STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Monday, April 20, 1998
The Chairman (Mr. Maurizio Bevilacqua
(Vaughan—King—Aurora, Lib.)): I'd like to call the
meeting to order. The order of reference, of course,
is Bill C-36, an Act to implement certain provisions of
the budget tabled in Parliament on February 24, 1998.
This morning's session will allow us once again to
seek input from officials. Perhaps the best way to
proceed would be to invite those officials who will
deal with, say, parts 2 to 5 first, and
then we'll deal with the other sections accordingly.
I believe Bruce Rayfuse is taking care of parts 2 to
5. Is he here?
Mr. Bruce Rayfuse (Senior Chief, International
Finance and Economic Analysis Division, International
Trade and Finance Branch, Department of Finance): I'm
dealing with part 13.
The Chairman: Okay, we'll deal
with part 13, then, and if whoever is dealing with
parts 2 through 5 can make their way up, I'd
Prior to speaking, please identify yourselves.
Introductory comments were made last meeting, so we'll
begin with Q and A directed to Mr. Gagnon and
Mr. Waddington, Mr. Carrière and Mr.
Mr. Harris, if you want to begin with some questions,
we've brought back the officials because members of the
committee felt they required more time to question
them. They are here, and I hope the
questions are here as well.
Mr. Dick Harris (Prince George—Bulkley Valley,
Ref.): Mr. Chairman, I'll let Mr. Loubier start off.
You can put me on at the tail-end, please.
The Chairman: Okay.
Do you have a question, Mr. Loubier?
Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): No, not about
this part of the bill.
The Chairman: Not on this part? Okay.
Do you have a question, Mr. Crête?
Mr. Paul Crête (Kamouraska—Rivière-du-
Loup—Témiscouata—Les Basques, BQ): No.
The Chairman: Mr. Riis.
Mr. Nelson Riis (Kamloops, NDP): I have a question
relating to part 4, Mr. Chairman.
Before I begin part 4, though, I'm going to mention another
point. I guess it would be more of a point of order,
but I wanted to say first of all that this is not a new western
whine. Monday morning meetings are particularly
problematic for some MPs. I suspect that for most MPs
from central Canada, an early morning flight means
they're here between 8 a.m. and 10 a.m., but for those
of us who are fighting two or three time zones to start
with, it means we have to fly in a day earlier to be here
for this type of meeting. That's fair enough, Mr.
Chair, if there is flexibility.
Perhaps it's something we can keep in mind in the
The Chairman: Duly noted, Mr. Riis.
Mr. Nelson Riis: Mr. Chairman, on part 4,
relating specifically to two Indian bands, I'm curious
about the implications of these provisions when it
comes to casino operations. Indian bands in
British Columbia are now just about to receive
permission to start operating casinos. Does this
again lead into that type of potential for
collecting taxes on gambling?
Mr. Steve Gagnon (Senior Tax Policy Officer,
Intergovernmental Tax Policy Division, Tax Policy
Branch, Department of Finance): These
particular provisions are related to,
for example, a casino that is on a reserve and is
selling tobacco, alcoholic beverages or things
Mr. Nelson Riis: Would it simply take a similar
amendment to enable collection of revenues from gambling
proceedings in advance? Perhaps they could also refer
to part 6 of the bill.
Mr. Steve Gagnon: Part 6 deals with the
administration agreements, sure.
To date, we've been
dealing specifically with commodity taxes. The
government has expressed flexibility, provided that
the taxes are direct. I don't know
that any of the first nations in question
have a casino, or—
Mr. Nelson Riis: This provision obviously does
not permit that. What I'm suggesting, though, would be
something along these lines: in the event it is
decided that, in everyone's interest, a certain amount of
revenue ought to be collected from various types of
gambling activities on their lands, could that be done
particularly under part 6 by simply an agreement
between the central government and the first nation
Mr. Steve Gagnon: I'll let Yvon answer that in
case I get it wrong.
My own understanding is that in
order for part 6 to operate, there would have to be
some legislative basis for the first nation to levy the
tax. At this point, I guess you're asking what
future policy would be in terms of casinos. There isn't any
tax power that I'm aware of in place yet, and that would
come back before Parliament for
Mr. Nelson Riis: It would.
Mr. Steve Gagnon: We would require statutory
ability to do that, and it doesn't exist yet; at
least, it doesn't to my knowledge.
Yvon, did you want to add something?
Mr. Yvon Carrière (Counsel, Tax Counsel Division,
Law Branch, Department of Finance): Part
6 allows for an agreement to administer an existing
tax. It would not provide a
new tax. That's right.
The Chairman: Are there any further questions?
No? Any from the government side? Mr. Harris.
Mr. Dick Harris: I just have a question, Mr.
On this provision to allow taxation on the bands, were
there ever any votes taken among the band members to
say yes or no to whether or not they wanted this tax? Or was
it something that was imposed on them by the chiefs and
councils of the band without a vote?
Mr. Steve Gagnon: I don't want to use the term
“imposed.” The first nations in question did have
band council resolutions, but I'm not certain as to
what extent they required of their members a band
membership resolution, if that's what you mean.
Mr. Nelson Riis: Mr. Chairman, I would like to
rise on a point of order. Perhaps I can help Mr.
Harris on that question.
Actually, I can only speak...not necessarily
on behalf of or knowledgeably about the
Kamloops Indian Band, but
they held numerous public
band meetings to inform their membership of this
intention. They received, if you like, approval to
proceed with this initiative perhaps even three or four
years ago. I guess it has probably taken that long to
So while there wasn't a plebiscite or a formal vote
taken, the band membership was aware and had indicated
their support, through general public meetings, for
Mr. Dick Harris: The reason I was specifically asking if
there was ever a democratic vote among
the band members was that a public meeting's response
can be interpreted in many different ways, depending on
how the organizers of the public meeting want to
interpret it. In the country as a whole, we don't have
much choice of whether we have taxes or not, except at
election time. I would hate to see the imposition
of this tax on the band members without knowing whether
or not there
was a formal vote or resolution put forward to the
rank and file band members themselves.
Mr. Steve Gagnon: Yes, as I said, we had band
council resolutions. I don't believe, however, that
the government required formal membership resolutions,
on the basis that the band council is responsible to
the band members. They have elections fairly
regularly, so I suppose they're accountable in the same
way as, when the government passes a tax, the
electorate gets its say at the next election. It's
that kind of idea.
Mr. Dick Harris: Okay, thank you.
Mr. Yvan Loubier: Mr. Chairman, earlier on, I indicated that
we had no further questions, as I believed you were alluding to
parts 2 and 3. Since you were also referring to Part 5, I will
let my colleague Paul Crête ask a question specifically about
this part of the bill.
The Chairman: Sure.
Mr. Paul Crête: Part 5 pertains to Canada Education Savings
Grants. My question is twofold. First of all, could you clarify
for me the link between the proposed amendments to education
savings programs and the federal and provincial student loans
programs? What impact will these amendments have on the program,
on the method employed for loans allocation and on the amount
that will be made available to students?
Who stands to benefit from these changes? At first glance,
it would appear to me that students from low income families
whose parents do not earn enough to contribute to an education
savings plan would be deprived of a government contribution,
whereas students from middle and upper income families could
easily benefit from the maximum grant amount. Is my analysis
correct? If so, how do you plan to compensate for this fact?
Mr. Bill Murphy (Tax Policy Officer, Personal Income Tax
Division, Tax Policy Branch, Department of Finance): To answer
your first question, to my knowledge, there is no direct link
between the Canada Education Savings Grants and the Millennium
Scholarship Fund. Perhaps one of my colleagues can give you a
more detailed answer later on.
As for your second question, prior to the 1998 budget, it
seems that many middle and low income families took advantage of
registered education savings plans. These were families who tried
to put aside each month modest sums of money to finance their
children's future education. This is a fact. We want to encourage
all families to save for their children's post-secondary
education and training. Of course, we realize that different
families have different means and abilities when it comes to
savings, and that is why we have established an annual ceiling of
$2,000 in respect of contributions eligible for grant funds.
