Senate debates budget implementation bill
Bill referred to committee for review on June 12.
Senator Grant Mitchell kicked off debate in the Senate on the first budget implementation bill of 2018, which includes increased support for families with children, more benefits for low-income workers and a national carbon pricing regime.
Bill C-74 also implements the financial structure necessary for the legalization of cannabis.
Debate in the Senate as a whole follows a pre-study that leveraged the expertise of eight different Senate committees. A pre-study allows Senators to review legislation that is still before the House of Commons, allowing the Senate to have input at a critical stage of the legislative process.
The bill was adopted at second reading on June 12 and referred to the Senate Committee on National Finance for consideration.
Read the second reading speech by Sen. Mitchell, who is sponsoring Bill C-74 in the Senate.
“Colleagues, I would like to begin by thanking those senators who have participated in the pre-study of Bill C-74 and their related staff members and Senate administrative staff members, all of whom have done so much excellent work in that important task. I would also like to make a special mention of the public servants, the minister’s office staff and my staff who have done amazing work in briefing me and other senators. It is impressive and reassuring to witness the intellect and expertise of these dedicated people.
Together, the initiatives contained in Bill C-74 contribute to an important aim of a modern budget, stimulating and preparing the economy for the challenges of today and of the future, while supporting Canadians by building equality of opportunity and strengthening their ability to participate fully in our economy and our society. It also includes several administrative process matters to facilitate the functioning of government.
There are any number of specific initiatives that define this bill. It will implement a national carbon pricing regime; it will strengthen supports for families with children, for veterans and for first responders; it will strengthen business and the economy in several ways. It will strengthen the country’s financial system, and it will implement the financial structure called for by the legalization of cannabis.
Each of these measures, and others in the bill, were mentioned in the most recent federal budget. Many represent the explicit fulfilment of promises and commitments. I will begin by talking about the initiatives in the bill that are designed to support individuals and families.
The indexation of the Canada Child Benefit will be advanced to start July 2018 — two years earlier than anticipated. It will mean that families with children will get more money sooner and these grants will remain tax free. The grants will now be almost $6,500 annually for children under 6 and almost $5,500 annually for children between 6 and 18.
This would mean that, next year, a single parent with an income of $35,000 and two children aged 5 and 12, will receive an additional $560, for a total annual benefit, under this program, of almost $13,000. On average, families eligible for the Canada Child Benefit are getting about $6,800 per year. Three hundred thousand Canadian children have been lifted out of poverty with this program.
Bill C-74 enhances the Canada Workers Benefit as follows: It will provide more money to low-income workers. The application of the benefits will be phased in more quickly and phased out more slowly. The maximum benefit provided through the disability supplement will be increased. To build on these enhancements in the BIA 2, the CRA will be mandated to screen for low-income tax filers who may not be aware of the benefit and, therefore, will have failed to claim it.
So low-income workers will take home more money and will have stronger incentives to join and remain in the workforce. This program will help 2 million Canadians, and 300,000 low-income workers who have not applied for the benefit before will be identified and helped to apply in the future.
Turning to Employment Insurance Enhancement, all of this will be supplemented by provisions in the bill to make permanent the Working While on Claim program. This program allows EI claimants to keep 50 cents of their weekly EI benefits for every dollar earned from working while on claim, up to a maximum of 90 per cent of their weekly insurable earnings. Until 2021, claimants can choose to revert to a previous program to ensure a smooth transition to this new one.
Canadians on EI will, therefore, have an incentive to find work, even if it is part time, while not being discouraged from doing so by a precipitous drop in EI benefits.
On the subject of strengthening the Canada Pension Plan, CPP benefits will be enhanced in following ways: The accrual of CPP benefits will be sustained for parents who decide to stay home for a period of time after the birth or adoption of their children. Those who take this important time away from work outside the home will, as a result, not have to meet their retirements with a hole in their CPP pensions. The bill provides the same pension accrual continuity for people with disabilities. It provides a benefit to disabled retirement pension beneficiaries under the age of 65; and it enhances CPP survivor benefits. These improvements will be offered at no increase in premiums.
