May 17, 2023

Canadian Chamber Appears Before Senate Committee on National Finance

On May 16, 2023, the Canadian Chamber’s Senior Director, Fiscal and Financial Services Policy, Alex Gray, appeared before before the Standing Senate Committee on National Finance examining the subject matter of all of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023. 

Speaking to Members, Gray discussed the implications of Budget 2023 on Canada’s economic competitiveness and the need for strategic policies to attract investment and stimulate growth. Gray acknowledged some positive elements of the budget but expressed concerns about the proposed sector-specific tax on financial services providers, which could harm Canadian competitiveness and complicate an already burdensome tax code. He emphasized the importance of pragmatic and predictable policies to encourage private sector investment, highlighting the need to address obstacles such as the convoluted tax code and the potential negative impacts of new taxes on the financial services sector. 

Gray urged the government to prioritize measures that enhance skills development and talent acquisition, improve credential recognition, and reduce disincentives to work for seniors. 

His full remarks are available below.

Budget 2023 presented the government with the opportunity to establish the conditions necessary to grow our economy and raise future generations’ standard of living. Some elements are laudable. Some others, such as the proposed imposition of yet another sector-specific tax on financial services providers, will harm Canadian competitiveness and further distort an already cumbersome tax code. Taken as a whole, we see Budget 2023’s lack of a decisive strategy to attract the investment required for strong, sustainable growth as a missed opportunity to ensure Canada’s economic competitiveness in perpetuity.

In the aftermath of the pandemic, our international competitors continue to outpace us as Canada experiences low growth and weak labour productivity. Indeed, Budget 2022 [sic] noted that labour productivity growth in Canada has slowed from about 2.7 per cent in the 1960s and 1970s to less than 1 per cent today. Correcting this trend requires government to create a strategy that eliminates the disincentives to investment while focussing on pro-business policies for the benefit of all Canadians.

However, strategy without execution is pointless, and there are many obstacles for Canadian businesses to overcome. We cannot hope to encourage private sector investment without pragmatic, predictable policies. Today, I will highlight two of our membership’s policy concerns which, if addressed, could reduce friction in the Canadian economy at little to no cost to taxpayers.

Start with our convoluted tax code. The recent introduction of several sector-specific taxes, such as the digital services tax, the Canada Recovery Dividend, and the corporate tax increase on banks and insurers, introduces unwelcome volatility and unpredictably to the Canadian business climate.

In BIA 1, we are particularly concerned about the proposition of yet another such tax – the proposal to amend the GST and HST definition of what constitutes a financial service in the Excise Tax Act to exclude payment card network operator services. First, as with the digital services tax, we oppose the retroactive nature of this proposal, which would allow the CRA to assess taxpayers as far back as 1991. Canadian businesses cannot plan and invest for the future with the ever-looming possibility of retroactive taxation.

Additionally, this new tax will decrease Canadian competitiveness while increasing the costs of doing business in Canada. In general, other jurisdictions exempt their payment card network operators from similar taxes. By defying this best practice, the government would be placing Canada’s financial services sector at a competitive disadvantage relative to its international peers. Further, increasing the cost of card acceptance would force businesses to weigh shouldering a new fee or passing it along to consumers.

We urge the government to reconsider the application of this and other distortive taxes and instead undertake a concerted effort to simplify both business and personal taxation.

Additionally, with over 800,000 job vacancies in Canada, we had hoped to see the Budget focus more sharply on the skills and talent our workforce will need now and into the future. Measures such as enhancing the Express Entry program, improving interprovincial and foreign credential recognition practices, and reducing seniors’ disincentives to work would cost little while helping business address a vexing obstacle to growth and expansion.

We had hoped that Budget 2023 would contain many more of these low- or no-cost growth measures. Allow me to underscore that Canadian business is eager to partner with government to create a strategy that takes advantage of these measures for our collective prosperity. Thank you.

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