Many families have trouble saving money, particularly when
their children are young, and these families will be able to
carry forward any unused contributions up to an annual maximum
amount of $4,000. Therefore, if they are not in a position to
save when their children are still young, they can try to catch
up a few years down the road.
Mr. Paul Crête: Have you drawn up any tables or done any
evaluations? I maintain that it is extremely difficult for a
family earning $40,000 or less to sock away money in a plan like
this. I'm an MP, I have three children and I earn a good income,
and I know that saving money is by no means easy.
The grants provided for in this legislation are an added
incentive. Existing education savings plans have many loopholes.
People may have trouble determining if indeed the plans are right
for them. Occasionally, they may wrongly assume that if their
child does not go on to college or university, they will lose the
money invested in the plan. Things can get quite complicated.
I'm concerned that in the case of families where there is no
great motivation at the outset for children to pursue a higher
education, this type of financial assistance will not prove
attractive. How can families earning between $20,000 and $25,000
per year, and there are many families in this position, be
expected to come up with the money to invest in an education
savings plan when to begin with, this money is not tax exempt?
Contributions to the plan are taxable; only the interest earned
is tax exempt. Therefore, a person must already have a certain
amount of financial flexibility in order to be able to save this
kind of money. Have you drawn up any tables in an effort to
assess the impact of this initiative? For instance, do we know
which Canadians will benefit from this system or from these
changes and what income brackets these Canadians fall into?
Mr. Bill Murphy: You've asked several questions. First of
all, as I already indicated, even though we do not have very good
statistics, we do know that middle and low income families
already put aside some savings, either by contributing to an
education savings or some other kind of plan. By offering a grant
equivalent to 20 per cent of the contributions, the federal
government will be encouraging these families and increasing
their savings potential. As a result of these grants, their
savings will now grow faster. We don't have precise data on the
impact of this measure on families in different income brackets.
You mentioned the plan's complexity. We do know that parents
are currently saving money, whether through education savings
plans or some other scheme, while trying at the same time to save
for their own retirement. Their primary objective, however, is to
ensure that their children successfully pursue a post-secondary
education and often, they contribute less than they otherwise
would to their own RRSP in order to save in the short-term for
their children's education.
In the short-term, this means that they contribute less to
their RRSP. If, when the time comes, the child chooses to do
something else, parents can transfer the money from the education
savings plan to their own RRSP.
Of course, the purpose of these grants and education savings
plans is first and foremost to finance post-secondary education
and training for children, but if the grant funds and money
invested in the plan are not used for this purpose, parents can
transfer the balance in the plan to their RRSP.
Mr. Paul Crête: It would be interesting to have some figures
or a table indicating what percentage of families earning an
income that places them below the poverty line contribute to
registered education savings plans. For example, we could look at
the various income brackets, break down the information for every
$10,000 in income, to get some idea of the impact of this
initiative. Could you provide us with this information?
Mr. Bill Murphy: To my knowledge, this kind of breakdown has
not been done. When the 1997 budget was tabled, we realized that
we needed substantially more information and data on these plans.
Therefore, beginning this year, the companies that currently
administer these plans will be required to disclose considerably
more information to us.
Mr. Yvan Loubier: Mr. Murphy, you mentioned earlier that you
did have some figures and information, but that they were not
very precise. Nevertheless, we would like you to share them with
us. You stated that low and middle income families currently
redirect some of the money that they would normally invest in an
RRSP into education savings plans to address the more immediate
needs of their children. On what do you base this statement? We
would like to know—and this brings us back to the question that
my colleague asked earlier—who stands to benefit from this
initiative? Even though your information may be incomplete, at
least it would give us something to go on.
I also have a question for you. In which income bracket
would you put low and middle income families who sacrifice some
of their retirement savings to invest in their children's future
Mr. Bill Murphy: The data that we have was by and large
supplied to us by the companies that administer these education
savings plans. We would have to consult these private companies
and ask them if they could turn over that information to the
Mr. Yvan Loubier: Without giving us information by company,
surely you must have data from more than one company.
Mr. Bill Murphy: Yes, but it is aggregate data.
Mr. Yvan Loubier: Fine. This would provide a starting point
and support your argument.
Mr. Bill Murphy: Fine.
These companies were acting on the assumption that prior to
the 1998 budget, many people made modest contributions of between
$10 and $15 per month, for example. These amounts are well below
the ceilings currently in place. This is one other way of saving
money, and this leads us to believe that not only high income
families are making contributions to education savings plans.
Mr. Yvan Loubier: What exactly do you mean by low and middle
income families? What is your cut-off point?
Mr. Bill Murphy: I can't say exactly. Obviously, an annual
income of less than $60,000 is a modest income.
Mr. Yvan Loubier: I see.
The Chairman: Mr. Riis, and then we'll go to Mr.
Mr. Nelson Riis: On the $60,000 over the years, if
you're of low income or modest income, it really flies in the
face of...not that those are your figures. But I think
the previous analyses that have been done around this
table find that a lot of people are averaging income a
whole lot less than that—like in the $16,000 range. I
think it's fair to say that if a person is putting $10 or $15
a month into a registered educational saving plan,
you have to save for a long time before you can cover
one year's tuition.
But the reality is—and I know this is not your
program, you're just here to explain the existing one—I
think you've done us a service by suggesting there
have been changes, so in a family where the children do not
go on to post-secondary education, it does not
lose that benefit and can likely transfer it into
Wouldn't you say, though, the existing provisions
based on the track record to date...? We
know the number of tax filers who use this
particular provision and the levels of income and so
on, but really the people who probably need support and
assistance most to help provide for their children's
education are really not going to take much advantage
of this interest deduction. I think that's the line of
questioning you're hearing this morning. Would you
Mr. Bill Murphy: It's too early to say what
the reaction to the 1998 budget will be in that
When we talk about saving for
higher education, particularly prior to the 1998 budget,
the advantage of RESPs is the ability to save
relatively small amounts on a regular basis over a long
period of time.
Certainly starting to save from the time a child is
very important in making RESPs a success.
lot of people saving through RESPs will not be
able to finance 100% of the education of their children
for four years of
think we recognize that.
But people are saving in various ways now for
higher education for their children, and the Canada
education savings grant, working
together with the registered education savings plan,
is attempting to
to increase the success
of those savings—the 20% top-up—and provide
incentive for parents to contribute over a long period
of time, from when their children are young until
they're ready to go to higher education.
By saving relatively small amounts from an early age
and benefiting from the effects of compounding, a
family will be able to put aside a significant amount of
money if they do it on a regular basis and start
early. This Canada education savings grant will
The Chairman: Thank you, Mr. Riis.
Mr. Dick Harris: Thank you, Mr. Chairman.
If I can get back to part 4 again, I have to
assume that this is setting a precedent or could be a
blueprint for band taxes across the country. I just
wanted to know what kind of accountability mechanism is
in place to ensure that proper records are kept and
that the taxes are...I assume they go to the
government first, once they're collected, and then
they're distributed back to the band. That's what I
read here in the instance of the Kamloops Band.
ask this question because the Auditor General, in his
annual reports, has been very critical of the record
keeping and the financial accountability. In many of
the bands across the country, the record keeping, the
financial accountability has been far below acceptable,
and the Auditor General has pointed this
out every year.
Now, I know that Revenue Canada and the federal
government have tremendous powers to ensure that taxes
are paid from, if I can use the term, the rest of
Canada. What kind of accountability is in place that
would ensure that everything that needed to be done was
going to be done under this first nations taxation
Mr. Steve Gagnon: I guess I can deal with this
in two parts.
If I could use the Westbank Band example, Westbank now
has in place a tobacco tax. That tax will be collected
by Revenue Canada and periodic payments will be made to
Westbank throughout the year and at the end of the
Mr. Dick Harris: You say collected by Revenue
Canada, but Revenue Canada isn't going to be on the
reserve lands to collect the tax. They're obviously going to
go into a vendor—
Mr. Steve Gagnon: I'm sorry. Yes, that's true, like
the GST. You're right.
