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Budget Implementation Bill, 2017, No. 2

Third Reading

Honourable senators, I am pleased to rise today to once again address you in consideration of Bill C-63, the second budget implementation act for 2017.

I want to take this opportunity to thank all honourable senators who participated in the consideration of this bill at the Standing Senate Committee on National Finance and the chair, Senator Mockler, for managing the process so well.

Their critical examination and questioning of the bill certainly made me think about it a second time on many occasions.

I wish to touch upon a few matters that have been the subject of critical examination during the review of BIA2 in this chamber and at committee. I do this in an effort to provide further clarity on these issues.

The first of these issues was bill-based accounting, which was raised at second reading as well as at committee, and we heard from expert witnesses on this subject.

For the benefit of all senators, the measures proposed in Bill C-63 eliminate the ability of designated professionals to elect to use billed-basis accounting. In other words, they can no longer defer revenue for taxation purposes while still deducting the costs. This measure also includes a five-year transitional period to phase in this new requirement.

The concerns over this portion of the bill that I heard at committee were twofold.

First was the issue of fairness and why make this change now. As background, the creation and operation of section 34 of the Income Tax Act goes back to the report of the Carter commission, the Royal Commission on Taxation, as far back as 1966.

The goal of the Carter commission was to improve the entire Canadian tax system, including the recognition of revenue. The Carter commission advocated that accrual accounting should become the law of the land for all taxpayers, with very limited exceptions.

In 1982 the federal government enacted section 10(5) to require all professional’s year-end work-in-progress to be included in income. But some professions — accountants, dentists, lawyers, doctors — were exempted from this requirement.

At that time, the Minister of State for Finance, Paul Cosgrove, indicated that the rationale for excluding these professions was an inability by them to fully benefit from other tax deductions such as the small business tax rate. In addition, it was indicated that in some provinces these professions were likely prohibited from incorporating at that time. But it is now 2017, and, colleagues, that is simply no longer the case. Incorporation, for instance, is now an option for many employed in the specified professions. Hence, the disadvantage that these professions had no longer exists. As a result, in the spirit of fairness, the deferral of revenues should also no longer be permitted.

The second issue, as some witnesses have argued, is that the requirement to accrue revenues for these professionals is too subjective and that costs cannot be reliably estimated. This could create problems in compliance and tax filings. I must admit I find that very hard to believe. Most of these professionals are people-based businesses and have a very deep understanding of their cost structures. Furthermore, since this practice has been in use for over 30 years by many other professions, there is plenty of empirical evidence and best practices on this issue, not to mention experience at the CRA to provide appropriate interpretations.

Let me now turn to another element of BIA2 that attracted attention, and that is the proposal to give Canada the authority to become a member of the Asian Infrastructure Investment Bank, the AIIB.

Again, as background, the AIIB was formally established in December 2015, with 57 founding members. Currently the AIIB’s executive board consists of 12 directors. Nine members of the board are elected by regional members, and three are elected by non-regional members.

Based on the number of shares that are currently available, Canada’s initial membership would cost US$199 million, with the potential for a maximum of US$375 million if and when additional shares become available.

Three questions have been raised. First, will the governance of this bank, which has China as the largest shareholder, be adequate? On this issue, I am advised that the AIIB reflects the operating and governance structures of existing international financial institutions, and it has adopted best practices from other multilateral development banks such as the World Bank, the International Finance Corporation, EBRD, et cetera.

Furthermore, the AIIB’s social and environmental safeguards also parallel existing multilateral development bank safeguards and were formalized in spring 2016 following a round of public consultations in the prior year.

These safeguards include, for instance, restrictions on child labour, which requires project conformity with the International Labour Organization’s Minimum Age Convention.

Requirements are around consideration for environmental damage. These include pollution abatement practices, biodiversity consideration and sustainability of land and water use.

There are also considerations around instances where involuntary resettlement may occur. Like the World Bank, the AIIB requires resettlement activities to be conceived and executed as sustainable development programs.

Related to the issue of governance, questions were raised as to what reporting the AIIB would make to its members and, in turn, what visibility Canadians would have into the AIIB. Honourable senators, it is my understanding that the AIIB requires annual reports and quarterly financial statements for all stakeholders. In addition, Canada’s payments to the AIIB and their purpose will be reported in the Statistical Report on International Assistance. I can also inform you that any payments to the AIIB will be reported both through the estimates process and in the public accounts. Furthermore, the AIIB will be noted alongside Canada’s other capital subscription to multilateral development banks such as the Caribbean Development Bank and the Inter-American Development Bank.

