of Prince Edward Island back into region 1. It’s a small island, and as Deputy Prime Minister Chrystia Freeland, said, P.E.I. is like Canada’s New Zealand. I would like to protect this island that sees neighbours as neighbours, not as an EI cheque, because we live on a small island.
I hope that’s a good answer. It’s difficult for me to understand why there are two regions. Senator, the other thing is that if you look at the two regions, you’ll see that region 1 is the region where you need 525 hours of work to claim an EI cheque. The government of 2014 drew a little line that put the Indigenous community, the Mi’kmaq of Prince Edward Island, in region 1. Everywhere on the map, there are straight lines, but there is just a little peak. . . I think it is to include Indigenous people in region 1, which is the richest region.
Senator Forest: There is a property inequity, because people work in your region but live elsewhere, and they aren’t considered to be in the same region. So you are in favour of extending the measures until the government completes its two-year study — which I think is far too long — on the review of the EI program.
[English]
Senator Klyne: Thank you very much. Division 36 of Part 4 of Bill C-30 upholds a unique Employment Insurance treatment for Prince Edward Island, P.E.I. It was a policy put in place seven years ago. It went from being recognized as one Employment Insurance region to creating two distinct economic zones. Zone 64 encompasses Charlottetown; zone 65 encompasses the remaining parts of the province. As I understand it, these are two different EI zones.
On April 20, 2021, Senator Griffin raised the issue in the Senate referring to it as a flawed policy. Left as is, Bill C-30 would unnecessarily protract the inequity in P.E.I. It’s not difficult to understand where the inequities can arise. We just talked about those. But essentially when you have a community population, it’s not hard to imagine that people living in two different economic zones will travel to the same workplace in one economic zone. With that, there are differences in the cost of living and cost of travel.
But the striking difference in the source of inequity, I assume, will be in the insured work hours to qualify for EI. As Senator Griffin reported in her April 2021 remarks, as an example in February of 2020, it took 665 insured work hours to qualify if you live in the capital region and only 490 hours if you live in the non-capital region.
I know you have been busy with your government relations work. Can you share with this committee what you have been told by the federal government in terms of, will they rectify this, over what period and can they expedite the processes?
[Translation]
Mr. Brown: Senator Klyne, thank you very much for the question.
[English]
Working with our MP Sean Casey and also the two other MPs close to our own riding of Charlottetown, MP Wayne Easter and the office of the Honourable Lawrence MacAulay, we are being told, look, this is going up until September 20 and then the bill will be introduced to extend it for another two years. But I only recently found out from Senator Griffin’s office that part of Bill C-30 will entrench or embed the two zones after a two-year period. As you know, senator, if it gets into a legislative act, to change that act — I know from working with Senator Griffin on the Birthplace of Confederation Act — there are a lot of hopes and hurdles to get over to get something done, when you put it in that stream.
But we’re asking to keep it with the cabinet, because it was the cabinet of 2012 that changed it. Then it came into effect in 2014. It should remain as a regulation. Again, I keep saying, we’re one island, we’re one province and we’re one zone.
Senator Klyne: There is some reference around being a statute as well which requires significant consideration in terms of the differences once it gets into that. I think you just referenced that. Okay. Thank you.
Mr. Brown: Yes, senator, that’s my concern, and that’s why the three mayors are here today representing the capital region. We want to make it very clear that it’s important that we go back to the one zone, and hopefully Mayor McCourt or Mayor Ogden can come in, if the technical difficulties have been solved, just to reiterate that it’s very important to go back to the one zone or keep it as one zone. Thank you.
Senator Richards: This is silly. To have two zones and have people working in the same fishery or farming and not being able to get their stamps.
I am wondering, does the fishery give you enough stamps in the limited season that there is on the Northumberland Strait or the Gulf of St. Lawrence? Are people scrambling for their stamps when they are working seasonal or do they get enough stamps to be able to get unemployment? That’s slightly different than the topic. I think it’s still relevant. Maybe you could answer that. As far as the two zones go, I think it has to be rectified. I think it’s absolutely absurd. Thank you.
Mr. Brown: Senator, I think you represent the province of New Brunswick, correct?
Senator Richards: Yes.
