THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, December 6, 2022
The Standing Senate Committee on National Finance met with video conference this day at 3:02 p.m. [ET] to the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I wish to welcome all the senators as well as the viewers and Canadians across the country who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance. Now, I would like to go around the table and ask my colleagues to introduce themselves.
Senator Gignac: Clément Gignac, Quebec, Kennebec division.
[English]
Senator Galvez: Rosa Galvez, senator from Quebec.
Senator Pate: Senator Kim Pate, from here on the shores of the Kitchissippi, the unceded and unsurrendered territory of the Algonquin Anishinaabe.
[Translation]
Senator Moncion: Lucie Moncion, Ontario.
[English]
Senator Loffreda: Tony Loffreda, Quebec.
Senator Duncan: Pat Duncan from the Yukon
Senator Cardozo: Andrew Cardozo from Ontario.
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
The Chair: We continue our study on the subject matter of Bill C-32, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022, and certain provisions of the budget tabled in Parliament on April 7, 2022, which was referred to this committee on November 17, 2022, by the Senate of Canada.
We have, honourable senators, many organizations to help us with the study of Bill C-32. From Canadians for Tax Fairness, Katrina Miller, Executive Director. From Generation Squeeze, Paul Kershaw, Founder.
Also, from Canada’s Building Trades Union by video conference, we have Rita Rahmati, Government Relations Manager, and Kevin Lawlor, Senior Policy Analyst.
To all of you, thank you for accepting our invitation to be witnesses on Bill C-32. We will now hear opening remarks in the following order. First, Katrina Miller, followed by Paul Kershaw. We will conclude with Rita Rahmati.
Ms. Miller, the floor is yours, please.
Katrina Miller, Executive Director, Canadians for Tax Fairness: Thank you. Thank you honourable members of the committee for the opportunity to speak to you today. I would like to speak on two elements of Bill C-32: the Canada Recovery Dividend and its accompanying 1.5% surtax on bank and insurance companies, and the phasing out of flow-through shares for oil, gas and coal activities. These measures are an acknowledgement, frankly, of the era we are in right now, which is one of rising corporate profit margins, historically low corporate tax rates and affordability challenges that are being faced by a greater number of Canadians. A central objective, as you know, of the Canadian tax system is to redistribute the wealth that we gain as a society to ensure that everyone is benefiting from that wealth. Unfortunately, we’re not doing a great job in regard to how corporate taxation works in Canada.
Last spring, we reported that corporate profit margins have almost doubled during the pandemic from a pre-pandemic level of about 9% to 16% in 2021. When it comes to the finance and insurance sector, that average profit margin has jumped to 22% in 2021. At the same time, our corporate tax rates are a historic low. Our average federal and provincial combined rate is only 26.5%. But that’s not one of the core problems here. One of the core problems is the tax gap. The tax gap is the amount of tax revenue we lose between the statutory rate of taxation — the rate on the book — and then the real tax rate that’s paid by corporations measured by the pre-tax profits.
When we released a report in October, we were astounded to find that the tax gap for 2021 had grown to a $30 billion loss for Canadian governments in one year alone. That’s more than double the loss we were experiencing pre-pandemic. Clearly, the level of corporate profit margin rising compared to our historically low corporate tax rates has taken a bite out of the revenue we have to invest in Canada right now. That’s one significant problem.
Another significant problem is the level of tax avoidance that occurs in our country, and oftentimes it’s very legal avoidance because of various loopholes and deductions that have been written into our tax code over the last few decades. The flow-throw shares for oil, gas and coal companies are one of these tax loopholes we’re glad to see closed. It’s one of many, unfortunately, and Canada needs to go a lot further in closing other tax loopholes as well, particularly for oil and gas companies, but frankly right across the board. One example of the tax loophole that needs to be closed is the capital gains exclusion loophole. That is both a personal income and corporate income tax loophole that costs Canada about $20 billion annually.
I want to go back for a second to the Canada Recovery Dividend and talk about why it’s only focused on finance and banking, and how it could be expanded to other sectors of the economy, particularly to our oil and gas sector. Oil and gas in Canada has been extremely profitable over the last couple of years. In the last year alone, the top 10 oil and gas companies have reaped over $66 billion in profit. This isn’t just an issue in Canada. Globally, we’re seeing this issue and seeing it as a crisis, and that’s why we see over a half-dozen countries putting in a tax — a tax very similar to our Canada Recovery Dividend — on oil and gas giants. We think Canada should follow suit and expand the Canada Recovery Dividend to oil and gas companies, and then consider other sectors of the economy into which it can expand.
Ultimately, our corporate tax rate in Canada is at a historic low. We need to improve our corporate taxation by raising our corporate tax rates, closing our corporate tax loopholes and improving the level of corporate transparency and accountability. Bill C-32 takes some very small steps to do this. We need to take much larger steps if we want to recover some of the revenue that can help us build a sustainable society.
Thank you very much.
The Chair: Thank you, madam.
Mr. Kershaw will present next, to be followed by Mr. Bourque. Mr. Kershaw, the floor is yours.
Paul Kershaw, Founder, Generation Squeeze: Thank you very much. I appreciate the invitation to appear before the committee.
On behalf of Generation Squeeze, which is a think and change tank promoting fairness for all generations, I would like to begin by sharing some praise for what’s included and excluded in the Fall Economic Statement.
In terms of what’s included, we would like to applaud the ongoing and historic commitment to lead funding for the rollout of child care improvements across the country. We’re especially delighted that the Government of Canada has adopted $10-a-day as the label for its historic public investment because that is a brand that the Generation Squeeze lab coined for our national child care recommendation over a decade ago. At a time of rampant inflation, the move toward $10-a-day child care is absolutely a rare bit of good financial news for new and aspiring Canadian parents.
In terms of what’s excluded, we’d like to applaud the Government of Canada for resisting the official opposition’s call to retreat from the pricing of pollution. Yes, Canadians are facing a number of cost-of-living challenges as a result of inflation, but we simply cannot solve our wallet problems by neglecting our climate problems.
In addition to this praise, we’d like to identify a missed opportunity in the Fall Economic Statement because that statement overlooked a key, nearly no-cost policy change that we believe is critical in fighting the country’s inflation challenges. Specifically, the Fall Economic Statement did not acknowledge that Statistics Canada, or StatsCan, has been underestimating housing inflation for decades, which has been harming younger Canadians by failing to sound the inflation alarm many years ago. I think many in the room will know that StatsCan shapes our national dialogue about inflation because it’s responsible for calculating the Consumer Price Index, or CPI, which is what the Bank of Canada looks at when it evaluates its success at keeping inflation in check. Many in the room might be surprised to learn that the CPI doesn’t pay much attention to the way that housing prices really matter to younger Canadians and newcomers of any age when they want to buy a home. That’s because the CPI doesn’t monitor the size of a down payment that first-time homebuyers need to save nor does it give enough attention to the total amount of money that people actually need to borrow from the bank.
Those shortcomings, along with several others identified by the Business Council of British Columbia, give rise to a really troubling data disconnect. Since 2000, average home prices in our country have risen by a whopping 318% based on data from the Canadian Real Estate Association. By contrast, Statistics Canada reported that total inflation over the same period rose by 48%. As a result, for many of those years, the CPI signalled that annual inflation was generally below the Bank of Canada’s 2% threshold for interest rate hikes, which discouraged the central bank from raising interest rates, at least until the pandemic and Russia’s war on Ukraine contributed to soaring energy and food prices this past year.
But the disconnect between what’s actually happening to average housing prices and the CPI is concerning for anyone struggling to afford a place to call home, and it should be concerning to the Government of Canada because the decades-long underestimation of housing inflation by StatsCan has betrayed younger Canadians by being a key factor encouraging the Bank of Canada to keep interest rates at historic lows. That’s a problem because low interest rates decrease the cost of taking on a larger mortgage, and buyers who are able to borrow more bid up home prices.
Rising prices aren’t adequately captured by StatsCan in our inflation data, and there is your negative feedback loop, fuelling home prices ever higher, far beyond what hard work can earn and devaluing money for young people, newcomers and renters.
I know you will find there are some first-time homebuyers out there who absolutely want the lowest possible interest charges in order to borrow a frighteningly large mortgage so they can straddle the massive gap between home prices and local earnings. But their desire for that individual coping strategy among our dysfunctional housing system reinforces trends that are working against first-time buyers because they aren’t the only people borrowing. Current homeowners who have more capital than first-time buyers use low interest rates regularly to outbid their novice rivals. That’s why StatsCan data reveals that newly built homes are increasingly being bought by investors and then rented out to younger people. That is why one in six Canadian homeowners now own multiple properties.
In short, StatsCan’s measurement of housing inflation is prioritizing the experience of existing homeowners and underestimating the challenges facing those hoping to buy for the first time. That problem directly contributes to the intergenerational injustice that Finance Minister Freeland identified earlier in Canada this year.
