THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, May 11, 2021
The Standing Senate Committee on National Finance met by videoconference this day at 2:30 p.m. [ET] to study the subject matter of all of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, before we begin, I would like to remind senators and witnesses to keep their microphones muted at all times unless recognized by name by the chair.
[Translation]
Should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk and we’ll work to resolve the issue. If you experience other technical challenges, please contact the ISD service desk with the technical assistance number provided.
[English]
Honourable senators, the use of online platforms does not guarantee speech privacy or eliminate the risk of eavesdropping. As such, while conducting committee meetings, all participants should be aware of such limitations and restrict the possible disclosure of sensitive, private and privileged Senate information. Participants should do so in a private area and be mindful of their surroundings.
[Translation]
We’ll now begin the official portion of our meeting. My name is Percy Mockler. I’m a senator from New Brunswick and the chair of the committee.
[English]
I would like to introduce the members of the National Finance Committee participating in this meeting: Senator Boehm, Senator Dagenais, Senator M. Deacon, Senator Duncan, Senator Forest, Senator Galvez, Senator Klyne, Senator Loffreda, Senator Marshall, Senator Richards and Senator Smith. I would also like to welcome all viewers across the country who may be watching on sencanada.ca.
[Translation]
This afternoon we’re continuing our study on the subject matter of Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures, which was referred to this committee by the Senate of Canada on May 4, 2021.
[English]
We welcome several officials from the following departments: Department of Finance Canada; Innovation, Science and Economic Development Canada; Canada Border Services Agency; and Infrastructure Canada. Welcome to all of you, and thank you for being here and accepting our invitation.
Honourable senators, this afternoon we will focus on Divisions 11 through 19, 25 and 30 of Part 4, which are all Divisions that have not been referred to other Senate committees. Honourable senators, I would like to remind you that there will be no officials to speak to the Divisions that have been referred to other committees. If questions are asked about Divisions that have been referred to other committees, the officials present may not be able to answer them because they are being studied by other Senate committees.
I understand that there will be no presentation from the officials and that we will go directly to the question period. I would like to tell members that for this meeting senators will have a maximum of eight minutes each for the first round. Therefore, please ask your questions directly. To the witnesses, please respond concisely. The clerk will make a hand signal to show that the time is over. To the witnesses, I ask you to please identify yourself when answering a question for the committee record. For senators, please identify the part of the bill that your question relates to within Divisions 11 to 19, 25 or 30 of Part 4.
Senator Marshall: My first question is about Division 15, and it is on the Hibernia Dividend Backed Annuity Agreement. Does the Newfoundland and Labrador government know about that amendment? My understanding is that it is not controversial, that it is just being embedded in legislation. Is the government aware that it is included in the budget implementation act?
Sam Millar, Director General, Corporate Finance, Natural Resources and Environment, Economic Development and Corporate Finance Branch, Department of Finance Canada: Thank you, Senator Marshall, for the question. My name is Sam Millar, and I’m with the Department of Finance. The agreement that was signed with the Government of Newfoundland and Labrador does provide for the Government of Canada to implement the agreement through legislation. So, in a sense, the proposal here is contemplated by the agreement.
Senator Marshall: Okay. And it is not controversial, in your opinion.
Mr. Millar: The proposal in the bill simply implements what was agreed to by the two governments.
Senator Marshall: Yes, a couple of years ago. Thank you very much.
I also have questions on Divisions 11, 12, 13 and 14. On Division 11, the Fiscal Stabilization Program, have the provinces been consulted with regard to the changes in the formula?
Suzanne Kennedy, Acting Director General, Federal-Provincial Relations Division, Federal-Provincial Relations and Policy Branch, Department of Finance Canada: Hello, I am Suzanne Kennedy, Acting Director General of Federal-Provincial Relations at the Department of Finance, so I can answer that question. There have been discussions over the past couple of years about reforms to the program. The provinces did table requests for reform to the government.
Senator Marshall: So this is the end result? I think that is what you are saying.
Ms. Kennedy: That’s correct. Yes.
Senator Marshall: So it wasn’t negotiated. It was some discussion and then the federal government made the decision that it was going to be amended in this way. I know there was something in the Fall Economic Statement — or maybe it was in July. I wanted to know because some of the premiers have been quite vocal about their unhappiness with the stabilization program.
Has there been any communication with the provinces? When the equalization program was extended a couple of years ago, I didn’t hear from any of the provinces until about a year after the budget implementation act went through. So has there been any communication from any of the provincial or territorial governments with regard to what is in the budget implementation act?
Ms. Kennedy: As you said, this was announced in the Fall Economic Statement and federal officials discussed those changes with provincial officials to explain them. This bill implements the changes that were announced in the Fall Economic Statement.
Senator Marshall: Okay. Thank you.
Then in Division 12, the total amount is $4 billion. Can it go over the $4 billion; are there provisions in the legislation for the government to exceed the $4 billion that has been earmarked?
Ms. Kennedy: Again, I will answer that one. No, it is very clear that it is a one-time $4 billion payment.
Senator Marshall: Okay. So that is statutory and there will be nothing additional. If the provincial or territorial governments want more money, there is no provision under that clause of the budget implementation act?
Ms. Kennedy: That’s correct. If the government wanted to make another payment, they would require another change in legislation.
Senator Marshall: Another bill, okay.
Is that the same for Division 13 for the immunization plan and for Division 14 for the infrastructure?
Omar Rajabali, Director General, Social Policy Division, Federal-Provincial Relations and Policy Branch, Department of Finance Canada: Regarding Division 13, I can answer that question. The answer to the question is yes, that’s the amount, and that’s the amount provided for Division 13.
Senator Marshall: Okay, so that’s a statutory payment and once that’s made, that’s done?
Mr. Rajabali: That’s correct.
Senator Marshall: Okay, and Division 14, the $2.2 billion? Can the government exceed that amount or, if they wanted to, do they require a change in the legislation?
Nathalie Lechasseur, Director General, Programs Integration, Infrastructure Canada: It is a one-time payment. At this point, it is doubling the Gas Tax Fund and so it would require a new bill.
Senator Marshall: Okay. Those are all statutory payments.
I have a question on the student loans. And I saw that Mr. Rahman is there; he answered some questions in a previous meeting. Bill C-30 seems to conflict with Bill C-14. For that period of April 1, 2021, to March 31, 2022, are those loans? Will they be subject to interest?