I shall speak now to support for veterans and their families. Since 2006, 67,000 veterans have received what is called the Lump Sum Disability Award. For some of the severely injured, a lump sum, now at $365,000, can be challenging to manage. Veterans benefits have been highly complex, inflexible and administratively burdensome. The current funding model, therefore, has been questioned by the military, family of veterans and veterans themselves.
Bill C-74, with this in mind, restructures veterans’ compensation in three ways, which define what is now going to be called the Pension for Life program. It creates a lifetime monthly pain and suffering pension and an additional monthly pain-and-suffering pension that, together, can be as much as $2,650 per month tax-free. This will be an alternative to the lump sum, which will still be available. It creates the Income Replacement Benefit, which consolidates, for greater simplicity, six of seven existing benefits. This benefit will be 90 per cent of pre-release salary, indexed annually for inflation, and will be increased in addition annually, in recognition of lost career progression.
The bill will increase the survivor’s benefit from 50 per cent to 70 per cent of the income replacement pension. These provisions reflect a determined effort to respond to concerns about the structure of veterans’ benefits making them more easily understood, less complicated, more flexible and more accessible, with less administrative burden. These provisions also represent an increase, overall, in funding for veterans of $3.6 billion.
In addition, the bill will enhance support for military personnel, police officers and other first responders on deployment abroad. They will receive enhanced tax relief. Members of the Canadian Armed Forces and police officers and other first responders who are deployed internationally on operational missions, regardless of the risk level, will be able to claim a deduction against their taxable income now up to the pay level of a lieutenant-colonel, which amounts to a deduction of as much as $132,000. Currently, the deduction is limited to a non-commissioned officer’s pay level, which is somewhat lower.
There will also be support for families of first responders. The Memorial Grant Program for First Responders is a $300,000 grant for families of first responders who have died in the line of duty. Bill C-74 will make it tax-free.
The second broad category of measures in this bill focuses on economic growth. These measures will have a stimulative impact on Canada’s economy. First, cutting taxes for small business. This is exciting. We all know that small businesses are a key driver of Canada’s economy. They account for 70 per cent of our private sector jobs. The small business tax rate has already been cut to 10 per cent. This legislation will implement a further cut to 9 per cent, effective January 2019.
By this time next year, the combined federal-provincial-territorial average income tax rate for Canadian small businesses will be 12.2 per cent, the lowest in the G-7 and the third-lowest amongst members of the OECD.
The second initiative that will have implications for economic stimulation is remediation agreements. Bill C-74 provides for remediation agreements between an organization accused of committing an offence and a prosecutor to stay a court proceeding if the organization complies with certain conditions. These agreements will be supervised by a judge.
Remediation agreements mitigate the uncertainty and other business-damaging consequences that arise if a company is charged criminally. They can provide quicker reparations to victims, encourage voluntary disclosure of wrongdoing and stimulate changes in corporate culture while — and this is important — saving jobs.
These agreements will allow companies to continue operating when they might otherwise fail, thereby protecting employees, investors, and contractors who were not involved in the wrongdoing. Remediation agreements can save jobs, investment and a company’s contribution to our economy, while not precluding culpable individuals within the organization from being prosecuted criminally. If the conditions are not met, the prosecutor can revert to traditional court proceedings at any time.
One of the best-known features of this bill, of course, is its creation of the Greenhouse Gas Pollution Pricing Act, which puts a price on greenhouse gas emissions across the country. Science tells us that climate change is a serious threat and that human activity is causing it. Some argue that dealing with climate change would be damaging to our economy. I believe that ignoring the threat of climate change, or taking action inadequate to the challenge of dealing with it, is a far greater risk. On the other hand, dealing with climate change will stimulate, motivate and inspire a new 21st-century economy. It will be a catalyst for an economy of the future.
It is this appreciation of threat and opportunity that drives Canada’s commitment to the Paris Agreement; inspires our commitment to lower emissions by 232 megatonnes of greenhouse gas emissions, by 2030; and drives the decision to implement a carbon price to do it. Economists tell us that the most efficient and effective way to make significant emissions reductions is by putting a price on carbon.