Mr. Dick Harris: Okay. Then it would be
submitted to Revenue Canada.
Mr. Steve Gagnon: Yes, that's right.
Mr. Dick Harris: Off the reserve, for any other
business that operates that way—and they all do—if
you don't pay your taxes, then Revenue Canada will have
you in court as quickly as they possibly can. However,
the legal aspect, as business people in the country in
regards to the legal part...in many cases it doesn't apply
to reserve residents. You cannot sue or seize property
from a reserve. So I'm just wondering what kind of
accountability is in place that would allow the proper
functioning of this.
Mr. Steve Gagnon: In this case Revenue Canada
will administer this tax as though it were GST,
including requiring production of documents and all the
enforcement mechanisms that go along with that.
Because this is a band-levied tax, I think we avoid some
of the kinds of things you were concerned about.
I think you were referring to provisions of the Indian
Act that prevent seizure of property. I
think you were referring to section 89.
As I recall, that is a provision that prevents the
seizure of property unless at the instance of the first
nation itself, the band.
So the plan is that Revenue
Canada will administer this as though it were GST and
as though it were GST anywhere else.
Mr. Dick Harris: But they can't apply the same
pressures to a business of a band that they could apply
to a business that was not part of a reserve.
Mr. Yvon Carrière: I understand that pursuant
to the memo of understanding that was signed between
Revenue Canada and the band, the band has agreed to
give all reasonable assistance to Revenue Canada to
ensure that the taxes are in fact paid and
Mr. Dick Harris: And that's my point. I'm sure
there are many bands in Canada that would eventually
enter into this, and that have entered into it, that
would be upholding the letter of accountability to the
best degree. However, on many reserves
the Auditor General has been very critical of the
accountability, the paperwork, the financial handling
of moneys, and that's what I'm concerned about.
Mr. Steve Gagnon: I'm sorry, I guess I've
divided this into a question of how the tax
would be administered...and then once the money goes to
the first nation, is that a separate question of
accountability that you're asking?
Mr. Dick Harris: No, I'm talking about the
responsibility of the vendors and the first nation
council itself to ensure that the moneys were turned
over to Revenue Canada and what happens if they don't.
Mr. Steve Gagnon: The vendors have the same
responsibility as they would on the GST. In the case
of Westbank, which is the only
agreement we currently have in place, the
responsibility to collect that tax is Revenue Canada's,
through agreement, so the band council itself doesn't have
a hands-on, day-to-day involvement with the collection
of the tax. It's Revenue Canada that does that.
Mr. Dick Harris: So if a corner store vendor in the
Westbank community doesn't remit their tax,
does that mean that the full facilities of Revenue
Canada that they can apply to businesses not on
reserves would apply to that business on the reserve,
the full powers that they have?
Mr. Steve Gagnon: That certainly is the intention
and that's our understanding, yes.
Mr. Dick Harris: Thank you.
The Chairman: Are there any further questions?
Mr. Paul Szabo (Mississauga South, Lib.): Thank
you, Mr. Chairman.
Mr. Murphy, with regard to the levels of income, there
was a report just done by the Government of Canada on the
1995 tax year, which reported that if you had an income
of $60,000 a year or more, you were in the top 10% of
income earners in Canada. Is that your understanding?
Mr. Bill Murphy: I don't have the facts. I don't
have the figures in front of me. Certainly $60,000 is
quite a high income for the average taxpayer, yes.
Mr. Paul Szabo: I agree. It's actually quite
surprising that the figure is at that level.
Mr. Bill Murphy: The figure...?
Mr. Paul Szabo: The 10% threshold is $60,000 a
Mr. Bill Murphy: With regard to a couple of
earlier questions, we're talking about middle and lower
income. There are people saving now with incomes as
low as $20,000 and right on up the scale—$20,000,
$25,000, $30,000, $40,000. So I wasn't intending to
imply that people were not saving at a lower level than
$60,000 or that $60,000 was some kind of average.
Mr. Paul Szabo: I just want to clarify this. I saw an
advertisement on television last week on...I think
it was the Canadian scholarship fund, and there were
graphics that depicted two piggy banks. One was
labelled RESP and one was labelled RRSP. It made the
bald statement that if you didn't happen to use the
RESP, if the child didn't go on to education, you
could roll it over—and it was just a bald “roll it
an RRSP, which I think is not in fact the case.
I want to be sure I understand the details.
First of all, the interest earned on an RESP is really
the only element that can be rolled over, provided you
have room, into an RRSP.
Mr. Bill Murphy: The capital goes back to the
contributor without any tax consequences. So they can
put that in their RRSP or any place else they choose.
Mr. Paul Szabo: They could choose to invest that.
Mr. Bill Murphy: Yes.
As regards the income, yes, the income can go
over to the RRSP, provided a bunch of conditions are met.
First of all, the plan has to have been running for at
least 10 years. The goal here is
to finance higher education of a child and, indeed, to
wait until it's clear that the child is not going to
want higher education before going the RRSP route. So
the plan has to have been running for 10 years.
All existing and previous beneficiaries have to be 21
years of age or older.
The individual in question who wants to make this
rollover has to be a Canadian citizen and they have to
have RRSP room.
There is also a limit on the amount
that can be rolled over by a beneficiary, a lifetime
limit of $50,000.
Mr. Paul Szabo: Under the program, if the moneys
are not used for education, the grant reverts to
the government. Any grants made under this program
would revert to the government, including any
attributed investment income that was earned on the
Mr. Bill Murphy: The grant returns to the
government. The investment income associated with the
grant remains with the other investment income and
therefore either goes with education assistance
payments or, lacking a child going on to higher
education, can become part of the amount that is
transferred to an RRSP or ultimately can go back,
subject to a number of conditions, to the individual
The reason for that is primarily simplicity, so that
it's not necessary for the RESP provider to track the
amount separately. But secondly, it's recognized that,
as I mentioned earlier, RRSPs are a secondary objective
of the program. It's recognized that people will save
first for the child's education, and probably reduce
their contributions to RRSPs in order to do so.
Finally, if it goes back directly, if the person in
question, the subscriber, has already exceeded or met
their RRSP contribution limits, it can go back to the
subscriber, but in that case it's subject to regular
inclusion of income and taxed at their
ordinary marginal tax rate, plus an additional 20%
penalty tax introduced in the 1997 budget to offset the
effects of the tax benefits of accumulation without
taxation over a period of time and to offset tax
Mr. Paul Szabo: Okay. The last question I want
to ask you is with regard to the age limit at which
RESP contributions can be made. Is that your area?
Mr. Bill Murphy: Yes.
Mr. Paul Szabo: For 1998, if you've already
attained your age of, I believe it is 17 years of
age, you can't make a contribution. Is that true?
Mr. Bill Murphy: As regards RESPs, generally there
is no restriction on contributions. Contribution can
be made at any time.
If we're talking about the Canada education savings
grant, contributions will attract a Canada education
savings grant up to and including the year in which a
child turns 17, with one exception. The exception is
for children turning 16 or 17 years old this
year—that's probably what you're referring to—and
there are a couple of conditions there. Unless
contributions have been made through RESPs in the past
for that beneficiary, by anybody, that either total
$4,000 from any subscriber on a cumulative basis up to
now, or unless contributions have been made of at least
$300 in any four previous years by any beneficiary or
any sum of beneficiaries, then the government will not
offer a Canada education savings grant to the children
who are 16 and 17 years old.
The reason for that is simply that the whole benefit
of saving through RESPs, the primary benefit, is the
ability to save and have tax-deferred income grow over
a long period of time. Essentially, if the children
are already 16 or 17, the amount of accumulation that's
going to take place before they're ready to go to
higher education is pretty small.
Mr. Paul Szabo: Okay.
Finally, with regard to the 18 years of age to be
eligible for the grant, at age 18 students are normally
in about grade 12—and I understand that some could then
commence college or whatever—but by and large, it seems
to me that the age 18, in all cases, wouldn't allow
students to have contributions made right up to and
including the last year of their pre-college or
Mr. Bill Murphy: As regards RESPs generally,
somebody can make contributions, everything else being
the same, when the child is 18 or 19 or 20 years old, or whatever.