Atiq Rahman, Assistant Deputy Minister, Learning Branch, Employment and Social Development Canada: Thank you for the question.
The provision in Bill C-30 has been drafted in a way that it does not conflict; it will simply replace Bill C-14 and insert a provision in our act so that both years are governed by this change and no interest will be charged between the period of April 2021 to March 2023. It will cover both years. One year was supposed to be covered by Bill C-14. This will end up covering two years.
Senator Marshall: The way I read the legislation is that for the period April 1, 2022, to March 31, 2023, those loans are subject to interest — that interest does not have to be paid, but interest will be calculated and added to the balances. Am I misreading that?
Mr. Rahman: Yes, senator, I think you might be misreading that. No interest will be charged during those two years on Canada student loans and apprentice loans.
Senator Marshall: Thank you very much.
[Translation]
Senator Forest: I want to thank our guests for joining us today.
My first question is about Division 14, the Canada Community-Building Fund. This division proposes an increase of $2.2 billion in the amount earmarked for infrastructure. By the way — the new name of the program is greatly appreciated — the name of the federal Gas Tax Fund will be changed to the Canada Community-Building Fund.
My first question is as follows. In the briefing binder for Bill C-30, on page 395, it says the following, and I quote:
Additional funding for the federal Gas Tax Fund will flow to signatories once it is available through the coming into force of Bill C-25.
I can’t figure out why this payment must depend on Bill C-25. Why not make the money available with the passage of Bill C-30, the bill that will ensure that the budget is implemented?
Ms. Lechasseur: The budget must be approved so that we can distribute these funds that top up the federal Gas Tax Fund. Once the budget is approved, we can pay out the additional funds.
Senator Forest: Even if we change the name of the federal Gas Tax Fund, we need Bill C-25. Okay.
My second question is as follows. Quebec was asking for adjustments to the gas tax program, particularly for municipal buildings, so that the buildings could be eligible. We know that local governments and municipalities are greatly affected by the pandemic. Could contribution agreements with the provinces be renegotiated in this area?
Ms. Lechasseur: The agreements are valid until 2024. Therefore, upon renewal, we can assess the possibilities and determine whether we want to add to or amend the program’s terms and conditions.
Senator Forest: So everything is frozen until 2024?
Ms. Lechasseur: A Canada-Quebec agreement was signed and 18 eligible categories were established. At this time, these categories are eligible.
Senator Forest: Thank you. My next question concerns Division 12, the $4 billion one-time payment for health transfers. Bill C-25, which was tabled in March 2021, already included an additional $4 billion for health. Are we talking about the same $4 billion or are these two amounts cumulative? What are the accountability requirements for this transfer?
Ms. Kennedy: No, these amounts aren’t cumulative. The $4 billion in Bill C-30 would replace the $4 billion in Bill C-25.
Senator Forest: What’s the rationale for replacing four billion with four billion?
Ms. Kennedy: It’s to ensure a more timely payment to the provinces and territories.
Senator Forest: Are there any accountability requirements attached to this transfer?
Ms. Kennedy: No, but this is found in the same section of the Canada Health Act. Provinces and territories are still expected to comply with the conditions of the Canada Health Act.
Senator Forest: Thank you. Do I have time for one more question, Mr. Chair?
The Chair: Yes. You have four minutes left.
Senator Forest: I want to follow up on the questions asked by my colleague, Senator Marshall. In Division 11, which addresses the adjustment to the Fiscal Stabilization Program, the budget increases the cap on the amount of assistance available to provinces facing a significant revenue decline. I understand that the provinces must apply to the Fiscal Stabilization Program and that the final amount provided to a province will depend on the extent of the decline in that province’s revenue. We know that some provinces tax their citizens less and therefore choose not to make full use of their tax base, compared to others. Will the Fiscal Stabilization Program take into account this distortion in the allocation of assistance?
Ms. Kennedy: The payments are based on the revenue decline. Regardless of a province’s revenue, a payment may be made if there’s a decline of over 5% in non-resource revenues or a decline of over 50% in resource revenues. The amount of assistance provided is independent of the level of revenue.
Senator Forest: The payment is independent of the tax burden on the citizens of this province?
Ms. Kennedy: Yes, exactly. The payment is based on the revenue decline.
Senator Forest: Thank you.
[English]
Senator Klyne: Welcome to our panel of witnesses here. Thank you very much for all your contributions.
My question is around Division 17 of Part 4 with respect to the Telecommunications Act. Division 17 of Part 4 proposes an amendment to the Telecommunications Act, stating that sections 12 and 62 will not apply in respect of a decision made by the Canadian Radio-television and Telecommunications Commission on whether or not to expand access to telecommunications services in underserved areas. Such a decision will be subject to review by the CRTC on its own initiative as set out in 46.7, as will be its decision to allocate funding from a fund referred to in section 46.5.
It also amends the act to provide for the exchange of information within the federal government and with provincial governments for the purpose of coordinating financial support for access to telecommunications services in underserved areas. Can you help this committee understand why these proposed amendments are necessary and why now?
Andre Arbour, Acting Director General, Telecommunications and Internet Policy Branch, Innovation, Science and Economic Development Canada: Thank you, senator, for the question. My name is Andre Arbour. I’m the Acting Director General for Telecommunications and Internet Policy at Innovation, Science and Economic Development Canada.
As we all know, access to high-speed internet is essential in the modern context, particularly with COVID. There is a range of financial supports and programs operated by the federal government to expand access to these services. This includes the Universal Broadband Fund by ISED, for instance. The CRTC also operates a broadband fund in this space. However, given the CRTC’s status as an arm’s-length tribunal, they have certain operational constraints under the Telecommunications Act as currently written. These amendments are intended to help facilitate the rollout of these programs.
It will do so in two key ways. The first is that there are currently certain appeal mechanisms under the Telecommunications Act — that’s sections 12 and 62 — that are intended more for appealing complicated regulatory decisions that apply to various parties across the industry.
The first amendment would have these amendments not only apply to broadband project funding decisions. So if someone is awarded funding for a project, say $5 million, in a particular region, a competitor could not launch an appeal with the Governor-in-Council or with the CRTC in an attempt to slow down that project. The CRTC would still be able to review that project on its own motion and parties would still have recourse to the Federal Court of Appeal.
