Budget Implementation Bill, 2019, No. 1
Third Reading--Debate Adjourned
June 17, 2019
Honourable senators, I’m pleased to rise today to speak to Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures. There are multiple issues in this year’s budget that warrant our attention, but today I will focus on three: The donee status and refundable labour tax for journalism organizations; the amendments to the federal insolvency, corporate governance and pension statutes; and the Poverty Reduction Act.
First, let me delve into the issue with respect to journalism. Bill C-97 provides support for Canadian journalism by giving qualified donee status to journalism organizations, providing a 25 per cent refundable tax credit on salary wages for journalists and promoting digital news subscriptions by giving consumers a 15 per cent personal income tax credit, providing them with a tax credit of up to $75 annually on their subscriptions.
The issue of how we support Canadian journalism — and I’m talking about free, independent, ethical journalism with codes of conduct — has been an issue of interest to me for some time. I first looked into it when I was chair of the Ontario Press Council, and again as the inaugural chair of the new National NewsMedia Council. I commend the government’s efforts to begin to address the need for quality journalism in Canada. The budget seeks to help Canadian journalism. This is well warranted, as the survival of the independent and ethical news media is currently at risk.
According to data collected by the Local News Research Project, which is a project of J Source — many of you would know that organization — over 250 Canadian news outlets have closed in the last ten years. These tend to be small town, local news media: The local newspaper where the local police, city hall beat and local community developments and issues are covered. It is the lifeblood of information for communities. As we have seen consolidation in television news media, we see less coverage of local news, and now we’re seeing the same thing in print media. It is a situation where our access to the kind of information that helps us make our decisions about local democratic issues is at risk. It only heightens as you step up from local to regional, to provincial, territorial and international.
The risk of misinformation influencing our public discourse is becoming increasingly serious. We have all seen the coverage of that with respect to social media, with the manipulation of that and with the kind of — I hate to use the term “fake news” because it’s overused and often used inappropriately, but the increase of that has seriously threatened the democratic cornerstone of free and ethical media reporting.
Canadians deserve to have access to accurate information and diverse perspectives. These measures will aid Canada’s news and media industry, but there are some areas for evolution in terms of the government’s response. I look forward to the government clarifying the terms it uses in its amendments, including the term “qualified Canadian journalism organizations.”
The government must explain in greater detail the selection process behind these new tax incentives. What exactly makes a journalism organization qualified, according to the government? I worry that smaller local news organizations, which often represent minority communities, may not qualify.
I encourage the government to provide more guidance on this and to look at the possibility of changing up their panel appointments. Perhaps they could look at non-affiliated individuals being added to the eligibility of the review panel. This would go far in establishing a review panel that is unbiased, not partisan and trusted by the news media and, more broadly, by Canadians.
In my experience at press councils, both provincially and nationally, the majority of the membership comes from the newspaper — in the old terms — industry. In fact, they are fierce defenders of the importance of ethical journalism and not shy to take critical positions of colleagues in areas where wrongdoings have occurred. So I think they have very valuable input to make. I think other voices could be heard. Again, in terms of press councils, they are often independent citizens, as I was, to be appointed to these bodies. That might be a model the government wants to look at.
I recommend that the government be transparent in its selection process, invest in the long-term sustainability of the news and media industry and take measures to ensure that it remains independently Canadian. Bottom line, however, I support this first step.
With respect to pensions, the government is seeking to enhance the retirement security of Canadians by amending the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangements Act, the Pension Benefits Standards Act, 1985 and the Canada Business Corporations Act. But the measures in this year’s budget fall short of protecting pensions because they fail to work with the provinces to align pension protection policies. I represent the province of Ontario. Currently, the Ontario Pension Benefits Guarantee Fund guarantees pension benefits to Ontario members and beneficiaries of pension plans under a covered single employer defined benefit plan, up to a specified maximum in the event of insolvency of the plan sponsor. This amount is $1,500 of monthly pensions. That’s the reason why Sears Canada pensions in Ontario are guaranteed to receive that amount, while Sears pensioners in other provinces are not guaranteed.
Has the government worked with the Ontario government and other provinces to encourage the development of these types of funds and look into developing a Canada-wide pension benefits guarantee? It’s an important next step.
On top of that, the Senate’s role is to consider the regional dimension of policies. I wonder if the government has, in fact, done everything that it can to negotiate with the provinces to ensure that companies protect pensions across Canada.