So just like the right road signs help keep us safe by making traffic clearer and more predictable, the right economic signals help steer our financial systems toward stability, prosperity and equity. Unfortunately, the housing inflation signals sent by StatsCan gave us the green light to speed recklessly through intersection after intersection, putting ourselves and others in danger. If we had gotten the signals right years ago, we could have recognized the perils of runway housing inflation sooner, sparing younger generations the challenge of coping with soul-crushing levels of unaffordability.
There is no silver bullet to restore housing affordability or to reduce housing wealth inequality, but there is “silver buckshot.” Increasing housing supply, revamping tax policies and protecting renters are all important, but so is ensuring that accurate information about inflation drives our monetary policy because that policy is so critical for fuelling or slowing home prices.
Thank you very much.
The Chair: Thank you, Mr. Kershaw.
Mr. Michael Bourque will present next, to be followed by Ms. Rahmati. Mr. Bourque, the floor is yours.
Michael Bourque, Chief Executive Officer, Canadian Real Estate Association: Thank you, Mr. Chair and committee members, for the opportunity to provide our thoughts on the measures from Bill C-32 that impact housing.
The Canadian Real Estate Association represents more than 150,000 members from coast to coast who are involved in their communities both as business people and as people who care about the housing needs of Canadians. Realtors support access to housing — from emergency shelters to subsidized housing, to rental housing and home ownership. For several years, realtors have advocated in support of dramatically increasing the supply of housing across the entire continuum. We know there is a significant shortage of housing today. Canada Mortgage and Housing Corporation, or CMHC, has stated that 3.5 million homes need to be built by 2030. Inadequate housing supply is a problem that has been decades in the making.
The causes have been studied extensively, and I will agree with Dr. Kershaw that there is no simple solution. We now need a comprehensive, all-of-society approach to make changes that will address supply issues and help increase the responsiveness of supply to housing demand.
Bill C-32 does some good things, and we’re pleased to see the government move forward with the range of initiatives to support home ownership. In particular, we welcome the introduction of the first home savings account, the multigenerational home renovation tax credit and changes to the home buyers’ tax credit. High housing prices, coupled with increasing interest rates, have hit Canadians and newcomers hardest. Those initiatives provide an incentive for Canadians to save for the cost of a down payment for their home without taking on more debt. We also believe the withdrawal limit of the homebuyers’ plan should match the limit of the tax-free first home savings account.
As part of Bill C-32, the government acknowledges the needs of multi-generational households in Canada. The introduction of a multigenerational home renovation tax credit will help offset the costs, create additional space for loved ones and free up the other home to be rented or sold.
Let me now turn to the residential property-flipping rule. Simply put, the tax exemption for sale of your primary residence was never designed to be used for speculation. Yes, we want people to renovate homes, to create basement apartments and to turn a duplex into a triplex, but if you are an entrepreneur in the space, you should be paying a capital gains tax.
Our organization has vigorously supported maintaining the capital gains exemption on principal residences so that Canadians who passively accrue wealth through the simple act of living in their home are not unduly penalized with a large tax bill when they choose or are forced to sell it.
Regarding the underused housing tax, these have already been introduced in some jurisdictions where the tax can serve as an incentive for property owners to make empty units available to the market. But this tax should have been introduced and left for a period of time to confirm that it was adequately dealing with the problem. Instead, we also have a ban on foreign buyers. These two pieces of legislation are inextricably linked, and I must comment on the Prohibition on the Purchase of Residential Property by Non-Canadians Act.
This xenophobic legislation damages Canada’s brand as a multicultural nation that welcomes people from all around the world. We know the benefits of home ownership, and many of the immigrants we attract to our shores share the dream of owning a home and building a community. We should be making it easier to do so, not harder. Beyond our reputation as a country open to the world, Canada needs immigration to support our labour market.
In terms of the global competition for talent, we have just scored an own goal. The ban on foreign buyers will ultimately make houses even less affordable for two reasons. Developers count on pre-sales to finance construction, and so now they will face the choice of fewer buyers and therefore building fewer units or paying the $10,000 fine as a cost of doing business. Both choices add to the cost of the development and ultimately to housing affordability.
There is not enough time to get into the specifics about this terrible legislation, but I would like to say a word about its implementation. Today is December 6, and my members have no information about the rules, exemptions or details of the regulations since they have not been released. The onus will be on them to somehow comply as of January 1 or face a $10,000 fine. Meanwhile, we expect the regulations to be drafted in such a way that the average individual will not be able to comply without expert legal advice.
There is a housing crisis in Canada stemming from a shortage of housing across the entire continuum. Solving our housing challenge should be a priority. However, we are concerned that the federal, provincial and municipal governments are all attempting to tackle the housing crisis on their own in silos with little effort being made to come up with a holistic, coordinated approach. That is why we have been asking the federal government to take a leadership role and attempt to coordinate the various players. The federal government does this in agriculture, transportation and many other areas.
If the federal government used their convening power to bring together provincial, territorial and municipal authorities along with builders, real estate professionals, civil society, Indigenous organizations and so on to assess needs, we would have a better handle on the nature of the shortage in each market and we could streamline approaches. It could even help the federal government identify where infrastructure funding should be leveraged to incentivize municipalities to stimulate housing supply.
Bill C-32 does some good things, but we have a lot more work to do. Again, thank you for the opportunity today, and I look forward to questions.
The Chair: Thank you, Mr. Bourque. Now to conclude, Ms. Rahmati. The floor is yours.
Rita Rahmati, Government Relations Manager, Canada’s Building Trades Unions: Good afternoon, Mr. Chair. Thank you for the opportunity to address your committee on Bill C-32. My name is Rita Rahmati. I am the Government Relations Manager at Canada’s Building Trades Unions, and I’m joined here today by my colleague, Kevin Lawlor, Senior Policy Analyst.
Canada’s Building Trades Unions represents 14 international construction unions and over 600,000 members who work in 60 different skilled trades across Canada. Our mission is to represent all tradespeople in the building, construction, fabrication and maintenance industry and lead federally focused efforts to improve their working conditions and quality of life, ultimately supporting middle-class jobs and Canada’s greater economy.
In last spring’s budget, Budget 2022, Canada’s Building Trades Unions was pleased to see the government include a Labour Mobility Deduction for Tradespeople. This was a significant win for workers. Skilled tradespeople have always had to travel for employment, and the tax deduction will ease the cost burden on workers having to travel by providing tax recognition on eligible travel and temporary relocation expenses to tradespersons and apprentices. This policy change is good for all construction workers, and, by extension, creates a stronger Canada.
As we enter 2023, there are more government supports and actions that we need to support Canadian workers and the overall Canadian economy. In the 2022 Fall Economic Statement, Canada’s Building Trades Unions is pleased to see the Canadian government’s continued support for workers, including investments to grow our economy and counteract inflation.
Today, we will focus our remarks on the green tax credits and the Employment and Social Development Canada sustainable jobs investments. Notably for industry and for Canada’s sustainable jobs future, the Fall Economic Statement includes tax credits and subsidies for new technologies through the clean technology investment tax credit and the investment tax credit for clean hydrogen.
In our advocacy, we have been vocal that the government investments in the form of tax credits must be linked to good union jobs, and we’re pleased to say that the government has heard us by linking these credits to good labour conditions. Both the clean tech and clean hydrogen tax credits are reduced by 10 percentage points if labour conditions are not met. But there is an opportunity to do better.
Kevin Lawlor, Senior Policy Analyst, Canada’s Building Trades Unions: The U.S.’s Inflation Reduction Act ties its clean tech credits to good jobs, with credits like the nuclear power production credit, clean electricity investment credit and the carbon oxide sequestration credit increased by five times if prevailing wage and apprenticeship requirements are met. The U.S. defines prevailing wage as a combination of the basic hourly rate with worker benefits like life insurance, health insurance, pension plans, vacation pay and paid sick leave.
Canada, however, does not have a clear definition of prevailing wage, and there is an opportunity to ensure that government funding in the form of tax credits or otherwise raise the bar for all workers by better defining what prevailing wage is and by tying these credits to a strong prevailing wage. The prevailing wage should be defined as the total wage package as determined by multi-employer collective bargaining agreements in established regions.
In order to ensure that Canadian tax credits are competitive and truly incentivize good jobs, the credits in the Fall Economic Statement need to be stronger, like the benefits being increased five times in the Inflation Reduction Act.
Canada’s Building Trades Unions and our 14 affiliates look forward to participating in the upcoming consultations on these tax credits to ensure they maximize opportunities to create good middle-class jobs.
Canada’s Building Trades Unions also applauds the $250 million commitment over five years to Employment and Social Development Canada to help ensure Canadian workers can thrive in a changing global economy. Supporting workers as we transition to net zero is vital for our shared future.
Commitments like the new sustainable jobs stream under the Union Training and Innovation Program and the creation of a Sustainable Jobs Training Centre and Sustainable Jobs Secretariat are steps in the right direction. We look forward to making sure we integrate the delivery of training for the new jobs of the future with our 195 training centres across the country.