Mr. Brown: This is Mayor Brown. Senator Richards, as you know, the fisheries have always been treated differently because of past policies or decisions that were made by the federal government to ensure that the fisheries were protected as a seasonal occupation or business. I can tell you, senator, that they are in the zone 1, right, and the zone 1 covers a lot of fishers.
As for the fishers that are in zone 2, that’s an interesting question. I don’t know if they are required to get the 700 insurable hours. I definitely will follow up on that.
I can give you an example of my own daughter, attending University of Prince Edward Island to start her bachelor of nursing. Her friend, who was from Tignish, zone 1, was able to draw EI. My daughter was not able to draw EI because she was in zone 2 and she didn’t get her 700 hours. It’s not just neighbours, it’s colleagues in the workforce or in schools of learning that are being affected by this zone 1, zone 2.
Zone 1 is the preferred path for not only the City of Charlottetown and the sister communities of Stratford and Cornwall, but the whole region and I think the whole province would be a benefactor in going back to that zone 1. I will follow up on looking into the fishers and if they are treated the same as someone who is in the tourism sector or in the agriculture sector that lives in zone 2. That’s a good question, Senator Richards.
Senator Richards: Thank you very much for that. I’m aware of what you say. It’s just that I know many people in New Brunswick for many years that scramble for their stamps so they can live in the winter. I think that’s probably the way it is in P.E.I. as well. Thank you very much.
Senator Duncan: Thank you, Mayor Brown, for your presentation this morning. It’s greatly appreciated.
I’m speaking to you from the traditional territory of the Kwanlin Dün First Nation and the Ta’an Kwäch’än Council in the Yukon. You pointed out very eloquently, as has Senator Griffin, the anomaly, the problem, the policy and the program administration of EI. I would like to just give you another example and seek your advice.
There is another issue with hairdressers and taxi drivers that is evident in the application of EI. A stylist, for example, if they are able to work again, who owns a shop and rents a chair to another stylist has to keep track of days worked and pay EI, when in fact they are not actually involved in that other stylist’s business. All they do is to rent the chair to them and yet they are dealing with this administration. The same rule applies to taxi drivers. It’s only these two small businesses that have this odd EI rule.
Now, you have had a long application of what Senator Richards described as an absurd situation, and you have lobbied long and hard on it. I think there might be a bit of a reprieve in your remarks today. I am wondering what advice you have, not only for these industry groups, small businesses that are dealing with this absurd application, but your advice to us as senators. How should we be making recommendations to the government that they end these absurd applications, but how should we make a recommendation that they do it quickly and address these situations? So two pieces of advice, please Mayor Brown. Thank you very much.
Mr. Brown: Senator Duncan, I travelled through your beautiful territory back in 1983, Whitehorse, Dawson City, hitchhiked up the Dempster Highway up to Inuvik. Great territory, beautiful area, you know what? A Canadian is a Canadian is a Canadian. Whether they live in Charlottetown, Whitehorse, Dawson City, Surrey, Kelowna or Toronto. Canadians should not be punished for living in any specific region of the country. We should not discriminate based on region. All Canadians deserve the same level of benefit. That’s all I can say. I give you some numbers here, but it gets down to what’s our place in this country. We’re all Canadians, and we should all be treated equitably and fairly.
Senator Duncan: I appreciate that, Mayor Brown. It’s also about the application of rules and where we end up with anomalies and odd situations in government policy. How can we facilitate it so that municipalities and small businesses are not spending seven years urging the government to make changes?
Mr. Brown: Hopefully, the recommendation coming from this Senate Finance Committee will be that they go to one zone, not only here in Prince Edward Island but in the territories and all those other regions that are two zones.
Your recommendation going forward will have a lot of impact, no different than what Senator Diane Griffin did when she introduced the Confederation Act in 2017. We were told it couldn’t be done; it had to go through the House of Commons and the Senate. She did the opposite and did get it through.
I believe your colleagues in the Senate have lots of room, lots of authority, lots of sober second thought to ask the federal government, our prime minister and cabinet, to take this out of the statute. Do not put this in the statute under Bill C-30.
The Chair: Thank you, Mayor Brown.
Senator Duncan: Thank you.
