FINA Committee Report

DISSENTINGOPINION OF THE OFFICIAL OPPOSITION

PREFACE

We would like to thank everyone who participated in the pre-budget consultations this year, whether as an individual or as part of an organization. Beginning in late September, the House of Commons Standing Committee on Finance held public consultations with stakeholders, including travelling to all provinces to hear witnesses, as well as several days of hearings in Ottawa. In total, the committee heard from 293 witnesses and received 445 briefs. The result of these efforts is a 422 part, 145 page report for the Committee’s consideration.

Given the poor results from the Liberals’ first budget, we were pleased by the Committee’s decision to select “economic growth” as the theme of this year’s pre-budget consultations. Unfortunately, instead of listening to the valid critiques of the federal government’s current approach or to fresh ideas that could make a difference to hard-working Canadians, the Committee’s report asks the federal government to double down on a failed plan; one that will result in more reckless spending, lower economic growth, fewer jobs and higher taxes. For these reasons, the Official Opposition is tabling this dissenting report.

THE GOVERNMENT’S FAILING ECONOMIC RECORD

The Liberal government’s economic plan has failed to create the growth and jobs that Canadians were promised. The Liberals were elected on a pledge to run “modest” $10 billion annual deficits that they would invest in ways that would grow the economy. Six months later, it was $30 billion. In their fall Economic Statement, Canadians were told the government would be borrowing even more money.

The Liberals set high expectations for what this spending would accomplish. Budget 2016 projected real GDP to grow by 1.4% in 2016 and 2.2% in 2017. That was before factoring in the impact of new spending, which the Department of Finance estimated would generate an additional 0.5% of GDP growth in 2016-17 and a full 1% more in 2017-18. They claimed this extra growth would create or maintain 43,000 jobs in the first year and 100,000 in the second.[1]

The results have not even come close. The Bank of Canada’s latest forecast projects GDP to rise by only 1.1% in 2016 and 2% in 2017.[2] Business investment continues to decline. Job creation has been equally bad. Since the Liberals entered office in November last year, the economy has lost a net 30,500 full-time positions.[3] What makes this performance even more troubling is that it takes place just as the U.S., our biggest trading partner, is showing signs of a strong recovery, which should be helping Canada’s situation.

It is clearly time for the government to reconsider its approach.

PUT AN END TO RECKLESS SPENDING

The Committee report, with the majority made up of Liberal MPs, contains 81 recommendations to government, of which 36 call for additional spending in the 2017 budget. These requests for additional funds are not costed and are simply open-ended funding requests made by some of the presenters. There are also no recommendations to look for cost savings in existing government operations.

The Committee should have heeded the advice of witnesses such as the Canadian Taxpayers Federation, the Atlantic Institute for Market Studies, and the Quebec Employers Council who stated that the government should be limiting its spending and borrowing. Additionally, many groups, such as the Canadian Federation of Independent Business, the Chartered Professional Accountants of Canada, the Conference Board of Canada, and Financial Executives International Canada advised that the federal government should have a plan to balance the budget. .

In particular, the Macdonald-Laurier Institute stated that, “setting out a clear and credible plan to eliminate the deficit in particular should be the government's top budget priority, and—I put it to the committee with respect—your top priority as well. Failing to do so risks setting us on a path of protracted deficit and increasing long-term costs or long-term opportunity costs. In this regard, I'd encourage the government to reconsider the enactment of fiscal rules, such as balanced budget legislation, to improve fiscal transparency and to help politicians help the government to reconcile these trade-offs between the short and the long term.”

The federal government should therefore:

• limit any further increases to net spending and borrowing and ensure that projections reflect the potential for higher borrowing costs (Canadian taxpayers are currently incurring public debt charges or interest on borrowing in 2016/17 of $24.9 billion which is forecast to rise to $33.1 billion in 2021/22[4]);
• present a credible plan and timeline to return to a balanced budget and propose new legislation that requires future federal governments to do the same when they engage in deficit spending; and
• scrutinize and review federal spending and crown corporation practices in order to eliminate waste and inefficiencies.

CREATE JOBS

The Committee’s recommendations suggest that jobs and growth will be created through new government spending and government programs.

Yet, the Committee heard from many witnesses who held a contrary view, asking instead that the federal government focus on lowering the burden of taxes and other costs on companies that hold them back from investing and hiring new workers. Witnesses such as the Chartered Professional Accountants of Canada and the C.D. Howe Institute recommended that personal income taxes be kept low. The Dairy Farmers of New Brunswick asked for an increase in the capital gains exemption.