The second main measure, as you mentioned, involves facilitating the sharing of information between the CRTC and other federal organizations and provincial and territorial departments. This will address some limitations on the sharing of confidential information, such as project applications filed with the CRTC, that will help coordinate funding decisions with other programs.
Senator Klyne: You mentioned a couple of funds there. Throughout the amendments to the Telecommunications Act, there are 17 times where this “fund” is referred to, but I don’t know what fund it is. Maybe you can tell us about the available funding for expanding telecommunications in underserved areas. What amount is in this fund referred to in section 46.5, where do the monies come from and are there any other purposes for that fund beyond serving underserved areas?
Mr. Arbour: Section 46.5, which these funds would follow, gives the CRTC the authority essentially to apply a levy to the telecommunications industry and then use that funding to support access to basic telecommunications services.
In the case of access to high-speed internet, the CRTC has used that levy to create a fund simply called the Broadband Fund. That includes $750 million over five years. This is not a new state of affairs. The CRTC has long used this authority to support copper telephone service in rural and remote areas, but more recently has transitioned the fund to support for high-speed internet.
Senator Klyne: So if I understand correctly, these proposed changes will assist and accelerate rural and remote communities getting functional broadband and augment ISED’s efforts to increase rural and remote communities connection from the 2017 estimate of 37% by 2036. What role will these changes have on the considerations being given to those Indigenous communities that are not part of the 25% that are connected?
Mr. Arbour: Thank you for the question, senator. Certainly, these amendments will help have a more efficient rollout of broadband programming. Overall, the government is committed to having 100% coverage of Canadians with access to high-speed internet. As of the end of 2019, we are at about 87.5% nationally. The government has set targets to reach 98% coverage by 2026 and 100% coverage by 2030, using all available tools.
Senator Klyne: Thank you.
Senator Richards: I think this is 4.11, and I think for Suzanne Kennedy. I’m going to follow up on Senator Forest’s query about equalization payments. I am blaming absolutely no one for this pandemic, but we seem to have set up impossible economic standards here. Our restaurants are closed, tourism defeated, airlines operating at 80% reduction and our oil faucets have been turned off out West.
I am wondering how long these federal equalization payments can be made to places like New Brunswick without levelling more taxes on the ordinary Canadian citizen? It seems to me that these payments, at some point in the near future, aren’t going to be feasible unless taxes are raised. I am wondering if anyone might be able to give me some update on that or answers?
Ms. Kennedy: Division 11 speaks only of fiscal stabilization payments. Bill C-30 doesn’t make any changes to equalization payments, which are tied to GDP growth.
Senator Richards: Yes, I am aware of that, ma’am. I know that this is a question that is not specific to your expertise. I’m just wondering if you, as tax consultants and experts, might have any idea of how long we can last before people across Canada are going to have to pay more taxes?
Ms. Kennedy: I am sorry. I don’t think that I can answer that question.
Senator Richards: Fine. Thank you. That’s all, Mr. Chair.
Senator Galvez: Thank you. I would like to continue with the line of questioning started by Senator Marshall. The Hibernia Dividend Backed Annuity Agreement, which is in Division 11, I would like to understand more about it because it’s called the “new” Atlantic Accord deal and it’s very unique.
First, I would like to know if there are more details on this agreement. It is huge and covers a period of almost 40 years, but it only has five pages. I would like to know the timeline and the dollar figures associated with it. Then I will ask another question.
Mr. Millar: Thank you for the question. Sam Millar from the Department of Finance.
Division 15 in the bill proposes new statutory authorities for the Minister of Finance to implement on an agreement between the Government of Canada and the Government of Newfoundland and Labrador that was signed in 2019. That agreement, the text of which is publicly available, includes in a schedule a series of payments. Each one of those payments is listed in a different year. There are different amounts. Essentially, the proposal in the bill is to provide clear statutory authority for the Minister of Finance to make those payments.
The agreement also includes a series of payments that the Government of Newfoundland and Labrador would make to the Government of Canada. The basic principle behind the agreement, just to answer the senator’s question simply, is to reinforce the province’s position as the principal beneficiary of the offshore resources near the province.
Senator Galvez: Thank you for that. So you’re saying the province should be the principal beneficiary? I would like to know exactly how this money will alleviate the burden of increasing power rates in the province and by how much. Then I will have a last question.
Mr. Millar: The agreement that was signed in 2019 really doesn’t have anything to do with electricity rates in the province. I think I understood your question to be about electricity rates for, I suppose, residential consumers in the province.
Really, the agreement is about offshore petroleum resources in the main region and the province’s position pursuant to the 1985 Atlantic Accord as the principal beneficiary of those resources.
Senator Galvez: So this money is going directly to the offshore oil companies. It’s not going in any part to alleviate electrical rates. Okay, thank you.
Mr. Millar: Mr. Chair, maybe if I could just respond to the question. I just wanted to clarify, the payments are to the provincial government, not to the offshore oil companies.
Senator Galvez: But are there any conditions? We give it to the province and then what does the province do with it?
Mr. Millar: The agreement is there, published on the website. I don’t believe there are strict conditions in terms of how the provincial government would use those payments, no.
Senator Galvez: I think so too. One last question. How, then, will this offset the incredible, crippling costs of the Muskrat Falls project which is currently almost $13 billion?
Mr. Millar: This 2019 agreement and the provisions that are proposed in the bill, again, they are not related to electricity rates in the province. Of course, the Government of Canada and the Government of Newfoundland and Labrador have been discussing the financial restructuring of the Lower Churchill and Muskrat Falls projects, so those discussions continue, but the proposals in the bill are separate from those matters.
Senator Galvez: With respect to the $2.5 billion that Canada will provide as net value to the province, do you have any idea how this will be used by the province in relation to the Hibernia exploration of the ocean?
Mr. Millar: I don’t have a complete answer in terms of what the provincial government’s plans are in terms of the use of those resources. That was not specifically dealt with in the text of the agreement.
We could undertake to follow up with the senator, Mr. Chair, if that would be helpful.
Senator Galvez: Please do. Thank you.