The governing condition there is how long the plan has been
running—this is RESPs
generally; I'm not talking about the Canada education
One can both make RESP contributions during those
ages of the child and leave a previously accumulated
Canada education savings grant in there until the child
decides where they're going to go and what they're
going to pursue. However, the last year in which a
child can receive a Canada education savings grant is
the year in which they turn age 17, and that is, in
effect, the 18th year in which they could have received
Mr. Paul Szabo: Thank you, Mr. Chairman.
The Chairman: Thank you very much, Mr. Szabo.
We're going to give a couple of more questions to Mr.
Harris, and then we'll move on to the next sections.
Mr. Dick Harris: Thank you, Mr. Chairman.
Mr. Gagnon, once again, you've said to me that Revenue
Canada fundamentally has the same powers of enforcement
on reserve as off reserve, as far as ensuring that tax is
collected is concerned.
I want to ask you if you
could provide to me in the next few days the section of the
tax act or
legislation that says that the accountability
enforcement measures that Revenue Canada has would
apply to reserve businesses in the same way as it would
to off-reserve businesses. Maybe other members of the
committee would like to see that as well, if you could
provide that for me.
Mr. Steve Gagnon: Certainly.
Mr. Dick Harris: Thank you.
I have one more question, or actually two small ones.
In regard to the Cowichan band, which has had this
provision in place for a little while now, have there
been any audits done since the inception of this? If
so, what have been the results of the audits?
Mr. Steve Gagnon: The Cowichan tribes in last
year's budget were able to levy two taxes—a provincial-style
tobacco tax, if you will, and a GST-style tobacco tax.
They haven't implemented the GST-style tax yet,
so they're not levying that one. They're levying
the provincial-style one.
Mr. Dick Harris: Okay.
Finally, it says here it would affect Indian moneys
or funding for the bands “not immediately”. Is it
the intention of the government, through the Department
of Indian Affairs and Northern Development, that eventually
they would reduce the funding to these bands comparable
to the 7% tax that was raised at the band level? Is that
Mr. Steve Gagnon: The government announced,
in Gathering Strength—Canada's Aboriginal
Action Plan, that it does desire to develop,
with first nations, a new fiscal relationship.
In that context, one of the things that's trying to be
encouraged is generation of new sources of revenue,
So the impact of these new sources of revenue on funding
from the government will be taken into account
in the context of these broader discussions on
the fiscal relationship.
Mr. Dick Harris: Couldn't that be termed
“offloading”, in a way, offloading the government's
responsibility for band funding onto the rank and file
band members? I mean, a tax is a tax. If the band
is going to raise money by taxing its people
and then have their band funding eventually reduced
by a comparable figure from the federal
government, then the federal government is doing
to the bands what they've done to the provinces.
They've reduced their funding to provinces
and the provinces have had to raise that revenue
through taxes within the province.
Isn't this the same thing?
Mr. Steve Gagnon: As I said, those decisions
haven't been made, and there is going to be no
immediate impact. The first nations will participate
in the discussions. I shouldn't speak for first nations,
but presumably they'll be looking to make sure
that at the end of the day they're better off
in terms of overall financial aid than they are now.
Mr. Dick Harris: It seems to me that the people
who'll be better off will be the federal government,
not the first nations people.
Mr. Steve Gagnon: I don't know how to respond
to that except to say there are no immediate plans
to do what you're concerned about. Whatever does
happen will come after discussions with aboriginal groups.
Mr. Dick Harris: Okay.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Harris.
One final question, Mr. Crête.
Mr. Paul Crête: My question concerns part 1 where it says
that the scholarship foundation, not the government, will
determine the design and delivery of scholarships.
Suppose the foundation decides to award a certain percentage
of scholarships to students on the basis of merit or to allocate
scholarships on the basis of employment needs, for instance, by
awarding more scholarships in the fields of science and
engineering than in the humanities field. Under the legislation,
what justification is there for such action? Does the foundation
enjoy total discretion when it comes to awarding scholarships or
does the government have some say in the matter?
Based on our understanding of the bill's provisions and on
the information that we have received, the foundation could
decide to go quite far, and the federal government, much less the
provincial governments, wouldn't be able to do anything about it.
Its decisions could conflict with existing programs. What would
happen if a situation like this were to arise?
Mr. Andrew Treusch (General Director,
Federal-Provincial Relations and Social Policy,
Department of Finance): It would not be the Government
of Canada that would be making some of the decisions
you're referring to, sir; it would be the millennium
foundation itself. Of course, it will be governed
by the legislation before you, if it is passed by
Parliament. Part 1 of it in particular sets out
some broad aspects to govern the scholarships
to be awarded, but obviously the design and delivery
of it would very much be left up to the foundation itself.
The foundation will be administered by a board of
directors. The majority of the board of directors will
not be representative of the federal government, they
will be representative of the post-secondary education
community of Canada. Those appointments will be made
in consultation with the provinces and the post-secondary
There's a two-step appointment process whereby the
independence of the board is secured through an initial
appointment of members, again with only a minority of
members appointing the remaining members. This
safeguards the independence and arm's length nature of
the foundation itself.
The Chairman: Just as information for the
members here, we're now dealing with part 1. We're
going to deal with part 1 tomorrow as well, but since
you've initiated questions on it, members should
feel free to jump in if they want to.
Mr. Paul Crête: You've just confirmed to me that as the bill
is now worded, the federal government must allocate a substantial
sum of money to this fund. The foundation was established to
award scholarships on the basis of merit. We can either support
or oppose this principle, but this was the philosophy behind the
establishment of this foundation. As the bill is now worded, and
you yourself said so, the federal government has no control over
the disbursement of the funds, other than the fact that it
appoints the members of the Board of Directors. Once they have
been appointed, the directors have considerable operating
discretion. Their authority is not limited to administering
scholarships. They can also decide in which fields scholarships
will be awarded on a priority basis and make other decisions of
The bill provides for consultations between the foundation
and the provinces. Could you tell me where the obligation to
consult ends? Will the provinces have a veto right and will they
be able to say that a foundation initiative runs counter to their
programs? What does the bill say about this and what will happen
if the bill is adopted in its current form?
Mr. Andrew Treusch: There are several questions
there, sir. I'll try to do justice to them all, but I
may not be able to.
As you know, the foundation's initial endowment is
$2.5 billion, which is a considerable sum of money. It
is to be expended over a ten-year period, so annual
disbursements are estimated to be about $325
The purposes for which Parliament is being asked to
approve that expenditure are set out in subclauses 5(1)
and 5(2). Those subclauses indicate the parliamentary
objectives, if you like, of the scholarships. Those
purpose sections do indeed make reference to both
financial need and merit, the ultimate objective being
“to improve access to post-secondary education so that
Canadians can acquire the knowledge and skills needed
to participate in a changing economy”.
There's also a reference there to the fact that
scholarships should be granted “in a fair and
equitable manner across Canada.”
In doing so, the foundation is charged with
minimizing duplication and overlap, delivering these in
a cost-effective manner, and endeavouring to harmonize
with existing student assistance programs.
In that regard, there are a number
of means built in to ensure that
the foundation works closely with provincial
In particular, the legislation indicates
that there will be a role in identifying members and in
In the composition of the membership and in the
composition of the board of directors, provincial
authorities, as well as the post-secondary education
community more broadly, will play a role.
I know some consultations have been held already, and
they are ongoing as well, of course.
You also raised the question about accountability
to Parliament. The last time we testified
before this committee, we had an opportunity to
make reference to the accountability structures that
are built into the legislation on the millennium fund.
In particular, an annual report will be tabled before
Parliament that will include the audited financial
statements and various other aspects of information
that will be of interest to Parliament. There is
as well a requirement in there for a broader review by
the fifth year of the foundation.
The Chairman: Good.
