THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, October 7, 2026
The Standing Senate Committee on National Finance met this day at 6:53 p.m. [ET] to study the subject matter of all of Bill C-31, A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025.
Senator Claude Carignan (Chair) in the chair.
[Translation]
The Chair: I wish to welcome all senators as well as the viewers across the country who are watching us on sencanada.ca.
My name is Claude Carignan, senator from Quebec and chair of the Standing Senate Committee on National Finance.
I would now like to ask my colleagues to introduce themselves.
[English]
Senator Pupatello: Sandra Pupatello from Ontario.
Senator Ross: Krista Ross from New Brunswick.
Senator MacAdam: Jane MacAdam from Prince Edward Island.
[Translation]
Senator Hébert: Martine Hébert from Quebec.
The Chair: Thank you very much.
Today, we are continuing our study on the subject matter of all of Bill C-31, A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025.
For our first panel today, we are pleased to welcome Alan Arcand, Chief Economist, Canadian Manufacturers and Exporters; and Alexander Jeglic, Procurement Ombud.
Thank you very much for accepting our invitation.
You have opening remarks to give. You will have four to five minutes each. We will then proceed to questions. I believe you’re witnesses who are familiar with Senate committees.
Mr. Arcand, you now have the floor.
[English]
Alan Arcand, Chief Economist, Canadian Manufacturers and Exporters: Thank you, chair and honourable senators. I’m pleased to appear before you today on behalf of Canadian Manufacturers and Exporters, and I appreciate the opportunity to comment on Bill C-31.
Canadian manufacturers are operating in a very challenging environment. U.S. tariffs have disproportionately targeted manufactured goods, while repeated changes to those measures and continued threats of further tariffs have created persistent uncertainty for businesses.
But the sector’s difficulties did not begin with the trade war. Long-standing gaps in investment, productivity growth and technology adoption had already eroded Canada’s manufacturing competitiveness.
Clearly, Canada cannot control every decision made by our trading partners, but we can control whether Canada is a competitive place to invest, build and make things.
With that in mind, I want to focus my remarks on three areas: business investment, defence industrial capacity and regulatory competitiveness.
First, CME strongly supports measures that improve the investment climate. Bill C-31 provides temporary immediate expensing for eligible manufacturing and processing buildings as part of the Productivity Super-Deduction announced in Budget 2025. CME welcomes this measure.
More recently, the government announced the Productivity Mega Deduction. Although it is outside the scope of Bill C-31, it makes immediate expensing permanent for a much broader range of assets, including manufacturing machinery and equipment. This addresses a long-standing CME priority and gives businesses greater certainty when making major investment decisions.
However, Canada’s long-standing weakness in business investment means there’s still more work to do.
The mega deduction significantly lowers Canada’s marginal effective tax rate, but that is only one dimension of the tax system. Like others in the business community, we believe a comprehensive tax review would be worthwhile to ensure Canada remains competitive in encouraging investment, securing major projects, and attracting and retaining top talent.
Second, Bill C-31’s defence provisions represent an important opportunity to strengthen Canada’s industrial base. Bill C-31 would establish the defence investment agency under its own legislation. Yesterday, the government introduced Bill C-40, which would instead establish the agency as a Crown corporation. Canadian Manufacturers and Exporters, or CME, welcomes policy changes that improve defence procurement outcomes and strengthen Canada’s industrial base.
For defence investment to deliver lasting industrial benefits, manufacturers need predictable, long-term demand signals; accessible procurement processes; and meaningful opportunities for firms of all sizes, including small- and medium-sized enterprises, or SMEs, to participate in defence supply chains. The goal should be to ensure that increased defence spending builds the domestic capacity needed to sustain critical defence and security capabilities, while supporting stronger firms, deeper supply chains and more production in Canada.
Third, regulatory competitiveness remains critical. Manufacturers consistently tell us that unnecessary regulatory complexity, duplication and delays make Canada a more difficult place to invest.
We have been encouraged by recent federal action. While Bill C-31 contains targeted amendments to the Red Tape Reduction Act, I also want to address Bill C-39. Although it’s outside of the scope of the study again, it addresses several competitiveness issues manufacturers have raised, including faster project approvals and more reliable transportation infrastructure.
These are important steps, and there is an opportunity to build on this progress. Canadian Manufacturers and Exporters has recommended embedding economic growth and competitiveness more directly into federal regulatory decision‑making, broadening the one-for-one rule, and strengthening the quality and independent review of regulatory cost-benefit analysis.
Mr. Chair, Canada is at an important moment. For manufacturing, the stakes are particularly high. Bill C-31 contains several measures that could help strengthen investment and industrial capacity. Combined with other recent federal initiatives, it represents important progress.
The priority now is twofold: continue building on this progress through additional policy actions and reforms and effectively implementing the measures already in place. That will be key to turning policy into more investment, more production and more well-paying jobs in Canada. Thank you, and I look forward to your questions.
[Translation]
The Chair: Thank you very much.
Mr. Jeglic, you now have the floor.
[English]
Alexander Jeglic, Procurement Ombud, Office of the Procurement Ombud: I would like to begin by acknowledging that the land on which we gather is the traditional, ancestral and unceded territory of the Anishinaabe Algonquin nation.
Chair, honourable senators, thank you for inviting me to appear before the committee today.
[Translation]
I have had the opportunity to appear before you in the past, but I would like to take a moment to briefly reintroduce my office. My name is Alexander Jeglic, and I have been the Procurement Ombud since 2018.
[English]
My office is an independent and neutral organization established to promote fairness, openness and transparency in federal procurement. We review supplier complaints, examine procurement practices across government and provide dispute resolution services to suppliers and federal organizations.
[Translation]
Our services are particularly valuable for small- and medium-sized businesses. We provide accessible, independent assistance and recourse to suppliers as they participate in federal procurement.
[English]
Demand for our services has grown significantly. Since 2018-2019, the number of cases received by my office has more than doubled, from 377 to 851 last year. That sustained growth underscores the importance of ensuring that suppliers continue to have access to effective, independent assistance and recourse.
Bill C-31 presents important opportunities to strengthen Canada’s procurement system, but significant change can also bring unintended consequences. As procurement authorities and rules change, we need to ensure that independent oversight, transparency and supplier recourse are strengthened rather than diminished.
Since 2021, I have consistently advocated for specific changes to the Procurement Ombudsman Regulations aimed at strengthening the fairness, openness and transparency of federal procurement. Bill C-31 provides an opportunity to address these long-standing gaps.
It also creates an opportunity to reinforce independent oversight by strengthening organizations like my office that suppliers and federal organizations trust for impartial review and recourse.
There’s an important opportunity to address the recourse gap for Indigenous suppliers. Currently, suppliers cannot bring complaints related to the award of contracts set aside under the Procurement Strategy for Indigenous Business to either the Canadian International Trade Tribunal or my office, leaving the Federal Court as their lone avenue for recourse. This creates a fairness issue that remains unaddressed.
I, therefore, recommended that my office serve as an interim independent recourse mechanism for these complaints until a permanent, Indigenous-led solution is established. If we want Indigenous businesses to participate confidently in federal procurement, access to opportunities should be accompanied by access to fair, independent and accessible recourse.
[Translation]
With change comes responsibility. If oversight, transparency and recourse mechanisms do not keep pace with modernization, gaps in accountability and public confidence may emerge. As procurement systems evolve, the safeguards that protect fairness, transparency and accountability must evolve with them.
[English]
Independent oversight is not a barrier to modernization. It is what gives modernization legitimacy, credibility and lasting public trust. Modernizing procurement is a little like renovating a house while still living in it. The goal is to make it an appealing living space that is structurally sound, so when making changes, we need to be careful not to remove a structural beam that keeps the house upright. Independent oversight and accessible supplier recourse are part of that structure that keep the house upright.
As the procurement system evolves, my office must remain a cornerstone of accountability and transparency. To continue fulfilling that role effectively, its mandate should be strengthened, not weakened.
[Translation]
Mr. Chair, my message today is simple. Bill C-31 provides us with an opportunity to strengthen federal procurement, but we must also be alert to unintended consequence.