The federal government worked with provincial, territorial and Indigenous partners to adopt the Pan-Canadian Framework on Clean Growth and Climate Change in December 2016. The framework aims to have carbon pricing in place in all provinces and territories this year. Provinces and territories can implement their own system, or they can default to the federal backstop system. The federal backstop system will have two features: a carbon price on fossil fuels and an output-based system for larger emitters, designed in particular to help emitters with trade exposure.
If a jurisdiction chooses not to set up a system of its own, and most are choosing to do so, the backstop system created by this act will be applied. In either case, the money will stay in the province or territory where it is raised.
It is interesting to note several observations about how this will affect our economy. First, 80 per cent of Canadians already live in jurisdictions that have carbon pricing: British Columbia, Alberta, Ontario and Quebec. Interestingly, and importantly, these were the four fastest-growing economies in the country in 2017.
More than 70 per cent of farms in this country are in these four provinces. Most provinces and territories, as I said, will implement their own pricing systems and not opt for the backstop default.
Environment and Climate Change Canada’s most recent models show that the difference in GDP growth by 2022 due to this program would amount to about $2 billion, or 0.1 per cent of a $2 trillion GDP. The Parliamentary Budget Officer’s revised analysis, published on May 22, 2018, says it is broadly in line with the ECCC’s analysis from 2016.
Specific forecasts of the cost to households of this program depend greatly on how provinces and territories choose to recycle carbon pricing revenues. Alberta’s experience, however, is instructive. That province’s carbon levy is estimated to cost a couple with two children $508 in 2018; however, families receiving the full rebate under the Alberta program will receive $540 in return, so would actually have a net benefit.
For farmers, the government has specified two exemptions from carbon pricing for anywhere the federal backstop is implemented: First, non-combustion emissions such as those from cattle, tillage and fertilizer applications will be exempted; and second, gasoline and diesel fuels for on-farm use will be exempted.
Our Agriculture Committee has raised two concerns. The first is with the definition of farming. To address this, Senator Harder has just tabled a Senate delayed answer today in which the government has clarified that the definition used in the greenhouse gas pollution pricing act is the same as that applied in the Income Tax Act, and thus the CRA interpretation to which witnesses referred will be the same in practice.
Secondly, the Agriculture Committee raised a concern that the exemptions for agriculture were insufficient. I would like to address this concern by raising a few points.
The decision to provide some exemptions and not others to farmers is based on the current B.C. carbon pricing model. Research shows that this has not had a negative effect on farmers in that province.
Canada is committed to 232 million tonnes of GHG reductions by 2030. Broadening exemptions for one sector, in this case the farm sector, will mean that these reductions that would otherwise have been achieved in the agricultural sector will have to be found elsewhere. This begs an important question: Where will these reductions be found? Or, put another way, which small businesses, for example, will be tapped to make up these reductions despite not having the kind of exemptions already given to the agricultural sector?
Nor is this carbon pricing system all cost. There are real economic opportunities in carbon pricing systems for farmers to create and sell carbon credits. This is actually very exciting. Alberta has long had a carbon credit regime for farmers. They have developed a number of ways — last time I checked, about 21 — in which farmers can reduce their carbon emissions and receive carbon offset credits for having done so, which they can then sell through a structured market to other emitters to offset their emissions. This is real money paid to farmers — a new source of revenue going into Alberta farms — and it can be replicated across the country.
In addition, the federal government has made significant investments that will help farmers reduce emissions and adapt to the effects of climate change. These include over $11 billion available for emissions reduction, green agricultural research and development, and green agriculture jobs through various programs. And, of course, with the revenue generated by carbon pricing systems, provincial and territorial governments that have their own programs can subsidize farmers if it becomes apparent they are in duress; so can the federal government where the regime in this bill applies.
Canadians have historically risen to great challenges and have worked together, supported each other in overcoming them, winning two world wars, building the railroad, developing resources, creating this amazing and remarkable country together. Climate change is yet another challenge that Canadians can and will confront and will help lead the world to overcome.
This bill will authorize banks to collaborate with and invest in fintechs. Fintechs are enterprises that have arisen largely out of the Internet app-based digital economy. They offer a wide range of financial services at competitive rates and with convenient access. Many of us will have heard of Mint, WealthSimple and SecureKey, for example. To some extent, they are disruptors of the banking industry.