Are there further questions? Go
Mr. Paul Crête: Last time, mention was made of
administrative charges which have been pegged at approximately 5
per cent of the foundation's budget. Have you done an evaluation
to determine how this money will be spent and can you share your
findings with the committee? For example, what portion of the
budget will go to finance the expenses of directors and what
portion will be used to cover administrative or fixed costs? Do
you have this information and if so, would you care to share it
Mr. Andrew Treusch: I'm sorry, I'm not able to
provide the committee with more specific information on
that. The 5% figure referred to was an
estimate we used in our preparations under the
budget. It was seen to be a reasonable estimate
for the magnitude of administrative expenses that would
It would entail administering
the scholarships, salary costs, administration costs
and so on. It seemed to be reasonable. We'll know
down the road, when the foundation is up and running,
whether that estimate turns out to be a little too high
or a little too low. But based on the information
available to us, that's the best estimate we're
able to make today.
The Chairman: Mr. Loubier, do you have a question?
Mrs. Christiane Gagnon (Québec, BQ): If you feel
administrative charges in the order of five per cent are too
high, what would you suggest as a solution?
Mr. Andrew Treusch: That will be up to the
foundation. It's actually stipulated under the
legislation that it is to make its best efforts to
deliver the millennium scholarships in the most
cost-effective manner possible. It's charged with doing
other thing I might add to the answer I gave last time
about factors to be considered is that a
foundation as large as this will have the
benefit of some economies of scale that are not
available to some of the smaller scholarship funds
The Chairman: Are there any further questions on part
1? It seems to be a part that will raise
a lot of interest.
Just to recap here, we've dealt with part 1
through part 6, I believe. We'll now move to deal
with parts 7, 8, 9, 10 and perhaps 11. If we're lucky
we might even get to part 12.
Who wants to go first? Mr. Harris.
Mr. Dick Harris: Mr. Chairman, speaking to part
7, quickly, can someone tell me the difference
between a cigarette and a tobacco stick, or are they the
Mr. Brian Willis (Senior Chief, Sales Tax Division,
Tax Policy Branch, Department of Finance):
A tobacco stick is a relatively new product. It was
brought out about 10 years ago, and it's a replacement
for the traditional fine-cut, roll-your-own product.
You'll remember, perhaps, that for the last hundred
years people have rolled their own cigarettes. The
tobacco companies tried to improve upon that. A
tobacco stick is, in fact, a pre-rolled type of
fine-cut product that is then inserted in a cigarette
tube to form what looks very much like a tailor-made
Mr. Dick Harris: Okay.
The Chairman: It's a major plank in his
Mr. Dick Harris: I didn't know. It leads into my
I have a question regarding the excise tax increase
and the numbers. I know the government has said this
tax increase is to discourage Canadians, particularly
youth, from starting to smoke, or to encourage them to
quit smoking. I wonder where and how you arrived at
the 60¢ figure and the $1.52 figure. Is there any type
of research that went into saying that if we increased
the cartons of cigarettes by 60¢, then we would see a
decrease in youth beginning to smoke or
a decrease in smoking?
It seems to me that if the government really wanted to
use price as a deterrent, it would have increased it $6
a carton and not 60¢. So I wonder where the 60¢ and
the $1.52 came from. Was it just dreamed up in a
coffee shop, or is there any rationale behind it?
Mr. Brian Willis: This all comes out of the tax
reductions of 1994. You'll recall that in the 1990,
1992, and 1993 period there had been major increases in
tobacco taxes, and a significant problem of contraband
tobacco had developed in Canada. So in 1994 there were
reductions in tobacco taxes.
Since that time what we've been doing is working with
the RCMP and the provinces to try to move tobacco
taxes back up in a manner that will not trigger a
renewed contraband activity.
You mentioned 60¢. That 60¢ is the federal excise tax
increase. The provinces in which we increased our
taxes by 60¢ also increased theirs by a comparable
amount. Plus, there would be the impact of the GST and
the PST, the provincial sales taxes. So in total, you're
looking at an increase in the range of $1.40 a carton
for the total price that the consumer sees.
The whole objective in moving those up is that the
government has indicated it wants to move the tobacco
taxes back up for several reasons. One is revenue,
obviously; and the second, as you mentioned, is health.
But it wants to do that in a manner that will not
result in a renewed level of contraband activity.
Since 1994 there have been a number of increases
jointly with the provinces, and the amounts chosen are
usually looking at all of the factors, to not set off
that kind of problem again.
Mr. Dick Harris: Okay. During this discussion in
the last Parliament—and I recall it very well—there
were some recommendations put forth by many people,
including the opposition parties, that if you wanted to
fight the contraband activity on cigarettes, you could
do a couple of things.
Number one was to go in and address the areas in which
the majority of contraband cigarettes were coming into
The second one was that at the same time you
increase taxes significantly on cigarettes bought in
Canada, you impose a comparable export duty on
cigarettes leaving the country so there could be no
profit gained from bringing them back into Canada
through the black market or by means of smuggling.
Those two solutions seem quite reasonable to a lot of
people across the country, yet the government thought
it would be able to decrease the criminal activity by
simply reducing the cost of cigarettes so that there
wouldn't be so much profit to be made. What happened
then was that we saw an increase in smoking, among
youth particularly, because cigarettes were so cheap.
a son in high school—and I'm thankful he doesn't
smoke—who tells me that even in B.C., where the
cigarettes are $5 plus for a pack of 20, the kids think
the price is a joke, and they have no problem buying
the cigarettes. If they cost $10 a pack it would
probably would have an effect.
You could increase the price of cigarettes—and I'm a
big fan of sin taxes in this case—if you were to
offset the price increase on your exports by putting an
export tax on so there couldn't be any profit. Has
anyone thought of that?
Mr. Brian Willis: In fact, all of the things
you've mentioned, plus a number of other things, have
been in place for a number of years. In the 1990s,
prior to the tobacco tax reductions, there were
significant increases in enforcement resources in order
to stem the flow of contraband, and that continued from
about 1989 through to 1994. We continued to augment
our enforcement resources, both in the RCMP and in
With respect to an export tax, there is an export tax
in place right now, and there had been for a period of
time through the early 1990s.
Mr. Dick Harris: But with all due respect, it's
not high enough to curtail the profit that can be made
by smuggling cigarettes back into Canada from the U.S.
The spread is too big, and that's where the criminals
receive their profit from.
Mr. Brian Willis: In fact, if you take a look at
the statistics, the levels of exports are below the
threshold of 3% that has been put in place, so in fact
there is not a lot of contraband coming across that is
Canadian-sourced product. You have to remember that an
export tax can deal only with a product that's produced
in Canada, and that is not the only source of
For a few dollars of difference a carton, an export tax
will be effective in discouraging the exporting of
Canadian cigarettes, but once a differential between a
Canadian price and the world price reaches a certain
level, Canadians have clearly demonstrated that they'll
smoke any cigarettes. They don't need to stick to
their own brands. So you wind up with the situation
where U.S. brands are being imported or even with the
situation where special production not normally sold in
Canada is being fabricated outside of Canada and
smuggled into the country.
The other option, the other possibility that we've
seen happening, is that you have illegal production,
even within Canada, of products that aren't normally on
It's a matter of the difference between the legal
price and the contraband price that the market will
bear. What we found in 1992, 1993 and 1994 is that
when you're talking about legal, fully tax-paid
cigarettes selling at $45 and $50 a carton and the cost
of non-tax-paid cigarettes on the world market or in
underground production at less than $10 a carton, it's
virtually impossible to sustain that kind of
difference. In that situation, too many Canadians have
decided—or had decided at that time—that they are
prepared to source their product elsewhere, not at the
Mr. Dick Harris: Okay. I have one last question.
Why is the extra tax already being collected when the
legislation is in fact before us at the committee right
Mr. Brian Willis: This is a long parliamentary
tradition that goes back to the English model of a
parliamentary system of budgets. Sales and excise
taxes have long been announced in the form of a ways
and means motion and put into place immediately. Part
of the rationale is that if you announce significant
tax changes and don't put them into force, there is a
very big opportunity for individuals to profit.
And that is particularly the case for tobacco, which
is one of the primary places where you will see
profiting taking place. Even at 60¢ a carton, the
wholesalers and retailers can reap a very significant
profit by adjusting their prices and by moving stock
around in advance of the effective date for an
announcement, so it has always been the tradition for
these taxes to come into force immediately.
