FINA Committee Report

SUPPLEMENTARY OPINION OF THE LIBERAL PARTY OF CANADA

We would like to thank the hundreds of individuals, businesses and organizations who took the time to share their experiences and ideas with the Committee. More often than not, their testimonies and written briefs called on the government to make substantive changes and introduce new policies in the upcoming federal budget. Despite these efforts, the recommendations adopted by the Committee still encourage the government to “continue”, “maintain”, or “reaffirm” its commitment to existing policies. By limiting its recommendations in this manner, the Committee has missed an important opportunity to provide the government with meaningful advice on how to address the economic and social challenges facing Canada.

JOBS AND THE ECONOMY

The most serious challenge facing Canada is the shrinking economic prospects of the middle class. According to Kevin Milligan, there has been “a hollowing out of the labour market” in Canada where “big slices of the population don’t benefit from economic growth.” EKOS Research has noted that fewer Canadians now identify themselves as “middle class”, and, for the first time, a majority of Canadians “feel they are worse off than their parents.” The Committee heard that Canadian middle-class families are struggling with stagnant incomes, and that increases in consumer spending are being driven by rising household debt, not rising incomes. According to Statistics Canada, the average Canadian household now owes a record high $1.66 for every dollar of disposable income.

One of the drivers of household debt accumulation is the parental subsidization of adult children who are not yet financially independent. Young Canadians have fewer economic opportunities today as they have generally been excluded from the recent economic recovery. Statistics Canada’s latest employment figures show that there are now 251,800 fewer jobs for young Canadians compared with September 2008 (before the recession). During that time period, the labour force participation rate of young Canadians fell from 68.1 percent to 63.2 percent and their employment rate fell from 60.5 percent to 54.8 percent. There are even fewer jobs for young Canadians now compared with July 2009 (the trough of the recession). Earlier this year, TD Economics estimated that the recession’s legacy of prolonged youth unemployment and underemployment will cost the Canadian economy $23.1 billion. They argued that high youth unemployment and underemployment can have a long-lasting impact on the career prospects of young Canadians by denying them marketable job experience. Media reports also show that young Canadians are being pressured into taking unpaid work in order to gain that job experience.

The most important thing the federal government can do to help the middle class is support the creation and preservation of good paying, Canadian jobs. Unfortunately, a number of the government’s current policies are doing the opposite and placing these jobs at risk.

One such policy is unnecessarily high payroll taxes. The Canadian Federation of Independent Business told the Committee that “payroll taxes have by far the greatest impact on growth. Why? Because they’re a tax on jobs.” Quebec Employers’ Council testified that high payroll contributions “(put) the brakes on investments and job creation.” Similarly, the Conservatives’ 2008 election platform stated that:

“…payroll taxes should not exceed the amount necessary to properly fund Employment Insurance because unnecessarily high payroll taxes are a tax on job creation. Lower payroll taxes encourage hiring and business expansion.”

Nonetheless, in September 2013, the government announced it is freezing EI rates at 1.88 until the end of 2016. According to the Parliamentary Budget Officer (PBO), the government is “(freezing) EI rates at higher than necessary rates in 2015 and 2016” resulting in “an estimated $4.2 billion in additional revenues” beyond the amount necessary to fund Employment Insurance. The PBO estimates the government could lower EI rates from $1.88 to $1.81 in 2015, and then to $1.59 in 2016, and still balance the EI account. Employers such as the Canadian Restaurant and Foodservices Association believe that lower EI premiums in 2015 and 2016 would be preferable. We agree.

In addition to competitive tax rates, good paying Canadian jobs depend on strong exports and the ability to attract foreign investment. Unfortunately, the government’s deliberate opacity on Canada’s investment rules is creating a chilling effect that is driving away investment and the Canadian jobs that go with it.  CIBC figures cited by Postmedia News show that, after the government announced its changes to the Investment Canada Act in December 2012, foreign investment in Canada’s oil and gas sector fell 92 percent and mergers and acquisitions fell 81 percent. In her appearance before the Committee, Ailish Campbell of the Canadian Council of Chief Executives called on the government to provide a “clearly articulated policy towards foreign direct investment”. We support this recommendation.

