FINA Committee Report
If you have any questions or comments regarding the accessibility of this publication, please contact us at accessible@parl.gc.ca.
Pre-Budget
Report by the Standing Committee on Finance
Supplementary
report of the Liberal members of the committee
The Liberal members of the Standing Committee would like to thank the hundreds
of Canadians who appeared before the committee as well as the hundreds more who
submitted written briefs through the Clerk.
Liberal members of the committee would also like to thank their colleagues from
other parties and the hard-working members of the House of Commons staff for
their diligent work in preparing this report.
While the committee was able to reach a majority consensus on many
recommendations, Liberal members feel that this supplementary report will
further enhance the completeness of the Pre-Budget Report and more
realistically address fundamental concerns that the Conservative government is
failing to address economic realities and potential hardships which face
working and retired Canadians.
Of concern to the
Liberal members of the committee was the large number of witnesses who made
submissions, and in particular those who did get a chance to appear before us,
who felt that prospects for certain sectors of the Canadian economy,
particularly manufacturing, agriculture, forestry and tourism, were less than
optimistic in 2008. This has heightened fears among groups representing social
issues which feel that Canada's social safety network could be threatened and
among environmental groups which fear businesses will not prioritize
environmental policies. Many other groups told us that any economic advantage
we've gained in the past on trade or even aid is slipping because Canada is losing that credibility around the globe.
Just a few short months ago the Minister of Finance was likening the Canadian
economy to, “The North Star, a bright light for others to follow.” He has also
made statements claiming that Canada’s economic fundamentals are, “As solid as
the Canadian Shield.
While the Liberal Members of the committee do acknowledge that this was the
case when this government assumed office in early 2006, the result of prudent
fiscal management by former ministers of finance since 1993 but a series of
missteps by the Finance Minister on issues such as personal taxation, federal
spending, income trusts and interest deductibility have made the Canadian
economy much more porous.
Liberal members of the committee would like to draw the Minister of Finance’s
attention to the fact that last year the manufacturing sector shed over 131,000
jobs. In the agriculture sector there are now 18,000 fewer jobs than one year
ago. This represents over 5% of the entire sector.
Numerous witnesses appearing before the Finance Committee emphasized that the
high dollar and slowing US economy would lead to continuing major job losses in
manufacturing, forestry, tourism and other exchange rate-sensitive sectors.
That is why Liberal Members criticize the Minister for his seeming indifference
to job losses in manufacturing, and his refusal to take direct action. In a
combination of laissez-faire and “I don’t care”, the Minister persists in his
statements that everything must be left to the market.
While the government often cites the number of jobs that were created in other
sectors of the economy in 2007, there is great concern among the Liberal
committee members that the Canadian economy only created one private sector job
for every seven government jobs created in 2007. While it is good to see that
different levels of government across Canada were able to hire a substantial
number of these laid off workers last year, this is simply not sustainable over
the medium term.
There is also concern among Liberal committee members that the rate of spending
increases by the Conservative government is quite simply not sustainable. It is
likely adding to inflation and, as such is doubtlessly one of the underlying
factors to the rapid appreciation in the value of the Canadian currency in
2007. According to the
2007 fiscal update, the government has increased program spending by 13.3 per
cent since coming to power, an average of 6.65 per cent per year. By contrast
over the 13 previous years of Liberal rule the rate of spending increased an
average of 2.2 per cent per year.
In the face of a struggling economy, the Liberal members of the committee must
question why the Minister has persisted in cutting the GST by two points
despite the fact that this is the least effective tax cut in terms of
increasing productivity levels.
According to Department of Finance, equivalent cuts to income taxes would have
offered roughly three times the benefit of the GST cuts in terms of improving Canada’s lagging productivity. Documents from the department show that the GST imposes a
marginal efficiency cost of $0.17 per dollar of tax revenue raised while income
taxes impose a marginal efficiency cost of $0.56 per dollar raised. From an
economist’s point of view it makes very little, if any, sense to cut the tax
that imposes a much smaller efficiency cost.
The only reasonable conclusion that the Liberal Members of the committee can
draw from the decision to allocate $12 billion dollars of fiscal room to a less
productive GST cut rather than income tax cuts is that the Finance Minister has
allowed politics to ride roughshod over the health of the Canadian economy.
The president of the Canadian Chamber of Commerce recently made a similar point
when he wrote, “Knocking another point of the GST may be politically
attractive, but it does not provide for improving our sustained economic
performance.
Clearly the minister and his government are on the wrong track going forward. Spending has increased imprudently. The wrong tax has been cut, reducing the ability of the government to cope with the demands of a slowing economy and while not helping working families in any substantive way. Income trust investors, the majority of the retired, have had their savings reduced by tens of billions of dollars. The currency, which the minister lauded as a “strong dollar” has eroded the country’s competitiveness and sucked off tens of thousands of jobs. On the cusp of an American recession, our country has lost maneuverability, the capacity to help its citizens and apparently its economic compass.