What the government is seeking from Parliament is
implementation of these measures retroactive to the
date of the announcement.
The Chairman: Thank you, Mr. Harris.
Mrs. Christiane Gagnon: I have three questions concerning
the National Child Benefit. We know that the child benefit will
be calculated the same way as the current tax credit which totals
$1,020 per child. How many years has the tax credit totalled this
Mr. Keith Horner (Senior Chief, Social Tax Policy,
Department of Finance): I'm afraid I don't quite
understand the reference to $1,020—
Mrs. Christiane Gagnon: I was saying that the child benefit
would be calculated in the same manner as the current tax credit
of $1,020 per child. How long has the tax credit totalled $1,020?
Mr. Keith Horner: Thank you. I understand now.
That's a question I can't answer. It's a technical
question. The government decided, in the area of child
benefits and in other areas, that the first priority
in providing increased assistance was families
at the low-income end. The base child benefit
provides benefits to higher-income families as
well, families with incomes up to $67,000 for two
children and higher incomes for families with more
The question of when there might be an
increase that would increase the benefits to all
families with children is really a question of
priorities and fiscal room, not only in the area of child
benefits but also in the area of tax changes, such as
the surtax reduction and the increase in the basic
credit. Both those measures so far in this budget
have all been targeted at the low end.
There is a promise in the 1998 budget to further
increase child benefits by $850 million—$425 million
next July and the remaining $425 million in July of
2000. The exact profile of those increases, whether
they will all be devoted to families at low- and
modest-income levels or whether some of that money
may be used to increase the base benefit, are decisions
that aren't made yet, but there are further increases
in child benefits that have already been announced, or
at least moneys allocated for further increases.
Mrs. Christiane Gagnon: I know the minister has often said
that a child benefit is one way of fighting poverty. Is it true
that families who receive social assistance will no longer
receive additional support once the new child benefit is in
Mr. Keith Horner: This benefit increase and
restructuring to become the Canada child tax benefit
provides an enriched floor for federal and provincial
benefits. The idea of the change was set out,
in a booklet with the 1997 budget, as a
federal-provincial initiative. One of the
key goals for that idea was to try to provide
a more even level of benefits between social assistance
families and working poor families, or lower-income families
So it is true that to a considerable extent, the increase
in the federal child benefit will be offset by reductions
to social assistance, and then provinces that have made
those reductions will reinvest the moneys in further
child credits, in earned income supplements, in child care
initiatives, or in extending health benefits to low-income
families. Any moneys saved will go back to assist
I think it's important to note, in terms of talking
about social assistance families versus lower-income
working families, that there is a lot of movement back
and forth. So somebody who doesn't get a benefit
increase in July 1998 because the federal increase
is offset by a reduction in provincial benefits
may well benefit, in later months, for example,
by being able to move
off welfare while not losing health benefits
or losing income support.
Mrs. Christiane Gagnon: We know that there is a shortfall to
make up. Since benefits received are not indexed, what exactly
does this shortfall amount to? This is not a government measure.
I am also curious about the level beyond which indexation ceases.
Mr. Keith Horner: It's hard to provide
quantitative answers because the level of benefits
varies with income. But the enrichments that have been
provided in the last two budgets have increased
benefits for people with family incomes of under about
$26,000 by roughly 20%. So they've much more than
compensated for inflationary increases over the last
People at higher income levels have not had their
benefit levels indexed to inflation, and as I said in
response to your first question, as a question of
priority the government has chosen to put its
first moneys, as the fiscal position gets better, into
assisting lower-income families.
Mrs. Christiane Gagnon: I don't recall where exactly I saw
these figures, but it is estimated that approximately 850,000
low-income families do not receive the child tax benefit because
of the non-indexation provision. Are you familiar with this
Mr. Keith Horner: No. The benefit
goes to all families with children. It has a very high
coverage. All families with family income under
$26,000 are eligible for the increases in the last two
The Chairman: Thank you, Mr. Horner. Thank you,
Mr. Nelson Riis: Thank you, Mr. Chairman.
I'm not sure which witness I'm directing this to, but
can someone maybe explain the changes to the
Bankruptcy and Insolvency Act relating to student loans
and students declaring bankruptcy.
Mr. Andrew Treusch: Yes. As you know, Mr. Riis,
there were a number of changes proposed in the
1998 budget to the Canada student loans program. In
addition, I'd also draw your attention to the
new tax credit for the interest portion
of student loans. These, in conjunction with the
student loans program changes that include increased
interest relief and something quite new, the prospect
of debt reduction, as well as extended
amortization, are a series of measures that will help
students cope with their debt burdens, in particular if
the students are in circumstances of financial hardship.
In doing so, the government wants to provide all of
the incentives to ensure that students are repaying
their loans on a timely basis and to discourage
students who would take too easy recourse of bankruptcy
through discharge, particularly during the early years.
The legislation before you would extend this period
from two to ten years, in conjunction with the other
changes to the student loans program.
The Chairman: What percentage of students claim
bankruptcy with their student loans being the only
amount of money they owe?
Mr. Andrew Treusch: I don't have a percentage in
front of me here. I know that I regularly review
the statistics and see that there are quite a number of
bankruptcies where a student loan is part of the
bankruptcy proceedings—about 10%. But we would have
to get back to the committee with more exact figures if
that is wanted.
The Chairman: Okay.
I'll recognize Ms. Torsney first, then I'll go to Mr.
Harris and then to Monsieur Crête.
Ms. Paddy Torsney (Burlington, Lib.): We changed
the system a couple of budgets ago, where you could
start your payments on your student loan at 30 months
rather than 18, as I think it was before. Do we also
have a system where people who are paying, and then fall
on some kind of hardship, can delay their payments for a
while, so that we don't exacerbate a bad
situation and we will still collect our money, just
for a matter of six months for unemployment reasons
Mr. Andrew Treusch: Yes. When students graduate,
they are not required to make any payments on a student
loan for the first six months after graduation.
In the last budget, as you rightly point out, there
was an interest relief provision. That is the
provision whereby, if you
fall below a particular threshold, the test, you're not
required to make any interest payments on your student
loan. That period was extended from 18 months to 30
months in the 1997 budget.
In this budget there are several steps. First, the
threshold that relates graduates'
income levels to the size of their loans has been
raised by an average of about 9%,
so more people will qualify for interest relief in the
first place. Then a year down the road, when
administrative systems can be put in place, the
government will be introducing further interest relief
but on a graduated basis. This means that everyone who
falls below that initial threshold qualifies for a 100%
of interest relief, but persons higher up the income
scale will get a portion of their interest relieved as
In addition, after an individual in financial hardship
has used interest relief and still remains in a
situation of financial hardship, the student loan
administrators, working with the financial institutions,
can extend the period of the loan, the amortization
period, from 10 to 15 years. That can reduce monthly
loan payments by about 25%.
Finally, for those graduates in the most difficult
circumstances.... After all of these efforts have been
taken, there may still be some who are unable to meet
their payments and for those, for the first time, the
student loan administrators will be able to reduce the
outstanding debt by as much as 50%, or $10,000.
Ms. Paddy Torsney: Can I get some figures on what
kind of payments people are making and what kind of
level of debt they actually have—in other words, who's
falling in where? All the information you've
presented is terrific, and certainly we can get a sense
that things are a heck of a lot better for students
graduating with debt, or will be better, but I'd
like to see some dollar amounts. Are they paying
$150 a month on an income of $25,000 a year, and
they're left with so much debt? I mean, I'd like to see
some actual models.
Secondly, I'm not talking about students who need
debt relief or additional interest relief;
I'm talking about five years later, when you've been working
for five years, you've been making payments, and all of
a sudden you hit a hard time. I've had cases from a
number of years ago where they were told they'd have
their loans dismissed. Then things got better and they
moved along, and 20 years later, when they had
additionally gone through a period of hard times, they
were told “Guess what, you're going to start loan
payments again”, and they've had collections move in
on them. That's not a great situation.
