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I call to order this meeting number 32 of the Standing Committee on Finance. Pursuant to the order of reference of Tuesday, April 8, 2014, we are studying Bill
We have two panels here this afternoon. We are very pleased to have the Hon. Joe Oliver, Minister of Finance, in his first appearance at this committee.
Welcome, Minister, to the finance committee. We are very pleased to have you.
We are also pleased to have two officials from the Department of Finance who are well known to all of us, Mr. Brian Ernewein, the general director of the tax legislation division of the tax policy branch, and the ADM for the financial sector policy branch, Mr. Jeremy Rudin.
Welcome back to the committee, gentlemen.
Minister, welcome to the committee. You have an opening statement and then we will have questions from all members of the committee.
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Thank you very much for the opportunity to appear before the committee for the first time in my new role, to discuss economic action plan 2014.
I would like to provide a brief overview of the objectives of Bill and highlight some of its key initiatives.
This is our government's 10th budget since 2006. Over that period, our country has been confronted by unprecedented economic challenges from beyond our borders. With the help of our economic action plan, Canada's economy has seen the best economic performance among all G-7 countries in recent years, both during the global recession and throughout the recovery.
[Translation]
Nearly a million net new jobs have been created since July 2009; we have the best job creation record in the G7. Over 85% of those new jobs are full time, and over 80% are in the private sector. Some two-thirds are in high-wage industries.
However, in light of ongoing global economic uncertainty, Canada cannot rest on its laurels. That is why economic action plan 2014 focuses on creating jobs and the right conditions for long-term economic prosperity while remaining committed to returning to a balanced budget in 2015.
[English]
To that end, this government understands, as do most Canadians, that balancing a budget takes a sound fiscal plan and discipline. The budget will not balance itself. Balancing the budget keeps taxes low and ensures that government services are sustainable over the long-run. It also gives us the flexibility to deal with the unexpected, like the recent economic shocks we've had to overcome.
Our government has not wavered from our objective, and it has cut the deficit by nearly two thirds since the economic downturn. Our goal is now within sight. Including the measures announced in economic action plan 2014, we expect to realize a surplus of $6.4 billion in 2015-16, including a $3-billion amount, an annual adjustment for risk. Unlike previous governments, we are not returning to balance by raising taxes on Canadians or cutting transfers to persons or to other levels of government. In fact, major federal transfers to provinces and territories for health care and social services will reach a record high of almost $65 billion in 2014-15, an increase of over 50% since 2006. Instead, we have focused on controlling the size and cost of government. Overall, since 2010, our actions are saving taxpayers roughly $19 billion every year. That is economic leadership and a testament to my predecessor the late Jim Flaherty.
Canada has the lowest overall tax rate on new business investment in the G-7.
[Translation]
However, to achieve Canada's full economic potential, we have to ensure that Canadians have the skills they need to succeed in today's economy and be first in line for available jobs.
To increase responsiveness of training to labour market needs, the Canada job grant will be implemented this year, placing skills training decisions in the hands of employers. This will be the cornerstone of new labour market agreements with the provinces and territories.
[English]
Bill takes further steps to ensure that federal programs are directed towards meeting labour market requirements. They include strengthening the labour market opinion process to deter employers from breaking the rules with a system of administrative monetary penalties for employers of foreign workers, and supporting the successful implementation of an expression of interest economic immigration system.
The government has increased Canada's openness to trade and investment, promoted business competitiveness, and strengthened the financial sector. Today's legislation builds on this foundation by cutting red tape for more than 50,000 employers, by reducing the maximum number of required payments on account at source deductions, and reducing barriers in the international and domestic flow of goods and services.
[Translation]
Natural resource economic development projects are a major source of job creation in all regions of Canada. Our natural resources sector represents 18% of our economy, supports 1.8 million jobs directly and indirectly, and generates some $30 billion per year in government revenues.
Bill is in line with our government's responsible resource development plan because it supports mining exploration by small companies by extending the 15% tax credit for flow-through share investors for one year and eliminating tariffs on mobile offshore drilling units.
[English]
Mr. Chairman, I would like to turn to the financial sector. It plays a fundamental role in transforming savings into productive investments in the economy. Bill proposes new initiatives that will build on Canada's financial sector advantage.
First, our government is at the forefront of the global fight against money laundering and terrorist financing, and implementing measures that safeguard the integrity of Canada's financial system and the safety and security of Canadians. That is why Bill will enhance the ability of the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC, to disclose to federal partners threats to the security of Canada.
Mr. Chairman, while Canada's financial system has been rated one of the soundest in the world, it has the only capital markets regulatory system in the world that does not have a single national securities regulator. Critics of the current system believe that it is overly complex, inefficient, and a barrier to foreign investment in Canada, and they are right.