The Liberal members are also concerned that job loss, roiling financial markets and uncertain times will erode household confidence, consumer spending and have serious negative effects on the retail and real estate sectors. Today Canadians have the bulk of their net worth in residential housing,, and the recent experience of Americans is that a slide in real estate values can have a profound national effect. This, in our view, is a growing possibility.
Poverty
The committee heard from several organizations, such as the Poverty Reduction
Coalition, that the welfare wall continues to hamper the ability of many Canadians
to work their way out of poverty.
Other groups unable to appear before the committee, such as the National
Anti-Poverty Association and Make Poverty History, submitted briefings which
echoed the need to reduce poverty in Canada and around the world.
After considering their testimony, the Liberal members of the committee
recommend:
That the
government develop a plan to reduce poverty by 30% and, more specifically,
child poverty by 50% within the next five years.
That the government should create a Making Work Pay Benefit which would help
to lower the welfare wall ensuring that hard work pays for low income
Canadians.
That the government should improve the Canada Child Tax Benefit and support
working families by making the non-refundable Child Credit into a refundable
credit so that even people who do not pay taxes receive a benefit.
That the government should increase the Guaranteed Income Supplement payments
for the lowest income seniors, ensure that the loss of a partner does not drive
the surviving spouse below the low-income threshold, and encourage and reward
those seniors who choose to participate in the workforce.
That the
government implement the 2005 Kelowna Accord as agreed to by the premiers of
all the provinces and territories as well as the federal government.
Environment
The Committee heard from several environmental organizations such as the Sierra
Club of Canada, the David Suzuki Foundation, the Green Budget Coalition and the
Pembina Institute. Nearly all environmental groups that either appeared before
the committee or which made a submission to the committee called on the
government to put a price on carbon emissions in order to reduce the amount of
greenhouse gases produced in Canada.
After considering their testimony the Liberal Members of the Standing Committee
are convinced that the intensity based targets favoured by the government are
not an effective way to reduce the amount of greenhouse gases released in Canada. They therefore recommend:
That the government create a carbon budget for the largest 700 industrial
polluters across Canada. It would require those emitters to deposit $20 per
tonne of carbon above their carbon budget into a Green Investment Account. The
deposit rate should increase to $30 per tonne by 2011. Companies that invest in
green technologies should be able to retrieve up to 100% of the money they have
deposited into their Green Investment Accounts. Money left in the account for
two years should be given to the provincial government in which the company is
located with a view to investing in green related projects.
That the government allow companies who are below their carbon budget to trade
unused credits to other firms located in Canada. Companies should also be
allowed to buy project based Kyoto-certified international emission credits to
offset up to 25 per cent of the amount they are required to deposit into their
Green Investment Account. The companies should not be allowed to purchase
“hot-air” credits.
Manufacturing sector
Liberal Members of the Committee were pleased that other committee members
agreed to hear from members of the manufacturing, forestry, tourism and retail
sectors about the effects of the high Canadian Dollar and the slowing US economy on their operations. Witnesses indicated to the committee that the troubles and
job losses these sectors experienced in 2007 are only the tip of the iceberg.
As Jim Stanford, Chief Economist of the Canadian Auto Workers Union, told the
committee, “If the Canadian dollar stays anywhere near parity with the U.S.
dollar in the medium term, I project another 300,000 manufacturing job losses in
the next two to four years.”
In light of the fact that the manufacturing sector lost 33,000 jobs in the
month immediately following Mr. Stanford’s testimony, the Liberal members of
the committee recommend:
That the government create a $1 billion Advanced Manufacturing Prosperity
Fund (AMP Fund) to support major investments in manufacturing and R&D
facilities. The criteria for accessing the funds should include leveraging
significant private investment, and in so doing create jobs; attracting
significant secondary industries: suppliers, services, and other support
businesses; and help position Canada as a leader in the manufacture of greener
technologies and products.
That the government should make the Science, Research and Experimental
Development (SR&ED) tax credit partially refundable, allowing companies to
take advantage of the tax credit, even if they are not profitable in the short
term.
Income
Trusts
The committee heard from several groups regarding the government’s decision to
tax income trusts.
It is the view of the Liberal members of the Committee that a full 15 months
after the government broke its promise not to tax income trusts, it has still
not proven its allegation that income trusts cause tax leakage. Further it is
the view of the Liberal members that the income trust tax has led to a rapid
buyout of the sector, largely by pension plan and foreign private equity groups
that pay little to no tax in Canada.
The Liberal Members of the Committee recommend that:
The government replace the current income trust tax scheduled to come into
effect in 2011 with a 10% tax that be made refundable to Canadian investors.
Furthermore, in light of the confusion that has been created, especially in the
Real Estate Investment Trust sector, the Liberal members of the committee
recommend that:
The government clarify the income trust guidelines issued by the Department
of Finance on 15 December, 2006.
Finally, as the government has failed to show the methods and calculations it used to claim that income trusts cause the federal treasury $500 million of tax leakage each year, and seeing as to how this unproven claim was used as the justification for breaking the government’s election promise not to tax income trusts, the Liberal Members of the committee:
Call on the Auditor General to examine the veracity of the government’s claim that the income trust sector cost was costing the federal treasury $500 million per year.