[English]
As Canada’s procurement system changes, the mechanisms that provide transparency, independent oversight and supplier recourse must remain effective. This is an opportunity not only to modernize procurement but to make it more transparent, more accountable and more trusted.
[Translation]
Thank you for the opportunity to appear before you today. I would be pleased to answer your questions. Thank you very much.
The Chair: Thank you very much.
[English]
Senator MacAdam: Thank you for being here.
I’m going to follow up on something you just mentioned. This is for the Procurement Ombud. You talked about wanting your mandate to be strengthened. Can you talk in more detail about how you want that mandate to be strengthened?
Mr. Jeglic: Absolutely. Thank you for the question.
Really, this legislation offers three opportunities either to broaden, narrow or clarify our legislation and, ultimately, the regulations that lie underneath it. Your question specifically is what needs to be done to strengthen. There are certain things that we’ve identified. I’ve been in the role for just over eight years, so I have identified, over time, certain issues. I identified one in my opening remarks, which is access to Indigenous suppliers. They don’t currently have the same right of access that other suppliers may have.
The second is Crown corporations. Crown corporations fall outside of our mandate. Therefore, we cannot provide an overview of contracting practices.
The third is subcontractors. Oftentimes, subcontractors come to us seeking recourse, and unfortunately, we’re unable to provide assistance. Supply arrangements and standing offers also form a variety of different issues that we can’t look at until call‑ups are awarded pursuant to those instruments.
The last three I’ll mention is we also want to compel documentation. Currently, I don’t even have the same rights that a Canadian citizen would have under the Access to Information Act in terms of compelling documentation. When we issue a request, it is just that — a request for documentation. So strengthening the right to compel documentation.
The last thing I’ll mention is recommending compensation of up to 25%. When we make a review of a complaint, we ultimately have to write a report that can ultimately find that the government did not act in accordance with the rules. If that is the finding, then a recommendation for compensation is possible. Currently, it’s capped at 10%, and we’ve been recommending that that cap be removed or increased to 25%.
Those are some of the tangible changes that we’ve been asking for for quite some time. I put before this committee consideration for any forthcoming regulations to address those issues.
Senator MacAdam: Thank you.
Division 16 of Part 4 of Bill C-31 enacts the defence investment agency act. What impact has the establishment of that agency had on the ability of defence companies to obtain procurement contracts from National Defence? I’m wondering, in your role, if you can comment on that.
Mr. Jeglic: In terms of their ability to get contracts from the Department of National Defence, I will try to answer your question but also acknowledge that I’m answering outside the scope of my role.
What ends up happening under Bill C-31 is it ultimately creates a new structure where the defence investment agency becomes a conduit for more defence contracting. As my colleague just mentioned, there’s another bill that was tabled yesterday that again changes the intended final structure of the defence investment agency. More contracting in the defence space is certainly being done by the defence investment agency, so that would impact the number of direct procurements that would come from, for example, the Department of National Defence.
However, I would also note that there are impacts more broadly. There is certainly a streamlining that is happening from the procurement rules on the defence side. The whole intention behind the creation of the defence investment agency was just that, to streamline defence procurement.
We’ve actually drafted a report on defence procurement that we could certainly table after the fact and provide to the committee on considerations in the defence procurement field that might be of interest to this committee.
Senator MacAdam: Would the proposed amendments to the Department of Public Works and Government Services Act result in an increase in the number of complaints to be reviewed by your office? You mentioned there was a significant increase. Would there be any further increases?
Mr. Jeglic: Just to be clear, with the nature of Bill C-31, it impacts one aspect of our legislation, and that is the review of complaints around the award, and to a lesser extent, the review of complaints around the administration of federal contracts. What it does do is take away the transparency of the statute, and it will do that in regulation.
I’m a bit reluctant to talk about its impact because we’ve not yet seen the regulation. My comments about the possible enlargement of our mandate would happen by way of regulation. The regulation does not form part of Bill C-31, so the reason I put those on the record is that I would ask for consideration that those aspects be considered as part of the new regulations that are, in fact, tabled.
Senator MacAdam: Thank you.
Senator Ross: I have a question for you, Mr. Arcand. Last night we had a conversation with the Department of Finance, and we were talking about the capital cost allowance deductions and the changes being made. There was something that struck me as interesting, and I wonder if your members have any comments or if you can give me some insight on this. The percentage of the building’s floor space that must be used specifically for manufacturing or processing goods for sale has to be 90% of the floor space. How does that impact your members? Is that something that is a big concern for your members?
Mr. Arcand: Well, any kind of restriction or limitation that would impact the ability to take advantage of that benefit would be a concern to our members. I haven’t heard about that specific issue yet. The bill just came out last week. We haven’t had time to examine the full legislation. We had a meeting with members today, and that one aspect did not come up. They might not be aware of it yet.
Senator Ross: This says:
The enhanced allowance would provide a 100% deduction in the first taxation year that [the] eligible property is used for manufacturing and processing, provided the minimum 90% floor space requirement is met.
— which says that it must be used to manufacture or process goods for sale or lease. Ninety per cent of the floor space, so it is something to —
Mr. Arcand: I’m glad you brought it up. I will bring it up with our members.
Senator Ross: I’m also interested, Mr. Jeglic, with regard to the — you mentioned that you have asked for changes over a number of years, and there are some changes that have been made. Do you feel that the concerns that you expressed have been met? Were you consulted in the amendments that have been made? Is there anything that is missing, or do you feel comfortable with what is there?
Mr. Jeglic: To be clear, there are two things happening simultaneously, right? There are changes in defence procurement, which are kind of outside of our mandate. Then there are the specific changes to our mandate that are contemplated. But when you see what is happening in this bill, it doesn’t actually tell us what the changes to the office’s mandate will be. It just defers to a subsequent regulation. So that’s why I think this appearance is so important, because what I’m trying to do is put down markers to say, “These are my anticipated outcomes from these subsequent regulations.” It would be premature for me to sound optimistic or negative based on the legislative changes that are proposed in the bill.
But, simply to say, this is really a valuable mechanism to address some long-standing issues. I think it can be used in that way, and we’re very optimistically hopeful that it will.
Senator Ross: Thank you.
Senator Cardozo: Thank you for being here. My apologies for being late.
I have a couple of questions for Mr. Jeglic. If I can just continue the conversation you had with my colleague, Senator Ross.
You note that your mandate does not cover defence procurement.
Mr. Jeglic: Technically, it does currently, and facets of it. I want to be explicitly clear. In the prong that we’re talking about that is impacted by Bill C-31, that’s about reviewing complaints about the award of federal contracts, and there are certain monetary thresholds. We would still have jurisdiction to look at low-dollar-value procurements let by the Department of National Defence, as an example.
I guess the evolving question is, if the defence investment agency, or DIA, continues or will be the leader in defence procurement moving forward, will they form part of our mandate? The answer to that question depends on the passage of Bill C-40. Bill C-40 aims to establish the Defence Investment Agency as a Crown corporation. If our regulations don’t change significantly from what they were, then Crown corporations would not form part of our mandate, and as a result, the Defence Investment Agency would also not form part of our mandate. So I would suggest a significant part of defence procurement would be outside of the mandate of my office.
Now, I do think transparency is incredibly important in federal procurement. I would ask that the government consider providing for oversight from our office for Crown corporations, including the defence investment agency.
Senator Cardozo: One of the arguments that I have heard, perhaps cynically or not, is that the purpose for creating the Crown corporation was to keep it out of your purview. Does that make any sense?
Mr. Jeglic: I would love to think that my office is that important, but I would suggest that there are a multitude of factors that led to the creation. The first and foremost driver is modernizing defence procurement. There is a harmonization of a number of departments and rules that are being kind of built into the new Defence Investment Agency, and so I would argue that that is the fundamental purpose.
Crown corporations, by their very nature, have less cumbersome rules around their operations to allow them to be more nimble and efficient. I would say that those were the predominant drivers behind the creation of a Crown corporation.
Now, its enabling legislation is still forming part of the debate. It was tabled yesterday, so I’m not sure that there has been a full assessment of all of the impacts. I would simply say that the Crown corporation was certainly not created to remove it from oversight from our office. Again, it is my hope that I’m able to engage with the DIA directly and encourage them to consider oversight from our office, whether formally through legislation or voluntarily.
