Building and Construction Trades Department, AFL-CIO, Canadian Office

Construction Mobility Tax Credit Submission Budget 2012

House of Commons Finance Committee

August 11, 2011

August 11, 2011

Standing Committee on Finance Study: Budget 2012

C/O Guyanne L. Desforges, Clerk of the Standing Committee on Finance

Please accept this submission for the committee’s study and meeting regarding Budget 2012.

Respectfully,

Robert R. Blakely

Canadian Operating Officer

 

 

Proposal

Our submission to the Standing Committee on Finance for Budget 2012 calls for a labour-mobility tax credit as a response to two major human-resources challenges facing the construction industry: labour shortages and allocation, and barriers to labour mobility. In this section we describe both, offer further details about our proposed solution, explain why now is the right time to implement such a proposal, and list some of the short- and long-term economic benefits that the Government of Canada will realize from a labour-mobility tax credit.

Canada’s construction industry at a glance

More than one million Canadians are employed in construction’s diverse trades and professions.

Each year, construction workers install, repair and

renovate more than $150 billion worth of infrastructure.

Investment in construction accounts for

12 percent of Canada’s GDP.

More than 260,000 businesses operate in the construction industry.

A vast majority of construction firms (90 percent of residentia focused businesses and 70 percent of non-residential businesses) employ five or fewer people.

By 2019, the construction industry will require 320,000 new workers to sustain activity and meet demand.

A worker’s average mobility cost is approximately $3,500.

A labour-mobility tax credit could yield a

return on investment of nearly 5:1 for the Government of Canada.

 

CHALLENGE #1: LABOUR SHORTAGES AND ALLOCATION

The 2011 edition of the Construction Sector Council’s Construction Looking Forward report  suggests  that  to  replace  retiring  workers  and  maintain  productivity, construction  employers  collectively  must  hire  more  than 320,000  new  workers between now and 2019.i Of that total, the report projects that 157,000 workers must be recruited from non-traditional labour sources such as Aboriginal workers and new Canadians, while the remaining 163,000 must be taken from among new workforce entrants,  and  workers  who  relocate  themselves  from  other  regions  of  country.ii Clearly, these will result in significant labour shortages in the next decade.

Compounding this problem is the unevenness of demand for construction workers during the forecast period. Some regions of the country—such as Newfoundland and Labrador—are  expected  to  face  significant  worker  shortages  between 2011  and 2014. Others, such as Ontario, will offer fewer work opportunities in the short and medium terms, but many more between 2015 and 2019. A third group (among them,  Quebec,  Nova Scotia and Alberta) will offer consistently high  numbers of opportunities.iii

Construction is a transitory business. Jobs last for months at a time and no worker expects to move his or her family to new cities regularly. The construction industry, therefore,   can  partially  solve  its  skills  shortages  by  encouraging  workers  to temporarily relocate to other parts of the country to pursue new work. In its report, CSC assumes that construction can recruit as many as 163,000 new workers from other   provinces  if “interprovincial  labour  mobility [is]  maximized  to  take  full advantage of the national workforce.”  iv  Unfortunately, labour mobility is not so unencumbered.

CHALLENGE #2: BARRIERS TO LABOUR MOBILITY

Most workers in the construction industry are not strangers to mobility. There exists within  our  industry  a  large  subset  of  people  who  retain  homes  or  families  in communities across the country, but who routinely work elsewhere in the country. In Working Local, A Study of Labour Mobility in Canada’s Industrial Construction Sector, the  CSC  demonstrated  that  nearly  70  percent  of  the  more  than  1,200  workers surveyed had travelled within Canada to find new work at one point in their careers. Most said they would entertain moves to other parts of the country for financial reasons, or if those were the only opportunities available to them. Respondents indicated that the cost to relocate was the second largest impediment to working mobile.v

Figures compiled on behalf of the Building and Construction Trades Department of the AFL-CIO suggest that the average mobile worker spends approximately $3,500 of his or her own money to temporarily relocate.vi  Because this cost is seldom reimbursed to the worker by his or her employer, it represents a significant barrier to the appeal of working mobile.

THE SOLUTION

The  best  solution  to  construction’s  labour  supply  and  allocation  challenges  is  a labour-mobility  tax  credit  that  enables  mobile  workers  to  deduct  the  costs  of expenses incurred for employment purposes —such as travel, meals and lodging— less any money paid by the employer for these purposes. Doing so would remove one of the largest stated barriers to labour mobility and pave the road for workers to move more freely between regions of the country where their skills are in most demand.

