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Bill C-63: Budget Implementation Bill, 2017, No. 2

Second Reading

Hon. Sarabjit S. Marwah moved second reading of Bill C-63, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures.

He said: Honourable senators, I rise today as the Senate sponsor of Bill C-63, the second budget implementation act for 2017, or, as I will refer to it henceforth, the BIA2.

It is an essential companion to Budget 2017 in that it outlines how the government proposes to implement its budget.

It includes measures that create expanded trade opportunities, both beyond Canada’s borders and also between provinces and territories.

It modernizes workplaces for employers and employees.

It also includes a substantial number of technical amendments that correct deficiencies or make clarifications to the income and excise tax rules. These result in a Canadian tax system that is fairer, more efficient and functioning as intended.

I will focus these remarks on the big picture elements of BIA2 and outline some of the more granular changes we can expect to see for businesses and for individuals. But first let me offer some context for BIA2 — a snapshot of Canada’s economy today.

Please know that as a former banker I’m not given to excessive flourishes when it comes to describing economic and financial phenomena, but there is some data worth noting.

To begin, in the context of a budget, the size of the deficit has been an issue that has attracted attention, and it is a concern. But the Minister of Finance, in his Fall Economic Statement 2017 noted that Canada’s fiscal outlook has improved by over $8.5 billion per year compared to what the government was expecting in March.

Furthermore, economic and fiscal developments since Budget 2017 have resulted in an improvement in the outlook for the budgetary balance going forward for the next few years. But the deficit is not the only yardstick to measure economic well-being. Rather than expressing my personal views, let me share what others are saying about Canada’s economic performance.

I start with an editorial column in The Globe and Mail on October 24, which puts the deficit in a different context. And I would note that The Globe and Mail is not exactly a cheerleader of this government.

A lot of news coverage and Canadian politics still operates as if the federal deficit is everything. It isn’t. It’s not nothing, but it has been shifted, hopefully for good, into the background.

Basically, the analysis can no longer be reduced to one data point.

Federal deficits in the coming years, formerly projected as large-ish but manageable, are now expected to be smaller, and more manageable. A deficit of $19.9-billion this year, falling to $17.3-billion in time for the next election, may sound big. But it’s not, relative to the size of a more than $2-trillion dollar Canadian economy . . . .

And I continue with the quote, now referring to Ottawa’s debt load:

It’s at less than half the level the federal government hit in 1995-96, the year of peak crisis. At 30.5 per cent of GDP, the debt is a full two percentage points below the expectations of the Liberals’ 2016 budget. The federal debt hasn’t been consistently this low since the 1970s.

These are reassuring words. Furthermore, when we move away from just looking at the deficit, I would note the following: Canada’s net debt-to-GDP ratio is one third the G7 average and over 20 percentage points lower than the average. In fact, the IMF predicted in October that the Government of Canada’s net debt-to-GDP ratio will dip below 20 per cent by 2020.

So Canada’s performance on this measure is pretty good, and I continue.

The Bank of Canada — never given to hyperbole — noted in its October Monetary Policy Report that it expects Canada’s economy to progress on a more sustainable path, with exports and business investment playing a greater role in economic growth more so than growth from consumption and residential investment.

The Conference Board of Canada, in its Canadian Outlook in autumn 2017, refers to “phenomenal growth” in the Canadian economy and notes an increase in business investment.

Canada is now the fastest growing economy in the G7, growing at an average rate of 3.7 per cent over the last year, the fastest pace of growth since early 2006. The International Monetary Fund boosted its 2017 outlook after seeing Canada’s economic data, saying:

“Buoyant domestic demand boosted first-quarter growth to 3.7 per cent and indicators suggest resilient second-quarter activity.”

As for jobs, last week Statistics Canada reported that the unemployment rate has fallen to 5.9 per cent, the lowest level since February 2008.

Canada’s improved employment picture has also been observed in the OECD’s economic outlook. All these numbers and statistics are not exactly poetry, but they are positive economic and financial news on numerous fronts.

While there are still vulnerabilities, as I said at the outset, such as the deficit and high levels of household debt, these vulnerabilities are easing. The Bank of Canada notes improving economic conditions and recent changes to housing policy are making a difference.