Looking beyond 2022 Fall Economic Statement, Canada’s Building Trades Unions will continue to work with the Canadian government on the creation of the secretariat and bringing worker-focused, just transition legislation to the floor of the House of Commons in Budget 2023.
We also will continue to work with the government to address labour availability in the construction sector, including making changes to Canada’s immigration system to better suit the needs of construction and easing cross-border mobility for our members in the United States.
On behalf of the 600,000 skilled trades professionals that belong to Canada’s Building Trade Unions and our 14 affiliated international unions, I want to thank the committee for this opportunity to present. We look forward to any questions you may have for us. Thank you.
The Chair: Thank you very much, Mr. Lawlor. There is no doubt that you will have questions.
That said, I would like to remind senators that for the first round, we will have five minutes each, and the second round will be three minutes each.
Senator Marshall: I’m going to start with Mr. Bourque because housing is a big issue, and you did say in your opening remarks that we have a housing crisis. The housing sector is a key vulnerability in the Canadian economy. Could you give us an update as to what is happening now in the housing market. I have a very unfair question: Where do you think the housing market will go in the future? You did mention the new benefits that are defined in Bill C-32, but the amounts are so high. The expectation that young people will be able to save money to the extent of $40,000 for the new Tax-Free First Home Savings Account, and even to have $35,000 in their RRSPs, in my mind, it’s going to be quite a challenge for young people. Can you just briefly give us an overview of where we are and where you think we’re going with regard to the new provisions in Bill C-32?
Mr. Bourque: Thank you, senator. A lot of questions there. Let me try to unpack it by first answering where we are now.
Clearly, prices have dropped considerably from their peak during COVID. Money was free, with very low to almost no interest rates, and all of the interest rates, essentially, went into the value of assets. Assets became inflated, and now that interest rates are higher, those prices are going down. It’s also a lot more difficult for first-time homebuyers to afford a new home because interest rates are high and prices are still very high.
The reason that they’re high is because we have a shortage of homes. The reason I mention that is that I think if you want to know where we’re going, we’re in a period of adjustment. People don’t know whether they should list their home. They don’t know whether they should buy a home because interest rates seem to be rising. There’s a lot of uncertainty and prices are dropping, so there are a lot of people kind of standing pat. But when everybody adjusts to a new interest rate environment, whether that’s 3%, 4% or 5%, you know — I’m certainly old enough to remember that my first mortgage was 12%. When people adjust to that, the market will resume, but the timing of that is difficult to predict because we are facing a recession. We still know that the Bank of Canada is going to raise interest rates a little bit more, and I think people are waiting to see what will happen.
The fundamental underlying reality is that we are living in a very significant shortage. As I mentioned, CMHC has forecast the need for an additional three-and-a-half million homes, and that shortage will continue to drive prices higher for both rentals and homes.
With respect to Bill C-32 and the provisions, again, there are some good things here, but the tax credit for multigenerational homes is really the only thing I can point to that will address supply because if you can build an addition on your home and have your older parent move in with you, then that’s a home that becomes available to the market. But we need to do a lot more to remove the impediments that have been well-documented that are preventing us from building new homes.
I also think that we have to be a lot more innovative because I’m sure the building tradespeople here today will tell you that regardless of how many trades we can increase, I don’t think we can keep up with the demand from the construction sector. We need to start innovating and constructing homes in a more modern fashion. Today, it’s still pretty much done the way it was done 50 years ago. I always like to say that if you came out of a time machine, you could go into a building construction project and start swinging a hammer, and you would barely notice a difference.
Senator Marshall: What do you think of the provisions? The Tax-Free First Home Savings Account. The maximum is $40,000. In your opening remarks, I think you were suggesting that the Home Buyers’ Plan, which has a $35,000 limit, be increased to $40,000. I don’t know if that’s outside your area of expertise, but it seems like a lot of money. We’re talking mostly about young people trying to afford a home, and for them to work, probably have small children and to put money away of that magnitude seems to be quite a challenge. When I look at it, I think it’s not going to be that much of a help to the majority of young people.
Mr. Bourque: The Tax-Free First Home Savings Account, I think, is an excellent vehicle. I can speak personally that I’m encouraging both my boys to put money into that vehicle as soon as it’s available. Any time you can have a tax-free vehicle, it’s fantastic. Yes, it’s limited to $40,000, but it doesn’t conflict with the existing Tax-Free Savings Account, so I think it’s a very good thing.
With respect to the Home Buyers’ Plan, the limit is currently $35,000. We’re suggesting it should match at $40,000, and those are two different markets, senator. People who use their RRSP are often not first-time homebuyers. They might technically qualify that way, but, for example, you see a lot of people in a separation, divorce or after the death of someone, they’ll use their RRSP to help them get into a home. These are two different audiences, and very important vehicles to help people save for a down payment.
Senator Marshall: The Home Buyers’ Plan you have to repay within 15 years. My time is up. Thank you.
Senator Moncion: My question is for Mr. Kershaw, and it is about the rollout of child care. You were saying that you thought it was a good measure because it was included. I’d like to know if you would consider it a good idea to have rules around access to this child care. Should it be a free market or should it be targeted to different groups of families or different needs of families?
Mr. Kershaw: That’s a great question. I would absolutely encourage all the senators to anticipate that investments in child care should be universal, available to all families and with a maximum fee of $10, not just an average fee. For those who are in higher income households, they will contribute more to the overall cost of that program over their lives by paying the progressive taxes that we have in our system, although I take Katrina Miller’s point that we could be thinking more about of the fairness and progressivity of our tax system more generally.
If we don’t do that senator, if we think about allowing some provinces to invest federal dollars in ways that support some families but not all families, there are a variety of problems that will unfold. First, it will create intergenerational unfairness. We don’t do that with regard to medical care right now. Medical care is a very important program that benefits every Canadian, but we draw on it disproportionately when we’re older. We have many affluent seniors. In fact, Statistics Canada will show we have some of the most affluent seniors we’ve ever seen, but it’s not as if we’re going to go to those seniors and say we’d like them to pay more at the door when you enter the doctor’s office. Why would we have a different logic for child care? If we were, we would introduce an intergenerational tension.
We would also put at risk the political sustainability of the system over time because when we build these important public goods, like child care that we’re trying now — or medical care or grade school — you maintain public support for them when you have the vast majority of Canadians seeing their interests served. But if you design child care at the beginning where you’re going to exempt some more affluent families from being able to take advantage of the same few reductions at the door, then you encourage them right away to look elsewhere. That will rob the new program of the political stability it needs to be sustained over time as a public good.
Senator Moncion: Thank you. I’ll go further with the question. Right now, Quebec is looking at bringing in changes to accessibility because often families with less financial means have less access to child care at, I think, $8 in Quebec. There are also disabled children who don’t have as much access as other children. I was looking to see where you were on these types of criteria.
Mr. Kershaw: I can respond quickly because I know our five minutes is probably running out.
You’re right. When we rollout a system and have an insufficient number of spaces to serve the population’s needs, you’ll have a middle- or upper-middle-class group outcompete others to access them. We absolutely need to be paying attention to the barriers to accessing high quality services for those who have lower incomes and for families who have extra support needs, either for the adults or children in their lives. This is a critical design feature to build into the program, but it signals that even in Quebec, which is ahead of other provinces in having child care as a public good, it doesn’t yet stand up in terms of comparisons to other really strong systems internationally. Let’s use the federal dollars in Quebec to address some of the very concerns that you identified.
Senator Moncion: Thank you.
[Translation]
Senator Gignac: My questions are for Mr. Bourque, from the Canadian Real Estate Association.
I would like to pick up on the topic raised by my colleague Senator Marshall, regarding the current real estate market.
Is it the same right across the country, in the metropolitan areas as well as rural regions? Can you explain the imbalances or pressures you see right now in the real estate market?
Mr. Bourque: Thank you, senator. I’m sorry, but I will answer in English to be clear.
[English]
The question is around the situation in different regions. One of the fundamental truths of real estate is that all markets are regional and local. There is no national market. It is different wherever you go.
That said, the shortage of homes is almost a national problem that exists in every community. Many of the reasons for housing supply shortages are common and relate mostly to regulation and costs at the local level, which exist in every municipality across Canada.
The problem is more acute where you have a higher population. You get regional differences. For example, in Montreal, there are more rental properties than there are here in Ottawa, but you still have a shortage of homes and, in particular, an acute problem of homelessness in many communities across Canada.
Senator Gignac: The government will increase the target on annual immigration to reach half a million per year in the coming years. Do you find that they’re too aggressive and that it will exacerbate the tension in housing? What you have described, I don’t see any fix anytime soon regarding regulations in local municipalities.
What is your view or does your association have a view on the immigration target, which is the most aggressive in the G7?
Mr. Bourque: It is true that there is a very high number of new Canadians each year, and the target of 500,000 a year creates a very large city in just a few years. The fact is, though, we need immigrants to help build our economy, so we’re very supportive of these targets. At the same time, what we need is a more concerted, focused and deliberate effort by the federal government, as well as other governments, to remove the barriers to building and to let people build so that we can accommodate these newcomers.