Other witnesses calling for the government to reduce the tax burden on business include the Business Council of Manitoba, the Fredericton Chamber of Commerce, and Forest NB.

The Halifax Chamber of Commerce said that, “the overall tax burden is a constant source of frustration (for businesses). In recent months, the federal government has taken action, such as planning to raise the CPP [Canada Pension Plan] and introducing the concept of a price on carbon, both without consultation. Both of these will have a significant impact on business costs in the years to come. Going forward, we'll be looking for the federal government to take action to make business in Canada more competitive, not less.”

The Canadian Federation of Independent Business said that “payroll taxes are burdensome, for businesses generally and for small and medium-sized enterprises particularly, and suggest that employer contributions to the CPP and the Employment Insurance program should be reduced.” The Canadian Vehicle Manufacturer’s Association thinks that “businesses that provide comprehensive pension plans should be exempted from making CPP contributions.”   

Many witnesses commented on the importance of a low tax rate for small businesses, including the Canadian Convenience Stores Association, the Canadian Federation of Independent Business, Restaurants Canada, the Halifax Chamber of Commerce, the Greater Charlottetown Area Chamber of Commerce, and the Canadian Chamber of Commerce.

The Canadian Chamber of Commerce wants to accelerate the capital cost allowance rates, “…for a broad variety of capital equipment and technology (advanced machinery, computers, telecommunications network equipment, fiber cables, data network infrastructure) to encourage greater private sector investment in technology.”

On taxes, the federal government should:

• review and propose updates to the Capital Cost Allowance to reflect changes in technology and the shorter working life of particular assets, including in industries such as oil and gas, renewable energy, telecommunications, trucking and construction;
• deliver on its promise to reduce the corporate income tax rate for small business from 10.5% to 9%;
• ensure all small businesses are able to access the small business tax rate, including and not limited to partnerships of professionals such as doctors, dentists and veterinarians; and
• introduce a hiring tax credit for businesses that can be applied to payroll tax obligations, such as Employment Insurance or CPP contributions;

Many witnesses focused on the need for the federal government to remove or limit other restrictions to business growth, including onerous approval processes for energy projects, inter-provincial barriers to trade and rules that make it harder for Canadians to purchase a home.

The Committee was encouraged to ask the federal government to quickly approve outstanding pipelines. These witnesses include the Canadian Energy Pipeline Association, the Canadian Association of Petroleum Producers, Financial Executives International Canada, Western Economic Diversification – Alberta, Western Economic Diversification – British Columbia, and the Regina and District Chamber of Commerce.

The Atlantic Provinces Economic Council advised that further limits on access to mortgages should not be added until the housing market has adjusted to the most recent measures.

Therefore, the federal government should:

• provide timely and efficient approvals for oil and gas pipelines and major infrastructure projects, and take additional actions as required to bring these projects to construction;
• take more aggressive action on internal barriers to trade, including by disclosing the details of the recent agreement in principle among the provinces and, if necessary, by asking the Supreme Court to give an opinion on section 121 of the constitution;
• reconsider its restrictions on eligibility for mortgage insurance, halt further restrictions and consider ways to incentivize construction and supply.

Spending initiatives should be targeted in a way to maximize job creation for Canadians, especially in depressed regions such as Alberta, Saskatchewan and Atlantic Canada. The Canadian Construction Association asked the government to make decisions about this type of infrastructure using merit-based criteria. The Business Council of Canada, for their part, urged the government to include in its infrastructure strategy independent bodies to evaluate infrastructure projects. The Chartered Professional Accountants of Canada asked the government to make fiscally responsible investments in core public infrastructure focused on longer-term goals. Finally, the Alberta Federation of Labour stated that infrastructures projects should create employment opportunities for Canadians in the construction, manufacturing and maintenance phases.

In that regard, we recommend that:

• given that the new infrastructure bank will only provide funding to projects worth $100 million or more, virtually guaranteeing that rural communities across Canada will not qualify its funds, the federal government should present an infrastructure plan that prioritizes small communities in rural Canada; and  
• before the federal government releases funds for Phase II of the federal infrastructure plan, the federal government publish a full assessment of national infrastructure needs and establish a framework for selecting projects that prioritizes those with the most positive economic and employment effects.

In the same spirit, immigration and labour market initiatives recommended by the Committee should focus on the goal of creating employment opportunities for Canadians first.