What we should do is find some way they
can ask for six months' reprieve, or something, in the
middle of their payment stream. If they become
unemployed five years after graduating they can have,
say, two months or six months and start paying again
when they have another job. Do we have that kind of system in
place? Is there that much flexibility with the loan
officers and the banks?
Mr. Andrew Treusch: With respect to the
statistics, there are some statistics in the budget
materials on the size and growth of student loan
burdens. They have increased quite a bit.
Many of the figures you've seen represent the
average loan burden of a graduate
after completing a four-year program. Those are
higher than the average Canada student loan holder,
because many do not complete
four-year programs. So you will see two kinds of
With respect to the impact of these on students, I
know Human Resources Development Canada is very anxious
to communicate these new measures to students and
graduates. They are complicated, but they intend to
undertake a new communications effort in this regard.
That, as well, was covered in the budget.
We certainly can provide a great many figures on how
these various measures relate to individual students.
The problem we have is that it depends upon an
individual student's circumstances, in particular
whether they have dependants, the size of their loan
and their income. Knowing those three things, we can
explain how all the measures will work in quite an
exact way. The budget simply gives examples, but we
could provide more information, if that's helpful to
Finally, in the circumstances you raise where a
graduate finds himself in financial hardship some
time after he has left college or
university, the budget proposals for changes to the
Canada student loan program provide increased
flexibility with respect to interest relief over
the period of the loan.
So if there are changes in a student's financial
circumstances through the period of the loan, not
initially but one year, two years or three years down the
road, then the student loan administrators have the
prospect of providing interest relief.
Ms. Paddy Torsney: But interest relief still means
they have to make a payment this month.
Mr. Andrew Treusch: No.
Ms. Paddy Torsney: Okay. I would have thought
principal payments would be needed, but that's fine.
Mr. Dick Harris: I want to follow up on Ms.
Torsney's question. Interest relief is one thing;
principal relief or payment relief is another.
Are you saying interest relief means principal
relief as well?
Mr. Andrew Treusch: Well, no. There are those two
types of assistance offered by the budget. I don't
mean to mislead anyone. There are interest relief
provisions and there's what the budget calls debt
reduction, or you could choose to call it principal
relief. But if you're eligible for interest relief, it
means the loan just sits. You don't have to make
Mr. Dick Harris: On the principal.
Mr. Andrew Treusch: That's correct.
Mr. Dick Harris: Okay. The government pays a
risk premium of 5% to the financial institutions for
these loans. When this interest relief kicks in, will
the government also pay that to the financial
Mr. Andrew Treusch: Yes, it will, in respect of the
Mr. Dick Harris: Okay. As MPs we get students or
ex-students in our office all the time lamenting about
how the friendly collection company has been harassing
them on the phone, at work and whatever. I use
that term tongue-in-cheek. Quite frankly, these people
are under tremendous duress because of the
collection company's persistence in collecting the loan
on behalf of the bank.
Once a borrower exhausts the relief,
has received the debt reduction and still isn't able to
address the repayment of the loan.... This is a problem,
because the numbers show that young people
are dramatically underemployed in this country. There
simply aren't the jobs out there that will give
them a comfort zone in which to live and pay off their student
loans at the same time. It's very tough out there.
One could assume that with most borrowers,
by the time they get into trouble, the loan
reduction would be
such that they could work out a monthly payment
schedule that the borrower could actually live with, or
in the event that the borrower is still in financial
difficulty, arrangements could be made with
Well, that's sort of dreaming in technicolor,
because the lenders are not that friendly toward the
people who have outstanding student loans that have
gone into default.
I don't even know what my question is. I guess I just
wanted to make a point. The point is that while these
provisions may seem to give a measure of relief—I'm
sure they will—it's still leaving a lot of young
Canadians out there who have gone to school and got
these student loans who are having their state of mind
affected by the collection companies harassing
So I would say that maybe the government might put in
some sort of provision that would give the defaulted
borrowers a little bit of harassment protection from
the collection companies that work on behalf of the
banks, because they really are quite ruthless. I've
talked to them myself on behalf of students, and there
are some pretty nasty people at the other end of the
I didn't have a question. I'm sorry, I just wanted to
make my point.
The Chairman: Are there any questions or comments?
Mr. Paul Crête: Pursuant to clause 100 of the bill,
paragraph 15 (I) of the act in question would be amended to make
provision for the Governor in Council
(I), prescribing the circumstances under which a loan or a
certificate of eligibility may be denied to a student, or an
interest-free period referred to in subsection 7 (1) may be
terminated by the minister.
In the bill, the word "new" has been deleted. Why was this
change made and is there some connection or other with the high
number of bankruptcies being filed? Why does the current
legislation stipulate that the Governor in Council may deny a
student a new loan or a new certificate of eligibility, whereas
the bill refers only to denying a student a loan or a certificate
While you ponder the answer, I will ask my second question.
Part 11 of the bill concerns employment insurance premiums paid
by employers who hire people between the ages of 18 and 24. What
effect does the department believe this measure will have on job
creation? To find out if we share the same view, what impact will
this measure have in economic terms on a small business with 10
employees that proceeds to hire two young people just starting
out at a salary of $20,000 per year? What kind of tax exemption
are we talking about here compared to the salaries that will be
paid to these individuals?
Mr. Andrew Treusch: On the question about Canada
student loans, perhaps I could refer to my colleague,
Ms. Jo Anne Denis, from Human Resources
Ms. Jo Anne Denis (Acting Director, Learning
Programs and Policy, Department of Human Resources
Development): If I understood
your question correctly, you're asking about whether or
not the bankruptcy provisions impact on this clause
100. I would just explain that
clause 100 is going to set out some criteria whereby
the government or the minister may deny actually giving
a loan to a person for the first time ever.
If a person had previous student loans discharged in
bankruptcy, there are provisions in place in the
regulations already to deny that person a loan until
certain criteria have been met.
I hope I understood your question.
Mr. Paul Crête: I understand that there is a connection with
the shift from two years to ten years during which time debts
cannot be included in a bankruptcy case. The government does not
want the rights that a student loses on the one hand to be
recovered somewhere else. They are closing the door firmly. Isn't
that the reason?
Ms. Jo Anne Denis: No, the purpose of clause 100 is
totally unrelated to bankruptcy, actually. This clause
is going into effect to deal with the situation of
persons who have a history of severe credit abuse.
The financial institutions have been raising this as
an issue because a history of credit abuse is an
indicator of default. So it's unrelated to the
Mr. Paul Crête: That was true under the current provisions,
because we were dealing with new student loans. I can understand
that a student may be denied a new loan if in the past, he has
been guilty of abusing the program. In this bill, the word "new"
has been deleted. Theoretically, if I understand correctly, a
student who has never before applied for a loan may have his
application rejected for a reason not specified in the bill, but
which would most likely be spelled out in the regulations. Am I
Ms. Jo Anne Denis: Yes, that's it. On the basis of a
credit history, we will
deny a new loan or any loan to somebody who has never
applied for a student loan before.
Mr. Paul Crête: It might even be the student's first loan
application. Are you saying that you would have the right to deny
a loan to someone who has never before received one solely
because of his credit history?
Ms. Jo Anne Denis: That's right.
Mr. Andrew Treusch: You could consider the
circumstance of an individual with a severe history of
credit abuse. Perhaps they misrepresented their
financial circumstances in prior loans. Perhaps
they've had several credit cards and never paid the
Currently there's nothing under the legislation that
allows the administrators of the student loan program
to take this into account, and I believe this is a
concern of several provinces as well as of the federal
The Chairman: Thank you
Mr. Paul Crête: Do you have an answer to my second question?
Mr. John Manson (Senior Policy Analyst, Social
Policy Division, Department of Finance): You
were asking about the impact of the premium relief for
hiring additional youth and how this would create jobs.
The expectation is that this will provide some
incentive for a firm to hire additional youth. In the
case you were citing of someone hiring an
additional young person at $20,000 a year, this would
mean a saving of about $750 to the employer, compared
with what he would have had to pay were this provision
not in place. That's the incentive.
