Third Reading, Bill C-8, Economic and Fiscal Update Implementation Bill, 2021
Thank you, Senator Gignac, for your comments on Bill C-8. I’m the critic of Bill C-8, An Act to implement certain provisions of the economic and fiscal update tabled in Parliament on December 14, 2021 and other measures.
This bill received first reading in the other place on December 15, and, as my honourable colleague said, it received third reading on May 4 — it was over in the House of Commons for quite a while. It received first reading in the Senate on May 4, and we are presently in third reading.
Honourable senators, the fall fiscal update is usually delivered mid-year and is followed by an implementation bill. Last year, Bill C-14 implemented the provisions of the Fall Economic Statement 2020. This year, it is Bill C-8 implementing the provisions of the Economic and Fiscal Update 2021. I always refer to it as a mini-budget bill.
There are seven parts to Bill C-8. I spoke to each part of this bill during second reading, so today I will be more selective. I will discuss two parts of the bill that are of interest to me, and which I feel are of significance to all Canadians and people who are not Canadians and have homes within Canada. It is the most controversial part of Bill C-8.
Part 2 of the bill is the so-called underused housing tax act, and it’s an act within Bill C-8. It should have been introduced as a stand-alone bill to be debated on its own and not included as part of the omnibus bill, Bill C-8. The other six parts of Bill C-8 are initiatives that cost money, while the underused housing tax is the only initiative within Bill C-8 with the objective of generating revenues. All the others are expenditure initiatives.
The underused housing tax act is quite complex and over 90 pages long. The government initially announced its intention to implement the tax in its Fall Economic Statement 2020. At the time, the government announced it was targeting the unproductive use of domestic housing owned by non-resident non-Canadians that removes those assets from the domestic housing supply. Budget 2021 then provided more details and proposed a national 1% tax on vacant or underused housing. It also announced a consultation process to provide stakeholders with an opportunity to comment on the parameters of the proposed tax. The consultation period ran last year from August 6 until December 2.
The primary objective of the underused housing tax has changed from using it as a vehicle to increase the supply of housing, as was announced in the Fall Economic Statement 2020, to using it as revenue generation. Generally speaking, the act proposes to impose an annual tax of 1% on the value of residential property located in Canada that is owned directly or indirectly by persons who are neither citizens nor permanent residents of Canada, unless the owner is able to claim one of the exemptions permitted under the act.
There are two key areas of the underused housing tax act which I would like to refer to. The first is the definition of excluded owners. These are the individuals or entities who are exempt from paying the tax, the most significant being an individual who is a Canadian citizen or resident. The second area outlines exemptions to the tax. In other words, if an individual or entity is not an excluded owner and therefore must pay the tax, they may qualify for an exemption. The act lists 18 exemptions. If an individual or entity is not an excluded owner but qualifies for 1 of the 18 exemptions listed within the act, they will not have to pay the tax.
Finance Canada officials indicated during the course of meetings that they were unsure of the impact of the underused housing tax because there is a lack of information on vacancy rates in the housing market. Budget 2021 estimated that the revenues over the next four years will be about $700 million, and the Parliamentary Budget Officer estimates that the tax will raise about $600 million over the next five years, with estimated revenues of $130 million in this fiscal year. However, the Parliamentary Budget Officer stressed the uncertainty of some of the assumptions used to calculate the estimates, and Finance officials testifying at our National Finance Committee also expressed similar views.
Finance officials told us that there are 16.5 million residential units in Canada, and they estimate that 30,000 units will be subject to the tax based on data from Statistics Canada and the experience of the speculation and vacancy tax imposed by the Government of British Columbia. They were also unable to estimate the number of residential units that would become available as a result of this tax, which was the initial objective of the tax.
While the proposed act defines 18 exemptions to the tax, Finance officials told us that two new exemptions will come forward when the bill receives Royal Assent. In addition, the economic and fiscal update released last December indicates that another exemption will be brought forward. Specifically, that exemption said that the government plans to bring forward an exemption for vacation and/or recreational properties, which would apply to an owner’s interest in a residential property for a calendar year if certain conditions are met.
As the government had identified this “additional” exemption when they released the Economic and Fiscal Update 2021, they should have included it in Bill C-8.
Since the government can easily change the exemptions outlined in the current bill, as they have indicated, the bill is also worded so that “excluded owners” can be amended. Of specific concern to me is the ease with which the government can amend “excluded owners” so that Canadian citizens, residents or other categories will no longer be excluded.
At a recent meeting of the Senate Banking Committee, the Superintendent of Financial Institutions told the committee that about 250,000 households are created every year in Canada, compared to approximately 200,000 to 210,000 housing completions every year, so there is a mismatch between supply and demand. It remains to be seen whether the 1% unused housing tax will result in more houses being available to address the shortfall.
Stephen Poloz, former governor of the Bank of Canada, told the Banking Committee that municipal regulations were to blame for the shortage of available housing. Specifically, government rules are what stand in the way of the private sector solving many of our problems.
The underused housing tax is also causing concern for Canadian homeowners. A recent report raised the issue of the implementation of an annual deferrable, progressive surtax on home values starting at $1 million. Despite the assurances of the Minister of Housing that the government is not looking at charging capital gains or any surtaxes on primary residences, homeowners were concerned to learn through media reports that the Canada Mortgage and Housing Corporation, or CMHC, is tracking millions of mortgage holders to identify homeowners with more than one property — raising the possibility that the unused housing tax may, in the future, be extended to secondary residences owned by Canadians, such as summer cottages.