Senator Cardozo: Who oversees Crown corporations if not your office?
Mr. Jeglic: From an audit perspective, the Auditor General would still have oversight over Crown corporations.
Senator Cardozo: What is the purpose of your office if the Auditor General can do that for all of government?
Mr. Jeglic: The Auditor General wouldn’t necessarily have the same mandate or authorities that our office would have. They wouldn’t take on complaints. They would, perhaps, look at more systemic audits, which is a component of our mandate, but it’s not the component that’s subject to Bill C-31. Bill C-31 is respective of complaints associated with the award of federal contracts. So the Auditor General wouldn’t have the authority to look at individual complaints from suppliers who feel that they have not been treated fairly.
They are differing mandates, but if answering the question from a generic oversight perspective, the Auditor General will retain oversight and likely include the new Defence Investment Agency.
Senator Cardozo: One of the things we have heard — and this is in another committee — is that small- and medium-sized companies in the defence space have not been able to get contracts in the defence industry and, in fact, that they can get contracts a lot easier in other countries than they can here just because we’re set up to do business with bigger companies. So small- and medium-sized companies are getting left out. Is that the kind of complaint that you can talk about?
Mr. Arcand, if you want to chime in, please do.
Mr. Jeglic: I can go first. I’ll make sure to keep it brief. Absolutely, the bulk of our stakeholders are small- and medium-sized businesses. We do hear a great deal about the complexities of federal procurement in general. This is something that we’re incredibly attuned to.
The complexities are what create that initial barrier. When you hear Canadian companies talking about it being easier to sell to foreign governments, I think that’s as a result of the complexity of the rule set. Again, I think part of the impetus behind the Defence Investment Agency is to start addressing that complexity — harmonizing the rule set, harmonizing all of the players who are involved in the process and streamlining that.
Mr. Arcand: I don’t have a lot to add on top of that. But I would just agree with your assessment. That’s what we hear from our members. Manufacturing in Canada is mostly small companies, and the story we hear over and over again is that it’s just very challenging to gain access to that type of procurement.
We’re hopeful that, with the way the DIA is set up, it will address some of those concerns. That’s something we’ll continue to consult with our members on and working with the government to address.
Senator Cardozo: Is it because our process of procurement is too complex that they are not —
Mr. Jeglic: Our annual report was recently tabled in both houses. The number one issue for the last fiscal year was the complexity of the federal procurement system remaining a barrier to involvement. Again, we have to tackle that issue head‑on.
I would argue that we have been leading in the defence space, but there is still non-defence procurement that has these same challenges. Small- and medium-sized businesses actually play in both of those.
One thing that I will say is being addressed is something known as the “Valley of Death” issue. If you’re not familiar with it, it’s where a company is —
Senator Cardozo: That sounds scary.
Mr. Jeglic: It’s scary if you’re the business involved. You receive funding through a grant or contribution from the federal government to develop a prototype or develop a product that will potentially be used. But there was no mechanism for the procurement system to buy that prototype, if successful. So you successfully fund the prototype, but then the Valley of Death is created until there are active, competitive processes that then meet the needs or meet the criteria of this prototype. Then that fledgling organization that created that prototype might not be able to survive that time period. Therefore, that prototype never gets implemented.
I believe, through the new legislation, this exception will provide for direct purchases of those successful prototypes in circumstances where they have received federal funding. That closes the gap, but I think that’s been a long-standing request. It’s a huge step forward, to be honest. I believe it will be a welcome component to the new legislation.
[Translation]
Senator Hébert: Thank you, Mr. Jeglic. It’s very interesting to hear from you, Mr. Jeglic. I’m highlighting all this with the famous “Buy Canadian” perspective or policy. Your members often say that the intentions are there, but that it doesn’t work in practice. I’d like to hear your thoughts on that. You just answered part of the question I had. I would like to know whether the bill goes far enough to ensure the success of the Buy Canadian Policy.
[English]
Mr. Jeglic: I’ll be fair because I can only provide the context with which I’m authorized to speak. I would like to address more of what you’re asking.
[Translation]
Senator Hébert: Perhaps your colleague can take the second part.
[English]
Mr. Jeglic: But, certainly, the intentions behind the Buy Canadian Policy start with the definition of what is Canadian. Basically, “Canadian” means having a place of business in Canada. Oftentimes, the manufacturers that one hears from are those manufacturers that go well beyond that definition. It’s not a U.S. parent with a Canadian subsidiary; it’s a long-standing Canadian supplier. They feel like the Buy Canadian Policy is perhaps not addressing some of the other barriers.
I would connect it with my previous answer, which basically says, it’s the complexity of the system. Now, we’re asking people to validate additional factors to prove certain elements — that you are a Canadian entity and how you have to prove that.
Again, if you’re new to federal procurement, it seems like there are an awful lot of rules to participate and play in the game. But as a policy, Buy Canadian is to encourage their involvement. We have to address both sides of the house in order to make it a successful policy. Encouraging Canadians to participate is great, but we have to make it easy for them to be successful.
[Translation]
Senator Hébert: It’s important to walk the talk, as they say.
Mr. Jeglic: Yes, exactly.
[English]
Mr. Arcand: I have a general comment that whenever there is any kind of interface between business and government, it’s the same criticism or complaint that comes up all the time for businesses: The process is cumbersome, duplicative, and there is a long lag between applying for something and hearing back.
This is a big issue for smaller companies because they don’t have the resources and expertise to handle the complex processes. We are optimistic that with the change in policy from the government, including with the defence investment agency and the Buy Canadian approach, that these issues will be addressed. We will focus on the outcomes and continue working with the government.
Canadian Manufacturers and Exporters is hosting round tables from coast to coast to coast with our members. It is more of a listening and understanding exercise, trying to figure out what companies need in order to gain access to this really generational opportunity of defence procurement. We’re going to write a report on all our findings. Hopefully, we’ll have a better sense about what needs to happen for this defence investment agency process to be successful. I’m looking forward to those learnings.
[Translation]
Senator Hébert: To your knowledge, are there any interactions with groups like yours or with your organization to discuss these issues from a practical standpoint? The act may have an objective. However, if the situation is as you describe, it will yield absolutely no concrete results. Is any work planned, or is anything already under way? Have you ever made such a request to the Canadian Manufacturers and Exporters?
[English]
Mr. Jeglic: A big part of our mandate is actually compiling data that we hear from small- and medium-sized Canadian suppliers. The Buy Canadian Policy is still relatively new. We obviously don’t have long-standing data on its impacts. Certainly, we are involved in outreach constantly. We do town halls with small- and medium-sized suppliers across Canada, in person where possible, but we do these things online as well, all the time. We are hearing active concerns.
Unfortunately, one of the other realities is that not every small- and medium-sized business can sell to the federal government. We have to make sure that the storyline is also nuanced because there is a state of readiness that one needs in order to sell to the federal government.
There is an honesty component to this conversation as well that not every small- and medium-sized Canadian supplier is ready to sell to the federal government.
[Translation]
Senator Gignac: I want to apologize to the witnesses for missing their opening remarks. I hope my question hasn’t been asked.
My question is for Mr. Arcand, from Canadian Manufacturers and Exporters. When the budget was tabled last year, you were pleased that the government was going to introduce the immediate deduction for buildings, a measure you agreed with. However, you were somewhat disappointed because the measure would be temporary rather than permanent. Five years is quite a long time. Why would it have been preferable for this to be permanent? Isn’t five years enough time to make an impact and encourage entrepreneurs to make their decision?
[English]
Mr. Arcand: The temporary measure was obviously welcomed because it would bring forward some investment in the sector. But my opening statement did mention the proposed Productivity Mega Deduction, which will make investments in machinery and equipment permanent.
The building aspect is still temporary and will be phased out. I imagine it was designed that way to match the benefit that was provided in the One Big Beautiful Bill Act in the U.S. This follows the same trajectory; it phases out over the same time frame.
