The House of Commons Standing Committee on Finance has requested that submissions for the federal budget focus on the theme of ‘Climate Emergency: The Required Transition to a Low Carbon Economy.’franckreporter/iStockPhoto / Getty Images
Investment industry associations are calling on the federal government to tackle key issues such as sustainability, tax fairness and caring for Canada’s growing aging population as Ottawa readies to deliver its next federal budget on March 30.
In keeping with the House of Commons Standing Committee on Finance’s request for submissions on the theme of “Climate Emergency: The Required Transition to a Low Carbon Economy,” the Investment Industry Association of Canada (IIAC) has focused on climate-friendly investing this year.
The association’s pre-budget submission recommends that the federal government work with the provinces, territories and the private sector to “map out the necessary investments, financing requirements and sources of financing to meet Canada’s climate objectives” and emissions reduction goals for 2030.
The IIAC recommends using a combination of public and private capital to fund the creation of energy-efficient infrastructure; improving the efficiency and functioning of Canada’s green bond market; and returning revenue from carbon pricing back to consumers in the form of reduced tax rates for citizens and businesses.
But the first step to achieving any of these goals is to establish consensus about environmentally-minded investing among Canadians, says Ian Russell, the IIAC’s president and chief executive officer.
“[The government needs to] flesh out commonly understood definitions in terms of what do we mean by ‘green’? What do we mean by ‘sustainable’? How do we actually measure the progress of meeting these objectives?” Mr. Russell says. “You need definitions around it to make it effective. You want to encourage investors to participate in these projects, and so the way you do that is to [have] some kind of a measure or methodology.”
That applies to developing widespread public understanding of “what qualifies as a green bond,” the IIAC’s submission states. Mr. Russell says that “building or encouraging a more vigorous market for green bonds” while Canada strives to make the transition away from fossil fuels may require tax incentives, like reimbursing first-time issuers for setup costs for issuing green bonds and offering “super tax deductions” for contributions to registered retirement savings plans (RRSPs) designated to “climate-conscious products” such as green bonds.
“There should be a set of provisions within the budget to encourage the growth and expansion of these kinds of bonds,” he says.
Strengthening Canadians’ retirement savings is another priority for key investment industry organizations. As the aging population continues to grow, the Portfolio Management Association of Canada (PMAC), which represents 280 investment-management firms that have more than $2.8-trillion in assets under management, is striving for “tax fairness and levelling what is currently an uneven playing field between different types of investors,” its pre-budget submission states.
Specifically, Canadians whose defined-contribution pension plan assets are invested in pooled funds such as target-date funds are subject to higher tax rates on the non-registered portions of their investments than those who invest in mutual funds or segregated funds. And according to Melissa Ghislanzoni, association general counsel at PMAC, “there’s no policy rationale supporting that different treatment.”
As such, the organization’s pre-budget submission calls on Ottawa to adjust this rule and others that it says are “out-of-date [and] have not kept pace with their international counterparts, or with the evolution occurring in the investment fund industry.”
Meanwhile, the Conference for Advanced Life Underwriting (CALU) is setting its sights on the removal of provisions in the Income Tax Act that prevent small business owners from selling shares of their companies to younger generations of their family.
Section 84.1 of the act subjects private corporations to higher tax rates on the sale of shares to family members than to arm’s-length purchasers. While federal Finance Minister Bill Morneau indicated in 2017 that Ottawa would work with “family businesses, including farming and finishing businesses” to improve the efficiency of handing companies down to the next generations, CALU hopes to extend the same effort to a wider range of small businesses.
Its pre-budget submission deems these penalties “unfair” given that the agricultural industry employs just more than 1 per cent of all employees in the small business sector, Statistics Canada data show.
“This is a bit puzzling because, from a tax fairness and from a tax policy standpoint, … why would you offer that only to a subset of Canadians?” says Guy Legault, CALU’s president and CEO.
The organization is also asking Ottawa to develop a national seniors’ strategy that looks at the impact of the aging population, reduce costs for prescription drugs through pan-Canadian partnerships with governments and insurers and establish a standard list of prescriptions to remain universally covered by both private and public insurance plans.
Specifically, Mr. Legault says funding long-term care for a growing population of seniors is “going to be quite a burden on the next generation. ... This is a conversation that has to start now.”