If our banks cannot access these kinds of modern enterprises, they run the risk of losing competitiveness and not meeting clients’ service expectations. A stable and secure banking industry is an essential condition of a strong economy. It is important that this industry be allowed to develop with the times to keep up with the times, so as not to jeopardize this strength.
The Senate Banking Committee reported concerns about the possibility of banks contravening privacy principles when sharing customers’ personal information with fintechs and perhaps circumventing the existing regulated wall between banks and insurance providers.
However, none of the provisions in Bill C-74 related to fintechs make any changes to Canada’s privacy framework, which is established by the Personal Information Protection and Electronic Documents Act known as PIPEDA. All existing requirements of Canada’s privacy legislation will, in fact, continue to apply.
PIPEDA overrides other pieces of legislation, such as the Bank Act, by way of its section 4(3) which reads as follows:
‘Every provision of this Part applies despite any provision, enacted after this subsection comes into force, of any other Act of Parliament, unless the other Act expressly declares that that provision operates despite the provision of this Part.’
Bill C-74 does not do that.
Financial institutions must have policies under this act and practices in place that meet PIPEDA’s principles. And the Privacy Commissioner of Canada, who is an independent agent of Parliament, oversees compliance with both the Privacy Act and PIPEDA.
The Office of the Privacy Commissioner confirmed in a ruling in July 2017 that PIPEDA obligations apply to fintech firms.
To the extent that some are concerned the banks might back their way into sharing data with fintechs that sell insurance, the Bank Act is clear: The banks cannot even share data with the insurance companies they own outright today. It follows that they are prohibited from sharing data through any fintech relationship that might involve the sale of insurance.
The Privacy Commissioner has also said that if changes were required regarding privacy concerns, they would appropriately be made to PIPEDA. This question, and the broader concerns about privacy laws that have been raised by the Banking Committee, may indeed be worthy of future study by the government.
It is worth noting that absolutely fundamental to a bank’s success is keeping client information confidential. Who would deal with a bank that did not honour that confidentiality? The risk to a bank’s reputation in contravening that principle is simply so high as to beg the question as to why they would ever do it.
The third category of initiatives in this bill address what I am referring to as processes of government.
First, income splitting and passive investment and Canadian-controlled private corporations. Bill C-74 will enact changes to the taxation of passive investment income in these businesses and to the splitting of income taken out of them. The changes are designed to do two things: First, they ensure that income can be split only with people who truly work for the business or have contributed to its development with sweat equity or capital investment. And the changes limit the sheltering of passive income in corporations in order to reassert an underlying public policy objective of encouraging that sheltered earnings be invested back in the business, to grow it, and in turn to create jobs and economic prosperity.
There was a good deal of controversy when these ideas were originally proposed in July of 2017. By December, the government had responded with critical changes to its initial proposals. It outright cancelled proposed changes to the lifetime capital gains exemption which were of particular concern to farmers and fishers. It introduced bright-line tests to clarify concerns about uncertainty in the application of income splitting rules. At the same time, to the extent that no such list can anticipate all the possibilities, the reasonableness test will still apply.
As well, the government allowed for a specified level of passive investment income before the $500,000 preferential small business tax begins to be phased out.
Cybersecurity: Another important change contemplated by this bill is the creation of the Canadian centre for cyber security. This centre will concentrate the federal government’s significant cybersecurity expertise by consolidating 750 personnel in a special unit in the Communications Security Establishment. This unit will serve as a source of advice, guidance, services and support on cybersecurity for governments and critical infrastructure owners and operators in the private sector. The centre will enable faster, better-coordinated and more coherent government responses to cyber-threats.
Cannabis taxation: Bill C-74 will establish a regime for taxing cannabis. This issue has been fully and ably explored and debated by the Senate over the last number of months, and particularly intensely over the past several days. By way of a brief summary, as part of the excise tax framework, the federal government will receive 25 per cent of revenue, and 75 per cent will go to the provinces. The federal government will limit its take to $100 million for the first two years.
In conclusion, I hope I have given you some sense of how Bill C-74 supports families with children, veterans and low-income Canadians; how it contains initiatives that will contribute to the strength of the economy now and into the future; and how it addresses various matters critical to the management of the tax system and other government roles and processes. This is a budget for now and a budget for tomorrow.”