The fact that they moved to permanent expensing for machine equipment, to me, is very important because it will provide an incentive for more greenfield investment of manufacturing for factories in Canada. If a firm wants to build a factory in Canada or somewhere else, and if they know the lifespan of the factory could be 50 years or some time frame like that, they know they will have to upgrade their equipment every once in a while. They know that the program is there permanently for expensing. That gives Canada an advantage to attract more manufacturing investment.
When I think of the importance of it being permanent or temporary, it’s a long-term certainty for manufacturers that the benefit will be there over the whole lifespan of the factory.
Senator Gignac: Bill C-39 is upcoming with the mega deduction. If we limit it to Bill C-31, as it is, it was a copy and paste of what is going on in the U.S. with the “One Big Beautiful Bill.” Is that fair to say that it was more or less a copy and paste?
Mr. Arcand: Yes. You can correct me if I’m wrong, but I believe the “One Big Beautiful Bill” on equipment is permanent. I believe the mega deduction matches that component of the bill, so they match.
Senator Gignac: Since you are there, maybe you have a heads-up regarding Bill C-39 that is coming. From your point of view, this mega deduction, is it something that will restore the competitiveness of Canada and be very attractive? The price tag will be $5 billion or $6 billion a year, so it will be significant. When we talk about Bill C-31 — the bill we study right now — the price tag over five years is more around $1.5 billion. The other would be $35 billion in five years.
It’s like a peanut and a big meal.
Mr. Arcand: Yes, I think it’s equivalent to roughly a 2‑percentage-point decline in the corporate tax rate. So, it’s important, but we’re always going to push for more. In my opening statement, I mentioned that, like other members of the business community, we do believe that it would be helpful or appropriate to have a comprehensive tax review. Canada hasn’t had one in a long time, and the economy has changed quite a bit since then, so I think it would still make sense to really get under the hood and make sure it’s as competitive as possible.
Under these bills, you match what the U.S. is offering, but, under the circumstances with the trade disruptions, it probably makes sense that we go above and beyond that. Given the fact that we’re facing such a challenging environment with the U.S. tariffs, we need to be more competitive than the U.S. to offset that impact because the tariff is such a big hit on the industry.
Senator Gignac: I will shift a bit. My apologies if you have already raised these or answered the questions regarding the Global Minimum Tax Act. We had a pretty interesting chat with the official from Finance Canada regarding that. It looks like Canada is going — and we have a number of them shift with the U.S. The U.S. is no longer really cooperating with other countries regarding global minimum taxes and so on. We have a risk to proceed with it.
Is there an official opposition or any thoughts regarding that, or is it beyond your scope?
Mr. Arcand: I have my personal view of it, which —
Senator Gignac: I’ll take it.
Mr. Arcand: It would make sense to me to have a global minimum tax, especially if you look at other countries, like tax havens. Ireland, for example — it would make sense to —
I support working through multilateral institutions to solve the world’s problems, but Canada’s focus is mainly on our competitiveness. Given the current administration in the U.S., the idea that there will be some kind of breakthrough at the OECD on this doesn’t seem highly likely in the near term.
Senator Pupatello: Mr. Arcand, my questions are for you and the Canadian Manufacturers and Exporters.
You have done quite a bit of work comparing economies right now with the trade war that you referenced that the Americans started. Could you give us a preface on your view the tariff war impacts on their economy? Bill C-31 is a response to the current environment. Is our response enough at this moment?
My read of the industry, manufacturing in particular, is they know they want to make investments, but they’re not making them until there’s clarity. Is their order book going to be full? Until they know how this trade war will end, they’re not moving ahead with these investments. So, are we being realistic that they’re going to take advantage of all these mega deductions, et cetera, right now. It’s a great idea to extend the time frame, because we have to get past this window, and we don’t know how long that window is.
If you could, give us your views — because I’ve seen some of your work — on the American impacts on American companies. Please make us feel better with some of that.
Mr. Arcand: I do like to make people feel better. The impacts on Canada are significant, especially in the manufacturing sector. We have seen declines in GDP, employment and exports since the trade war started — really, since January 2025. It’s more difficult to tease out the impact on the U.S. because their economy is doing better than ours; in fact, they’re doing better than any other G7 country. They’re growing at twice the rate of any other G7 country.
But I would argue — and most economists would argue — that is mostly due to the boom in AI investment right now. It’s a generational investment taking place right now; in fact, it looks like it’s the biggest infrastructure investment build-out in American history. The biggest one before that was the railroad; that was the biggest infrastructure build-out previous to the AI one.
However, underneath that, the tariff war is definitely negative for the U.S. economy. The chart I like to show is monthly manufacturing investment in Canada versus the U.S. Since January 2025, manufacturing investment in Canada is down about 16%, but it’s down about 30% in the U.S. They’ve seen a precipitous decline in investment since last year. There are multiple reasons for that, but one of the reasons is that the trade war, which has caused a lot of uncertainty here, is also causing uncertainty in the U.S. They’re impacted by the constant changes in tariffs and the numerous threats.
So, they’re behaving the same way Canadian firms are, which is holding off on making major investment decisions. You can see it by breaking down the manufacturing data in the U.S. The one big industry that’s really doing well is electrical equipment. Again, that’s tied to the AI build-out. Any manufacturing firm tied to the AI build-out is doing well, but other sectors are underperforming.
The other thing I’ll add is that, because of these tariffs in the U.S. — especially on steel and aluminum, which are major inputs to other goods up the supply chain — the U.S. is one of the most expensive places in the world today to build any good that has steel and aluminum in it. On that front, the policy really doesn’t make much sense. Again, it is still hurting us quite significantly because we have shipped a lot of those goods to the U.S. that are being tariffed.
Anyway, I’ll sum it up by saying it’s a lose-lose policy.
Senator Pupatello: I have a question for Mr. Jeglic.
I don’t know if your office is involved in the nuance of the language of the Buy Canadian Policy. For example, when small- and medium-sized enterprises want to get in on procurement, they will often be the subcontracted piece. Their difficulty, if they’ve never been in it, is getting into the supply chain of the large BGIS, EllisDon, et cetera, and how they negotiate that.
We’ve put these questions to the officials, and I’ve held sessions as well on this with officials and companies, and have heard their questions. How do they get themselves known to these larger companies? When they sign up — because they go in and they register as a company — they tick a box to say they’re prepared to be visible to these “big boys” that are going to bid on a big project. However, there’s nothing that makes the “big boys” look at who has ticked the box.
This is where we’re falling down: Our guys have to have a mechanism to make sure they know there’s a new guy in town that wants to get in on the supply chain. If you have an ability to be influential on that language, there are loopholes there, both in the language that says “where possible to have a Canadian supplier” — at some percentage, for example, that also gives them an out — and just the knowledge of what companies exist in this country and what they can offer.
Mr. Jeglic: I can tell you our role in the process.
Ultimately, it’s the department that is responsible for the policy. I’m a connector of dots, for a lack of better terminology. As an ombud, I take in a lot of complaints. I hear things like this, and it’s my responsibility to package that up and deliver that message to those who are involved in drafting the policy or amending the policy to reflect the realities.
I would suggest that this isn’t a new issue, to be honest; how Canadian small- and medium-sized businesses fit into supply chains is a long-standing issue. Now we have additional preferences that encourage greater incorporation, but I would always suggest to small- and medium-sized businesses is you have to be aware of who the primes are and figure out how to get in bed with them at the right time. You can’t do it after the contract is awarded.
Senator Pupatello: These contracts are going three, four years out. If you miss the window, you’re missing the window, and it’s our obligation if we’re going to enact a policy like this to not let the window close before our companies have the opportunity.
Mr. Jeglic: Absolutely.
Senator Pupatello: So an Indian call centre, for example, is not in the cards, which means any agency, in any — and many of the provinces are following suit. So there is a lot of learning that can happen among jurisdictions because Ontario’s supply is doing the same and the feds are doing the same. If you’re the guy connecting the dots, then I hope that you’re connecting the dots.
