Hon. Jim Flaherty (Minister of Finance):
Thank you, Chair.
I will make my comments relatively brief to allow sufficient opportunity for the committee's questions.
First, before I begin, let me congratulate the chair and all of the members of the finance committee for their ongoing and comprehensive work over the past few months looking at potential ways to encourage more charitable giving in Canada with new or improved tax incentives. I look forward to reviewing the committee's eventual findings and recommendations.
I am here today to address the committee on the subject of Bill C-38, the Jobs, Growth and Long-term Prosperity Act. The purpose of this important bill is to implement key measures in the 2012 economic action plan that will contribute to the growth of Canada's economy not only in the years to come, but also for future generations.
When talking about why today's legislation is of such importance, we must always consider our place in the global economy.
First, overall Canada's economy has been doing relatively well. Job growth in Canada has been the strongest in the G-7, with over three-quarters of a million net new jobs created since the end of the recession in July 2009. Moreover, 90% of these jobs are full-time and over 80% are in the private sector. Economic growth in Canada, as noted by independent organizations such as the IMF and the OECD, is forecast to be at the head of the pack of G-7 countries in the years ahead. Fiscally, Canada remains in an enviable position with by far the lowest net debt to GDP ratio in the G-7.
As Scotiabank chief economist Warren Jestin recently declared, “When you look at what exists in Canada, this is...the best country in the world to be in.”
But it is the rest of the world that we must be mindful of, always remembering that we are never immune from the fragile global economy. In Europe, tremendous and ongoing challenges remain, as we are reminded far too frequently. In the United States, our largest trading partner, the uneven and bumpy recovery continues. Both situations underline the fact that Canada cannot be complacent, and that difficult and uncertain challenges persist. Winston Churchill once noted famously, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Looking at Canada today, I see the opportunity ahead—the opportunity to bolster our fundamental economic strengths, to create more high-quality jobs for today and tomorrow, and the opportunity to confront our long-term economic and financial challenges head on. Indeed, we have a strong foundation on which to build.
As I mentioned earlier, Canada's economic and fiscal fundamentals are solid. Our recent job growth, our forecasted economic growth, and our fiscal position are all the best in the G-7.
In addition, our banking system is the soundest in the world, as judged by the World Economic Forum for four consecutive years. All three of the major credit rating agencies, Moody's, Fitch, and Standard & Poor's, have reaffirmed Canada's top credit rating.
With the lowest overall tax rate on new business investment in the G-7, Forbes magazine recently ranked Canada as the best country in world in which to do business.
Without a doubt, we are on stable economic ground. But when promoting Canada around the world to others, our admirers point to another key advantage—a strong, stable government that can make long-term decisions and that has stayed squarely focused on the economy. To understand the importance of this, we must look no further than the United States or Europe, where political gridlock and instability too often threaten or delay vital economic and fiscal reforms. In a fast changing global economy, which not only remains uncertain but in which Canada also faces increasing competition from emerging economies, delay for the sake of delay is not an option and complacency is the enemy of success.
One thing that is certain is that our government will continue to focus on the economy. With that in mind, the 2012 economic action plan provides that we will be moving forward with a clear, prudent and balanced plan to ensure economic growth and sound public finances in Canada, now and in future.
As the challenges Canada's economy faces are not small or one-dimensional, neither is our plan.
In fact it is unapologetically comprehensive and ambitious, for it responds to the magnitude of the challenges we face in a globalized economy.
The 2012 economic action plan focuses on the engines of growth and on creating jobs, keeping taxes low and ensuring sound public finances and social programs for future generations.
The action plan makes major investments in support of a new approach to research and innovation in Canada, an approach that will stimulate high-quality job creation. The action plan promotes responsible resource development to eliminate duplication, and the adoption of a "one project, one review" model, while improving environmental protection mechanisms. The action plan also provides for intensifying Canada's efforts to strengthen trading relationships and establish new ones and to take greater advantage of Canada's highly qualified and educated labour force.
This better ensures that our immigration system is truly fast and flexible, to help sustain Canada's economic growth.
It also includes taking steps to ensure sound public finances by preparing today for the pressures Canada will face over the longer term, steps like making necessary reforms to old age security and public sector pensions; implementing a path for provincial and territorial transfers to keep them growing in a predictable and fair way; and managing public finances in a sustainable and responsible manner, balancing the budget in the medium term, and respecting taxpayers' dollars by eliminating waste and enhancing efficiency whenever possible.