In addition, the amendments to the Bankruptcy and Insolvency Act only require the courts to look into the appropriateness of executive pay one year before the insolvency. I don’t want to jump on the bandwagon of dumping on executive pay. I know that boards of directors spend a great deal of time considering what is required in terms of attracting the talent needed to return the best for the corporation, its customers and its shareholders.
To give you an example, Sears Canada stopped paying shareholder dividends in 2014, three years before it went bankrupt in 2017. It is reliable to look at the data and to see that withheld or reduced shareholder dividends, shorting of company stocks or a steady decline in operating cash flow could, depending on the circumstances, signify that a company is in financial trouble. In these situations, as I talked about with Sears, there were warning signs three years in advance. Yet in those three years, key management compensation totalled $46.5 million and bonuses for key management totalled $7.2 million. I ask: Is there more that should be done? Should there be a third party? Should it be the courts? Who should look at this to determine if the balance is correct?
Lastly, the biggest issue — and this is the most important issue to me that was not addressed in this budget — pensioners are currently unsecured creditors, meaning that when a company goes bankrupt, paying off the pension deficit is not prioritized, leaving many Canadians with reduced pensions. There are already three private members’ bills seeking to address this issue — Bill C-405, Bill C-384 and Bill C-253 — and the government has had ample time to consider these bills.
When asked why the government did not include legislation that would make pensions a preferred creditor in the budget, the government told the Senate Banking Committee that after careful consideration, it was determined that the option was not in line with a whole-of-government, evidence-based solution. I don’t understand that answer. I would ask the government to share full rationale for it. More importantly, I would ask them to examine the ample evidence that is in place for why this is a necessary next step.
I realize there are limitations to what governments should and can do. However, when hard-working Canadians are told they will not be getting their pensions and they will not be able to rest easy simply knowing that their entitlement to the pension remains intact, securing an entitlement to a benefit falls way short of guaranteeing that benefit. Canadians deserve to know that the government is working hard as they secure their pensions and that all measures have been taken to address this.
As Senator Boehm just said, however, a step in the right direction is better than no step at all.
Lastly, with respect to poverty reduction, Division 20 of Part 4 of the budget enacts the Poverty Reduction Act. It provides for an official metric. Other metrics to ensure the level of poverty in Canada creates a preamble, establishes definition and creates, again, a national advisory council. I mourn the loss of the National Council of Welfare, the centre of excellence and the centre of research that was there. This won’t completely recreate that. I hope in the future it will grow to that.
Some of the notable improvements to the 2018 Poverty Reduction Act include the requirement for the minister to develop and implement a poverty reduction strategy.
I spoke to a trusted colleague for two minutes who has worked in this field for a number of years, and he said to me this is important because the onus is on the government to actually have a plan with a five-year lifecycle, with targets, timetables and financial commitments. It will be developed with Canadians, and it institutionalizes the discussion and debate.
It’s notable that there are poverty reduction plans, acts and measures in place in all of the provinces and territories and now the federal government. We have the united approach across Canada. We have the opportunity to examine, collect and bring together all of the best evidence and all of the steps going forward to synchronize actions and to have a real chance at having an impact.
The most important thing to me is the annual report, accountability and the cross-cutting kind of measures that are taken. I fully support this as a first step in this endeavour. There are a lot of important first steps here, and I look forward to continuing to work in the years to come to improve the government’s journey along these paths. These are important issues. Thank you very much.
Honourable senators, I rise today to speak on Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures.
In my speech, I will begin by building on my intervention in this chamber on May 14, 2019, when I asked the Minister of Finance a question. My question was about tax fairness for cooperatives in the forestry sector as a result of the legislative amendments adopted in 2016 and 2017. This tax inequity continues, as it comes up again in Bill C-97.
Second, I will address the problem of the national debt in order to explain the deficit and how it is financed as well as Canadian household debt. I would first like to talk about the context surrounding my criticism of Bill C-97 with respect to cooperatives.
Before 2016, cooperatives in the forestry sector could benefit from the small business deduction, often referred to as the SBD, based on their total revenues. In 2016, with the passage of Bill C-29, the federal government brought in measures aimed at restricting some firms’ access to the SBD. The legislator’s intent was to dissuade businesses from engaging in tax planning aimed at multiplying their access to the SBD within a single economic group, which was a worthwhile and legitimate objective.