It should be encouraged, but at the same time we’re not prepared because we are acting too slowly and with not enough urgency on the supply of new homes.
Senator Gignac: That is exactly my concern. Since the barriers are there, increasing the target may exacerbate the problem. We will see.
Finally, could you elaborate on the fact that you referred to the ban on foreign buyers? You do not seem supportive of that, but correct me if I’m wrong. Finance Minister Chrystia Freeland said that it’s a tool to avoid speculation in some cities in particular. You disagree with that approach. Could you elaborate?
Mr. Bourque: I disagree completely with this approach. The fact is that foreign buyers account for a very small percentage of home buying. Frankly, I’m happy that people from other countries want to purchase and invest in Canada.
The problem that this created was that many of these units were left empty. The tax on empty buildings and on empty units is a much more effective way of dealing with this.
What really concerns me about the foreign buyers’ ban is that it attacks Canada’s brand. It sends a message that threatens our relationships in North America. These relationships are based on decades of property ownership ties. We have a free trade agreement with the U.S. and Mexico. These trade relations have led to a greater understanding of our respective cultures, which in turn have led to those trade agreements, to joint defence and security and to border and supply chain arrangements that have benefited Canada.
I am completely against the foreign buyers’ ban. I think it’s xenophobic. It sends the wrong message, and it’s going to hurt Canada. It’s hurting people who are trying to attract workers to Canada. If you can’t buy a home because you’re going to bring your family to Canada, maybe go to Australia or the U.K. instead.
It is a terrible piece of legislation and a terrible policy. I’m very disappointed in the government for supporting it.
Senator Smith: Canada’s Building Trades Unions, Ms. Rahmati and Mr. Lawlor, the federal government’s recent commitment to increasing immigration levels to 500,000 a year moving forward is one step they believe will help reduce the major labour shortage challenges facing all industries. Skilled trades is one area that is attracting fewer workers. In what ways can the federal government increase the number of immigrants taking up skilled trades?
Mr. Lawlor: Thank you for the question. We are very happy to see the 500,000 immigration plan that was actually announced at one of our training centres.
The larger concern that we have — and it touches on many of the points that we’ve discussed already today — is that there’s obviously a need for further labour in Canada, particularly in construction.
We are happy to see that 500,000 number, but what is most important is that we need to change the immigration system to better suit the needs of construction. Currently, the immigration system is skewed towards people with higher educational backgrounds. While we are looking at the increase in immigration, we need to ensure that there’s economic immigration, and it’s the kind of skilled background workers that we need to build houses and to build the infrastructure that we take advantage of every day. Thank you.
Ms. Rahmati: To add to what my colleague noted, we would also like to see programs like the Express Entry program further utilized to bring in more skilled trades workers and workers from other sectors across the country that are highly needed. We’re working on getting those specific NOC codes over to the government and part of the consultations that are ongoing on that program as well.
As my colleague, Mr. Lawlor, mentioned in his remarks earlier, we would like to see a bit more cross-border mobility as well, and some changes to the Temporary Foreign Worker Program and the potential for sponsoring workers through that to stay in Canada as permanent residents and one day become immigrants.
Senator Smith: Do you think that is a realistic expectation in terms of making sure that people coming in can apply and be certified in terms of getting the credentials that are required to get into the specific trades areas that we require for building to take place?
Ms. Rahmati: I think so. Through our conversations with our 14 affiliates, many of them are interested in training, and if there’s upscaling needed or some credentials, then it could be updated when workers come to Canada. They’re interested in supporting them because they know they need that labour force for their union halls to be able to continue and to build Canada’s infrastructure. We’re willing to do our part to make sure that that happens.
That’s also why these conversations around labour availability and labour shortages, that immigration can’t happen without looking at our training capacity and programs like the Union Training and Innovation Program and the Apprenticeship Service program are all steps in the right direction to support that, to support Canadians and also any incoming immigrants and other workers who would be used to expand.
Senator Smith: Do you have a specific plan to approach the provinces? Obviously, it’s a federal-provincial issue of getting people certified, whether they can be registered by province and which provinces, et cetera. Have you made an approach directly with the provinces also or is it mainly focused on the federal government?
Ms. Rahmati: At Canada’s Building Trades Unions, our mandate still focuses more on the federal level, but we do work very closely with our provincial counterparts. We have provincial councils in every single province.
One thing Canada has that I think works so well is the Red Seal certification program, which makes it easier to have folks go from province to province.
Senator Smith: Thank you.
Senator Loffreda: Thank you to our panellists for being here. My question is for Mr. Kershaw of Generation Squeeze and Mr. Bourque of the Canadian Real Estate Association. We’ve had various points of view from different panellists and various experts on the Tax-Free First Home Savings Account and on the Home Buyers’ Tax Credit.
Many are favourable, but some say it will contribute to higher home prices, it won’t benefit first-time buyers and it will feed inflation. Can you please give us some additional thoughts on these measures? Maybe we can start with Mr. Kershaw or Mr. Bourque.
Mr. Kershaw: Sure, I’ll go first. On the one hand, it’s laudable that we have the Government of Canada wanting to address the reality that the current housing system is especially dysfunctional for first-time homebuyers, young people or newcomers of any age. Our housing system isn’t dysfunctional if you think that the goal has been to produce wealth for existing homeowners.
You should know my story, for instance. Last year alone, B.C. Assessment told me my home went up by $500,000. It’s because of people like me, and homeowners in majority, who are gaining wealth windfalls quite regularly in our housing system over the last many years that we don’t have such outrage that home prices have left earnings behind. Since it has such age implications, it’s appropriate for the Government of Canada to think through something like the First-Time Home Buyers’ Tax Credit that’s being created right now.
It will have some inflationary contributions to be made. There’s no doubt. The moment we make it easier for people to save and bid up more for housing that contributes to a demand side factor, but that alone I don’t think is reason to be worried about it. I think the bigger reason to be worried about it is many younger people — to pick up on an earlier question today — are going to struggle to actually take advantage of these measures. Let’s remember, when my mom started out in the housing market, it took five years of full-time work to save a 20% down payment on an average-priced home. Now it takes 17 years. As more young people are locked out of home ownership, needing to rent for longer periods of their lives — and average rents are up thousands of dollars — it’s harder to find the money to take advantage of the tax breaks we’re creating for first-time buyers. That, then, creates an unequal playing field between renters and prospective owners, so we can create inequality within young people. As much as we’re focusing on home buying for young people, we have to be levelling the playing field for renters because younger folks are so much more often being renters for longer periods of their lives. I’ll pass it to Mr. Bourque for now.
Mr. Bourque: Thank you, senator. It’s a very good question. There’s certainly an argument on the tax-free savings side that the government should open up tax-free savings and make the contribution to that greater for everybody, and let them spend these additional tax-free savings the way they want. But the fact is that everybody needs a place to live, and these are excellent vehicles to help people save money. The reason we support them is because they will facilitate saving money so that people can afford a home.
I should point out that this is a long-standing practice in Canada for governments to support home ownership. The policy tilt in favour of home ownership is not about partisanship, it’s not about political advantage. It’s been rooted in the understanding of the benefits of home ownership for individuals, communities and the country. There’s a lot of evidence that says that owning a home doesn’t just contribute to your own financial security, but it extends to a wide range of civic and broader societal benefits. There’s a lot of research to support that. In particular, there’s evidence to support the assertion that owning a home is key to lifting families out of poverty and creating intergenerational wealth.
This is, in fact, the key motivator for immigrants to come to Canada, as home ownership is not possible in many other countries around the world. These policies are an important part of promoting home ownership in Canada, which has proven to be very beneficial for not just individuals, but for society at large.
Senator Loffreda: Thank you for that. The way I see it, if there will be enough for that many first-time homebuyers to spur inflation, I think that would be positive news for first-time buyers and our younger generation. I don’t feel there will be enough first-time buyers to really spur up inflation, but am I wrong — and maybe do correct me, both of you can. With these measures, we don’t expect the younger generations or the first-time homebuyers to buy a home in year one, two or three, but yet the contributions and the investments are tax deductible, so you’re contributing to a younger generation’s wealth, right. Is that well seen by both of you? As a former banker, I always look at risk and mitigating the risks and return and benefit. Would the risk here be greater than the benefit going forward or is the benefit much greater than the risk?
Mr. Bourque: There’s no question in my mind that the effort here should be on increasing supply because if we had a dramatic increase in supply, prices would come down. Until we can do that, these programs that will help people save money — I agree with you, I think there could be some inflationary effect, but I think it’s minor. These ultimately will help people save money, which is a good thing.
Mr. Kershaw: I would add, as a reminder, that there is no silver bullet. But if we think about the “silver buckshot,” we can counter some of the modest inflationary risks that come from the program you’re talking about by doing other things. For instance, I already drew attention in my opening remarks to how one of the major inflationary contributors in our housing system is actually StatCan’s mismeasurement of housing inflation, which then sustains the cheap credit system by which people can borrow more and bid up the price of housing. StatCan doesn’t capture that, and it creates an unhealthy cycle.