The Chair: Mr. Millar, yes, please do through the clerk, to answer in writing the question posed by Senator Galvez. Also, we would ask you if we can have an agreement — and that goes for all participants — that written answers be transferred to the clerk on or at the latest Wednesday, May 19. Do we agree on that?
Mr. Millar: No problem from my end, Mr. Chair.
The Chair: Thank you, sir.
Senator M. Deacon: Thank you all for being here this afternoon. My question concerns Division 11 in Part 4, specifically the two parts of clause 195, which amends section 40 of the Federal-Provincial Fiscal Arrangements Act that allows the Governor-in-Council to make changes to the regulations.
Clause 195(1) deals with the information that must be prepared and submitted by the Chief Statistician for the purpose of stabilization payments. Clause 195(2) would allow the Governor-in-Council to make regulations with respect to the determination of personal and corporate income tax revenues for the purpose of fiscal stabilization payments to provinces.
What prompted these proposed allowances in the regulations? Do they provide a degree of flexibility that wasn’t there before or are they a reaction to a specific concern that you could share with us? That’s my first question. Thank you.
Ms. Kennedy: This is Suzanne Kennedy, and I can answer that. I’ll just note that these apply to claims for 2021-22 onward.
One of the technical changes in the bill is to amend how personal and corporate income tax revenues are measured. The new measure is to use assessments completed over the following calendar year rather than waiting two years and figuring out to which tax year every assessment applies. So this will facilitate the finalization of claims roughly one year earlier. That changes in the legislation, but we will need some regulations around the details of what exactly should be captured by those definitions.
Senator M. Deacon: And that work, I understand, still needs to be done?
Ms. Kennedy: Yes, that’s right.
Senator M. Deacon: Okay.
Ms. Kennedy: The first part of clause 195 is just to ensure that when the Chief Statistician provides a certificate with data for transfers, we can specify that we need data for fiscal stabilization as well. At the moment, it’s not among the sections that are listed.
Senator M. Deacon: Okay, thank you. I’ll process that. I’ll leave that for a moment.
My other question concerns Division 18 of Part 4, which makes changes to the Canada Small Business Financing Act. One change is in clause 205(3), which would amend the definition of a small business to include businesses that have as their principal object the furtherance of a charitable or religious purpose.
This obviously expands the definition of an entity that can apply for these loans. I’m wondering what the impetus behind that change was. I’m curious how “charitable” and “religious” will be defined for these purposes. Thank you.
Steve Watton, Manager, Policy, Canada Small Business Financing Program, Innovation, Science and Economic Development Canada: Basically, right now the borrower eligibility excludes not-for-profit, charitable and religious organizations from the program. Through some of the work that Employment and Social Development Canada has done on social financing, there were recommendations put forward to the program to expand borrower eligibility to include not-for-profits and charitable organizations given that they’re becoming bigger players in the economy, per se. It has been expanded for that purpose, but they still need to be an enterprise. It’s not just a charitable or a religious organization; it still has to be an enterprise.
In response to the social financing committee and their recommendations, the decision was made to look at expanding this to include not-for-profit and charitable organizations, as well as religious enterprises. It wasn’t necessarily designed specifically for religious enterprises; however, if we didn’t change the religious enterprises they would be the only organizations excluded, and this could be viewed as discriminatory.
Senator M. Deacon: My next question concerns Division 17, which amends the Telecommunications Act by limiting the ability of CRTC funding decisions to be appealed to the Governor-in-Council and would limit appeals to the Federal Court of Appeal only.
Why did the government deem this change necessary? Were there perhaps appeals holding up start-up projects meant to expand broadband access in rural and remote areas? Could someone share their thoughts on this?
Mr. Arbour: Certainly. Thank you, senator, for the question. The reason for these changes is that these appeal processes were generally intended for broader regulatory business that the CRTC conducts. The CRTC has a whole range of regulatory activities in their role as a tribunal. They also run this Broadband Fund that comes out of a levy and they essentially award project funding the way that other grants and contributions programs would work.
They’re relatively new in the broadband fund business: They’ve just launched that in the last two years. So far we haven’t seen many appeals. However, historically, when the CRTC was funding more rural telephone service, we did see more of them.
There is also a greater number of players. Broadband Fund intake processes will not just involve the normal entities, but can attract a lot of other non-traditional operators in this space. We think there is a greater risk of appeals going forward. There would still be, as you point out, recourse to the Federal Court of Appeal if there were concerns about fair process, for instance.
Senator M. Deacon: Thank you.
Senator Boehm: My first question is a follow-up on one asked earlier by my colleague Senator Marshall on student and apprentice loans. We all appreciated your answer, Mr. Rahman, about the interest payments and over what period that would be. Simply stopping interest on student loans might not be enough for many. The youth employment sector has been hit particularly hard during this pandemic. Where students would normally be working in food services or retail when they’re not in school, those options are cut off to them.
I’m wondering if you have any numbers on how many students have been unable to make monthly payments since the onset of the pandemic and what other recourse there might be for students in terms of policy planning that you might be undertaking.
Mr. Rahman: Thank you so much, senator, for the question. What we have witnessed since the onset is that, for six months, there was no repayment required for student loans between April and September of 2020. No student loan borrower needed to make any payments during this time, and neither was interest charged.
Since repayment started in October, we haven’t noticed an increase in delinquency of repayment. What we have noticed is a slight increase in access to the Repayment Assistance Plan. Those earning less than $25,000 do not have to repay their student loans. The government will pay interest on their behalf and, in some cases, even the principal amount when their income is low — $25,000 is the threshold for single individuals, and thresholds are higher for larger families. That already exists and some students are accessing it.
Going forward, the government has also announced — parallel to making student loans interest free for two years — its intention to increase the repayment assistance threshold from $25,000 to $40,000. That will be implemented next year subject to regulatory approval, of course. This will also help student loan borrowers to better manage their debt going forward.
At the same time, those students will be graduating within the next few years. Doubling the grant amounts will also ensure that student debt is not rising. All of those measures together will hopefully ensure that students are better able to manage their repayment obligations.
Senator Boehm: Thank you very much. I’d like to move on to a question for Infrastructure Canada, which follows up on what Senator Forest was asking at the outset.
According to the 2016 census geographic boundaries, there were 5,162 municipalities in our country. The Canada Community-Building Fund provides funding to 3,600 communities each year. There may be more communities showing up in the next census once the data is out.