Again, this plan is unapologetically comprehensive and ambitious, aligned in its aim of building a stronger Canadian economy for today and tomorrow. Indeed a recent editorial in the Waterloo region The Record characterized our economic action plan 2012 this way:
||It is a moderate, intelligent and visionary plan to preserve a progressive, prosperous Canada in a global landscape filled with both upheaval and promise.
||And for this reason it is the most ambitious and important federal budget in a generation.
||Underlying it all is an astute recognition of how this nation and the world around it are changing....
||This budget tackles these challenges head-on....
As was mentioned earlier, Bill C-38, the Jobs, Growth and Long-term Prosperity Act, is a key element of the action plan. It implements many of the principal measures in the plan, including supporting jobs and growth through responsible resource development while protecting the environment; helping to build a fast and flexible economic immigration system that meets the needs of the Canadian labour market;
gradually increasing the age of eligibility for old age security and the guaranteed income supplement from 65 to 67, starting in April 2023, to ensure that it remains sustainable for future generations; and much more.
The plan also takes important targeted steps to provide direct support for Canadian families and communities by, among other things, assisting provincial front-line delivery of health care and social programs by extending the temporary total transfer protection to 2012-13, representing nearly $700 million in support to those affected provinces; expanding health-related tax relief under the GST/HST and income tax systems to better meet the health care needs of Canadians; helping Canadians with severe disabilities and their families by improving the registered disability savings plan; requiring federally regulated private sector employers to ensure, on a go-forward basis, any long-term disability plans they offer to their employees; promoting literacy by allowing certain charities and qualifying non-profit literacy organizations to claim a rebate from the GST they pay to acquire printed books to be given away; and supporting major exhibitions at Canadian museums and galleries by modernizing the Canada travelling exhibitions indemnification program, among many others.
Mr. Chair, since we were first elected in 2006, our government has been focused on creating jobs and economic growth. We are “looking a little ahead”, as Sir John A. Macdonald was fond of saying. Ultimately, our goal is simple: it is to ensure long-term prosperity for all Canadians.
As comprehensive as it is ambitious, the economic action plan 2012 will maintain and strengthen our advantages by continuing to pursue those strategies that made us so resilient in the first place—responsibility, discipline, and determination.
Bill C-38, Jobs, Growth and Long-term Prosperity Act, is an important step in creating a brighter future for our country. I urge you, the members of this committee, to help achieve that worthy goal by passing this legislation.
With that, Mr. Chair, I invite the questions of the committee.
Mrs. Cathy McLeod (Kamloops—Thompson—Cariboo, CPC):
Thank you, Mr. Chair.
I'd like to thank the finance minister.
I also want to make a quick mention of the fact that, as you're probably aware, we were in New York and Washington last week. We had many meetings, and almost without exception we heard from our friends and neighbours in the United States about how envious they were. Again, each meeting started with sort of complimenting Canada on our banking system, on our economy.
That, to me, as we learned about the challenges in the U.S., or heard from the IMF, just reconfirmed in certainly my mind how fortunate we are to be heading down the track that we're heading.
I would really like to target in on two specific areas. The first is health care transfers, because I think health care is near and dear to all our hearts. I heard the announcement you made in terms of how we're increasing transfers for health care. The NDP of course, falsely, are standing up in the House on a regular basis saying we're cutting transfers.
I would also like to make note of the quote from Scott Brison, the current Liberal finance critic. He said that shifting the burdens to provinces—which the Liberals did in the nineties—is the “easy but cowardly way to accelerate deficit reduction.... The Chrétien-Martin cuts sent the health care and education system into crisis in every Canadian province.”
I repeat and underline the word “cut”, because it points to an important contrast. Unlike the Liberals in the 1990s, we're not cutting transfer payments; rather, we're ensuring that they can continue to grow at a sustainable level. Indeed, health care transfers will continue to grow from $27 billion in 2011-12 to a minimum of $38 billion in 2018-19.
I'd like you to focus in on how this new health care transfer arrangement proposed in Bill C-38 will provide certainty and stability to the provinces.
Mr. Randy Hoback (Prince Albert, CPC):
Thank you, Chair, and thank you, Minister, for being here.
I just find it rather rich that a member of the Liberal Party is telling us we're out of touch. When you look back to the election results since the last election, I would say the Liberal Party is a little bit out of touch and the voters showed that.