Simultaneously, we can think about asking those who have most benefited from the skyrocketing home prices — people like me who own homes over $1 million — to actually contribute slightly more through taxation, and reduce some of the home ownership tax shelter among those who have gained the most, which will have a dampening influence especially on the values of homes that are reaching levels that we think are unhealthy.
Each and every policy is going to have either an inflationary or deflationary component, but on average what we need is a strident strategy that says our goal is for home prices to stall indefinitely, if not fall moderately, and give earnings a chance to catch up. If that’s not our goal for the housing system going forward, then we are losing track that housing ought to be for homes first and investments second.
Senator Loffreda: Thank you.
Senator Bovey: I’d like to thank our guests for being here and apologize for the fact that I fear I missed your opening remarks. There’s too much going on all at the same time.
My comment or question is for Mr. Kershaw. I’ve had the opportunity to read the brief you wrote about the Fall Economic Statement not updating much for generational fairness. If my question covers what you said in your opening statement, please forgive me.
You’ve mentioned five issues in your document, and I realize that we’ve been talking about housing. So I’m going to push a little bit to the budget analysis that you did, and I appreciate in the last four years you’ve done a number of articles about how the government has underinvested in younger people for 40 years, and intergenerational injustice in Canadian public finance. You talk about making life more affordable, and said we can’t tackle affordability by scaling back climate action, especially pollution pricing.
As my colleagues know, I’m just back from COP 27, where it was the interventions by the young people that blew me away; they were tremendous. You said it’s intergenerationally unjust when younger generations face the lion’s share of climate risks.
In light of the conversation we’re having this afternoon, I wonder if you could illuminate me a little bit further.
Mr. Kershaw: You’re absolutely right that a younger demographic right now inherits quite an alarming legacy, whether we’re talking about how society has happily overconsumed the atmosphere’s scarce capacity to absorb carbon and left extreme weather as the legacy, or we’ve extracted so much wealth from our housing system that we leave unaffordability as the legacy or we actually extract so many tax dollars today and disproportionately invest them later in the life course, under-investing in the things that make younger people healthy and well, and leaving them large government deficits.
That is the reality of Canadian politics over the last many decades. That’s not a partisan statement. That is a statement of how Canadian culture has tolerated this dysfunctional generational system.
At this moment, when it comes to the politics of fighting climate change and inflation simultaneously, we find ourselves in a difficult space because you’ll hear a number of politicians say, well, let’s reduce the gas tax or the price on pollution because that’s harming soccer and hockey moms as they are commuting their kids around. But we cannot solve our wallet problems by neglecting our climate problems. That’s akin to playing Russian roulette with our kids, and I don’t know many mothers who would say, “Oh, I’m going to put a bullet in the revolver and see if it is going to cause any problems,” because we know absolutely that climate change is the greatest risk to human health in the 21st century. So let’s solve our housing affordability problems and our family affordability problems, and that will then make it easier for Canadians to manage the costs involved in fighting climate change.
Senator Bovey: Through that, coming out of the Fall Economic Statement, what would be your recommendation for the government now?
Mr. Kershaw: First and foremost, we’re not going to know that we have a dysfunctional intergenerational system until we start actually reporting on some of the key trends that are happening in the budget. For instance — and it is true — what was so historic about the 2021 and 2022 federal budgets were that we invested in building a new social program, the $10-a-day child care. You might have thought that was the biggest increase in spending that the budget was proposing. Not at all true. By comparison, the increase anticipated for Old Age Security will be almost three times as high as what we’re proposing for $10-a-day child care.
That reality did not get a note in the budget speech. That reality did not get a note in the press release. As a result, many of our talented MPs don’t know that that’s unfolding in the budget. We really need our government to appoint a person who’s responsible for looking at intergenerational trends in our budgeting, so that we budget for all generations and for well-being from the early years onwards.
Just as a no-cost starting point, let’s appoint a minister or deputy minister responsible for intergenerational fairness. We have a minister responsible for seniors and we have a minister responsible for young adults and a whole bunch of other things, but we really need to put those two things into dialogue. For someone who has just come back from COP 27 where climate change is seen as probably the greatest existential intergenerational unfairness, we so desperately in this country need to set our eyes on those tensions because the tensions pit generations against one another, when what we want is a Canada that works for all generations.
Senator Bovey: Thank you very much.
Senator Pate: I’d like to start first with Ms. Miller from Canadians for Tax Fairness. Earlier, I was reading a piece in Canada’s National Observer by Avi Lewis. I was struck by this quote:
I think the dimensions of inequality, and the central role of wealth and corporate power in blocking progress on the crises cascading around us, is pretty well understood these days, as evidenced by numerous campaigns and initiatives making the rounds. Yes, we should have a windfall tax, a wealth tax and a tax on Big Oil (and we should sue them while we’re at it). We should tackle tax havens, call out “greedflation,” demand a truly just transition away from fossil fuels and make sure no fossil fuel lobbyists are ever part of a Canadian climate delegation again.
I’d be interested in comments from you and from any others who would like to comment as well. What other measures? You have mentioned some of the things that you support in this bill, but what other measures would you like to see to create the kind of equitable tax process many of you have spoken about? Thank you.
Ms. Miller: Thanks for the opportunity and the great question. Avi Lewis is never one to mince words. I think that he’s right. We need a full-scale review of our tax system to understand how, over the last four decades in particular, it has become skewed towards basically providing power and wealth to an elite set of individuals and large corporations, while putting the tax burden largely on average workers and families in Canada.
To get really specific about a couple of measures, in my presentation I spoke about the need for a windfall tax on oil and gas which is similar to our Canada Recovery Dividend, and potentially a permanent surtax on those corporations as well because their profit margins have been huge — $66 billion in one year for the top ten oil and gas companies in Canada — with little of that coming back in any way to invest in our economic and social well-being as a country, now and in the future, and to invest in a transition to a zero-carbon economy.
We see that in the numbers because we’ve looked at what they then ship out in dividends and stock buybacks. We found out most of that $66 billion, in fact, goes out the door in wealth creation and wealth concentration measures, like dividends and buybacks.
We need to take control of the situation with better tax measures — windfall profits tax, definitely; an increase in the corporate tax rate. The U.S. just passed a really interesting measure, in fact, as part of their Inflation Reduction Act, where they put a 15% minimum tax on book profits. Book profits are, of course, what the corporations report to their shareholders, but not what they report to the Canada Revenue Agency, which is a completely different level of profits. Putting a minimum floor tax on book profits helps us stem some of the problems that we see with tax avoidance measures and tax scheming that are used to avoid — [Technical difficulties].
Mr. Kershaw: I would emphasize that this year marks the fiftieth anniversary of the most significant expenditure that the Government of Canada has ever made with regard to housing, and that’s the home ownership tax shelter. We’ve already heard Ms. Miller talk about how capital gains, generally speaking, enjoy very favourable taxation status. Even more than that is the home ownership tax shelter, which exempts any wealth windfall gain from principal residences really from any kind of taxation.
There may have been reasons for that five decades ago, but in the five decades since average home prices have gone up by hundreds and hundreds of thousands of dollars, which has created wealth windfalls for many, especially in B.C. and Ontario. It’s creating regional unfairness. Think about the widow in Fredericton who’s on a modest income, and her home has not gone up very much in value. Then think about the same income for a widow in Vancouver. They’re typically paying the same taxes on their income, but the widow in Vancouver likely lives in a home that’s now worth $1 million, $2 million or $3 million. Their financial circumstances are not the same, but we treat them identically.
Mr. Bourque: Perhaps on that note, I would suggest that a new tax on the value of your home would make the affordability crisis even worse because any change to the capital gains tax would create a disincentive for anyone to sell their home, making the housing supply even worse. Canadians would, for example, think twice before moving within the country for an employment opportunity, putting more pressure on major urban centres. Retirees would have no incentive to forego their equity, and would delay their decision to downsize, which would be very inefficient. Most Canadians have made assumptions about their retirement based on the value of their homes. It’s why they can afford to sell their home and move into an old folks home or into some kind of care.
This kind of change that Professor Kershaw continually proposes would shatter those assumptions overnight and would bring homeowners and their presumed financial stability into question. Such a tax could very well put upward pressure on housing prices instead of cooling them. It would be political suicide for anybody to suggest this, and those who do suggest it would probably preside at your political funeral.
Ms. Rahmati: I’ll keep my remarks brief. I haven’t had a chance to read Mr. Lewis’ article, but what we will say is we need a tax system that supports investment and workers, and that attracts projects to Canada in traditional energy sectors and in the just transition sphere and future that supports incentives to have better workforces and labour conditions, such as the ones that are included in the Fall Economic Statement. As we stated, those can be strengthened.
Senator Galvez: My question about real estate has been answered. I will continue in the same vein as Senator Pate with Katrina Miller.
You are in favour of the phasing out of flow-through share for oil and gas collectivity, and you also salute the introduction of the Canada Recovery Dividend. You talked about closing the loopholes for tax evasion, and said that we lose $30 billion per year in a tax gap.