I would also note that the other major investors in the AIIB are, for instance, the U.K., France, Germany, Italy, Sweden, Switzerland, South Korea and Israel, to name a few, and they have invested multiples of what Canada has. I don’t think they would put up with bad governance or lack of reporting. In fact, collectively, we should be able to have an impact on making improvements over time.

The second area of concern is the cost of investment and what could be the advantages to Canada.

There is no argument, honourable senators, that US$199 million is a lot of money. But without it, we would not have a seat at the table, and, in my view, it is important to have that when projects are being proposed and delivered through the AIIB. A surefire way to ensure that Canada receives no economic benefit from the over $90 billion being invested in the AIIB projects throughout Asia is not to be at the table. Why would any of those projects involve a Canadian company when so many other nations have contributed to the program? Hence, it is important that Canada bring its expertise to the AIIB table in the form of a formal membership if the Canadian economy is to receive any benefit from its operation.

I would go further to suggest that through membership in the AIIB the government is investing, albeit indirectly, in Canada. As a small, open trading economy, Canada will have greater access to some of the fastest-growing markets in the world. More than 500 Canadian firms are active in China, operating in very diverse sectors, including life sciences, automotive, aerospace, transportation, financial services, information technologies and clean technology. Membership in the AIIB will open the doors wider for Canadian businesses already working in the region and help more businesses benefit either directly or through spillover effects.

The third area of concern is whether these funds would be better spent on infrastructure at home in Canada.

There is no doubt that infrastructure plays a critical role in building stronger communities and growing the economy. While I contend investing at home is always the first preference, I do not believe it should be mutually exclusive to other investments. It is not as if investments are not being made here in Canada.

For instance, Budget 2016 committed almost $12 billion over the next five years to support public transport, green and social infrastructure. On top of that, the Fall Economic Statement 2016 committed an additional $81 billion over 11 years in support of renovating and rebuilding our infrastructure at home.

Taken together, the total of these investments matches the total paid in capital that had been contributed to the AIIB. This means that this government is investing as much to build Canadian infrastructure as 58 nations of the world have committed to developing infrastructure throughout Asia.

I think the intention is clear, honourable senators. This government is willing to invest a lot at home and to a much lesser extent abroad. In my view, that is a smart way to build the economy for the future.

I want to close my remarks by noting the discussions surrounding Part 4 of BIA2, the cannabis taxation agreements. As I noted during second reading debate, there is currently no provision in the Federal-Provincial Fiscal Arrangements Act that enables a Minister of Finance to enter into coordinated cannabis taxation agreements with provinces and territories. This bill simply provides the minister with that capability.

The issues that arose during the committee meetings were twofold.

First, given that the impact of cannabis legislation has not been fully determined, why are the taxation agreements being negotiated first? Is the process being done backwards? I respectfully disagree with this notion. I believe it is merely a question of efficiency. This measure will allow the federal government to pursue a coordinated system of cannabis taxation with the provinces and the territories. Introducing the measure now is necessary to ensure that the taxation framework can be put in place well before cannabis is legalized. This follows a well-tried and proven process, such as during the HST legislation.

Second, will municipalities receive revenues to cover the costs that they will undoubtedly incur? On this issue, the government announced yesterday that they reached an agreement with the provinces and territories on sharing cannabis tax revenue. As the burden of enforcement, health care, education programs, et cetera, will fall to municipalities, provinces and territories, the federal government will receive only 25 per cent of tax revenues. This will give the provincial and territorial governments most of the tax revenue, which they can in turn distribute to the municipalities as needed.

In summary, honourable senators raised a number of issues during the consideration of BIA2. I want to thank them for their careful scrutiny and due diligence of this bill. Over the course of these remarks, I have attempted to address a number of concerns relating to the provisions of BIA2. I contend that this bill allows the government of the day to implement a series of reasoned measures to facilitate continued economic development.

Moreover, I note that numerous provisions in this bill, such as technical income tax changes, excise tax changes, the internal trade agreement and the Labour Code changes, even billed-basis accounting, were brought forward after considerable public consultation exercises by the government. I hope this government continues to provide Canadians with opportunities to take part in open, meaningful and balanced consultations in the development of policy objectives going forward.

In closing, in the spirit of holidays, I would like to thank the clerks of the Senate, our table officers, pages and all staff of the Senate of Canada for their support and dedication to all of us during the fall session. I also want to thank honourable senators for their consideration of Bill C-63. I look forward to working with you during the remainder of this session and into 2018.

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