Mr. Minister, after the budget I went back to my riding and talked about various aspects of it, and it was amazing how many people said it was a good budget for Saskatchewan. It's amazing how quickly the premier came out and talked about how good this budget was for Saskatchewan.
You talked about Forbes saying that Canada is the best place to invest or do business in the world. Where I come from in Saskatchewan it's pretty good there too, so we're pretty proud of that. We certainly appreciate the work you, your staff, and your colleagues are doing, not only here but abroad, trying to make sure we have a stable world environment—plus what Canada can do to buffer what's going on in the world.
I guess I'd like to talk to you about a couple of things. I think the opposition parties will actually agree with me on one. The other is on the political activities and registered charities, and what we're doing in the budget on that.
We've been having meetings and talking to witnesses about looking at ways to use tax incentives to increase charitable giving. One of the comments that keeps coming up is on transparency in charities—the ability to see what they're doing, how they're spending the money, what role they're playing, and how politically active they are or are not.
Can you expand on what's in the budget with regard to political activities and registered charities?
Mr. Brian Jean (Fort McMurray—Athabasca, CPC):
Thank you, Mr. Chair.
Thank you, Minister. I have to tell you that from my perspective, this is an excellent budget for our future. I come from an area where there are a lot of jobs and very few people who are prepared to fill those jobs. We've had the burden of outrageous red tape and systematic problems throughout the employment sector. I come from northern Alberta, and I have to say that part 3, particularly, is an excellent first step, I think.
I was asked by local media in my community about some comments made recently. For 45 years I've been in Fort McMurray, which, from only 1,400 people, has seen tremendous growth. They asked me to comment in relation to the NDP leader's comments recently about the oil sands being a “disease”. To be blunt, most of my constituents laughed at it because they thought it was so ridiculous, until I had to explain to them that he is the leader of Her Majesty's loyal opposition. Then, quite frankly, they responded that it was quite scary. In fact they referred to it as negligent.
I think many Canadians don't understand the importance of the oil sands and the resource sector to Canada. I just wanted to ask you your opinion of that. I know that right now we're producing about 1.3 million barrels a day. We anticipate within 22 years getting up to about 4.3 million barrels a day, which in government revenues means somewhere around $15 billion to $18 billion per year, both provincial and federal.
I have to tell you, Minister, that I'm afraid for our country and the future of our country if these types of comments go unchecked, unsubstantiated as they are. I'd like your opinion in relation to who actually benefits from the oil sands production. I know we've heard evidence here at this committee that an equipment manufacturer from Ontario would be out of business if it weren't for the oil sands. I know that most of the constituents in my riding are from Ontario, Atlantic Canada, Newfoundland and Labrador, and Quebec. In fact, I would suggest that probably 70% or 80% of my constituents are from these provinces.
Is that your recollection and understanding of what's going on in northern Alberta?
Part 1 contains the income tax measures in Bill C-38. What I would propose to do is to essentially follow the summary at the start of Bill C-38, which provides a list of all the measures.
The first measure that is listed is to expand the list of medical expenses eligible for the medical expense tax credit to include blood coagulation monitors and associated peripherals. This measure parallels a GST/HST, which is in part 2 of this bill.
The second measure was referred to in the discussion with the minister. This will allow qualifying family members, that is, parents, spouses, and common-law partners, to open a registered disability savings plan for an adult in situations where the contractual competence of the individual to do so is in doubt. In situations where it is determined that the individual does have contractual competency, they will be able to then replace the qualifying family member as holder of the RDSP, if they choose to do so. This measure will apply to RDSPs that are opened before 2017. However, those RDSPs will continue on as long as necessary.
The next measure relates to the mineral exploration tax credit. It extends the tax credit available to flow-through share investors by one year, as has been done in the last several budgets. What this measure does is to support grassroots mineral exploration. It will apply to flow-through share agreements entered into after March 2012 and before April 2013.
The next measure has to do with eligible dividend designations. Under the Income Tax Act, individuals—
Mr. Ted Cook:
The measure I was discussing was the eligible dividend designation. When dividends are paid to an individual from a corporation, they may be eligible for a dividend tax credit. There are two types of dividend tax credits—enhanced dividend tax credit and a regular dividend tax credit. The dividend tax credit is meant to recognize the fact that tax is paid at the corporate level before it's distributed to an individual by way of shares.
