Hon. Éric Forest: I would like to congratulate and thank the sponsor of the bill, Senator Moncion; the official critic, Senator Marshall; as well as the committee chair and its members.

I just want to come back for a moment to the luxury items tax that would apply to the aeronautical, nautical and automotive sectors, among others.

As you know, the current government made this a key election promise; unfortunately, it seems to be poorly crafted. Indeed, during our work, we were very surprised to find that officials from the Department of Finance, otherwise extremely competent people, were unable to justify this tax which, as we know, could be very damaging for the aerospace industry and its workers.

Aircraft manufacturers came to committee to tell us that, as it stands, the tax will have a significant impact on the entire aerospace industry. They estimate losses of $1 billion in revenue as well as 1,000 direct jobs gone. It is important to put this in the broader context, where the Canadian aerospace industry has lost almost 30,000 jobs in 2020 alone and the sector’s contribution to Canada’s GDP has decreased by $6.2 billion.

Our first instinct was to ask Department of Finance officials the following: If 1,000 direct jobs and $1 billion in revenue are about to be jeopardized because of this luxury tax, can we assume that a study of the anticipated revenue has been conducted, to assess whether the advantages outweigh the disadvantages? Much to our great surprise, we were told that no such studies had been done. Since I’m sure you are as shocked as the Finance Committee members were, let me quote the relevant part from the evidence.

The Director General of the Sales Tax Division with the Department of Finance, Phil King, appeared before the committee on May 31. I asked him the following, and I quote:

Following the consultations, the Aerospace Industries Association of Canada indicated that it estimated that the tax could result in the loss of approximately 1,000 jobs in Canada and lost sales of between $500 million and $1 billion.

In your consultations, did you estimate the impact of this tax on Canadian jobs in the aerospace industry? I have nothing against taxing the wealthiest; it’s a matter of social equity. However, has the impact on workers been assessed?

He provided the following answer, and I quote:

To respond directly to the senator’s question, no, the department has not done an economic impact estimate on the auto, boating or aviation sectors. There are a couple of reasons.

First of all, there are few other examples of such taxes to which we can appeal to look at the impacts, and the economic literature on this type of tax is fairly thin. In particular, that’s true of the aircraft sector.

So we don’t have an estimate of specifically what the impacts could be, but we have, at the very least, consulted fairly extensively with industry and heard some of the impacts that the senator had mentioned.

Just to be clear, C-19 introduces a tax on luxury items to help the government balance its budget after it had to spend significant amounts during the pandemic. According to the government, the idea is to get the wealthy to contribute. This tax applies to different items, including aircraft mainly produced in Quebec. However, the government is unable to say whether this tax will bring in more than what it will cost in terms of job losses, employment insurance, lower GDP, and so forth.

It is nonetheless quite astonishing that a G-7 country would proceed by trial and error without taking the full measure of the potential negative impact that this tax could have on the flagship businesses of Quebec’s economy.

I admit that the lack of a cost-benefit analysis, even a cursory one, tends to reinforce the argument of those who claim that this luxury tax is primarily an electoral ploy by the government to show that it is attacking the wealthiest one per cent.

If the goal is to balance the budget by taxing the wealthy, I think it would have been more effective to increase income taxes to better target the wealthiest members of our society, reconsider certain tax loopholes and revisit our tax treaties with some complacent jurisdictions. However, I must admit that, from an election perspective, that seems less impressive than a tax on luxury items.

I must say that we are very concerned about the lack of a cost‑benefit analysis. That is why the Standing Senate Committee on National Finance added an observation to its report on Bill C-19 to recommend that the Department of Finance conduct a real study on the effect this tax would have on Canada’s aircraft market and jobs before imposing this tax on the aerospace industry.

As several committees and several colleagues pointed out, it is shameful that we have so little time to study such a big and important bill.

We have criticized the use of omnibus bills to pass measures that have nothing to do with the budget many times in the past. For example, as the Standing Senate Committee on Legal and Constitutional Affairs indicated, it is appalling that the government is including amendments to the Criminal Code to tackle antisemitism in a massive budget implementation bill.

Honourable senators, let me be clear. I think we need to pass Bill C-19 in order to help pensioners, the unemployed, students, workers, and, generally, Canadians. However, I do not want this support to be interpreted as condoning the actions of the government that unfortunately has a bad habit of pushing around parliamentarians by imposing far too strict deadlines to study complex bills containing hundreds of measures that often have nothing to do with the budget. This is a terrible practice and is certainly inconsistent with the government’s claims that it is in favour of transparency and sound management of public funds. Thank you. Meegwetch.