It is against this backdrop of solid economic growth and increased optimism that I will now turn to BIA2. I wish to bring to your attention some elements that I think are notable because they help bolster our economy and create opportunities for Canadians.

I will start with one initiative that has garnered some interest, and that is the Asian Infrastructure Investment Bank, or AIIB. It would appear that the words “infrastructure bank” set up a debate whenever it is brought up, but I hope that it is less controversial than the last time we debated it.

Honourable senators, Canada’s economic success in a global context depends heavily on international trade. There is no denying it. Strong trade relationships create more opportunities for Canadians to succeed and prosper. Canada has always been a trading nation, and today trade continues to be the key to the economic success story that is Canada.

In the second quarter of this year, the export of goods and services represented almost a third of Canada’s GDP. And while three quarters of those exports are destined for the United States, huge opportunities exist for Canada to increase trade with Asia.

Consider the facts: Only 4.2 per cent of our exports go to China — only 4.2. India, with a population of over 1.3 billion, is the recipient of less than 1 per cent of Canada’s exports. The conclusion is that we must diversify our trade — it is a national imperative.

In 2014 Senator Woo, then a Distinguished East Asia Fellow at the Asia Pacific Foundation of Canada, and a Senior Fellow at the University of British Columbia, identified four broad features of ASEAN economies that continue to present economic opportunities for Canada’s interests. They include a reordering of regional production networks; a growing middle class seeking to increase consumption beyond basic needs; the ongoing development of infrastructure; and the pace, depth and quality of financial sector development.

Senator Woo noted that by 2030 the middle class in ASEAN is estimated to number about 450 million. This will present massive growth opportunities in these markets.

Another key factor is that China’s economic growth and its geopolitical influence are indisputable. With an economy that is growing at 7 per cent annually, China may soon eclipse the United States as number one in the world.

By joining the AIIB, Canada will be in a position to deepen its ties with China and Asia and open doors for Canadian businesses so that they can grow and diversify. It will also affirm Canada as a strong multilateral presence around the world.

In addition to the immediate advantage of North American exclusivity through membership in the AIIB, Canada will be on the ground floor and may be able to play a unique and constructive role in supporting the bank’s operations and governance.

Next is internal trade and the new Canadian Free Trade Agreement, or CFTA. Bill C-63 will ensure full implementation of the CFTA.

The CAFTA provides a new framework of comprehensive rules that will allow federal, provincial and territorial governments to compete on a level playing field within a modern economic union for all Canadians.

The CAFTA will reduce barriers to trade, investment and worker mobility, increase choice for consumers, expand access to government contracts, and eventually create more jobs for Canada.

The CAFTA also eliminates any advantage foreign companies may now enjoy over Canadian companies.

If some of these initiatives seem familiar to my honourable colleagues, it will be because the issues of internal trade barriers were reviewed extensively by the Banking, Trade and Commerce Committee in its June 2016 report, Tear Down These Walls: Dismantling Canada’s Internal Trade Barriers.

To my colleagues who provided this valuable report, I thank you.

Next are changes to Canada’s Labour Code. I’m referring here to an amendment that will modernize the Canada Labour Code for today’s workforce — a workforce that increasingly values flexibility to balance work and family demands. There are basically two major changes. First, the amendment will give employees the right to request changes to the terms and conditions of their employment, including the number of hours they work, their schedule and where they work.

For those of you envisioning a chaotic free-for-all in labour relations, I would note that employers can refuse requests based on specific grounds, such as the burden of costs or the impact on business performance. But employers will also benefit. Such policies may enhance recruitment and retention and may help brand employers as being leaders in helping staff achieve that elusive and sought-after work-life balance. They should also see decreased absenteeism and overall increased productivity.

Second, the amendment also introduces three new unpaid leaves. The first is a leave of three days for family responsibilities; the second, leave of up to 10 days for victims of family violence; and the last, leave for five days for traditional Aboriginal practices. Bereavement leave has also been enhanced.

To be sure, the changes to the code will affect only a small number of the workforce, namely those in the federally regulated private sector. However, it is a start. With changes to one sector of the labour force, there’s a new standard now to support employees to achieve a better work-life balance. It may well serve as an example to all sectors that work-life balance is a premium for Canadian workers of today.