That is why, last September, our government and the governments of British Columbia and Ontario, agreed to establish a cooperative capital markets regulatory system. The cooperative system will better protect investors to enhance enforcement, support more efficient capital markets, and more effectively manage systemic risk. Our government invites all provinces and territories to participate in the implementation of the cooperative system.
Bill includes a measure to make payments to participating jurisdictions that will lose net revenues as a result of the transition to the cooperative system.
Finally, Mr. Chairman, our legislation builds on previous actions by our government to support families and communities, and improve the quality of life for hard-working Canadians. Specifically, Bill C-31 proposes to increase the maximum amount of the adoption expense tax credit to $15,000 to help make adoption more affordable for Canadian families.
The bill would also introduce a search and rescue volunteers tax credit, for search and rescue volunteers who perform at least 200 hours of service in a year.
It proposes to exempt acupuncturists and naturopath doctors' professional services from the GST/HST.
It would also expand the current GST/HST exemption for training that is especially designed to help individuals cope with a disorder or disability.
And finally, it would enhance access to employment insurance sickness benefits for claimants who receive parents of critically ill children and compassionate care benefits.
In summary, the economic action plan is working. It's creating jobs, keeping the economy growing, and returning to balanced budgets. By staying the course, and sticking to our proven economic action plan, Canada remains on track for a more prosperous future.
Now I invite questions from the committee. Government officials have also joined us today to answer any questions you may have about this bill. Thank you very much.
:
Thank you, Mr. Chairman.
Welcome, Minister. It's your first appearance at the finance committee, and the chairman's been very kind so far. He has a mean streak, I'm just warning you.
Minister, we have a great record of tax relief in Canada and a great record as a government, with nearly $3,400 per family in personal income tax relief having been provided, a low corporate income tax rate, and a low business income tax rate. At the same time, there's always more to do.
Here, I think one of the really successful pieces in this budget was the search and rescue volunteers tax credit. Often this type of legislation is overlooked, quite frankly, but in this case it gives back to the community. We depend upon these individuals in rural Canada. Often they can't, in a small fire department or a small search and rescue unit, get enough volunteer hours to actually qualify for the tax credit. So can you explain the changes that budget 2014 brings down, that economic action plan 2014 brings down, to really help these individuals?
Thank you, Minister, for appearing here before us again today.
Sir, in my neck of the woods, Chatham-Kent—Essex, soon to be Chatham-Kent—Leamington, of course, we are deeply involved in the auto industry, and it's an important part of our industry. As long as I've been on this committee and the industry, science and technology committee, when we speak to the merits of the auto industry, one of the problems and one of the solutions they look for is harmonization. Given that we trade with our largest trading partner and that we build so many of their cars, the lack of harmonization is something that always causes problems in that industry.
I refer now to the Motor Vehicle Safety Act, which is part of this budget implementation. I'm wondering if you could maybe just elaborate on that, just tell us about that and tell us why that's important. What will that do to help the industry and Canadians in general?
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Our Conservative government believes in keeping Canadian families strong, and that's why our budget introduces several key measures to help Canadian families. They include enhancing flexibility and access to employment insurance sickness benefits for those who receive the parents of critically ill children and the compassionate care EI benefits.
The objective is to ensure that they get the support when they need it most. We're also increasing the adoption expense tax credit to further recognize the unique cost that the family incurs when adopting a child. We're removing the GST and HST on more health care products and services, to include acupuncture and naturopathic services, eyewear specially designed to electronically enhance the vision of individuals with vision impairment, and special training to help individuals cope with the effects of a disorder or a disability. And we're expanding tax relief under the medical expense tax credit to include costs associated with service animals that are trained to help people with diabetes and with specialized therapy plans to help individuals cope with the effects of a disorder or a disability.
These measures build on our Conservative government's strong record of support for Canadian families. For example, since 2005, we've reduced the GST from 7% to 5%, putting more than $1,000 back in the pockets of an average family. We've introduced the universal child care benefit, offering families more choice in child care by providing $1,200 every year for each child under age six; and we've introduced the family caregiver tax credit, a credit of up to $2,000 for caregivers of all types of infirm, dependent relatives, including spouses, common law partners, and minor children. Overall, our strong record of tax relief means savings of nearly $3,400 for a typical Canadian family of four this year.
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Thank you very much, Mr. Chair.
Thank you, Minister, for being here on your maiden voyage in the finance committee.
I'd like to continue on the line of questioning on the Foreign Account Tax Compliance Act. The fact is that FATCA is a U.S. law, so it affects some 7.8 million American citizens who are living anywhere outside of the U.S. I understand there are 29 or 30 agreements that have been signed between the U.S. and other countries on this. So, I understand the concern in all of this. At the end of the day, it is a U.S. law and it was brought in. Two of the major supporters of this were Republican Senator McCain and Democrat Senator Feingold, who were major supporters of this in the U.S.