I’d like to know whether the top-up is meant to double fund those communities that were already receiving funding in previous years, or is it meant to reach a greater number of communities across Canada?
Ms. Lechasseur: Thank you for the question. Yes, this is a top-up for all the municipalities that already received funding through the Gas Tax Fund.
Senator Boehm: The budget implementation act binder suggests that the goal of the program is to compensate municipalities for increases in costs and losses in revenues related to the public health measures to contain the pandemic and mitigate the risk of construction projects being cancelled or deferred. But if we look at news articles online, it shows that municipalities are actually increasing their infrastructure projects — some even doubling roadwork, for example, that’s already approved. So the extra money given to municipalities through the Community-Building Fund is not only used to mitigate the risk of construction projects being cancelled or deferred.
Ms. Lechasseur, how was the need of municipalities determined in order to arrive at the decision to double the usual funding? Is there an oversight mechanism that monitors how municipalities are spending the Canada Community-Building Fund top-up?
[Translation]
Ms. Lechasseur: The purpose of the top-up funding was to provide support to municipalities and First Nations. This funding is a top-up. Municipalities already receive the federal Gas Tax Fund. It’s a transfer of funds paid out to the provinces and territories to provide infrastructure support.
In terms of operations, the municipalities are responsible. However, it’s really a transfer of funds. We don’t choose the projects. Each municipality is responsible for managing the money received through this funding based on the eligible categories identified.
Senator Boehm: Thank you. However, do you have a mechanism to conduct follow-ups?
Ms. Lechasseur: In terms of follow-ups, once the projects have been completed, the provinces and territories are responsible for providing a description of the projects carried out with the funding.
Senator Boehm: Thank you.
The Chair: Before I continue with Senator Duncan, I would like to thank Senator Moncion, who joined the committee again this afternoon.
[English]
Senator Moncion is a sponsor of Bill C-30 and the budget implementation act. Thank you for being with us.
Senator Duncan: Thank you to the witnesses and officials who have come before us today, and also to my colleagues. Several of my questions around Division 17 have been asked and answered.
I would like to focus on Division 12, the health care costs and additional funding. Division 12 allows for a one-time payment to provinces and territories toward health care costs, and the officials mentioned $4 billion. In May of 2020, $150 million was announced to provinces and territories for virtual care priorities. Is this $150 million included in the $4 billion or is it elsewhere?
Ms. Kennedy: I’m afraid I do not have details on the $150 million, but this is a new $4 billion payment to strengthen health care systems. Provinces and territories can use it as they see fit according to their needs, so long as it respects the principles of the Canada Health Act.
Senator Duncan: Thank you, Ms. Kennedy. The $150 million payments come with an agreement with Canada that outlines an accountability and reporting section. My question with regard to this health care funding of $4 billion is related to the funds that are allocated to provinces and territories. How will the Government of Canada monitor how those funds are spent within the Canada Health Act? What will be the reporting mechanism for provinces and territories?
Ms. Kennedy: There is no specific reporting mechanism. It is a one-time payment under the Canada Health Transfer. It’s just the normal expectation that provinces and territories need to respect the principles of the Canada Health Act, but there are no reporting conditions.
Senator Duncan: That, at one point, was the Canada Health and Social Transfer. This money is specifically earmarked for health, if I’ve understood you correctly, and it must meet the principles. Can you tell me how it’s allocated, please?
Ms. Kennedy: It’s allocated on an equal per capita basis.
Senator Duncan: Will that per capita basis be impacted by the census we just completed? How will that be measured or factored in? I know how it’s going to be measured. The Chief Statistician will report at some point in the future. There has been a sense that there has been a shift of the population toward rural Canada, in parts where they’re able to access broadband. Will the per capita allocation possibly be retroactive or how will that be adjusted?
Ms. Kennedy: No. It’s based on population figures that are already available. In fact, the amounts are specified in the bill. The per capita calculations have already been made so it will not be affected by the new census.
Senator Duncan: Thank you. I’ll save my other questions for round two.
Senator Loffreda: Thank you to all our witnesses for being here today. My question is on Part 4, Division 18, amendments made to the Canada Small Business Financing Act. I note that the amendments are projected to increase annual financing by $560 million, supporting approximately 2,900 additional small businesses. What percentage of existing loans does this number represent? What percentage increase? A number always has more meaning if we put a trend analysis or a comparable to it.
Once again, thank you for these much-needed amendments to the act. All your hard work in this area is very much appreciated, especially in these times, because although these funds are those of the lender and not the government, by covering 85% of eligible losses due to default, the Canada Small Business Financing Act encourages lenders to offer loans that would not otherwise be available to small businesses that can definitely use them post pandemic or would only be made available under less favourable conditions. Thank you very much for your hard work in this area.
Mr. Watton: Thank you, Senator Loffreda, I appreciate that. These changes are expected to, as you mention, increase lending in the order of about $560 million per year. Each year, the level of the lending under the program is slightly different. The last couple of years has been $1.3 billion each year and then some years it’s around $1 billion. Some years it’s slightly under $1 billion. Over the last couple of years, it has been at $1.3 billion; $560 million on that, you’re talking about a 35% or 40% increase in overall lending.
Senator Loffreda: That’s a substantial number. Thank you for that.
There’s also a cap on claims paid to any one lender, and the Crown’s exposure to high-volume lenders is limited to 12% of the value of the loans made. Once this cap is reached, the Crown will no longer pay claims to that lender for that lending period.
How was the 12% arrived at? Is that based on a historical loan default? Have any banks ever come very close to that or are we very comfortable with that 12% given the economic context we are living and going through at this time? Maybe you can elaborate on that. Thank you.
Mr. Watton: Absolutely. The cap, or the reserve if you will, is basically the amount that any financial institution can draw upon in the event that their loans go into default. It’s effectively 12% of their loan portfolio for any given five-year period. So the program works in five-year increments. The level of the reserve in any given five-year period for that financial institution, effectively for the large volume lenders, is 12% of their overall portfolio.
Historically, it has been at 10% and it has been like that for decades. The reason it was raised from 10% to 12% in 2009-10 was as a result of the economic downturn, the 2008-09 crisis. We had all of the major financial institutions hit their cap subsequent to that economic downturn, so it would have been roughly the period of 2010, 2011, 2012. They all hit their cap.