[English]

Hon. Colin Deacon: Honourable senators, I want to first thank Senator Moncion for her sponsorship of this bill and her excellent speech. I also want to thank Senator Marshall. I think we may have only four more budgets that Senator Marshall may be giving great reviews of — maybe better reviews, in another year. We’re all appreciative of the time you take to describe the different elements, Senator Marshall, very reliably, regardless of who the sponsor is.

Colleagues, I want to speak to Bill C-19, the budget implementation act, 2022, referencing Budget 2022 that was titled: A Plan to Grow Our Economy and Make Life More Affordable. It was billed as a:

. . . plan for targeted and responsible investments to create jobs and prosperity today, and build a stronger economic future for all Canadians.

I am always pleased to see the government invest in innovation, but innovation alone will not secure the prosperity of our grandchildren and future generations to come. For us to get a strong return on that innovation investment, we will need to align government policies, including procurement polices, regulations and legislation.

We have no time to waste. We are in a global competition for economic opportunity as the world transforms due to digitization and climate change. Right now, it doesn’t look good. The OECD predicts that Canada will be at the back of the pack in terms of economic performance through 2030 and in the three decades that follow.

So I am going to make three points that I hope will help to focus attention on what is needed to generate economic return from innovation.

Point 1: The government needs to catalyze and accelerate private investment in innovation.

The pandemic highlighted the potential for governments to innovate, but I feel we have slipped back to where innovation is the exception, not the norm. We have to start applying an innovation lens to our most pervasive problems in our society and economy with agility, speed and scale.

Government has a role in catalyzing private investment and accelerating innovation in the private sector. Unfortunately, this is because we’re much better inventors than we are innovators. We have a fabulous research engine, but we are still searching for that transmission that will convert all that research power into the opportunities, jobs and prosperity that Canadians increasingly need.

Achieving this is and has been difficult. Deputy Prime Minister Freeland stated in her budget speech that innovation and productivity are the Achilles heel of our economy. I agree with her. Indeed, many governments, no matter the political party, have been unable to tackle this issue effectively. This is not a new problem in Canada.

This problem was also highlighted by the Senate’s Prosperity Action Group, led by Senator Harder. Our report highlighted the following two points. First, over a period of 50 years, Canada’s productivity growth has declined considerably. In 1970, Canada’s GDP per hour worked was roughly $1 less than in the United States and $1 more than the G7 average. By 2019, Canada’s GDP per hour was $18.10 less than the US and $9.50 less than the G7 average.

Second, in 2019, Canadian businesses were investing approximately $15,000 per worker in machinery, buildings, engineering, infrastructure and intellectual property. However, businesses across the OECD were on average investing $21,000 per worker — 40% more — and in the U.S. it was $26,000 per worker — nearly 75% more than in Canada. That is a predictor of the productivity of those workers and our prosperity in the future.

According to the OECD, in 2020 Canada had the lowest level of business investment as a percentage of total investment in the G7. However, it had the highest household investment level and the second-highest government investment level as a percentage of total investment compared to the G7 in 2020.

It is this final point that I would like you to focus on: Canada has the highest level of household investment and the lowest level of business investment despite having leading levels of government investment. If we’re going to deliver the promise of Budget 2022, a plan for targeted and responsible investments to create jobs and prosperity today and build a stronger economic future for all Canadians, our government must find ways to successfully catalyze and accelerate private investment in innovation. And we must hurry up and build that transmission, or else we won’t be able to afford the engine or the fuel for research.

Point 2: There is an urgent need for greater competition. Over the past year, we have seen a revival of the debate surrounding Canada’s competition law and policies. You all know how grateful I am to Senator Howard Wetston for his incredible effort to facilitate the consultation and debate around the Competition Act.

As a result, I was pleased to see the provisions in Bill C-19 regarding amendments to the Competition Act. Division 15 introduced amendments to the Competition Act to criminally prohibit wage-fixing, allow private access to the Competition Tribunal on abuse of dominance and expand the scope of abuse of dominance practices. These are welcome amendments that will move the needle forward on the extensive work needed to reform the Competition Act.

However, I was most pleased when the government clearly positioned these changes to the Competition Act as a “down payment” on what we could expect to see. I was not alone. The Banking Committee shared this view and offered the following observation:

The committee believes it is imperative that the Government of Canada follows through on the commitment in Budget 2022 to consult broadly on the role and functioning of the Competition Act and its enforcement regime, and that it do so without delay.