I recall a conversation that took place when we were in Washington a month or so ago, during which we asked the Treasury officials about this, and we registered some of the concerns of our Canadian citizens. Their message to us, very clearly, was that Congress has spoken, and that this has been the U.S. law since 2010. So, can you clarify some of the misconceptions around this? I'd like you to reinforce the messaging with respect to just what would have happened if we had not signed this intergovernmental agreement, and what the implications would have been to the banks, the investors, and Canadians who are in the U.S. banks.
FATCA and the subsequent intergovernmental agreement raised a number of concerns here in Canada; however, the intergovernmental agreement, or IGA, addresses these concerns by relying on the existing framework under the Canada-U.S. tax treaty. The exchange of information between Canada and the U.S. is already a long-standing practice authorized under article 27 of the Canada-U.S. income tax treaty, and it includes rigorous safeguards with respect to the use of exchanged information. This agreement is consistent with Canadian privacy laws. That was one of the issues raised.
Let me remind members again, as I did a few moments ago, that without the agreement, Canada's financial institutions would still have to comply with FATCA. Obligations for Canadian financial institutions would have been unilaterally and automatically imposed on them by the U.S. That would have required banks to report information directly to the IRS, and potentially deny basic banking services to clients. Both banks and their clients would have been subject to a 30% withholding tax. However, with the agreement in place, this will not happen. The CRA will not assist the IRS in collecting U.S. taxes, and—this is very important—no new taxes will be imposed. Nor will financial institutions in Canada report any information directly to the IRS. In our negotiations, we obtained a number of concessions, including exempting certain accounts—like RRSPs, RDSPs, TFSAs, RESPs, registered pension plans, and much more—from FATCA reporting. Smaller deposit-taking institutions like credit unions with assets of less than $175 million will also be exempt from reporting.
legislates key aspects of the budget, which is a prudent responsible plan to control spending and will help lead to the balanced budget in 2015. Our responsible fiscal position is key to economic growth and job creation for the long term.
We have reduced direct program spending for the third year in a row, something that no other government has done in decades. We've eliminated waste to decrease the cost of government, without cutting programs that Canadians depend on. The deficit has been reduced by almost two-thirds since 2009-10 and is projected to fall to $2.9 billion this year. A surplus of $6.4 billion is expected next year, after taking into account a $3-billion contingency fund.
There are significant advantages to a balanced budget. It further positions Canada as an attractive place to invest and expand business. It instills confidence in consumers and investors by helping to keep interest costs low. It means tax dollars are used for important social services, not for interest payments. It strengthens the country's ability to respond to longer-term challenges, such as population aging and global economic shocks. It allows for further tax cuts, fostering economic growth.
Nevertheless, balanced budgets are not an end to themselves; they're a means to an end, and that end is a better, more prosperous future for all Canadians.
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Most of us here can handle the last century. I'm talking about 2014, right?
So there's nothing new here. I live in a part of the world where, quite frankly, there are a lot of American citizens, quite a few dual citizens, and some American citizens by accident who happen to have been born in the U.S. I think we have to look at reality here. The idea that somehow this is going to affect us all is simply not true. It's not going to affect us all. This was targeted because Americans base their tax compliance on citizenship and not on residency. Obviously, if you're a Canadian citizen living in the States and have a residence and investments there, you're going to pay taxes in the States, but to make sure that their citizens are compliant with their taxation regime.... This is not something that the Canadian government made up. This is something that the Americans decided a long time ago and are enforcing.
For us to suggest that somehow we're complicit in this is further out there than I can think. Quite frankly, we have no right under the law to interfere in American tax legislation. Am I incorrect in saying that? What right does Canada have to tell the Americans how they're going to write their tax policy? We don't have to think it's the right thing to do. We don't have to agree with it, but quite frankly we have no right to intervene. There are individuals—again in my part of the world, many of them are friends of mine—who are dual citizens. They're dual citizens, though, for a reason. They're dual citizens because they either work in the States, they cross the border on a regular basis, or they have investments in the U.S. With that dual citizenship comes some responsibility to comply with the American tax rules. So this is not about the Canadian name on the passport. It's about a dual citizen who happens to be an American as well and who, therefore, have to comply with American tax rules. Is it more complicated than that or am I oversimplifying it?
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Thank you very much, Mr. Allen.
I want to thank the officials for being here. The parties have been very helpful. They've identified priority sections for them. Two parties have identified division 1, in part 6. I'll ask division 1 officials to come forward for Veterans Affairs.
The next division—I'm going to jump around a bit—will be division 20. I would ask division 20 to be ready.
I'm trying to do as many as I can by 5:30. The divisions that the parties have asked for are 1, 12, 14, 20, 23. Therefore, all the other officials are free to go at this time.
We'll start with 1, and we'll do 20 and 29 as well. That's 1, 12, 14, 20, 23, and 29.
We want to welcome Mr. Butler to the committee. Thank you for being with us today.
I'm going to go right to questions.
Mr. Cullen, please.