Senator Loffreda: Thank you to our mayors for being here. What disaggregated data is being collected to see which groups are accessing the unemployment insurance benefits under the proposed changes? Can that be used to not only fill in gaps or to recommend other procedures but also for job creation?
Mr. Brown: Senator, I’m going to ask Mayor Ogden or Mayor McCourt to reply. I would like to give the other mayors an opportunity. If not, I have no issue speaking.
Maxime Fortin, Clerk of the Committee: I’m sorry. We cannot hear from Mayor Ogden because the quality of the audio is not good enough for interpretation.
The Chair: Mayor McCourt, do you have any comments on the question posed? If not, I will go back to the Mayor of Charlottetown.
Senator Loffreda: The idea being, while we’re waiting, is that whatever we measure improves. So we’d like to improve employment and see where the gaps are. I would be very interested in getting your thoughts on that, on what data we are collecting.
Minerva McCourt, Mayor of Cornwall, Town of Cornwall: Mayor Brown, could you speak to that, please? My communication is not very good.
Mr. Brown: Senator, I can tell you that collecting data for the unemployment situation should be a provincial initiative. It should be a province-led effort, working with their federal counterparts. Municipally, we don’t collect that data. We should but it’s not part of our mandate. However, I can tell you that if this two-zone remains in place, we will be getting more calls as a municipality to fill in that black hole. That black hole is where your unemployment support has come to an end and you’re waiting to start back to work. That’s the black hole.
The federal government did provide some compensation several years ago. They provided five weeks to soften the impact of that black hole. Then they also suggested you could maybe use your sick benefits through EI and, if you’re not sick, just make up a story.
I just don’t think that we have to create stories and have people not tell the truth to federal officials, whether they’re sick or not sick, to get EI benefits, but it has happened. The black hole to me is not a remedy going forward.
The Chair: Thank you. Mayor McCourt, do you have some comments on that question?
Ms. McCourt: I just wanted to add some comments to Mayor Brown’s. When people’s unemployment benefits are done, very often they’re in a helpless state. They then turn to their municipalities in different roles to find any kind of financial backing. It’s a very rough spot to be in, and it’s a very rough spot for a municipality to be in because, with our hiring practices, we can try to help people to find work, but we cannot always employ people at their level of occupation. Thank you.
The Chair: Thank you. Senator Loffreda, I also noticed that Mayor Ogden is sending us information on the chat function, which is very informative and also very pertinent to the division and the section.
Senator Loffreda: I will be on the second round, please. Thank you all for your responses.
Senator Smith: Thank you, mayors, for participating today. It may be a question posed to you already. Maybe we can go to Mayor Brown and have the other mayors fill in. Is there a national movement? Is there a national group of mayors throughout the country? Obviously, if this has been going on for seven years, there would hopefully be a united front with all mayors across the board in Canada. Where do we stand and why are the politicians saying they will do things but it takes them so long to do it? What type of feedback can you give us on that? Is there a coalition of all the mayors? And the feedback you get, how have you challenged that as a group?
Mr. Brown: How much time do I have, senators, to give you a response? If you’re talking about national mayors under the FCM, it has not been brought up. If you are talking about the Federation of Prince Edward Island Municipalities, or FPEIM, I brought it to the forefront. But the executive of the FPEIM represents municipalities in zone one, and they don’t want to touch it. The three mayors in the capital region, Mayor McCourt, Mayor Ogden and myself, have been left with the task of fighting for the one zone. We’re looking at one zone stretching from east point to west point, north shore to south shore.
To answer your question, Senator Smith, there has been little backing from our local FPEIM. I’ve never heard it brought up at the FCM. We see this more as a localized issue. I know it affects Yukon and other territories and regions, but our fight is for Prince Edward Island because we’re one province; we’re one community; we’re one zone.
Senator Smith: I do respect that. I’m just trying to figure out if this is just a territorial issue between big versus smaller locations and territory one versus territory two? How do you bring this to a head? Is this a national issue? Is this more of a regional issue? Does it affect smaller areas, as opposed to bigger areas? Any comments on that?