The government’s refusal to implement a meaningful plan on climate change is also placing Canadian jobs at risk. For example, CIBC estimates Canada is losing out on $15 billion per year in revenues due to a failure to move forward on the Keystone pipeline project and other bottlenecks in Canada’s pipeline capacity. Canada needs a sensible policy to reduce carbon pollution in order to secure the long-term access to export markets that Canadian economic prosperity depends upon. Therefore, we believe that the government should introduce and implement a meaningful climate change policy that includes placing a price on carbon.

Another risk to Canada’s economy is poor business succession planning. CIBC estimates that half of all Canadian business owners will leave or transfer control of their businesses within the next ten years. In recognition of this challenge, Regroupement des jeunes chambres de commerce du Québec called for “a measure that facilitates the transfer of Canadian businesses… and… (gives) young entrepreneurs access to business opportunities.” We agree that the facilitation of good succession planning would not only help strengthen the economy but could also provide young Canadians, in particular, with important economic opportunities.

EQUALITY OF OPPORTUNITY

Large groups of Canadians are being excluded from Canada’s economic recovery and are becoming more pessimistic about their ability to join the middle class. The key to ensuring their upward economic mobility and equality of opportunity is accessible, high-quality public education.

While education generally falls under provincial jurisdiction, the federal government helps fund public education through transfers to the provinces and territories and retains responsibility for education on reserves. In 2004-05, the federal government separated the Canada Health and Social Transfer (CHST) to the provinces and territories into two separate transfers: the Canada Health Transfer (CHT) and Canada Social Transfer (CST). The CST helps fund provincial and territorial post-secondary education, early learning and childcare, and other social programs. According to Finance Canada, CST transfers to the provinces and territories grew from $8.3 billion in 2004-05 to $12.2 billion in 2013-14, for an average annual increase of more than 5 percent. By way of contrast, federal funding for Aboriginal education is capped at 2 percent annually.

Numerous written submissions and testimonies called for greater financial support for Aboriginal education and skills training. In his appearance before the Committee, Chief Morley Googoo of the Assembly of First Nations noted that:

“Since 1996 federal funding in first nation education has been capped at 2% per year, despite a steady growth in both inflation and the first nation student population. Over the same period of time, provincial and territorial school systems have invested more than 4% per year, even though most systems have realized a significant decline in student enrolment.”

The Assembly of First Nations issued a fact sheet calculating the First Nations education annual funding shortfall at $747 million as of 2010-11. Similarly, former Prime Minister Paul Martin, as cited by TD Economics, estimated that on-reserve schools face a funding gap of $2,000 to $3,000 per student when compared with other remote and rural schools in Canada. We believe that it is unconscionable for the government to shortchange Aboriginal peoples by chronically underfunding their education.

Another area that is both key to equality of opportunity and chronically underfunded by the government is early childhood education. During the Committee’s study on income inequality earlier this year, TD Chief Economist Craig Alexander told the Committee that:

“The rate of return on the investment in early childhood education is enormously high. In terms of the rate of return, for every dollar you invest, most academic studies show anything from $1.50 to $2.50 of economic and social return, and if you focus on people from disadvantaged backgrounds, it’s quite possible to have a double-digit return. Within the OECD, Canada ranks dead last in terms of investment in this area at a mere quarter point of GDP.”

During the Committee’s pre-budget consultations, the Canadian Federation of University Women, Campaign 2000, First Call, YWCA Canada, Citizens for Public Justice, Canada Without Poverty, Canadians for Tax Fairness, Inuit Tapiriit Kanatami (ITK), and Professor Kathleen A. Lahey all called for the government to increase funding for early childhood education and care (ECEC) programs. We agree that the government should increase support for affordable, high-quality ECEC across Canada.

A scarcity of affordable housing also hurts equality of opportunity. Over the past few years, the government has refused to renew many social housing operating agreements as they expire. According to the Federation of Canadian Municipalities, 600,000 housing units are at risk of losing their federal funding as a result of expiring agreements. It is estimated that one-third of the families living in these units will be unable to afford their home once that support is cut off. The Canadian Nurses Association stated that:

“Housing is a metric for measuring to social infrastructure. It is directly connected to health and quality of life and contributes to employability and job retention. $500 million in social-housing funds are set to expire each year from 2014-2019. The federal government should commit to renewing this investment to prevent a deepening of Canada’s affordable-housing crisis.”

Numerous other organizations, including the Alberta Urban Municipalities Association, Calgary Chamber of Commerce, Co-operative Housing Federation of Canada, City of Edmonton, and City of London also called on the government to extend these agreements. We agree that these important investments in affordable housing should be extended.