Honourable senators, let me now move to some of the other important elements of Bill C-63.

First, cannabis and its taxation. There is currently no provision in the Federal-Provincial Fiscal Arrangements Act that provides the Minister of Finance with the ability to enter into coordinated cannabis taxation agreements with provinces and territories. This section of BIA2 will provide the minister the ability to engage the provinces and territories to develop such agreements.

This measure will help ensure a smoother and coordinated rollout for such a taxation and would permit the Government of Canada to make payments to the provinces in respect of the revenues from cannabis taxation.

I would note that there are no obligations on the provinces to enter into agreements. The framework being developed is the same as the one that was used for the HST. It is fair that Senate has not passed the legislation — hence, to many, beginning a discussion on taxation may seem premature. However, this does allow for better planning.

Another element of Bill C-63 that I would like to highlight today is changes to the Business Development Bank of Canada Act. BIA2 proposes that the paid-in capital limit of the Business Development Bank be increased from $3 billion to $4.5 billion. Increasing the capital limit will allow the government to inject additional capital for the BDC to implement new initiatives announced in Budget 2017. These initiatives are in two areas: first, to make new financing available to help clean technology firms grow and expand; and second, to make an investment through the BDC of $400 million for a new venture capital initiative that will increase late-stage venture capital available to Canadian entrepreneurs.

Finally, I will touch briefly on some of the other elements of the act that streamline and modernize processes for today’s economy. Regarding Part 5,Division 13, the Financial Administration Act, these amendments help the alignment of the federal budget and the Main Estimates.

As Senator Smith and Senator Campbell may recall, in April 2016, the President of the Treasury Board appeared before the Standing Senate Committee on National Finance to discuss this initiative in detail. During his presentation, he illustrated the challenge facing parliamentarians in understanding what is actually in the budget and the estimates. He used an example. He said, referring to the 2016 Main Estimates:

If you look at the Main Estimates, you might ask the question: How can it be that a department like Indigenous and Northern Affairs is having its funding both decreased and increased? You may draw that conclusion based on the fact that Budget 2016 announced unprecedented investments in First Nations . . . totalling $8.4 billion over the next five years; yet these Main Estimates we are discussing tonight show a decrease of over half a billion dollars.

The Treasury Board President concluded that it was the perfect example of why we need to look at the realignment of the Main Estimates and the budget. With the Main Estimates currently introduced before the federal budget each year, there is no opportunity for the Main Estimates to reflect the priorities that the government lays out in its budget. Presenting the Main Estimates to Parliament after the budget would allow the government to include significant budget items in the Main Estimates, which would provide a more coherent flow of information to Parliament.

In June 2016, the Standing Senate Committee on National Finance observed in a report that it looks forward to examining concrete proposals from the secretariat that would align the budget and the Main Estimates. Well, here it is. In June 2017, the House of Commons responded by approving changes that move the tabling of Main Estimates from March 1 to April 16 so that any new funding announced in the federal budget can now be included in the Main Estimates.

Honourable senators, I will now quickly outline some of the other meaningful changes to the Income Tax Act — a few of which are more meaningful although most are relatively minor.

The first is billed-basis accounting. The use of billed-basis accounting has allowed certain professionals to exclude the value of work-in-progress when calculating their income, while allowing them to claim expenses on such work.

In fairness to other professions where this is not permitted, billed-basis accounting practices will be eliminated for taxation years starting after March 22, 2017. Because of extensive consultation, the transition period has been extended from two to five years for phasing in the change.

In the principal residence exemption, individuals or trusts who were not resident in Canada when they bought the property will not be able to claim the capital gains exemption for the year of acquisition. Also, families are able to designate only one property as a principal residence for any given year.

Regarding ecological gifts, currently there is a program for Canadians to make gifts of ecologically sensitive land, the conservation of which is important to the preservation of Canada’s environmental heritage. Going forward, ecological gifts to private foundations will no longer be permitted because private foundations are often controlled by an individual or a group of related individuals who are usually the primary donors to the foundation. The proposed amendments will address the potential conflict of interest in such situations.