As a result of that, there was interest in moving the cap upwards from the financial institutions, and it was raised to 12%. Since then, no one has been anywhere close to hitting their 12% cap.
That said, we are in a COVID world right now. None of the major financial institutions are on track to hit their cap. However, as some of these business support programs start decreasing, it is likely that some or many of them will start hitting even the 12% cap, I think, depending on the extent of the downturn here. But a lot of the loans are in the accommodation, food, beverage services sector, which has been very hard hit.
Is the 12% high enough? In a normal, stable sort of economic environment, 12% is very reasonable, one would think, considering we pay 85%, which represents 85% of the losses and the financial institution covers the other 15%. So when you have a 12% cap, you’d have to have a 14 or 15% loss rate to get to that 12%.
That being said, one of the things we’re looking at here is introducing a line of credit product. There are term loans, which have the 12% cap, and there’s a line of credit. We’re in discussions with financial institutions right now and they are saying 12% is good, but the lines of credit for working capital purposes are a little riskier and we may need to have a higher cap, perhaps even higher interest rates that are commensurate with the level of risk for that particular product.
There are discussions about potentially increasing the cap for the line of credit product, but not necessarily the term loan side.
Senator Loffreda: Excellent answer, and that’s where I was going with the line of credit, because I saw that you were including the line of credit in that.
I would also like to clarify that it is not 12% of the total loan portfolio, but the Canada Small Businesses Financing Act — the loans you are guaranteeing, not the total bank loan portfolio. We would be in trouble if that was the case because the percentage is less than 1%, as we all know — not to get into that number.
You did extend it to include religious, not-for-profit and charitable social enterprises. Are all these organizations included in the numbers you previously mentioned, and what percentage more? Because it is an increasing sample or an increasing trend to have non-profits, especially in these times. Charitable organizations will need more and more help with the banks. Once that program opens, my experience as a 35-year banker tells me to ask whether there will be enough for everybody here.
Mr. Watton: Yes, they are included in the uptake numbers that we discussed previously. They are included in the $560 million, 2,900 businesses.
The not-for-profit, charitable, religious social enterprises within Canada are only somewhere between about 6% to 8% of small businesses. Our expectations are that the number of not-for-profit, charitable, social enterprises demand for financing, loans and so forth, is not going to be as high as a for-profit business would be.
That being said, we’re expecting in the order of about $40 million to $50 million of additional financing going to not-for-profit, charitable, religious social enterprises each year as a result of these changes.
Senator Smith: I want to follow up on some of the discussion on Division 17, providing broadband services to Canadians living in rural and remote areas who don’t have access to adequate service.
I know you talked about it having a completion date, and I’m not sure you can say all Canadians, but has the government identified the total number of Canadians living in underserved areas? Has the number of potential projects been determined, or will it occur at a later time? What metrics will be used to measure the success of these projects? Do you have the current status other than what I think I heard you say, which is that there will be completion at such-and-such a date down the road?
What is the present situation, the reality of how many projects can be started, completed and successful, so that it will be something that’s consistently monitored? I’m not saying that it isn’t. If you could help me out and give a little more explanation, I think that would help answer that question on broadband.
Mr. Arbour: Thank you, senator, for the question. The government has set a minimum speed target in terms of how it is defining high-speed internet. The target is 15 megabits per second download and 10 megabits per second upload. That is the target that all Canadians should have access to. Based on data and our extensive mapping, about 87.5% of Canadian homes had access to this level of service or better as of year-end 2019.
Senator Smith: Does that include remote areas or is that the whole country?
Mr. Arbour: That is the whole country together, so about 15 million homes altogether. About 87.5% have high-speed available to them.
Senator Smith: Does that include remote areas in the Far North or the whole country? I’m trying to get an understanding of the areas that need it the most and I’m trying to be supportive so we can have a clearer picture. It is one thing to talk about the country, but let’s talk about the specific area of Northern Canada from east to west, west to east. I think that would be helpful so we can see what the issue is.
Mr. Arbour: There is a substantial divide between higher density urban areas and lower density rural and remote areas where there is not a business case for the private sector to invest on their own. In rural areas, that availability was about 45% of homes at year-end 2019.
Senator Smith: How does that affect pricing for the citizens who live in the North?
Mr. Arbour: To a certain extent, the issue doesn’t even touch on pricing. The service is, frankly, not available at the target speed at any price. Certainly we have encountered that, on average, pricing does tend to be more expensive in these regions. Just the costs of building and maintaining the networks are more expensive. However, one of the criteria for our programs, such as the Universal Broadband Fund, is taking into consideration the price charged, and that is a factor. We want to make sure that once service is built, prices are reasonable so that Canadians can actually subscribe.
To your earlier question on accountability, we don’t set a minimum number of projects, partially because there is a range of players. There are hundreds of internet service providers, Indigenous organizations and municipalities that are ready and willing to build and operate networks in these communities and will work with whoever is there and comes forward with a good project.
Sometimes we have quite large projects that take advantage of certain economies of scale that come from some of the bigger players, like Bell or Rogers for instance.
We may have a smaller Indigenous community that builds and owns the network just in their community. And that’s the best project, the best option there, so we will work with them there. However, we do have clear accountability in our contribution agreements with recipients.
Money is only paid out as the project is done. It is not in advance. They actually have to hit their milestones. There is a range of public information that shows exactly the stage projects are at.
This was started with our last project, Connect to Innovate, and we’re expanding it to the UBF and other programs. For instance, Canadians can enter their community and see the status of the project, when it is slated to be completed and if it is on track.
Senator Smith: If I could go back to the broadband question in Northern Canada. Like many of us, you have probably heard about the possibility of a national program through the North, and along the fifty-fifth parallel, which would enable broadband in a Trans-Canada Highway type of concept. It would be the equivalent of when the railway was built across our country in 1867. This was a project thought of in the late 1960s and has been reviewed on a quasi-regular basis.
In the North, looking at the opportunity of working with Indigenous partners — and obviously they will be big players — having right-of-way and access would need to be negotiated with First Nations people so that, in a real partnership situation, you could accelerate implementation in the North in terms of getting the infrastructure in place. What comment would you have on that, Mr. Arbour?