Mr. Jeglic: Absolutely. We’re cognizant of the fact that every jurisdiction in Canada has their own perceptions of how to do this, so we’re trying to be an amalgamator. This is still a relatively new concept in terms of it not having a long-standing history, so we’re trying to make sure that the right people are talking to one another. As you said, the first thing is understanding where the concerns lie and making sure that the solution isn’t a Band-Aid but actually rectifies the root cause of why this isn’t addressing it. Because if we find out five years from now and the money is spent, then what good was that? It has to be live and active debate while figuring out how to resolve this instantaneously.
[Translation]
The Chair: I have a question for Mr. Jeglic. We’re considering Part 16 of Bill C-31, which is somewhat on hold because the government has just introduced Bill C-40, and clause 47 states that if Part 16 of the legislation were to come into force, Bill C-40 would be repealed. That means we’ll need some clarification from the government as to what we’re doing with Part 16. Either we pass it so that we can repeal it, or we don’t pass it when we get to Bill C-31.
However, beyond that, the government wanted the agency to make acquisitions totalling more than $100 million, but that isn’t in Bill C-31. I don’t know whether Bill C-40 will include that limit. What do you think of that $100-million limit on jurisdiction? Should the government move in that direction? Will we find out with Bill C-40? Do you think it’s a good idea? In June, the defence committee tabled a report that stated that this accounted for just 10% of procurement; 90% of procurement falls below the $100-million threshold, and the aim is for 70% of procurement to be Canadian. I’m not very good at math; that’s why I’m a lawyer. This tells me that there’s likely to be an issue.
[English]
Mr. Jeglic: It is a fairly evident statement. For me, logic always matters. If the logic dictates that we’re simplifying the procurement process, it doesn’t make sense that we’re simplifying the procurement process for only a small fraction of the transactions. If the process is simplified, then ideally we’re able to push more of the transactions toward the simplified process. If that simplified process is housed within the defence investment agency, then my take is to lower the threshold to make sure the transactional volume reflects the simplification so more people benefit.
That being said, we also have to be fair to the fact that this is a newly created entity, and it’s very difficult to create an entity and then flow significant transactional volume through that entity. A staged approach is appropriate, because if we open up the gates and say, “You’re now responsible for a volume that this new entity can’t handle.”
So it does have to be staged, but we have to figure out what the appropriate pace is to start diluting that ceiling. At what point is $100 million the right threshold? At what point is $50 million? Those are questions that this committee rightfully questions, but again, we have to be kind to the fact that this is still a newly created entity. As a result of Bill C-40, it may form a Crown corporation, which again has different attributes.
As I’ve testified to this committee before, it being a Crown corporation creates a unique community. We’ve always said — as a previous senator mentioned — what is the purpose of a Crown corporation? It’s supposed to be streamlined, so let’s take advantage of having it be streamlined and make sure that all of the benefits accrue to the suppliers, because that’s ultimately who we’re trying to make the process easier for.
[Translation]
The Chair: I understand what you’re saying. If we want to give meaning to your mandate, you would need jurisdiction over the new Crown agency, because otherwise a significant part of your mandate will slip through your fingers. Your role is extremely important.
[English]
Mr. Jeglic: Thank you, Mr. Chair, for the confidence.
[Translation]
The Chair: That’s what I have seen over the years you have been testifying here: We can see the relevance of your role.
[English]
Mr. Jeglic: In many ways, I feel strongly that oversight should not be seen as a burden, and that’s a mischaracterization of our office — sometimes by the media, sometimes by governmental actors — that somehow oversight is obstructionist to the desired outcome.
What we don’t want is purposeful blind spots because what ends up happening if you have purposeful blind spots, then problems that should be solvable in really small incremental parts cascade into something larger. Then it becomes something that requires litigation. But if you have constant oversight — and by “constant,” I mean light-touch oversight — then you’re able to resolve issues as they occur.
Again, linking it back to my initial comments about Indigenous procurement. We have a blind spot around Indigenous procurement within our office. When we did the systemic review, we uncovered there were significant systemic issues. We wouldn’t have had to wait so long if that blind spot didn’t exist. What I’m suggesting is in this space why create a blind spot where the oversight isn’t coming on a more regularized basis and making sure the feedback is provided in a constructive manner so that changes could be made? Again, it could be on a variety of issues, but it could be on the threshold. It could be for access to Canadian companies. That’s feedback that we can provide to the Crown corporation in a timely manner.
[Translation]
The Chair: Including the goal of Buy Canadian. Thank you again for participating in our debates.
For our second panel today, we are pleased to welcome, from the Office of the Parliamentary Budget Officer, Annette Ryan, Parliamentary Budget Officer; Mark Mahabir, Director General, Costing and Budgetary Analysis and General Counsel; Louis Perrault, Director General, Economic and Fiscal Analysis; Govindadeva Bernier, Director, Budgetary Analysis; and Christopher E. Penney, Advisor-Analyst.
Welcome and thank you for accepting our invitation. Ms. Ryan, you’re a regular; you have four to five minutes for your opening remarks before we move on to questions.
Annette Ryan, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you very much, Mr. Chair.
[English]
Distinguished committee members, good evening.
[Translation]
Thank you for inviting us to appear before you today to discuss Bill C-31, A second Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025. You have introduced our team, so I will move on to the legislation before us.
As required by the act that defines the mandate of the Parliamentary Budget Officer, my office provides impartial and independent analysis on the issues before you. Regarding the topic of your study this evening, we have released two reports on Bill C-31. The first was released in February of this year and addresses immediate expensing of manufacturing or processing facilities that were acquired on or after November 4, 2025, and that can be used by 2030. According to our calculations, this measure would cost about $1.1 billion over five years, starting in 2025-26.
[English]
A separate report was published in June of this year to assess the budgetary impacts of automatic filing benefits for taxpayers who do not file a tax return. This measure would allow the Canada Revenue Agency, or CRA, to file a tax return on behalf of such taxpayers so that low-income individuals can receive the benefits to which they are entitled. In that report, we estimate the five-year cost to be around $429 million.
Importantly, we would highlight that the benefit of this measure would be to some 6,000 taxpayers in 2026, rising to 50,000 taxpayers annually starting in 2027 and ongoing. This compares to approximately 2.4 million Canadians that do not file a tax return, some 10% to 12% of all adult potential tax filers, and skewed toward those of lower income.
[Translation]
My office recently published an analytical primer on defence that discusses the Defence Investment Agency, which features in Bill C-31. This agency’s mandate would include improving defence procurement and overseeing the Industrial and Technological Benefits Policy.
[English]
Finally, for wider context on fiscal matters related to Budget 2025, my office has recently released reports on the operating budget fiscal anchor and the government’s defence spending strategy, both announced in November 2025.
[Translation]
We look forward to answering your questions.
Thank you, Mr. Chair.
The Chair: Thank you very much.
[English]
Senator Cardozo: I have two questions, and I will pose them together in case we run out of time; the first is, globally, we’re in this race to lower taxes, especially lower business taxes, and having the fastest write-off period you can for equipment. We’re doing it because the Americans are doing it, so we’re trying to do one better than them. When do we have to stop doing that, at which point there’s nothing left in the kitty?
Part of it is the companies that are asking for these measures and are also the companies who were here earlier today who want major government contracts. If nobody is paying into the tax system, the government can’t have major contracts.
My other question is on the other issue you talked about, which is auto-filing of tax returns.
Given that the CRA has a lot of information, everything from the information on our salaries — if we’re in a salaried position — any investments or donations we make, why can’t we move to auto-filing for everybody where you would have auto‑filing where they would auto-file everything they have, send it to us and then we verify it and send it back because they have that information?
Somebody put it to me the other day; it’s like an exam we do every day. We fill out this thing, and they say, “Oh, no. No, you forget this, this and this.” Well, why didn’t they tell me that in the first place, then I could look over it and the taxpayers could do it? I’d like your thoughts on those two issues.
Ms. Ryan: Yes, of course, senator.
On the first question about the tax cuts, if I could essentially rephrase it and check that I’ve understood it well, I think your question is to what extent can we continue to follow these measures?
Then I understood your question to involve more of an evaluation type of element — to what extent are we checking that these measures, or past tax measures, are achieving the objectives of their original announcement? Is that the correct basis?
Senator Cardozo: A tax cut costs a certain amount, and that’s a lot of what you do. Say that this tax cut costs $1.5 billion and that one $5 billion. At what point can we not afford those?