The Chairman: Mr. Harris.
Mr. Dick Harris: Thank you, Mr. Chairman.
Dealing with part 11, I was doing some numbers, and it
appears that based even on a $30,000 job in this age
category, in the first instance it would provide an EI
premium relief of $810 per year, and then in the year
2000 that would drop to a $780 employer premium a year.
While this may sound good, I can tell you that after
spending 25 years in business, there's no way $810
would encourage me to hire another employee if I didn't
need one anyway.
That leads to my question: what
type of research went into determining that this EI
premium relief would in fact create jobs? When was
this research done, and exactly how many jobs does
your research say it will create in this age
Mr. John Manson: I wouldn't say it was
research so much as some consultation. The spokesmen
for small business and others have said that they
have been quite pleased with the impact of the new hires
program that has been in place last year and this
This is modelled similarly to that, although it goes
right up the scale of employers and is not limited to
small businesses. To that extent, we have been told
that we can expect a positive response.
we're working at the margin here. We're not saying you
get an employee for free. We're saying you get an employee
with some incentive attached to him or her. For an
employer who is wavering on whether he should or should
not hire, someone who could use them but wonders if
they really could be afforded,
that's the employer who's going to make this decision.
Mr. Dick Harris: If I can, Mr. Manson, if my
memory is correct, small business in Canada accounts
probably for about 90% of the jobs in this country. I
have no doubt that the Canadian Federation of
Independent Business has reacted positively to it,
but I would think the positive reaction from their
business members would be that if they hired someone
in that age group, certainly the $800 EI premium relief
or tax relief would be well received.
The point I'm making is that I cannot for a moment
imagine any small businesses that would make a decision to
hire another employee based on getting this tax relief.
Rather, if their business demanded that they hire
another employee, they would certainly be willing to
take advantage of this tax relief.
What specific research was done that
points to some evidence that this EI premium holiday
would in fact
create jobs, that it would not simply be a nice break for small
business owners who would hire someone in that category
because their businesses demand that they hire?
The purpose behind this, as the government has
stated, is that it will help to create jobs. I want
to know exactly how it would help to create jobs based
on the research that was done before it was put into
this proposed legislation.
Mr. John Manson: I can't tell you that we have any
particular economic models or anything like that
to give us any figures for the numbers of jobs
created or expected to be created by this, because we
don't have them.
This is more in the nature of a challenge to the
private sector, which has said it would create jobs.
The government has put in place a measure that says
the private sector wanted lower EI premiums because it
positively to new hires. We have a particular group
here that we think is worthy of assistance, and we're
putting a measure in place to promote that. The ball
is now in the court of the employers. It's up to them
to respond positively.
Mr. Dick Harris: I understand that this
age group is certainly dramatic need of some help.
However, I can
assure you that if I were to leave this meeting and call
on a hundred small businesses in the downtown area,
saying that I would give them $810 to hire another
employee, the response would be that they'd only hire
another employee when their businesses demand it, not
because of your $800 cheque.
While the intentions may sound good,
it's my contention that this simply
isn't going to create jobs. I don't know why it's
held out as a job-creating tool. You have
just said that there has been no research and that there are
no numbers, so although it will be a nice break for a
small business or any business that hires someone, it's
not going to be an incentive to hire. If you
haven't done any research, you might want to.
Mr. John Manson: As I
said before, we are conditioned to think of
influences at the margin.
I expect that,
as you say, you may talk to a hundred employers and there
may be only a few for whom this will make a difference.
It is to say, though, that it will be for those employers
who are thinking of hiring but may have decided
they couldn't afford it or decided to postpone it that
this will make the difference. It's all operating at
Mr. Dick Harris: I suggest that the $800 isn't
going to do it. It'll be the demand on their business
and their opportunity to increase their business
through another employee that makes the decision to
hire someone, not the $800.
Mr. John Manson: No argument.
Mr. Dick Harris: Thank you.
The Chairman: We're going to go to Mr. Valeri,
who wants to jump into this. Then we'll go to Ms.
Redman and then have a supplementary from Mr. Riis.
Mr. Tony Valeri (Stoney Creek, Lib.): Thank you,
Mr. Chairman. I guess one would only hope that when
his colleagues are calling for a sizeable reduction in
the EI premium because it creates jobs, Mr. Harris
would stand up in the House and put forward the
arguments that he just put forward.
To shed some light and provide a broader context of
what this particular initiative was in fact attempting
to address, essentially it is the fourth element of the
Canadian opportunities strategy. What it was
meant to do was to try to provide some additional
assistance to youth because of the challenge they face
when they go out for employment. After going through the
educational process and all the other elements of the
Canadian opportunities strategy that provide them with
assistance, they go for a job and the answer is: no
experience, no job; no job, no experience.
So while I would agree with Mr. Harris that it is
not going to be the overriding reason why a particular
employer would hire a student, it may provide some
additional incentive to provide some initial experience
for a young person to thereby get a job.
It is really
in the context of the Canadian opportunities strategy,
this being the fourth element. It's not really out
there as the job creator. Really, the job creator is
going to be education. We believe skills and
education is the greatest tool that young people
need to have in their toolbox in order to get a job.
This is just one of the four strategies put in place.
Mr. Dick Harris: In response, that's exactly my
point. I think this money would be better spent in
training, in educating and in apprenticeship programs
that would equip students and young people to go out
and get jobs that would require a higher level of skill
in the marketplace. I don't think the $800 is well
spent in this particular instance.
Mr. Tony Valeri: I don't think we'd be able to put
an apprenticeship program in place for $800. This is
one element of a much broader strategy—
Mr. Dick Harris: I realize that.
Mr. Tony Valeri: —which does provide the skills
so that young people can go out there and get the jobs
they're looking for.
Thank you, Mr. Chairman.
The Chairman: Ms. Redman.
Mrs. Karen Redman (Kitchener Centre, Lib.): My
comments are very much along the line of Mr. Valeri's.
I would agree with Mr. Harris that I don't think this
is enough to make anybody run out and create a
position. However, it may cause somebody to target
young people, and I think that's the intent of it. In
itself, it will not create jobs, but what it might do is
cause employers to target young people who are in that
cycle of no experience, no job.
The Chairman: Thank you, Ms. Redman.
Mr. Nelson Riis: Mr. Chairman, the business lobby
always tells us that these payroll taxes are what's
hindering employment opportunities. I see this
as an issue for the government to test that model. Poor
Mr. Manson here has to justify this, and as he says,
there's little evidence to say this will work.
Perhaps what we should do to keep this discussion in
mind is, in a year from now, invite the
Canadian Chamber of Commerce and the Canadian
Federation of Independent Business to come before us
and tell us of a member or business that actually
hired three or four young people because of this
provision. If we can't find a single one in Canada,
then we should probably abandon this initiative. But at
least it's sort of telling them to give us some
evidence that this kind of a payroll tax reduction
actually is helpful.
The Chairman: Are there any further questions for
the officials? Mr. Harris.
Mr. Dick Harris: I have a final comment, if I may.
I agree with Mr. Riis' comments that certainly payroll
taxes have been a thorn in the side of Canadian
business for many years.
In response to Mr. Valeri, my point was that I think
the money could be better spent, better directed. I
don't think it's going to be enough incentive to hire
anyone, and if the purpose of this was to give
Canadian businesses a break on EI taxes—and I do
support that—then I would think the government might
want to look at the some $12 billion in EI surpluses
that I understand are sitting in the form of an IOU
right now. They might have given the employers overall
EI payroll tax relief, rather than this little crumb
that won't accomplish much.
The Chairman: Before we adjourn here, are there
any questions in reference to part 13 I gather we
have officials here who can deal with part 13.
So there are no questions.
On behalf of the committee, I'd like to thank
the officials. You've really been helpful in providing
us with valuable information about Bill C-36.
Members of the committee, as you know, we will
adjourn until Tuesday, at 9 a.m., in room 237-C, and
the issues we will be discussing
from witnesses will be part 1 and part 13—for
your nightly reading.
The meeting is adjourned.