Mr. Arbour: Thank you for the question, senator. Yes. You’ve keyed in on an issue that when you are building out other infrastructure, such as extending hydro power to communities, adding telecommunications networks is a small incremental cost to that overall bill. It would be the same if you were extending a road or other basic infrastructure.
It depends on where you are in the North in terms of the prospects for that. For instance, in the eastern Arctic, most of the communities are fly-in only and there is limited infrastructure between the communities. However, there are some possibilities there. There is a project being looked at from Churchill, Manitoba, up into Nunavut that is in the early stages.
We don’t necessarily have to wait for that. We have prospects with new satellite technology to substantially improve service. We have also funded what are called submarine fibre-optic cables. There is no road, so that’s not a good avenue, but we can build an undersea cable along the coast to reach certain communities.
Senator Smith: If we could bundle four or five of these services across the country and get Indigenous and big players working together, this could be transformative for Canada. Do you agree?
Mr. Arbour: Thank you, senator. There is definitely scope there, but in our experience it is very context-specific. There are some parts of the country where the opportunities for bundling are very limited based on the geographic circumstances. There are others where there are great opportunities and we try to take advantage of those where they exist.
Senator Smith: Thank you, sir.
[Translation]
Senator Dagenais: My question is for Ms. Lechasseur and it concerns infrastructure. I would like some clarification on the infrastructure budget. The government often talks about multi-billion dollar investments on top of other billions of dollars — some investments in particular were announced in February — and this gives us the impression that new investments are being promised. In many cases, and I’ll put it this way, certain politicians recycle old news. We’re talking about large sums of money here, but I’m particularly interested in the disbursement. Unfortunately, the disbursement is spread out over several years to make the amounts look larger. Sometimes, things are changed in the following years’ budgets.
How much will actually be spent over the next year on public transit and the electrification of existing transportation systems?
Ms. Lechasseur: Under the federal Gas Tax Fund, this is an annual transfer of funds. In terms of the additional funding that we’re talking about here, that transfer will be made as soon as the budget is approved. The funds will be given to the provinces and territories and then transferred to the municipalities so that they can carry out their projects.
The federal Gas Tax Fund is a permanent source of funding provided each year. The current budget refers to an additional amount that will be transferred to municipalities in the form of a payment.
Senator Dagenais: Thank you.
My next question is for Mr. Vragovic. I want to discuss the part of the budget designated for border services. Again, I want to see whether there’s any recycling of previously announced expenditures. What are the new amounts, meaning the amounts that haven’t yet been announced as part of the special pandemic support measures, for border security for the next year?
[English]
Goran Vragovic, Director General, CARM, Canada Border Services Agency: Good afternoon, Mr. Chair and senators. Thank you very much for the question. My name is Goran Vragovic. I’m with the Canada Border Services Agency.
Senator, I’m here this afternoon to talk about the proposed legislative amendments that would streamline the commercial processes that we are introducing. Unfortunately, I’m not in a position to answer your question, but I will be happy to take that away and respond to the committee in writing.
[Translation]
Senator Dagenais: I’d like to address another issue, which is the health of visitors who will be entering Canada this year and in the years to come. This is, of course, an important issue. Tourism and trade are major components of the post-pandemic economic recovery. However, what investments are planned in this area, and how quickly can we implement or modernize our border controls to reassure Canadians?
In a nutshell, do you have enough money in this budget to get this done quickly? When will we reopen our borders and see the implementation of measures that will take shape this year?
[English]
Mr. Vragovic: Once again, thank you for the question, senator. Unfortunately, I am not in a position to be able to respond to the question at this time and I would be happy to come back to the committee with details later.
[Translation]
Senator Dagenais: So I can count on you to send us the explanations in writing?
[English]
Mr. Vragovic: Yes. We will follow up in writing.
The Chair: Mr. Vragovic, as a reminder, your answers in writing should be directed to our clerk. In order to meet the time frame of our report to the Senate of Canada, please provide the information on or before Wednesday, May 19. Do we have agreement on that?
Mr. Vragovic: Yes, Mr. Chair, that is understood. We have agreement.
Senator Marshall: I have a question for Mr. Watton. I notice that you are with Innovation, Science and Economic Development Canada. The Canada Small Business Financing Program, is that delivered through the economic development agencies or by the department directly?
Mr. Watton: It is a partnership with the financial institutions across Canada. ISED administers the program and it is delivered through financial institutions, all the major chartered banks, credit unions and the Fédération des caisses Desjardins du Québec.
Senator Marshall: So Export Development Canada and BDC, is there any relationship between the different programs?
Mr. Watton: EDC is basically lending and guarantees for companies that export abroad. BDC is a financial institution that lends directly to small- and medium-sized businesses. So BDC is like the government’s small-business bank, if you will. We are a different policy tool that partners and leverages financial institutions, expertise and funds to help small businesses get access to financing that otherwise would be unavailable.
Senator Marshall: Is this the only financing program that you deliver? It is delivered through what I would refer to as your headquarters as opposed to the development agency? Is that the only business financing program that you provide?
Mr. Watton: Within the Canada Small Business Financing Program per se, yes, this is the only business program that we provide. However, within the branch there’s also the Women Entrepreneurship Strategy, the Black Entrepreneurship Program, the Small Business Financing Program that was just announced as well, and there is the liaison with the BDC as well within the branch.
Senator Marshall: The briefing note says the government shares the risk with financial institutions. That is what supports that statement when you responded to Senator Loffreda? You spoke about the 12% cap and the possibility that it might move higher.
Mr. Watton: It is related to that. Think of it as a loan guarantee program. The lenders do their assessment and they give out the loans. If the loan goes bad, if it goes into default, then the lender realizes on the assets, the guarantees, et cetera, and submits a claim for loss to the program. We cover 85% of the loss. The lender eats the other 15% of the loss. But the overall amount that they can claim from us can never go above 12% of their lending portfolio.
Senator Marshall: The cap?
Mr. Watton: Exactly. But for each individual loan, it is 85% of the eligible loss.
Senator Marshall: Thank you very much. That was very helpful. Thank you.
Mr. Watton: You are most welcome.
Senator Duncan: I would like to return to health funding. Division 13 provides $1 billion to the provinces and territories toward vaccinations. Could I have the information as to how the breakdown of the sharing of this $1 billion was allocated?
