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.
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 Employers will benefit from access to larger pools of
qualified workers, In exchange for
modest, short-term per-worker losses of tax
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
MEASUREMENTS OF QUALITATIVE SUCCESS
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:
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
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