While immigration can play a role in supplying the skills Canadian companies need to compete, many witnesses, such as the Canadian Home Builders’ Association, General Motors of Canada Limited, HSBC Bank Canada, the Regina and District Chamber of Commerce and the Greater Charlottetown Area Chamber of Commerce, and the Canada West Foundation suggested gaps could be filled through a focus on better education and better recognition and matching of the skills held by those already in Canada.

Therefore, the federal government should:

• ensure that there will be no negative impact on the employment and wages of Canadians as it seeks to ease rules for access to foreign workers. 

LOWER TAXES ON CANADIANS

In just over one year, Canadians have been hit with a wide range of new taxes (e.g. elimination of income splitting and tax credits for arts and fitness, reduced limits for Tax-Free Savings Accounts, increased CPP premiums, a national carbon tax.). Together, these new taxes will more than wipe out the gains from the Liberals so-called ‘middle class tax cut.’

The Committee report fails to include any recommendations against further tax hikes on Canadians, even though some of the witnesses are clearly lobbying the federal government to raise taxes on income, internet services, and food and beverages, just to name a few examples.

In contrast, the Official Opposition will continue to fight hard for the taxpayers and ask that the federal government not increase income tax rates and not eliminate any tax relief measures for individuals or families.

Many witnesses agree with us and asked the Committee to recommend that the federal government refrain from increasing taxes. The Chartered Professional Accountants of Canada told the Committee that, “personal income tax rates should remain low”. The Canadian Beverage Association asked that the federal government not create a tax for sugary beverages.

Witnesses showed concern about the costs of the Liberals’ plan for a national carbon tax. The Business Council of Canada and the Regina and District Chamber of Commerce do not believe the federal government should establish a price for carbon. Others, including the Canadian Union of Public Employees and Green Budget Coalition, acknowledged that there needed to be compensation to vulnerable households and others affected by carbon pricing.

Therefore, we recommend that the federal government:

• continue to provide high quality information and educate Canadians about healthy eating practices and not introduce any new excise taxes on the consumption of foods and beverages;
• promoting the importance of health, sport and an active lifestyle for children, including by reintroducing the children’s fitness tax credit;
• not introduce new taxes on online services, including internet service providers and digital streaming;
• make public the Review of Federal Tax Expenditures as soon as possible, subject it to review by the Finance Committee, and ensure any subsequent decisions by the federal government to eliminate tax relief measures be offset by an equivalent reduction in taxes paid elsewhere; and
• include in the budget a full assessment of the economic, employment and fiscal effects of the government’s plan for a national carbon price for fiscal years 2017/18 to 2021/22.

We believe that the federal government should trust Canadians to make their own choices when it comes to what to do with the money they earn. The Quebec Employers Council, Regina and District Chamber of Commerce, C.D. Howe Institute, and Conference for Advanced Underwriting all suggested ways to enhance retirement security without mandatory contributions to the CPP.

Therefore, we think the federal government should:

• cancel its plan to hike CPP premiums and
• examine ways to use the tax code to help Canadians voluntarily save for retirement and long-term care needs, including by, for instance, expanding the limits for Tax-Free Savings Accounts and access to pension income splitting, and changing the tax treatment of personal insurance for long-term care.

OTHER CONSIDERATIONS

In addition to the concerns above, we think that the Committee has failed to incorporate other important requests and considerations into its recommendations.

For instance, we believe the federal government should:

• follow through on its commitment to increase funding for palliative care in accordance with provincial need;
• restore the excise tax exemption for diesel fuel used by anti-idling devices;
• consider supporting indigenous students pursuing academic programs by providing an amount of $30 million per year for five years for the Indspire’s Building Brighter Futures: Bursaries, Scholarship and Awards program; and
• expand the CRA interpretation of the Income Tax Act, or amend Section 118.3 of the Income Tax Act, to include all activities related to insulin administration in the DTC eligibility criteria.

We are also concerned that many of the recommendations infringe on provincial jurisdiction. If the Federal Minister of Finance were to move ahead with many of these recommendations, constitutional responsibilities could be severely impacted.

CONCLUSION

We believe business creates jobs, not the government. So far, higher spending and higher deficits have failed to create economic growth. The costs of this spending will be felt by hardworking Canadians and their families through higher borrowing costs, fewer jobs, higher taxes and program cuts. We will continue to fight on behalf of these Canadians encourage the Minister of Finance in the 2017 budget to focus on lowering the costs of doing business in Canada and not adding to our deficit with new spending.