I will follow up from that response, please.
Mr. Rajabali: Yes. As indicated in the legislation, it is actually done on a per capita basis and the amounts are prescribed in the legislation.
Senator Duncan: The amounts are prescribed in the legislation. Is there any accountability for the funds? Are there any restrictions? Is it simply toward vaccination rollout and not the costs of the vaccines themselves? Those are paid for elsewhere?
Mr. Rajabali: You are correct. This is not for the procurement of vaccines. This is strictly to support the provinces in the rollout of the immunization campaign.
To answer your specific question in terms of conditions, there are no conditions. In terms of reporting, it is expected the PTs will report to their citizens in terms of how they spend the money based on their unique circumstances.
Senator Duncan: Is there an assessment mechanism built in as to which methods worked best in which province or territory?
Mr. Rajabali: No, there is not. It is for the provinces to use based on their unique circumstances.
Senator Duncan: Thank you very much. I appreciate it.
Senator Loffreda: My question is on Division 12, additional health transfers or the Federal-Provincial Fiscal Arrangement Act. There is $4 billion to provinces on a per capita basis to help support clearing health care systems’ backlogs caused by the pandemic. So $4 billion to the provinces has been transferred for that purpose. Recognizing this is a provincial jurisdiction, do you have any data on the backlog in the health care system — how many surgeries have been postponed, appointments cancelled, et cetera? Do you have a breakdown of how much federal money has been invested in addressing these backlogs beyond what is in Bill C-30? It is very important and it is a priority. It is a discussion we hear about very often these days.
Ms. Kennedy: We do not have any data specific to the provinces’ and territories’ backlogs. There are ongoing discussions with the provinces and territories about their needs, but, like you said, it is their area of responsibility and we do not have that data.
Senator Loffreda: Do you have a timeline as to when? Obviously the pandemic is so dynamic and we don’t know when we will be over the third wave, but is there a timeline? Based on the discussions you have been having with the provinces, will this funding will be used very early on or later on in the process?
Ms. Kennedy: No, we don’t.
Senator Loffreda: Thank you. I will follow up on a question I asked this morning. My question is on Division 14 and the proposed Canada Community-Building Fund, the new name for the Gas Tax Fund. As I previously mentioned, we are all pro-environment. It is so important to look after our climate and the future of our children. Can you share with us the revenues generated by the federal excise gasoline tax, perhaps some historical figures and projections? With more and more EVs on the road and Canada’s 2050 zero-emission targets, it is a matter of planning forward and mitigating risks. The revenues from this tax are bound to drop. Is the government taking this future lost revenue into account when budgeting in the short term and the medium term? I am interested in the discussions on those matters and what the numbers might be.
[Translation]
Ms. Lechasseur: Thank you for the question.
I think that this is a good reason to propose changing the name of the federal Gas Tax Fund to the Canada Community-Building Fund. The money from the federal Gas Tax Fund doesn’t come from the gas tax, but from the Consolidated Revenue Fund. So there isn’t any connection between the two right now.
I don’t know whether this answers your question.
Senator Loffreda: Not really.
I would have liked to see some figures on the amount of revenue and gas tax currently being collected. How much revenue will need to be replaced in the future?
Ms. Lechasseur: I don’t have those figures, unfortunately, since the money doesn’t come from the gas tax.
Senator Loffreda: These figures aren’t in your information material?
Ms. Lechasseur: Exactly.
Senator Loffreda: Perhaps someone else could answer this question?
The Chair: Could someone from the Department of Finance answer this question?
[English]
Ms. Kennedy: Just to say, no, we don’t have that information, but we could bring the question back to Finance if you like.
Senator Loffreda: Yes. I would like to have an answer to that. To what extent will revenues have to be replaced until 2050? It will be a good planning exercise going forward as to how to replace those revenues without substantial tax increases that the economy cannot sustain at this point in time.
The Chair: Thank you, Ms. Kennedy, for offering to come back to us in writing. Please be mindful of providing this before or on the targeted date, which is Wednesday, May 19.
Ms. Kennedy: Yes.
The Chair: Do we have that agreement? The questions asked by Senator Loffreda.
Ms. Kennedy: Yes, we will do that.
[Translation]
Senator Galvez: I’ll continue along the same lines as Senator Duncan.
[English]
On the subject of Division 13, Canada’s COVID-19 Immunization Plan, there is a list of important amounts of money from $1 million to almost $400 million going to Ontario, for example, for the immunization plan. I was surprised to hear Mr. Rajabali say there were no strings attached and no conditions because there is a document called Canada’s COVID-19 Immunization Plan: Saving Lives and Livelihoods which describes the whole immunization plan. There are indicators for measuring the success of the COVID-19 vaccination approach. It includes, for example, how many Canadians accessed the vaccine and were vaccinated, but also how successful that immunization was against COVID-19, the morbidity and mortality cause and how much it was reduced.
I would like to know who is going to be providing this information in order to measure the success of the vaccination implementation.
Mr. Rajabali: In terms of the funding as provided, as indicated before, there are no conditions associated with the money. There is, of course, the actual immunization plan which is the FPT public agreement put out by the Public Health Agency of Canada. The two are, of course, related in terms of the name “immunization plan,” but in terms of the money provided to the provinces and territories, there is no reporting and no conditions are associated with the money.
Senator Galvez: Will you be able to tell us how efficiently this money was used for the purpose which this money was given?
Mr. Rajabali: No. As I said before, there is no reporting to the federal government. This is purely the provinces reporting to their citizens in terms of the money the federal government is providing to the provinces and territories.
Senator Galvez: Okay. Thank you, chair. I think there will be an observation for this point in our report.
The Chair: Thank you very much to the witnesses. I can share this: With my experience criss-crossing when I was in the Legislative Assembly of New Brunswick, you have again shown professionalism in answering our questions. Please be reminded again about Wednesday, May 19. Also, when we look at the format that we have used, I believe it has been beneficial and informative to all of us.
That said, honourable senators, Senator Galvez brings us to the end to our meeting. I want to thank each and every one of you for your participation.
Our next meeting is scheduled for next Tuesday, May 18, at 9:30 a.m. EST. With that, senators, stay safe; witnesses, stay safe. To the clerk and the team, thank you for a job well done.
(The committee adjourned.)