The Hill Update: Winter 2017 Wrap-Up and A Look Ahead to 2018

As we head into 2018, the Capital Hill Group gives you a wide-ranging political update, showing the strength of the parties, where important legislation sits, the growing importance of the Senate, new government programs, how proposed US tax changes could impact Canadians, the split of the Indigenous and Northern Affairs Canada, and what to look for in early 2018 in Ottawa.

CONTENTS
Political Overview: Liberals survive self-inflicted wounds as Conservatives and NDP struggle to connect outside the Ottawa Bubble

Legislative Update: Where major bills stand at the end of the year 

Independent Senators Power Up Legislative Muscle of Upper Chamber

Rushing out the door: Looking back at recent Government announcements and new programs

Impact of proposed US tax changes on Canada

The Separation of Indigenous and Northern Affairs Canada

Look Ahead – 2018 Budget and Prorogation Rumours

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Political Overview: Liberals survive self-inflicted wounds as Conservatives and NDP struggle to connect outside the Ottawa Bubble


New Liberal MPs Churence Rogers, Jean Yip and Gordie Hogg pictured in Ottawa last week

After an up-and-down fall session of Parliament where Justin Trudeau’s Liberals faced fierce opposition attacks on Finance Minister Bill Morneau’s personal integrity, complaints about the handling on a deal with Netflix to promote Canadian content on the popular streaming media service, and continued fallout from the small business and income tax changes, among other issues, the governing Grits nonetheless are leaving Ottawa knowing that they still have a large advantage in the polls – both opinion polls and in actual by-election returns.

Despite much light and heat on perceived shortcomings and underperformers in the Liberal cabinet, the Liberals are still solidly the plurality choice of Canadians if an election were held today, and would likely be returned with another majority government according to the CBC poll tracker.  Support for the Liberals and Conservatives are essentially where they were on Election Day 2015,showing a modest rally in support for the Liberals whose support had dipped slightly during the fall at the height of the storms around Minister Morneau, while NDP support continues to lag.

This continued Liberal popularity showed itself in by-election results in four seats earlier in December. While the Liberal support did dip slightly in a heavily Conservative rural Saskatchewan seat and in two previously Liberal seats in Newfoundland and Toronto, they successfully held onto the seats they were the incumbent party in, and successfully snatched South Surrey-White Rock from the Conservatives, the first time the Liberals had won the seat in decades.

This marked the second Conservative seat lost under Andrew Scheer, following the Liberal gain in Lac-Saint-Jean in October, while the NDP faced its first electoral test under Jagmeet Singh and had dismal results. While the NDP was not a factor in any of the four ridings contested in December in the 2015 election, that te NDP finished with 5% of the vote or lower in the Newfoundland, BC, and Toronto with a  a very distant second place finish in Saskatchewan will disappoint supporters looking for a bounce from their new leader. Look for the Conservatives to continuing probing for Liberal weakness in the cabinet while perhaps trying more positive messaging, while questions will continue about Jagmeet Singh’s ability to impact the flow of federal politics as he continues to lack a seat in the House.

Legislative Update: Where major bills stand at the end of the year 

Legislative Update

Passed into Law

C-23: Preclearance Act became law on December 12, 2017 allowing US boarder officials to open more preclearance areas and also expands US boarder officers’ powers in Canada.

C-61: Anishinabek Nation Education Agreement Act became law on December 14, 2017 and creates the Anishinabek Education System which gives 23 Participating First Nations throughout Ontario control over their K-12 education. This agreement is seen as a win as the first agreement negotiated under the new Department of Crown-Indigenous Relations and Northern Affairs.

C-63: Budget Implementation Act, 2017 this bill was seen as a big win for the government and became law on December 14, 2017. It legislates the remaining half of Budget 2017 and includes measures to give federally regulated workers the right to request more flexible work arrangements from their employer.

 

In Committee

C-59: An Act Respecting National Security Matters Due to heavy criticism of the Bill the government has made the unusual move to send the Bill to Public Safety and National Security committee before second reading.  This Bill is intended to insure oversight over Canada’s security agencies including CSIS through an independent oversight agency and an intelligence commissioner.

 

In the House

Bill C-55: The Oceans Act has just come out of committee and was reported in the House before winter break. This Bill would allow the Minister of Fisheries, Oceans and the Canadian Coast Guard to establish a network of marine protected areas.

 

In the Senate

C-24: An Act to Amend The Salaries Act is currently at Second Reading in the Senate and would upgrade the pay of five junior ministers to full ministers. It also adds three new ministers to the Salaries Act which includes the Minister of Indigenous Services and the Minister of Crown-Indigenous Relations and Northern Affairs.

C-45: The Cannabis Act is going to a Committee of the Whole in the Senate for Second Reading on February 6th, 2018. All Senators will have the opportunity to question the key ministers on the Bill and this process is intended to speed up the Bill’s movement in the Senate.  The Bill will legalize recreational marijuana.