Mr. Brown: It is a national issue because EI is a national program. Maybe the other economic regions are not speaking up, but we thank our senator, Senator Diane Griffin, who put the motion forward in the Senate to bring this back. Senator Smith, this is how we discovered that Bill C-30 is embedding the two zones into the statute. We never knew this information until we started speaking out more and more. Through the office of Senator Griffin, we are now getting to the nuts and bolts of the legislation, and we want to stop it now.
I’m asking the Senate and our four island senators to support any effort not to embed the two zones in Bill C-30.
Senator Smith: Thank you very much, mayor.
[Translation]
Senator Dagenais: My question is for Mr. Brown. Beyond the EI economic regions, you must surely be concerned about some of the effects of the federal budget. I’d like you to give us your point of view on the positive or negative effects of Minister Freeland’s budget on your city’s budget and your ability not to raise property taxes for your citizens.
Mr. Brown: Senator, when I thanked Ms. Freeland, it was because she compared Prince Edward Island to New Zealand with respect to the COVID-19 pandemic. Was your question about unemployment or something else?
Senator Dagenais: My question also includes unemployment. The federal government has projected deficits in its budget, and I imagine that sooner or later this will have an impact on cities as well as property taxes.
With regard to labour, beyond the EI program, is there enough in the budget to meet your labour needs, or will additional measures be required to address the labour shortage?
There’s a lot of talk about unemployment, but there is also talk about the labour shortage. I have heard some comments that the government’s measures mean that young people don’t want to go to work. In Montreal, no one wants to go work in restaurants right now because it pays more to receive the CRB.
I’d like to hear your thoughts on this.
Mr. Brown: Senator Dagenais, I’m sure you’re aware that the EI program is an employee-employer program. It’s a fund that exists because of their contributions, but I don’t believe that the federal government is making a financial contribution to the EI program. The federal government is making a lot of effort to help people because of the COVID-19 pandemic, but in this situation, it’s making a mistake by giving money, not only to Prince Edward Island, but to every province and territory in Canada.
Senator Dagenais: Thank you very much, Mr. Mayor.
[English]
Senator M. Deacon: Thank you for being here today. You certainly represent three fantastic communities in P.E.I. As I think of Cornwall, Stratford and Charlottetown, I still think about the pandemic recovery and the budget implementation act. Do any of the three mayors have anything else to comment on, with respect to seeing the right signals from the federal government, including this budget act, that are there to support your critical tourism industry so that it is able to stand on its own feet again? Is there anything that the three of you would like to respond to?
Mr. Brown: Again, senator, I’d like to yield to Mayor McCourt or Mayor Ogden.
The Chair: Please permit me to send a message to Mayor Ogden. Mayor Ogden, you have sent some information through chat, and I’m asking you as chair to send it directly to the clerk as a memoir of your comments so it will be included with the answers and the questions that we pose to this panel today.
On this, are you able to talk to us? If not, do it in writing in a report directly to the clerk. We can’t hear you. Therefore, send it as a report to our clerk, please. We don’t hear you, Mayor Ogden.
Mayor McCourt, do you have comments?
Ms. McCourt: When I look at tourism and at our students in university and high school, they do not know where they can get jobs and, if they can get jobs, when the jobs can start. When I look at all of that, it’s very challenging and troublesome for that population. We would need to protect those kinds of endeavours, especially when you look at our university students who have been given jobs that haven’t been able to start. That’s all due to the pandemic and the situation we’re in right now.
As I look at that, it’s very troublesome. That would be one sector of the population.
As for others, for example, our general tourism, I look at the south side here in Cornwall at the cabins, cottages, hotels and campgrounds that usually hire all these people and now here we sit. It’s very hard to predict the future of this kind of business in P.E.I. at this time. That’s my only comment. Thank you.
Mr. Brown: Senator Deacon, as you know, like all airports, our Charlottetown airport is down to about 85% less traffic compared to last year. The cruise ship industry is nil, and for the foreseeable future it’s going to be nil. If we open the Atlantic bubble, the economic impact will not be as strong if Ontario, Quebec and the rest of the country are open, and if the border was open to the south. So we have a lot of economic struggles to contend with, not just here but elsewhere across the country.
The Chair: Thank you. Again, we’re talking about Division 36, Part 4.