This morning I saw another article that referred to the possibility of a home equity tax being implemented. It seems that despite the assurances of the government to the contrary, there continues to be evidence that the government will continue its foray into the taxing of homes.
Another concern I have is that there has been no assessment on other impacts of the housing tax act. For example, what would happen if our American neighbours implemented the same type of legislation? If the United States were to adopt reciprocal legislation or legislation with a mirror effect, it would mean that many Canadians would be assessed a reciprocal tax, which would impact a significant number of us.
Concern has also been expressed over the federal government’s intrusion into the area of property taxes, which has traditionally been the major source of revenue for municipalities. This is seen as a dangerous and regrettable precedent, especially since municipalities were not specifically consulted during the consultation period.
The Standing Senate Committee on National Finance received from the Union of Quebec Municipalities a copy of a letter that it had written to the Minister of Finance regarding Bill C-8. They are opposed to the annual 1% tax on underused housing because of the government’s foray into the jurisdiction of property taxes, citing it as an “unfortunate precedent” since property taxes account for a significant source of revenue for Quebec municipalities.
The other part of the bill that concerns me is Part 6 — specifically, clause 46 — which authorizes the Minister of Health to make payments of up to $1.7 billion out of the Consolidated Revenue Fund for the purpose of covering any expenses incurred on or after April 1, 2021, in relation to COVID-19 tests. As a result of an amendment proposed by the Finance Committee of the House of Commons and accepted by the House, Bill C-8 now includes an accountability clause that requires the minister to report every three months on the total amount paid under the act, the number of tests purchased and how they were distributed.
While Bill C-8 is requesting $1.7 billion relating to COVID-19 tests, two other bills have provided money for COVID-19 tests. I have mentioned this before.
Bill C-10 provided $2.5 billion for COVID tests, and the appropriation bill for Supplementary Estimates (C) last year provided $4 billion. We were told that $4 billion was actually spent.
In a recent report, the Parliamentary Budget Officer said that the $4 billion provided by the appropriation bill for Supplementary Estimates (C) is a duplication of the funding being requested through Bill C-8.
This raises the question: Why is the government requesting money for the same initiative twice? When Parliament approves the same funding twice, an extra $4 billion will be available to be spent on some other unknown project.
Officials have indicated that the $2.5 billion approved by Bill C-10 has been frozen by Treasury Board. In addition, all but $6 million of the $1.7 billion in this bill has been frozen. It will be interesting to track this $1.7 billion to determine whether it remains frozen and unspent in this fiscal year.
The Standing Senate Committee on National Finance, in its report on Supplementary Estimates (C), expressed concern over the duplicate budgeting of this initiative. Specifically, the committee said that the government should end duplicate funding requests, as it lacks transparency.
I will conclude my speech with comments on the public debt, because debt is funding the costs of Bill C-8. Finance officials said that the cost of implementing the fall Economic and Fiscal Update 2021 will be $2 billion. Most of this $2 billion will be spent by the end of this fiscal year.
As we all know, government revenues are not sufficient to cover all the costs of government spending, including the $2 billion in Bill C-8.
The most recent Public Accounts for the 2020-21 fiscal year — which we didn’t receive until December, just before Christmas — indicate that the public debt charges were $20 billion for that year. It is important to know that this is not just interest on unmatured debt. The interest on unmatured debt was actually $14 billion of the $20 billion. Interest related to pensions and other employee and veteran future benefits was $5 billion. The remaining $1 billion was for a variety of other interest expenses and the amortization of premiums and discounts.
Budget 2021 forecasted public debt charges to increase over the next several years from $20 billion in 2020-21 to $26.9 billion this year. So the concern I have is the understanding of the cost of the debt, because it is not just interest costs.
As we all know, the Bank of Canada purchased over $400 billion of government bonds during the pandemic, most of which still remain on the books of the Bank of Canada. I think this is now down to about $397 billion.
In 2021, the Government of Canada incurred net losses of $19 billion relating to the Bank of Canada’s purchase of Government of Canada bonds on the secondary market. This $19-billion loss is recorded as negative revenue on the government’s books. Negative revenue is actually an expense. The $19 billion is an expense related to the Government of Canada’s debt. The cost of the public debt is not just the $20 billion recorded as “debt servicing charges;” it also includes the $19-billion loss incurred by the Bank of Canada.
By reporting this $19-billion loss as negative interest income rather than what it is — namely, an additional cost of servicing the public debt in 2021 — the government is not reporting the actual cost of servicing the public debt in 2021.
When Treasury Board officials appeared at the National Finance Committee earlier this week, I asked them about this issue — one of great concern to me from the perspective of transparency. They gave an initial response but said they would follow up in writing. I will be interested to see what they say.
An additional concern was raised by the Governor of the Bank of Canada at a recent meeting of the Banking Committee. Governor Macklem told us that if the Bank of Canada sold off Government of Canada bonds currently on its books, the bank would incur a loss of $20 billion. This $20-billion loss would be covered by the Government of Canada.
I will have additional comments on this issue next week, when I speak to the appropriation bills and the budget bill.
In closing, I wish to thank my colleagues on the Senate Finance Committee — the chair, Senator Mockler; the deputy chair, Senator Forest; and the members of the steering committee. I thank all members of the committee for their excellent questions during our meetings. I also extend my appreciation to our clerk and analysts, as their support ensures that our meetings run smoothly and remain productive. Thank you.