The other day we heard from the Canadian Bar Association. In this Fall Economic Statement, there are new rules that impose reporting obligations on a broad group of trusts. The lawyers are against that, but we know that tax evasion and tax avoidance is happening because of the participation of lawyers. Do you have a position in favour of or against these new rules?
Ms. Miller: We have been part of a campaign calling on the Government of Canada to put forward what’s called the beneficial ownership trust, which is what I think you are referring to. This is a public registry of the actual owners of companies who are benefiting from the profit that those companies generate. This is a conversation that’s actually happening globally as country by country, organizations and governments are trying to understand who actually owns and benefits from the corporations that exist in those countries. It’s absolutely essential that we be able to do this in Canada.
Senator Galvez: Thank you. You also support the windfall tax on excess profits of oil and gas. Do you have an idea of the percentage that we should apply? I heard that in Europe it’s around 15%. Do you have a number in mind?
Mr. Kershaw: As I’ve said, there are over half a dozen countries in Europe that have either imposed or implemented such a measure. The rates rise between 15% to 40%. The easiest measure in Canada would be for us to basically add oil and gas companies to our current Canada Recovery Dividend, which is at 15%.
Senator Galvez: My last question is about the subsidies that oil and gas companies receive. Part of them are tax reduced, but there are many other forms of subsidies, and there’s a big range. Depending on whom you read, it goes from $8 billion to $12 billion per year. What do you do with these subsidies, in your opinion?
Ms. Miller: In fact, I think that needs really close examination. We understand that with those subsidies, some are charting them as much as $15 billion so far in 2022, for example. We know some of that does happen through tax measures.
In terms of tax measures, which is our area of expertise, we think we need a detailed review of the tax system to look at how it’s specifically and generally subsidizing the fossil fuel industry, and how we start to phase that out and turn those measures towards a just transition for Canada’s economy.
Senator Duncan: Thank you to all of the witnesses who have appeared before us today. I would like to address my question to the Canadian Real Estate Association. I would like to discuss the underused housing tax provision in Bill C-32.
This 1% tax on the value of non-resident, non-Canadian-owned residential real estate that is considered to be vacant or underused, I believe it’s targeted towards cottage properties or perhaps the lakefront and so on, those sorts of properties. Is that your understanding as well? That’s my first question.
Mr. Bourque: Actually, we specifically advocated so that cottage-type properties would be excluded from this. I believe the reason the tax was brought in the first place was to address mainly foreign owners who purchased condominiums and left them empty. They were using them as a safety deposit box, and this was taking up needed housing supply. So the tax, which has already been introduced in some municipalities, is actually proving to be quite effective to provide an incentive to those owners to rent out those properties. That’s a good thing.
Foreign capital coming into the country is fine, as long as we know who the owner is. I would echo the need for a beneficial ownership registry so that we can make sure money is not being laundered that way. If people want to invest in Canada, that’s a good thing, but we want those units to be available to the market as rentals, and the tax can do that. I’m not sure we really needed one at the national level because, again, all markets are local, and this may not be a problem in many markets. The municipalities and provinces have the ability to create those kinds of taxes themselves.
Senator Duncan: I appreciate that. However, the Canadian Real Estate Association is closest to the ground, in many instances, and I’m wondering if you have a sense of the foreign investment in real estate throughout the country, particularly in rural Canada.
Mr. Bourque: There have been a number of studies on this. You do get some little pockets across the country where there is a tremendous interest by Germans in the East Coast of Canada, for example, where they buy cottage properties that they use for a certain amount of time per year. But I think the concern has been where there are owners who do not occupy, who are just buying for investment purposes and could potentially drive up the price of real estate. In fact, there have been a number of studies done on this, and it is around 2%. It’s not influencing the market in a significant way, but we do, again, want to make sure we understand who those owners are and ensure that this is not being used for money laundering or other nefarious purposes.
Senator Duncan: I appreciate that. Those studies, though, sir, do they include rural Canada, particularly northern Canada? I suspect they do not.
Mr. Bourque: I couldn’t answer that, but I’d be happy to look into it for you.
Senator Duncan: Thank you. If you could provide that answer in writing to the clerk, I would greatly appreciate that. Exactly where is the foreign investment in real estate in Canada?
In your response, if you could also outline how the Canadian Real Estate Association works with local agencies such as the RCMP, municipal police departments or those who might be interested in foreign actor involvement in Canada.
Mr. Bourque: The real estate industry, unlike the legal profession, is covered under the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, so realtors have an obligation to fill out FINTRAC forms. I can tell you, this is an extremely significant paper burden on realtors, but that is the obligation and that’s what we do. In our organization, we spend a lot of time and treasure training our realtor members on FINTRAC compliance. It’s a big and important area for us. The fines are heavy, and we’re doing everything we can to help our members be compliant with that legislation.
Senator Duncan: Thank you.
Senator Cardozo: My first question is for Katrina Miller at Canadians for Tax Fairness. Ms. Miller, you talked about the windfall tax.
We heard from other intervenors this morning that such a tax would scare away investment and send a message that Canada is not open to foreign or local investment. What is your response to that?
Ms. Miller: Thank you for the question, senator. We often hear this critique when we suggest increasing corporate taxes of any sort. What we have seen, though — frankly — in the reduction of corporate taxes over the last four decades is that they have not been paired. We have not seen an increased investment in our economy by those corporations correlated with that reduction. What we have seen is a greater amount of profiteering through dividend payouts and share buybacks, particularly in the last decade.
What’s happening is that we’re getting a higher and higher concentration of wealth, both within corporations and within individuals, and we need to do something about that. Our tax system, frankly, is an incredibly powerful tool for us to redistribute wealth. Ultimately, these corporations will benefit from a stable, healthy and sustainable society. That’s what makes Canada competitive: having that stable, healthy society that has a great workforce, that is well educated and well taken care of by a good social safety net. We can’t afford that if we don’t have a good tax system that gives us the revenues.
Senator Cardozo: I guess it’s a balance of how far you can push the tax rate.
Ms. Miller: Indeed. Considering that our corporate tax rates are at historical lows, I think we have a fair amount of room. Our federal tax rate is at 15%. That’s six points under the U.S. tax rate right now. So even within competition with our direct neighbour, we have a fair amount of room to raise our tax rates a little bit on corporations.
Senator Cardozo: I have a question for Canada’s Building Trades Unions on the matter of the mobility tax credit that you mentioned. Your organization deserves a lot of credit for getting that into reality in the last budget because you have been pushing that stone up the hill for a while.
I want to ask you about the labour shortages that you talked about. You mentioned the funding that you and your members received that was announced in the Fall Economic Statement. How do you focus those programs on under-represented groups? I’m thinking of Indigenous people, newcomers and women in construction.
Ms. Rahmati: Thank you for the question, senator, and congratulations on your recent appointment as well.
When it comes to under-represented groups, that’s certainly something we are committed to at Canada’s Building Trades Unions. What’s really positive about some of the investments coming out of the government is that there are criteria specifically to support under-represented groups. For example, with the Apprenticeship Service program, we received a grant that was recently launched just this fall. It gives $5,000 to employers for hiring an apprentice, but it gives an additional $5,000 for hiring an apprentice from an under-represented group, which helps incentivize employers and the private sector to put those folks on the job sites.
As well, we have a number of programs. For example, under the Union Training and Innovation Program, we have been able to expand the Office to Advance Women Apprentices, which supports the provision of training and wraparound supports to women in the construction industry — understanding that they face unique challenges that those traditionally in the industry have not faced. It also supports them in finding employment. We are definitely proud to utilize those programs and that funding to support under-represented and equity-deserving groups.
There are additional mechanisms that we think could be used by the government to further support under-represented groups, and that includes, for example, having community benefits agreements on projects. We have seen British Columbia and Nova Scotia be leaders on that front, and we have seen their percentages of under-represented groups go up substantially through some of the programs they have had utilizing community benefits.
Senator Cardozo: Thank you, Ms. Rahmati for talking so quickly. You packed in a lot of great information there.
My last question is for Paul Kershaw. You made the point that the government should hold firm on its carbon tax and rebate. I mention tax and rebate because they are the two things that go together, and people often forget the rebate part. But there is a strong argument being made now in the face of increased inflation that the government should drop or set aside that program for a while. What is your convincing argument that we should stay the course on the carbon tax and rebate when inflation is really affecting families so deeply?
Mr. Kershaw: I’ll try to speak just as quickly.
We can’t solve our wallet problems by neglecting our climate problems. The best way to deal with the inflation challenge is to actually restore housing affordability, ensure child care doesn’t cost a rent-size payment and address some of the poverty considerations that are at play in this bill. That will better position Canadians to economically manage the adaptations required to fight climate change, which is an existential crisis for a younger demographic and future generation.
At bottom, it is not an either-or. You are right that the vast majority of young people actually get more from the price on pollution in terms of the rebate when they live in provinces that have the federal backstop. But even if they didn’t, I would still recommend solving the wallet pressures where they exist for housing and child care, and then better position ourselves to deal with the fact that climate change is the greatest threat to human health in the 21st century.