The need for greater consultation on the act is imperative. Competition affects everyone. It is therefore important to have broad consultations to hear a diverse range of voices on how to reform this important law, not just those of traditional incumbents who have the most to gain from maintaining the status quo. We have to reach far beyond.

Beyond changes to the Competition Act, also discussed by Senator Loffreda, we need to have a whole-of-government approach in terms of developing pro-competitive policies and levelling the playing field for new entrants across the board and delivering increased value to Canadian consumers, especially in sectors where large incumbents dominate, like banking and telecom.

To this end, the Competition Bureau has issued a competition impact assessment and a Competition Assessment Toolkit, which can be a vital tool for legislators and regulators. They need to be used by public servants who have to start prioritizing these tools so they can identify anti-competitive practices, policies and regulations across government and make them pro-competitive.

Our economy will never achieve our potential unless governments become more innovative, more willing to change and unwilling to tolerate the statement, “but that’s not how we do things.”

Point 3: The last point I want to make is about regulatory modernization. You heard me speak about this in my third-reading speech on Bill S-6 earlier this week. Canada has a huge problem with command-and-control regulations. OECD data for 2018 shows that Canada leads the OECD in the use of these regulations, and that is not a good thing. By definition, they eliminate the opportunity to innovate because they define the process that must be followed.

To be clear, I’m not in favour of deregulation; rather, I’m in favour of efficient regulation and regulatory modernization that plays a huge role in spearheading innovation, increasing investment and accelerating the growth of business while protecting consumers from risks that rapidly emerge only when regulations stagnate in our ever-changing world.

If you don’t understand the breadth of administrative burden due to how we regulate, please listen again to the speech that Senator Petitclerc just gave. Those issues are in every corner of how we govern ourselves.

In conclusion, we must become fervent in our determination to build an effective transmission that converts the power from our research engine into opportunities, jobs and prosperity. Increased competition creates opportunities for innovative new entrants, and those new entrants push incumbents to invest in innovation versus increasing dividends, bonuses and share buybacks. That’s the benefit of increased competitive pressure. New competitive opportunities increase investment, which further fuels innovation and drives the changes needed to achieve productivity growth.

But the innovation will not convert to productivity growth unless we modernize our regulations so that businesses are empowered to implement innovative new practices that also protect consumers. It is productivity growth that will deliver the promise of Budget 2022. Productivity growth is what will grow our economy and make life more affordable.

However, we have been heading in the wrong direction for 40 years. Change is hard, and we need change. In a recent op-ed in The Hill Times, Professor Ken Coates of the University of Saskatchewan offered:

Tinkering with Canada’s existing innovation policies will not transform the national economy into a creative economic power. Governments need to rethink their approaches and look for innovative innovation policies.

An innovative economy requires an innovative government. Canada is already a G7 leader in investing tax dollars. However, we are an OECD laggard when it comes to updating policies, regulations and legislation that determine how effectively those investments convert into opportunities, jobs and prosperity.

Let’s “double down” and “triple down” on the down payment that Bill C-19 has made in competition law reforms and the good intentions of Bill S-6 as it relates to regulatory modernization.

I hope you now see how those crucial elements are important to fulfilling the promise of Budget 2022. I support Bill C-19 as a down payment on all the hard work we need to do to maximize the return on the government’s investment in innovation. Thank you, colleagues.

(On motion of Senator Martin, debate adjourned.)

The Hon. the Speaker: Senator Kutcher, will you take a question?

Senator Kutcher: Absolutely.

The Hon. the Speaker: The sitting is suspended until 8 p.m. Senator Galvez, you will have the balance of your time when we return.

(The sitting of the Senate was suspended.)

(The sitting of the Senate was resumed.)

The Hon. the Speaker: I’m sorry, Senator Galvez, it is now six o’clock. I apologize, but I have to interrupt you.

Pursuant to rule 3-3(1), I’m required to leave the chair and suspend until eight o’clock unless it’s agreed that we not suspend. If you wish the sitting to be suspended, please say “suspend.”

The Hon. the Speaker: Are honourable senators ready for the question?

The Hon. the Speaker: All those senators in the chamber who are opposed to the motion will please say, “nay.”

The Hon. the Speaker: All those senators in the chamber who are in favour of the motion will please say, “yea.”

The Hon. the Speaker: In my opinion, the “nays” have it.

And two honourable senators having risen:

The Hon. the Speaker: I see two senators rising. Do we have agreement on a bell?