Next is nurse practitioners. To recognize the important role played by nurse practitioners in Canada’s health care system, they will be added to the lists of medical practitioners who are allowed to perform certain functions, including certifying a medical condition, for the purposes of income tax.

Regarding oil and gas exploration, amendments will ensure that the expenses related to successful oil and gas discovery wells are treated as Canadian development expenses so that they are deducted tax-wise gradually over time rather than immediately. This measure supports Canada’s international commitments to phase out inefficient fossil fuel subsidies.

The balance of Part 1 of the bill includes several technical amendments that serve to increase the transparency of the Income Tax Act.

Moving briefly to excise taxes, Parts 2 and 3 of the budget bill deal with several excise tax changes. The vast majority of these are technical amendments such as the GST/HST application to pension plans, master trusts, financial institutions, drop shipment rules, municipal transit, et cetera. I won’t bother going through them here. These are largely to correct deficiencies, resolve unintended consequences and respond to comments by taxpayers. They have virtually no fiscal impact.

Next is the excise tax on beer concentrate. Also under the area of excise taxes, Part 3 deals with the potential double taxation of beer. This, I am sure, is of interest to many. As a result of existing excise rules, these beer products may be taxed twice: first, as spirits during the manufacturing process; then as beer, once transformed into a form ready for consumption. Bill C-63 includes a measure that amends the Excise Act to ensure that beer made from concentrate is taxed only once and that is with consumption.

Colleagues, now you can rest in peace that you will not be paying more for your beer — assuming you drink beer made from concentrate. This is a change that is welcomed by the industry and consumers alike.

Lastly, in Part 5 of the bill, besides the Asian Infrastructure Investment Bank and the Canadian Free Trade Agreement, there are a few other measures that act to simplify, improve or reduce the administrative burden of existing institutions or legislative powers.

For instance, Bretton Woods and related agreements. These agreements govern Canada’s engagement with the International Monetary Fund and the World Bank. The activities and related lending agreements of these institutions have undergone significant changes since the BWA was drafted 30 years ago. The changes in BIA2 provide the authority to the Minister of Finance to amend the BWA to reflect modern realities. There is no fiscal impact to this.

The changes related to the Canada Deposit Insurance Corporation Act include provisions aimed at preventing the mass termination of eligible financial contracts or derivatives in the unlikely failure of a bank. This allows the CDIC to manage a failure in a manner that protects depositors, taxpayers and financial stability.

The changes to the Bank of Canada Act would facilitate the bank taking mortgages as collateral for emergency lending assistance, which it currently cannot do.

Colleagues, under the Constitution Act, 1867, any changes that relate to the number of Superior Court judges and their salaries require statutory amendments. Bill C-63 will amend the Judges Act in three ways.

First, it will authorize the salary for a new associate chief justice for the Alberta Court of Queen’s Bench, the superior court of Alberta. Adding a new position will alleviate the burden currently carried by the existing judges of the Alberta court.

Second, it will change the title of the head of territorial superior trial courts, currently designated as “senior judges,” to “chief justices.” This change in designation is in recognition of the fact that the head of each of the superior trial courts in the Yukon, the Northwest Territories and Nunavut perform the same function and receive the same remuneration as their provincial counterparts.

Lastly, it will change the mechanism required for the payment of non-discretionary annuities under the Judges Act. This would eliminate the inefficiencies and delays of the current system in payment of judges on retirement, or to the survivors on the death of a judge.

In conclusion, honourable colleagues, while Bill C-63 is a large bill, in my opinion it is as non-controversial a budget bill as you will ever see. It will help employees and employers create workplaces that are modern and compassionate; it promotes freer trade internationally, as well as in Canada; it provides the framework for the introduction of cannabis to the marketplace, to ensure consistent taxation; it clarifies many income tax and excise rules; and it modernizes the powers of institutions such as the Bank of Canada, CDIC, Bretton Woods and so on.

As you can see, the numerous policy initiatives contained in BIA2 have been developed with input from work in various committees, including those in the Senate. I have no doubt that senators will devote their attention to this bill with their usual care and scrutiny. However, I also share the belief that this bill, BIA2, will meet the high standard of sober second thought that this chamber will bring.

I look forward to working with all of you and with the National Finance Committee in the “sober second thought” review of this bill.

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