Senator Cardozo: Thank you.
The Chair: Honourable senators, before we go to the second round, I have a question for each witness.
I do agree that we need social acceptance going forward, and I also agree that you must partake in the discussions. That said, with your experience, have you been sufficiently consulted in this process with Bill C-32? I would like a short answer from each of you.
Ms. Miller: Thank you very much for the question. I’ll keep my answer short. No, I don’t think we have. I think that when it comes to the tax measures within Bill C-32, particularly how they affect us as a society overall, we need a greater public discussion. We also need a much more transparent conversation about our tax system. This has significant measures in it, some of which we support and some of which we’re kind of agnostic about. I think that Canadians overall need to be able to be part of this conversation in a much greater way.
Mr. Kershaw: Well, I think at the foundation of your question is an overarching observation that we all must commit to rejuvenating democracy in Canada. It is a tall order for governments to be able to reach out to every different stakeholder. However, the more we can empower stakeholders to be proactive in offering advice — I don’t think I have a particular critique right now about not having had a chance to provide our views through various processes, but I do think we more generally need to restore some faith, especially among the younger demographic, that there is more to democracy than just showing up and casting a ballot. We need to be shaping our budgets year after year, and that’s where so much of the democratic work happens.
I would say that’s an overarching message I would send back to you and your colleagues.
Mr. Bourque: We tend not to be shy about making sure our views are known, senator, so I would say we have made sure that our views are known on this bill. Many of the provisions of the bill on housing did not come from us. They were a surprise to us when they were announced. But we have had an opportunity since then to provide comments.
I will repeat that on the foreign buyers’ ban, we are waiting for regulations. This is going to take effect January 1, and we don’t have the regulations and we don’t know how our members are going to comply. It is not always a perfect system, particularly when we get to the regulatory phase.
Ms. Rahmati: I will say that we feel we have been adequately consulted in regard to Bill C-32, and have had continual conversations since the legislation came out, on a few others as well. That particularly comes from a few ministries that are more active with our organization. I’ll point to one example: the Sustainable Jobs Training Centre and the other sustainable jobs programs announced in the Fall Economic Statement. It was organizations like ours that spoke to the government about why we didn’t want those called “clean jobs centres,” and the government heard us, consulted with us and made those changes. We appreciate when those efforts are made.
The Chair: Thank you witnesses.
Honourable senators, we will move on to the second round.
Senator Marshall: My next question is for Ms. Miller from Canadians for Tax Fairness. There was a brief reference to the tax gap, and that’s now over $40 billion. I’ve seen a document that shows that $16 billion is related to corporate tax avoidance and evasion, and $17 billion is related to unpaid personal income taxes. You referenced the publicly available registry system, and the government has made a commitment to have it implemented by next year. Has Canadians for Tax Fairness ever made any specific recommendations on how the government should approach the collection of these uncollected taxes?
Ms. Miller: Thank you for the question, and, in fact, we have. We think Canada Revenue Agency needs better funding and resources to go after the big tax avoiders, the corporate tax avoiders. It needs to be able to have both the capacity in its staffing to be able to do that, but it also needs to have the legislative authority to do that. Right now, Canada is reviewing its general anti-avoidance rules in order to update them in such a way, and hopefully make them stronger, so that Canada has more teeth to go after tax avoidance measures that are used by corporations. We support that measure and hope that it will be made as strong as possible.
Senator Marshall: Have you ever made any recommendations with regard to reporting? The amount of the tax avoidance seems to be hidden out there, and every now and then it raises its head. So it seems that it’s continually increasing, but we never see any impact with regard to whether it is decreasing. Have you ever made recommendations with regard to reporting?
Ms. Miller: Yes, we think Canada should look for its corporations to provide country-by-country reporting of the finances and income. Country-by-country would provide us a much more transparent picture of where and how they’re booking profits and where and how they’re paying taxes. That’s one critical measure.
We also need to work on an international scale with our partners through the Organisation for Economic Co-operation and Development, or OECD, the G20, the United Nations and all of those measures to look at global transparency measures wherein we have requirements between countries to ensure that corporate transparency in each country is the same, and, therefore, there’s no ability to hide money in various places.
Senator Marshall: Thank you very much.
[Translation]
Senator Moncion: The question is for Mr. Bourque and pertains to the regulation stage. What do you expect for that stage?
Mr. Bourque: We will see what happens with the tax, and exemptions for that tax in particular. As I said, for cottage-type properties, which people use in the summer only, we do not think they should be included, but we do not have good visibility right now as to the regulations.
Senator Moncion: Do you expect to be consulted or to see the final product once it is complete?
Mr. Bourque: We hope the process will be better than for the other part of the legislation pertaining to foreign buyers.
Senator Moncion: Thank you.
[English]
Senator Gignac: My question is for Ms. Miller. This morning we heard from the Canadian Bankers Association, and they thought the increase of the fiscal burden on banks will have a negative impact on investors as well as customers through higher fees. If we increase the burden on the oil and gas industry — and this approach has a lot of sympathy, I would say, around the table — what will prevent that we’ll just pay our price at the pump when we fuel the car? Basically, since competition is not as significant in Canada as in the U.S., it will be translated directly to the customer. Do you have any reaction to that?
Ms. Miller: I’m sorry. I didn’t hear if the question was applied to me. Was it?
Senator Gignac: Yes, it was for Ms. Miller. This morning, the Canadian Bankers Association made the case that our burden, basically, of taxation on banks translates to a negative impact on investors, but also on customers through higher fees. In the U.S., you have thousands of banks. In Canada, you have six big banks, so it’s not the same competition as in the U.S. What could happen to oil and gas if you increase, and a lot of people agree with you that the oil and gas industry has to do more? But if you don’t have the same competition, is it a possibility that the big companies would just charge more at the pump when you fuel your car if you increase the burden for oil and gas industry? Any reaction? Any proposal?
Ms. Miller: I certainly do have a reaction. I think what we’re seeing right now is that the oil and gas industry is already increasing its price at the pump. Certainly, there are some inflationary pressures that they’re dealing with, but they’re increasing it in ways that are also increasing their profit margins. Sixty-six billion dollars is what they’ve taken in as profits pre-tax — just the top 10 oil and gas companies in Canada — in the last year. That is double what we’ve seen in a year-long profit taking of oil and gas in the last decade or two.
The amount of profit they’re taking in is really significant, and they’re using most of it in share buybacks or in dividends. They have room, frankly, in their profit margin right now to be able to take the burden of extra tax and not pass it on to the pumps. If they choose to do so, then that’s their corporate prerogative, but I think there are ways we can tackle that as well by ensuring greater competition and by potentially putting price controls on.
Senator Gignac: Thank you.
Senator Smith: My question is for Mr. Bourque. The new proposed anti-flipping rule in Bill C-32 is designed to reduce speculation in the housing market and help stabilize pricing, according to the government. I’m trying to understand whether house flipping is indeed a major problem in the housing market, and will this new proposal help achieve the desired goal of reducing speculation and stabilizing prices?
Mr. Bourque: Thank you for the question, senator. It’s always a pleasure to see you. The speculation question is a difficult one because we don’t want individuals using the capital gains exemption to flip homes. We’ve seen this where an individual moves into a home and, in a very short period of time, renovates it, sells it, uses the capital gains and does that again and again. That’s an abuse of a measure that is designed for home ownership. In that case, a person is in business, and should be paying a business tax.
The government has recently started collecting more information from individuals when they sell a home with a view to preventing that kind of abuse, but it’s probably overdue at best.
On the other hand, we do want people to renovate homes. Again, the biggest problem is housing supply, and the biggest impediment is governments, especially at the local level, getting in the way of entrepreneurs and developers who want to build. If we could make it easier for entrepreneurs to build, the place where you’re going to see the most new supply is with the person who turns a single family home into a duplex or a triplex, or takes an empty lot and puts up a fourplex. Those are the kinds of things we want to encourage, but we have to have a very clear separation in that the capital gains exemption is not used for that purpose.
Senator Smith: According to the government briefing document, this measure will impact an estimated 3,300 taxpayers and increase revenues by $15 million annually.
What do you think of that projection made by the government?
Mr. Bourque: I don’t know where they got that. It seems like a drop in the bucket, so I don’t know how significant that is.
I’d rather see an effort placed on working with other orders of government in order to remove these impediments. It will have a more significant impact on Canadians if we can dramatically increase the supply of homes. It’s supply and demand. If we can increase the supply, we will reduce prices. That will help homeowners, renters and everyone across the housing continuum.
Senator Bovey: I’d like to continue my discussion, if I may, with Mr. Kershaw. I appreciate your use of the words “well-being” and “fairness,” and you’ve talked about the need for more data.
In your document that I have in front of me that we dug off the internet, you noted the positive step in eliminating the interest on student loans but said that more needs to be done. Could you tell us what that “more” might be?
If you discussed it before I came into the room, I apologize. Perhaps you can just send it in so I can make sure I have a copy of it, but if you could highlight some of the things that would be very helpful.