However, the result was that Canadian-controlled private corporations could no longer claim the small business deduction on revenue generated by sales to a cooperative in which they are members, even if their participation was minimal. The provisions specifically put at a disadvantage Canadian-controlled private corporations that are members of cooperatives, or whose shareholders are members of cooperatives. Although forestry cooperatives were not specifically targeted by the bill’s measures, they suffered their financial consequences nonetheless, and the cooperative model consequently became less attractive.
In 2017, the adverse impact of these measures on forestry cooperatives and their members became obvious. More specifically, it was clear that they put rural communities at a disadvantage, given that most rural businesses only have access to a limited number of consumers. To address taxpayers’ concerns that the act was having an impact that the legislature had not intended, in May 2017, the concept of “specified cooperative corporations” was added to the act so that a distinction between income from cooperatives and other corporate income would be made in calculating the maximum amount eligible for the SBD. To be precise, these amendments sought to make certain income from the sale of farming products or fishing catches eligible for the SBD, but this meant that cooperatives operating in other industries, including the forestry industry, were excluded from the specified cooperative income rules.
In particular, the measure leaves out companies with income from forestry that is not covered by the CRA and Revenu Québec definitions of “farming income,” including companies that provide services to woodlot owners and companies whose main focus is lumbering or logging.
Bill C-97 continues to neglect the forestry sector. Clause 22 of Part 1 of the budget implementation bill contains certain income tax measures, including the elimination of the requirement that the income must be from sales to a farming or fishing cooperative in order to be excluded from specified corporate income for the purposes of the SBD. Again, the only two industries affected by these changes are farming and fishing.
It is difficult to understand why all small businesses that belong to a cooperative society did not benefit from the same exemptions despite having the same structure and meeting the same criteria as a Canadian-controlled private corporation.
I would like to reiterate my question through this speech: Why is the forestry sector excluded from the application of Bill C-97, making it unfeasible to achieve fiscal parity between all sectors, more specifically between the fishing and agricultural sectors, and the forestry sector?
The forestry cooperatives have spoken and the government needs to pay attention to the consequential impacts that its laws may have. Although the intention is not necessarily to target these companies and exclude them from the application of an exemption, the result is such that the tax injustice is perpetuated through Bill C-97, making the cooperative model incidentally less attractive.
Knowing that this business model has proven its worth in both rural and urban areas, and in order to ensure the survival of the cooperative model in forestry, it is essential that companies that are members of a forestry cooperative benefit from the same tax benefits to which cooperatives in other sectors are entitled.
I challenge the next government to listen to taxpayers and legislate to address the concerns expressed by cooperatives in the forestry sector, an industry that contributes to the economy and vitality of our communities across Canada.
Now I’d like to talk to you about Canada’s debt. I can never understand why people say that the current government is running deficit after deficit as though it were the only one ever to have done so.
The federal debt was $481 billion at the end of fiscal year 2005-06. The previous government had taken control of the country’s spending and enabled Canada to recover its International Monetary Fund credit rating. Over the following 10 years, the debt grew by $135 billion, or 28 per cent. During that time, we saw the most unbalanced budget in Canada’s history, a $56-billion deficit in fiscal year 2009-10. In the fiscal years that followed, it was $31.2 billion, $33.3 billion and $25.8 billion.
Taken out of context, and without considering the global economic situation or the government’s strategy for managing its debt at the time, it is easy to draw conclusions that can be sensational. During the same period, Canada experienced sustained GDP growth, which led to a significant decline in the debt-to-GDP ratio, a strong indicator used to talk about a country’s financial health. I can understand the concerns my colleagues have about our country’s debt because they are shared, however, deficits should not be the norm but the exception since the country’s debt is costly to taxpayers and transferred to future generations, a debt whose burden may one day become unsustainable.
The current debt trend is worrisome. The national debt is expected to reach $764.7 billion in 2023-24. The Parliamentary Budget Officer also concurrently estimated that the budget deficit would increase from $19 billion in 2017-18 to $19.4 billion in 2018-19 and then drop to $9.4 billion in 2023-24. The federal debt is therefore expected to steadily increase until 2024, but, at the same time, the budget deficit is expected to steadily drop, thus bringing us closer to the much-sought-after balanced budget. The government’s debt management strategy stems from its understanding of the country’s debt situation relative to its economic growth. This is a sensible approach that is supported by economists. It measures relative debt rather than absolute debt.