Ms. Ryan: For context, corporate income taxes right now are about $100 billion. To the extent that this most recent round of tax cuts takes that down by $6 billion a year, that’s a magnitude to put into baseline the question.
The question of to what extent can we continue to do this is also informed by the extent to which we can continue to lower taxes and increase spending in a context where there is pressure on bond yields and interest rates? What is the room for danger is a very live question right now.
At the limit, I think it’s at that point where debt charges start to accelerate. Right now, I think we are moving very quickly, from 10 cents of every revenue dollar going to debt service charges to within a couple of years that rising to 14 cents on the dollar.
I think there is a rule of thumb that when you get up to 18 or 20 cents on the dollar, that’s a danger zone. There are many different considerations here. We’re working quite hard in PBO on, essentially, collecting these issues into a single document for your consideration.
Senator Cardozo: Can you touch on the auto-filing?
Ms. Ryan: I think the CRA has different categorizations. One is for those who don’t file. The measure in Bill C-31 speaks to that. As I opened with, it’s a very small percentage of people that they target versus the total number of those people that don’t file.
I think that’s largely a budgetary consideration. I think that’s a question for finance or CRA officials of why they are not targeting a higher number than 50,000 per year.
Your question speaks more to those who are filing and the complexity that they face. I believe there are projects at CRA that are attempting to help with pre-filing. If time allows, Mr. Chair, I’ll turn to Mr. Perrault to add a little bit on that.
Louis Perrault, Director General, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer: I think right now the steps for the automatic federal benefits are to get people who are not getting benefits to receive it. But there are also plans, and I think the government is targeting something like 5.5 million people, to have these pre-populated and get the automatic filing happening. Then they would have to check in. There are definitely plans to increase that.
Are there more ambitious plans? I don’t know. But definitely, I think right now, the target is 5.5 million up to the 2028 tax year.
Senator Cardozo: Thank you. It would be a fairly simple thing to do. They have the information. Give it to us before tax day or after tax day?
Ms. Ryan: I would hesitate to say fairly simple, sir. But I think the idea is straightforward.
Senator Ross: You published a report that talked about the accelerated capital cost allowance, or CCA. You indicated in the report that the cost of these measures would be in the vicinity of $250 million, while the Department of Finance Canada indicated it could be upward of $310 million per year. I wonder if you could give me a sense of the difference between your estimates and their estimates. What is included and why there is quite a gap there?
Govindadeva Bernier, Director, Budgetary Analysis, Office of the Parliamentary Budget Officer: I can’t speak to how they did their estimate specifically, but in our case, we looked at historical data on the acquisition of manufacturing and processing buildings. I think since 2007, there has been an increased rate for manufacturing and processing buildings. It was already 10% rather than 4%. These are all in the specific CCA class, class 1. We were able to identify historically how much was invested each year in these specific buildings. Then we took this historical data, and we projected it forward using our own in-house macroeconomic model, which projects investment in non-residential buildings.
Given this projection, we assume a certain share of businesses is non-taxable. With immediate expensing, if you don’t have any tax liability in the current year, you don’t really benefit from the immediate expensing right now because you really don’t have any tax payable. There might be a slight difference in the assumptions on how many of these businesses making the investment are taxable or not, and maybe the total number of new buildings that will be acquired over the five-year projection horizon. Those are probably the main reasons why there is a slight difference.
Senator Ross: I have a question about the 90% threshold for the use of the space of the building for manufacturing. Have you done any projections or any estimates on what the difference in cost would be if that number were lowered and more businesses were able to take advantage of this? Has there been any estimation done on that? Or is there any thought of that?
Mr. Bernier: We haven’t done any estimation on that. I don’t have any specific thoughts. It would probably be difficult for us because the way we identify those buildings, to benefit from this higher 10% rate, it was the same rule of 90% historically. It was easy to say these are the same rules so we can look at historical data.
If the threshold were to change, it would probably be more challenging to find the right data to get the estimates.
Senator MacAdam: Thank you to Ms. Ryan and your staff for being here this evening. I’m going to talk about the report you did on the operating budget fiscal anchor. You mentioned that Canada is not the first jurisdiction to tie a fiscal anchor to a capital-versus-operating split. The U.K. has a similar framework, but also pairs it with a debt rule and a capital definition aligned to international national account standards.
The need for a fiscal anchor connected to debt has been raised by the IMF, brought up here at Standing Senate Committee on National Finance, and to the Minister of Finance and National Revenue. Given the government’s focus on capital formation and its impact on the debt, would you agree that adopting similar safeguards or standards around debt would be prudent for fiscal discipline and sustainability? I want you to comment on that.
Ms. Ryan: I think it’s straightforward, senator, to say that a fiscal rule based on a debt to GDP ratio would be more prudent. It’s straightforward. You get a declining debt to GDP that, when you essentially have revenues surpassing expenditures through time based on your GDP and population.
That really is at the core of prudence.
To be fair to the government’s position, they assert that the investments they are making across a broad range of measures, as you’re studying all the time, will increase GDP into that medium-term scenario. That is a very ambitious assertion that is prone to many risks. Essentially, that is the opposite of prudence. I’ll stop there, senator. I’m sure you have many questions.
Senator MacAdam: In that same report, you said, based on current public information, it’s not possible to independently replicate the classification or anticipate how future spending might be attributed. Also, that classifying programs between capital and operating can result in different treatments, depending on judgments that vary, program by program, without a consistent published rationale.
Given these limitations, how confident can we be that any reporting on this fiscal anchor or balance in the operating account is a useful indicator of fiscal discipline or sustainability?
Ms. Ryan: Thank you very much, senator. We undertook this study because of these very concerns. Because the government has stepped away from the fiscal anchor of debt to GDP, which has that straightforward prudence, we wanted to really understand the fiscal anchor that they said they would be governed by with the new creation of an operating budget balance.
We weren’t able to do that analysis based on what was in previous budget documents or the spring update. We really had to do a lot of legwork in order to, in the first instance, get a comprehensive set at the granular level of the Department of Finance definitions of what is operating versus capital. We had to do a lot of legwork to essentially collect information from departmental plans and so on and the tax expenditures for these hundreds of different grants and contributions, business subsidy measures or tax expenditures as to how much they would cost and then be able to construct forecasts going forward.
Given that the government has set forward this operating budget as one of its two fiscal anchors, the other one being a declining deficit-to-GDP ratio, I would see it as really imperative that the government would make this detail available with each of its budget documents to show how they are seeing their own fiscal discipline.
As a bit of a counterpoint to that, I think that detail of which business subsidies and which tax measures they see as contributing to operating objectives versus creating capital goods that have that knock-on effect on productivity and so on, to a certain extent it goes back to Senator Cardozo’s question of how much can you keep adding to tax expenditures before you start dialling those back? I think that amount of detail could help the National Finance Committee or other interested bodies to see where the opportunities are to improve the overall fiscal position by dialling some of those back.
Senator Kingston: Thank you for being here. My question is regarding your delivery of the automatic federal benefits for low‑income individuals.
First of all, congratulations to everyone who was involved in doing this initiative, because I think it’s really good overall. But I’m kind of concerned about how you actually find people who have not paid their taxes for some time — or not paid their taxes but have not filed for income tax for some time and don’t really often have the capacity to do so.
I have worked in communities for a long time, and one of the things that has been very helpful is a community volunteer tax program. But is it enough? In the context of what you’re trying to do, has that program been improved? Enhanced? In some cases, how do you get people a bank account to get the money to them?
I would just like you to talk a little bit about how the government tells you they are planning to identify people and get them the help they need to receive the benefits?
Ms. Ryan: That’s at the core of it, senator. I would say that it is a CRA initiative. Mr. Perrault, I’ll turn to you.
Mr. Perrault: In this case, you’re right. Reaching, let’s say the number is 2.4 million people; that would be more difficult. I think CRA, with our discussions with them, I think targeted people that they have, first of all, a lot of information on. They probably have T4 slips and known addresses. They have criteria that they use to select people. Perhaps this is why the number of people goes from like 3,000, 6,000, up to like 50,000, which does not tackle the whole problem. They have information. That’s how these were selected to be able to achieve those automatic benefits.