Mr. Kershaw: Thank you for the question. I appreciate the attention you’re paying to our analysis of the Fall Economic Statement.
I must confess that, as an organization, we speak a lot with university students and those who have been recent graduates, and one of the frustrations that graduates find as they’re leaving university is that their student debt is actually the tip of the iceberg of the deterioration in the way that hard work pays off for young Canadians. I think the efforts to reduce the costs that people are experiencing from their student debt is absolutely appropriate, but, indeed, the bigger challenges facing a younger demographic are the reality that home prices have done this and earnings have actually been going down thousands of dollars after adjusting for inflation. We need to wrestle with the broader way in which our economy is making hard work not pay off like it used to.
It’s so interesting that I’m on the panel today with Mr. Bourque. We have many places where we agree, but we simultaneously need to ask ourselves: What do we want from the housing system? Do we want the housing system to be, first and foremost, a place to create homes for people, that is in reach for what young people earn, or what anyone earns? Or do we want our housing system to be a strategy in which we treat it as an investment commodity, a way to get rich?
For a younger demographic that is getting clobbered in terms of how their hard work no longer pays off like it used to, we need to recommit as a society and have the Government of Canada say, going forward, that the goal for the housing system is that home prices don’t rise any longer. We will encourage Canadians to accumulate wealth in other parts of our economy, which, by the way, will have greater productivity gains and drive up earnings for people.
The last data point I’ll share is that 14% of Canada’s economy is real estate rental and leasing. Fewer than 2% of Canadians make their livelihood in that industry. It’s one way to grow an economy.
Here is how it benefits: Homeowners like me get wealth windfalls. Real estate agents do make very good livings. Everyone else sees their hard work pay off less because their major cost of living rises faster than their earnings. That is clobbering younger Canadians.
That’s why the “more” is required. It’s not just a question of student debt levels; it’s a question of how we restore hard work paying off. The gap between home prices and earnings is crippling younger Canadians while making those who got in the housing market earlier wealthier.
Senator Pate: Thank you again to the witnesses. I’d like to allow each of you, starting with Ms. Miller, to elaborate on the types of tax fairness that you think could address some of the tax gaps you’ve each raised, as well as the lost revenue.
Ms. Miller: Thank you for the opportunity. I will keep it short, as I’ve covered a lot of this.
We need to raise the corporate income tax rate from 15% to 20% and put in a minimum profits tax of 15%, at least, in order to stem some of the flow of tax avoidance and get an overall fairer amount of revenue from our corporations in Canada.
In addition to that, we need to close a lot of tax loopholes. We have way too many of them put into the system over the last 40 years. We need to have a good review of our tax loopholes and a sense of whether or not they’re having any sort of economic and social benefit for the rest of Canada.
I’ll leave it there. Thank you very much.
Mr. Kershaw: Whereas Mr. Bourque suggested earlier that Generation Squeeze is in favour of eliminating the capital gains exemption on principal residences, that’s actually not what we propose. We propose softening its sharpest edges and asking Canadians who are among the 10% of homeowners who live in the most affluent homes — of whom I am one — to show allegiance to the Canadian dream that a good home should be in reach for what hard work can earn.
As part of that allegiance, we would ask them to pay a modest price on housing inequity by having a surtax on the home value above $1 million — that would exempt about 90% of Canadian households — and ask those who are in the top 10% of households in terms of the value of the home to contribute slightly more. In the first level of a $1.1 million home, it would be very modest, almost symbolic: a couple of hundred dollars per year. It grows thereafter, and you can see the details of our recommendation. It would allow us to collect about $5 billion a year, which we could invest into deeply affordable housing, deeply affordable rental, cooperative housing and address some of the health care needs the aging population needs. More often than not, it’s the aging population that has much of the housing wealth — and a range of other positive things.
I’m happy to speak to it in more detail.
Mr. Bourque: I don’t want to get caught up in a debate with Professor Kershaw on this. We have a long-standing policy in Canada of supporting home ownership because of the good that it does for society. Unfortunately, policy restrictions, mostly at the local level, have caused a situation where it’s very difficult for us to build homes and keep up with demand. This is the underlying problem.
I don’t think it helps to tax people. The tax proposal reminds me of the fact that you can’t be a little bit pregnant. You’re either taxing or you’re not. It has an impact on people.
We need to concentrate our effort — if we want to be fair with people and to give people the opportunity to have a roof over their head — on removing these restrictions on housing. There are far too many. They’ve been very well documented by the C.D. Howe Institute and others.
Mr. Lawlor: Thank you for the question. I would say that Canadians expect a large return on investment when government funds are used, and so to discuss what I was talking about in my opening remarks in terms of the Fall Economic Statement and the tax credits for clean tech and hydrogen, if the government is going to forego tax revenue in the form of tax credits or other supports, then it needs to be tied to job creation, innovation and investments that will benefit all Canadians and all Canadian workers. Thank you.
Senator Galvez: My question is for Ms. Rahmati. Earlier, we heard from the Alberta Federation of Labour on just transition. They said they prefer not to be associated with the just transition. They prefer to call it an industrial policy modernization. When I see definitions for just transition, it is preparing the workforce to fully participate in the low-carbon economy while minimizing the impacts of labour market transition, and it considers the principles of bon vivre, meaningful work, self-determination, equitable distribution, et cetera.
Can you tell us if your association is in favour of just transition, and what are the principles that will support this just transition for you? Thank you.
Ms. Rahmati: Thank you for that question.
I’d say from Canada’s Building Trades Unions’ perspective, we’re less concerned with exactly what terminology is used, but what we will say is we are supportive of just transition as a concept and the government’s efforts on that front. We know that the government over the last several months has switched to starting to use the language “sustainable jobs” and they’ll be having a sustainable jobs plan that will be coming forward.
We support that language even more so because it reassures our workforce that they’re going to continue to have jobs, which at the end of the day, is our number one concern and priority. When it comes to just transition, we want to make sure that folks have good jobs, they’re well-paying and the workers won’t have to have periods of time as this transition is ongoing where they’re unemployed. We’re okay with the just transition terminology, but definitely support the sustainable jobs language that has been used, and I would echo that our principles are that workers need to be at the forefront of these just transition conversations above any other considerations.
Senator Galvez: Thank you.
Senator Cardozo: I just have one question for Katrina Miller at Canadians for Tax Fairness. On the matter of interest-free loans for students, we heard arguments for and against that around this table from witnesses. I wonder what your thoughts are: Is it a precise, useful tool to help students who really need the assistance? Or is it spread too wide, and is there too much benefit going to students who don’t need the assistance?
Ms. Miller: Thank you, senator, for the question.
Without going into detail — because we haven’t researched in detail, so I’ll be upfront about that — I would echo Mr. Kershaw’s comments around universality in programs. I believe programs such as this should be universally available, and that we look to recover tax revenue from those who are better off in society through the tax system, through our general tax measures, like our income tax, and through a progressive income tax system in order to ensure that they pay back in proper share. I think that trying to means test these sorts of measures ends up being administratively burdensome, and often has unintentional impacts on those who really can’t afford those impacts.
Senator Cardozo: Thank you.
Senator Loffreda: My last question is for the Canadian Real Estate Association. Mr. Bourque, given the measures in Bill C-32 that we have seen — the anti-flipping, the Underused Housing Tax Act — and the increasing interest rates, do you feel that home affordability and accessibility in Canada are being improved, and when and how can it be brought to an acceptable level?
Mr. Bourque: Well, I can certainly understand, senator, why you would sponsor the bill. There are many good things in this bill, and I do think that the tax-free account and some of the other measures are very good measures.
Again, I would emphasize that the effort by government needs to be on measures to increase supply. An example I would give is we need to focus a lot more attention on innovation because as much as we are doing what we can to attract skilled workers, we’re not going to be able to keep up. If we had innovative approaches to new construction in the residential housing sector, we can also reach our climate change goals much more quickly because we could do it a lot more efficiently.
Therefore, I do think that it’s a very difficult time to be a young person trying to get into the housing market. Whether you’re renting or buying, costs are very high. I don’t know when it’s going to get better. I think these measures do help. But what is really going to help is if we can work together as a society — all of society, which is currently not happening — to increase the housing supply in a very dramatic fashion. CMHC says 3.5 million homes. That is a lot of homes if we’re going to reach that goal.
Senator Loffreda: Thank you for that.
The Chair: To the witnesses, there’s no doubt in my mind that you have been very informative, even educational and enlightening. Your comments in answering the questions will certainly enable the National Finance committee to remind Canadians about transparency, accountability, reliability and predictability.
Before we adjourn this meet, I would like to remind witnesses to please submit written responses to the clerk by the end of day on Friday, December 9, 2022. To the ones that will respond, do we have an agreement on that as you look at the questions?
Before closing the meeting, I would like to thank the entire support team for this committee. Those in the forefront of the room, as well as those behind the scenes who are not visible, thank you all for your work, which contributes enormously to the success of the senators doing their work.
(The committee adjourned.)