We propose, therefore, that the Government of Canada adopt a labour-mobility tax credit similar to the one proposed in Private Member’s Bill C-201 on a trial basis through 2015.

Based  on  datasets  created  by  CSC  in  its  Construction  Looking  Forward  report, eligibility for the labour-mobility tax credit should be assigned in trades and regions of the country where labour shortages are most acute. For the purposes of this report, we recommend that regions and trades identified by the CSC as scoring 4 out of 5 and 5 out of 5 for notable shortage as priority areas.

  1. Workers meeting employer qualifications are generally not available in local and adjacent markets to meet any increase. Employers will need to compete to attract additional workers. Recruiting and mobility may extend beyond traditional sources and practices.
  2. Needed workers meeting employer qualifications are not available in local or adjacent markets to meet current demand so that projects or production may be delayed or deferred. There is excess demand, competition is intense and recruiting reaches to remote markets.vii

THE OPPORTUNITY

The Government of Canada has shown great leadership during difficult economic times.  Through  a  series  of  measures  aimed  at  sparking  competitiveness  and streamlining legislation, you have invigorated the construction industry and its small- business employers at times in which this industry needed the most support. More than this, you have demonstrated a strong commitment to the industry ’s workers— the members of the Building and Construction Trades Department of the AFL-CIO.

Now is the time to build on this momentum. The Government of Canada must amend sections of the Income Tax Act to reflect the unique nature of construction’s work arrangements and introduce a tax credit for those workers who are prepared to disrupt their lives and those of their loved ones to fill this important industry’s worker shortages.

THE PAYBACK

Our proposal for a labour-mobility tax credit makes eminent business sense for the Government of Canada. Introduced in Budget 2012, we expect that a three- or fouryear pilot project to test this initiative will yield significant benefits for workers, employers and government alike.

Workers will benefit from a reduction in their temporary relocation costs
and a reduction in time spent unemployed.

Employers will benefit from access to larger pools of qualified workers,
and reduced costs relating to participation in programs
such as the Temporary Foreign Worker program.

In exchange for modest, short-term per-worker losses of tax
revenues, the Government of Canada will benefit from
increased long-term income-tax revenues
and reduced dependence on costly social programs.

The data in the following scenario demonstrates how a labour-mobility tax credit will yield a return on the government’s investment of nearly 5:1.

 

Tools to monitor compliance and measure success

If the labour-mobility tax credit is to successfully entice construction workers to seek work  outside  of  their  home  jurisdictions,  its  implementation  must  be  closely monitored.  The  Building  and  Construction  Trades  Department  of  the  AFL-CIO recommends a number of tools to gauge the pilot program’s quantitative success (to monitor compliance) and its qualitative success (measure its success).

MEASUREMENTS OF QUANTITATIVE SUCCESS

  1. Through reporting statistics provided by the Canada Revenue Agency.
    The  adoption  of  current  tax  programs  can  be  measured  by  compiling information
  2. Through Employment Insurance program monitoring in target markets.
    Measurement  between  periods  will  show  (barring  any  major  macro-employment  improvements)  a  decreased  reliance  on  the  EI  program.  We anticipate that the average duration of any unemployment periods among pilot
  3. Through reduced use of the Temporary Foreign Worker (TFW) program in pilot-program markets.
    HRSDC and Citizenship and Immigration Canada monitor and measure labour market opinions that will be fundamental to measuring the success of this program. Labour-market demand for TFWs will decline as the pilot ages and more Canadian workers are encouraged to move to new regions.
  4. Through a CSC-based monitoring initiative.
    The CSC will assume responsibility for matching program use and program need. Because it monitors construction labour-market data, the council is an obvious choice to monitor the uptake of such an
  5. Through the horizontal monitoring of associated programs.
    The Treasury Board Secretariat maintains a number of initiatives to measure or monitor the use of key government-administered programs. As the labourmobility pilot ages, the costs to run associated programs (such as the TFW program) will decrease.

MEASUREMENTS OF QUALITATIVE SUCCESS

  1. Through surveys of participating employers
    The labour-mobility tax credit will provide employers with access to a larger pool of highly trained, skilled workers. Therefore, the feedback of construction employers will be essential to monitoring this program’s success.