Senator Boehm: I’d like to thank our three mayors for being here today. You have been very clear in your presentations and also Mayor Ogden in the chat group, which will become official. As a veteran of church basement suppers in P.E.I., I can appreciate the concern with the tourism industry. As someone who knows Japan very well, I know the Japanese are very important visitors as well.
I do not, chair, have any questions. My questions have been asked, but I do think this is an important point, and I would also like to thank Senator Griffin for her advocacy on behalf of the Islanders. Thank you.
The Chair: Thank you, Senator Boehm. Senator Pate, any questions, please?
Senator Pate: I do have a question, but it’s not particular to this. If there is time after Senator Griffin asks her questions, I would be very interested in the impact the two zones would have on the proposal that P.E.I. put forward to develop a basic income initiative. As someone who is in zone two of P.E.I., as my extended family comes from P.E.I., I would be very interested in following this as well. Thank you very much.
Mr. Brown: Senator Pate, on the issue of the guaranteed basic income and the EI program, I see them as two separate issues. I know that eventually a basic guaranteed income would take in all these other social programs that are in existence, but at this point in time there is an effort on the part of the Province of Prince Edward Island to look into this basic guaranteed income. The issue we’re dealing with right now, because the House could be closed soon and this bill could pass with the statute stating clearly that Prince Edward Island and the territories will have the two zones embedded in the act, that’s what we want to focus on because we need to get a firm commitment from the Senate to say, look, put it away. Thanks.
The Chair: Mayor Brown, thank you for your clarity.
Senator Griffin: I have two quick little questions. This has often been painted as a rural-urban issue by many people, so I want to clarify that. So, Mayor Brown, does the capital area zone include some rural area?
Mr. Brown: Senator Griffin, it includes Hunter River where I taught school for 10 years down at Central Queens Elementary School. It includes right out to Scotchfort, but it does not include the community of Scotchfort. It looks like it was sliced in back in 2012. So it includes rural and urban areas.
Senator Griffin: Okay. Does the other zone contain any cities and towns?
Mr. Brown: It includes the western capital and that is the city of Summerside where Mayor Basil Stewart is. It includes Tignish and Montague. These are small urban centres that are mixed with rural areas. So it’s a combination of both in the zone one and the zone two.
Senator Griffin: Thank you.
[Translation]
Senator Moncion: Mr. Chair, I’d like to make a quick comment, please.
The Chair: Senator Moncion, your questions and comments are welcome.
[English]
Senator Moncion: Bill C-30 isn’t going to result in a change in the EI regulation which actually governs the zone. It would create an inequity between the bill and regulations. The EI zones are governed by regulation, not by the bill. So the question that you need to think about is it’s going to create an imbalance, and it’s not going to bring the change that you are looking for. Could you provide maybe some comments about this so that we do have clarification on this and that you do understand the nuance that is between Bill C-30 and the EI regulations? Thank you.
The Chair: Mayor Brown, do you have any comments for clarity, please?
[Translation]
Mr. Brown: Thank you, Senator Moncion.
It’s very interesting that you say the regulations aren’t the same as the act, but to me, if the changes are in Bill C-30, is there really a difference? I don’t understand: if the regulations continue to exist for EI, the status is completely different, do you understand?
Senator Moncion: Yes, I understand your question and comment. However, there are things that are changed by the regulations. Bill C-30 deals with the implementation of the federal government’s budget while the control or division of the EI regions is established by regulation. So in order to make the change you want, it has to be done by regulation and not through Bill C-30, and it probably has to be done through another bill.
[English]
The Chair: Senator Moncion and Mayor Brown, we are at the end of our meeting. I want to stick to Division 36, Part 4. Senator Moncion has provided information. I would advise you to get back to Senator Griffin if you have any additional comments related to the information provided by Senator Moncion. And I think Senator Griffin can provide information to you about where to go outside of our own committee for clarity, precision and due diligence of what you have presented to us, which is Division 36 of Part 4.
On this, to the witnesses, thank you very much.
Senator Griffin, please do not hesitate if you want additional information. To the honourable senators, our next meeting on Bill C-30 is scheduled for this afternoon at 2:30 p.m. EST.
(The committee adjourned.)