You’re quite right, I think, to extend it further. There is probably a lot more information, and you would face the issues of: Who has a bank account? Who has a fixed address? That’s a problem.
I don’t want to speak for the CRA, but perhaps these challenges are an explanation for the smaller set of individuals that they are able to target.
Senator Kingston: Okay. This is in the information that was provided to us. It says that the automatic filing federal benefits program would complement existing CRA initiatives, such as the recently announced pre-populated returns program, SimpleFile and the Community Volunteer Income Tax Program.
What I’m wondering is, given that the government is doing something that is fairly new, innovative and good, what is the Community Volunteer Income Tax Program being given as tools or resources to recruit? I think what you’re saying to me is that they are really not recruiting and that people will be identified because some T4s have rolled in. Is it this year or the last three years? Because in the stuff we have been given, it talks about a three-year window and so on.
Mr. Perrault: I will be very honest. The actual details on how these individuals were selected were not given to us. There are criteria by which they have chosen this population, but the extent and what each criterion is, we do not know.
Senator Kingston: One final point. A community agency, which is trying to help people — and filing your income tax return is really a good idea — could they feed into this to identify people who would then qualify for this?
Mr. Perrault: It’s perhaps a great idea. Again, this is a CRA initiative. Some of it has grown from the SimpleFile program. So how much they are in contact with these individuals I can’t say, and I don’t want to speak for the CRA. I think those are great questions for the CRA, definitely.
Senator Kingston: Thank you. I will ask them.
[Translation]
Senator Gignac: Welcome to the witnesses. I want to ask you about a report you published less than a week ago, a report that was actually requested of you by this committee, the Standing Senate Committee on National Finance. Thank you for mentioning on your website that it was at our request. I wanted to make sure that you don’t mind being asked about that, since we were originally supposed to ask you only about Bill C-31. However, the chair seems to give us some leeway to ask you about other topics.
Less than a week ago, you published a report on high-speed rail. You analyzed the costs. Could you quickly talk about the findings? We were told it would cost between $60 billion and $90 billion, but you have arrived at higher figures. How did you go about estimating these higher costs in your study?
Ms. Ryan: Certainly. These ideas are still fresh in our minds, so we’re comfortable discussing them. I will start by saying that we looked at high-speed rail projects that have already been completed abroad. We looked at over 90 projects. We compiled specific information on 57 projects, which touches on the cost per number of kilometres and the cost of tunnels, bridges, viaducts and so on.
We saw this as a reasonable benchmark for the Canadian project. We compiled information on the route that Alto is considering. That’s how we developed our estimate for the route you described.
Mr. Perrault, do you want to add anything?
Mr. Perrault: That’s relatively comprehensive. Was there a more specific question about the methodology?
Senator Gignac: In terms of the weather, the terrain, does that resemble one country more than another? You mentioned a number of countries, ten or so countries, I believe, and various projects.
I have been to China three times in the last few years; I don’t know whether they have been approached. They still have 50,000 kilometres, whereas we’re trying to cover 1,000 kilometres. Could the expertise they’re developing lower the cost to less than $100 million per kilometre? I don’t know what technique they use. With 50,000 kilometres, they must have more experience than other countries. There must be a learning curve, I suppose, when building a high-speed rail. I’m curious as to which countries were being considered. Is there a country whose terrain is more similar to our terrain?
Mr. Perrault: In fact, we take 57 projects. The countries in question are all over the world. There are some in Asia, and in Europe, there are England, Italy and Germany. That’s all part of the analysis. After that, we try to take geographic location into account.
For our analysis and our estimate, our benchmark is Europe, given the bills passed by the government to potentially reduce litigation issues.
Europe is really the basis. Weather, that type of thing . . . . Terrain is obviously part of the analysis insofar as it affects tunnels and elevated rails. After that, judgments were made.
All the information from a number of countries is included. As for whether several projects in the same country would reduce costs, we looked into that, but there are so few countries and so few experiences that we can’t statistically determine that sort of thing.
Ms. Ryan: We carried out our statistical analyses, and we focused on —
[English]
It is the top end of the distribution.
[Translation]
— to take into account issues such as the current state of trade, the fact that steel is in demand and that this is the first time Canada is undertaking a project like this.
We took those issues into account, as well as weather, to favour a certain part of the distribution.
Senator Gignac: Has Alto responded, or are these confidential responses that you can’t share with us? Were there any formal responses?
Ms. Ryan: I saw their public response, which was to emphasize that our estimates include the same . . . .
Mr. Perrault: Ranges.
Ms. Ryan: Ranges, thank you. It’s between $75 billion and $90 billion. That’s the commonality between our estimates.
Senator Gignac: You said that there will be a second study. What kind? Is it to determine whether this will be profitable? When can we expect the results?
Mr. Perrault: There will be a second part to examine the issue of demand, of traffic, which may have changed given the impact of cars and planes. It will be about seeing whether it’s possible to assess the viability of the system. At the moment, the priority would really be the issue of demand for this type of service.
The Chair: In fact, it’s the second part of our request. It’s a part that focuses more on the potential ridership.
Mr. Perrault: Right, that’s the goal. Ideally, we’d like this to be in early 2027.
Unfortunately, in this case, we don’t have the benefit of a nice database that has already been compiled and that would help us conduct a faster analysis. It’s something new, which makes it a more complex task that will potentially require consultations. I wouldn’t want to promise an objective that will be difficult for us to achieve, but that’s what we’re aiming for.
Ms. Ryan: We decided to publish the construction part to fuel the debate while we compile the information on the most complex issues, which will take us more time.
The Chair: Alto already has an idea about ridership. They must have established . . . . I understand that you can’t take that as the truth; you have to question it. Are you in contact with Alto to find out their hypotheses and the basis for their calculations, and to then work with that information?
Mr. Perrault: Absolutely. Data has been obtained, but the idea is really to conduct a study outside of Alto so that we can give parliamentarians a different opinion.
The Chair: Or an objective one.
Ms. Ryan: Independent.
Mr. Perrault: Independent.
The Chair: Great, thank you.
I have a question about automatic tax filing. There is a provision that refers to the minister sending the file to taxpayers, who have a certain amount of time to report if anything is missing. If they do not respond, it is deemed accepted.
However, if there are things that should have been entered, the taxpayer is deemed to have produced incorrect data when it didn’t come from them. Have you assessed the risk of bureaucratic and legal chaos for someone who says that they never received the return or that they never opened the envelope? How will the government be able to administer these allegedly erroneous returns and prosecute people, some of whom are already poor? I assume that some of them aren’t poor and don’t want to file a return.
Mr. Perrault: To be quite honest, we haven’t considered that possibility. Cases where the onus for responding was reversed from the old system involving telephone calls were taken into account to assess the number of people who would benefit from an automatic response. This very specific case has not been analyzed. It’s probably quite complicated to tackle.
The Chair: Have you seen the risk of potential chaos?
Ms. Ryan: I think our analysis focused more generally on the administrative issues and the cost related to the people who would receive benefits afterwards. Those specific administration issues were not —
The Chair: Within the mandate.
Ms. Ryan: — the topic of the study. That’s a great question.
We continue to study this aspect, including the questions asked by Senator Cardozo. That would be a discussion to have with Revenu Québec.
Mr. Bernier: There is already a section in the Income Tax Act that allows the Minister of Finance and Revenue to make an assessment for a taxpayer who has not filed a tax return. If the Canada Revenue Agency has information indicating that someone has had undeclared income, the agency can tell them that they owe a certain amount in taxes. The person concerned may object to the assessment and provide documentation explaining that they do not have a balance to pay.
In this specific case, as Mr. Perreault mentioned, the target is quite low. These are people whom the agency already has a lot of information on. That may include T4s of people who are on social assistance and who receive forms.
The likelihood of these individuals having undeclared income is lower, as the agency would likely have already tried to tax them. There is a low risk that the agency will fill out a person’s return and realize that, in the end, that person is receiving benefits to which they were not entitled. However, in general, I would tend to think that the risk is quite low, given the very small sample of people who will be targeted by the measure.