A country’s economic viability is generally measured based on the debt-to-GDP ratio rather than on the federal debt, the accumulated debt in absolute terms.
However, it is important to note that the media often uses the federal debt as a measure in order to simplify the information for the general public or to sensationalize the situation.
In her speech regarding the analysis of Bill C-97, my colleague, Senator Marshall, mentioned that the Government of Canada’s market debt is expected to reach $754 billion at the end of this year and that the debt of the Crown corporations is expected to reach $316 billion by the end of this fiscal year.
In its 2019 budget, the government indicated that this debt, including that of the Crown corporations, would reach $1.07 trillion. Although that information is accurate, there is something missing from the equation, and that is the assets that support the debt of the Crown corporations. These assets total over $410 billion. It is good to talk about combined amounts, but it is also important to qualify them by putting them into context.
Senator Marshall also indicated in her speech that public debt servicing is expected to be $26 billion for the current fiscal year, $28 billion, $30 billion, $31 billion and $33 billion for the next four years. This information is necessary to fully understand the magnitude of the costs associated with the country’s indebtedness. What is also important to understand is who holds the debt and who benefits from the debt servicing. At the end of fiscal year 2018, domestic bonds were at $75 billion, treasury bonds were at $131 billion, external debt was at $20 billion and market securities were $4 billion. As a result, 69 per cent of Canada’s debt is financed by Canadian interests and they benefit from the debt servicing.
To ensure that its fiscal planning protects the country’s economic viability, the government uses the debt-to-GDP ratio as explained in its 2018 Fall Economic Statement:
The Government will continue to ensure that investments in people, in communities, and in the economy are balanced by sound fiscal management—maintaining a downward deficit and debt ratio track that will preserve Canada’s low-debt advantage for current and future generations.
The current economic situation and projections show a constantly falling debt-to-GDP ratio for the past 15-plus years despite growing federal debt. That ratio is now 30.9 per cent. This vision for the national debt goes hand in hand with the goal of balancing the budget in the medium term, a goal that is consistent with the Parliamentary Budget Officer’s financial projections. Economic growth in the next few years is projected to steadily reduce the relative weight of the debt. In the Economic and Fiscal Outlook of October 2018, the Parliamentary Budget Officer explains that federal revenues are projected to outpace growth in nominal GDP, the broadest single measure of the government’s tax base, and that by 2023-24, total revenues should reach $392 billion, or 14.7 per cent of GDP.
My next point has to do with household debt, which is certainly currently the most worrisome indicator of Canadians’ financial health. In a new report, the Canada Mortgage and Housing Corporation indicates that household debt reached an all-time high at the end of last year, even though mortgage activity slowed over the previous year. Canadians’ debt-to-income ratio reached a record 178.5 per cent in the fourth quarter last year. In other words, for every dollar earned, Canadians pay $1.78 to finance their debt.
The International Monetary Fund is most concerned about the high cost of housing. The IMF estimates that, in the event of a mortgage crisis, the CMHC could face significant losses to the tune of more than $20 billion.
In Bill C-97, the government set aside a specific component for housing. This approach is part of an overall plan with several objectives. The program, divided into three broad categories, aims to support first-time homebuyers, grow housing supply through targeted partnership and investments, and strengthen the fairness and compliance rules within Canada’s housing market. Thus, we should see moderate growth in housing prices, which will have the effect of stabilizing the growth of household debt, allowing better home ownership for young households and a better environment of control over money laundering for those who buy properties by receiving proceeds of crime and increase property prices.
It remains to be seen whether this initiative will prove to be adequate by enabling Canadian households to improve their debt ratio and address IMF concerns.
In conclusion, budget implementation bills are long, and contain many reforms, plans and initiatives. These bills present the federal government’s intentions for our country. Each part of the bill is part of a thoughtful, concerted strategy and these parts affect all kinds of interconnected and interdependent components. We have the privilege of studying and understanding our country’s key priorities and issues, which means that we are instrumental in deciding how Canada grows and moves forward. This is a privileged position that allows us to better understand the scope of the government’s choices. I urge you to support Bill C-97.
Thank you for your attention.