Finally, the recent proliferation of non-refundable federal personal income tax credits is contributing to greater income inequality in Canada. In order to benefit from these tax credits, Canadian tax filers must earn enough income to owe federal income tax in the year they wish to claim the credit. By their very design, these tax credits perversely provide the least benefit to Canadians who need it the most. Fédération étudiante universitaire du Québec, Professor Kathleen A. Lahey, Canadian Centre for Policy Alternatives, Citizens for Public Justice, CARP, Council of Canadians with Disabilities, and Multiple Sclerosis Society of Canada either opposed some of these tax credits outright or called on the government to make them refundable so that low-income Canadians could also benefit. We believe the government should refrain from introducing additional non-refundable personal income tax credits until existing credits have been made refundable. More specifically, we agree with the Council of Canadians with Disabilities, CARP, and Multiple Sclerosis Society of Canada that the government should move toward making the Disability Tax Credit and Family Caregiver Tax Credit refundable. 

OMNIBUS BUDGET LEGISLATION

The government’s use of omnibus budget legislation is an abuse of process that prevents Parliament from fulfilling its proper oversight function. Since the 2011 election, the House of Commons Standing Committee on Finance has heard from countless individuals, business and organizations denouncing this government’s use of omnibus legislation. More recently, the Canadian Bar Association shared its concerns with the Committee:

The CBA has steadfastly objected to omnibus legislation like Bill C-4. Enacting important changes in diverse and unrelated subject areas in a single bill precludes meaningful comment and debate. 

We agree that the government should immediately cease its use of omnibus legislation.

RECOMMENDATIONS

The Liberal Party of Canada recommends:

1. That the federal government recognize the plight of young Canadians, who still face a significantly weaker labour market than before the recession, and introduce a youth jobs strategy that includes:

• a hiring tax credit to stimulate new employment for young Canadians;
• greater protection for vulnerable Canadians who are being pressured into taking unpaid work;
• a significant expansion of the Canada Summer Jobs program and the reopening of youth employment centres;
• a youth business mentorship program and new incentives to invest in young entrepreneurs; and
• a joint federal-provincial skills training program that reflects the needs and priorities of provinces, employers and workers.

2. That the federal government support job creation in Canada by lifting its freeze and allowing EI premiums to fall as soon as the EI account balances in 2015 (instead of keeping EI premiums frozen at an artificially high rate until the end of 2016).
3. That the federal government support job creation in Canada by providing an immediate clarification of Canada’s foreign investment rules.
4. That the federal government support job creation in Canada by reversing its decision to eliminate the Labour Sponsored Venture Capital Corporation (LSVCC) tax credit.
5. That the federal government support job creation in Canada by introducing and implementing a meaningful climate change plan that includes a price on carbon.
6. That the federal government consider extending Flow Through Shares (FTS) beyond the mining sector into other promising sectors such as clean-tech, bio-tech, and other high technology industries.
7. That the federal government recognize the economic potential of young Aboriginal Canadians and work in partnership with Aboriginal communities on a plan to ensure that every Aboriginal student has access to a high-quality education. As part of this plan, the federal government should eliminate the funding gap for First Nations-led K-12 education, increase financial support for Indigenous language and culture education, and remove the 2 percent funding cap on the Post-Secondary Student Support Program.
8. That the federal government support equality of opportunity by providing significant new investments in affordable, high-quality early childhood education and care (ECEC) programs.
9. That the federal government renew its social housing operating agreements as they expire. If the government insists on letting these agreements expire, the government should at least reinvest this funding in affordable housing programs.
10. That the federal government, in order to move toward a fairer and more just society, explore the cost and feasibility of making the Disability Tax Credit and the Family Caregiver Tax Credit fully refundable so that low-income Canadians are not deliberately excluded from these programs.
11. That the federal government, in order to move toward a fairer and more just society, refrain from introducing new personal income tax credits until existing personal income tax credits ― in particular, the Disability Tax Credit, Family Caregiver Tax Credit, Volunteer Firefighters Tax Credit, Children’s Arts Tax Credit, Children’s Fitness Tax Credit, Public Transit Tax Credit, and the education tax credits ― are made fully refundable so that low-income Canadians can also benefit from them.
12. That the federal government recognize the responsibility of parliamentarians to provide legislative oversight on behalf of Canadians, and cease its undemocratic use of omnibus budget legislation.