 

Independent Senators Power Up Legislative Muscle of Upper Chamber

With 39 members, the Independent Senators Group  (ISG) has flexed its muscles by increasing its funding (now almost $1M), reorganized committees, assumed the chairs of 8 standing committees and now has integral roles in the administration of the Senate.  A new Senate Arctic (special) committee has been created – its mandate:  “to consider the significant and rapid changes to the Arctic and impacts on its original inhabitants”.  On legislation, Senators are also challenging legislation from the House (20% of bills have been returned to the HoC with amendments) and delaying passage of some key government policies.  Because of the activism of Senators, more focus is now being directed to Senate studies and its legislative process.

Recent studies and GoC responses:

  • GoC (broadly) agrees with a Senate committee report arguing for the creation of a national trade corridor in Canada’s North saying improving national transportation and communication networks will encourage economic growth and facilitate exports report.  Interested parties can apply for grants from National Trade Corridors Fund (release) – $2B over 11 years.  First call ended Sept 2017.
  • National Finance Committee recommended the Government ‘axe’ the proposed tax changes, or delay but more importantly, undertake a comprehensive review of the Income Tax Act (report).
  • Use of AI and robots in the delivery of health care – report from the Social Affairs, Science and Technology Committee (report)
  • Pipelines – protecting our economy, respecting our environment (report)
  • a long expected report on autonomous vehicles may be out sooner than expected – agreement reached to table before January 30, 2018 (and not March ’18 date as expected)

Standings in the Senate:

Independent Senators Group 39
Conservative 34
Liberal 15
Non-Affiliated 6
Vacant 11 NL (1), NT (1), NS (2), ON (4) , PE (1), SK (1), YK (1)
TOTAL 105

 

Rushing out the door: Looking back at recent Government announcements and new programs

A flurry of announcements were tabled/made public since MPs rose Dec 13:

Start-Ups looking for funding  – 3 new programs

  • Innovative Solutions Canada (ISC)– ISED ‘challenge’ funding program was launched.  Primary focus of the program is early stage innovations.  Link to first 6 challenges and details on the program:  release
  • Venture Capital Catalyst Initiative:  Business Development Bank of Canada will manage $400M in funds  – with qualifications –to increase availability of late-stage venture capital.  Official launch contain call for proposals:  Dec 18/17 release.
  • Just waiting for Minister to announce – new ‘challenges’ funding program out of DND called IDEaS – supports projects from TRL 1 -6 and provide sandboxes for innovators TRL 6-7.  website

Finance Canada

  • December 13 Finance Minister Morneau announced technical changes for small Canadian-controlled private corporations regarding ‘income sprinkling’ release. Changes will take place as of January 1, 2018 but businesses will have until the end of 2018 to figure out if they comply.  While GoC made some further changes by exempting certain family members, CRA will still perform a ‘reasonableness test’ to see if business comply with the exemption.
  • Passive investments – in October Morneau announced some changes to this, and promised more details in legislation to be contained in the Spring federal budget.
  • Earlier in the fall the Government announced it would not move forward with the July 2017 proposal for Lifetime Capital Gains Exemption or changes to rules on conversion of income to capital gains.

Environment Canada
Several delays announced:

  • Legislation to implement a national price on carbon has been delayed until later in 2018 – once bill is passed (expected by end of 2018) then GoC can impose a price
    • ECCC is still evaluating provincial compliance responses (no province has a plan to meet the federal requirement all the way to 2022, and only 5 now are likely to be in compliance in 2018)
  • Delays in methane gas regulations
  • Delays in regs for clean fuel standards
  • Proposed changes to Environment Assessment process should be made public early 2018 (NRCan is the lead)

The OECD has released its third and latest review of Canada’s environmental policies and progress; Canada has some of the lowest environmental taxes; its approach to carbon pricing is challenging, and Canada is not as ‘green’ compared to other countries.  One conclusion is that Canada will likely feel pressure to eventually nationalize many parts of the carbon pricing system.

At the Trade Table

  • Talks resume for TPP (renamed the Comprehensive and Progressive Trans-Pacific Partnership) in January.  Three counties have ratified the deal – Japan, Australia and New Zealand.  At January meeting if 3 more countries ratify then CPTPP will come into force without the remaining 5 countries.  Canada put the brakes on the agreement in November – its concerns relate to autos and cultural industries, and the same NAFTA chapters.
  • PM Trudeau came back empty handed from China earlier in December – instead ‘exploratory’ talks continue.
  • NAFTA 6th round of talks will be in Montreal, January 23-28, 2018.
  • Export Development Canada survey – Dec 14 release – 23% of Cdn businesses are concerned about NAFTA talks enough to considering moving to the US (no doubt tax cuts there help), diversifying from the US market, delay investments and put off hiring.