What this measure does is fairly technical. It allows a corporation paying a dividend to identify the portion of the dividend that relates to income that was taxed at the higher corporate level. It will also allow the recipient of the dividend to claim an enhanced dividend tax credit as opposed to the regular dividend tax credit. It deals with a technical problem where, in prior years, a corporation had to designate the entire dividend as either being eligible or ineligible.
The next measure has to do with the Governor General's salary. Currently under the Income Tax Act, all income related to the office of the Governor General is exempt from tax. This part will remove that exemption for salary paid under the Governor General's Act. As well, this part will adjust the Governor General's salary, starting in 2013, to $270,602, which will then be adjusted annually.
The next measure has to do with partnership waivers. It's a fairly technical measure that allows a single designated partner of a partnership to extend, on behalf of the partnership, the time that the CRA has to complete an audit and make a determination in respect of the partnership. Currently under the Income Tax Act the CRA must obtain a waiver from all the members of the partnership, which may be difficult for both the partnership and the CRA.
Then there are three measures related to tax shelters. The first measure has to do with an amendment to a penalty under existing rules where a person sells an interest in a tax shelter that is not registered, or the person files false information in applying for a tax shelter. Currently where the penalty applies, the penalty is the greater of $500 and 25% of the amount that the tax shelter promoter receives as consideration for the tax shelter investment.
This penalty does not work appropriately in the context of a charitable donation tax shelter, because the benefit of the tax shelter is predicated on the charitable donation receipt that the person who participates in the tax shelter could receive from making a donation to a qualified donee. As a result, this penalty is amended so that where there's a charitable donation tax shelter, the penalty will be the higher of the amount under the existing rules and 25% of the amount that the individual, usually the tax shelter promoter, asserts could be donated to the qualified donee.
This bill also introduces a new penalty with respect to tax shelter promoters where, in an annual information return, all the purchasers of interest in the tax shelter, or amounts paid by individuals in respect of the tax shelter, are not reported, or the promoter of the tax shelter or the person who has to file the return does not respond to a demand to file a return by the CRA.
This penalty will function much like the one I discussed. The penalty will be the greater of 25% of the amount that is consideration received by the tax shelter promoter, or in the case of a charitable donation tax shelter, 25% of the amount that's asserted by the promoter that could be donated to a qualified donee.
As well, this part introduces a measure that would limit the validity of tax shelter identification numbers to one year. Currently, tax shelter identification numbers are valid in perpetuity. As an audit matter, it's difficult for the CRA to know whether a particular tax shelter has not filed a return because they've done no sales and have no requirement to file a return, or they're just failing to file.
The next measure has to do with foreign charitable organizations. Currently, a foreign charitable organization can be registered as a qualified donee if it receives a gift from the Government of Canada and demonstrates to, and registers with, the CRA that in fact it is a charitable organization. What the amendment would do is keep the requirement that there be a gift from the Government of Canada, but also require that the foreign charitable organization is undertaking activities either in response to a disaster in providing urgent humanitarian aid or in doing activities in the national interest of Canada.
The next measure in part 1 has to do with political activities. What this measure would do is provide essentially a look-through rule, so that if a registered charity or registered Canadian amateur athletic association makes a gift to another qualified donee, and the purpose of that gift—or a purpose of that gift—is to have the qualified donee engage in political activities, the amount of that gift will be considered a political activity for the registered charity or RCAAA making the gift.
As well, part 1 implements two measures with respect to intermediate sanctions. One is to allow the CRA to suspend a charity's tax-receipting privileges for one year if the charity exceeds its limitations on political activities. Secondly, it allows the CRA to suspend the tax-receipting privileges of a charity if it provides inaccurate or incomplete information in its annual information return. The suspension will remain in effect until such time as the charity provides the required information.
There are just three more measures in part 1 that I'll mention quickly. The first one is a consequential amendment that removes certain references to the Canadian Wheat Board from the Income Tax Act.
There's also a measure that.... Currently under the Income Tax Act, when the Canada Revenue Agency issues a demand to file a return, it must either be served personally or by registered mail. The amendment would allow those demands to be sent by online notice or regular mail.
Finally, there's a new provision relating to commercial tax preparers. Commercial “tax preparer” is defined. This provision requires that a commercial tax preparer must file any returns they prepare for consideration electronically, except that in each year they may file up to 10 returns of individuals' personal income tax returns or corporate tax returns “other than by way of electronic filing”. This applies in respect of corporate and personal income tax returns. There's also a penalty where the commercial tax preparer does not do this.
Those are all the measures that are included in part 1.