Employer surveys will make companies aware of the fact that workers on their projects benefitted from the labour-mobility tax credit. The survey will ask  employers  to  gauge  the  extent  to  which  they  believe  the  tax  credit contributed to workforce planning and supply.

  1. Through surveys of tax-benefit recipients.
    The  main  beneficiaries  of  the  labour-mobility  tax  credit  will  be  individual workers. The data gathered from surveys of workers who participate in this program will therefore be essential to the program’s further development.

Legislative background

The notion of a labour-mobility tax credit has been proposed to government before.

In early 2006 Chris Charlton, the Member for Hamilton-Mountain, introduced the Private Member’s Bill C-227 (that has since been reintroduced in Parliament as Bill C- 201). It is on this piece of legislation that our submission is based.

In April 2008, the Standing Committee of Human Resources, Social Development and  the  Status  of  Persons  with  Disabilities  recommended  that  the  federal government:

  1. examine the moving expenses provision of the Income Tax Act with a view to extending this provision to individuals who must leave their principal residence to work on a temporary basis, provided their primary residence is retained; and
  2. provide  funding  to  assist  individuals  who  agree  to  relocate  to  enter employment in occupations experiencing skills shortages.viii

It is with some disappointment that we report that the government has ignored both previous attempts at tax reform. Since the time during which this bill received first reading in the House of Commons however, the Member for Hamilton-Mountain has agreed to withdraw her bill and allow the government to create its own similar legislation in an effort to remove any perception of political partisanship.

Conclusion

The Government of Canada has continually demonstrated a high degree of leadership and foresight as its actions pertain to supporting industries and the broader economy in times of crisis. Time and again, this government has come to the assistance of small  businesses  and  construction  companies,  offering  solutions  that  stimulate growth, encourage innovation and reduce administrative burdens.

As we move forward into the middle years of this decade, construction again faces a crisis. Acute worker shortages threaten to derail the excellent work the government has encouraged through its stimulus programs. If construction companies across Canada are unable to recruit tens of thousands of new workers in each of the next ten years, the businesses that literally build this nation will be unable to continue to do so. Productivity countrywide will suffer as a result.

A  partial  solution  to  alleviating  industry-wide  regional  labour  shortages  exists, however. By enacting a new tax-credit program that enables mobile construction workers to deduct the costs of their travel expenses from their income taxes, the government can encourage construction workers to fill regional employment gaps and sustain construction ’s performance as Canada’s largest private-sector industry. In doing so, the government will not only keep construction working during a time of need,  but  also  collect  additional  income-tax  revenues  and  lessen  workers’  and employers’ dependences on costly programs such as EI and the TFW program.

A  labour-mobility  tax  credit  pilot  program  makes  eminent  sense  for  workers, employers  and  government  alike.  The  Canadian  Building  Trades  urges  this government to introduce such a measure in the 2012 federal budget.

Assumptions in attached Financial Scenarios -10% of the construction workforce in any geographic area travels more than 80km from principal residence to obtain employment six weeks of the calendar year -$3,500 is the average annual expense a skilled tradesperson incurs to obtain employment that is not reimbursed by the employer

(1 flight at 1,000, 4 vehicle trips at 300Km=1,200 km @.51/km = $612, 10 hotel nights at 88/night = $880) -the propensity to work is greater than the propensity to collect EI during those six weeks of unemployment -any tax benefit received from a  pilot project would be in the form of a tax credit at 15% of any eligible monies spent -Figures which outline provincial employment by industry were obtained from Statistics Canada and the Construction Sector Council:

References

[i]   Construction Looking Forward: An Assessment of Construction Labour Markets from 2011 to 2019. Construction Sector Council. P.14.

[ii] ibid.

[iii]Construction Looking Forward, p.19-20.

[iv]Construction Looking Forward, p.14.

[v] Working Local: A Study of Labour Mobility in Canada’s Industrial Construction Sector. Construction Sector Council. 2007. P.7-8.

[vi] For a detailed description of these costs, see “Key Assumptions” in the Appendix to this submission. vii Construction Looking Forward, p.18.

[vii]Employability in Canada: Preparing for the Future. Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities. http://www2.parl.gc.ca/CommitteeBusiness/StudyActivityHome.aspx?Cmte=HUMA&Language=E&Mode =1&Parl=39&Ses=2&Stac=2219738   Retrieved August 4, 2011