The Chair: I raise the issue because of the COVID failure. We’re talking billions of dollars. That kind of situation should not reoccur.
Mr. Bernier: Absolutely. It was on a much larger scale. We opened the floodgates back then.
The Chair: That’s a very apt expression. Thank you. We have time for a second round.
[English]
Senator Cardozo: I’d like to carry on the discussion you had with my colleague, Senator Gignac. Thank you for doing the report you did on Alto. As a senator from Ottawa, I am really excited about the possibility, but also see the concerns about it, so I appreciate the work you’ve done.
When I took the train recently, I looked at some things more closely. One of the good things about VIA now is there’s a screen up top that gives you the speed they’re travelling at, at any time, at any moment. And on a trip from Toronto to Ottawa, recently, it could go up to 150 to 160 kilometres an hour, so I thought it was quite amazing. But it’s very rare it’s up there; it’s usually under 100. So I would think the average is probably below 100.
I understand high-speed rail is 300 to 320 kilometres an hour, and I’m wondering if there’s an in between, which I might call “high-efficiency rail,” which would require — rather than building these tracks they’re planning for Alto — you would upgrade the current tracks we have. The biggest problem is that VIA does not own its tracks.
So I wonder, in the second phase, whether you can look at the cost of VIA purchasing/building tracks. And I understand it wouldn’t be 200 kilometres all the time; in cities it would be lower. You could get high speed for the longer rails, and then requiring by law, for example, where the tracks are owned by CP or CN, that they give priority to passenger travel rather than the transport of goods. I wonder if you can look into that and see if there’s another in between.
I know you don’t get into the politics of it, but with the new government in Quebec being against it — and we’ll see how far they stick to that position — maybe the thing’s dead in its tracks — if I can use that term — and maybe we need to look at something else.
I do think we need to find a faster rail, and I’m glad you’re looking into other things like will there be passengers, or not.
Europe is different; it’s a smaller place with a lot more people. We’re a big country with not a big culture of using trains. I’ll leave that with you.
Ms. Ryan: Thank you, senator. Lots in that question.
In our report, we did lightly touch on past studies done of different train lines. We made less space for studies done in the past of high-speed rail versus high-frequency rail. And that point of making the service better is well taken. It was not the scope of the study we did at this time.
Mr. Perrault, you’re also very close to this. Do you want to add anything?
Mr. Perrault: For the specific question or project that you have in mind, I’m not aware of specific data that we can use. I’m not saying it’s not something that exists or we can’t consider; it’s a possibility. Could that warrant something else?
Ms. Ryan: As you were describing what you have in mind, senator, my mind went to, okay, if you’re going to get VIA off those tracks — and already have agreements with CP — that sounds like construction. Then are we back into north of $100 million per kilometre of track? I appreciate the specifications could be a little bit lower.
Senator Cardozo: The big thing I’m looking at in this case is you wouldn’t have all this expropriation. There is a real social cost to when it’s rural folks having expropriation happening in their backyard. They’re not going to be using the high-speed rail; it will be urban folks who use the rail, but it’s the rural folks who are inconvenienced and seriously hampered in their businesses, for example.
Ms. Ryan: I think the points are well taken. There may have been an element in what you described of advantaging passenger rail versus commercial rail. That gets into different issues about time for the delivery of all the commercial loads.
I think there’s a lot in those questions.
Senator Cardozo: Right.
Ms. Ryan: We definitely need to look at it and do some more chatting with folks about whether maybe we can do some pop‑out considerations about other models and what has been tried in the past.
Senator Cardozo: Thank you. I really think we ought to look at what another option would be — a third option.
[Translation]
The Chair: Senator Cardozo, perhaps we could discuss it among ourselves.
The committee could ask you to discuss high-frequency rail, as you mentioned. It could be on a dedicated track so as not to hinder freight trains.
Ms. Ryan: I would like to make a proposal, senator.
[English]
We’d be happy to meet to maybe iterate a bit on how we could get those terms of reference right.
[Translation]
That way, we could better handle your ideas and manage time and research to provide more precise answers.
The Chair: We shouldn’t spread ourselves thin. It can get very broad. Great. Thank you. We can discuss it again later among ourselves.
Senator Gignac: I would like to mention for the thousands of Quebecers listening to us that I am optimistic that a minority government can sometimes make things happen. We’ll see what Quebec’s position is on high-speed rail.
On September 24, you published a document on the operating budget target. The government wants to balance its current operations. In your report, you mention a somewhat arbitrary aspect in how government spending is classified. For example, film production tax credits are eligible for capital expenditures.
However, with apologies to journalists, the journalism tax credit is treated as an operating expense. That is a bit arbitrary. You have a proposal. How can we ensure that the government won’t manipulate the numbers to claim to balance its operating expenditures? Is there an independent expert committee in the U.K., or are expenses classified at the discretion of HM Treasury? Do you have any recommendations or international comparisons that could somewhat reassure Canadians and people who analyze budgets?
Ms. Ryan: I will start by saying that in the U.K., they followed an accounting standard that is closer to what we use in Canada, such as the PSAS. They avoided having a committee of experts classify expenses. I think the government’s responsibility is to explain why it sees this anchor as strict discipline on its spending. I would like to mention that increasing corporate taxes creates tax room to spend more on operations or capital.
Senator Gignac: Would the mega deduction be an investment expense? The recent announcement amounts to $7 billion a year, or $35 billion over five years.
Ms. Ryan: Yes.
Senator Gignac: The government’s approach is to classify this as an investment expenditure, because it will increase Canada’s potential GDP, or am I mistaken?
Ms. Ryan: The other anchor has no effect on fiscal discipline at all. It’s like having a pass for —
Senator Gignac: While the Canadian Prime Minister recently announced that he thinks he can balance his operating budget a year earlier, you mentioned in your document that you maintain your prediction and that it may even be a year later. What is the situation on that front?
Ms. Ryan: We’re comparing apples and oranges here, since the study we published was based on the June results. Our analysis took time, so we based our conclusion on the results from June, which did not mention things like rising gas prices.
Senator Gignac: Okay. Thank you.
[English]
Senator Pupatello: Perhaps just before you arrived, Ms. Ryan, I was asking your officials about the Buy Canadian Policy baseline data you would require to be able to tell if this government policy is effective in creating more business for Canadian companies. We understand there’s a broad number like 20% that is not in the Canadian company’s supply chains, or 80% of everything the government spends is currently from Canadian companies. I haven’t seen any data that supports that. I wonder if you have access to it.
Year to year, how are we changing how we do business with this new Buy Canadian Policy? Because it’s just getting going now and there’s a lot of focus and attention on it, you would have to start collecting that baseline data now, and I’m hoping your officials might consider that.
The 5% NATO commitment on defence spending alone is going to be massively more than an Alto spend every year. I think it merits quite a bit of attention in how they’re spending, that it’s being spent in Canada and how it’s changing year to year with this new Buy Canadian Policy. I’m looking for a commitment from your office for some work on that.
Ms. Ryan: The question is well understood, senator. I think the difficulty of doing a study like that would depend on how an organization like PSPC collects that information. How is the program set up now? What elements of the program are changing before and after, and to what extent do they capture that in their databases?
I think that would be something we would want to look at. Again, we could iterate back to you and give you a sense of what would be involved. We’d be happy to have that discussion.
Senator Pupatello: I started that conversation several months ago, so I’m looking for next steps already. Perhaps some of your colleagues will remember the conversation that I brought to the table last time, so maybe we can get to the next step. I’d be happy to chat again.
Ms. Ryan: Thank you, senator. We do favour the committee’s direction to take on a study. If there are loops that have been left open there, I apologize. Let’s bring this back again.
[Translation]
The Chair: Ms. Ryan, thank you to your entire team.
Obviously, the main topic of the day was Bill C-31, but we have many other questions, as you’ve seen. We look forward to hearing what you have to say about the various reports you have produced in recent months. We will likely invite you back in the coming weeks to discuss these reports in greater detail. Thank you.
Thank you all. That brings us to the end of today’s meeting. We will next meet on Tuesday, October 20. Thank you.
(The committee adjourned.)