Appointments

  • While over 500 Order in Council appointments are still in limbo, last minute appointments were announced late last week – 2018 will see new Commissioners of Lobbying (Nancy Bélanger),  Ethics (Mario Dion) and Officials Languages ( Raymond Théberge)
  • Canada Bank of Infrastructure is still without a full time CEO – Chair of the Board, Janice Fukakusa,  will fill in as CEO temporarily and Board member Bruno Guilmette will also become interim chief investment officer to oversee incoming project proposals and negotiating deals.  Bank is expected to spend $16M until to March 31/18 in start-up costs.

·         The term of the Information Commissioner Suzanne Legault has been further extended as the Government looks for a replacement.  Legault’s 7 year term was up in July ’17.

 


Impact of proposed US tax changes on Canada

Lower Corporate taxes:   Under current law, corporations face a range of tax rates, starting at 15% and rising to 35% on taxable income over $10m.  The new plan creates a single 21% corporate rate, effective in 2018. That is low, but not quite as low as the 20% rate included in earlier versions of the plan.

 

Lower individual rates, temporarily:    The US currently has seven tax brackets ranging from 10% to a top rate of 39.6%which applies to income above about $418,000 for individuals and $471,00 for couples. Under the new plan, some of those rates fall, including the top rate, which would be 37%, applicable to income over $500,000 for individuals and $600,000 for couples.  The lower rates expire after 2025

 

Lower taxes on overseas profits:  Multinational companies currently pay US taxes on income earned abroad. The new plan changes the code to a so-called territorial system, making companies responsible for income earned in the US.

It also creates new rules to prevent companies from unfairly taking advantage of the shift. The plan also imposes one-time, ultra-low tax rates for corporate profits currently being held offshore, charged at 15.5% on liquid assets and 8% for illiquid assets.

The Senate cleared the Republican tax overhaul early Wednesday, the plan will have to go back to the House for another vote later Wednesday with President Trump expected to sign the bill before the week is out.


The Separation of Indigenous and Northern Affairs Canada

Minister for Indigenous-Crown Relations Carolyn Bennett, and Minister for Indigenous Services Jane Philpott

This month Indigenous and Northern Affairs Canada(INAC) took another step in its spilt into the two departments of Crown-Indigenous Relations and Indigenous Services. The government announced the official creation of the Department of Indigenous Services Canada (DISC), prior to this announcement the Indigenous Services  Minister Jane Philpott and Deputy Minister Jean- François Tremblay ran INAC with Minister Carolyn Bennett of Crown-Indigenous Relations and Northern Affairs. The goal of the split into DISC and Crown-Indigenous Relations and Northern Affairs is to break up the old paternalistic structures that enforce the Indian Act and move toward a relationship “based on the recognition of rights, respect, co-operation and partnership”.

DISC is tasked with overseeing programs in the areas of welfare, education, health, infrastructure, drinking water, non-insured health benefits, economic development and treaties/land claims that already exist. A key part of the creation of DISC is that it absorbed the First Nation and Inuit Health Branch from Health Canada and is now responsible for Indigenous health as a whole.

Crown-Indigenous Relations and Northern Affairs is tasked with running consultations into the new year to see what key stakeholders think the two departments should look like and what services should be overseen by DISC. They are also tasked with negotiating new agreements and treaties with indigenous nations to move away from the Indian Act and modernizing institutional structures to help build capacity and self-determination as well handling Northern Affairs including all regulatory aspects.


Look Ahead – 2018 Budget and Prorogation Rumours

As the Government passed its halfway point, discussion of Prime Minister Trudeau potentially proroguing the House and delivering a new throne speech had been swirling, as a prorogation would allow the Government a chance to reset and clear off the Order Paper, and deliver a new Throne Speech on priorities with an updated new legislative agenda.

However, iPolitics is reporting that the Prime Minister has no intention of hitting the reset button in the new year, with no shuffle of his cabinet or prorogation expected for the first half of 2018. With an election now less than two years away, the Liberals are said to be focusing on “relentless implementation” of the agenda they were elected on, with a particular focus on continuing positive economic growth, investing in innovative and infrastructure, and investing in workers impacted by a changing economy.

As to what could be in the Budget, Minister Morneau laid out a few more specific themes in an interview with the Canadian Press, saying the next federal budget will focus on improving the economic success of women, finding ways for science to help the economy over the long haul and preparing workers for the rapidly changing job market.

Look for the budget to expand on efforts by the government in the field of gender equality and lay out government efforts to boost the labour-force participation of women, investments in science and technology (as suggested by an independent panel commissioned by the Government led by former University of Toronto president David Naylor) and investments for adult skills development to help workers adjust to the demands of the rapidly evolving labour market, which was a key recommendation of Morneau’s economic growth council, chaired by Dominic Barton, managing director of global consulting giant McKinsey & Co.